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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 June 30, 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-20220630_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 July 28, 2022, 20,694,814 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
 
   
   
 
 
 
 
 
   
   
   
   
 
   
  
  
  
  
  
  
  
2

Table of Contents
PART IFINANCIAL INFORMATION
Item 1. Financial Statements
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
As of
(in thousands, except par value and share data)
June 30, 2022December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$311$186
Accounts receivable, net15,83915,405
Inventories4,8763,939
Other current assets1,9362,535
Total current assets22,96222,065
Medical equipment for sale or rental2,2781,742
Medical equipment in rental service, net of accumulated depreciation39,58139,871
Property & equipment, net of accumulated depreciation4,3104,523
Goodwill3,7103,710
Intangible assets, net9,50910,930
Operating lease right of use assets4,7184,241
Deferred income taxes10,19110,033
Other assets1,558471
Total assets$98,817$97,586
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable$9,434$7,862
Current portion of long-term debt349
Other current liabilities4,9914,685
Total current liabilities14,42512,896
Long-term debt, net of current portion33,68732,748
Operating lease liabilities, net of current portion4,2083,670
Total liabilities52,32049,314
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; 20,694,814 shares issued and outstanding as of June 30, 2022 and 20,699,546 shares issued and outstanding as of December 31, 2021
22
Additional paid-in capital104,146101,905
Accumulated other comprehensive income1,140268
Retained deficit(58,791)(53,903)
Total stockholders’ equity46,49748,272
Total liabilities and stockholders’ equity$98,817$97,586
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Net revenues$27,042$24,834$53,805$49,297
Cost of revenues12,1419,78423,53719,671
Gross profit14,90115,05030,26829,626
Selling, general and administrative expenses:
Provision for doubtful accounts(41)(39)6(109)
Amortization of intangibles7111,0961,4212,139
Selling and marketing3,0832,6806,4025,056
General and administrative10,94110,61722,75720,971
 
Total selling, general and administrative14,69414,35430,58628,057
 
Operating income (loss)207696(318)1,569
Other expense:
Interest expense(314)(317)(591)(639)
Other expense(30)(37)(58)(106)
 
(Loss) Income before income taxes(137)342(967)824
(Provision for) benefit from income taxes(27)478435657
Net (loss) income$(164)$820$(532)$1,481
Net (loss) income per share:
Basic$(0.01)$0.04$(0.03)$0.07
Diluted$(0.01)$0.04$(0.03)$0.07
Weighted average shares outstanding:
Basic20,583,92820,487,84520,596,58020,413,416
Diluted20,583,92822,065,48620,596,58022,017,455
 
Comprehensive income:
Net (loss) income$(164)$820$(532)$1,481
Other comprehensive income:
Unrealized gain (loss) on hedges244(106)1,14952
Provision for income tax on unrealized hedge gain(59)(13)(277)(13)
Net comprehensive income$21$701$340$1,520
See accompanying notes to unaudited condensed consolidated financial statements.
4

Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
(UNAUDITED)
 Common Stock
Additional Paid in Capital
Retained Deficit
Accumulated Other Comprehensive Income
Treasury Stock
Total StockholdersEquity
(in thousands)
Shares
Par Value Amount
Shares
Par Value Amount
Balances at March 31, 202123,915$2$86,163$(43,374)$158(3,518)$$42,949
Stock-based shares issued upon vesting - gross180254254
Stock-based compensation expense1,3721,372
Employee stock purchase plan16
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(27)(576)(576)
Other comprehensive loss(119)(119)
Net income820820
Balances at June 30, 202124,084$2$87,213$(42,554)$39(3,518)$$44,700
 
Balances at March 31, 202220,540$2$103,373$(58,277)$955$$46,053
Stock-based shares issued upon vesting - gross263234234
Stock-based compensation expense1,1231,123
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(69)(584)(584)
Common stock repurchased as part of share repurchase program(39)(350)(350)
Other comprehensive income185185
Net loss(164)(164)
Balances at June 30, 202220,695$2$104,146$(58,791)$1,140$$46,497
 
Balances at December 31, 202023,816$2$84,785$(44,035)$(3,518)$$40,752
Stock-based shares issued upon vesting - gross309393393
Stock-based compensation expense3,0073,007
Employee stock purchase plan16169169
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(57)(1,141)(1,141)
Other comprehensive income3939
Net income1,4811,481
Balances at June 30, 202124,084$2$87,213$(42,554)$39(3,518)$$44,700
 
Balances at December 31, 202120,700$2$101,905$(53,903)$268$$48,272
Stock-based shares issued upon vesting - gross388473473
Stock-based compensation expense2,1702,170
Employee stock purchase plan28236236
Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation(72)(638)(638)
Common stock repurchased as part of share repurchase program(349)(4,356)(4,356)
Other comprehensive income872872
Net loss(532)(532)
Balances at June 30, 202220,695$2$104,146$(58,791)$1,140$$46,497
See accompanying notes to unaudited condensed consolidated financial statements.
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Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
(in thousands)20222021
OPERATING ACTIVITIES
Net (loss) income$(532)$1,481
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for doubtful accounts6(109)
Depreciation5,3955,090
Loss on disposal of and reserve adjustments for medical equipment1,101640
Gain on sale of medical equipment(883)(375)
Amortization of intangible assets1,4212,139
Amortization of deferred debt issuance costs37114
Stock-based compensation2,1703,007
Deferred income taxes(435)(658)
Changes in assets - (increase)/decrease:
Accounts receivable(924)(329)
Inventories(937)(647)
Other current assets599138
Other assets(19)(70)
Changes in liabilities - (decrease)/increase:
Accounts payable and other liabilities2,496(1,607)
NET CASH PROVIDED BY OPERATING ACTIVITIES9,4958,814
INVESTING ACTIVITIES
Acquisition of business(7,490)
Purchase of medical equipment(6,669)(4,943)
Purchase of property and equipment(336)(334)
Proceeds from sale of medical equipment, property and equipment2,0811,503
NET CASH USED IN INVESTING ACTIVITIES(4,924)(11,264)
 
FINANCING ACTIVITIES
Principal payments on long-term debt(20,665)(53,982)
Cash proceeds from long-term debt21,21847,913
Debt issuance costs(386)
Cash payment of contingent consideration(750)
Common stock repurchased to satisfy statutory withholding on employee stock-based compensation plans(639)(1,141)
Common stock repurchased as part of share repurchase program(4,356)
Cash proceeds from stock plans746562
NET CASH USED IN FINANCING ACTIVITIES(4,446)(7,034)
Net change in cash and cash equivalents125(9,484)
Cash and cash equivalents, beginning of period1869,648
Cash and cash equivalents, end of period$311$164
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 
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 $0.1 million for the six months ended June 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 June 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 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 and six months ended June 30, 2021 has been adjusted by $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 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 six months ended June 30, 2021 (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
 20212021
Revenue$25,388 $50,067 
Net income$1,001 $1,641 
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4.Revenue Recognition
The following tables present the Company’s disaggregated revenue by offering type (in thousands):
 Three Months Ended
June 30,
 20222021
 
Total Net
Revenues
Percentage of
Total Net
Revenues
Total Net
Revenues
Percentage of
Total Net
Revenues
Third-Party Payer Rentals$13,896 51.4 %$13,130 52.9 %
Direct Payer Rentals7,982 29.5 %7,253 29.2 %
Product Sales3,662 13.5 %3,350 13.5 %
Services1,502 5.6 %1,101 4.4 %
 
Total$27,042 100.0 %$24,834100.0 %
Six Months Ended
June 30,
 20222021
 
Total Net
Revenues
Percentage of Total Net Revenues
Total Net
Revenues
Percentage of Total Net Revenues
 
Third-Party Payer Rentals$27,264 50.7 %$25,924 52.6 %
Direct Payer Rentals15,944 29.6 %14,651 29.7 %
Product Sales7,406 13.8 %6,933 14.1 %
Services3,191 5.9 %1,789 3.6 %
 
Total$53,805 100.0 %$49,297 100.0 %
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 June 30, 2022, $3.4 million and $4.6 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended June 30, 2021, $3.2 million and $4.1 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended June 30, 2022, less than $0.1 million and $3.7 million of Product Sales were attributed to the ITS and DME Services segments, respectively. For the three months ended June 30, 2021, all Product Sales were entirely attributed to the DME Services segment.
For the six months ended June 30, 2022, $6.5 million and $9.4 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the six months ended June 30, 2021, $6.3 million and $8.4 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the six months ended June 30, 2022, $0.1 million and $7.3 million of Product Sales were attributed to the ITS and DME Services segments, respectively. For the six months ended June 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):
 June 30,
2022
December 31, 2021
Medical equipment for sale or rental$2,322$1,788
Medical equipment for sale or rental - pump reserve(44)(46)
Medical equipment for sale or rental - net2,2781,742
 
Medical equipment in rental service95,58091,891
Medical equipment in rental service - pump reserve(1,968)(1,074)
Accumulated depreciation(54,031)(50,946)
Medical equipment in rental service - net39,58139,871
 
Total$41,859$41,613
Depreciation expense for medical equipment for the three and six months ended June 30, 2022 was $2.5 million and $4.9 million, respectively, compared to $2.3 million and $4.6 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 June 30, 2022 and increased its cost of sales for the three and six months ended June 30, 2022, respectively, by $0.5 million.
6.Property and Equipment
Property and equipment consisted of the following (in thousands):
 June 30, 2022December 31, 2021
 Gross Assets
Accumulated
Depreciation
TotalGross Assets
Accumulated Depreciation
Total
Furniture, fixtures, and equipment$5,130$(2,883)$2,247$4,812$(2,528)$2,284
Automobiles110(105)5110(103)7
Leasehold improvements3,449(1,391)2,0583,444(1,212)2,232
 
Total$8,689$(4,379)$4,310$8,366$(3,843)$4,523
Depreciation expense for property and equipment for the three and six months ended June 30, 2022 was $0.2 million and $0.5 million, respectively, compared to $0.3 million and $0.5 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 six months ended June 30, 2022 are as follows (in thousands):
 DME Services (a)
Balance as of December 31, 2021$3,710
Goodwill acquired
Balance as of June 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):
 June 30, 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(32,665)6,16938,834(31,401)7,433
Non-competition agreements472(114)358472(67)405
Unpatented technology943(191)752943(123)820
Software11,530(11,300)23011,530(11,258)272
 
Total nonamortizable and amortizable intangible assets$53,802$(44,293)$9,509$53,802$(42,872)$10,930
Amortization expense for the three and six months ended June 30, 2022 was $0.7 million and $1.4 million, respectively, compared to $1.1 million and $2.1 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 June 30, 2022 is as follows (in thousands):
 20222023202420252026
2027 and thereafter
Total
        
Amortization expense$1,073$990$990$810$524$3,122$7,509
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 June 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 had been classified as an other financing liability. As of June 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):
 June 30,
2022
December 31,
2021
Revolving Facility:
Gross availability$75,000$75,000
Outstanding draws(33,950)(32,974)
Letter of credit(600)(600)
Availability on Revolving Facility$40,450$41,426
The Company had future maturities of its long-term debt as of June 30, 2022 as follows (in thousands):
 2022202320242025
2026 and
thereafter
Total
Revolving Facility$$$$$33,950$33,950
Total$$$$$33,950$33,950
The following is a breakdown of the Company’s current and long-term debt (in thousands):
 June 30, 2022December 31, 2021
 
Current
Portion
Long-Term
Portion
Total
Current
Portion
Long-Term
Portion
Total
Revolving Facility$$33,950$33,950$$32,974$32,974
Other financing423423
 33,95033,95042332,97433,397
Unamortized value of debt issuance costs(263)(263)(74)(226)(300)
Total$$33,687$33,687$349$32,748$33,097
As of June 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 2.25% to 3.00% for Eurodollar Loans and 1.25% to 2.00% for base rate loans. The weighted-average Eurodollar loan rate at June 30, 2022 was 3.62% (LIBO of 1.37% plus 2.25%). The actual ABR loan rate at June 30, 2022 was 4.75% (lender’s prime rate of 3.50% 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):
 
June 30, 2022
 Balance Sheet LocationNotionalFair Value Derivative Assets
Derivatives designated as hedges:
Cash flow hedges
Interest rate swapsOther assets$20,000$1,504

 
December 31, 2021
 Balance Sheet LocationNotionalFair Value Derivative Assets
Derivatives designated as hedges:
Cash flow hedges
Interest rate swapsOther 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 June 30,
20222021
Gain on cash flow hedges - interest rate swaps  
Beginning balance$955$158
Unrealized gain/(loss) recognized in AOCI246(137)
Amounts reclassified to interest expense (a)(2)31
Tax provision(59)(13)
Ending balance$1,140$39
(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 both of the three months ended June 30, 2022 and 2021 was $0.3 million.

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 Six Months Ended June 30,
20222021
Gain on cash flow hedges - interest rate swaps  
Beginning balance$268$
Unrealized gain recognized in AOCI1,12311
Amounts reclassified to interest expense (a) (b)2641
Tax provision(277)(13)
Ending balance$1,140$39
(a) Positive amounts represented interest expense. Interest expense as presented in the condensed consolidated statement of operations and comprehensive income for both of the six months ended June 30, 2022 and 2021 was $0.6 million.
(b) As of June 30, 2022, $0.5 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 or six months ended June 30, 2022.
10.Income Taxes
During the three and six months ended June 30, 2022, the Company recorded a provision for income taxes of less than $0.1 million and a benefit from income taxes of $0.4 million, respectively. The income tax benefit for the six months ended June 30, 2022, relates principally to the Company's pre-tax losses during the period and also includes a benefit from excess tax benefits on exercises of stock options and vesting of restricted stock during the period. For the three and six months ended June 30, 2021, the Company recorded a benefit from income taxes of $0.5 million and $0.7 million, respectively.
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 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 June 30, 2022, the remaining balance of approximately $0.3 million is included in other liabilities.
11.Commitments, Contingencies and Litigation
From time to time in the ordinary course of its business, the Company may be involved in legal and regulatory proceedings, the outcomes of which may not be determinable. The results of litigation and regulatory proceedings are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The Company is not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages and, until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. The Company has insurance policies covering potential losses where such coverage is cost effective.
The Company is not at this time involved in any proceedings that the Company currently believes could have a material effect on the Company’s financial condition, results of operations or cash flows.
12.(Loss) Earnings Per Share
Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) income per share assumes the issuance of potentially dilutive shares of common stock during the period. The following table reconciles the numerators and denominators of the basic and diluted (loss) income per share computations:
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 Three Months Ended June 30,Six Months Ended June 30,
Numerator (in thousands):
2022202120222021
Net (loss) income:$(164)$820$(532)$1,481
Denominator:
Weighted average common shares outstanding:
Basic20,583,92820,487,84520,596,58020,413,416
Dilutive effect of common stock equivalents1,577,6411,604,039
Diluted20,583,92822,065,48620,596,58022,017,455
Net (loss) income per share:
Basic$(0.01)$0.04$(0.03)$0.07
Diluted$(0.01)$0.04$(0.03)$0.07
For both the three and six months ended June 30, 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 and six months ended June 30, 2021, 0.2 million and 0.1 million, respectively, 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 June 30, 2022, the Company had repurchased and retired approximately $4.9 million, or 382,139 shares, of the Company's outstanding common stock under the Share Repurchase Program.
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 and six months ended June 30, 2022 and 2021 are as follows (in thousands):
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Operating lease cost$335 $348 $664 $696 
Variable lease cost80 58 154 115 
Total lease cost$415 $406 $818 $811 
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Supplemental cash flow information and non-cash activity related to the Company’s leases are as follows (in thousands):
 Six Months Ended
June 30,
20222021
Cash paid for amounts included in the measurement of lease liabilities and right of use assets:  
Operating cash flow from operating leases$523 $720 
 
Right of use assets obtained in exchange for lease obligations:
Operating leases$18 $288 
Increases to right of use assets resulting from lease modifications:
Operating leases$1,050 $ 
Weighted average remaining lease terms and discount rates for the Company’s operating leases are as follows:
 As of June 30,
 20222021
 
 
Years
Years
Weighted average remaining lease term:7.16.5
 RateRate
Weighted average discount rate:7.1%7.7%
Future maturities of lease liabilities as of June 30, 2022 are as follows (in thousands):
 
Operating
Leases
2022$596 
20231,159 
20241,064 
20251,033 
2026998 
2027 and thereafter
2,841 
Total undiscounted lease payments7,691 
Less: Imputed interest(2,494)
Total lease liabilities$5,197 
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 service 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.
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The financial information summarized below is presented by reportable segment for the three months ended June 30, 2022 and 2021:
2022
(in thousands)ITSDME Services
Corporate/
Eliminations
Total
     
Net revenues - external$17,244$9,798$$27,042
Net revenues - internal1,762(1,762)
Total net revenues17,24411,560(1,762)27,042
Gross profit10,1134,78814,901
Selling, general and administrative expenses14,69414,694
Interest expense(314)(314)
Other expense(30)(30)
Provision for income taxes(27)(27)
Net loss$(164)
Total assets$62,310$34,507$2,000$98,817
Purchases of medical equipment$3,325$413$$3,738
Depreciation and amortization of intangible assets$2,371$1,029$$3,400
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2021
(in thousands)ITSDME Services
Corporate/Eliminations
Total
 
Net revenues - external$16,334$8,500$$24,834
Net revenues - internal1,598(1,598)
Total net revenues16,33410,098(1,598)24,834
Gross profit10,4514,59915,050
Selling, general and administrative expenses14,35414,354
Interest expense(317)(317)
Other expense(37)(37)
Benefit from income taxes478478
Net income$820
Total assets$60,876$33,121$2,000$95,997
Purchases of medical equipment$1,871$736$$2,607
Depreciation and amortization of intangible assets$2,732$927$$3,659
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The financial information summarized below is presented by reportable segment for the six months ended June 30, 2022 and 2021:
2022
(in thousands)ITSDME Services
Corporate/
Eliminations
Total
 
Net revenues - external$33,885$19,920$$53,805
Net revenues - internal3,250(3,250)
Total net revenues33,88523,170(3,250)53,805
Gross profit20,8519,41730,268
Selling, general and administrative expenses30,58630,586
Interest expense(591)(591)
Other expense(58)(58)
Benefit from income taxes435435
Net loss$(532)
Total assets$62,310$34,507$2,000$98,817
Purchases of medical equipment$4,836$1,833$$6,669
Depreciation and amortization of intangible assets$4,769$2,047$$6,816
2021
(in thousands)ITSDME Services
Corporate/
Eliminations
Total
Net revenues - external$32,245$17,052$$49,297
Net revenues - internal3,044(3,044)
Total net revenues32,24520,096(3,044)49,297
Gross profit20,4549,17229,626
Selling, general and administrative expenses28,05728,057
Interest expense(639)(639)
Other expense(106)(106)
Benefit from income taxes657657
Net income$1,481
Total assets$60,876$33,121$2,000$95,997
Purchases of medical equipment$3,492$1,451$$4,943
Depreciation and amortization of intangible assets$5,428$1,801$$7,229
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
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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. Since the pandemic started, 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, delayed ramp-up in treatment volumes for new customers and, mainly during 2022, reduced availability of disposable medical supplies, all of which unfavorably impacted the Pain Management business. Additionally, restricted physical access to our customers facilities, unfavorably impacted revenue growth initiatives for 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 and six months ended June 30, 2022, beyond these delays 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 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, rising inflation, labor and supply chain disruptions, 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.
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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 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.
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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 and ambulatory infusion pumps and other Durable Medical Equipment; (ii) sell treatment-related consumables; and (iii) provide biomedical recertification, maintenance and repair services for oncology practices as well as other alternate site settings, including, home care and home infusion providers, skilled nursing facilities, pain centers and others. We also provide these products and services to customers in the hospital market. We purchase new and pre-owned pole-mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis. We repair, refurbish and provide biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be used within our ambulatory infusion pump management service. Our recent acquisition of FilAMed, a privately-held biomedical services company, on January 31, 2021 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. Our recent acquisition of OB Healthcare Corporation (“OB Healthcare”), a privately-held biomedical services company, on April 18, 2021 further develops and expands InfuSystem’s DME Services segment by extending our existing biomedical service capability into our customer's locations. OB Healthcare complements the Company’s purchase of FilAMed.
COVID-19 Update
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. Since the pandemic started, 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, delayed ramp-up in treatment volumes for new customers and, mainly during 2022, reduced availability of disposable medical supplies, all of which unfavorably impacted the Pain Management business. Additionally, restricted physical access to our customers facilities, unfavorably impacted revenue growth initiatives for 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 and six months ended June 30, 2022, beyond these delays 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.
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InfuSystem Holdings, Inc. Results of Operations for the Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021
The following represents the Company’s results of operations for the three months ended June 30, 2022 and 2021:
 
Three Months Ended June 30,
 
(in thousands, except share and per share data)20222021
Better
(Worse)
    
Net revenues:   
    ITS$17,244 $16,334 $910 
    DME Services (inclusive of inter-segment revenues)11,560 10,098 1,462 
       Less: elimination of inter-segment revenues(1,762)(1,598)(164)
      Total27,042 24,834 2,208 
Gross profit (inclusive of certain inter-segment allocations) (a): 
    ITS10,113 10,451 (338)
    DME Services4,788 4,599 189 
      Total14,901 15,050 (149)
  
Selling, general and administrative expenses 
    Provision for doubtful accounts(41)(39)
    Amortization of intangibles711 1,096 385 
    Selling and marketing3,083 2,680 (403)
    General and administrative10,941 10,617 (324)
      Total selling, general and administrative expenses14,694 14,354 (340)
  
Operating income207 696 (489)
 
Other expense(344)(354)10 
 
(Loss) income before income taxes(137)342 (479)
(Provision for) benefit from income taxes(27)478 (505)
 
Net (loss) income$(164)$820 $(984)
 
Net (loss) income per share:
Basic$(0.01)$0.04 $(0.05)
Diluted$(0.01)$0.04 $(0.05)
Weighted average shares outstanding:
Basic20,583,928 20,487,845 96,083 
Diluted20,583,928 22,065,486 (1,481,558)
(a) Inter-segment allocations are for cleaning and repair services performed on medical equipment.
Net Revenues
Net revenues for the quarter ended June 30, 2022 (“second quarter of 2022”) were $27.0 million, an increase of $2.2 million, or 8.9%, compared to $24.8 million for the quarter ended June 30, 2021 (“second quarter of 2021”). The increase included higher net revenues for both the ITS and DME Services segments.
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ITS
ITS net revenue of $17.2 million increased $0.9 million, or 5.6%, during the second quarter of 2022 as compared to the prior year period. This increase was primarily attributable to additional treatment volume in Oncology and Pain Management and improved third party payer collections on billings. Pain Management net revenue increased by $0.2 million for the second quarter of 2022 as compared to the prior year second quarter due to additional sites of care added over the last year. The higher amount represented an increase of 25%.
DME Services
DME Services net revenue of $9.8 million (exclusive of inter-segment revenues) increased $1.3 million, or 15.3%, during the second quarter of 2022 as compared to the prior year period. This increase included an increase in revenues from equipment rentals totaling $0.6 million, or 15%, higher biomedical services revenue which increased by $0.4 million, or 36%, and an increase in sales of disposable medical supplies which increased by $0.2 million, or 10%. Increased rental revenue reflected increased market demand as customers looked to supplement their infusion pump fleets in the face of supply chain disruptions of disposable medical supplies used with certain model infusion pumps. The biomedical services revenue included initial amounts of revenue from a new master services agreement with a leading global healthcare technology and diagnostic company that was launched in April 2022. Revenue under the agreement, which was not significant during the second quarter of 2022, is expected to grow to approximately $10.0 to $12.0 million annually after an initial ramp-up period of approximately 15 months.
Gross Profit (inclusive of certain inter-segment allocations)
Gross profit for the second quarter of 2022 of $14.9 million decreased $0.1 million, or 1.0%, from $15.1 million for the second quarter of 2021. The decrease was driven by a lower gross profit percentage of net revenue ("gross margin") partially offset by the increase in net revenue. Gross margin was 55.1% during the second quarter of 2022 as compared to 60.6% during the prior year, a decrease of 5.5%. Gross margin decreased in both the DME Services and ITS segments.
ITS
ITS gross profit was $10.1 million during the second quarter of 2022, representing a decrease of $0.3 million compared to the prior year. The decrease reflected a lower gross margin, which decreased from the prior year by 5.3% to 58.6%, offset partially by an increase in net revenues. The lower gross margin was the result of a $0.8 million increase in the adjustment recorded for pump disposal expenses and $0.2 million higher pump maintenance expenses as compared to the prior year. Pump disposal expenses include retirements of damaged pumps and reserves for missing pumps. The increase was mainly related to an updated estimate of the volume of pumps considered missing based on pump return data and physical inventories. Pump maintenance expenses, which include preventative maintenance, cleaning and repair services mainly performed by the DME Services segment, were unusually high during the second quarter of 2022 due to the timing of when the services were performed.
DME Services
DME Services gross profit during the second quarter of 2022 was $4.8 million, representing an increase of $0.2 million, or 4.1%, compared to the prior year. This increase was due to an increase in net revenues partially offset by a lower gross margin. The DME gross margin was 48.9% during the current quarter, which was 5.2% lower than the prior year. This decrease was the result of gross margin mix associated with higher biomedical revenue, which has a lower gross margin percentage than other business lines in the DME Services segment, and an increase in labor costs related to an increase in the number of biomedical technicians. The increase in biomedical technician labor resulted from an increase in team members who were hired in order to increase the capacity in biomedical services in anticipation of increased biomedical services demand. Higher biomedical services revenue during the second quarter of 2022 has begun to absorb a portion of the increased labor and further increases are expected in future quarters which will further absorb these costs.
Selling and Marketing Expenses
Selling and marketing expenses for the second quarter of 2022 were $3.1 million, representing an increase of $0.4 million, or 15.0%, as compared to the second quarter of 2021. Selling and marketing expenses as a percentage of net revenues increased to 11.4% compared to the prior year period at 10.8%. This increase reflected $0.2 million in higher expenses for NPWT and Pain Management dedicated sales personnel and $0.2 million in increased marketing expenses. The additional sales team members were hired during the second quarter of 2021 but did not have a full quarter impact, represent a strategic investment to accelerate revenue growth for these therapies. The related expense included in selling and marketing, for these
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strategic investments, is a portion of an overall expense increase of $0.4 million, for the second quarter of 2022 associated with this initiative, the remainder of which is included in general and administrative expense. The selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, travel and entertainment and other miscellaneous expenses.
General and Administrative Expenses
General and administrative (“G&A”) expenses for the second quarter of 2022 were $10.9 million, an increase of 3.1% from $10.6 million for the second quarter of 2021. G&A expenses during these periods consisted primarily of accounting, administrative, third-party payer billing and contract services, customer service, nurses on staff, new product services, service center personnel salaries, fringe benefits and other payroll-related items, professional fees, legal fees, stock-based compensation, insurance and other miscellaneous items. The increase of $0.3 million was due to $0.2 million in additional expenses related to the investments in NPWT and Pain Management, $0.2 million in additional audit expenses associated with additional requirements to comply with the Sarbanes-Oxley Act of 2002 and higher travel expenses and other increases including higher personnel, healthcare, information technology and general business expenses. These increases were partially offset by a decrease in stock-based compensation expense of $0.2 million and lower accrued expense for our short-term incentive compensation plan. G&A expenses as a percentage of net revenues for the second quarter of 2022, decreased to 40.5% compared to 42.8% for the prior year mainly reflecting improved net revenue leverage over fixed costs.
Other Expenses
During the second quarter of 2022, other expense included interest expense of $0.3 million which was slightly lower than interest expense for the second quarter of 2021. Interest expense includes interest and other fees paid in relation to borrowings under the 2021 Credit Agreement, interest payment on our other financing and amounts either paid or received on two interest rate swap derivatives. The decrease resulted from lower weighted average interest rates and lower commitment fees on a higher unused revolving line availability partially offset by higher average outstanding debt balances during the second quarter of 2022 as compared to 2021. The lower average interest rate reflects a lower amount of outstanding prime-based borrowings under the 2021 Credit Agreement during 2022 and a lower average outstanding balance on our other financing which has a higher rate than loans under the 2021 Credit Agreement.
(Provision For) Benefit From Income Taxes
During the second quarter of 2022, the Company recorded a provision for income taxes totaling less than $0.1 million despite having a pre-tax loss of $0.1 million. This amount included $0.1 million in discrete adjustments, including an excess tax provision associated with a lower amount of equity compensation expense deductible for tax purposes as compared to amounts historically recognized for book purposes on exercises of stock options and vesting of restricted stock during the quarter. This benefit was partially offset by an estimated tax provision totaling $0.1 million representing an effective tax rate of 39.4% on pre-tax income. During the second quarter of 2021, we recorded a benefit from income taxes of $0.5 million. This amount included a benefit of $0.6 million in discrete adjustments including an excess tax benefit associated with a higher amount of equity compensation expense deductible for tax purposes as compared to amounts historically recognized for book purposes on exercises of stock options and vesting of restricted stock during the quarter. This benefit was partially offset by an estimated tax provision totaling $0.1 million representing an effective tax rate of 37.4% on pre-tax income totaling $0.3 million. The effective tax rates for these periods differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes.
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InfuSystem Holdings, Inc. Results of Operations for the Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
The following represents the Company’s results of operations for the six months ended June 30, 2022 and 2021:

 Six Months Ended
June 30,
 
(in thousands, except share and per share data)20222021
Better/
(Worse)
    
Net revenues:   
    ITS$33,885 $32,245 $1,640 
    DME Services (inclusive of inter-segment revenues)23,170 20,096 3,074 
       Less: elimination of inter-segment revenues(3,250)(3,044)(206)
      Total53,805 49,297 4,508 
Gross profit (inclusive of certain inter-segment allocations) (a):
    ITS20,851 20,454 397 
    DME Services9,417 9,172 245 
      Total30,268 29,626 642 
 
Selling, general and administrative expenses
    Provision for doubtful accounts(109)(115)
    Amortization of intangibles1,421 2,139 718 
    Selling and marketing6,402 5,056 (1,346)
    General and administrative22,757 20,971 (1,786)
      Total selling, general and administrative expenses30,586 28,057 (2,529)
 
Operating (loss) income(318)1,569 (1,887)
 
Other expense(649)(745)96 
 
(Loss) income before income taxes(967)824 (1,791)
Benefit from income taxes435 657 (222)
 
Net (loss) income$(532)$1,481 $(2,013)
 
Net (loss) income per share:
Basic$(0.03)$0.07 $(0.10)
Diluted$(0.03)$0.07 $(0.10)
Weighted average shares outstanding:
Basic20,596,580 20,413,416 183,164 
Diluted20,596,580 22,017,455 (1,420,875)
(a) Inter-segment allocations are for cleaning and repair services performed on medical equipment.

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Net Revenues
Net revenues for the six-month period ended June 30, 2022 (“first half of 2022”) were $53.8 million, an increase of $4.5 million, or 9.1%, compared to $49.3 million for the six-month period ended June 30, 2021 (“first half of 2021”). The increase included higher net revenues for both the ITS and DME Services segments.
ITS
ITS net revenue of $33.9 million increased $1.6 million, or 5.1%, during the first half of 2022 as compared to the prior year period. This increase was primarily attributable to additional treatment volume in all three therapies including Oncology, Pain Management and NPWT, and improved third party payer collections on billings. Pain Management net revenue for the first half of 2022 increased by $0.3 million as compared to the same period in 2021, which represented an increase of 17% as compared to the first half of 2021. This increase occurred despite treatment volumes being unfavorably impacted by decreased elective surgeries during the first few months of 2022 related to COVID-19. This unfavorable impact was more than offset due to additional sites of care added over the last year.
DME Services
DME Services net revenue of $19.9 million (exclusive of inter-segment revenues), increased $2.9 million, or 16.8%, during the first half of 2022 as compared to the prior year period. This increase included higher biomedical services revenue which increased by $1.4 million, or 78%, increased equipment rentals totaling $1.1 million, or 13%, and higher sales of disposable medical supplies which increased by $0.4 million, or 11%. The increased biomedical revenue included approximately $0.5 million related to the full period effect from the acquisition of the FilAMed and OB Healthcare businesses, which we acquired during the first and second quarters of 2021, respectively. Increased rental revenue and disposable sales reflected increased market demand as customers looked to supplement their infusion pump fleets in the face of supply chain disruptions of disposable medical supplies used with certain model infusion pumps. The biomedical services revenue included initial amounts of revenue from a new master services agreement with a leading global healthcare technology and diagnostic company that was launched in April 2022. Revenue under the agreement, which was not significant during the second quarter of 2022, is expected to grow to approximately $10.0 to $12.0 million annually after an initial ramp-up period of approximately 15 months.
Gross Profit (inclusive of certain inter-segment allocations)
Gross profit for the first half of 2022 of $30.3 million increased $0.6 million, or 2.2%, from $29.6 million for the first half of 2021. This increase was due to the increase in net revenues offset by a lower gross margin. Gross margin decreased to 56.3% during the first half of 2022 as compared to 60.1% during the prior year. This decrease was due to a decrease in the gross margin for both the DME Services and ITS segments.
ITS
ITS gross profit was $20.9 million during the first half of 2022, representing an increase of $0.4 million, or 1.9%, compared to the prior year. The improvement reflected an increase in net revenues offset partially by a lower gross margin, which decreased from the prior year by 1.9% to 61.5%. The lower gross margin was the result of a $0.5 million increase in the adjustment recorded for pump disposal expenses and $0.2 million higher pump maintenance expenses as compared to the prior year. Pump disposal expenses include retirements of damaged pumps and reserves for missing pumps. The increase was mainly related to an updated estimate of the volume of pumps considered missing based on pump return data and physical inventories. Pump maintenance expenses, which include preventative maintenance, cleaning and repair services mainly performed by the DME Services segment, were unusually high during the second quarter of 2022 due to the timing of when the services were performed.
DME Services
DME Services gross profit during the first half of 2022 was $9.4 million, representing a increase of $0.2 million, or 2.7%, over the prior year. This increase was due to the increase in net revenues, which was partially offset by a decrease in gross margin. The DME gross margin was 47.3% during the current period, which was 6.5% lower than the prior year. This decrease was the result of gross margin mix associated with higher biomedical revenue, which has a lower gross margin percentage than other business lines in the DME Services segment, and an increase in labor costs related to an increase in the number of biomedical technicians. The increase in biomedical technician labor resulted from an increase in team members who were hired in order to increase the capacity in biomedical services in anticipation of increased biomedical services demand.
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Higher biomedical services revenue during the second quarter of 2022 has begun to absorb a portion of the increased labor and further increases are expected in future quarters which will further absorb these costs.
Selling and Marketing Expenses
Selling and marketing expenses for the first half of 2022 were $6.4 million, representing an increase of $1.3 million or 26.6% as compared to selling and marketing expenses for the first half of 2021. Selling and marketing expenses consist of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, travel and entertainment and other miscellaneous expenses. Selling and marketing expenses as a percentage of net revenues increased to 11.9% compared to the prior year period at 10.3%. This increase reflected $0.8 million in higher expenses for NPWT and Pain Management dedicated sales personnel and $0.5 million in increased marketing expenses. The additional sales team members represent a strategic investment to accelerate revenue growth for these therapies and were hired during the second quarter of 2021 and therefore did not have a full impact in that period. The related expense included in selling and marketing, for these strategic investments, is a portion of an overall expense increase of $1.4 million, for the first half of 2022 associated with this initiative, the remainder of which is included in general and administrative expense. The higher marketing expenses related to our national sales meeting, which was held in-person for the first time since the outbreak of COVID-19, increased participation in trade shows and other increased expenses.
General and Administrative Expenses
G&A expenses for the first half of 2022 were $22.8 million, an increase of $1.8 million or 8.5% from the first half of 2021. G&A expenses during these periods consisted primarily of accounting, administrative, third-party payer billing and contract services, customer service, nurses on staff, new product services, service center personnel salaries, fringe benefits and other payroll-related items, professional fees, legal fees, stock-based compensation, insurance and other miscellaneous items. The increase of $1.8 million was due to $0.6 million in additional expenses related to the investments in NPWT and Pain Management, $0.2 million in additional audit expenses associated with additional requirements to comply with the Sarbanes-Oxley Act of 2002, $0.1 million of additional G&A expenses for the FilAMed and OB Healthcare businesses and higher travel expenses and other increases including higher personnel, healthcare, information technology and general business expenses. These increases were partially offset by a decrease in stock-based compensation expense of $0.8 million and a lower accrued expense for our short-term incentive compensation plan. G&A expenses as a percentage of net revenues for the first half of 2022, decreased to 42.3% compared to 42.5% for the prior year mainly reflecting improved net revenue leverage over fixed costs.
Other Income and Expenses
During the first half of 2022, other income and expense included interest expense of $0.6 million which was equal to interest expense for the first half of 2021.
Benefit From Income Taxes
During the first half of 2022 and 2021, the Company recorded a benefit from income taxes totaling $0.4 million and $0.7 million, respectively. These amounts included a benefit from discrete adjustments including excess tax benefits associated with higher amounts of equity compensation expense deductible for tax purposes as compared to amounts historically recognized for book purposes on exercises of stock options and vesting of restricted stock. The amount of the discrete adjustments were $0.1 million during the first half of 2022 and $0.9 million for the first half of 2021. Not including these discrete adjustments, the company recorded an estimated tax benefit totaling $0.3 million during 2022 on a pre-tax loss totaling $1.0 million and a tax provision of $0.3 million during 2021 on pre-tax income of $0.8 million. These amounts represented an effective tax rate of 30.8% and 33.4% during first half of 2022 and 2021, respectively, which differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes.

Liquidity and Capital Resources
Overview:
We finance our operations and capital expenditures with cash generated from operations and borrowings under our existing credit agreement. On February 5, 2021, we and certain of our subsidiaries, as borrowers, entered into a Credit Agreement (the “2021 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, sole bookrunner and sole lead arranger, and the lenders party thereto, which replaced our then existing credit facility, dated March 23, 2015 (the “2015
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Credit Agreement”). See Note 8 (Debt) in the notes to the accompanying unaudited condensed consolidated financial statements for additional information regarding the 2021 Credit Agreement and 2015 Credit Agreement.
The following table summarizes our available liquidity (in millions):
Liquidity  
 June 30, 2022December 31, 2021
Cash and cash equivalents$0.3 0.2 
Revolving line of credit40.5 41.4 
Available liquidity$40.8 41.6 
Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating commitments, which primarily include the purchase of pumps, inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy, which includes investment for future organic growth, potential acquisitions and share repurchases. We believe we have adequate sources of liquidity and funding available to meet our liquidity requirements for at least the next year from the filing date of this report, as well as for our currently anticipated long-term needs, including our long-term lease obligations discussed above in Note 13 (Leases) in the notes to the accompanying unaudited condensed consolidated financial statements. However, any projections of future earnings and cash flows are subject to substantial uncertainty, including factors such as the successful execution of our business plan and general economic conditions. We may need to access debt and equity markets in the future if unforeseen costs or opportunities arise, to meet working capital requirements, fund acquisitions or investments or repay indebtedness under the 2021 Credit Agreement. If we need to obtain new debt or equity financing in the future, the terms and availability of such financing may be impacted by economic and financial market conditions as well as our financial condition and results of operations at the time we seek additional financing.
Long-Term Debt Activities:
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 credit facility ("Revolving Facility") as of the applicable balance sheet date (in thousands):
 June 30, 2022December 31, 2021
Revolving Facility:  
Gross availability$75,000$75,000
Outstanding draws(33,950)(32,974)
Letters of credit(600)(600)
Availability on Revolving Facility$40,450$41,426
As of June 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 2022 Credit Agreement, plus a spread that will vary depending upon the Company’s leverage ratio. The spread ranges from 2.25% to 3.00% for Eurodollar Loans and 1.25% to 2.00% for base rate loans. The weighted-average Eurodollar loan rate at June 30, 2022 was 3.62% (LIBO of 1.37% plus 2.25%). The actual ABR loan rate at June 30, 2022 was 4.75% (lender’s prime rate of 3.50% plus 1.25%). As of June 30, 2022, the Company was in compliance with all debt-related covenants under the 2021 Credit Agreement.
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.
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As of June 30, 2022, the Company had repurchased and retired approximately $4.9 million, or 382,139 shares, of the Company's outstanding common stock under the Share Repurchase Program.
Cash Flows:
The following table summarizes our cash flows (in millions):
 Six Months Ended June 30,
In millions20222021
2022 vs. 2021
Net cash provided by operating activities$9.5 $8.8 $0.7 
Net cash used in investing activities$(4.9)$(11.3)$6.3 
Net cash used in financing activities$(4.4)$(7.0)$2.6 
Operating Cash Flow. Net cash provided by operating activities for the first half of 2022 was $9.5 million compared to $8.8 million for the first half of 2021. This $0.7 million, or 7.7%, increase was attributable to the positive cash flow effect of a swing from $2.5 million in cash being used to fund increased working capital amounts during first half of 2021 to cash being provided by reduced working capital amounts during the first half of 2022 of $1.2 million for a net improvement in cash flow totaling $3.7 million. This amount was partially offset by a decrease in net income adjusted for non-cash items, which was $8.3 million during the first half of 2022 as compared to $11.3 million during the first half of 2021, a decrease of $3.0 million. During the six month period ended 2022, cash provided by reduced working capital balances totaled $1.2 million. This included a $2.5 million increase in accounts payable and other liabilities net of capital items and a $0.6 million decrease in other current assets offset partially by a $0.9 million increase in inventories and a $0.9 million increase in accounts receivable. The higher increase in accounts receivable during the first half of 2022 as compared to the prior year was mainly due to a higher increase in revenue during the second quarter of 2022 as compared to the fourth quarter of 2021 than the comparable prior year periods. Accounts payable and other liabilities net of capital items, increased by $2.5 million during the first half of 2022, and decreased $1.6 million during the first half of 2021, representing a $4.1 million favorable cash flow swing, mainly due to a reduction in the amount paid in 2022 for the 2021 short-term incentive bonus plan as compared to the amount paid in 2021 for the 2020 short-term incentive bonus plan.
Investing Cash Flow. Net cash used in investing activities was $4.9 million for the first half of 2022 compared to $11.3 million for the first half of 2021, a decrease of $6.3 million. The decrease was due to the acquisitions of FilAMed and OB Healthcare totaling $7.5 million during the first half of 2021. We did not acquire any companies in first half of 2022. This amount was partially offset by an increase totaling $1.7 million in cash used to purchase medical equipment and other property and equipment first half of 2022 as compared to first half of 2021. Purchases of medical equipment were higher during 2022 due to an increase in expected future growth during the current year as compared to 2021.
Financing Cash Flow. Net cash used in financing activities for the first half of 2022 was $4.4 million compared to $7.0 million for the first half of 2021. Amounts of cash used in financing activities during the first half of 2022 included $0.4 million in principal payments on our other financing, a $0.8 million payment of contingent consideration related to the acquisition of OB Healthcare, $4.4 million to buy back the Company's common stock and $0.6 million used to repurchase stock associated with statutory withholding requirements under the Company's stock based compensation plans. These amounts were partially offset by net revolving line of credit borrowings under the 2021 Credit Agreement totaling $1.0 million and cash proceeds from employee stock option exercises totaling $0.7 million. The use of cash during 2021 was mainly related to the refinancing of our bank debt on February 5, 2021. Prior to that date, we operated under the 2015 Credit Agreement which included three term notes and a revolving line of credit. At the beginning of 2021, we had $9.6 million in cash on hand and no outstanding borrowings under the revolving line of credit. The 2015 Credit Agreement was completely repaid and replaced by the 2021 Credit Agreement, which has a new $75 million revolving line of credit and no term notes. This structure allowed the Company to use a portion of its available cash, totaling $7.9 million, to reduce its overall outstanding debt on the closing date of the financing.
Critical Accounting Policies and Estimates
The unaudited condensed consolidated financial statements are prepared in conformity with GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. With one exception discussed below, the critical accounting estimates that affect the unaudited condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the notes to the audited consolidated financial statements in our annual report on Form 10-K for the year
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ended December 31, 2021 filed with the SEC on March 15, 2022. Our 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 June 30, 2022 and increased its cost of sales for the three and six months ended June 30, 2022, respectively, by $0.5 million. There have been no material changes to our critical accounting policies described in the notes to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2021.
As of the date of the unaudited condensed consolidated financial statements presented in this Form 10-Q, there have been no material negative financial impacts on our operations resulting from the COVID-19 pandemic other than delays in our revenue growth initiatives. However, the future effects of this pandemic or any resurgence thereof on economic and market conditions is uncertain and increases the subjectivity that will be involved in evaluating our estimates and assumptions underlying our critical accounting policies. Any events and changes in circumstances arising after June 30, 2022, including those resulting from the impacts of the COVID-19 pandemic, will be reflected in management’s estimates for future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency exchange rates and short-term interest rates. Market risks for changes in interest rates relate primarily to our debt obligations under our 2021 Credit Agreement. Foreign currency exchange risks are attributable to sales to foreign customers and purchases from foreign suppliers not denominated in our functional currency which is the U.S. Dollar and include exposures primarily to the Canadian Dollar.
The Company periodically enters into derivative contracts with the objective of managing its financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them. We did not have any foreign currency derivative contracts outstanding at any time during the three and six months ended June 30, 2022. The maximum length of time over which we hedge our exposure to short-term interest rate risk is equal to the remaining term for the debt obligation being hedged. We had interest rate derivative contracts with a notional value of $20.0 million as of both June 30, 2022 and December 31, 2021.
We do not enter into derivative financial instruments for speculative or trading purposes. Our 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 both at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment. For derivative contracts which can be classified as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded to accumulated other comprehensive income in the consolidated balance sheet.  When the underlying hedge transaction is realized, the gain or loss included in accumulated other comprehensive income is recorded in earnings in the consolidated statement of income on the same line as the gain or loss on the hedged item attributable to the hedged risk.  We record the ineffective portion of interest rate hedging instruments, if any, to interest expense in the consolidated statements of income. See Note 9 to our consolidated financial statements for information related to the fair values of derivative instruments in our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively, and information related to the effect of derivative instruments included in our condensed consolidated statements of operations and comprehensive income including the amount of unrealized gain associated with our interest rate derivatives reported in accumulated other comprehensive income that was reclassified into earnings during the three and six months ended June 30, 2022 and 2021, respectively.
The Company uses an income approach to value derivative instruments, analyzing quoted market prices to calculate the forward values and then discounting such forward values to the present value using benchmark rates at commonly quoted intervals for the instrument’s full term.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) previously announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021, and the administrator of LIBOR announced its intention to cease the publication of the one week and two month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. The one week and two month USD LIBOR settings were last published on December 31, 2021. Additionally, it is expected that banks will no longer issue LIBOR-based debt after December 31, 2021. Accordingly, there is considerable uncertainty regarding the publication of such rates beyond these dates. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD LIBOR for use in derivatives and other financial contracts that are currently indexed to USD LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD LIBOR. At this time, it is not known whether or when SOFR or other alternative reference rates will attain market traction as replacements for LIBOR. The Company's 2021
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Credit Agreement, discussed in Note 8 to the condensed consolidated financial statements, and the Company's interest rate swap agreements, discussed in Note 9 to the condensed consolidated financial statements, are indexed to USD LIBOR and management is monitoring this activity and evaluating the related risks.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting
We maintain a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Our CEO and CFO have evaluated these disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q and have determined that such disclosure controls and procedures were effective.
There has been no change in our internal control over financial reporting during our most recent calendar quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
From time to time in the ordinary course of our business, we 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 us, 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. We are 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. We have insurance policies covering potential losses where such coverage is cost effective.
We are not at this time involved in any proceedings that we believe could have a material effect on our business, financial condition, results of operations or cash flows.
Item 1A. Risk Factors
For information regarding factors that could affect our results of operations, financial condition and liquidity, refer to the section entitled “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 15, 2022.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
A summary of our purchases of our common stock during the three months ended June 30, 2022 is as follows:
PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (b)
April 1, 2022 through April 30, 2022— $— $15,440,579
May 1, 2022 through May 31, 202296,265 $8.66 27,316$15,191,094
June 1, 2022 through June 30, 202211,309 $8.84 11,309$15,091,097
Total107,574 $8.68 38,625
(a) Of the 107,574 shares of common stock presented in the table above, 68,949 shares were originally granted to employees and directors as restricted stock awards. Our stock plans allow for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock. Pursuant to our stock plans, the 68,949 shares reflected above were relinquished by employees or directors in exchange for our agreement to pay U.S. federal, state and local tax withholding obligations resulting from the vesting of the Company's restricted stock.
(b) On June 30, 2021, our Board of Directors approved a stock repurchase program (the "Share Repurchase Program") authorizing the Company to repurchase up to $20.0 million of the Company's outstanding common stock through June 30, 2024 (which was announced on August 12, 2021). Repurchases under the Share Repurchase Program will be 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 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 June 30, 2022, the Company had repurchased 382,139 shares under the Share Repurchase Program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibits 
3.1
3.2
  
10.1*
31.1*
31.2*
32.1**
32.2**
101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101)
*
**
Filed herewith
Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INFUSYSTEM HOLDINGS, INC.
  
  
Date: August 4, 2022 /s/ Richard DiIorio
 Richard DiIorio
 
Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 4, 2022 /s/ Barry Steele
 
Barry Steele
Chief Financial Officer
(Principal Accounting and Financial Officer)
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