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 March 31, 2020 and December 31, 2019
	-Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019
	-Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019
	-Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019
	-Notes to the Unaudited Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
	Signatures	26

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(UNAUDITED)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

-

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

960 

INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

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, the effect of the coronavirus (COVID-19) pandemic on our business, potential changes in healthcare payer mix and overall healthcare reimbursement, including the Centers for Medicare and Medicaid Services (“CMS”) 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 our 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, 2019, this quarterly report on Form 10-Q 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 national health care service provider, facilitating outpatient care for Durable Medical Equipment manufacturers and health care providers. We provide our products and services to hospitals, oncology practices, ambulatory surgery centers, and other alternate site health care providers. Our headquarters is in Rochester Hills, Michigan, and we operate our business from a total of five locations in the United States and Canada. We deliver local, field-based customer support as well as operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts and Ontario, Canada. InfuSystem, Inc. is accredited by the CHAP while First Biomedical is ISO certified.

 

InfuSystem competes for and retains its business primarily on the basis of its long participation and strong reputation in the Durable Medical Equipment space, its long-standing relationships with Durable Medical Equipment manufacturers and its health care provider customers, and the high levels of service it provides. Current barriers to entry for potential competitors are created by our (i) growing number of third-party payer networks under contract; (ii) economies of scale, which allow for predictable reimbursement and less costly purchase and management of the pumps, respectively; (iii) established, long-standing relationships as a provider of pumps to outpatient oncology practices in the U.S. and Canada; (iv) fleet of ambulatory and large volume infusion pumps for rent and for sale, which may allow us to be more responsive to the needs of physicians, outpatient oncology practices, hospitals, outpatient surgery centers, homecare practices, patient rehabilitation centers and patients than a new market entrant; (v) five geographic locations in the U.S. and Canada that allow for same day or next day delivery of pumps; and (vi) pump repair and service capabilities at all of these facilities. We do not perform any research and development on pumps, but we have made, and continue to make investments in our information technology.

 

During the fourth quarter of 2019, the Company reorganized its segment reporting from one reportable segment to two reportable segments, Integrated Therapy Services (“ITS”) and Durable Medical Equipment Services (“DME Services”), due to changes in our internal reporting and the information evaluated by our chief operating decision-maker.

 

 

ITS Segment

 

Our ITS segment’s core purpose is to seek opportunities to leverage our unique know-how in clinic-to-home health care involving Durable Medical Equipment, our logistics and billing capabilities, our growing network of third-party payers under contract, and our clinical and biomedical capabilities. This leverage may take the form of new products and/or services, strategic alliances, joint ventures and/or acquisitions. The leading service within our ITS segment is to supply electronic ambulatory infusion pumps and associated disposable supply kits to private oncology clinics, infusion clinics and hospital outpatient oncology clinics to be utilized in the treatment of a variety of cancers including colorectal cancer and other disease states (“Oncology Business”). Colorectal cancer is the fourth 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. One of the primary goals for the ITS segment is to expand into treatment of other cancers. There are a number of approved treatment protocols for pancreatic, head and neck, esophageal and other cancers, as well as other disease states which present opportunities for growth. There are also a number of other drugs currently approved by the U.S. Food and Drug Administration, as well as agents in the pharmaceutical development pipeline, which we believe could potentially be used with continuous infusion protocols for the treatment of diseases other than colorectal cancer. Additional drugs or protocols currently in clinical trials may also obtain regulatory approval over the next several years. If these new drugs or protocols obtain regulatory approval for use with continuous infusion protocols, we expect the pharmaceutical companies to focus their sales and marketing efforts on promoting the new drugs and protocols to physicians.

 

Furthermore, our Oncology Business focuses mainly on the continuous infusion of chemotherapy. Continuous infusion of chemotherapy can be described as the gradual administration of a drug via a small, lightweight, portable infusion pump over a prolonged period of time. A cancer patient can receive his or her medicine anywhere from one to 30 days per month depending on the chemotherapy regimen that is most appropriate to that individual’s health status and disease state. This may be followed by periods of rest and then repeated cycles with treatment goals of progression-free disease survival. This drug administration method has replaced intravenous push or bolus administration in specific circumstances. The advantages of slow continuous low doses of certain drugs are well documented. Clinical studies support the use of continuous infusion chemotherapy for decreased toxicity without loss of anti-tumor efficacy. The 2015 National Comprehensive Cancer Network Guidelines recommend the use of continuous infusion for treatment of numerous cancer diagnoses. We believe that the growth of continuous infusion therapy is driven by three factors: evidence of improved clinical outcomes; lower toxicity and side effects; and a favorable reimbursement environment.

 

We believe that oncology practices have a heightened sensitivity to providing quality service and whether they are reimbursed for services they provide. Simultaneously, CMS and private insurers are increasingly focused on evidence-based medicine to inform their reimbursement decisions — that is, aligning reimbursement with clinical outcomes and adherence to standards of care. Continuous infusion therapy is a main component of the standard of care for certain cancer types because clinical evidence demonstrates superior outcomes. Payers’ recognition of this benefit is reflected in their relative reimbursement policies for clinical services related to the delivery of this care.

 

Additional areas of focus for our ITS segment are as follows:

 

●

Pain Management - providing our ambulatory pumps, products, and services for pain management in the area of post-surgical continuous peripheral nerve block.

●

Negative Pressure Wound Therapy (“NPWT”) - as announced in February 2020, will include providing the Durable Medical Equipment, related consumables, overseeing logistics, biomedical services, and managing third-party billing of the U.S. home health care market, which as a subset of the broader NPWT market, has an estimated addressable home health care market of $600 million per year.

●

Acquisitions - we believe there are additional opportunities, beyond our acquisition of Ciscura Holding Company, Inc., and its subsidiaries (“Ciscura”) in April 2015, to acquire smaller, regional health care service providers, in whole or part that perform similar services to us but do not have the national market access, network of third-party payer contracts or operating economies of scale that we currently enjoy.

●

Information technology-based services - we also plan to continue to capitalize on key new information technology-based services such as EXPRESS, InfuSystem Mobile, InfuBus or InfuConnect, Pump Portal and BlockPain Dashboard®.

 

The payer environment within our ITS segment is in a constant state of change. We continue to extend our considerable breadth of payer networks under contract 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, due to a reduction in concessions. Consequently, we are increasingly focused on net revenues less concessions.

 

 

DME Services Segment

 

Our DME Services segment’s core service is to (i) sell or rent new and pre-owned pole-mounted and ambulatory infusion pumps, (ii) sell treatment-related consumables; and (iii) 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 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.

 

COVID-19 Update

 

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which has spread globally and throughout the United States. We have taken a number of precautionary and preemptive steps to protect the safety and well-being of our employees while ensuring continuity of service to our clients, including, transitioning our employees to a remote work environment, suspending employee travel, canceling participation in industry events and in-person group meetings, promoting social distancing and enhanced cleaning and sanitization efforts across office locations, and implementing protocols to quarantine employees who may have been exposed to COVID-19, or show relevant symptoms. We also commenced preparedness plans at our facilities to maintain continuity of operations, which provide for flexible work arrangements without any significant disruptions to our business or control processes. Our management team is actively monitoring the situation and in constant communication with our workforce as well as with our customers and vendors. While COVID-19 has not significantly affected our operations, the extent of the impact in the future, if any, will depend on future developments, which are highly uncertain, cannot be predicted and could have a material adverse impact on our financial position, operating results and cash flows. We are closely monitoring the impact of COVID-19 on all aspects of our business, and may take further actions as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers and partners. As the conditions surrounding COVID-19 continue to evolve rapidly, we will continue to actively manage our response in collaboration with customers, government officials and stakeholders, and assess any potential impacts to our financial position and operating results, as well as adverse developments in our business. For further information regarding the effect of COVID-19 on the Company, please see Part II, Item 1A. Risk Factors to this Form 10-Q, which is incorporated herein by reference.

 

 

InfuSystem Holdings, Inc. Results of Operations for the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

 

The following represents the Company’s results of operations for the three months ended March 31, 2020 and 2019. Revenues and related costs and gross profit amounts include the elimination of certain inter-segment charges.

 

		Three Months Ended
		March 31								Better/
(in thousands, except share and per share data)		2020				2019				(Worse)
Net revenues:
ITS		$	14,126			$	11,306			$	2,820
DME Services			7,427				6,887				540
Total			21,553				18,193				3,360
Cost of revenues:
ITS			3,782				3,430				(352	)
DME Services			5,108				4,422				(686	)
Total			8,890				7,852				(1,038	)
Gross profit:
ITS			10,344				7,876				2,468
DME Services			2,319				2,465				(146	)
Total			12,663				10,341				2,322
Selling, general and administrative expenses
Provision for doubtful accounts			285				(98	)			(383	)
Amortization of intangibles			1,075				1,125				50
Selling and marketing			2,618				2,602				(16	)
General and administrative			8,652				7,132				(1,520	)
Total selling, general and administrative expenses			12,630				10,761				(1,869	)
Operating income (loss)			33				(420	)			453
Other expense			(422	)			(481	)			59
Loss before income taxes			(389	)			(901	)			512
Provision for income taxes			(29	)			(59	)			30
Net loss		$	(418	)		$	(960	)		$	542
Net loss per share:
Basic and diluted		$	(0.02	)		$	(0.05	)		$	0.03
Weighted average shares outstanding:
Basic and diluted			19,918,298				19,580,049				338,249

 

 

Net Revenues

 

Net revenues for the quarter ended March 31, 2020 were $21.6 million, an increase of $3.4 million, or 18.5%, compared to $18.2 million for the quarter ended March 31, 2019. This increase was due to increases in both the ITS and DME Services segments of $2.8 million and $0.6 million, respectively.

 

ITS

 

ITS net revenue increased $2.8 million, or 24.9%, 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.

 

DME Services

 

DME Services net revenue increased $0.6 million, or 7.8%, compared to the same prior year period. This increase was largely due to an increase in product sales of $0.4 million, or 10.7%, and an increase of $0.2 million, or 5.5%, in rental revenues. Product sales growth was largely attributable to the growth in the sales of pumps of $0.3 million and an increase in the sales of disposable products of $0.1 million.

 

Gross Profit

 

Gross profit for the quarter ended March 31, 2020 increased $2.3 million, or 22.5%, from $10.4 million for the quarter ended March 31, 2019 to $12.7 million. The increase was driven by an increase in the ITS segment of $2.4 million, slightly offset by a decrease in the DME Services segment of $0.1 million. Gross profit as a percentage of net revenues (“gross margin”) increased to 58.8% compared to the same prior year period at 56.8%.

 

ITS

 

ITS gross profit increased $2.4 million, or 31.3%, compared to the same prior year period. This increase was driven mainly by the increase in net revenues, which was partially offset by higher incremental costs for equipment depreciation expense. ITS gross margin increased to 73.2% compared to the same prior year period at 69.7%.

 

DME Services

 

DME Services gross profit decreased $0.1 million, or 5.9%, compared to the same prior year period. This decrease was driven by periodic changes in product mix, partially offset by an increase in net revenue. Decrease in profitability was impacted by higher incremental costs for both pump sales and service expense. DME Services gross margin decreased to 31.2% compared to the same prior year period at 35.8%.

 

Provision for Doubtful Accounts

 

Provision for doubtful accounts for the quarter ended March 31, 2020 was $0.3 million, an increase of $0.4 million, compared to the quarter ended March 31, 2019. The provision for doubtful accounts as a percentage of net revenues, increased to 1.3% compared to the same prior year period at -0.5%. For the quarter ended March 31, 2019, the Company had a reversal of approximately $0.1 million of its previously calculated reserve due to improved collections. Provision for doubtful accounts is mainly attributable to reserves related to our Direct Payer Rentals. We did not incur any significant disruptions to payments from our customers during the three months ended March 31, 2020 from COVID-19, however, we cannot be certain that stay-at-home orders and other business disruptions associated with the response to COVID-19 by federal, state and local authorities will not unfavorably impact future customer collections or our ability to recover unreserved accounts receivable balances.

 

Amortization of Intangible Assets

 

Amortization of intangible assets decreased $0.1 million, or 4.4%, compared to the same prior year period. The decrease is attributable to certain intangible assets becoming fully amortized, thus, the related amortization no longer existed during 2020.

 

Selling and Marketing Expenses

 

Selling and marketing expenses for both the quarter ended March 31, 2020 and 2019 were approximately $2.6 million. Selling and marketing expenses as a percentage of net revenues decreased to 12.1% compared to the same prior year period at 14.3%. Selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, overall travel and entertainment and other miscellaneous expenses.

 

 

General and Administrative Expenses

 

General and administrative (“G&A”) expenses for the quarter ended March 31, 2020 were $8.6 million, an increase of 21.3% from $7.1 million for the quarter ended March 31, 2019. G&A expenses as a percentage of net revenues, increased to 40.1% compared to the same prior year period at 39.2%. The increase of $1.5 million was largely due to an increase in employee compensation related expenses of $1.1 million, outside services of $0.1 million, rent expense of $0.1 million, legal and shareholder costs of $0.1 million and $0.1 million of depreciation expense. The increase in employee compensation related expenses was primarily attributable to a $0.7 million increase in salaries, benefits and related expenses, $0.2 million increase in severance and a $0.2 million net increase in incentive bonuses. G&A expenses during the quarters ended March 31, 2020 and 2019 consisted primarily of accounting, administrative, third-party payer billing and contract services, customer service, nurses on staff, new product services, service center personnel salaries, fringe benefits and other payroll-related items, professional fees, legal fees, stock-based compensation, insurance and other miscellaneous items.

 

Other Income and Expenses

 

During the quarter ended March 31, 2020, we incurred interest expense of $0.4 million, a decrease of $0.1 million, or 12.4%, compared to the quarter ended March 31, 2019. This was a net result of lower weighted average interest rates on our outstanding debt in 2020 as compared to 2019, which was partially offset by interest on our increased average outstanding borrowings during the quarter ended March 31, 2020.

 

Provision for Income Taxes

 

During the quarter ended March 31, 2020, we recorded a provision for income taxes of less than $0.1 million, representing an effective tax rate of -7.5% on pre-tax losses totaling $0.4 million, compared to a provision for income taxes of $0.1 million, representing an effective tax rate of -6.5% on pre-tax losses totaling $0.9 million, for the quarter ended March 31, 2019. The effective tax rates differ from the U.S. statutory rates due mainly to an increase in the valuation reserve on our net deferred tax assets of less than $0.1 million and $0.3 million during the quarters ended March 31, 2020 and 2019, respectively, and the effect of state income taxes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic, which provides numerous tax provisions and other stimulus measures. Due to the recent enactment of this legislation, the Company continues to assess the potential impacts the CARES Act may have on its financial position and results of operations.

 

 

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, entered into on March 23, 2015 (as amended, the “Credit Agreement”). As of March 31, 2020, we had cash and cash equivalents of $0.3 million, and $8.4 million of availability on our revolving credit facility under the Credit Agreement (the “Revolver”) compared to $2.6 million of cash and cash equivalents and $9.9 million of availability on our Revolver at December 31, 2019. Additionally, as of March 31, 2020, we had $5.7 million in undrawn availability under our 2019 Equipment Line under the Credit Agreement. While we have not fully drawn the 2019 Equipment Line, we have made sufficient capital expenditures, which would allow us to request advances up to the total limit. As of December 31, 2019, we had $8.4 million in undrawn availability under our 2019 Equipment Line. 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, any projections of future earnings and cash flows are subject to substantial uncertainty, including factors such as the successful execution of our business plan and general economic conditions, particularly in light of the rapidly changing market and economic conditions created by the COVID-19 pandemic. We may need to access debt and equity markets in the future if unforeseen costs or opportunities arise, to meet working capital requirements, fund acquisitions or investments or repay indebtedness under the Credit Agreement. If we need to obtain new debt or equity financing in the future, the terms and availability of such financing may be impacted by economic and financial market conditions as well as our financial condition and results of operations at the time we seek additional financing. While we did not incur significant disruptions or significant direct unusual expenses during the three months ended March 31, 2020 from COVID-19, we have used cash and drawn on our Revolver and 2019 Equipment Line to fund acceleration of our capital expenditures of medical equipment and increased our inventory levels of related supplies in conjunction with our COVID-19 preparedness activities. We will continue to assess our liquidity needs and anticipated capital requirements as we move forward.

 

 

  Long-Term Debt Activities:

 

As of March 31, 2020, the Company’s term loan, Equipment Line and 2019 Equipment Line under the Credit Agreement had balances of $25.4 million, $7.2 million and $4.3 million, respectively. The availability under the Revolver is subject to a borrowing base, which is calculated as the sum of our eligible accounts receivable and eligible inventory as defined by the Credit Agreement. As of March 31, 2020, the borrowing base was approximately $16.6 million, which exceeded the gross available borrowing amount of $11.8 million. The following table illustrates the net availability under the Revolver as of the balance sheet date (in thousands):

 

		March 31,				December 31,
		2020				2019
Revolver:
Gross availability		$	11,750			$	11,750
Outstanding draws			(1,402	)			-
Letters of credit			(1,750	)			(1,750	)
Landlord reserves			(161	)			(150	)
Availability on Revolver		$	8,437			$	9,850

 

 

As of March 31, 2020, 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% based on our leverage ratio as defined in the Credit Agreement. The actual Eurodollar Loan rate at March 31, 2020 was 3.25% (LIBOR of 0.75% plus 2.50%). The actual CBFR Loan rate at March 31, 2020 was 2.94% (lender’s prime rate of 3.44% minus 0.50%). As of March 31, 2020, 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 three months ended March 31, 2020 was $0.6 million compared to $1.3 million for the three months ended March 31, 2019. This $0.7 million, or 56.1%, decrease was primarily attributable to an increase in accounts receivable totaling $1.1 million, an increase in inventory of $1.0 million and an increase in other assets of $0.2 million, which were partially offset by the positive cash flow effect of increases in accounts payable and other liabilities totaling $0.9 million and an increase in net loss adjusted for non-cash items of $0.7 million.

 

Investing Cash Flow. Net cash used in investing activities was $4.0 million for the three months ended March 31, 2020 compared to $2.8 million for the three months ended March 31, 2019. The increase in net cash used was primarily due to a $0.5 million increase in cash used to purchase medical equipment in support of our revenue growth, $0.5 million increase in cash used to purchase other assets and a $0.2 million decrease in proceeds from the sales of medical equipment.

 

Financing Cash Flow. Net cash provided by financing activities for the three months ended March 31, 2020 was $1.1 million compared to cash used of $0.9 million for the three months ended March 31, 2019. The net increase in net cash provided was primarily attributable to the cash proceeds received from our decision to utilize a portion of our 2019 Equipment Line and Revolver during the first quarter of 2020.

 

Critical Accounting Policies and Estimates

 

The unaudited condensed consolidated financial statements are prepared in conformity with 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, 2019.

 

 

As of the date of the unaudited consolidated financial statements presented in this Form 10-Q, there have been no material financial impacts on our operations resulting from the COVID-19 pandemic. However, the future effects of this pandemic on economic and market conditions is uncertain and increases the subjectivity that will be involved in evaluating our estimates and assumptions underlying our critical accounting policies. Any events and changes in circumstances arising after March 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are 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 have been no changes 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 at this time involved in any legal proceedings that we 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, 2019. In addition to the risk factors disclosed therein, we are supplementing those identified in the Form 10-K with the following risk factor, as described below. For further information on our forward-looking statements see Part I, Item 2 of this Quarterly Report on Form 10-Q.

 

The effects of the COVID-19 pandemic could disrupt our operations and adversely affect our business, financial condition, results of operations and cash flows.

 

The widespread outbreak of COVID-19 has created significant volatility, uncertainty, and disruption in economic activity and financial markets globally. Although the outbreak of COVID-19 did not significantly affect our results of operations, there can be no assurance that COVID-19 will not have a material adverse effect on our future operational and financial performance. The extent to which COVID-19 could impact our operational and financial performance in future periods is currently uncertain and will depend on numerous evolving factors and future developments that we may not be able to accurately predict and to which we may not be able to respond.  Such factors and developments include, but are not limited to: the duration, severity and spread of the outbreak; actions taken by government authorities to contain and mitigate COVID-19 and the effectiveness of such actions; the effect on the U.S. and global economies and actions taken in response; the overall impact on the businesses of our customers, partners, vendors and suppliers; the health of and effect on our workforce; the future effects to our operational and financial results of the changes we have made to protect the safety and well-being of our employees and future operational disruptions or challenges we may face; increased cybersecurity and information security risk as a result of the transition of our employees to a remote work environment; and how quickly and to what extent normal economic and operating conditions may resume. Further, our management has been intensely focused on mitigating COVID-19, which has required and will continue to require, a large investment of time, attention and resources. Although we have yet to experience a significant disruption of our operations as a result of the COVID-19 pandemic, a prolonged outbreak could, among other things, strain our business continuity plans, create delays in our growth and strategic initiatives, reduce our sales and marketing activities, limit our access to financing on favorable terms, increase our exposure to potential impairment charges related to intangible assets, hinder our ability to support our clients and operate our business effectively, heighten the risk of disruption to our information and reporting systems and internal controls, including those over financial reporting and other risk management systems, or require us to incur substantial costs. We cannot predict the degree to which COVID-19 will ultimately impact our operations, however, the effects of the COVID-19 pandemic, alone or taken together, could adversely affect our future business, financial condition, results of operations and cash flows, and may also heighten other risks to which the Company is subject, including risks discussed in our most recent annual report on Form 10-K.

 

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)
10.1	Independent Contractor Agreement, effective February 5, 2020, by and between the Company and Wesley W. Winnekins (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on February 7, 2020)
10.2	Separation Agreement, dated March 5, 2020, by and between the Company and Greg Schulte (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (File No. 1-35020) filed on March 9, 2020)
10.3	Employment Agreement, effective March 11, 2020, by and between the Company and Barry G. Steele (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on March 12, 2020)
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: May 15, 2020		/s/ Richard DiIorio
		Richard DiIorio
		Chief Executive Officer, President and Director
		(Principal Executive Officer)

 

Date: May 15, 2020		/s/ Barry Steele
		Barry Steele
		Chief Financial Officer
		(Principal Accounting and Financial Officer)