InfuSystem Holdings Q2 2013 Review

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$INFU released their 2013 Q2 earnings and completed their conference call.  You can read the 10Q and conference call transcripts from the links.  Since the recent failed take private situation, I wanted to review what is happening with the company.


  • Revenue up 4% from Q2 2012
  • Management has made strides in expanding their business model outside of the oncology market.  Meaningful revenue was not shown this quarter, but it’s good to see that the company is expanding to other markets.  Long-term care is one of markets, which is a good market to enter, along with post-surgical pain.  These markets require different types of pumps, but fit the INFU model well.  From the conference call it sounds like $250,000 was spent on smart pumps (for long-term care) which will generate $375,000 in revenue.  Not much revenue yet, but the return is very similar to the oncology market at $1.50.  This is a good sign that the business model can be expanded to other markets profitably.
  • Management is making strides in reducing costs by rolling out new ordering processes including the roll-out of iPads, and upgrading their IT services.  Streamlining these processes will cut costs, and allow INFU to be more efficient.
  • After comments from shareholders, management has tried to devise a way of representing the pump utilization to find a metric to use in examining the health of the business.  This company is about buying pumps and renting them out to patients.  If pumps stay in inventory (not in service), INFU is losing money.  Resulting from a recent change in the quarterly and annual reports, management now breaks out the medical equipment in service and for sale.  This is INFU’s cost.  Management uses a type of fixed asset turnover ratio which they are calling the Rental Revenue Ratio.  It’s pretty simple, take the annual revenue and divide by the cost of pumps in service to arrive at the ratio.  In laymans terms, this means that for every dollar of cost (to purchase pumps), what is the return that the company is receiving in revenue.  Not surprisingly, the current Rental Revenue Ratio is 1.54 which means that INFU is managing a 54% return on their investment in pumps.  This is a very nice return.  
  • Paid down debt by $2.5m.  Management is focused on paying down debt as quickly as possible.  The only reason debt would not be paid down is if they can make opportunistic purchases of pumps to rent since they are returning 54% on those purchases.  The more pumps INFU has in inventory, the more pumps they can rent thus increasing revenue and earnings.  Management expects to pay another $2.5m of debt in the next 6 months with cash that they expect to receive during the second half of the year.
  • Rental Fleet increased by $1.3m for the first 6 months of 2013, meaning that INFU can rent more pumps.  Increasing the rental fleet is the growth engine for INFU.


  • $500,000 in costs were associated with handling Ryan Morris’ take private offer.  Since $INFU made $105,000 in net income for the quarter, the pre-tax $500,000 could have dropped to the bottom line and added about $300,000, or triple the quarters NI (I know they have NOL reserves).  So, this was a costly event that resulted without any results, and was wasted cash.  For those of you who follow the earnings miss/beat hoopla, this is where the $0.01 miss occurred.  It had nothing to do with the operating business.
  • A/R doubtful accounts are increasing.  This is not a good sign, as INFU is not able to collect the money that they are owed.  This needs to be watched closely, and it seems that management is monitoring this closely.
  • Rental Revenue Ratio for 2012 was $1.56, which declined to the current $1.54.  This is due to competitive pressure with direct payors according to management.  Some of the decrease was also just timing of the purchases of new rental pumps.  INFU added $1.3m in new pumps since Jan 2013.  More time is needed to monitor the Rental Revenue Ratio.

Overall, it seems that management has done a good job of reducing costs, growing the rental revenue and paying down debt.  I hope that the distraction of a company sale is finally behind, and management can keep focusing on growing the business.

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  • madattheboard

    thanks for the update, I agree and so thought i’d share my thoughts since not many people follow this little company:


    the doubtful accounts thing is just part of the game. I believe they changed the accounting on it or their customers changed the way it was billed recently, so this isn’t a new change, it just looks different. My understanding is that a certain amount of their billing is direct to the patient and they don’t have fantastic collection rates on that, but they also price the product to account for this, since this issue is as old as healthcare itself. I have to check my notes but this is not a concern imo.

    the yoy comps were tough too since last year had some one time benefits so I don’t think the yoy % growth numbers this quarter are indicative of the long term growth trends. CEO is a stud too, looking forward to talking with him.

    $3.3m of ebitda for the quarter or >$13m annualized is a lot of earnings for a company with a $30m market cap.

    Expanding into new markets is fantastic and it’s about time. The returns in these new markets are incredible so hopefully they can keep their foot on the gas here. If they can diversify the business, pay down some debt and put on some growth I don’t see how current valuation multiple doesn’t go much higher.

    The 0.8% increase in most of their business offsetting the headwinds in the cities up for recompete was great to hear too.


    This board is blowing it badly and there needs to be changes made. What in the hell do they think they are doing handing out “change of control bonuses” to brand new employees the moment they now a take private is in play. This is money coming directly out of the bid, and out of shareholder pockets, to go to literally brand new employees who, it sounded like, were going to keep their jobs anyway. The comp committee needs to get slapped with a tuna sandwich for this.

    THEY SPENT $350K IN ONE QUARTER ON EXPENSES FOR THE TAKE PRIVATE?!?!?! how is that even possible?? I’m not being sarcastic, I literally don’t understand how that much money was spent that quickly for a very very early stage indication on a company already shopped around very recently. the chair of the special committee should be punched with the plate from above tuna sandwich. un-phukin-believable.

    cash flow hasn’t been quite as good as I hoped but it sounds like 2h should have more debt paydown so i’m waiting until then before making any judgement on that but we would all like to see less debt on this company, regardless of growth opportunities.

    • Ray Bonneau

      Great comments, and thanks for posting.

      Yes, the doubtful accounts are part of the game in healthcare, and yes, I believe it is with the direct payors. Direct payors are not new to INFU, so it’s a little worrisome that it is growing. I just want to keep an eye on it.

      I’m not sure how the company spent that much on fees either. This was just Q2 numbers, which didn’t include the whole process, so I wonder how much cost will be in the Q3 numbers? It seemed like they were worried about going through this process clean, so they must have had legal in every meeting and discussion, and then taken them out for drinks afterwards while on the clock…

  • Alex

    Another positive i believe is that management will start doing investors presentations which is part of better investor relation communication and it should attract new investors.

    • Ray Bonneau

      Alex, yes, I did forget to mention that. It was brought up on the conference call that the mgmt team was going to be doing a better job of communicating with shareholders.

      Thanks for adding…