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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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

 

for the quarterly period ended September 30, 2018

 

 

☐	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

 

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INFUSYSTEM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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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)

 

(248) 291-1210

(Registrant’s Telephone Number, including Area Code)

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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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities 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 November 8, 2018, 19,542,465 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

 

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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 September 30, 2018 and December 31, 2017	3
	-Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	4
	-Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	5
	-Notes to the Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
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	21
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	23

 

 

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 CASH FLOWS

(UNAUDITED)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

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, potential changes in 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 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/A for the year ended December 31, 2017 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/A 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 four locations in the United States and Canada. 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. InfuSystem, Inc., a wholly owned subsidiary of the Company, is accredited by the Community Health Accreditation Program while First Biomedical, Inc., a wholly owned subsidiary of the Company, 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.

 

We view our payor environment as changing. 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 collected revenues less 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 September 30, 2018 compared to the Three Months Ended September 30, 2017

 

Net Revenues

 

Our net revenues for the quarter ended September 30, 2018 were $16.7 million, a decrease of $0.9 million, or 5%, compared to $17.6 million for the quarter ended September 30, 2017. Net revenues for the quarter ended September 30, 2018 were impacted by a $1.5 million change in recording bad debt as part of net revenue from rentals related to the implementation of Accounting Standards Codification (“ASC”) Topic 606: Revenue from Contracts with Customers (“ASC 606”) on a modified retrospective approach effective January 1, 2018. Absent the implementation of ASC 606, total net revenues for the quarter ended September 30, 2018 would have been $18.1 million, an increase of $0.6 million, or 3%, compared to $17.6 million in the same prior year period. The majority of the increase for the quarter was attributable to net revenues from product sales.

 

During the quarter ended September 30, 2018, net revenues from rentals decreased $1.5 million, or 10%, compared to the same prior year period. Absent the implementation of ASC 606, net revenues from rentals for the quarter ended September 30, 2018 would have decreased $0.1 million, or 1%, compared to the same prior year period. This decrease was primarily attributable to a slight decrease in claims billed to third-party payors during the quarter ended September 30, 2018 compared to the same prior year period. Net revenues from product sales for the quarter ended September 30, 2018 were $2.9 million, an increase of $0.6 million, or 28%, compared to the same prior year period. The increase in product sales was primarily the result of increased disposable sales of $0.3 million and equipment sales of $0.3 million.

 

Gross Profit

 

Gross profit for the quarter ended September 30, 2018 was $9.5 million, a decrease of $1.5 million, or 14%, compared to the quarter ended September 30, 2017. As a percentage of revenues, gross profit for the quarter ended September 30, 2018 was 57%, down from the same prior year period of 63%. Gross profit for the quarter ended September 30, 2018 was impacted by a $1.5 million change in recording bad debt as part of net revenue from rentals related to the implementation of ASC 606. Absent the implementation of ASC 606, gross profit for the quarter ended September 30, 2018 would have been $11.0 million, which was consistent with the amount recorded for the comparable prior year period. Absent the implementation of ASC 606, gross profit, as a percentage of revenues, for the quarter ended September 30, 2018 would have been 61%, down from the same prior year period of 63%. The decrease was due to lower margins on selective disposable supply sales, as well as increased labor costs on pump servicing due to demand for selective pumps and the need to increase turnaround time on delivery of these pumps.

 

Provision for Doubtful Accounts

 

Due to the implementation of ASC 606, the Company did not record any provision for doubtful accounts (“Bad Debt”) for the quarter ended September 30, 2018 compared to Bad Debt of $1.3 million for the quarter ended September 30, 2017. Absent the implementation of ASC 606, Bad Debt for the quarter ended September 30, 2018 would have been $1.4 million, an increase of $0.2 million, or 13%, compared to the same prior year period. Absent the net difference of credits taken to the accrual in the third quarters of 2018 and 2017, respectively, the provision would have decreased by $0.1 million.

 

Amortization of Intangible Assets

 

Amortization of intangible assets for the quarter ended September 30, 2018 was $1.2 million, a decrease of $0.2 million compared to the same prior year period, attributable to the impairment of certain internally developed, internal-use software assets that was recorded in the fourth quarter of 2017; therefore, the related amortization of those projects no longer existed during 2018.

 

Selling and Marketing Expenses

 

Selling and marketing expenses for the quarter ended September 30, 2018 were $2.3 million, an increase of $0.1 million, or 3%, compared to the same prior year period. This increase was primarily attributable to an increase in travel and related costs primarily due to company-wide initiatives.

 

 

General and Administrative Expenses

 

General and administrative expenses for the quarter ended September 30, 2018 were $6.2 million, an increase of $0.6 million, or 11%, from $5.6 million for the quarter ended September 30, 2017. The increase in general and administrative expenses versus the comparable prior year period was primarily due to increases in employee compensation related expenses of $0.4 million and legal and shareholder costs of $0.3 million, partially offset by a decrease in outside services expense of $0.1 million. The increase in employee compensation expenses was primarily attributable to a $0.2 million increase in stock compensation expense, a $0.1 million net increase in incentive bonus accrual and $0.1 million of salaries and related expenses.

 

Other Income and Expenses

 

Other expenses for the quarter ended September 30, 2018 were $0.4 million, which was consistent with the amount recorded for the comparable prior year period.

 

Income Taxes

 

During the quarter ended September 30, 2018, the Company recorded a provision for income taxes of less than $0.1 million.  The income tax provision relates principally to the Company’s state and local taxes and foreign operations in Canada. During the quarter ended September 30, 2017, the Company recorded a provision for income taxes of $0.3 million.

 

Results of Operations for the Nine Months Ended September 30, 2018 compared to the Nine Months Ended September 30, 2017

 

Net Revenues

 

Our net revenues for the nine months ended September 30, 2018 were $49.6 million, a decrease of $2.6 million, or 5%, compared to $52.2 million for the same prior year period. Net revenues for the nine months ended September 30, 2018 were impacted by a $4.8 million change in recording bad debt as part of net revenue from rentals related to the implementation of ASC 606. Absent the implementation of ASC 606, total net revenues for the nine months ended September 30, 2018 would have been $54.4 million, an increase of $2.2 million, or 4%, compared to $52.2 million in the same prior year period. This increase was primarily driven by an increase in net revenues from rentals (absent implementation of ASC 606) for the nine months ended September 30, 2018.

 

During the nine months ended September 30, 2018, net revenues from rentals decreased $3.0 million, or 7%, compared to the same prior year period. Absent the implementation of ASC 606, net revenues from rentals for the nine months ended September 30, 2018 would have increased $1.8 million, or 4%, compared to the same prior year period. This increase was primarily attributable to the Company’s ongoing program to expand its number of third-party payors under contract, thereby increasing our net reimbursement rate, and the Company’s efforts to reduce claims rejected by third-party payors. Net revenues from product sales for the nine months ended September 30, 2018 were $7.3 million, an increase of $0.4 million, or 5%, compared to the same period of 2017. This increase was primarily the result of an increase in disposable sales of $0.5 million and accessory sales of $0.1 million, which was offset by a decrease in equipment sales of $0.2 million.

 

Gross Profit

 

Gross profit for the nine months ended September 30, 2018 was $29.2 million, a decrease of $2.9 million, or 9%, compared to the same prior year period. As a percentage of revenues, gross profit for the nine months ended September 30, 2018 was 59%, down from 61% for the same prior year period. Gross profit for the nine months ended September 30, 2018 was impacted by a $4.8 million change in recording bad debt as part of net revenue from rentals related to the implementation of ASC 606. Absent the implementation of ASC 606, gross profit for the nine months ended September 30, 2018 would have been $34.0 million, an increase of $1.9 million, or 6%, compared to $32.0 million in the same prior year period. This increase was driven mainly by the increase in net revenues absent the implementation of ASC 606, as well as an improvement in profitability over the prior year. Absent the implementation of ASC 606, gross profit, as a percentage of revenues, for the nine months ended September 30, 2018 would have been 62%, up from 61% in the same prior year period. Profitability was helped by lower incremental costs for pumps sold expense, product and supply costs (net of the third quarter 2018 margin decrease) and pump rental expense.

 

Provision for Doubtful Accounts

 

Due to the implementation of ASC 606, the Company did not record any Bad Debt for the nine months ended September 30, 2018 compared to $4.5 million for the same prior year period. Absent the implementation of ASC 606, Bad Debt for the nine months ended September 30, 2018 would have been $4.7 million, an increase of $0.2 million, or 5%, compared to the same prior year period. Absent the net difference of credits taken to the accrual in the third quarters of 2018 and 2017, respectively, the provision would have decreased by $0.1 million.

 

 

Amortization of Intangible Assets

 

Amortization of intangible assets for the nine months ended September 30, 2018 was $3.5 million, a decrease of $0.7 million compared to the same prior year period. This decrease is attributable to the impairment of some internally developed, internal-use software assets that was recorded in the fourth quarter of 2017; therefore, the related amortization of those projects no longer existed during 2018.

 

Selling and Marketing Expenses

 

Selling and marketing expenses for the nine months ended September 30, 2018 were $6.9 million, a decrease of $0.5 million, compared to $7.4 million for the same prior year period. The decrease was largely attributable to a decrease in salaries and related expenses of $0.6 million, which was partially offset by an increase of $0.1 million related to travel & related expenses. Selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, share-based compensation, overall travel and entertainment and other miscellaneous expenses.

 

General and Administrative Expenses

 

General and administrative expenses for the nine months ended September 30, 2018 were $18.4 million, a decrease of less than $0.1 million compared to the same prior year period. The decrease in general and administrative expenses versus the comparable prior year period was primarily due to decreases in outside services expense of $0.7 million and capital lease retirement charges of $0.3 million, partially offset by an increase in employee compensation related expenses of $0.7 million and legal and shareholder costs of $0.2 million. The increase in employee compensation related expenses was primarily attributable to a $0.7 million net increase in the incentive bonus accrual, $0.4 million of salaries and related expenses and $0.2 million of stock compensation expense. These increases were partially offset by a $0.6 million decrease in severance expenses.

 

Other Income and Expenses

 

Other expenses for the nine months ended September 30, 2018 and 2017 were $1.0 million and $1.1 million, respectively. The decrease included a less than $0.1 million decrease in interest expense primarily due to repayments of long-term debt.

 

Income Taxes

 

During the nine months ended September 30, 2018, the Company recorded a 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 nine months ended September 30, 2017, the Company recorded a benefit from income taxes of $0.9 million, due mainly to the temporary timing differences of expenses recorded compared to when they will be deductible.

 

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 more likely than not that the Company will not 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 September 30, 2018 and December 31, 2017.

 

In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes many changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.

 

 

The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740 - Income Taxes (“ASC 740”), in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is complete and provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is not yet complete, but a reasonable estimate could be determined. The ultimate impact of the 2017 Tax Act on our financial statements and related disclosures for 2018 and beyond may differ from our current provisional amounts, possibly materially, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued and other actions we may take as a result of the 2017 Tax Act that differ from those presently contemplated.

 

As of September 30, 2018, the Company had not yet completed its accounting for all of the tax effects of the enactment of the 2017 Tax Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances. The Company will continue to refine its calculations as additional analysis is completed. The Company expects that any additional changes will be offset by a corresponding increase or decrease in the Company’s valuation allowance.

 

 

Liquidity and Capital Resources

 

Overview:

 

We finance our operations and capital expenditures with internally generated cash from operations and borrowings under our credit facility. As of September 30, 2018, we had cash and cash equivalents of $3.9 million and $9.1 million of availability on our revolving credit facility compared to $3.5 million of cash and cash equivalents and $9.2 million of availability on our revolving credit facility at December 31, 2017. 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 July 31, 2018, the Company entered into the Fourth Amendment (the “Amendment”) to its Credit Agreement, entered into on March 23, 2015 (the “Credit Agreement”). The Amendment allows for, among other things, a loan to the Company for the repurchase of up to approximately 2.8 million shares of capital stock from an individual shareholder, his affiliates, and a second shareholder, in an aggregate amount not to exceed $8.6 million (“Term Loan C”); and allows for capital expenditure financing to the Company for the sole purpose of purchasing medical equipment in an aggregate amount not to exceed $6.4 million (the “Equipment Line”). There are no principal payments due on the Equipment Line until December 31, 2019 at which time it will convert to an additional term loan. The Amendment also made changes to certain covenants, specifically, to exclude borrowings used to fund the stock repurchases referenced above from the definition of fixed charges, as defined by the Credit Agreement, and to reduce the ratio of earnings before depreciation, income taxes and amortization to fixed charges from 1.25:1.0 to 1.15:1.0. In addition, the Amendment eliminates the Net Worth covenant and the excess cash flow provisions while modifying the quarterly principal payment amounts. Term Loan C matures on December 6, 2021, and the Equipment Line matures on December 31, 2024.

 

As of September 30, 2018, our term loans and equipment line under the credit facility had balances of $32.5 million and $1.1 million, respectively. The net availability under the revolving credit line under the credit facility is based upon our eligible accounts receivable and inventory and is computed as follows (in thousands):

 

		September 30,				December 31,
		2018				2017
Revolver:
Gross availability		$	9,909			$	10,000
Outstanding draws			-				-
Letter of credit			(750	)			(750	)
Landlord reserves			(69	)			(45	)
Net availability		$	9,090			$	9,205

 

As of September 30, 2018, 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 September 30, 2018 was 4.75% (LIBOR of 2.25% plus 2.50%). The actual CBFR Loan rate at September 30, 2018 was 4.75% (lender’s prime rate of 5.25% minus 0.50%).

 

 

As of September 30, 2018, the Company was in compliance with all debt-related covenants under the credit facility.

 

Share Repurchase Program

 

On March 12, 2018, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to one million shares of the Company’s outstanding common stock (the “Share Repurchase Program”). Repurchases under the repurchase program will be subject to market conditions, the periodic capital needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing Credit Agreement. As of September 30, 2018, we had availability of $9.1 million under our credit facility, of which $8.5 million could be used to fund stock repurchases, subject to the restrictions and limitations of our Credit Agreement. The repurchase program does not obligate the Company to repurchase shares and may be suspended, terminated, or modified at any time. Repurchases under the program may take place in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan.

 

The Company has repurchased approximately 0.5 million shares under the Share Repurchase Program through September 30, 2018 in addition to the approximately 2.1 million shares repurchased under the First Stock Purchase Agreement (as defined below) and approximately 0.7 million shares repurchased under the Second Stock Purchase Agreement (as defined below). This total of approximately 3.3 million shares represents a 14% reduction in the shares outstanding at December 31, 2017.

 

Stock Purchase and Settlement Agreement and Stock Purchase Agreement

 

On July 31, 2018, the Company and an individual shareholder and his affiliates (the “Sellers”) entered into a stock purchase and settlement agreement (the “First Stock Purchase Agreement”) for the purchase by the Company of the approximately 2.2 million shares of the Company's common stock cumulatively owned by the Sellers for $3.10 per share, equaling approximately $6.7 million in total. The First Stock Purchase Agreement contains customary representations and warranties, an agreement by the Sellers not to purchase any shares of the Company's common stock for three years following closing, a mutual non-disparagement agreement and a mutual release of claims between the Company and the Sellers. The closing of the stock purchases under the First Stock Purchase Agreement occurred in full during the third quarter of 2018 with respect to approximately 2.1 million shares, and the Sellers sold approximately 36,000 of the remaining shares to third parties on the open market. The Company funded the purchase price for the shares with the proceeds from the Term Loan C described above.

 

On July 31, 2018, the Company and a shareholder entered into a stock purchase agreement (the “Second Stock Purchase Agreement”) for the purchase by the Company of approximately 0.7 million shares of the Company's common stock owned by a shareholder for $3.10 per share, equaling approximately $2.1 million in total. The Second Stock Purchase Agreement contains customary representations and warranties, and the closing of the stock purchases under the stock purchase agreement occurred during the third quarter of 2018. The Company funded the purchase price for the shares with the proceeds from the Term Loan C described above and cash-on-hand.

 

Cash Flows:

 

 

        Operating Cash Flow. Net cash provided by operating activities for the nine months ended September 30, 2018 was $8.1 million compared to net cash provided by operating activities of $4.1 million for the nine months ended September 30, 2017. This increase was primarily attributable to the cash flow effect of the operating improvement resulting in a reduced net loss for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, the impact of non-cash transactions, including deferred income taxes and amortization of intangibles, and the increased change in liabilities.

 

        Investing Cash Flow. Net cash used in investing activities was $2.1 million for the nine months ended September 30, 2018 compared to cash provided by investing activities of $0.7 million for the nine months ended September 30, 2017. The decrease was due to a $2.2 million increase in cash used to purchase medical equipment and a $0.6 million decrease in cash proceeds from the sales of medical equipment.

 

        Financing Cash Flow. Net cash used in financing activities for the nine months ended September 30, 2018 was $5.6 million compared to net cash used in financing activities of $7.4 million for the nine months ended September 30, 2017. The decrease in net cash used was primarily attributable to our decision to pay down our term loan debt in the first half of 2018 and the repurchase of common stock compared with our cash proceeds from borrowings under our revolving credit facility during the nine months ended September 30, 2017 and the decision to pay down a majority of our capital lease obligations during the first half of 2017.

 

 

Critical Accounting Policies and Estimates

 

The unaudited condensed consolidated financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles, 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/A for the year ended December 31, 2017, with the exception of our adoption of ASC 606. See Note 2 to the accompanying unaudited condensed consolidated financial statements for further details.

 

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.

 

Our new Chief Financial Officer is assessing, and will continue to assess, the Company’s disclosure controls and procedures and internal controls over financial reporting.

 

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 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/A for the year ended December 31, 2017.

 

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

 

The table below provides information with respect to common stock purchases by the Company during the nine months ended September 30, 2018:

 

Period		Total Number of Shares Purchased (a)				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)				Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (b)
March 12, 2018 - March 31, 2018			32,264			$	2.57				32,264			$	2,417,012
April 1, 2018 - April 30, 2018			39,878				2.74				39,878				2,307,857
May 1, 2018 - May 31, 2018			23,400				2.91				23,400				2,239,717
June 1, 2018 - June 30, 2018			285,000				3.13				285,000				1,348,717
July 1, 2018 - July 31, 2018			31,303				3.20				31,303				1,248,675
August 1, 2018 - August 31, 2018			2,834,689				3.10				48,119				1,097,661
September 1, 2018 - September 30, 2018			41,699				3.31				41,699				959,684
Total			3,288,233			$	3.10				501,663

 

(a)

In addition to the 501,663 shares repurchased as part of the Share Repurchase Program during the nine months ended September 30, 2018, the Company also repurchased approximately 2,100,000 and 700,000 shares as part of the First and Second Stock Purchase Agreements, respectively, which are included in the total number of shares purchased in the table above.

(b)

On March 12, 2018, our Board of Directors authorized a Share Repurchase Program that allows the Company to repurchase up to the lesser of 1,000,000 shares or $2,500,000 of our common stock through December 31, 2018. The repurchases are to be effectuated in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. During the nine months ended September 30, 2018, we repurchased 501,663 shares for a total consideration of $1,540,316 under the program. At September 30, 2018, $959,684 remains available for repurchase under the program.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

 

Item 6.     Exhibits

 

Exhibits
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 Pursuant to Item 601(b)(32) of Regulation S-K, this Exhibit is furnished rather than filed with the Form 10-Q.

 

 

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: November 13, 2018	/s/ Richard DiIorio
	Richard DiIorio
	Chief Executive Officer, President and Director (Principal Executive Officer)
Date: November 13, 2018	/s/ Gregory Schulte
	Gregory Schulte Chief Financial Officer (Principal Financial Officer)

 

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