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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2021
or
¨     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
infu-20210930_g1.jpg
INFUSYSTEM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware20-3341405
(State or Other Jurisdiction of
 Incorporation or Organization)
(I.R.S. Employer
 Identification No.)
3851 West Hamlin Road
Rochester Hills, Michigan 48309
(Address of Principal Executive Offices)
Registrants Telephone Number, including Area Code: (248) 291-1210
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on which Registered
Common Stock, par value $0.0001 per shareINFUNYSE American LLC
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 of 1934 during the preceding 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 x 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 x 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨Accelerated filer¨Non-accelerated filer xSmaller reporting companyx
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 Exchange Act). Yes ¨ No x
As of November 10, 2021, 20,649,447 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.
1

Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
Index to Form 10-Q
  
PAGE
 
   
   
 
 
 
 
 
   
   
   
   
 
   
  
  
  
  
  
  
  
2

Table of Contents
PART IFINANCIAL INFORMATION
Item 1. Financial Statements
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
As of
(in thousands, except par value and share data)
September 30, 2021December 31, 2020
ASSETS  
Current assets:  
Cash and cash equivalents$165$9,648
Accounts receivable, net15,84514,720
Inventories3,7053,001
Other current assets2,1512,402
Total current assets21,86629,771
Medical equipment for sale or rental1,5401,603
Medical equipment in rental service, net of accumulated depreciation36,43135,611
Property & equipment, net of accumulated depreciation4,4264,296
Goodwill3,710
Intangible assets, net11,92811,177
Operating lease right of use assets3,8594,461
Deferred income taxes10,8199,967
Other assets207105
Total assets$94,786$96,991
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$6,703$6,779
Current portion of long-term debt3369,423
Other current liabilities7,4466,795
Total current liabilities14,48522,997
Long-term debt, net of current portion30,55929,378
Operating lease liabilities, net of current portion3,2873,864
Total liabilities48,33156,239
Stockholders’ equity:
Preferred stock, $0.0001 par value: authorized 1,000,000 shares; none issued
Common stock, $0.0001 par value: authorized 200,000,000 shares; issued and outstanding 24,125,687 and 20,607,198, respectively, as of September 30, 2021, and issued and outstanding 23,816,193 and 20,297,704, respectively, as of December 31, 2020
22
Additional paid-in capital89,38584,785
Accumulated other comprehensive income70
Retained deficit(43,002)(44,035)
Total stockholders’ equity46,45540,752
Total liabilities and stockholders’ equity$94,786$96,991
See accompanying notes to unaudited condensed consolidated financial statements.
3

Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net revenues$26,566$25,125$75,863$72,677
Cost of revenues11,30810,00330,97928,914
Gross profit15,25815,12244,88443,763
Selling, general and administrative expenses:
Provision for doubtful accounts1011(99)534
Amortization of intangibles1,1251,0753,2643,225
Selling and marketing2,9082,1967,9647,263
General and administrative11,5668,58732,53724,949
 
Total selling, general and administrative15,60911,86943,66635,971
 
Operating (loss) income(351)3,2531,2187,792
Other expense:
Interest expense(270)(283)(909)(1,018)
Other (expense) income(44)8(150)(20)
 
(Loss) Income before income taxes(665)2,9781596,754
Benefit from (provision for) income taxes217(38)874(92)
Net (loss) income$(448)$2,940$1,033$6,662
Net (loss) income per share
Basic$(0.02)$0.15$0.05$0.33
Diluted$(0.02)$0.14$0.05$0.31
Weighted average shares outstanding:
Basic20,577,88620,179,05620,468,84220,060,416
Diluted20,577,88621,663,41421,995,21621,637,481
 
Comprehensive income:
Net (loss) income$(448)$2,940$1,033$6,662
Other comprehensive income:
Unrealized gain on hedges4193
Provision for income tax on unrealized hedge gain(10)(23)
Net comprehensive (loss) income$(417)$2,940$1,103$6,662
See accompanying notes to unaudited condensed consolidated financial statements.
4

Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
(UNAUDITED)
 Common Stock
Additional Paid in Capital
Retained Deficit
Accumulated Other Comprehensive Income
Treasury Stock
Total StockholdersEquity
(in thousands)
Shares
Par Value Amount
Shares
Par Value Amount
Balances at June 30, 202023,651$2$83,845$(57,645)$(3,518)$$26,202
Stock-based shares issued upon vesting - gross127
Stock-based compensation expense659659
Employee stock purchase plan15116116
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(38)(528)(528)
Net income2,9402,940
Balances at September 30, 202023,755$2$84,092$(54,705)$(3,518)$$29,389
 
Balances at June 30, 202124,084$2$87,213$(42,554)$39(3,518)$$44,700
Stock-based shares issued upon vesting - gross253838
Stock-based compensation expense1,9551,955
Employee stock purchase plan16179179
Other comprehensive income3131
Net loss(448)(448)
Balances at September 30, 202124,125$2$89,385$(43,002)$70(3,518)$$46,455
 
Balances at December 31, 201923,401$2$83,699$(61,367)$(3,518)$$22,334
Stock-based shares issued upon vesting - gross419
Stock-based compensation expense1,2221,222
Employee stock purchase plan29190190
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(122)(1,269)(1,269)
Common stock issued28250250
Net income6,6626,662
Balances at September 30, 202023,755$2$84,092$(54,705)$(3,518)$$29,389
 
Balances at December 31, 202023,816$2$84,785$(44,035)$(3,518)$$40,752
Stock-based shares issued upon vesting - gross334431431
Stock-based compensation expense4,9624,962
Employee stock purchase plan32348348
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(57)(1,141)(1,141)
Other comprehensive income7070
Net income1,0331,033
Balances at September 30, 202124,125$2$89,385$(43,002)$70(3,518)$$46,455
See accompanying notes to unaudited condensed consolidated financial statements.
5

Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
(in thousands)20212020
OPERATING ACTIVITIES
Net income$1,033$6,662
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts(99)534
Depreciation7,7057,267
Loss on disposal of and reserve adjustments for medical equipment848150
Gain on sale of medical equipment(1,588)(2,949)
Amortization of intangible assets3,2643,225
Amortization of deferred debt issuance costs13213
Stock-based compensation4,9621,222
Deferred income taxes(875)16
Changes in assets - (increase)/decrease:
Accounts receivable217(1,490)
Inventories(630)(1,074)
Other current assets25175
Other assets(102)(114)
Changes in liabilities - (decrease)/increase:
Accounts payable and other liabilities(513)(869)
NET CASH PROVIDED BY OPERATING ACTIVITIES14,60512,668
INVESTING ACTIVITIES
Acquisition of business(7,650)
Purchase of medical equipment(9,645)(11,955)
Purchase of property and equipment(607)(865)
Proceeds from sale of medical equipment, property and equipment2,2143,870
NET CASH USED IN INVESTING ACTIVITIES(15,688)(8,950)
 
FINANCING ACTIVITIES
Principal payments on long-term debt(69,306)(35,458)
Cash proceeds from long-term debt61,65431,861
Debt issuance costs(386)
Common stock repurchased to satisfy statutory withholding on employee stock-based compensation plans(1,141)(1,269)
Cash proceeds from stock plans779190
Common stock - issued250
NET CASH USED IN FINANCING ACTIVITIES(8,400)(4,426)
Net change in cash and cash equivalents(9,483)(708)
Cash and cash equivalents, beginning of period9,6482,647
Cash and cash equivalents, end of period$165$1,939
See accompanying notes to unaudited condensed consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation, Nature of Operations and Summary of Significant Accounting Policies
The terms “InfuSystem”, the “Company”, “we”, “our” and “us” are used herein to refer to InfuSystem Holdings, Inc. and its subsidiaries. InfuSystem is 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. The Company provides products and services to hospitals, oncology practices and facilities and other alternative site health care providers. Headquartered in Rochester Hills, Michigan, the Company delivers local, field-based customer support, and also operates pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts, Texas and Ontario, Canada.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The accompanying unaudited condensed consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 22, 2021.
The unaudited condensed consolidated financial statements are prepared in conformity with GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. The Company believes that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
Derivatives Accounting Policy
The Company recognizes all derivative financial instruments as cash flow hedges which are shown as either assets or liabilities on the Company’s consolidated balance sheets at fair value. For derivative contracts which can be classified as a cash flow hedge, the effective portion of the change in fair value of the derivative is recorded to accumulated other comprehensive income (“AOCI”) in the consolidated balance sheets. The underlying hedge transaction is realized when the interest payments on debt are accrued; the applicable amount of gain or loss included in AOCI is reclassified into earnings in the consolidated statements of operations on the same line as the gain or loss on the hedged item attributable to the hedged risk. The cash flows from derivatives are classified as operating activities.
The Company maintains a policy of requiring that all derivative instruments be governed by an International Swaps and Derivatives Association Master Agreement and settles on a net basis.
The fair values of the Company’s derivative financial instruments are categorized as Level 2 of the fair value hierarchy as the values are derived using the market approach based on observable market inputs including quoted prices of similar instruments and interest rate forward curves.
2.Recent Accounting Pronouncements and Developments
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-13, “Financial Instruments (Topic 326) Credit Losses”. Topic 326 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Topic 326 was originally effective as of January 1, 2020, although in November 2019, the FASB delayed the effective date until fiscal years beginning after December 15, 2022 for SEC filers eligible to be smaller reporting companies under the SEC’s definition. The Company qualifies as a smaller reporting company under the SEC’s definition. Early adoption is permitted. The Company is currently evaluating the impact of Topic 326 on its consolidated balance sheets, statements of operations, statements of cash flows and related disclosures.
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3.Business Combinations
Acquisitions Accounted for Using the Purchase Method
On January 31, 2021, the Company closed on the acquisition of substantially all of the assets of FilAMed, a privately-held biomedical services company based in Bakersfield, California. This acquisition will supplement the Company’s existing biomedical recertification, maintenance and repair services for acute care facilities and other alternate site settings including home care and home infusion providers, skilled nursing facilities, pain centers and others.
On April 18, 2021, the Company acquired the business and substantially all of the assets of OB Healthcare Corporation (“OB Healthcare”), a privately-held biomedical services company based in Austin, Texas. OB Healthcare specializes in on-site repair, preventative maintenance, and device physical inventory management to hospitals and healthcare systems nationwide. The acquisition further develops and expands InfuSystem’s Durable Medical Equipment Services (“DME Services”) segment and complements the Company’s purchase of FilAMed.
FilAMed and OB Healthcare’s results of operations are included in the Company’s consolidated statements of operations from the respective closing dates. Revenues and earnings from these acquisitions have not been significant through September 30, 2021.
Purchase Price Allocation
Pursuant to FASB Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” the purchase price for each of the acquisitions was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the respective acquisition dates. The purchase price allocations were primarily based upon a valuation using management’s estimates and assumptions. The purchase price allocation was completed for FilAMed as of September 30, 2021. The purchase price allocation for OB Healthcare was based on a preliminary analysis and is subject to further adjustments related to the final working capital determination. Upon completion of the final purchase price allocation, the Company may need to adjust the accounts receivable. The following table summarizes the consideration paid and the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the respective acquisition dates for both FilAMed and OB Healthcare (in thousands):
 FilAMed
OB
Healthcare
Total
Consideration
Cash$1,400 $6,250 $7,650 
Working capital (a) 327 327 
Contingent consideration 750 750 
Total - consideration$1,400 $7,327 $8,727 
 
FilAMed
OB
Healthcare
Total
Acquisition Date
Fair Value
Accounts receivable (a)$ $727 $727 
Inventories74  74 
Medical equipment held for sale or rental40  40 
Property and equipment102 59 161 
Intangible assets1,015 3,000 4,015 
Goodwill169 3,541 3,710 
Operating lease right of use assets281 7 288 
Operating lease liabilities(281)(7)(288)
Total - purchase price (a)$1,400 $7,327 $8,727 
(a) Amount based on preliminary working capital.
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The amount of acquisition costs for both transactions was $0.2 million and is included in general and administrative expenses for the nine months ended September 30, 2021.
During the three months ended September 30, 2021, the Company updated the valuation of OB Healthcare based on further analysis of the final working capital with an immaterial decrease in the consideration transferred and a corresponding decrease to goodwill. There was no impact to the condensed consolidated statement of operations.
The Company fully paid all consideration for FilAMed as of September 30, 2021. On the OB Healthcare acquisition date, the Company made an initial cash payment of $6.1 million with a subsequent cash payment of $0.1 million during the quarter ended September 30, 2021 and had an additional estimated amount due to the seller of $0.3 million, related to a working capital adjustment, and contingent consideration of $0.8 million, both of which were recorded in the balance sheet under the heading for other current liabilities. The contingent consideration arrangement requires the Company to pay OB Healthcare $0.8 million if certain written contracts are executed by December 31, 2021. The Company expects OB Healthcare to satisfy this requirement. As of September 30, 2021, the Company had a $1.1 million remaining liability relating to this acquisition.
The following table shows the breakdown of the identified intangible assets acquired into major intangible asset classes for both acquisitions:
 
Acquisition Date
Fair Value
(Thousands)
Weighted-Average
Amortization Period
(Years)
Customer relationships$2,300 15
Unpatented technology943 7
Non-competition agreements472 5
Internal-use software300 5
 
Total intangible assets (a)$4,015 11.2
(a) There was no residual value, renewal terms or extensions associated with any intangible assets acquired.
The goodwill acquired consists of expected synergies from combining operations of FilAMed and OB Healthcare with the DME Services segment as well as their respective assembled workforce who have specialized knowledge and experience. All of the goodwill is deductible for tax purposes.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations of the Company, FilAMed and OB Healthcare as though the companies’ businesses had been combined as of January 1, 2020. The pro forma financial information for the three and nine months ended September 30, 2021 has been adjusted by $0.1 million and $0.2 million, respectively, for the tax effected amount of acquisition costs and non-recurring expenses directly attributable to the FilAMed and OB Healthcare acquisitions. The three and nine months ended September 30, 2020 also included these charges. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of each period presented nor is it indicative of future results. The following pro forma financial information presented also includes the pro forma depreciation
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and amortization charges from acquired tangible and intangible assets for the three and nine months ended September 30, 2021 and 2020 (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenue$26,566 $25,731 $76,633 $75,270 
Net income$(373)$2,691 $1,268 $6,120 
4.Revenue Recognition
The following table presents the Company’s disaggregated revenue by offering type (in thousands):
 Three Months Ended
September 30,
 20212020
 
Total Net
Revenues
Percentage of
Total Net
Revenues
Total Net
Revenues
Percentage of
Total Net
Revenues
Third-Party Payer Rentals$13,512 50.9 %$12,672 50.4 %
Direct Payer Rentals8,655 32.6 %7,933 31.6 %
Product Sales4,399 16.5 %4,520 18.0 %
 
Total$26,566 100.0 %$25,125100.0 %
Nine Months Ended
September 30,
 20212020
 
Total Net
Revenues
Percentage of Total Net Revenues
Total Net
Revenues
Percentage of Total Net Revenues
 
Third-Party Payer Rentals$39,436 52.0 %$36,660 50.4 %
Direct Payer Rentals25,095 33.1 %22,733 31.3 %
Product Sales11,332 14.9 %13,284 18.3 %
 
Total$75,863 100.0 %$72,677 100.0 %
Third-Party Payer Rentals are entirely attributed to revenues of the Integrated Therapy Services (“ITS”) segment. Product Sales are entirely attributed to revenues of the DME Services segment. For the three months ended September 30, 2021, $3.1 million and $5.6 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended September 30, 2020, $3.0 million and $4.9 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively.
For the nine months ended September 30, 2021, $9.4 million and $15.7 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the nine months ended September 30, 2020, $8.7 million and $14.0 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively.
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5.Medical Equipment
Medical equipment consisted of the following (in thousands):
 September 30,
2021
December 31, 2020
Medical equipment for sale or rental$1,592$1,636
Medical equipment for sale or rental - pump reserve(52)(33)
Medical equipment for sale or rental - net1,5401,603
 
Medical equipment in rental service88,10783,411
Medical equipment in rental service - pump reserve(1,356)(893)
Accumulated depreciation(50,320)(46,907)
Medical equipment in rental service - net36,43135,611
 
Total$37,971$37,214
Depreciation expense for medical equipment for the three and nine months ended September 30, 2021 was $2.4 million and $7.0 million, respectively, compared to $2.3 million and $6.7 million for the same prior year periods, respectively. This expense was recorded in “cost of revenues” for each period.
6.Property and Equipment
Property and equipment consisted of the following (in thousands):
 September 30, 2021December 31, 2020
 Gross Assets
Accumulated
Depreciation
TotalGross Assets
Accumulated Depreciation
Total
Furniture, fixtures, and equipment$4,535$(2,411)$2,124$3,742$(2,018)$1,724
Automobiles117(110)7117(102)15
Leasehold improvements3,418(1,123)2,2953,416(859)2,557
 
Total$8,070$(3,644)$4,426$7,275$(2,979)$4,296
Depreciation expense for property and equipment for the three and nine months ended September 30, 2021 was $0.2 million and $0.7 million, respectively, compared to $0.2 million and $0.6 million for the same prior year periods, respectively. This expense was recorded in “general and administrative expenses” for each period.
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7.Goodwill & Intangible Assets
The changes in the carrying value of goodwill by segment for the nine months ended September 30, 2021 are as follows (in thousands):
 DME Services (a)
Balance as of December 31, 2020$
Goodwill acquired3,710
Balance as of September 30, 2021$3,710
(a) No goodwill allocated to the ITS segment.
The carrying amount and accumulated amortization of intangible assets consisted of the following (in thousands):
 September 30, 2021December 31, 2020
 
Gross
Assets
Accumulated
Amortization
Net
Gross
Assets
Accumulated
Amortization
Net
Nonamortizable intangible assets      
Trade names$2,000$2,000$2,000$$2,000
Amortizable intangible assets:
Trade names23(23)23(23)
Physician and customer relationships38,834(30,769)8,06536,534(28,924)7,610
Non-competition agreements472(43)429
Unpatented technology943(90)853
Software11,530(10,949)58111,230(9,663)1,567
 
Total nonamortizable and amortizable intangible assets$53,802$(41,874)$11,928$49,787$(38,610)$11,177
Amortization expense for the three and nine months ended September 30, 2021 was $1.1 million and $3.3 million, respectively, compared to $1.1 million and $3.2 million for the same prior year periods, respectively. This expense was recorded in “amortization of intangibles expenses” for each period. Expected remaining annual amortization expense for the next five years for intangible assets recorded as of September 30, 2021 is as follows (in thousands):
 20212022202320242025
2026 and thereafter
Total
        
Amortization expense$998$2,494$990$990$810$3,646$9,928
8.Debt
On February 5, 2021, the Company entered into a Credit Agreement (the 2021 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”), sole bookrunner and sole lead arranger, and the lenders party thereto. The borrowers under the 2021 Credit Agreement are the Company, InfuSystem Holdings USA, Inc. (“Holdings”), InfuSystem,
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Inc. (“ISI”), First Biomedical, Inc. (“First Biomedical”), and IFC LLC (“IFC” and, collectively with the Company, Holdings, ISI and First Biomedical, the “Borrowers”).
The 2021 Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) of $75.0 million, maturing on February 5, 2026. The Revolving Facility may be increased by $25.0 million, subject to certain conditions, including the consent of the Agent and obtaining necessary commitments. The lenders under the 2021 Credit Agreement may issue up to $7.0 million in letters of credit subject to the satisfaction of certain conditions. On February 5, 2021, the Borrowers made an initial borrowing of $30.0 million under the Revolving Facility. Proceeds from the loan, along with approximately $8.2 million in cash, were used to repay all amounts due under the Company’s then existing credit facility dated March 23, 2015 (the “2015 Credit Agreement”).
The 2021 Credit Agreement has customary representations and warranties. The ability to borrow under the facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, investments, asset sales, affiliate transactions and restricted payments, as well as financial covenants, including the following:
a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA (as defined in the 2021 Credit Agreement) less 50% of depreciation expense), to consolidated fixed charges (as defined in the 2021 Credit Agreement)) for the prior four most recently ended calendar quarters of 1.20 to 1.00; and
a maximum leverage ratio (defined as total indebtedness to EBITDA for the prior four most recently ended calendar quarters) of 3.50 to 1.00.
The 2021 Credit Agreement includes customary events of default. The occurrence of an event of default will permit the lenders to terminate commitments to lend under the Revolving Facility and accelerate payment of all amounts outstanding thereunder.
Simultaneous with the execution of the 2021 Credit Agreement, the Company entered into a Pledge and Security Agreement to secure repayment of the obligations of the Borrowers. Under the Pledge and Security Agreement, each Borrower has granted to the Agent, for the benefit of various secured parties, a first priority security interest in substantially all of the personal property assets of each of the Borrowers, including the shares of each of Holdings, ISI and First Biomedical and the equity interests of IFC.
On February 5, 2021, in connection with the execution and closing of the 2021 Credit Agreement, the Company, along with its wholly owned subsidiaries as borrowers, terminated the 2015 Credit Agreement. All outstanding loans under the 2015 Credit Agreement have been repaid and all liens under the 2015 Credit Agreement have been released, except that a letter of credit originally issued under the 2015 Credit Agreement in the amount of approximately $0.8 million was transferred to the 2021 Credit Agreement.
At December 31, 2020, the 2015 Credit Agreement, which would have matured on November 9, 2024, included three term notes totaling $37.9 million, with varying required quarterly amortization payments, and an undrawn $11.8 million revolving line of credit. The availability under the line of credit was reduced by outstanding letters of credit and reserves totaling $1.0 million and was subject to a borrowing base limitation as defined by the agreement. The borrowing base was approximately $15.6 million at December 31, 2020. At December 31, 2020 and on the date of the refinancing, the Company was in compliance with all affirmative and negative covenants, as outlined in the agreement, which included maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio, as defined in the agreement. Interest on the facility was payable at the Company’s option as a (i) Eurodollar Loan, which bore interest at a per annum rate equal to the applicable 30-day LIBOR plus an applicable margin ranging from 2.00% to 3.00% or (ii) CB Floating Rate (“CBFR”) Loan, which bore 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% based on our leverage ratio. The actual Eurodollar Loan rate at December 31, 2020 was 2.19% (LIBOR of 0.19% plus 2.00%). The actual CBFR Loan rate at December 31, 2020 was 2.25% (lender’s prime rate of 3.25% minus 1.00%).
The 2021 Credit Agreement was accounted for as a debt modification. As of September 30, 2021, the Company was in compliance with all debt-related covenants under the 2021 Credit Agreement.
On April 15, 2019, the Company sold for $2.0 million and immediately leased back certain medical equipment in rental service to a third party specializing in such transactions. The leaseback term is 36 months. Because the arrangement contains a purchase option that the Company is reasonably certain to exercise, this transaction did not qualify for the sale-leaseback accounting under ASC 842. The medical equipment remains recorded on the accompanying condensed consolidated balance
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sheet and the proceeds received have been classified as an other financing liability, which is being paid off monthly over the term of the lease. The balance of other financing as of September 30, 2021 was $0.4 million.
As referenced above, the Company executed and closed the 2021 Credit Agreement during the first quarter of 2021, and in connection with entering into that agreement, terminated the 2015 Credit Agreement. For the following tables, the figures related to the September 30, 2021 revolving credit facility balances relate to the 2021 Credit Agreement, while the December 31, 2020 revolving credit facility balances relate to the now-terminated 2015 Credit Agreement. The following table illustrates the net availability under the revolving credit facilities as of the applicable balance sheet date (in thousands):
 September 30,
2021
December 31,
2020
Revolving Facility:
Gross availability$75,000$11,750
Outstanding draws(30,804)
Letter of credit(800)(800)
Landlord reserves(162)
Availability on Revolving Facility$43,396$10,788
The Company had future maturities of its long-term debt as of September 30, 2021 as follows (in thousands):
 2021202220232024
2025 and
thereafter
Total
Revolving Facility$$$$$30,804$30,804
Other financing188222410
Total$188$222$$$30,804$31,214
The following is a breakdown of the Company’s current and long-term debt (in thousands):
 September 30, 2021December 31, 2020
 
Current
Portion
Long-Term
Portion
Total
Current
Portion
Long-Term
Portion
Total
Revolving Facility$$30,804$30,804$$$
Term loan4,61517,30521,920
Equipment line1,6004,4006,000
2019 equipment line2,5007,50010,000
Other financing410410725222947
 41030,80431,2149,44029,42738,867
Unamortized value of debt issuance costs(74)(245)(319)(17)(49)(66)
Total$336$30,559$30,895$9,423$29,378$38,801
As of September 30, 2021, amounts outstanding under the Revolving Facility provided under the 2021 Credit Agreement bear interest at a variable rate equal to, at the Company’s election, a LIBO Rate for Eurodollar loans or an Alternative Base Rate for ABR loans, as defined by the 2021 Credit Agreement, plus a spread that will vary depending upon the Company’s leverage ratio. The spread ranges from 2.00% to 3.00% for Eurodollar Loans and 1.00% to 2.00% for base rate loans. The weighted-average Eurodollar loan rate at September 30, 2021 was 2.09% (LIBO of 0.09% plus 2.00%). The actual ABR loan rate at September 30, 2021 was 4.25% (lender’s prime rate of 3.25% plus 1.00%).
9.Derivative Financial Instruments and Hedging Activities
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During the quarter ended March 31, 2021, the Company adopted a derivative investment policy which provides guidelines and objectives related to managing financial and operational exposures arising from market changes in short term interest rates. In accordance with this policy, the Company can enter into interest rate swaps or similar instruments, will endeavor to evaluate all the risks inherent in a transaction before entering into a derivative financial instrument and will not enter into derivative financial instruments for speculative or trading purposes. Hedging relationships are formally documented at the inception of the hedge and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment.
The Company is exposed to interest rate risk related to its variable rate debt obligations under the 2021 Credit Agreement. In order to manage the volatility in interest rate markets, in February 2021, the Company entered into two interest rate swap agreements to manage exposure arising from this risk. On a combined basis, the agreements have a constant notional amount over a five-year term that ends on February 5, 2026. The agreements both pay the Company 30-day LIBOR on the notional amount and the Company pays a fixed rate of interest equal to 0.73%. These derivative instruments are considered cash flow hedges. The Company does not have any other derivative financial instruments.
The table below presents the location and gross fair value amounts of our derivative financial instruments and the associated notional amounts designated as cash flow hedges (in thousands):
 
September 30, 2021 (a)
 Balance Sheet LocationNotionalFair Value Derivative Assets
Derivatives designated as hedges:
Cash flow hedges
Interest rate swapsOther assets$20,000$93
(a) No derivative instruments existed at December 31, 2020.
The table below presents the effect of our derivative financial instruments designated as hedging instruments in AOCI (in thousands):
 
Three Months Ended
September 30, 2021 (a)
Nine Months Ended
September 30, 2021 (a)
Gain on cash flow hedges - interest rate swaps  
Beginning balance$39$
Unrealized gain recognized in AOCI920
Amounts reclassified to interest expense (b)(c)3273
Tax provision(10)(23)
Ending balance$70$70
(a) No derivative instruments existed for the three and nine months ended S