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| INFU > SEC Filings for INFU > Form 10-Q on 8-Aug-2012 | All Recent SEC Filings |
8-Aug-2012
Quarterly Report
Overview
We are the leading provider of infusion pumps and related services. We service hospitals, oncology practices and other alternate site healthcare providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based customer support, and also operate Centers of Excellence in Michigan, Kansas, California, and Ontario, Canada.
We supply electronic ambulatory infusion pumps and associated disposable supply kits to oncology practices, infusion clinics and hospital outpatient chemotherapy clinics. These pumps and supplies are utilized primarily by colorectal cancer patients who receive a standard of care treatment that utilizes continuous chemotherapy infusions delivered via electronic ambulatory infusion pumps. We obtain an assignment of insurance benefits from the patient, bill the insurance company or patient accordingly, and collect payment. We provide pump management services for the pumps and associated disposable supply kits to over 1,400 oncology practices in the United States, and retain title to the pumps during this process.
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.
Additionally we sell, rent, service and repair new and pre-owned infusion pumps and other medical equipment. We also sell a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are utilized with infusion pumps.
As described in the Forms 8-K filed on April 26th and March 23rd, we have had a significant change in senior management and our Board of Directors (the "Board") that resulted in the addition of five new Directors, the resignation of five old Directors, the selection of a new Executive Chairman of the Board, a position that is independent from the newly appointed Chief Executive Officer, and the appointment of a new Chief Financial Officer. As described in the Form 8-K on May 31, 2012, the five new Directors and two continuing Directors were reelected to the Board at our 2012 Annual Meeting of Stockholders.
InfuSystem Holdings, Inc. Results of Operations for the three and six months ended June 30, 2012 compared to the three and six months ended June 30, 2011
Revenues
Our revenue for the quarter ended June 30, 2012 was $14.1 million, a 7% improvement compared to $13.1 million for the quarter ended June 30, 2011. Our revenue for the six months ended June 30, 2012 was $28.4 million, a 9% improvement compared to $26.1 million for the six months ended June 30, 2011. The increase in revenues is primarily related to the addition of larger customers, increased penetration into our existing customer accounts and the resolution of the oncology drug shortage affecting certain products which was having a negative effect on new patient starts on pumps.
Gross Profit
Gross profit for the quarter ended June 30, 2012 was $10.3 million, an increase of 14% compared to $9.0 million for the quarter ended June 30, 2011. Gross profit for the six months ended June 30, 2012 was $20.7 million, an increase of 15% compared to $18.0 million for the six months ended June 30, 2011. It represented 73% of revenues for the three and six months ended June 30, 2012, respectively, compared to 68% and 69% for the three and six months ended June 30, 2011, respectively. The increase, as a percentage of revenues, is primarily related to a higher mix of rentals compared to pump sales and services.
Provision for Doubtful Accounts
Provision for doubtful accounts for the quarter ended June 30, 2012 was $0.9 million, which was consistent to $0.9 million for the quarter ended June 30, 2011. Provision for doubtful accounts for the six months ended June 30, 2012 was $2.1 million, which was consistent to $2.2 million for the six months ended June 30, 2011.
Amortization of Intangible Assets
Amortization of intangible assets for the quarter ended June 30, 2012 was $0.7 million, which was consistent with the same period in the prior year. Amortization of intangible assets for the six months ended June 30, 2012 was $1.4 million, a 4% increase compared to $1.3 million for the six months ended June 30, 2011. The increase is primarily related to additional intangible assets associated with amortization of new software.
Asset Impairment Charges
As of June 30, 2011, the Company determined that there were sufficient indicators, such as market conditions relating to the stock price, elimination of warrants and business forecasts to conclude that there may be impairment of goodwill and indefinite lived intangibles. We apply a fair value based impairment test to the net book value of goodwill and indefinite-lived assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential impairments of goodwill requires a two-step process. The first step is an estimation of fair value of the Company. If step one indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Impairment exists when the fair value of the Company or indefinite-lived assets is less than the carrying value. Based upon the preliminary impairment analysis performed as of June 30, 2011, the Company concluded there was an impairment of goodwill and trade names of $44.2 million. An additional impairment charge of $23.4 million was recorded for the three month period ended September 30, 2011.
Selling and Marketing Expenses
During the quarter ended June 30, 2012, our selling and marketing expenses were $2.5 million, an increase of 9% compared to $2.3 million for the quarter ended June 30, 2011. During the six months ended June 30, 2012, our selling and marketing expenses were $5.3 million, an increase of 11% compared to $4.8 million for the six months ended June 30, 2011. The increase in expenses is primarily related to expenses incurred by the associated revenue increase as well as increased retention and travel costs in the sales and marketing departments. Selling and marketing expenses during these periods consisted of sales salaries, commissions and associated fringe benefit and payroll-related items, marketing, share-based compensation, travel and entertainment and other miscellaneous expenses.
General and Administrative Expenses
During the quarter ended June 30, 2012, our general and administrative ("G&A") expenses were $6.1 million, a $1.8 million increase compared to $4.3 million for the quarter ended June 30, 2011. The increase for this period is primarily related to additional legal, accounting and outside service fees of $1.4 million, $1.0 million of severance costs associated with the Settlement Agreement and an increase of $0.6 million in the Company's finance and accounting staff and other G&A accounts. These additional costs were partially offset by the reversal of previously recognized stock compensation expense of $1.3 million, for which the requisite service was not rendered.
During the six months ended June 30, 2012, our general and administrative expenses were $12.4 million, an increase of $3.6 million compared to $8.8 million for the six months ended June 30, 2011. The increase was primarily related to an increase in professional service costs related to the Concerned Stockholder Group as described in Note 2 to the Consolidated Financial Statements and as described above. Additional legal, accounting and outside service fees of $2.3 million were incurred during the year relating to this matter and the Fifth Amendment to the Credit Facility; severance payments for a former CEO amounted to $1.0 million and $0.6 million was recorded for retention payments to key employees during this ongoing matter. Additional increases were mainly attributed to the aforementioned finance and accounting staff and several other G&A accounts. These costs were partially offset by reversal of previously recognized stock compensation expense of $1.3 million as noted above.
Other Income and Expenses
During the quarter ended June 30, 2012, we recorded interest expense of $0.7 million compared to $0.6 million for the quarter ended June 30, 2011. During the six months ended June 30, 2012, we recorded interest expense of $1.3 million compared to $1.1 million for the six months ended June 30, 2011. As a result of the extinguishment of debt during the three months and six months ended June 30, 2012, cash flows associated with the hedged variable-rate debt forecasted interest payments were concluded to no longer be probable, resulting in $0.1 million recorded in AOCL relating to the hedging relationship were reclassified to interest expense.
Because the modifications to the debt facility resulting from the Fifth Amendment resulted in an extinguishment of debt, $0.3 million of previously capitalized debt issuance costs and $0.3 million of certain payments made to secure the Fifth Amendment were recognized in the loss on extinguishment of debt.
Income Taxes
During the three and six months ended June 30, 2012, we recorded income tax benefit of $0.4 million and $0.6 million, respectively, compared to a benefit of $16.0 million and $16.1 million, respectively, during the three and six months ended June 30, 2011. The benefit increase is primarily due to the tax impact of asset impairment charge recorded during the periods.
Liquidity and Capital Resources
As of June 30, 2012, we had cash or cash equivalents of $0.8 and $3.0 million of availability on the revolving line-of-credit compared to $0.8 million of cash and cash equivalents and $4.9 million of availability on the revolving line-of-credit facility at December 31, 2011. The decrease in availability on the revolver was primarily attributed to capital expenditures of $1.7 million, principal payments on our Term Loan of $2.3 million, professional fees of $2.3 million and payments on capital leases of $1.3 million, offset by positive cash flow from operating activities.
As of June 30, 2012, accounts payable contained approximately $1.7 million due to professionals and $0.3 million due to the Concerned Stockholder Group related to the events of April 24, 2012. Payment of such amounts is limited by the Fifth Amendment. We intend to pay these costs once refinancing is accomplished or the combination of cash flow from operations and their impact on the covenants related to such payments will allow.
Cash generated by operating activities for the six months ended June 30, 2012 was $3.7 million compared to $2.9 million for the six months ended June 30, 2011. The increase is primarily attributable to better management of payment terms in accounts payable and other current liabilities.
Cash used in investing activities for the six months ended June 30, 2012 was $1.8 million compared to $3.3 million for the six months ended June 30, 2011. The decrease is related to the acquisition of intangible assets and capital expenditures in the prior period.
Cash used in financing activities for the six months ended June 30, 2012 was $1.9 million compared to $2.9 million for the six months ended June 30, 2011. The change in cash used in financing activities is due to the cash proceeds from the draw down on the Revolver, which was offset by the principal payments on the Term Loan and payments made for capital leases.
The Bank of America term loan is collateralized by substantially all of our assets and requires us to comply with covenants principally relating to satisfaction of a total leverage ratio, a fixed charge coverage ratio, a minimum liquidity level and an annual limit on capital expenditures. As of June 30, 2012, we believe we were in compliance with all such covenants.
As noted herein, our Credit Facility matures in July 2013 and as a result of the Fifth Amendment (described in Note 2) we are required to pay a ticking fee equal to 1% of the aggregate monthly amount outstanding beginning in August 2012. This fee will significantly impact our monthly cash flow. We intend to refinance our indebtedness prior to maturity in order for us to maintain sufficient funds for our operations and alleviate the burden of the additional fees. Our ability to successfully refinance this debt will be impacted by a number of factors, including: our current financial performance, including revenue, cash flow and consolidated leverage ratio; the outlook for the Company, including our ability to continue to add additional facilities and further penetration into existing accounts, the current state of the debt markets, changes within the healthcare industry, economics of the healthcare industry and the changes in our regulatory environment.
We cannot assure we will be able to refinance our existing Credit Facility or financing options available to us, if any, will be on acceptable terms. If we are not able to refinance or secure alternative financing and our lenders will not amend the terms of our current debt, we would not be able to satisfy our financial obligations and would have significant financial constraints. This would have a substantial adverse impact on the Company and our ability to continue our operations.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described in the MD&A section in our 2011 Form 10-K.
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