Company Quick10K Filing
Quick10K
InfuSystem
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-02 Officers, Exhibits
8-K 2019-09-30 Exhibits
8-K 2019-08-29 Exhibits
8-K 2019-08-14 Exhibits
8-K 2019-08-06 Exhibits
8-K 2019-06-11 Exhibits
8-K 2019-06-11
8-K 2019-05-22 Exhibits
8-K 2019-05-17 Officers, Exhibits
8-K 2019-05-14 Exhibits
8-K 2019-05-09
8-K 2019-03-07 Exhibits
8-K 2019-03-04 Exhibits
8-K 2019-02-27 Exhibits
8-K 2019-02-22 Exhibits
8-K 2019-02-05 Off-BS Arrangement, Exhibits
8-K 2018-12-19 Officers, Other Events, Exhibits
8-K 2018-11-13 Earnings, Exhibits
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-07-31 Off-BS Arrangement, Exhibits
8-K 2018-07-19 Officers, Exhibits
8-K 2018-07-06 Exhibits
8-K 2018-07-05 Exhibits
8-K 2018-06-06 Officers
8-K 2018-04-25 Officers, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-03-13 Earnings, Exhibits
8-K 2018-03-06 Earnings, Exhibits
8-K 2018-02-07 Officers, Regulation FD, Exhibits
8-K 2018-01-29 Other Events, Exhibits
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ELGX Endologix 89
AVGR Avinger 73
TTOO T2 Biosystems 67
SSKN Strata Skin Sciences 58
IDXG Interpace Diagnostics Group 32
ISR Isoray 24
CODX Co-Diagnostics 18
INFU 2019-06-30
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_154263.htm
EX-31.2 ex_154264.htm
EX-32.1 ex_154265.htm
EX-32.2 ex_154266.htm

InfuSystem Earnings 2019-06-30

INFU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 infu20190630_10q.htm FORM 10-Q infu20190630_10q.htm
 

 

Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the quarterly period ended June 30, 2019

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transition period from              to             

 

Commission File Number: 001-35020

 

 


 

INFUSYSTEM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

20-3341405

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

 

31700 Research Park Drive

Madison Heights, Michigan 48071

(Address of Principal Executive Offices)

 

Registrant’s Telephone Number, including Area Code: (248) 291-1210

 


Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, par value $0.0001 per share

INFU

NYSE American LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No    ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No    ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒
       
 Emerging growth company ☐      

                       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).    Yes  ☐    No   ☒

 

As of August 9, 2019, 19,782,548 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

 



 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

 

Index to Form 10-Q

 

       

 

 

PAGE 

PART I -

FINANCIAL INFORMATION

 

 

       

Item 1.

Financial Statements 

 

 3

       

 

-Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

 

 

 

-Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018

 

 

 

-Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018

   

 

-Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

 

 

 

-Notes to the Unaudited Condensed Consolidated Financial Statements

 

 

       

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

       

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

20

       

Item 4.

Controls and Procedures

 

20

       

PART II -

OTHER INFORMATION

 

 

       

Item 1.

Legal Proceedings

 

20

       

Item 1A.

Risk Factors

 

20

       

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

21

       

Item 3.

Defaults Upon Senior Securities

 

21

       

Item 4.

Mine Safety Disclosures

 

21

       

Item 5.

Other Information

 

21

       

Item 6.

Exhibits

 

22

       

 

Signatures

 

22

 

 

 

PART I—FINANCIAL INFORMATION  

 

Item 1.

Financial Statements

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

   

As of

 
   

June 30,

   

December 31,

 

(in thousands, except share data)

 

2019

   

2018

 
                 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 1,702     $ 4,318  

Accounts receivable, net

    11,218       9,593  

Inventories

    2,742       2,254  

Other current assets

    1,368       1,372  

Total current assets

    17,030       17,537  

Medical equipment for sale or rental

    1,927       1,601  

Medical equipment in rental service, net of accumulated depreciation

    28,873       23,488  

Property & equipment, net of accumulated depreciation

    1,539       1,445  

Intangible assets, net

    17,616       19,865  

Operating lease right of use assets

    5,182       -  

Other assets

    194       137  

Total assets

  $ 72,361     $ 64,073  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable

  $ 10,206     $ 7,091  

Current portion of long-term debt

    6,084       4,903  

Other current liabilities

    4,244       2,796  

Total current liabilities

    20,534       14,790  

Long-term debt, net of current portion

    27,478       28,842  

Deferred income taxes

    76       -  

Operating lease liabilities, net of current portion

    4,021       -  

Total liabilities

    52,109       43,632  
                 

Stockholders’ equity:

               

Preferred stock, $.0001 par value: authorized 1,000,000 shares; none issued

    -       -  

Common stock, $.0001 par value: authorized 200,000,000 shares; issued and outstanding 23,237,703 and 19,719,214, respectively, as of June 30, 2019 and 23,095,513 and 19,577,024, respectively, as of December 31, 2018

    2       2  

Additional paid-in capital

    83,557       83,167  

Retained deficit

    (63,307 )     (62,728 )

Total stockholders’ equity

    20,252       20,441  

Total liabilities and stockholders’ equity

  $ 72,361     $ 64,073  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(UNAUDITED)

 

 

   

Three Months Ended

   

Six Months Ended

 

(in thousands, except share and per share data)

 

June 30

   

June 30

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net revenues

  $ 19,723     $ 16,415     $ 37,916     $ 32,898  

Cost of revenues

    8,367       6,729       16,219       12,975  

Gross profit

    11,356       9,686       21,697       19,923  
                                 

Selling, general and administrative expenses:

                               

Amortization of intangibles

    1,124       1,165       2,249       2,352  

Selling and marketing

    2,476       2,326       5,078       4,627  

General and administrative

    6,785       6,399       13,819       12,560  

Total selling, general and administrative

    10,385       9,890       21,146       19,539  
                                 

Operating income (loss)

    971       (204 )     551       384  

Other expense:

                               

Interest expense

    (488 )     (296 )     (948 )     (611 )

Other (expense) income

    (39 )     1       (60 )     (10 )
                                 

Income (loss) before income taxes

    444       (499 )     (457 )     (237 )

Provision for income taxes

    (63 )     (6 )     (122 )     (64 )

Net income (loss)

  $ 381     $ (505 )   $ (579 )   $ (301 )
                                 

Net income (loss) per share:

                               

Basic

  $ 0.02     $ (0.02 )   $ (0.03 )   $ (0.01 )

Diluted

    0.02       (0.02 )     (0.03 )     (0.01 )

Weighted average shares outstanding:

                               

Basic

    19,708,422       22,703,415       19,644,590       22,751,318  

Diluted

    20,583,434       22,703,415       19,644,590       22,751,318  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

   

Common Stock

   

Additional

           

Treasury Stock

   

Total

 
           

Par Value

   

Paid in

   

Retained

           

Par Value

   

Stockholders’

 

(in thousands)

 

Shares

   

Amount

   

Capital

   

Deficit

   

Shares

   

Amount

   

Equity

 

Balances at March 31, 2018

    23,003     $ 2     $ 92,659     $ (61,429 )     (230 )   $ -     $ 31,232  

Stock based shares issued upon vesting - gross

    4       -       -       -       -       -       -  

Stock-based compensation expense

    -       -       114       -       -       -       114  

Employee stock purchase plan

    25       -       -       -       -       -       -  

Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation

    -       -       (5 )     -       -       -       (5 )

Common stock repurchased as part of Repurchase Program

    -       -       (1,181 )     -       (348 )     -       (1,181 )

Net loss

    -       -       -       (505 )     -       -       (505 )

Balances at June 30, 2018

    23,032     $ 2     $ 91,587     $ (61,934 )     (578 )   $ -     $ 29,655  
                                                         

Balances at March 31, 2019

    23,221     $ 2     $ 83,429     $ (63,688 )     (3,518 )   $ -     $ 19,743  

Stock based shares issued upon vesting - gross

    16       -       15       -       -       -       15  

Stock-based compensation expense

    -       -       284       -       -       -       284  

Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation

    -       -       (171 )     -       -       -       (171 )

Net income

    -       -       -       381       -       -       381  

Balances at June 30, 2019

    23,237     $ 2     $ 83,557     $ (63,307 )     (3,518 )   $ -     $ 20,252  
                                                         

Balances at December 31, 2017

    22,978     $ 2     $ 92,584     $ (61,633 )     (198 )   $ -     $ 30,953  

Stock based shares issued upon vesting - gross

    29       -       -       -       -       -       -  

Stock-based compensation expense

    -       -       226       -       -       -       226  

Employee stock purchase plan

    25               46                               46  

Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation

    -       -       (5 )     -       -       -       (5 )

Common stock repurchased as part of Repurchase Program

    -       -       (1,264 )     -       (380 )     -       (1,264 )

Net loss

    -       -       -       (301 )     -       -       (301 )

Balances at June 30, 2018

    23,032     $ 2     $ 91,587     $ (61,934 )     (578 )   $ -     $ 29,655  
                                                         

Balances at December 31, 2018

    23,096     $ 2     $ 83,167     $ (62,728 )     (3,518 )   $ -     $ 20,441  

Stock based shares issued upon vesting - gross

    167       -       15       -       -       -       15  

Stock-based compensation expense

    -       -       530       -       -       -       530  

Employee stock purchase plan

    19               53                               53  

Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation

    (45 )     -       (208 )     -       -       -       (208 )

Net loss

    -       -       -       (579 )     -       -       (579 )

Balances at June 30, 2019

    23,237     $ 2     $ 83,557     $ (63,307 )     (3,518 )   $ -     $ 20,252  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

   

Six Months Ended

 
   

June 30

 

 

 

2019

   

2018

 
(in thousands)                

NET CASH PROVIDED BY OPERATING ACTIVITIES

  $ 4,319     $ 4,846  
                 

INVESTING ACTIVITIES

               

Purchase of medical equipment, property and equipment

    (7,893 )     (2,743 )

Proceeds from sale of medical equipment, property and equipment

    1,333       1,720  

NET CASH USED IN INVESTING ACTIVITIES

    (6,560 )     (1,023 )
                 

FINANCING ACTIVITIES

               

Principal payments on term loans, capital lease obligations and other financing

    (2,256 )     (3,708 )

Cash proceeds from other financing

    2,024       -  

Debt issuance costs

    (3 )     -  

Common stock repurchased to satisfy statutory withholding on employee stock based compensation plans

    (208 )     (5 )

Common stock repurchased as part of Repurchase Program

    -       (1,264 )

Cash proceeds from stock plans

    68       46  

NET CASH USED IN FINANCING ACTIVITIES

    (375 )     (4,931 )
                 

Net change in cash and cash equivalents

    (2,616 )     (1,108 )

Cash and cash equivalents, beginning of period

    4,318       3,469  

Cash and cash equivalents, end of period

  $ 1,702     $ 2,361  

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.

Basis of Presentation, Nature of Operations and Summary of Significant Accounting Policies

 

The terms “InfuSystem”, the “Company”, “we”, “our” and “us” are used herein to refer to InfuSystem Holdings, Inc. and its subsidiaries. InfuSystem is a leading provider of infusion pumps and related products and services. The Company provides products and services to hospitals, oncology practices and facilities and other alternative site healthcare providers. Headquartered in Madison Heights, Michigan, the Company delivers local, field-based customer support, and also operates pump repair Centers of Excellence in Michigan, Kansas, California, Massachusetts and Ontario, Canada.

 

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The accompanying unaudited condensed consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC.

 

The unaudited condensed consolidated financial statements are prepared in conformity with GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. The Company believes that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

 

Certain prior period reclassifications were made to conform with the current period presentation. These reclassifications had no effect on reported income (loss), overall cash flows, total assets, total liabilities or stockholders’ equity as previously reported.

 

 

 

2.

Recent Accounting Pronouncements and Developments

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments (Topic 326) Credit Losses”. Topic 326 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Topic 326 is effective as of January 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of Topic 326 on its consolidated balance sheets, statements of operations, statements of cash flows and related disclosures.

 

 

 

3.

Revenue Recognition

 

          The following table presents disaggregated revenue by offering type:

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30

   

June 30

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Third-Party Payor Rentals

    49.4 %     47.5 %     48.8 %     48.0 %

Direct Payor Rentals

    33.0 %     38.1 %     33.8 %     38.5 %

Product Sales

    17.6 %     14.4 %     17.4 %     13.5 %
                                 

Total - Net revenues

    100.0 %     100.0 %     100.0 %     100.0 %

 

 

 

4.

Medical Equipment

 

Medical equipment consists of the following (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Medical Equipment for sale or rental

  $ 1,927     $ 1,601  
                 

Medical Equipment in rental service

    68,721       61,429  

Medical Equipment in rental service - pump reserve

    (614 )     (530 )

Accumulated depreciation

    (39,234 )     (37,411 )

Medical Equipment in rental service - net

    28,873       23,488  
                 

Total

  $ 30,800     $ 25,089  

 

 

Depreciation expense for medical equipment for the three and six months ended June 30, 2019 was $1.8 million and $3.5 million, respectively, compared to $1.5 million and $3.0 million for the same prior year periods, respectively, which were recorded in “cost of revenues” for each period.

 

 

 

5.

Property and Equipment

 

Property and equipment consists of the following (in thousands):

 

   

June 30, 2019

   

December 31, 2018

 
   

Gross

Assets

   

Accumulated

Depreciation

   

Total

   

Gross

Assets

   

Accumulated

Depreciation

   

Total

 

Furniture, fixtures, and equipment

  $ 4,025     $ (3,385 )   $ 640     $ 3,717     $ (3,257 )   $ 460  

Automobiles

    117       (84 )     33       118       (95 )     23  

Leasehold improvements

    2,002       (1,136 )     866       2,219       (1,257 )     962  
                                                 

Total

  $ 6,144     $ (4,605 )   $ 1,539     $ 6,054     $ (4,609 )   $ 1,445  

 

Depreciation expense for property and equipment for the three and six months ended June 30, 2019 was $0.1 million and $0.2 million, respectively, compared to $0.1 million and $0.2 million for the same prior year periods, respectively. This expense was recorded in general and administrative expenses.

 

 

 

6.

Intangible Assets

 

The carrying amount and accumulated amortization of intangible assets is comprised of the following (in thousands):

 

   

June 30, 2019

   

December 31, 2018

 
   

Gross

Assets

   

Accumulated

Amortization

   

Net

   

Gross

Assets

   

Accumulated

Amortization

   

Net

 

Nonamortizable intangible assets

                                               

Trade names

  $ 2,000     $ -     $ 2,000     $ 2,000     $ -     $ 2,000  

Amortizable intangible assets:

                                               

Trade names

    23       (23 )     -       23       (23 )     -  

Physician and customer relationships

    36,534       (25,362 )     11,172       36,534       (24,175 )     12,359  

Non-competition agreements

    1,136       (1,136 )     -       1,136       (1,136 )     -  

Software

    11,230       (6,786 )     4,444       11,230       (5,724 )     5,506  
                                                 

Total nonamortizable and amortizable intangible assets

  $ 50,923     $ (33,307 )   $ 17,616     $ 50,923     $ (31,058 )   $ 19,865  

 

Amortization expense for the three and six months ended June 30, 2019 was $1.1 million and $2.2 million, respectively, compared to $1.2 million and $2.4 million for the same prior year periods, respectively. Expected annual amortization expense for intangible assets recorded as of June 30, 2019 is as follows (in thousands):

 

   

7/1 -

                                   

2024 and

 
   

12/31/2019

   

2020

   

2021

   

2022

   

2023

   

thereafter

 
                                                 

Amortization expense

  $ 2,153     $ 4,285     $ 3,930     $ 2,051     $ 548     $ 2,649  

 

 

 

7.

Debt

 

On April 15, 2019, the Company sold for $2.0 million and immediately leased back certain medical equipment in rental service to a third party specializing in such transactions. The leaseback term is 36 months. Because the arrangement contains a purchase option that the Company is reasonably certain to exercise, this transaction did not qualify for the sale-leaseback accounting under ASC 842. The medical equipment remains recorded on the accompanying condensed consolidated balance sheet and the proceeds received have been classified as an Other Financing liability, which is being paid off monthly over the term of the lease. The balance of Other Financing as of June 30, 2019 was $1.9 million.

 

On February 5, 2019, the Company and its primary lender entered into the fifth amendment (the “Fifth Amendment”) to its existing credit facility (the “Credit Agreement”). Among other things, the Fifth Amendment amended the Credit Agreement to (1) increase our borrowing capacity under our existing equipment line to $8.0 million, (2) revise the definition of earnings before interest, taxes, depreciation and amortization, a non-GAAP financial measure, to include additional add-back adjustments for the years ended or ending December 31, 2018 and 2019, (3) revise the definition of fixed charge coverage ratio for the year ending December 31, 2019 to include an unfinanced portion of capital expenditures of up to $7.0 million for the year ending December 31, 2019, (4) revise the Credit Agreement’s maximum permitted indebtedness to finance the acquisition, construction or improvement of any fixed or capital assets and (5) revise the maximum leverage ratio for each of the quarters during December 31, 2018 and December 31, 2019.

 

As of June 30, 2019, the Company’s term loans and equipment line under its credit facility had balances of $29.2 million and $2.6 million, respectively. The net availability under the revolving credit line under the credit facility is based upon our eligible accounts receivable and eligible inventory and is computed as follows (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Revolver:

               

Gross availability

  $ 11,000     $ 9,973  

Outstanding draws

    -       -  

Letters of credit

    (1,750 )     (750 )

Landlord reserves

    (71 )     (70 )

Net availability

  $ 9,179     $ 9,153  

 

The Company had future maturities of loans and other financing as of June 30, 2019 as follows (in thousands):

 

   

2019

   

2020

   

2021

   

2022

   

2023 and

thereafter

   

Total

 

Term Loan A

  $ 1,792     $ 3,584     $ 16,143     $ -     $ -     $ 21,519  

Term Loan C

    921       1,229       5,529       -       -       7,679  

Equipment Line

    128       512       512       512       898       2,562  

Unamortized value of the debt issuance costs

    (20 )     (39 )     (39 )     -       -       (98 )

Other financing

    301       652       725       222       -       1,900  

Total

  $ 3,122     $ 5,938     $ 22,870     $ 734     $ 898     $ 33,562  

 

The following is a breakdown of the Company’s current and long-term debt as follows (in thousands):

 

June 30, 2019

 

December 31, 2018

 
                                                   
   

Current

Portion

   

Long-Term

Portion

   

Total

     

Current

Portion

   

Long-Term

Portion

   

Total

 

Term Loan A

  $ 3,584     $ 17,935     $ 21,519  

Term Loan A

  $ 3,584     $ 19,727     $ 23,311  

Term Loan C

    1,536       6,143       7,679  

Term Loan C

    1,229       6,757       7,986  

Equipment Line

    384       2,178       2,562  

Equipment Line

    128       2,434       2,562  

Unamortized value of debt issuance costs

    (39 )     (59 )     (98 )

Unamortized value of debt issuance costs

    (38 )     (76 )     (114 )

Other financing

    619       1,281       1,900  

Other financing

    -       -       -  

Total

  $ 6,084     $ 27,478     $ 33,562  

Total

  $ 4,903     $ 28,842     $ 33,745  

 

 

As of June 30, 2019, interest on the credit facility is payable at our option as a (i) Eurodollar Loan, which bears interest at a per annum rate equal to the applicable 30-day London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 2.00% to 3.00% or (ii) CB Floating Rate (“CBFR”) Loan, which bears interest at a per annum rate equal to the greater of (a) the lender’s prime rate or (b) LIBOR plus 2.50%, in each case, plus a margin ranging from -1.00% to 0.25%. The actual rate at June 30, 2019 was 5.19% (LIBOR of 2.44% plus 2.75%). The actual CBFR Loan rate at June 30, 2019 was 5.50% (lender’s prime rate of 5.50%).

 

As of June 30, 2019, the Company was in compliance with all debt-related covenants under the Credit Agreement.

 

 

 

8.

Income Taxes

 

During both the three and six months ended June 30, 2019, the Company recorded expense provision for income taxes of $0.1 million. The income tax provision relates principally to the Company’s state and local taxes and foreign operations in Canada. During the three and six months ended June 30, 2018, the Company recorded expense provision for income taxes of less than $0.1 million and $0.1 million, respectively.

 

 The Company’s realization of its deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company’s management has determined that it is not more likely than not that the Company will recognize the benefits of its federal and state deferred tax assets. Accordingly, the Company had a full valuation allowance for all deferred tax assets at June 30, 2019 and December 31, 2018.

 

 

 

9.

Commitments, Contingencies and Litigation

 

From time to time in the ordinary course of its business, the Company may be involved in legal proceedings, the outcomes of which may not be determinable. The results of litigation are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The Company is not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages and, until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. The Company has insurance policies covering potential losses where such coverage is cost effective.

 

The Company is not involved in any legal proceedings that the Company currently believes could have a material effect on the Company’s financial condition, results of operations or cash flows.

 

 

 

10.

Earnings (Loss) Per Share

 

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share assumes the issuance of potentially dilutive shares of common stock during the period. The following table reconciles the numerators and denominators of the basic and diluted income (loss) per share computations:

 

   

Three Months Ended June 30

   

Six Months Ended June 30

 

Numerator:

 

2019

   

2018

   

2019

   

2018

 

Net income (loss) (in thousands)

  $ 381     $ (505 )   $ (579 )   $ (301 )

Denominator:

                               

Weighted average common shares outstanding:

                               

Basic

    19,708,422       22,703,415       19,644,590       22,751,318  

Dilutive effect of non-vested awards

    875,012       -       -       -  

Diluted

    20,583,434       22,703,415       19,644,590       22,751,318  

Net income (loss) per share:

                               

Basic

  $ 0.02     $ (0.02 )   $ (0.03 )   $ (0.01 )

Diluted

  $ 0.02     $ (0.02 )   $ (0.03 )   $ (0.01 )

 

For the three months ended June 30, 2019, less than 0.1 million of stock options with an exercise price above the current market value of the Company’s common stock were not included in the calculation because they would have an anti-dilutive effect. For the six months ended June 30, 2019 and the three and six months ended June 30, 2018, all options were anti-dilutive due to the Company’s net losses for those periods and therefore not included in the calculation.

 

 

 

11.

Leases

 

On January 1, 2019 (the “Effective Date”), the Company adopted ASU 2016-02, Leases (Topic 842); ASU 2018-10, Codification Improvements to Topic 842, Leases; and ASU 2018-11, Targeted Improvements (collectively, “Topic 842”) using a modified retrospective transition approach, which requires Topic 842 to be applied to all leases existing at the date of initial application. Under Topic 842, lessees are required to recognize a lease liability and right-of-use asset (“ROU asset”) for all leases and to disclose key information about leasing arrangements. Additionally, leases will be classified as either financing or operating; the classification will determine the pattern of expense recognition and classification within the statement of operations. The Company has elected to apply its lease accounting policy only to leases with a term greater than twelve months.

 

The Effective Date is the Company’s date of initial application. Consequently, our financial information was not updated and the disclosures required under the new standard are not provided for dates and periods prior to January 1, 2019.

 

Topic 842 provides several optional practical expedients that can be adopted at transition. We have elected the “package of practical expedients”, which does not require us to reassess our prior conclusions regarding lease identification, lease classification and initial direct costs. We did not elect the practical expedient of hindsight to the evaluation of lease options (e.g. renewal).

 

The most significant effects related to this adoption relate to (i) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate and equipment operating leases; and (ii) significant new disclosures about our leasing activities. Upon adoption, we recognized approximately $3.1 million in additional operating lease liabilities with corresponding ROU assets of approximately the same amount.

 

Topic 842 also provides practical expedients for an entity’s ongoing accounting. We have elected the “combining lease and non-lease components” practical expedient and also elected to apply the short-term lease recognition exemption to certain leases; therefore, we did not recognize ROU assets and lease liabilities for these leases.

 

In adopting Topic 842, we have determined and will continue to determine whether an arrangement is a lease at inception. Our operating leases are primarily for office space, service facility centers and equipment under operating lease arrangements that expire at various dates over the next ten years. Our leases do not contain any restrictive covenants. Our office leases generally contain renewal options for periods ranging from one to five years. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. Our office leases do not contain any material residual value guarantees. Our equipment leases generally do not contain renewal options. We are not reasonably certain to exercise the renewal options for those equipment leases that do contain renewal options, thus, the options are not considered in determining the lease term and payments associated with the option years are excluded from lease payments.

 

For our equipment leases, we have used and will use the implicit rate in the lease as the discount rate, when available, otherwise, we use our incremental borrowing rate as the discount rate. For our office leases, the implicit rate is typically not available, so we have used and will use our incremental borrowing rate as the discount rate. Our lease agreements include both lease and non-lease components. We have elected the practical expedient that allows us to combine lease and non-lease components for all of our leases.

 

 

Payments due under our operating leases include fixed payments as well as variable payments. For our office leases, variable payments include amounts for the Company’s proportionate share of operating expenses, utilities, property taxes, insurance, common area maintenance and other facility-related expenses. For our equipment leases, variable payments may consist of sales taxes, property taxes and other fees.

 

The components of lease costs for the three and six months ended June 30, 2019 are as follows (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2019

   

June 30, 2019

 

Operating lease cost

  $ 290     $ 677  

Variable lease cost

    53       126  

Total lease cost

  $ 343     $ 803  

 

 

Operating lease expense for the three and six months ended June 30, 2018 was $0.4 million and $0.7 million, respectively.

 

Amounts reported in the condensed consolidated balance sheet as of June 30, 2019 for our operating leases are as follows (in thousands):

 

   

June 30, 2019

 

Operating lease ROU assets

  $ 5,182  
         

Current operating lease liabilities (included in other current liabilities)

  $ 1,374  

Operating lease liabilities, net of current portion

    4,021  

Total operating lease liabilities

  $ 5,395  

 

 

Supplemental cash flow information and non-cash activity related to our leases are as follows (in thousands):

 

   

Six Months Ended

 
   

June 30, 2019

 

Cash paid for amounts included in the measurement of lease liabilities and ROU assets:

 

Operating cash flow from operating leases

  $ 771  
         

ROU assets obtained in exchange for lease obligations:

       

Operating leases

  $ 3,015  

 

 

Weighted average remaining lease terms and discount rates for our leases as of June 30, 2019 are as follows:

 

   

Years

 

Weighted average remaining lease term:

       

Operating leases

    7.3  

 

   

Rate

 

Weighted average discount rate:

       

Operating leases

    7.5 %

 

Future maturities of lease liabilities as of June 30, 2019 are as follows (in thousands):

 

   

Operating

Leases (a)

 

2019

  $ 779  

2020

    1,262  

2021

    716  

2022

    655  

2023

    666  

Thereafter

    3,430  

Total undiscounted lease payments

    7,508  

Less: Imputed interest

    (2,113 )

Total lease liabilities

  $ 5,395  

 

(a)

Excludes $0.3 million of legally binding minimum lease payments for an office lease signed but not yet commenced. This lease has an expected term of six years and is expected to commence later in 2019.

 

 

The Company disclosed in our 2018 Annual Report on Form 10-K maturities of lease liabilities as of December 31, 2018, in accordance with ASC 840. During the quarter ended March 31, 2019, the Company determined that it improperly included certain lease commitments in the maturities table as of December 31, 2018 in Note 10 of the 2018 Annual Report on Form 10-K. The table overstated our lease maturities as follows (in thousands): $121 in 2019, $370 in 2020, $381 in 2021, $392 in 2022, $404 in 2023 and $2,528 in the thereafter period.

 

The Company assessed the materiality of this error, considering both the qualitative and quantitative factors and determined that for the year ended December 31, 2018, the error was immaterial. The Company has decided to correct this immaterial error as a revision to our previously issued financial statements by adjusting the maturities of the lease liabilities as of December 31, 2018 for the overstated amounts as reflected in the table below (in thousands):

 

           

Operating

         
   

Capital

Leases

   

Leases

(As Revised)

   

Total

(As Revised)

 

2019

  $ 33     $ 1,745     $ 1,778  

2020

    -       1,347       1,347  

2021

    -       726       726  

2022

    -       624       624  

2023

    -       636       636  

Thereafter

    -       3,071       3,071  

Total require payments

  $ 33     $ 8,149     $ 8,182  

Less amounts representing interest (3.5%)

    -                  

Present value of minimum lease payments

    33                  

Less current maturities

    (33 )                

Long-term capital lease liability

  $ -                  

 

 

 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The terms “InfuSystem”, the “Company”, “we”, “our” and “us” used herein refer to InfuSystem Holdings, Inc. and its subsidiaries.

 

Cautionary Statement Regarding Forward-Looking Statements

 

Certain statements contained in this quarterly report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “strategy,” “future,” “likely,” variations of such words, and other similar expressions, as they relate to the Company, are intended to identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying certain factors that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to, potential changes in overall healthcare reimbursement, including the Centers for Medicare and Medicaid Services competitive bidding and fee schedule reductions, sequestration, concentration of customers, increased focus on early detection of cancer, competitive treatments, dependency on Medicare Supplier Number, availability of chemotherapy drugs, global financial conditions, changes and enforcement of state and federal laws, natural forces, competition, dependency on suppliers, risks in acquisitions & joint ventures, U.S. Healthcare Reform, relationships with healthcare professionals and organizations, technological changes related to infusion therapy, the Company’s ability to implement information technology improvements and to respond to technological changes, the ability of the Company to successfully integrate acquired businesses, dependency on key personnel, dependency on banking relations and the ability to comply with credit facility covenants, and other risks associated with our common stock, as well as any litigation to which the Company may be involved in from time to time; and other risk factors as discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2018 and in other filings made by the Company from time to time with the Securities and Exchange Commission (“SEC”). Our annual report on Form 10-K is available on the SEC’s EDGAR website at www.sec.gov, and a copy may also be obtained by contacting the Company. All forward-looking statements made in this Form 10-Q speak only as of the date of this report. We do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements, except as required by law.

 

 

Overview

 

We are a leading provider of infusion pumps and related products and services for patients in the home, oncology clinics, ambulatory surgery centers and other sites of care from five locations in the United States and Canada. Through our operating subsidiaries, including InfuSystem, Inc. (“ISI”) and First Biomedical, Inc. (“First Biomedical”), we provide our products and services to hospitals, oncology practices and facilities and other alternate site health care providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based customer support and also operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts and Ontario, Canada. ISI is accredited by the Community Health Accreditation Program while First Biomedical is ISO certified.

 

Our core service is to supply electronic ambulatory infusion pumps and associated disposable supply kits to oncology clinics, infusion clinics and hospital outpatient chemotherapy clinics to be utilized in the treatment of a variety of cancers including colorectal cancer and other disease states. Colorectal cancer is the third most prevalent form of cancer in the United States, according to the American Cancer Society, and the standard of care for the treatment of colorectal cancer relies upon continuous chemotherapy infusions delivered via ambulatory infusion pumps.

 

In addition, we sell or rent new and pre-owned pole mounted and ambulatory infusion pumps to, and provide biomedical recertification, maintenance and repair services for, oncology practices as well as other alternate site settings including home care and home infusion providers, skilled nursing facilities, pain centers and others. We also provide these products and services to customers in the small-hospital market.

 

We purchase new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis. We repair, refurbish and provide biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be used within our ambulatory infusion pump management service.

 

Our payor environment is in a constant state of change. Management is intent on extending its considerable breadth of payor contracts as patients move into different insurance coverages, including Medicaid and Insurance Marketplace products. In some cases, this may slightly reduce our aggregate billed revenues payment rate but result in an overall increase in collected revenues, effectively lessening bad debt expense on a micro level, but due to the mix of all payors may not have an impact on overall bad debt expense. Consequently, we are increasingly focused on net revenues, which include a reduction for bad debt.

 

In the midst of changes in the healthcare arena, we believe that we will support our overall business strategy discussed above by (i) focusing on supporting recurring revenues by increasing our pump fleet; (ii) improving liquidity and strengthening the balance sheet by keeping debt levels comparable to our operations; (iii) improving internal operational efficiencies; (iv) increasing our product and services offerings; (v) enhancing our technology offerings to the patients and providers of care; and (vi) investigating synergistic acquisitions.

 

Results of Operations for the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

 

Net Revenues

 

Our net revenues for the quarter ended June 30, 2019 were $19.7 million, an increase of $3.3 million, or 20.2%, compared to $16.4 million for the quarter ended June 30, 2018. During this period, net revenues from rentals increased $2.2 million, or 15.6%, compared to the same prior year period. This increase was primarily attributable to growth in the Company’s customer base due to favorable changes in the competitive environment for oncology services and growth in its pain management business. Net revenues from product sales for the three months ended June 30, 2019 were $3.5 million, an increase of $1.1 million, or 47.2%, compared to the same period of 2018. This increase was primarily the result of an increase in equipment sales of $0.8 million and disposable sales of $0.3 million due to the timing of pump sales and the Company’s efforts to expand its product offering.

 

Gross Profit

 

Gross profit for the quarter ended June 30, 2019 was $11.4 million, an increase of $1.7 million, or 17.2%, compared to the quarter ended June 30, 2018. As a percentage of revenues, gross profit for the quarter ended June 30, 2019 was 57.6%, down from 59.0% for the same prior year period primarily due to growth in the Company’s lower margin products and increased supply costs in anticipation of future growth. The increase in gross profit for the period is mainly due to the increase in net revenues for the period, which was partially offset by an increase of $0.6 million in the costs of pumps and accessories sold, $0.4 million in the costs of supply and pump rentals, $0.3 million in the costs of disposables sold and $0.3 million in pump depreciation expense.

 

 

Amortization of Intangible Assets

 

Amortization of intangible assets for the quarter ended June 30, 2019 was $1.1 million, a decrease of less than $0.1 million compared to the same prior year period. This decrease is attributable to certain intangible assets becoming fully amortized, thus, the related amortization of those projects no longer existed in the second quarter of 2019.

 

Selling and Marketing Expenses

 

Selling and marketing expenses for the quarter ended June 30, 2019 were $2.5 million, an increase of $0.2 million, or 6.4%, compared to $2.3 million for the quarter ended June 30, 2018. This increase was largely attributable to an increase in commission expense of $0.1 million and travel and related costs of $0.1 million in support of revenue growth. Selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefits and payroll-related items, marketing, share-based compensation, travel and entertainment and other miscellaneous expenses.

 

General and Administrative Expenses

 

General and Administrative (“G&A”) expenses for the quarter ended June 30, 2019 were $6.8 million, an increase of $0.4 million, or 6.0%, from $6.4 million for the quarter ended June 30, 2018. The increase in G&A expenses versus the comparable prior year period was primarily due to increases in employee compensation related expenses of $0.5 million and outside services expense of $0.3 million, partially offset by a decrease in legal fees and strategic alternative costs of $0.2 million, travel and related expenses of $0.1 million and bank fees of $0.1 million. The increase in employee compensation expenses was primarily attributable to a $0.3 million increase in salaries and related expenses and a $0.2 million increase in stock compensation expense.

 

Other Income and Expenses

 

During the quarter ended June 30, 2019, we incurred interest expense of $0.5 million, an increase of $0.2 million, or 64.9%, compared to the comparable prior year period. This was a net result of the new term debt that was entered into during the second half of 2018 and first half of 2019, partially offset by payments of the previous term debt as well as higher interest rates in 2019 as compared to 2018.

 

Income Taxes

 

During both the three months ended June 30, 2019 and 2018, the Company recorded expense provision for income taxes of less than $0.1 million. The provision for income taxes relates principally to the Company’s state and local taxes and foreign operations in Canada.

 

The Company’s realization of its deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Accordingly, at both June 30, 2019 and December 31, 2018, the Company had a full valuation allowance for all deferred tax assets, as management determined that it is not more likely than not the Company will recognize the benefits of its federal and state deferred tax assets.

 

Results of Operations for the Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018

 

Net Revenues

 

Our net revenues for the six months ended June 30, 2019 were $37.9 million, an increase of $5.0 million, or 15.3%, compared to $32.9 million for the six months ended June 30, 2018. During this period, net revenues from rentals increased $2.8 million, or 10.0%, compared to the same prior year period. This increase was primarily attributable to growth in the Company’s customer base due to favorable changes in the competitive environment for oncology services and growth in its pain management business, as well as decreased allowance for bad debt expense. Net revenues from product sales for the six months ended June 30, 2019 were $6.6 million, an increase of $2.2 million, or 49.2%, compared to the same period of 2018. This increase was primarily the result of an increase in equipment sales of $1.2 million and disposable sales of $1.0 million due to the timing of pump sales and the Company’s efforts to expand its product offering.

 

 

Gross Profit

 

Gross profit for the six months ended June 30, 2019 was $21.7 million, an increase of $1.8 million, or 8.9%, compared to the six months ended June 30, 2018. As a percentage of revenues, gross profit for the six months ended June 30, 2019 was 57.2%, down from 60.6% for the same prior year period primarily due to growth in the Company’s lower margin products and increased supply costs in anticipation of future growth. The increase in gross profit for the period is mainly due to the increase in net revenues for the period, which was partially offset by an increase of $1.0 million in the costs of pumps and accessories sold, $0.9 million in the costs of supply and pump rentals, $0.8 million in the costs of disposables sold and $0.4 million in pump depreciation expense.

 

Amortization of Intangible Assets

 

Amortization of intangible assets for the six months ended June 30, 2019 was $2.2 million, a decrease of $0.1 million compared to the same prior year period. This decrease is attributable to certain intangible assets becoming fully amortized, thus, the related amortization of those projects no longer existed in the six months ended June 30, 2019.

 

Selling and Marketing Expenses

 

Selling and marketing expenses for the six months ended June 30, 2019 were $5.1 million, an increase of $0.5 million, or 9.7%, compared to $4.6 million for the six months ended June 30, 2018. The increase was largely attributable to an increase in commission expense of $0.2 million, advertising costs of $0.1 million and travel and related expenses of $0.1 million in support of revenue growth. Selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefits and payroll-related items, marketing, share-based compensation, travel and entertainment and other miscellaneous expenses.

 

General and Administrative Expenses

 

G&A expenses for the six months ended June 30, 2019 were $13.8 million, an increase of $1.3 million, or 10.0%, from $12.6 million for the same prior year period. The increase in G&A expenses versus the comparable prior year period was primarily due to increases in employee compensation related expenses of $1.0 million, outside services of $0.3 million and accounting fees of $0.1 million, partially offset by a decrease in bank fees of $0.1 million. The increase in employee compensation related expenses was primarily attributable to a $0.6 million increase in salaries and related expenses, $0.3 million of stock compensation expense and $0.1 million net increase in the incentive bonus accrual.

 

Other Income and Expenses

 

During the six months ended June 30, 2019, we incurred interest expense of $0.9 million, an increase of $0.3 million, or 55.2%, compared to the comparable prior year period. This was a net result of the new term debt that was entered into during the second half of 2018 and first half of 2019, partially offset by payments of the previous term debt as well as higher interest rates in 2019 as compared to 2018.

 

Income Taxes

 

During the six months ended June 30, 2019, the Company recorded expense provision for income taxes of $0.1 million compared to expense provision for income taxes of less than $0.1 million for the same comparable prior year period. The provision for income taxes relates principally to the Company’s state and local taxes and foreign operations in Canada.

 

The Company’s realization of its deferred tax assets is dependent upon many factors, including, but not limited to, the Company’s ability to generate sufficient taxable income. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Accordingly, at both June 30, 2019 and December 31, 2018, the Company had a full valuation allowance for all deferred tax assets, as management determined that it is not more likely than not the Company will recognize the benefits of its federal and state deferred tax assets.

 

 

Liquidity and Capital Resources

 

Overview:

 

We finance our operations and capital expenditures with internally-generated cash from operations and borrowings under our existing credit agreement (the “Credit Agreement”) or other financing arrangements. As of June 30, 2019, we had cash and cash equivalents of $1.7 million and $9.2 million of availability on our revolving credit facility under the Credit Agreement (the “Revolver”) compared to $4.3 million of cash and cash equivalents and $9.2 million of availability on our Revolver at December 31, 2018. Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating commitments, which primarily include the purchase of pumps, inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy which includes investment for future growth, share repurchases and potential acquisitions. We believe we have adequate sources of liquidity and funding available for at least the next year, however, there are a number of factors that may negatively impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan and general economic conditions.

 

 

  Long-Term Debt Activities:

 

On April 15, 2019, the Company sold for $2.0 million and immediately leased back certain medical equipment in rental service to a third party specializing in such transactions. The leaseback term is 36 months. Because the arrangement contains a purchase option that the Company is reasonably certain to exercise, this transaction did not qualify for the sale-leaseback accounting under ASC 842. The medical equipment remains recorded on the accompanying condensed consolidated balance sheet and the proceeds received have been classified as an Other Financing liability, which is being paid off monthly over the term of the lease. The balance of Other Financing as of June 30, 2019 was $1.9 million.

 

On February 5, 2019, the Company and its primary lender entered into the fifth amendment (the “Fifth Amendment”) to the Credit Agreement. Among other things, the Fifth Amendment amended the Credit Agreement to (1) increase our borrowing capacity under our existing equipment line to $8.0 million, (2) revise the definition of earnings before interest, taxes, depreciation and amortization, a non-GAAP financial measure, to include additional add-back adjustments for the years ended or ending December 31, 2018 and 2019, (3) revise the definition of fixed charge coverage ratio for the year ending December 31, 2019 to include an unfinanced portion of capital expenditures of up to $7.0 million for the year ending December 31, 2019, (4) revise the Credit Agreement’s maximum permitted indebtedness to finance the acquisition, construction or improvement of any fixed or capital assets and (5) revise the maximum leverage ratio for each of the quarters during December 31, 2018 and December 31, 2019.

 

As of June 30, 2019, our term loans and equipment line under the Credit Agreement had balances of $29.2 million and $2.6 million, respectively. The net availability under the Revolver is based upon our eligible accounts receivable and eligible inventory and is computed as follows (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Revolver:

               

Gross availability

  $ 11,000     $ 9,973  

Outstanding draws

    -       -  

Letters of credit

    (1,750 )     (750 )

Landlord reserves

    (71 )     (70 )

Net availability

  $ 9,179     $ 9,153  

 

As of June 30, 2019, interest on the credit facility is payable at our option as a (i) Eurodollar Loan, which bears interest at a per annum rate equal to the applicable 30-day London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 2.00% to 3.00% or (ii) CB Floating Rate (“CBFR”) Loan, which bears interest at a per annum rate equal to the greater of (a) the lender’s prime rate or (b) LIBOR plus 2.50%, in each case, plus a margin ranging from -1.00% to 0.25%. The actual Eurodollar Loan rate at June 30, 2019 was 5.19% (LIBOR of 2.44% plus 2.75%). The actual CBFR Loan rate at June 30, 2019 was 5.50% (lender’s prime rate of 5.50%).

 

As of June 30, 2019, the Company was in compliance with all debt-related covenants under the Credit Agreement.

 

 Cash Flows:

 

Operating Cash Flow.  Net cash provided by operating activities for the six months ended June 30, 2019 was $4.3 million compared to net cash provided by operating activities of $4.8 million for the six months ended June 30, 2018. This decrease was primarily attributable to the cash flow effect of increased accounts receivable which was partially offset by a net increase in accounts payable, as well as, the favorable change in net loss adjusted for non-cash items.

 

Investing Cash Flow.  Net cash used in investing activities was $6.6 million for the six months ended June 30, 2019 compared to cash used in investing activities of $1.0 million for the six months ended June 30, 2018. The increase in cash used was due to a $5.2 million increase in cash used to purchase medical equipment and other assets and a $0.4 million decrease in proceeds from the sales of medical equipment.

 

 

Financing Cash Flow.  Net cash used in financing activities for the six months ended June 30, 2019 was $0.4 million compared to net cash used in financing activities of $4.9 million for the six months ended June 30, 2018. The decrease in net cash used was primarily attributable to cash proceeds received as part of a new financing arrangement in 2019 and our decision to pay down our term loan debt and repurchase shares of common stock as part of a share repurchase program in the first half of 2018.

 

 

Critical Accounting Policies and Estimates

 

The unaudited condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the unaudited condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the notes to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018, with the exception of our adoption of Topic 842. See Note 11 to the accompanying unaudited condensed consolidated financial statements for further details regarding our adoption of Topic 842.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

InfuSystem is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

 

 

Item 4.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting

 

We maintain a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Our CEO and CFO have evaluated these disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q and have determined that such disclosure controls and procedures were effective.

 

There has been no change in our internal control over financial reporting during our most recent calendar quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time in the ordinary course of our business, we may be involved in legal proceedings, the outcomes of which may not be determinable. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages and until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. We have insurance policies covering potential losses where such coverage is cost effective.

 

We are not involved in any legal proceedings that we currently believe could have a material effect on our business, financial condition, results of operations or cash flows.

 

Item 1A. Risk Factors

 

For information regarding factors that could affect our results of operations, financial condition and liquidity, refer to the section entitled “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None. 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

 

Item 6.     Exhibits

 

Exhibits

 

   
3.1 Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on May 12, 2014)
   
3.2 Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on July 9, 2018)
   

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   

32.1*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

   

32.2*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS*

XBRL Instance Document

   

101.SCH*

XBRL Taxonomy Extension Schema Document

   

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

   

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

   

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

   

101.PRE*

 

*

XBRL Taxonomy Extension Presentation Linkbase Document

 

Filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  INFUSYSTEM HOLDINGS, INC.
     
     
Date: August 14, 2019    /s/ Richard DiIorio
    Richard DiIorio
   

Chief Executive Officer, President and Director

(Principal Executive Officer)

     
     
Date: August 14, 2019      /s/ Gregory Schulte
   

Gregory Schulte

Chief Financial Officer

(Principal Financial Officer)

 

 

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