Aug 8, 2012
Operator
Welcome to the Q2 Earnings Call. My name is John, and I'll be your operator for today's call.
Please note that this conference is being recorded. I will now turn the call over to Mr.
Jonathan Foster. Mr.
Foster, you may begin.
Jonathan Foster
Good morning, everyone, and welcome to InfuSystem Holdings Second Quarter 2012 Conference Call. This is Jonathan Foster, Chief Financial Officer.
With me on the call today is Mr. Dilip Singh, our Interim CEO.
The Company issued a press release yesterday evening which is posted on the Company's website at www.infusystem.com. The release is also available on most financial websites.
Additionally, a web replay of this call will be available on the Company's website for 30 days.
Jonathan Foster
Except for the historical information contained herein, the matters discussed in this conference call are forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from those predicted by such forward-looking statements. These risk and uncertainties include general economic conditions as well as other risks detailed from time-to-time in InfuSystem's publicly filed documents.
Jonathan Foster
The Company has no obligation to update the forward-looking information contained in this conference call. While discussing our performance, we will refer to certain non-GAAP measures such as EBITDA, which is not considered a measure of financial performance under Generally Accepted Accounting Principles.
Jonathan Foster
With that, I'd like to turn the call over to Dilip.
Dilip Singh
Thank you, John, and good morning, everyone. As I've stated last quarter, our management team has placed a high priority on developing operating plans, focused on improving our performance in our core areas of business while further integrating and realizing business synergies.
The trajectory of second quarter 2012 results affirms the appropriateness of this strategy as reflected by continuing revenue growth combined with meaningful initial cost savings.
Dilip Singh
We have stabilized the Company's financial position by maximizing cash generation. This will further strengthen the strong foundation required to sustain and grow the Company over the long-term.
Our management team and employees continue to concentrate efforts on maximizing cash generation for sustained financial stability.
Dilip Singh
Eliminating redundant management positions and restructuring the compensation structure of our Board of Directors from cash and stock to almost all stock options were our first steps. Together these actions produced annual savings of over $1 million.
I look forward to announcing additional cost savings at the end of the third quarter.
Dilip Singh
We operate in a vibrant, yet competitive marketplace where a deep understanding of patient needs is a must to have. At the end of the day, we want to be the supplier of choice in our markets.
We have built a uniquely qualified team of specialist whose intellect and services are demanded rather than simply tolerated. We excel in providing infusion pumps as a service.
Dilip Singh
Most important feedback from our customers, channels, and partners has been very positive. They appreciate our commitment to further enhance customer service solutions that make their job easier.
Our compelling value proposition is we make it easy for care providers, peers, and patients, which was well reflected in the feedback we received.
Dilip Singh
In summary, we reported a quarter of solid revenue growth, up 7% over the period in 2011. Our 2012 first half top line grew 9% versus 2011.
As mentioned in our release, excluding the one-time charges, EBITDA for the first 6 months of 2012 was $6.4 million, an increase of 14% from 2011 $5.6 million. I'm delighted by our employees' enthusiasm and success to date in achieving top line revenue growth.
Dilip Singh
Our goal was to continue to deliver top line while initiating operational improvement that will yield additional cost savings. We did exactly that.
We grew the top line while making decisions that improved EBITDA and ultimately the bottom line.
Dilip Singh
With that, I would now turn the call over to Jon Foster, who will discuss our financial results in more detail, after which we will open the call to questions. Jon?
Jonathan Foster
Thank you, Dilip. The 7% increase in revenues compared to the second quarter of 2011 and the 9% increase for the 6 months ended June 30, 2012 that Dilip just mentioned, primarily related to the addition of new customers with larger patient bases, increased penetration into our existing customer accounts and the resolution of the oncology drug shortage from 2011 affecting certain products.
Jonathan Foster
Total revenues for the quarter ended June 30, 2012 were $14.1 million compared to $13.1 million in the second quarter of 2011. For the 6 months ended June 30, 2012 revenues were $28.4 million, up from $26.1 million in the 2011 period.
The gross profit for the 3 months ended June 30, 2012 was $10.3 million, up 14% from $9 million in the second quarter of last year.
Jonathan Foster
Gross profit for the first 6 months of 2012 was $20.7 million, an increase of 15% compared to $18 million for the first 6 months of 2011. Gross margin percentage for the second quarter and year-to-date in 2012 was 73%.
This compared to the second quarter in 2011 of 68% and 69% year-to-date as of June 30, 2011. This slight increase is due to 2 reasons.
The first is that pump depreciation is gradually decreasing as our actual pump lives in our rental fleet are averaging longer than the 5-year depreciable life we use. The second is that we had a higher mix of rentals compared to sales.
Rentals, by the way have a higher margin than our sales do.
Jonathan Foster
Turning to selling, general and administrative expenses, SG&A for the second quarter of fiscal 2012 was $10.2 million, significantly lower than the prior-year periods, $52.4 million. For the 6 months ended June 30, 2012, SG&A was $21.2 million compared with $61.2 million for the same period last year.
Now prior-year numbers contain a charge for asset impairment of $44.2 million. Excluding non-cash impairment charges, SG&A increased $2.1 million to the quarter and $4.2 million for the 6 months ended June, 30, 2012.
Jonathan Foster
For the quarter, these costs were associated with a concerned shareholder group and they continue to as expected. The increase in SG&A included expenses of $1.4 million, which related primarily to legal fees, $1 million of severance costs associated with a settlement agreement.
And going the opposite way, reported an offset by the reversal of previously recognized stock compensation expense of $1.3 million. This also was associated with a settlement agreement mentioned in our release.
Jonathan Foster
With regard to the first half of 2012, the increase in SG&A related primarily to $2.3 million in legal expenses, the aforementioned $1 million and severance cost and $600,000 of retention payments to key employees. This was all net of the aforementioned $1.3 million reversal of stock compensation expense.
Jonathan Foster
Outside of these charges, SG&A experienced increase primarily to the -- compared to the prior period and selling compensation and travel costs and an increase in our finance and accounting staffs. The settlement agreement is described in the 8-K the Company filed on April 26th.
Jonathan Foster
During the second quarter of fiscal 2012, the Company entered into the Fifth Amendment to its Credit Facility. This is also related to the settlement agreement.
We recorded a one-time charge for extinguishment of debt of $600,000, representing previously capitalized debt issuing cost and lender payments made to secure the Fifth Amendment, and these are shown as an extinguishment of debt for the period. This resulted due to the change in future principal payments.
Jonathan Foster
The second quarter loss, net loss was $0.8 million, compared -- equal to $0.04 loss per diluted share compared to the $27.9 million net loss, equal to a $1.32 loss per diluted share in the prior period. For the 6 months ended June 30, 2012, the Company's net loss was $1.7 million or $0.08 per diluted share, versus a net loss of $28.1 million or $1.33 per diluted share for the year-ago period.
Jonathan Foster
One-time net expenses as discussed about related to the Settlement Agreement and the Fifth Amendment of $1.7 million and $3.2 million for the 3 and 6 months ended June 30, 2012 respectively hampered these results. EBITDA for the second quarter of fiscal 2012 was $1.6 million compared to the $3.2 million a year-ago, excluding asset impairment charges.
Jonathan Foster
For the 6 months ended June 30, 2012 EBITDA was $3.2 million compared with $5.6 million for the same period in 2011 and again excluding asset impairment charges. Excluding the one-time fees associated with the Settlement Agreement and the Fifth Amendment described previously EBITDA for 2012 would have been $3.3 million and $6.4 million respectively.
We use EBITDA as a means to measure the Company's operating performance. We have a full reconciliation of EBITDA, a non-GAAP measure to net income in our press release issued yesterday evening.
Jonathan Foster
The Company defines EBITDA as Earnings, Interest, Taxes, Depreciation and Amortization. Net cash provided by operations for the 6 months ended June 30, 2012 was $3.7 million compared to $2.9 million in the prior-year period.
The latest quarter results reflected increased professional fees associated with the concerned stockholder group and employee compensation costs.
Jonathan Foster
In addition, the Company reported capital expenditures of $1.7 million, a decrease of $700,000 compared to the prior-year period. The Company had available approximately $3 million on its $5 million revolving credit facility.
During the quarter, the Company reduced its draw under its revolving credit facility by $600,000 in addition to its normally, quarterly payment on its term debt. The Company ended the quarter with about $800,000 of cash compared to none in the previous quarter.
Jonathan Foster
We're focused on refinancing our indebtedness, prior to maturity, in order for us to maintain sufficient funds for operations, alleviate the burden of additional costs generated by the Settlement Agreement and the Fifth Amendment. In addition, we believe the combination of our normal cash revolving credit facility is sufficient to fund our current operations and the working capital needs for the next 12 months.
Jonathan Foster
We ended the quarter with accounts receivable days outstanding or DSO with 50 days, which increased over this time last year due to the increase in revenue coming late in this quarter. Our day sale in inventory or DSI increased to 24 days due to opportunistic use pump purchases.
Day sales in AP increased to 30 days and this is mainly due to the expenses related to the Settlement Agreement.
Jonathan Foster
In summary, as Dilip stated earlier, the latest quarter continued our growth in revenues and excluding the one-time charges previously mentioned EBITDA as well. Dilip?
Dilip Singh
Thank you, Jon. To recap second quarter results met or exceeded our goals.
We like what we see for the rest of the year. We have a team that is committed to our mission and enthusiastic about what, how we're doing it.
Now let's open it for questions.
Operator
[Operator Instructions] And our first question comes from Joe Munda from Sidoti & Company.
Joseph Munda
Real quick, Dilip any plans to take off the interim tag, and stay on as permanent CEO?
Dilip Singh
The Board is really exploring the potential in terms of the long-term options. My job here is to stabilize the business, formulate improvement plans and improve the balance sheet.
I believe that our second quarter results show that myself and my management team are doing just that. As I stated earlier, the interim is -- at this point in time and at the request of the Board when they consider these options, if I am required to stay here a little longer then I am prepared to do so.
Joseph Munda
And by those options you mean strategic alternatives. Are you guys still in talks with Houlihan and Lokey, are they still acting as an advisor for you?
Dilip Singh
So, Joe, the Board is totally focused on maximizing the shareholder value. Houlihan and Lokey continues -- on the question of Houlihan and Lokey, they continue to be our advisors and they're looking at these strategic alternatives in this regard.
I'll tell you that no definite conclusion have been drawn at this time. To the extent that there is any change in the Company's strategic posture on Houlihan and Lokey's role we'll make that announcement.
Joseph Munda
I guess, the good, the same goes for Jonathan, right, I think his employment contract is up in September, is that correct?
Jonathan Foster
That's correct. And I will stay at the Company's request and I expect that to happen.
And from a standpoint of working here with Dilip I enjoyed very, very much.
Joseph Munda
The other thing is, is the former CEO, I thought I read somewhere, is he staying on as an advisor as well to you guys?
Jonathan Foster
No. From a standpoint in the settlement agreement Sean McDevitt is no longer associated with the Company.
Joseph Munda
And Jonathan, you spoke about paying down debt or refinancing the debt. What kind of -- what have you seen so far, as far as exploring that opportunity to refinance that?
And how soon and at what interest rate do you think you'll be able to refinance it?
Jonathan Foster
Well, I guess let me overall state that, our continued financial performance will only make financing easier. If you noticed in the Q we state we must refinance our debt.
The fair assumption is anyone that, that's what a good CFO is looking at doing, and preoccupies a lot of my time. As far as interest rate, it's tough to speculate in this market, but we'll do our best to get the best deal possible for the shareholders.
Joseph Munda
The next question is regards, what's the total size of the pump fleet, is it still or around 23,000?
Jonathan Foster
Yes, that's a fair number to say.
Joseph Munda
23,000. And the number of oncology clinics, roughly 1,400.
Jonathan Foster
The number will, in our business it's really tough to define, what's a clinic, what's a customer, but we measure it as customer relationships. We've increased with our revenues as mentioned, that's one of the reasons with our increases, it's increased penetration into our existing customers with a number of clinics that they have, plus adding customers.
Joseph Munda
So, what's the total customer count, if you had to ballpark it?
Jonathan Foster
North of 1,500.
Joseph Munda
The other thing. I'll ask one more question and I'll jump back in the queue.
It seems like growth, the revenue growth traditionally has always seemed to be double-digits, it seems to be slowing here. I know that you guys are going under a lot of, cost savings and trying to clean up the balance sheet and clean up the business.
But, what are your plans to get that growth north of single-digits, going forward? Or are you guys more in phase?
Jonathan Foster
One of the things to look at is, some of that double-digit revenue growth was caused by our acquisition of FBI. What you're seeing the growth over here, that we've announced this quarter is pure organic growth, which we like especially as we increased our pump utilization.
It makes it a very profitable growth. And so, our intention is to continue along the lines of the organic growth throughout, and we feel very comfortable with that growth rate of 7% to 9% is a healthy one that our balance sheet can currently sustain.
Joseph Munda
And regarding gross margin. Is this kind of normalized rate we're seeing here 72.7% in a quarter before, 73% this quarter, is that the run rate that we should expect going forward?
Jonathan Foster
In this market, it's tough to always determine what's going to happen going forward, being in the healthcare industry. But from a standpoint of our costs basis, we don't see any increase in our costs.
We're focused on improving the operational performance, which includes our utilization of our pumps, and so, I feel that that gross margin is a very strong one that we can continue.
Operator
[Operator Instructions] And we have a question from Dennis Van Zelfden from Brazos Research.
Dennis Van Zelfden
Do you anticipate any more legal, financing, severance, retention or any other special charges in the third and fourth quarters?
Jonathan Foster
Thankfully, no. I think we're done with all the charges related to the Settlement Agreement and the concerned shareholder group.
Dennis Van Zelfden
Would there be any abnormal -- normal, but one-time type charges going forward?
Jonathan Foster
The only thing going forward is mentioned in the Debt Modification Agreement. We do have a monthly ticking fee beginning -- that started this past August with our banks.
We have time for one more question.
Operator
[Operator Instructions] We have a question from Joe Munda from Sidoti & Company.
Joseph Munda
In regards to the strategic alternative, I know you guys can't comment on it, but what -- who would be interested in a business that you guys have? I mean pump leasing business.
Who would be interested in acquiring that?
Dilip Singh
Joe, this is Dilip. As I stated earlier, Houlihan and Lokey continues to advise the Company.
We're in dialogue with them in terms of strategic alternatives. Again, the Company has value for sure, the enterprise value is there and our responsibility at the Board and the Management team level is to continue increasing the value of the shareholders and stakeholders.
And a general answer for, when you're -- first of all, as I said that if there's a change in our strategic posture or in Houlihan and Lokey's role will make that announcement. But, we're in healthcare, that's our vertical.
We provide pumps as a service. We surround our service around the pumps with -- we know how to source the technology of pumps.
We know how to do third-party peer billing. We excel in the service of customer care.
We have nursing -- qualified nurses supporting the pumps as a service. And we have a very good service engineering group who excels in servicing the pumps.
So, we're in the healthcare market and you're from the analyst side, I am sure you know in terms of -- the kind of …
Joseph Munda
Yes, I mean to me it looks like a private equity play because there's this -- the trading has drop off that you guys degenerate cash, historically it has been a good cash generating business. Am I right in that, in making that assumption?
Jonathan Foster
I think -- this is Jon Foster. I think you made a number of assumptions, I mean it's the reason that Dilip came here and I am here that we saw beyond the noise, a strong case for a high percentage of EBITDA on the revenue.
One more question operator.
Operator
We have a question from Zach Buckley from Buckley Capital.
Zachary Buckley
So, I was curious to know if there is any progress in new verticals?
Dilip Singh
We're from the organic growth side. We're focusing in one specific area.
I cannot specify that area due to competitive reasons. We have made progress into, I call it moving from stage 1 to 2 where we're going through some trials and we're expecting towards the second half of next year that we'll be able to come back to you all as our valuable shareholders and talk about that a little bit more.
But I would like not to discuss this on this earnings call here because it's just, what we're trying to do here is really very highly competitive in nature.
Zachary Buckley
That's fine. And I was also curious, is there further cost cutting available for the rest of the year?
Dilip Singh
The cost cutting initiatives we took so far of which we've already announced to the tune of millions. We will continue looking, Zack, on the cost saving opportunities.
I can assure you that will be an ongoing progress, both in terms of focusing on our revenue growth and profitability, which the cost savings will help there. I think as we move along, in terms of top level operations, then the non-employee related cost saving opportunities would be there.
And at the end of the third quarter, again I would like to update you all in terms of the initiatives we took and what kind of savings we derived out of it.
Jonathan Foster
This is Jon. I would classify the next round of what we're looking at to be non-employee related and more operationally focused.
Operator, we're ready to do the wrap up.
Operator
And do you have any closing remarks at this time or should I go ahead and conclude the call?
Dilip Singh
I have. This is Dilip.
Thank you very much for joining us today. Much progress has been made during the first half of 2012.
We look forward to sharing the third quarter in our next call. Thank you and have a great day.
Operator
Thank you. Ladies and gentlemen, this concludes today's conference.
Thank you for participating. You may now disconnect.