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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 March 31, 2022
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-20220331_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 April 29, 2022, 20,540,143 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
Index to Form 10-Q
  
PAGE
 
   
   
 
 
 
 
 
   
   
   
   
 
   
  
  
  
  
  
  
  
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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)
March 31, 2022December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$405$186
Accounts receivable, net16,39215,405
Inventories3,8783,939
Other current assets2,5852,535
Total current assets23,26022,065
Medical equipment for sale or rental1,9871,742
Medical equipment in rental service, net of accumulated depreciation39,11339,871
Property & equipment, net of accumulated depreciation4,3754,523
Goodwill3,7103,710
Intangible assets, net10,21910,930
Operating lease right of use assets3,9164,241
Deferred income taxes10,27710,033
Other assets1,380471
Total assets$98,237$97,586
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$8,242$7,862
Current portion of long-term debt156349
Other current liabilities5,5434,685
Total current liabilities13,94112,896
Long-term debt, net of current portion34,79232,748
Operating lease liabilities, net of current portion3,4513,670
Total liabilities52,18449,314
Stockholders’ equity:
Preferred stock, $0.0001 par value: authorized 1,000,000 shares; none issued
Common stock, $0.0001 par value: 200,000,000 shares authorized; 20,540,143 shares issued and outstanding as of March 31, 2022 and 20,699,546 shares issued and outstanding as of December 31, 2021
22
Additional paid-in capital103,373101,905
Accumulated other comprehensive income955268
Retained deficit(58,277)(53,903)
Total stockholders’ equity46,05348,272
Total liabilities and stockholders’ equity$98,237$97,586
See accompanying notes to unaudited condensed consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended
March 31,
 20222021
Net revenues$26,763$24,463
Cost of revenues11,3969,887
Gross profit15,36714,576
Selling, general and administrative expenses:
Provision for doubtful accounts47(70)
Amortization of intangibles7101,043
Selling and marketing3,3192,376
General and administrative11,81610,354
 
Total selling, general and administrative15,89213,703
 
Operating (loss) income(525)873
Other expense:
Interest expense(277)(322)
Other expense(28)(69)
 
(Loss) income before income taxes(830)482
Benefit from income taxes462179
Net (loss) income$(368)$661
Net (loss) income per share
Basic$(0.02)$0.03
Diluted$(0.02)$0.03
Weighted average shares outstanding:
Basic20,609,37220,338,160
Diluted20,609,37221,937,639
 
Comprehensive income:
Net (loss) income$(368)$661
Other comprehensive income:
Unrealized gain on hedges905158
Provision for income tax on unrealized hedge gain(218)
Net comprehensive income$319$819
See accompanying notes to unaudited condensed consolidated financial statements.
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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 December 31, 202023,816$2$84,785$(44,035)$(3,518)$$40,752
Stock-based shares issued upon vesting - gross129139139
Stock-based compensation expense1,6351,635
Employee stock purchase plan169169
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(30)(565)(565)
Other comprehensive income158158
Net income661661
Balances at March 31, 202123,915$2$86,163$(43,374)$158(3,518)$$42,949
 
Balances at December 31, 202120,700$2$101,905$(53,903)$268$$48,272
Stock-based shares issued upon vesting - gross125239239
Stock-based compensation expense1,0471,047
Employee stock purchase plan28236236
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(3)(54)(54)
Common stock repurchased as part of share repurchase program(310)(4,006)(4,006)
Other comprehensive income687687
Net loss(368)(368)
Balances at March 31, 202220,540$2$103,373$(58,277)$955$$46,053
 
See accompanying notes to unaudited condensed consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
(in thousands)20222021
OPERATING ACTIVITIES
Net (loss) income$(368)$661
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for doubtful accounts47(70)
Depreciation2,7062,527
Loss on disposal of and reserve adjustments for medical equipment275597
(Gain) loss on sale of medical equipment(228)89
Amortization of intangible assets7101,043
Amortization of deferred debt issuance costs1896
Stock-based compensation1,0471,635
Deferred income taxes(462)(180)
Changes in assets - (increase)/decrease:
Accounts receivable(1,278)(420)
Inventories61(154)
Other current assets(50)(244)
Other assets(41)(40)
Changes in liabilities - increase/(decrease):
Accounts payable and other liabilities1,641(2,889)
NET CASH PROVIDED BY OPERATING ACTIVITIES4,0782,651
INVESTING ACTIVITIES
Acquisition of business(1,204)
Purchase of medical equipment(2,931)(2,336)
Purchase of property and equipment(178)(138)
Proceeds from sale of medical equipment, property and equipment966876
NET CASH USED IN INVESTING ACTIVITIES(2,143)(2,802)
 
FINANCING ACTIVITIES
Principal payments on long-term debt(10,696)(40,093)
Cash proceeds from long-term debt12,52934,000
Debt issuance costs(386)
Common stock repurchased to satisfy statutory withholding on employee stock-based compensation plans(54)(565)
Common stock repurchased as part of share repurchase program(4,006)
Cash proceeds from stock plans511308
NET CASH USED IN FINANCING ACTIVITIES(1,716)(6,736)
Net change in cash and cash equivalents219(6,887)
Cash and cash equivalents, beginning of period1869,648
Cash and cash equivalents, end of period$405$2,761
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, 2021 as filed with the SEC on March 15, 2022.
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.
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 investments 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 as of the FASB's deferral date to be smaller reporting companies under the SEC’s definition. The Company qualified as a smaller reporting company in November 2019 when the FASB delayed the effective date of Topic 326. 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.
3.Business Combinations
Acquisitions Accounted for Using the Purchase Method
On January 31, 2021, the Company acquired the business and the majority of the assets of FilAMed, a privately-held biomedical services company based in Bakersfield, California. In becoming a part of the Company’s Durable Medical Equipment Services ("DME Services") segment, this acquisition supplements 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 Mesquite, 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 DME Services segment and complements the Company’s purchase of FilAMed.
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The results of operations for FilAMed and OB Healthcare are included in the Company’s consolidated statements of operations from the respective closing dates.
Final 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 and OB Healthcare as of December 31, 2021. 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 adjustment, paid in cash 325 325 
Contingent consideration 750 750 
Total - consideration$1,400 $7,325 $8,725 
 
FilAMed
OB
Healthcare
Total
Acquisition Date
Fair Value
Accounts receivable$ $725 $725 
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$1,400 $7,325 $8,725 
The amount of acquisition costs for both transactions was less than $0.1 million for the three months ended March 31, 2021 and was included in general and administrative expenses.
The Company fully paid all consideration for FilAMed as of December 31, 2021. On the OB Healthcare acquisition date, the Company made an initial cash payment of $6.1 million with subsequent cash payments totaling $0.4 million during the year ended December 31, 2021 and had an additional estimated amount due to the seller for contingent consideration of $0.8 million, which was recorded in the balance sheet under the heading for other current liabilities. The contingent consideration arrangement, as amended, required the Company to pay OB Healthcare $0.8 million if certain written contracts were executed. As of March 31, 2022, the Company had a $0.8 million remaining liability relating to this acquisition. However, the requirement under the contingent consideration arrangement was satisfied on April 28, 2022, and the Company paid the remaining payment shortly thereafter.
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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, 2021. The pro forma financial information for the three months ended March 31, 2021 was adjusted by less than $0.1 million for the tax effected amount of acquisition costs and non-recurring expenses directly attributable to the FilAMed and OB Healthcare acquisitions. 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 the period presented nor is it indicative of future results. The following pro forma financial information presented also includes the pro forma depreciation and amortization charges from acquired tangible and intangible assets for the three months ended March 31, 2021 (in thousands):
 Three months ended
 March 31, 2021
Revenue$24,679 
Net income$639 

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4.Revenue Recognition
The following table presents the Company’s disaggregated revenue by offering type (in thousands):
Three Months Ended
March 31,
 20222021
 
Total Net
Revenues
Percentage of Total Net Revenues
Total Net
Revenues
Percentage of Total Net Revenues
 
Third-Party Payer Rentals$13,368 50.0 %$12,794 52.3 %
Direct Payer Rentals7,962 29.7 %7,398 30.2 %
Product Sales3,744 14.0 %3,583 14.7 %
Services1,689 6.3 %688 2.8 %
 
Total$26,763 100.0 %$24,463 100.0 %
Third-Party Payer Rentals are entirely attributed to revenues of the Integrated Therapy Services (“ITS”) segment. For the three months ended March 31, 2022, $3.2 million and $4.8 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended March 31, 2021, $3.1 million and $4.3 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended March 31, 2022, $0.1 million and $3.6 million of Product Sales were attributed to the ITS and DME Services segments, respectively. For the three months ended March 31, 2021, all Product Sales were entirely attributed to the DME Services segment. For the three months ended March 31, 2022 and 2021, all Services revenues were entirely attributed to the DME Services segment.
5.Medical Equipment
Medical equipment consisted of the following (in thousands):
 March 31,
2022
December 31, 2021
Medical equipment for sale or rental$2,031$1,788
Medical equipment for sale or rental - pump reserve(44)(46)
Medical equipment for sale or rental - net1,9871,742
 
Medical equipment in rental service92,63091,891
Medical equipment in rental service - pump reserve(1,246)(1,074)
Accumulated depreciation(52,271)(50,946)
Medical equipment in rental service - net39,11339,871
 
Total$41,100$41,613
Depreciation expense for medical equipment for the three months ended March 31, 2022 was $2.4 million, compared to $2.3 million for the same prior year period. This expense was recorded in “cost of revenues” for each period.
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6.Property and Equipment
Property and equipment consisted of the following (in thousands):
 March 31, 2022December 31, 2021
 Gross Assets
Accumulated
Depreciation
TotalGross Assets
Accumulated Depreciation
Total
Furniture, fixtures, and equipment$4,924$(2,703)$2,221$4,812$(2,528)$2,284
Automobiles110(104)6110(103)7
Leasehold improvements3,449(1,301)2,1483,444(1,212)2,232
 
Total$8,483$(4,108)$4,375$8,366$(3,843)$4,523
Depreciation expense for property and equipment for the three months ended March 31, 2022 was $0.3 million, compared to $0.2 million for the same prior year period. 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 three months ended March 31, 2022 are as follows (in thousands):
 DME Services (a)
Balance as of December 31, 2021$3,710
Goodwill acquired
Balance as of March 31, 2022$3,710
(a) The ITS segment has no recorded goodwill.
The carrying amount and accumulated amortization of intangible assets consisted of the following (in thousands):
 March 31, 2022December 31, 2021
 
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(32,033)6,80138,834(31,401)7,433
Non-competition agreements472(90)382472(67)405
Unpatented technology943(157)786943(123)820
Software11,530(11,280)25011,530(11,258)272
 
Total nonamortizable and amortizable intangible assets$53,802$(43,583)$10,219$53,802$(42,872)$10,930
Amortization expense for the three months ended March 31, 2022 was $0.7 million, compared to $1.0 million for the same prior year period. 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 March 31, 2022 is as follows (in thousands):
 20222023202420252026
2027 and thereafter
Total
        
Amortization expense$1,783$990$990$810$524$3,122$8,219
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 that matures 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 were repaid and all liens under the 2015 Credit Agreement were 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.
The 2021 Credit Agreement was accounted for as a debt modification. As of March 31, 2022, 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 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 March 31, 2022 was $0.2 million.
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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. The following table illustrates the net availability under the Revolving Facility as of the applicable balance sheet date (in thousands):
 March 31,
2022
December 31,
2021
Revolving Facility:
Gross availability$75,000$75,000
Outstanding draws(35,000)(32,974)
Letter of credit(600)(600)
Availability on Revolving Facility$39,400$41,426
The Company had future maturities of its long-term debt as of March 31, 2022 as follows (in thousands):
 2022202320242025
2026 and
thereafter
Total
Revolving Facility$$$$$35,000$35,000
Other financing230230
Total$230$$$$35,000$35,230
The following is a breakdown of the Company’s current and long-term debt (in thousands):
 March 31, 2022December 31, 2021
 
Current
Portion
Long-Term
Portion
Total
Current
Portion
Long-Term
Portion
Total
Revolving Facility$$35,000$35,000$$32,974$32,974
Other financing230230423423
 23035,00035,23042332,97433,397
Unamortized value of debt issuance costs(74)(208)(282)(74)(226)(300)
Total$156$34,792$34,948$349$32,748$33,097
As of March 31, 2022, 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 March 31, 2022 was 2.37% (LIBO of 0.37% plus 2.00%). The actual ABR loan rate at March 31, 2022 was 4.25% (lender’s prime rate of 3.25% plus 1.00%).
9.Derivative Financial Instruments and Hedging Activities
In February 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
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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 tables below present the location and gross fair value amounts of our derivative financial instruments and the associated notional amounts designated as cash flow hedges as of the applicable balance sheet date (in thousands):
 
March 31, 2022
 Balance Sheet LocationNotionalFair Value Derivative Assets
Derivatives designated as hedges:
Cash flow hedges
Interest rate swapsOther assets$20,000$1,260
 
December 31, 2021
 Balance Sheet LocationNotionalFair Value Derivative Assets
Derivatives designated as hedges:
Cash flow hedges
Interest rate swapsOther assets$20,000$355
The table below presents the effect of our derivative financial instruments designated as hedging instruments in AOCI (in thousands):
 Three Months Ended March 31,
20222021
Gain on cash flow hedges - interest rate swaps  
Beginning balance$268$
Unrealized gain recognized in AOCI877148
Amounts reclassified to interest expense (a)(b)2810
Tax provision(218)
Ending balance$955$158
(a) Positive amounts represented interest expense. Total interest expense as presented in the condensed consolidated statement of operations and comprehensive income for the three months ended March 31, 2022 and 2021 were $0.3 million and $0.3 million, respectively.
(b) As of March 31, 2022, $0.2 million of income is expected to be reclassified into earnings within the next 12 months.
The Company did not incur any hedge ineffectiveness during the three months ended March 31, 2022 and 2021, respectively.
10.Income Taxes
The Company recorded a benefit from income taxes of $0.5 million and $0.2 million during the three months ended March 31, 2022 and 2021, respectively. The income tax benefit during 2022 relates principally to a pre-tax loss whereas the benefit during 2021 relates to excess tax benefits on exercises of stock options and vesting of restricted stock during the period. Other differences in the effective tax rate include the estimate of the Company’s annual state and local taxes and taxes relating to its foreign operations in Canada.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in response to the COVID-19 pandemic. The CARES Act among other things, allows employers to defer the deposit and payment of the employer's share of Social Security taxes. Under the CARES Act, the Company deferred paying $0.7 million of applicable
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gross payroll taxes as of December 31, 2020, which was included in other liabilities. The $0.7 million balance of the deferred Social Security taxes was expected to be paid in two equal annual installments during the years ending December 31, 2021 and 2022, respectively. In December 2021, the Company made the first of these two equal annual installment payments. As of March 31, 2022, the remaining balance of approximately $0.3 million is included in other liabilities.
11.Commitments, Contingencies and Litigation
From time to time in the ordinary course of its business, the Company may be involved in legal and regulatory proceedings, the outcomes of which may not be determinable. The results of litigation and regulatory proceedings are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The Company is not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages and, until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. The Company has insurance policies covering potential losses where such coverage is cost effective.
The Company is not at this time involved in any proceedings that the Company currently believes could have a material effect on the Company’s financial condition, results of operations or cash flows.
12.(Loss) Earnings Per Share
Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) income per share assumes the issuance of potentially dilutive shares of common stock during the period. The following table reconciles the numerators and denominators of the basic and diluted (loss) income per share computations:
 Three Months Ended March 31,
Numerator (in thousands):
20222021
Net (loss) income$(368)$661
Denominator:
Weighted average common shares outstanding:
Basic20,609,37220,338,160
Dilutive effect of common stock equivalents1,599,479
Diluted20,609,37221,937,639
Net (loss) income per share:
Basic$(0.02)$0.03
Diluted$(0.02)$0.03
For the three months ended March 31, 2022, all outstanding options and unvested restricted stock units were anti-dilutive due to the Company's net losses for the period and therefore are not included in the calculation. For the three months ended March 31, 2021, less than 0.1 million of outstanding options and unvested restricted stock units with an exercise price above the current market value of the Company’s common stock were not included in the calculation because they would have an anti-dilutive effect.
Share Repurchase Program
On June 30, 2021, our Board of Directors approved a stock repurchase program (the “Share Repurchase Program”) that authorizes the Company to repurchase up to $20.0 million of the Company’s outstanding common stock through June 30, 2024. Repurchases under the Share Repurchase Program are subject to market conditions, the periodic capital needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing 2021 Credit Agreement. Repurchases under the Share Repurchase Program may take place in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. The Share Repurchase Program does not obligate the Company to repurchase shares and may be suspended, terminated, or modified at any time. As of March 31, 2022, the Company had repurchased approximately $4.6 million, or 343,514 shares, of the Company's outstanding common stock under the Share Repurchase Program.
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13.Leases
The Company’s operating leases are primarily for office space, service facility centers and equipment under operating lease arrangements that expire at various dates over the next ten years. The Company’s leases do not contain any restrictive covenants. The Company’s office leases generally contain renewal options for periods ranging from one to five years. Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. The Company’s office leases do not contain any material residual value guarantees. The Company’s equipment leases generally do not contain renewal options.
Payments due under the Company’s operating leases include fixed payments as well as variable payments. For the Company’s office leases, variable payments include amounts for the Company’s proportionate share of operating expenses, utilities, property taxes, insurance, common area maintenance and other facility-related expenses. For the Company’s equipment leases, variable payments may consist of sales taxes, property taxes and other fees.
The components of lease costs for the three months ended March 31, 2022 and 2021 are as follows (in thousands):
 Three Months Ended
March 31,
 20222021
Operating lease cost$329 $348 
Variable lease cost74 57 
Total lease cost$403 $405 
Supplemental cash flow information and non-cash activity related to the Company’s leases are as follows (in thousands):
 Three Months Ended
March 31,
20222021
Cash paid for amounts included in the measurement of lease liabilities and right of use assets:  
Operating cash flow from operating leases$359 $375 
 
Right of use assets obtained in exchange for lease obligations:
Operating leases$ $281 
Weighted average remaining lease terms and discount rates for the Company’s operating leases are as follows:
 As of March 31,
 20222021
 
 
Years
Years
Weighted average remaining lease term:6.26.6
 RateRate
Weighted average discount rate:7.6%7.7%
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Future maturities of lease liabilities as of March 31, 2022 are as follows (in thousands):
 
Operating
Leases
2022$869 
20231,065 
20241,060 
20251,029 
2026941 
2027 and thereafter
1,783 
Total undiscounted lease payments6,747 
Less: Imputed interest(2,374)
Total lease liabilities$4,373 
14.Business Segment Information
The Company’s reportable segments are organized based on service platforms, with the ITS segment reflecting higher margin rental revenues that generally include payments made by third-party and direct payers and the DME Services segment reflecting lower margin product sales, direct payer rental and services revenues. Resources are allocated and performance is assessed for these segments by the Company’s Chief Executive Officer, whom the Company has determined to be its chief operating decision-maker. The Company believes that reporting performance at the gross profit level is the best indicator of segment performance.
The financial information summarized below is presented by reportable segment for the three months ended March 31, 2022 and 2021:
2022
(in thousands)ITSDME Services
Corporate/
Eliminations
Total
 
Net revenues - external$16,641$10,122$$26,763
Net revenues - internal1,488(1,488)
Total net revenues16,64111,610(1,488)26,763
Gross profit10,7384,62915,367
Selling, general and administrative expenses15,89215,892
Interest expense(277)(277)
Other expense(28)(28)
Benefit from income taxes462462
Net loss$(368)
Total assets$61,991$34,246$2,000$98,237
Purchases of medical equipment$1,511$1,420$$2,931
Depreciation and amortization of intangible assets$2,398$1,018$$3,416
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2021
(in thousands)ITSDME Services
Corporate/
Eliminations
Total
Net revenues - external$15,911$8,552$$24,463
Net revenues - internal1,446(1,446)
Total net revenues15,9119,998(1,446)24,463
Gross profit10,0034,57314,576
Selling, general and administrative expenses13,70313,703
Interest expense(322)(322)
Other expense(69)(69)
Benefit from income taxes179179
Net income$661
Total assets$62,508$26,079$2,000$90,587
Purchases of medical equipment$1,621$715$$2,336
Depreciation and amortization of intangible assets$2,696$874$$3,570
15.COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of coronavirus (“COVID-19”) as a pandemic, which has spread globally and throughout the United States. During the period of the pandemic, we took a number of precautionary and preemptive steps to protect the safety and well-being of our employees while ensuring continuity of service to our clients, including, transitioning our employees to a remote work environment, suspending employee travel, canceling participation in industry events and in-person group meetings, promoting social distancing and enhanced cleaning and sanitization efforts across office locations, and implementing protocols to quarantine employees who may have been exposed to COVID-19, or showed relevant symptoms. We also undertook preparedness plans at our facilities to maintain continuity of operations, which provide for flexible work arrangements without any significant disruptions to our business or control processes. Our management team continues to actively monitor the situation and is in constant communication with our workforce, customers and vendors. During the three months ended March 31, 2022, outbreaks of COVID-19, including the Delta and Omicron variants, unfavorably impacted our revenue growth initiatives in certain product lines including Pain Management and NPWT. The impacts included scattered restrictions on elective surgeries and delayed ramp-up in treatment volumes for new customers, both of which unfavorably impacted the Pain Management business, and restricted physical access to our customers facilities, which unfavorably impacted both the Pain Management and NPWT businesses. While the COVID-19 pandemic has not had any material unfavorable effects in our financial results for the three months ended March 31, 2022, beyond this delay to our revenue growth plans, the extent of any future impact will depend on future developments, which are highly uncertain, cannot be predicted and could have a material adverse impact on our financial position, operating results and cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The terms “InfuSystem”, the “Company”, “we”, “our” and “us” used herein refer to InfuSystem Holdings, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “strategy,” “future,” “likely,” variations of such words, and other similar expressions, as they relate to the Company, are intended to identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying certain factors that could cause actual results to
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differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to, the effect of the coronavirus (“COVID-19”) pandemic or any resurgence thereof on our business, potential changes in healthcare payer mix and overall healthcare reimbursement, including the Centers for Medicare and Medicaid Services (“CMS”) competitive bidding and fee schedule reductions, sequestration, concentration of customers, increased focus on early detection of cancer, competitive treatments, dependency on Medicare Supplier Number, availability of chemotherapy drugs, global financial conditions, changes and enforcement of state and federal laws, natural forces, competition, dependency on suppliers, risks in acquisitions & joint ventures, U.S. Healthcare Reform, relationships with healthcare professionals and organizations, technological changes related to infusion therapy, the Company’s ability to implement information technology improvements and to respond to technological changes, the ability of the Company to successfully integrate acquired businesses, dependency on key personnel, dependency on banking relations and the ability to comply with our credit facility covenants, and other risks associated with our common stock, as well as any litigation in which the Company may be involved from time to time; and other risk factors as discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed on March 15, 2022, this quarterly report on Form 10-Q and in other filings made by the Company from time to time with the Securities and Exchange Commission (“SEC”). Our annual report on Form 10-K is available on the SEC’s EDGAR website at www.sec.gov, and a copy may also be obtained by contacting the Company. All forward-looking statements made in this Form 10-Q speak only as of the date of this report. We do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements, except as required by law.
Overview
We are a leading national health care service provider, facilitating outpatient care for Durable Medical Equipment manufacturers and health care providers. We provide our products and services to hospitals, oncology practices, ambulatory surgery centers, and other alternate site health care providers. Our headquarters is in Rochester Hills, Michigan, and we operate our business from a total of seven locations in the United States and Canada. We deliver local, field-based customer support as well as operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts, Texas and Ontario, Canada. InfuSystem, Inc., a wholly-owned subsidiary of the Company, is accredited by the Community Health Accreditation Partner (CHAP) while First Biomedical, Inc., a wholly-owned subsidiary of the Company, is ISO 9001 certified at our Kansas, Michigan, Massachusetts, Canada and Santa Fe Springs, California locations and also ISO 13485 certified at our Bakersfield, California location.
InfuSystem competes for and retains its business primarily on the basis of its long participation and strong reputation in the Durable Medical Equipment space, its long-standing relationships with Durable Medical Equipment manufacturers and its health care provider customers, and the high levels of service it provides. Current barriers to entry for potential competitors are created by our: (i) growing number of third-party payer networks under contract; (ii) economies of scale, which allow for predictable reimbursement and less costly purchase and management of the pumps, respectively; (iii) established, long-standing relationships as a provider of pumps to outpatient oncology practices in the U.S. and Canada; (iv) pump fleet of ambulatory and large volume infusion pumps for rent and for sale, which may allow us to be more responsive to the needs of physicians, outpatient oncology practices, hospitals, outpatient surgery centers, homecare practices, patient rehabilitation centers and patients than a new market entrant; (v) seven geographic locations in the U.S. and Canada that allow for same day or next day delivery of pumps; and (vi) pump repair and service capabilities at all of these facilities and at our customer's locations. We do not perform any research and development on pumps, but we have made, and continue to make investments in our information technology.
Integrated Therapy Services (ITS) Segment
Our ITS segment’s core purpose is to seek opportunities to leverage our unique know-how in clinic-to-home health care involving Durable Medical Equipment, our logistics and billing capabilities, our growing network of third-party payers under contract, and our clinical and biomedical capabilities. This leverage may take the form of new products and/or services, strategic alliances, joint ventures and/or acquisitions. The leading service within our ITS segment is to supply electronic ambulatory infusion pumps and associated disposable supply kits to private oncology clinics, infusion clinics and hospital outpatient oncology clinics to be utilized in the treatment of a variety of cancers, including colorectal cancer and other disease states (“Oncology Business”). Colorectal cancer is the third most prevalent form of cancer in the United States, according to the American Cancer Society, and the standard of care for the treatment of colorectal cancer relies upon continuous chemotherapy infusions delivered via ambulatory infusion pumps. One of the primary goals for the ITS segment is to expand into treatment of other types of cancers. There are a number of approved treatment protocols for pancreatic, head and neck, esophageal and other types of cancers, as well as other disease states which present opportunities for growth. There are also a number of other drugs currently approved by the U.S. Food and Drug Administration (the "FDA"), as well as agents in the pharmaceutical development pipeline, which we believe could potentially be used with continuous infusion protocols for the treatment of diseases other than colorectal cancer. Additional drugs or protocols currently in clinical trials may also obtain regulatory
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approval over the next several years. If these new drugs or protocols obtain regulatory approval for use with continuous infusion protocols, we expect the pharmaceutical companies to focus their sales and marketing efforts on promoting the new drugs and protocols to physicians.
Furthermore, our Oncology Business focuses mainly on the continuous infusion of chemotherapy. Continuous infusion of chemotherapy can be described as the gradual administration of a drug via a small, lightweight, portable infusion pump over a prolonged period of time. A cancer patient can receive his or her medicine anywhere from one to 30 days per month depending on the chemotherapy regimen that is most appropriate to that individual’s health status and disease state. This may be followed by periods of rest and then repeated cycles with treatment goals of progression-free disease survival. This drug administration method has replaced intravenous push or bolus administration in specific circumstances. The advantages of slow continuous low doses of certain drugs are well documented. Clinical studies support the use of continuous infusion chemotherapy for decreased toxicity without loss of anti-tumor efficacy. The 2015 National Comprehensive Cancer Network ("NCCN") Guidelines recommend the use of continuous infusion for treatment of numerous cancer diagnoses. We believe that the growth of continuous infusion therapy is driven by three factors: evidence of improved clinical outcomes; lower toxicity and side effects; and a favorable reimbursement environment.
We believe that oncology practitioners have a heightened sensitivity to providing quality service and to their ability to obtain reimbursement for services they provide. Simultaneously, CMS and private insurers are increasingly focused on evidence-based medicine to inform their reimbursement decisions — that is, aligning reimbursement with clinical outcomes and adherence to standards of care. Continuous infusion therapy is a main component of the standard of care for certain types of cancers because clinical evidence demonstrates superior outcomes. Payers’ recognition of this benefit is reflected in their relative reimbursement policies for clinical services related to the delivery of this care.
Additional areas of focus for our ITS segment are as follows:
Pain Management - providing our ambulatory pumps, products, and services for pain management in the area of post-surgical continuous peripheral nerve block.
Negative Pressure Wound Therapy (“NPWT”) - NPWT includes providing the Durable Medical Equipment and related consumables, overseeing logistics, providing biomedical services, and managing third-party billing of the U.S. home healthcare market, which as a subset of the broader NPWT market, has an estimated addressable home healthcare market of $600 million per year.
Lymphedema Therapy – as announced in June 2021, Lymphedema therapy includes providing patient care and customer service, pneumatic compression devices and associated garments through our partnership with Bio Compression Systems, Inc. to outpatients, initially targeting our existing acute care and oncology customers, estimated to be 20% of the multi-billion-dollar Lymphedema market.
Acquisitions - we believe there are opportunities to acquire smaller, regional health care service providers, in whole or part that perform similar services to us but do not have the national market access, network of third-party payer contracts or operating economies of scale that we currently enjoy. We may also pursue acquisition opportunities of companies that perform similar services, but offer different therapies or utilize different devices.
Information technology-based services - we also plan to continue to capitalize on key new information technology-based services such as EXPRESS, InfuSystem Mobile, InfuBus or InfuConnect, Pump Portal and BlockPain Dashboard®.
The payer environment within our ITS segment is in a constant state of change. We continue to extend our considerable breadth of payer networks under contract as patients move into different insurance coverage plans, including Medicaid and Insurance Marketplace products. In some cases, this may slightly reduce our aggregate billed revenues payment rate but result in an overall increase in collected revenues, due to a reduction in concessions. Consequently, we are increasingly focused on net revenues less concessions.
Durable Medical Equipment Services (DME Services) Segment
Our DME Services segment’s core service is to: (i) sell or rent new and pre-owned pole-mounted an