May 11, 2016
Executives
Jonathan Foster – Chief Financial Officer Eric Steen – Chief Executive Officer Jan Skonieczny – Chief Operating Officer
Analysts
Andrew Walker – Rangeley Capital Douglas Weiss – DSW Investment
Operator
Good morning everyone and welcome to the InfuSystem Holdings’ Q1 2016 Conference Call. This is your Adrianne.
Let me first give you to Mr. Jonathan P.
Foster, Chief Financial Officer.
Jonathan Foster
Good morning. First of all, let me get some administrative matters out of the way.
The company issued a press release today. The release is available on most financial websites.
Additionally, a web replay of today’s recorded call will be available on the company’s website for 30 days. Both the press release and Form 8-K and the company’s Form 10-Q for first quarter of 2016 were filed with the SEC yesterday as well.
Except for the historical information contained herein, the matters discussed on the conference call are forward-looking statements that involve risks and uncertainties. Such risks and uncertainties could cause actual results to differ materially from those predicted by such forward-looking statements.
The words believe, expect, anticipate, and estimate or other similar statements or expectations identify forward-looking statements. These risks and uncertainties include general, economic conditions as well as other risks detailed from time-to-time in InfuSystem’s publicly filed documents with the SEC.
Specifically, information about risks and uncertainties that could cause the company’s actual results and financial conditions to differ from those predicted by forward-looking statements are disclosed in the company’s yearend report on Form 10-K for the year ended December 31, 2015 under the heading Risk Factors and elsewhere in the report and in other filings made by the company from time-to-time with the SEC including subsequently filed quarterly reports on our Form 10-Q including the most recent Form 10-Q. Forward-looking statements reflect management’s analysis only as of today.
The company has no obligations to update the forward-looking information contained in this conference call. While discussing the company’s performance, the company will refer to certain non-GAAP measures, such as adjusted EBITDA and adjusted net income, which are not considered measures of the financial performance under Generally Accepted Accounting Principles or GAAP.
A reconciliation of the differences between non-GAAP financial measures and those measures such as adjusted EBITDA and adjusted net income and the most comparable GAAP measures are contained in the company’s press release. With that, I’d like to turn the call over to Mr.
Eric Steen, our Chief Executive Officer.
Eric Steen
Good morning everyone and thank you for joining the InfuSystem Holdings Inc. first quarter of 2016 earnings call.
Joining me today are Jan Skonieczny, Chief Operating Officer; Jon Foster, Chief Financial Officer and Mike McReynolds, Chief Information Officer. There are three things that I want to talk about today, an update on the implementation of our electronic connectivity initiatives, our progress on expanding into new areas to increase and diversify our revenue sources and our acquisition of the pump assets of InfusAID.
The first let's go to the numbers and our record first quarter 2016 financial results and their comparison to Q1 of 2015. Total revenue for the first quarter was $19 million up 14%.
Net collected revenue was $17.3 million, up 11% and gross profit was up 10%, both records for the first quarter. We are first and foremost an infusion pump rental company and rentals of infusion pump to all sites of care grew at 14% in Q1 compared to prior year.
Our infusion pump rental business is comprised of two components; third-party payor, a patient based rental and direct payor or hospital home care-based rental. During the quarter, our rentals are primarily oncology patient pumps to third-party payor insurance was up 9%.
But our rental business of infusion pumps for a variety of therapies to a variety of market segments, including hospitals, home infusion and long-term care grew 36% compared to Q1 of 2015. This unusually large increase was fueled by shortage of disposables for popular model pain pumps, and the majority was in the acute care hospital segment.
Net income was $500,000 compared to net loss of $400,000 in Q1 of prior year. Adjusted EBITDA was $4.1 million and the increase of 5%.
There are two things that are driving the business and they are both the result of our strategic initiatives connecting electronically with our customers. The first way that our electronic connectivity initiatives are impacting the business is they are making our service offering more popular.
Our core oncology business is growing faster than it ever has. We had a record number of pump deployments over the last two quarters of almost 3,000 pumps.
As those who follow the company know, placing pumps in infusion clinics is the first step towards a stream of increased revenue that will follow as patients use the pumps in their home and their insurance is billed. The second way that electronic connectivity is impacting the business as results of our rollout of our new express system.
We are making real progress on this. We are up to 1,000 or 60% of our infusion clinics now converted to and happily using the new system.
We are basically on track to complete the rollout as planned during the second half of the year. I have been basically since our continued growth has added more accounts to be converted than originally planned.
One dynamic that we anticipated and planned for is that reengineered processes of our new system makes every existing patient and physician new again. An example might be a patient that has been served by InfuSystem for months is once again a new patient in our new system and we need an updated assignment of benefit and other information.
A physician who has used the InfuSystem service for years now needs to be documented our new system. To quantify this for you we have had an increase of $800,000 of what we call pending for insurance claims that are waiting or pending for additional information like a patient or physician electronic signature.
If we would have billed all of this additional pending, our revenue increase over prior year would be over 18%. Again this was expected to happen facility by facility, as the rollout occurred.
I expect the pending dollars to be down to a normal level by the end of Q3 after our rollout is completed and we have caught up on electronic signatures. In addition to the 1,000 clinics on our EXPRESS system, we will at the end of this week be up to 100 clinics on full electronic medical records integration.
We continue to expand our new revenue streams; the pain management service continues to grow. We now have 27 surgical facility customers.
In Q1 we did several hundred thousand in both revenue and cash collection, which we had estimate more than $1 million in 2016 from pain management and hopefully closer to $2 million in revenue. We believe our pain management business will generate a positive income number in 2016.
Another revenue diversification initiative has been our increased efforts on the direct selling of disposable infusion products. In Q1 of 2016, our direct disposable sales increased 54% over Q1 of prior year.
Regarding our asset purchase agreement for the infusion pump assets of the InfusAID; this arrangement is similar to our Ciscura asset purchase in acquisition in 2015. However in this case, no employees or distribution facility will be assumed by InfuSystem.
Our broad portfolio of payor network contracts will provide enhanced in network coverage for the patients at 18 oncology infusion clinics located primarily in Pennsylvania and New Jersey. We expect the transaction to add approximately 400,000 in annual revenue.
Now I'd like to ask Jon Foster to take us through the Q1 numbers in more detail.
Jonathan Foster
Thank you, Eric. I'll highlight now some of the key first quarter financial results.
Our net revenues for the quarter ended March 31, 2016 or $19 million an increase of $2.3 million or 14% compared with $16.7 million for the quarter ended March 31, 2015. During the period, net revenues from rentals, our recurring revenue increased $2.1 million or 14% compared to the same prior year period.
Net revenues from product sales were $1.8 million, an increase of $0.2 million for the same prior year period. The increase in net revenues can be attributed to a greater rental volume, partially offset by an overall slight reduction reimbursement rates from payors as a whole and additional revenues of approximately $0.9 million from our Ciscura acquisition.
Gross profit for the quarter ended March 31, 2016 was $13.3 million, an increase of $1.2 million or 10% compared to the quarter ended March 31, 2015. Gross profit as a percentage of revenues for the quarter ended March 31, 2016 was 70%, down slightly from the same prior year period 72%.
The increase in gross profit for the period is mainly due to the increase in rental revenues for the period which is offset by $0.3 million increase in supplies associated with the increase in rental revenues and let’s not forget also the cost in the quarter included the cost of pending revenue. And the deployment of pumps to new therapy sites.
Provision for doubtful accounts for quarter, for the first quarter was $1.7 million, an increase of $0.5 million or 46% compared to $1.2 million for the first quarter of last year. The provision for doubtful accounts was 9% of revenues compared to 7% for the same prior year period.
This increase is due mainly to a change in a major payor that was billing the as in-network without a contract to out-of-network, thereby resulting in an increase in bad debt. The Company expects to billing under a new contract with this payor in the near future, whereby the billing with resort after in-network rates.
We also experienced a slight increase in direct rental bad debt reserves of $0.1 million or result of changeover in collection personnel. Regarding selling and marketing costs during the first quarter, those costs are $2.8 million, an increase of $0.1 million or 3% compared to $2.7 million for the same quarter in 2015.
As a percentage of revenue, selling costs have decreased 160 basis points versus the prior year. During the first quarter, General and Administrative, the G&A expenses were $6.7 million, an increase of $0.7 million from $6 million for the prior year period.
The increase in G&A expenses were mainly attributable to increases in spending on IT of $0.5 million. As a percentage of revenue G&A costs have decreased 70 basis points versus the prior year.
So our combined spending on SG&A has decreased 230 basis points for this time last year. As of March 31, 2016, net cash and cash equivalents of $0.6 million and $6.2 million of net availability under the revolver compared to $0.8 million of cash and cash equivalents and $9.9 million of availability under our revolver as of this time last year.
As of March 31, 2016, the company has prepayments on this Term Loan A principal payments, each of these payments is approximately $1 million, representing a total prepayment of $2.9 million which also represents flexibility when it comes to future liquidity. During the quarter, the company increased its pump fleet by $3.1 million to serve future business needs.
Looking at our working capital days for the first quarter compared to this time last year. We ended the quarter with DSO, days sales outstanding at 73 days compared to last year, 62 days.
This is impacted by more revenues in the quarter coming late in March versus last year. Our days sales in inventory including a medical equipment held for sale or rental or DFI [ph] decreased from 25 days to 24 days.
Days sales and accounts payable increased from 29 days to 38 days, reflecting better management accounts payable. Overall we were able to manage our net working capital base increase only slightly from 58 days to 59 days.
So in ending let me state that we continue the strong growth that we experienced in 2015. This does put pressure on the balance sheet with IT capital spending coming down.
Increased leverage on SG&A spend, these investments will enable us to increase future revenues and adjusted EBITDA as we move forward in 2016. Eric?
Eric Steen
Thank you, Jon. In conclusion InfuSystem is off to a great start in 2016 with a record number of pump placements in oncology, a smooth rollout of our new EXPRESS system and acquisition that adds another 18 oncology infusion clinics, a record month for our direct to provider rental business and continued uptake on our pain management services.
The management team and employees remain focused on our growth strategy of electronic connectivity and the continued expansion of our pump fleet. Our success in the first quarter of 2016 is a testament to the hard work, commitment and creativity of our employees to do the job and to do it well.
I would now like to open up the phone lines and address any questions that you may have.
Operator
[Operator Instructions] Thank you. And our first question comes from Douglas Weiss from DSW Investment.
Please go ahead.
Douglas Weiss
Hey, good morning.
Eric Steen
Good morning, Doug.
Douglas Weiss
So I guess, the first question I have would be just from a G&A and I think you kind of compared the year-over-year margin. But it looks it was a pretty big ramp in absolute dollars, a pretty big ramp versus for the fourth quarter, well really versus any quarter last year.
Can you kind of just and I know you highlighted in the release that a lot of that was tech spending. But I wonder if you could just talk a little more about, is that the right number going forward, is there opportunities to bring that back to the levels we saw last year.
Could you just talk a little more about that?
Eric Steen
Jon, do you want to talk about that?
Jonathan Foster
Sure. G&A in our plan for the 2017, not Doug as we’ve spoken on previous call.
IT spend is moving more pump developmental to operational. So you’re going to see an increase in cash spend and information technology as we move forward.
But overall you should still as we’ve noted in past calls and as we noted this quarter on SG&A will have more leverage as a percentage of sales. You got to recall that a good portion of our G&A is variable.
It relates to billing and collection, as billing go up, so does the cost of that. As well as on the selling side, a good portion of our compensation is based on commission.
So as revenue goes up, so does that as well. So we focus more internally on the percentage of revenue and we’re determined to continue increasing that leverage.
Eric Steen
Just one editorial comment I have on that Jon is, certainly you’re running two systems, rolling out a new computer system and then growing so much at the same time and the amount of workload we’re putting on our existing customer service and billing in our third-party payor business that certainly doesn't help our G&A, so that certainly one thing I think that that's going to go away. So the good news is we’re down from three systems to two.
We operated Ciscura system for those customers, which now in this last quarter, we’ve since retired and now we’re in the middle of – we set 1,000 clinics. I’m very pleased, how well the new system is working and when we get out of running two systems and still we have manual business, while training for the new system, that certainly hasn't helped our customer service and billing expense.
Douglas Weiss
When do you go from two to one or are you going from two to one?
Eric Steen
I think the last date I saw was June 30th, I know we’re having an update meeting next week, where we’ll see if that’s - they've been firm on that, Mike is nodding his head, yes. So June 30th, we look to be out of our legacy system, which you may recall from following the business Doug is iPads that take information entered by the clinics, turn into a PDF and fax it, which manually entered into systems.
So June 30, we’re putting to bed that labor-intensive process.
Douglas Weiss
Okay. Are you putting kind of dollars [ph] on that will we just, is it not that definitive dollar wise?
Eric Steen
Well, we’ve got in our plan for 2017 that we expect to have a more streamlined process and we will reconfigure the way that we can continue to grow the business, then when we grow the business, we got to add both people to do, manual order entry or pay over time to the folks who have done. So we’re going to be able to grow and the business while we’re getting more revenue and earnings per employee is with the goal of our index manual systems has been.
Douglas Weiss
Right. Okay.
And I guess, the first quarter tends to be high on the selling and marketing side is that seasonal comp that ramps up?
Eric Steen
Yeah, we pay our bonuses in the first quarter so for 2015 we had a good year, we didn't quite fit all of our plans, but we paid our good employees bonuses based on their performance and crew [ph] for that throughout the year but we threw up at the end of the year and we see more expense there.
Douglas Weiss
I guess, the reason I’m just looking at the way SG&A has played out last year and you had a very nice improvement in the second half in margins. You picked up almost – you did pick up about 600 basis points on SG&A between 2Q last year and 3Q and I think that’s even better in 4Q and then we’re back up towards the higher end again.
I mean, will see that kind of sequential improvement through this year or not so much.
Eric Steen
I think we continue to do things to cut cost, I just saw something recently that showed how much reduction we have had in our air shipments as a percentage of revenue in my three years here and the number has gone down and it funds expenses in other areas. I would say and so some of the improvements you’ll see in the past is trying to be cost conscious, we need to make cost savings, redoing the way we do our largest business and eliminating double order entry.
Every one of the 40,000 patients we serve is a huge change in the way we do things in the business. And sometimes it's hard to see exactly how the dust is going to settle in the future.
But we think we’re going to able to scale up the business in a more significant way without having to add so much manual order entry, which is a factor of limiting growth.
Douglas Weiss
Okay. And then for your provisions line, you addressed that a little in your - you said that was because one of your payors was briefly out of network.
So is that kind of, and they’re now back in network, is that correct?
Eric Steen
We just signed a contract with one of the largest payors in the country and we had some bad debt issues as we work through the last year. And so some of the bad debt that we increase, you see we’re looking at the rearview mirror at last year's problem.
And I know that a substantial amount that is patient relating is all accrued. Jon do you want to add some comments on bad debt?
Jonathan Foster
No. I mean, again, that in-network, out of networks was with the major payor, but that sometimes happens from time to time and that’s why again we look at net collected revenue.
We should see that as a percentage of revenue to be the down, significantly lower by the end of the year, so I can say that time is there [ph].
Eric Steen
The other thing I just thought of this, Doug I emphasized this in my comments, but that amount of pending that we have, so we had $800,000 in revenue that’s sort of sitting there right now and every bill tends, when the patient search is treated, just everything just everything counts, but we did have some delays in that. So we’ve got all of our SG&A, with this large amount of business and delayed gratification on the revenue was we should catch up to as we work through our processes to get every physician and patient from old system to new system and their bills appropriately sent to the right insurance carrier.
So that would be one thing I would say to Jon. I remember we talked about, the thing that we accrued those expenses and through we had them in this quarter, so we’re going to be in this quarter.
Jonathan Foster
Correct. But from the standpoint in the cost of good sales, you had the depreciation, you have the supply costs related to those pendings in the quarter.
And also a good portion of your effort on the billing side is also expenditure. The billing personnel is still messing with those billings and an operating revenue, so you have cost in the quarter without the appropriately revenue.
That revenue flow through the quarter, of course you’d had a larger denominator on all of these and leverage what it was, even better than what we just stated. And pending does not mean beyond filing limit and we talked about the negotiations we’ve done with our insurance carriers and a lot of our insurance carriers we now have part of negotiation was to have extended amount of time to get all the necessary requirements placed.
Douglas Weiss
Okay. And then CMS, are we going to see that impact through the year in terms of, or is it kind of just be kind of – is that going to just kind of mix in with what – which – by the way congrats on a very good growth, are those kind of growth on the new revenue line, is that revenue growth been kind of obscure the CMS.
In fact where we’ll see most impacts be more.
Eric Steen
Well, the competitive bidding, all the rates are published and in place and the competitive bidding is – rates are what we projected –
Jan Skonieczny
But the second half of the cuts go into effect July 1 into our model already.
Jonathan Foster
Yeah, but from a standpoint, our expectations for high single digit growth that is overcoming those CMS cuts for the year. So we’re going to be growing faster than the cuts will be taking place.
Eric Steen
I can't remember the numbers, that one time we thought we had a total, but then because we have more facilities now, the total change. Do you remember Jan or Jon, how much we’ve said was in the first half of the year and how much in the second half?
Jan Skonieczny
I don't remember.
Eric Steen
I think in our past comments, I know in the past earnings calls, when we got the information what the seamless rates were, which was months ago, it might have been the call two quarters ago. We talked about what the impact was for this year and we do – like we say, we’ve got other private – our private payor contract portfolio is growing like I just mentioned, we just signed another updated agreement that we had expired with one of the largest carriers.
And so we were out of network with them for a while.
Jan Skonieczny
Right. We entered into 64 new network contacts relationships last year and we have a pretty lumpy goal for this year as well and we’re on track.
So I think our intent is to offset as much, if not all of those cuts.
Eric Steen
Yeah, maybe, I think that's what the key point, Doug, one of the things, that I announced this publicly and we’re proud that we got there was to say, we’re going to keep our margins the same. So despite the fact that there are cuts from CMS, all the other things we’ve done, reducing our shipping charges be more automated, our insurance billing process, extending the life of our pumps, losing less pumps, all these cost savings initiatives that we've been doing for the last three years because when I took this job we knew the cuts were coming, the question was what do we do about it and now with all these things we’ve done, we’re forecasting that we’re going to keep our margins intact and have our margins the same, even with though the spike of these CMS cuts in the 2016.
Douglas Weiss
Okay. So let me just ask one more, I have a bunch of questions, but I’ll get back in queue to give others a chance.
But my last one is just on the large pump purchase and I guess this gets to sort of the issues of utilization. And I mean, it would seem to a related for some that with 64,000 pumps, I guess, I don’t, its same way, it seems like you have enough pumps already that you would be able to supply the new customer from your existing inventory as opposed to buying an additional large purchase.
So could you just talk about why it's necessary at this point, why couldn't improve utilization as opposed to making an additional large purchase?
Eric Steen
Well, one thing is when we get new accounts we buy new pumps for those accounts for the most part. We do work on our utilization and try to become more efficient and we’re even working on IT solutions that we talked about in the past, involving tracking of pumps and being more efficient with that to grow our patients the way we have is - our strategy is we have pumps on the waterfront and it's right pump at the right place at the right time and different accounts have different requirements for the type of pump they use based on their protocol, is it 24 hour infusion, is it hourly infusion, different pumps have different models, the nurses are familiar with and so we spent a lot of time making sure that we got the right pump in the right model.
And I mentioned this 36% increase in our direct payor business because there was a backorder on a particular model paint pump and guess who had a bunch of inventory of paint pumps who could step in there and take advantage in the short-term chaos in the marketplace, it was InfuSystem and we got those sales because we had enough pumps in our shelves for short-term demand, our situation. And so it's not like going to the airport and it doesn't matter if there's a Ford Taurus or Chevy Cavalier, if it doesn’t how work the windshield wiper something really bad is going to happen, so we better have the pump that that staff is very familiar with and very well trained on.
And so that's part of the challenge and so all these pumps that we’re excited about buying pumps and the thing is as the market consolidates and more and more of these patients are in these outpatient infusion clinics of these large integrated health networks, they need a pump there. And that patient, that’s part of the beauty of our model is that patient is done with your infusion, they’re able to attaches into a pump and send him on the way, a very, very important value to our model.
You never want to do is you never have the pump if the customer needs and you don't have it and your competition does and that’s sort of the price you pay, the high touch, high luxury, the company that they can always depend on for the appropriate care for their patients.
Douglas Weiss
Right. So in the other words, the new customers wanted a kind of next state-of-the-art offer or some very specific new pumps that you didn’t necessarily have an inventory, so let them buy those.
Eric Steen
Yeah, that could be. The pumps kind of find their way to the sites of care and so you mentioned Baxter pump, they don’t make an ambulatory pump, but they do make pole-mounted pumps and there are still pumps from the time period, when I was a boy sales reps selling Baxter pumps that we still rent today for certain levels of care.
Douglas Weiss
Yeah, all right, well, then let me ask someone else ask some questions. Thanks.
Operator
And our next question comes from Andrew Walker from Rangeley Capital. Please go ahead.
Andrew Walker
Hey, guys. Congrats on a nice quarter.
Just a few questions. Just I was a little surprised on the comment on the liquidity particularly given the $3 million prepayment you did last year.
Do you need to refi debt or take out a bigger revolver? Or you just kind of trying to explain to shareholders why you're drawing down on the revolver?
Eric Steen
I think it’s to explain why we’re going down on the revolver. We were growing faster in the beginning of the year than we’ve planned on growing.
So I consider it a high class problem that I’ll let Jon talk to liquidity in more detail.
Jonathan Foster
No, it’s definitely later. I mean, we’ve seen it past calls, our cash flows is quite is very much able to sustain our expected growth in the high single digits which of course we were – as Eric said we have a high-class problem.
JPMorgan Chase has been great to work with and very responsive to our needs. So as things move out, we stay on our expected revenue growth.
Things will be fine and our existing net capital structure will be fine. But if we do have that high-class problem and the growth continues with in today's credit environment.
And our past performance, we have plenty of options available to us.
Andrew Walker
Okay. So that’s great.
And then kind of on the acquisition you did this quarter. Am I right to think about the economics of these bolt-ons, kind of similar to Ciscura, just like low to mid single-digit EBITDA post synergies or is it different than that?
Eric Steen
That’s exactly right. I look at it very similar to this Ciscura deal and this can see the revolver costs because the InfusAID facilities have gone directly to our new computer system.
And the timing on Ciscura, our new system wasn't quite available yet, so I made the decision, I didn't want the Ciscura customers to have to go through two new computer implementations in the first six months and being introduced to InfuSystem, so it kind of hit the bullet there and then Mike and Jan, went the extra mile for me to make the customer experience nicer. And so in this case the economics are going to be even better than Ciscura.
Did you say publically, they’re about same range.
Andrew Walker
Okay, that’s great. And then I mean obviously doing these things at low to mid single digits is great.
Are there any more of these tiny bolt-ons out there?
Eric Steen
There are really, there is a number of really small players and most of the people in this business do something else. So when I talk about the oncology third-party payor business, there’s a lot of a lot of other companies that are better known as a rental company, as a direct to provider rental company running pump to all of these home infusion therapy companies out there and then for a few select facilities, they will have a special program or they do some insurance billing.
I see more of that than other competitors who are just in the DME ambulatory pump business, I don't really see those out there.
Andrew Walker
Okay, that’s great. And then just you gave some commentary on the IT spending and you mentioned moving more from developmental to operational.
Does that mean you're going to be shifting from capitalizing IT expenses to more just expensing them as incurred?
Jonathan Foster
Correct. But in total they’ll be less.
Andrew Walker
Okay. And I think previously you had said kind of maintenance CapEx per year is about $2 million per year and IT spend was going to be about $3 million per year this year.
Is that still kind of on the right trend?
Eric Steen
Sure. That’s pretty good.
Andrew Walker
And then the $3 million what's the expense versus capitalized?
Eric Steen
The $3 million is capitalized.
Andrew Walker
$3 million, how much is capitalized? Okay.
And last question just you gave a lot of commentary on the CMS and just is everything on pace with – you had mentioned a lot of the CMS headwinds offset by the increase in the payor network. Is everything on pace with that?
Eric Steen
Yeah, we’re on pace for our expected 2016 performance as expected.
Andrew Walker
Great. Perfect.
All right, well looking to talking to you guys in three months. Keep up the good work.
Eric Steen
Thank you.
Operator
[Operator Instructions] Thank you. Doug Weiss from DSW is on line with the question.
Please go ahead.
Douglas Weiss
So can I just follow up on the prior callers question regarding cash flow, so debt actually lapping in this quarter? Are you going to be cash generative for the year and do you think that on an absolute basis we’ll come down for the year?
Jonathan Foster
Based on our expectations of high single digit growth, yes, the issue as Eric has mentioned, we’d love to have a high-class problem of higher growth.
Douglas Weiss
Okay. So as of today, you would expect to be cash positive if growth comes in higher than you expect, you’ll have to invest in more pumps.
Is that the new basic platform?
Eric Steen
That’s correct. Yeah, we want to be a bigger factor in the marketplace and we know the return we get on pumps, we have the opportunity to extend our fleet and gain share.
We’re going to do so.
Douglas Weiss
Okay. And you maybe answer this in response to prior question, but did you give a expected close date on the acquisition?
Eric Steen
We haven’t and so we’re having some flexibility for our partners with InfusAID, and so we’re ready to close it. And there are some facilities that they were working with to - delay the close that we expect to close it soon.
Jonathan Foster
So we’ve tried more of the third quarter contribution.
Eric Steen
They will be impacting the second quarter from InfusAID from the work done at the InfusAID, there will be some impact in the second quarter, but it’d be more likely a third quarter result.
Douglas Weiss
Will we see it in the numbers or is it too small to really be --?
Eric Steen
I think it’s a pretty small deal and actually I think when we announced it, I think we said 400 pumps, so I think I’ll take responsibility that was the number, I saw 500 and it was less than 400 and now I know as we’ve already reduced our estimate down to 300. So sometimes you know the good news about this is we did what we came for.
Like I told the folks at InfusAID, hey I hope you’re keen to know the bigger you are, we get what we paid for. Then it already seems like it might be a little bit smaller certainly in the number of pumps, that we’ve seen from them?
Douglas Weiss
But the price is based on the number of pumps, right?
Eric Steen
Exactly, that's what's great about it is I feel that it’s a pretty creative way to go at it. And we went out that way with Ciscura and we’ve done it with InfusAID where it’s sort of a variable purchase program, and so everybody knows exactly kind of what they’re getting.
And the only question is how many pumps pricing facilities do we end up having at the end of the day.
Douglas Weiss
And then just on the big picture on the competitive environment, do you conceive at all with Walgreens in the ambulatory. Are they more on certainly lower tests.
Jonathan Foster
When I think of Walgreens and now their new name is Option Care and I think the good people at Option Care. I think as a customer first and we’d have our direct provider of rental business and we are fortunate to do some business with the Option Care group from the formally wholly owned by Walgreens and I think Walgreens has 49% stake in, but I consider them a customer.
They do some business with home infusion for oncology patients that they don’t want the therapies like the nutrition and some of the more complex therapy, the oncology patients are on. Sometimes you see companies like that and I won’t specifically say names who specifically don't want the patients that we have because the drug pricing for things like [indiscernible] is very low and they’re typically not interested in that segment.
But they may have the insurance contract in certain geography that obligates them to overlap much more by relationship with Walgreens Option Care as a customer.
Douglas Weiss
And then on pain, thanks for, you gave a little more granular detail in this release, I think that’s helpful and I hope you continue to do that. But I guess if you were to making some progress there, albeit slow.
Jonathan Foster
Yeah we’re making progress. We are incurring in for one pain sales person and so for me we’re calling before we wrap and we really want to understand the benefit, we really want to work with the customers and what we’re really developing are some very vocal happy customers who we’ve fine tune the service with.
So as we take it to a larger market we really know how to provide the best value to our customers. So I consider that's going well and that's when I see hundreds of thousands of dollars of cash being collected, I think progress is great.
This is going to be a breakeven business and now we can invest a little bit more and have a little red ink to continue to grow and diversify that product portfolio. And I was in Washington DC not that long ago and the day I was there, the Senate had approved Narcan for every ambulance, which is great, that’s great.
Let’s have – when somebody ODs on opioids because we went out of 16, elective surgery patients become addicted to opioids. I think it's great to have some Narcan in the ambulance, but they should also reimburse for non-narcotic times like our pain management program and not have people get all these oral narcotics that are the same chemical composition as heroine.
So I continue to lobby in work of legislators, so our federal government cannot be a indirect supporter of the narcotic problem by reimbursing through narcotic products but not reimbursing the non-narcotic alternatives.
Douglas Weiss
Do you think if we take some of our customers and assume that and remain the non – category that’s not reimburse by CMS. Is there still a possibility for that to become a material revenue contributor for you or is it really just kind of in the bond CMS.
Eric Steen
No, it absolutely is revenue, so we’re growing this business without CMS, so the good news is that we have this large network of private commercial payors, so people that are out there like you and I can go in there and get lightweight ambulatory pump after a new surgery or hip replacement and not have to be exposed to all of their products. Our Medicare patients who have the same benefits, so what we find is many of our surgery center customers simply pay for that service themselves.
And when you look at the cost of whether its chemotherapy or orthopedic surgery, the cost of the ambulatory top is timing in the big pictures. So many people are able to find that with charges of lumping other charges or pay for it out of some type of overall reimbursement that they get.
Douglas Weiss
Okay. And then last question from me is, just kind of with the big picture philosophical question, I mean, you already have – separate your numbers, but you already have a fairly large share of what I think is a fairly mature market.
Is there, putting aside and the potential there. Is there a point at which you guys are no longer really in growth mode, but you sort of captured some of shares you can capture with ROIs and be the reasonable threshold and at that point can be linger [ph] on the business more of a cash, mature kind of cash generative business with opposed to a business where you're continually extending your fleet of pumps.
Eric Steen
Yeah, I see the point. You can certainly do that and I mean, that I could see where there comes a time and say let’s just milk this things and not reinvest in the future and not try to diversify and try not to get bigger.
That’s certainly not the plan I presented to the board and probably not why the board had hired someone like me that's always looking at new ways to expand and diversify and new things to get into. And I've got a number of things on the list right now.
When I look at the future, what I think the future of InfuSystem should be and what kind of future, it's a big long list of all kinds of stuff that some of what we don’t do today. So that’s how I’m looking at it and it’s just a question of we’re still – we’re relatively small company.
You’ve got a small management team that is trying to run the business day to day in the constant challenges that pop their heads up, while doing new initiatives and growing new things. Paying up to 27 clinics, disposable sales up 50%, there's a lot of work at commercial agreements that that go into that.
And there's a number of the things we’re looking at, that I would say the day that I don't see good internal rates of return for the new things that we’re looking at, then I think it's definitely time to go to the board and say I think we’re better off paying down debt and we’re better off buying back the stock because there should be more value to that. And we think the marketplace in sometime.
So there is definitely other things to do and at the board, we have a lot of robust conversations about these topics. But as I've been here three years now and mode that I've been in is look how we can leverage these strengths by adding these IT systems and now we’ll able to provide these services as well.
Douglas Weiss
So I guess, right, and I guess, closing in on those comments, is that you still feel like there is room to take market share in your core business, right, because once you’ve sort of saturated that or once that opportunity is not there, then you can – the dollar you’re putting in these ancillary businesses are not as large I think.
Eric Steen
I mean, it’s a huge marketplace. The infusion industry is a huge marketplace, especially if you start to touch pharmaceutical product at some point and that's not showing that the capabilities that InfuSystem had when I got here, but it certain things to think about, especially with all these new infusion drugs that are out there that big pharma companies and the clients that they’ve got and achieved in segment, there's a lot of opportunity with special disease states where they’re now coming out with pharmaceutical products that don't just address symptoms, but cure some of these disease states that people in the past that to live with their whole lives.
Douglas Weiss
So when you say, infusion is a huge marketplace, are you including home infusion or is ambulatory infusion itself a huge marketplace.
Eric Steen
Yeah, I’m including all of it because we participate in a variety of different segments of infusion, even enroll, we have the enroll pumps [ph] that we get, we rent and we have people come to us that we want ambulatory pumps for studies and now we’re getting more in pole-mounted pumps, maybe our big increase in our direct level business in the first quarter were pole-mounted pumps, were pain pumps that were sold on pole-mounted, were not ambulatory pumps. So we’ve got a lot of different marketplaces that we’re participating in and it's nice to have these different revenue streams as we see markets increasing due to less say new pharmaceutical drug being released that picks up usage in the infusion market for especially our ambulatory pumps.
Douglas Weiss
Okay. So I mean, I guess, what I’m hearing is that you’re using your kind of your entrenched position in ambulatory to make possibly invest more in the home infusion market among other markets.
Is that what it characterizes it?
Eric Steen
Yeah, I mean, the home infusion market many of our customers currently are home infusion markets, participating in the home infusion market and we supply them with pumps and disposables and hope to be more of that in the future.
Douglas Weiss
And then last question, how should we as investors measure your ROIs because I realize that you cut some headwinds this year with CMS changes. So I realize that had you not made the investments you’ve made the comparisons might look less impressive.
At the same time the EBITDA growth this quarter and kind of, so maybe we’ll see how it flows through the year, but right now, I guess, the ROIs are not on an EBITDA basis do not appear to be quite as robust as some of your comments might suggest. So I don’t know if you have any comments about it or results on that.
Jonathan Foster
Well, Doug, I would say as Eric is always saying, we’re not a quarter by quarter player, we’re more of an annual business to look at, so one quarter does not make the story. If you look at that from a return on capital employed this company has historically been way in excess of 20%.
And so as we’ve stated as in our year-end conference call that we expect our margins to continue and the high single digit growth. So I think that bodes well for everybody.
Douglas Weiss
Okay. Listen, I appreciate all the answers and I think that’s revenue growth this quarter and look forward to talking to you next quarter.
Eric Steen
Okay. Thanks Doug.
Operator
We have no further questions at this time. I’ll now turn the call back over to Eric Steen for closing remarks.
Eric Steen
Okay. Thank you very much for showing interest in InfuSystem and we’ll talk to you next quarter.
Operator
Thank you, ladies and gentlemen, this concludes today’s conference. Thank you for participating and you may now disconnect.