$INFU FY 2015 Results Review

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Infusystems ($INFU) released Fourth Quarter 2015 and Full Year 2015 earnings today which were very good.  The company has executed very well over the past 3 years and momentum is really building in terms of revenue growth and earnings growth.  I wanted to cover some of my thoughts about the 2015 10-K, conference call, and news release.  I’ve been invested in $INFU for a few years now, and I believe the business is still on the right track to keep growing and producing cash flow for the foreseeable future.


Highlights for the full year 2015:

  • Revenue of $72.1m for the full year which was 9% growth over FY2014
  • Rental Revenue grew 10% YoY and billings actually increased 12% but since the mix of in-network and out-of-network payor’s caused the collected revenue to be lower than billing increases
  • Gross Profit held steady at 71% but the Gross Profits / Total Assets dropped to 53% from 59% in FY2014
  • Reduced Interest Expense by $1.4m because of the new credit facility
  • Cash Flow from Operations was $7.1m even with the purchase of Ciscura and penalty for the early extinguishment of debt ($1.6m)
  • EBITDA was $15.5m and if the fee for the debt repayment and non-recurring costs are removed, EBITDA would be $17.8m (I don’t like to remove stock compensation from EBITDA as the company does with their Adjusted EBITDA number)
  • Up to 340 signed Payor contracts which helps to dramatically cut bad debt as the patient is charged in-network fees to the insurance company – bad debt as percentage of revenue fell from 10% to 8% due to these contracts
  • Pain Management doubled revenue YoY but from a small base – the revenue isn’t meaningful as of yet but is growing and company is finding good customer references to keep building business
  • Direct selling of infusion pumps grew 67% over 2014, but again, it was from a small base – Trying to build diversification in revenue from rental revenue stream
  • Total of 61,000 pumps in inventory as of Dec 31, 2015

My thoughts on the business and conference call questions

  • The investment in IT is really starting to pay off in terms of revenue growth and customer satisfaction.  The investments are on the financial statements now, and it takes time for the revenue to be generated and costs to be reduced due to the automation in the business.  Over time the company will be able to save on costs to run the business, and at the same time grow revenue as the customer base really like the new tools that Infusystems have built and rolled out recently.  In particular, EXPRESS and InfuConnect remove lots of paper work for the customer  in addition to INFU which reduces follow-up calls with insurance and faster revenue generation.  This also saves money for the oncologists/customers as it removes the need to duplicate paperwork with the connection to the EMR/EHR systems.  With the connections already built for Cerner and EPIC, the two big EMR systems, the simplified workflow is an improvement over the process from a few years ago.  CapEx investments into IT are to be reduced, and put into maintenance and small projects going forward so that the IT spend will decrease going forward (targeted at $3m for FY2016).
  • The company is really focusing on adding more and more payor contracts to bring the patient costs into the in-network classification.  The introduction of ACA (“Obamacare”) and the health exchanges has added many new insurance companies and insurance plans which is creating a wave of change in the industry.  $INFU has seen an uptick in bad debt expense (uncollected Accounts Receivables) when a patient is billed as out-of-network.  The company estimated that about $1.2m in revenue was due to new insurance collections with the additional payor contracts
  • Medicare cuts are happening in 2016, and the new reimbursement rates are now taking effect which the company anticipates losing about $2m in 2016.  The reduction in revenue will be $3.8m including everything, but with new price contracts in place with payors addition $1.5m in revenue nets out to a loss of about $2m in revenue from CMS in 2016.  This has long been anticipated, and I wrote up my findings in the past on this subject.
  • It sounds like it is taking longer than expected on the pump uptake for new customers.  Lots of consolidation is happening in the healthcare space, and especially with the oncology practices.  The smaller players are getting bought by larger healthcare institutions which is leading to roll-out delays and bureaucracy. The result is that the length between pump orders and revenue recognition is becoming longer and is now around 6 months.  This means that new pumps that are purchased for customers will sit on the books for 6 months before revenue starts to be generated against the investment in the pumps.

2015 was a good year for Infusystems and is leading into 2016 which should also be a good year as the company is guiding for single digit revenue growth (collected net revenue).  I think the company should be able to realize this growth, plus the costs of the purchase of Ciscura and refinancing of the debt won’t recur this year so that the net earnings should be healthy.


Disclaimer: Long $INFU

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