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market. Since companies can’t compete on price due to reimbursement, with the advantages outlinedabove, competition doesn’t appear to pose much of a threat to the company.
Activist Shareholder Group:
A group of activist investors lead the proxy contest including Kleinheinz Capital (longtimeshareholder), Boston Avenue Capital (Chuck Gillman) and Meson Capital (Ryan Morris). On April 26
,Ryan Morris became chairman and Chuck Gillman joined the board of directors. Three additionaldirectors were announced including a new interim CEO Dilip Sigh.Some of the comments from Ryan Morris in the press release regarding current plans.
"Our prime mandate is to create value for all shareholders," says new Executive Chairman Morris."Further, we believe that our personal economic fates should continue to be entirely tied to performance. Accordingly, new board members will be compensated solely in stock options.” "My immediate priorities as Executive Chairman will be to ensure sound operational performance, and thedevelopment of a strategic growth plan that leverages InfuSystem's market strengths with emerginggrowth opportunities," Morris states. "Directors David Dreyer and Wayne Yetter have each beeninstrumental to making this a smooth transition. I am also pleased to report that Dilip Singh, our new
Currently, 80% of revenue comes from colorectal cancer treatments and 20% from head and neckcancer. The company is looking to expand into treatments of other cancers and ailments. There arecurrently drugs in clinical trial that could obtain regulatory approval in the next few years and beadministered using continuous infusion protocols which would add additional revenue sources.The previous management and board of directors were paid excessively. In 2011 the board of directors was paid $714,500 in cash and fees. The new board will only be paid in options, eliminatingthe cash expenditure. In addition, the new CEO’s compensation doesn’t include massive optionspayouts that the former CEO received.A cost saving and sales opportunity exists with the integration and cross selling of products from FirstBiomedical, an prior acquisition that was never integrated with the systems and sales staff of Infusystem. It has a broader product line then the Infusystem portion of the business. They alsooffer secondary products such as tubing, cassettes, catheters and other disposable items that areutilized with infusion pumps. Eliminating redundant costs and cross selling into 3,000 physician clinicscreates a nice opportunity for the company.In addition, Infusystem’s inventory management system is very antiquated. Inventory management isvery inefficient and could be significantly improved. Management has stated that this is a priority.This will lower costs, free up a large amount of inventory (in range of $5 to $10 million) which issubstantial for a company with an EV of $70 million.Longer term, it’s possible other products could be sold by the sales team into the existing largecustomer base of clinics.
EV is $73 million (the company has $27.8 million in debt). FCF in 2011 was $9 million and was $4million in first half 2012. In the second quarter, management said costs can be cut by one million ormore, specifically compensation expenses and closing of an office in New York (used by the SPACpromoters). They also stated that further cost cutting initiatives will be implemented in the thirdquarter.
FCF 6 months ended June 30
Net loss before income tax($2,298)