infu-20220930

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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, 2022

¨ 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

INFUSYSTEM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware			20-3341405
(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)

Registrant’s Telephone Number, including Area Code: (248) 291-1210

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, par value $0.0001 per share	INFU	NYSE 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

Smaller reporting company

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 3, 2022, 20,656,374 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
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	-Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3
	-Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021	4
	-Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	5
	-Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	6
	-Notes to the Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	34

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Mine Safety Disclosures	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

	Signatures	37

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PART I—FINANCIAL 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, 2022		December 31, 2021

ASSETS
Current assets:
Cash and cash equivalents	$	363	$	186
Accounts receivable, net	16,112		15,405
Inventories	4,861		3,939
Other current assets	2,311		2,535

Total current assets	23,647		22,065
Medical equipment for sale or rental	2,843		1,742
Medical equipment in rental service, net of accumulated depreciation	39,202		39,871
Property & equipment, net of accumulated depreciation	4,211		4,523
Goodwill	3,710		3,710
Intangible assets, net	8,805		10,930
Operating lease right of use assets	4,441		4,241
Deferred income taxes	9,941		10,033
Other assets	2,181		471

Total assets	$	98,981	$	97,586

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,648	$	7,862
Current portion of long-term debt	—		349
Other current liabilities	6,086		4,685

Total current liabilities	12,734		12,896
Long-term debt, net of current portion	34,461		32,748

Operating lease liabilities, net of current portion	3,979		3,670

Total liabilities	51,174		49,314

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; 20,670,049 shares issued and outstanding as of September 30, 2022 and 20,699,546 shares issued and outstanding as of December 31, 2021	2		2
Additional paid-in capital	105,557		101,905
Accumulated other comprehensive income	1,599		268
Retained deficit	(59,351)		(53,903)

Total stockholders’ equity	47,807		48,272

Total liabilities and stockholders’ equity	$	98,981	$	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 (LOSS) INCOME

(UNAUDITED)


(in thousands, except share and per share data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Net revenues	$	27,279	$	26,566	$	81,084	$	75,863
Cost of revenues	11,060		11,308		34,597		30,979
Gross profit	16,219		15,258		46,487		44,884

Selling, general and administrative expenses:
Provision for doubtful accounts	(90)		10		(84)		(99)
Amortization of intangibles	704		1,125		2,125		3,264
Selling and marketing	2,894		2,908		9,296		7,964
General and administrative	11,768		11,566		34,525		32,537

Total selling, general and administrative	15,276		15,609		45,862		43,666

Operating income (loss)	943		(351)		625		1,218
Other expense:
Interest expense	(385)		(270)		(976)		(909)
Other expense	(11)		(44)		(69)		(150)

Income (Loss) before income taxes	547		(665)		(420)		159
(Provision for) benefit from income taxes	(104)		217		331		874
Net income (loss)	$	443	$	(448)	$	(89)	$	1,033
Net income (loss) per share:
Basic	$	0.02	$	(0.02)	$	—	$	0.05
Diluted	$	0.02	$	(0.02)	$	—	$	0.05
Weighted average shares outstanding:
Basic	20,683,366		20,577,886		20,625,826		20,468,842
Diluted	21,452,483		20,577,886		20,625,826		21,995,216

Comprehensive income:
Net income (loss)	$	443	$	(448)	$	(89)	$	1,033
Other comprehensive income:
Unrealized gain on hedges	605		41		1,754		93
Provision for income tax on unrealized hedge gain	(146)		(10)		(423)		(23)
Net comprehensive income (loss)	$	902	$	(417)	$	1,242	$	1,103

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 Stockholders’ Equity
(in thousands)	Shares	Par Value Amount								Shares	Par Value Amount
Balances at June 30, 2021	24,084	$	2	$	87,213	$	(42,554)	$	39	(3,518)	$	—	$	44,700
Stock-based shares issued upon vesting - gross	25	—		38		—		—		—	—		38
Stock-based compensation expense	—	—		1,955		—		—		—	—		1,955
Employee stock purchase plan	16	—		179		—		—		—	—		179




Other comprehensive income	—	—		—		—		31		—	—		31
Net loss	—	—		—		(448)		—		—	—		(448)
Balances at September 30, 2021	24,125	$	2	$	89,385	$	(43,002)	$	70	(3,518)	$	—	$	46,455

Balances at June 30, 2022	20,695	$	2	$	104,146	$	(58,791)	$	1,140	—	$	—	$	46,497
Stock-based shares issued upon vesting - gross	86	—		212		—		—		—	—		212
Stock-based compensation expense	—	—		1,066		—		—		—	—		1,066
Employee stock purchase plan	33	—		192		—		—		—	—		192
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation	(8)	—		(59)		—		—		—	—		(59)

Common stock repurchased as part of share repurchase program	(136)	—		—		(1,003)		—		—	—		(1,003)

Other comprehensive income	—	—		—		—		459		—	—		459
Net income	—	—		—		443		—		—	—		443
Balances at September 30, 2022	20,670	$	2	$	105,557	$	(59,351)	$	1,599	—	$	—	$	47,807

Balances at December 31, 2020	23,816	$	2	$	84,785	$	(44,035)	$	—	(3,518)	$	—	$	40,752
Stock-based shares issued upon vesting - gross	334	—		431		—		—		—	—		431
Stock-based compensation expense	—	—		4,962		—		—		—	—		4,962
Employee stock purchase plan	32	—		348		—		—		—	—		348
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation	(57)	—		(1,141)		—		—		—	—		(1,141)



Other comprehensive income	—	—		—		—		70		—	—		70
Net income	—	—		—		1,033		—		—	—		1,033
Balances at September 30, 2021	24,125	$	2	$	89,385	$	(43,002)	$	70	(3,518)	$	—	$	46,455

Balances at December 31, 2021	20,700	$	2	$	101,905	$	(53,903)	$	268	—	$	—	$	48,272
Stock-based shares issued upon vesting - gross	474	—		685		—		—		—	—		685
Stock-based compensation expense	—	—		3,236		—		—		—	—		3,236
Employee stock purchase plan	61	—		428		—		—		—	—		428
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation	(80)	—		(697)		—		—		—	—		(697)

Common stock repurchased as part of share repurchase program	(485)	—		—		(5,359)		—		—	—		(5,359)

Other comprehensive income	—	—		—		—		1,331		—	—		1,331
Net loss	—	—		—		(89)		—		—	—		(89)
Balances at September 30, 2022	20,670	$	2	$	105,557	$	(59,351)	$	1,599	—	$	—	$	47,807

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)


	Nine Months Ended September 30,
(in thousands)	2022		2021

OPERATING ACTIVITIES
Net (loss) income	$	(89)	$	1,033
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for doubtful accounts	(84)		(99)
Depreciation	8,131		7,705
Loss on disposal of and reserve adjustments for medical equipment	1,450		848
Gain on sale of medical equipment	(1,348)		(1,588)
Amortization of intangible assets	2,125		3,264
Amortization of deferred debt issuance costs	55		132
Stock-based compensation	3,236		4,962
Deferred income taxes	(331)		(875)
Changes in assets - (increase)/decrease:
Accounts receivable	(607)		217
Inventories	(922)		(630)
Other current assets	224		251
Other assets	(89)		(102)
Changes in liabilities - increase/(decrease):
Accounts payable and other liabilities	1,200		(513)
NET CASH PROVIDED BY OPERATING ACTIVITIES	12,951		14,605

INVESTING ACTIVITIES
Acquisition of business	—		(7,650)
Purchase of medical equipment	(10,452)		(9,645)
Purchase of property and equipment	(571)		(607)
Proceeds from sale of medical equipment, property and equipment	2,597		2,214
NET CASH USED IN INVESTING ACTIVITIES	(8,426)		(15,688)

FINANCING ACTIVITIES
Principal payments on long-term debt	(31,089)		(69,306)
Cash proceeds from long-term debt	32,398		61,654
Debt issuance costs	—		(386)
Cash payment of contingent consideration	(750)		—
Common stock repurchased to satisfy statutory withholding on employee stock-based compensation plans	(698)		(1,141)
Common stock repurchased as part of share repurchase program	(5,359)		—
Cash proceeds from stock plans	1,150		779

NET CASH USED IN FINANCING ACTIVITIES	(4,348)		(8,400)

Net change in cash and cash equivalents	177		(9,483)
Cash and cash equivalents, beginning of period	186		9,648
Cash and cash equivalents, end of period	$	363	$	165

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 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 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 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.

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, paid in cash	—		325		325
Contingent consideration, paid in cash	—		750		750
Total - consideration	$	1,400	$	7,325	$	8,725


	FilAMed		OB Healthcare		Total Acquisition Date Fair Value
Accounts receivable	$	—	$	725	$	725
Inventories	74		—		74
Medical equipment held for sale or rental	40		—		40
Property and equipment	102		59		161
Intangible assets	1,015		3,000		4,015
Goodwill	169		3,541		3,710
Operating lease right of use assets	281		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 $0.2 million for the nine months ended September 30, 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 of $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 September 30, 2022, the requirement under the contingent consideration arrangement had been satisfied and the Company had made the required payment.

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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 technology	943		7
Non-competition agreements	472		5
Internal-use software	300		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 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 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 and amortization charges from acquired tangible and intangible assets for the three and nine months ended September 30, 2021 (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021		2021
Revenue	$	26,566	$	76,633
Net (loss) income	$	(373)	$	1,268

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4.Revenue Recognition

The following tables present the Company’s disaggregated revenue by offering type (in thousands):


	Three Months Ended September 30,
	2022				2021
	Total Net Revenues		Percentage of Total Net Revenues		Total Net Revenues		Percentage of Total Net Revenues

Third-Party Payer Rentals	$	14,161	51.9	%	$	13,512	50.9	%
Direct Payer Rentals	7,801		28.6	%	7,136		26.9	%
Product Sales	3,562		13.1	%	4,399		16.5	%
Services	1,755		6.4	%	1,519		5.7	%

Total	$	27,279	100.0	%	$	26,566	100.0	%


	Nine Months Ended September 30,
	2022				2021
	Total Net Revenues		Percentage of Total Net Revenues		Total Net Revenues		Percentage of Total Net Revenues

Third-Party Payer Rentals	$	41,425	51.1	%	$	39,436	52.0	%
Direct Payer Rentals	23,745		29.3	%	21,787		28.7	%
Product Sales	10,968		13.5	%	11,332		14.9	%
Services	4,946		6.1	%	3,308		4.4	%

Total	$	81,084	100.0	%	$	75,863	100.0	%

Third-Party Payer Rentals are entirely attributed to revenues of the Integrated Therapy Services (“ITS”) segment. Services revenues are entirely attributed to the DME Services segment. For the three months ended September 30, 2022, $3.2 million and $4.6 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended September 30, 2021, $3.1 million and $4.0 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended September 30, 2022, less than $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 September 30, 2021, all Product Sales were entirely attributed to the DME Services segment.

For the nine months ended September 30, 2022, $9.7 million and $14.0 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 $12.4 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the nine months ended September 30, 2022, $0.1 million and $10.9 million of Product Sales were attributed to the ITS and DME Services segments, respectively. For the nine months ended September 30, 2021, all Product Sales were entirely attributed to the DME Services segment.

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5.Medical Equipment

Medical equipment consisted of the following (in thousands):


	September 30, 2022		December 31, 2021
Medical equipment for sale or rental	$	2,865	$	1,788
Medical equipment for sale or rental - pump reserve	(22)		(46)
Medical equipment for sale or rental - net	2,843		1,742

Medical equipment in rental service	97,021		91,891
Medical equipment in rental service - pump reserve	(2,074)		(1,074)
Accumulated depreciation	(55,745)		(50,946)
Medical equipment in rental service - net	39,202		39,871

Total	$	42,045	$	41,613

Depreciation expense for medical equipment for the three and nine months ended September 30, 2022 was $2.4 million and $7.3 million, respectively, compared to $2.4 million and $7.0 million for the same prior year periods, respectively. This expense was recorded in “cost of revenues” for each period. The pump reserve for medical equipment in rental service represents an estimate for medical equipment that is considered to be missing. The reserve calculated is equal to the net book value of assets that have not returned from the field within a certain timeframe. During the current period, the Company changed its estimate for missing pumps by shortening the time estimate of when a pump is considered missing. As a result of this change in estimate, the Company increased the pump reserve as of September 30, 2022 and increased its cost of sales for the three and nine months ended September 30, 2022 by $0.1 million and $0.6 million, respectively.

6.Property and Equipment

Property and equipment consisted of the following (in thousands):


	September 30, 2022						December 31, 2021
	Gross Assets		Accumulated Depreciation		Total		Gross Assets		Accumulated Depreciation		Total
Furniture, fixtures, and equipment	$	5,306	$	(3,067)	$	2,239	$	4,812	$	(2,528)	$	2,284
Automobiles	110		(105)		5		110		(103)		7
Leasehold improvements	3,448		(1,481)		1,967		3,444		(1,212)		2,232

Total	$	8,864	$	(4,653)	$	4,211	$	8,366	$	(3,843)	$	4,523

Depreciation expense for property and equipment for the three and nine months ended September 30, 2022 was $0.3 million and $0.8 million, respectively, compared to $0.2 million and $0.7 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, 2022 are as follows (in thousands):


	DME Services (a)
Balance as of December 31, 2021	$	3,710
Goodwill acquired	—
Balance as of September 30, 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):


	September 30, 2022						December 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 names	23		(23)		—		23		(23)		—
Physician and customer relationships	38,834		(33,297)		5,537		38,834		(31,401)		7,433
Non-competition agreements	472		(138)		334		472		(67)		405
Unpatented technology	943		(224)		719		943		(123)		820
Software	11,530		(11,315)		215		11,530		(11,258)		272

Total nonamortizable and amortizable intangible assets	$	53,802	$	(44,997)	$	8,805	$	53,802	$	(42,872)	$	10,930

Amortization expense for the three and nine months ended September 30, 2022 was $0.7 million and $2.1 million, respectively, compared to $1.1 million and $3.3 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, 2022 is as follows (in thousands):


	2022		2023		2024		2025		2026		2027 and thereafter		Total

Amortization expense	$	369	$	990	$	990	$	810	$	524	$	3,122	$	6,805

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 September 30, 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 were classified as an other financing liability. As of September 30, 2022, all amounts owed under this arrangement had been paid.

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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):


	September 30, 2022		December 31, 2021

Revolving Facility:
Gross availability	$	75,000	$	75,000
Outstanding draws	(34,706)		(32,974)
Letter of credit	(600)		(600)
Availability on Revolving Facility	$	39,694	$	41,426

The Company had future maturities of its long-term debt as of September 30, 2022 as follows (in thousands):


	2022		2023		2024		2025		2026 and thereafter		Total
Revolving Facility	$	—	$	—	$	—	$	—	$	34,706	$	34,706
Total	$	—	$	—	$	—	$	—	$	34,706	$	34,706

The following is a breakdown of the Company’s current and long-term debt (in thousands):


	September 30, 2022						December 31, 2021
	Current Portion		Long-Term Portion		Total		Current Portion		Long-Term Portion		Total
Revolving Facility	$	—	$	34,706	$	34,706	$	—	$	32,974	$	32,974
Other financing	—		—		—		423		—		423
	—		34,706		34,706		423		32,974		33,397
Unamortized value of debt issuance costs	—		(245)		(245)		(74)		(226)		(300)
Total	$	—	$	34,461	$	34,461	$	349	$	32,748	$	33,097

As of September 30, 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 September 30, 2022 was 5.07% (LIBO of 2.82% plus 2.25%). The actual ABR loan rate at September 30, 2022 was 7.50% (lender’s prime rate of 6.25% plus 1.25%).

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 the Company's derivative financial instruments and the associated notional amounts designated as cash flow hedges as of the applicable balance sheet date (in thousands):

September 30, 2022

Balance Sheet Location

Notional

Fair Value Derivative Assets

Derivatives designated as hedges:

Cash flow hedges

Interest rate swaps

Other assets

20,000

2,109

December 31, 2021

Balance Sheet Location

Notional

Fair Value Derivative Assets

Derivatives designated as hedges:

Cash flow hedges

Interest rate swaps

Other assets

20,000

355

The tables below present the effect of our derivative financial instruments designated as hedging instruments in AOCI (in thousands):


	Three Months Ended September 30,
	2022		2021
Gain on cash flow hedges - interest rate swaps
Beginning balance	$	1,140	$	39
Unrealized gain/(loss) recognized in AOCI	679		9
Amounts reclassified to interest expense (a)	(74)		32
Tax provision	(146)		(10)
Ending balance	$	1,599	$	70

(a) Negative amounts represent interest income and positive amounts represent interest expense. Interest expense as presented in the condensed consolidated statement of operations and comprehensive income for the three months ended September 30, 2022 and 2021 was $0.4 million and $0.3 million, respectively.