InfuSystem Holdings, Inc Q2 FY2026 earnings call

• Core Business Growth: Oncology, the company's core business, achieved its first $20 million quarterly revenue with 6.4% year-over-year growth, extending the company's leading position in the U.S. outpatient oncology ambulatory infusion market, where it serves 18 of the top 20 U.S. hospital systems. Wound care, led by the recently launched lymphedema compression device line (added in Q3 FY2025), delivered 154% year-over-year revenue growth, driven by expanded manufacturer partnerships that now cover both pneumatic compression devices and adjustable compression wraps for patients with limited mobility. - Operational Improvements: The company completed significant post-launch stabilization work for its new Enterprise Resource Planning (ERP) system after its Q1 launch, leading to a sequential and year-over-year decline in ERP spending. Management remains focused on leveraging the new ERP system to improve operational capacity, process efficiency, and working capital management. - Contract Restructuring Outcome: The restructuring of the GE Healthcare biomedical services contract reduced Q2 revenue by $1.6 million but delivered a larger reduction in direct contract expenses, improving overall profitability. - Financial Position: The company ended the quarter with $55.2 million in total available liquidity, a conservative net leverage ratio of 0.61x trailing twelve-month adjusted EBITDA, providing financial flexibility for organic growth investments and selective small tuck-in acquisitions. Returned $4.4 million to shareholders via share repurchases in the first half of the fiscal year. - Portfolio Diversification: The company maintains a de-risked diversified revenue base, with no single customer representing more than 10% of total revenue, Medicare exposure below 10%, and over 800 payer contracts covering more than 97% of insured U.S. lives.

INFUSE System Holdings recorded total Q2 FY2026 GAAP revenue of $36.9 million, a 2.6% year-over-year increase. Adjusting for the GE Healthcare contract restructuring, non-GAAP pro forma revenue grew 7.5% year-over-year. 1. Patient Services: Q2 revenue was $24.8 million, a 15.2% year-over-year increase, representing 67.2% of total company revenue. Within this segment, oncology revenue grew 6.4% year-over-year to surpass $20 million for the first time, driven by higher treatment volumes and improved reimbursement collections. Wound care revenue grew 154% year-over-year to $3.46 million, representing 9.4% of total company revenue, with 90% of this increase coming from lymphedema compression devices. The segment's gross profit increased 10.9% year-over-year to $15.3 million, with a gross margin of 61.8%, a 2.4% year-over-year decline, driven by the lower-margin wound care mix and higher pump maintenance costs. 2. Device Solutions: Q2 revenue declined 16.1% year-over-year to $12.1 million, representing 32.8% of total company revenue. The decline was primarily due to the planned $1.6 million revenue reduction from the GE Healthcare biomedical services contract restructuring and a 49% drop in equipment sales following a large rental customer buyout in the prior year. Despite lower revenue, gross profit remained stable at $6.1 million year-over-year, and gross margin improved 8.3 percentage points to 50.2%. The GE restructuring alone contributed a 4.8 percentage point margin improvement, with additional gains from procurement initiatives, productivity improvements, and favorable mix. Consolidated gross profit increased 7.7% year-over-year to $21.4 million, and consolidated gross margin expanded 2.8 percentage points to 58%. Adjusted EBITDA for the quarter was $8.6 million, a 7.6% year-over-year increase, with an adjusted EBITDA margin of 23.4%, up 1.1 percentage points year-over-year.

• After adjusting for the expected $7.1 million annualized revenue reduction from the GE Healthcare contract restructuring, management maintains full-year FY2026 pro forma revenue growth guidance of 6% to 8% year-over-year. - Management maintains guidance for adjusted EBITDA margin to remain in the low-to-mid 20% range for the full year, consistent with the company's long-term target range of 22% to 25%, inclusive of ongoing IT system upgrade costs. - No changes were made to long-term margin targets, and management noted there is more upside than downside to hitting the target range as the business grows.

The pre-call standard disclosure notes that forward-looking statements are subject to inherent risks and uncertainties, which are detailed in the company's SEC filings including the 2025 Form 10-K. The company does not commit to updating forward-looking statements except as required by applicable law. No additional material new risks or operational failures were disclosed during the call.

Q: Can the 6.4% year-over-year growth in the oncology business be sustained going forward, and why is lymphedema compression business growing so strongly now compared to prior attempts at this market, and can growth continue?

A: Management expects oncology growth to be sustainable, driven by steady volume gains, new customer additions, and ongoing improvements in collections and reimbursement. Strong lymphedema growth is attributed to improved manufacturer partnerships that resolve prior documentation issues for claims submission, plus the 2024 Patient Lymphedema Treatment Act that expanded market access via improved reimbursement. Management expects continued growth through the rest of 2026 and beyond.

Q: What is the trend for ERP spending going forward, and how much was Q2 spending compared to the prior year?

A: Q2 ERP spending was approximately $300,000, half of the $600,000 to $700,000 spent in the year-ago quarter, a sequential decrease from prior quarters as the system moves from implementation to stabilization. Management expects spending to continue tapering down, shifting from stabilization costs to smaller enhancement investments, and will not return to prior implementation-level spending.

Q: What impact has CMS's April 2026 prior authorization requirement for lymphedema compression devices had on InfuSystems' business?

A: Management reports no material impact from the new requirement. As a relatively new entrant in the current lymphedema market, prior authorization is already built into the company's developed processes, and existing manufacturer partnerships ensure that all required documentation including prior authorization is obtained correctly.

Q: What operational benefits does management expect to realize from the new ERP system?

A: Benefits are expected across multiple areas, including improved working capital management for stronger cash flow during growth, higher utilization of rental devices via improved turnaround processes, and reduced overall manual labor across all departments impacted by the system. While the team is still on a learning curve that keeps current processing times slightly higher, management expects long-term efficiency gains across the business.

Q: Is the company planning to expand into new product markets beyond current high-growth areas?

A: Management does not expect any new major market expansions in the near term. While the company will evaluate opportunities that come from manufacturer partners seeking DME support, management plans to stay focused on scaling the fast-growing lymphedema compression device market, which the company currently has prioritized with existing capacity.