infu stock presentation

7/28/2019 INFU Stock Presentation

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InfuSystem (INFU)-Connor Haley, Nat Casey, Peter Chase, SeijiLiu, Chaodan Zheng, Chris Whittlesley, RobBoling


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Financial Overview

Price: $1.68 Market Cap: $36.9M Enterprise Value: $67M

EV/EBITDA: 6.46X Average 3m Volume: 43K


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Business Overview

Founded in 2005 and headquartered in Michigan. Provides infusion pumps and related services to

oncology clinics--to be used in the treatment of a varietyof cancers--in the U.S. and Canada

These pumps are also used in the treatment ofcolorectal cancer

Obtain payment through patient's insurancecompany/patient depending on the individual's

insurance benefits Economies of scale and network effects keeps out newentrants


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Some History

In recent years, INFU has experienced arelatively strong growth in revenue: 54% from2008 until 2011.

However, those gains have been erased byincompetent management

Global Undervalued Securities, Meson Capital,Boston Avenue Capital, worked as activists in

outsing McDevitt.


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History of Shareholder Activism

Activist investor bought 2 percent ofInfuSystems shares and persuadedKleinheinz Capital Partners, the companys

largest shareholder, and veteran small-capactivist Chuck Gillman to join him in anofficial group of concerned shareholders.

On Dec. 6, 2011, Morris filed 13D, declaringthe group controlled 11.4 percent ofInfuSystems shares and intended toinfluence the board.


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Overview of Activist Investor

Ryan Morris of Meson Capital Partners Been compared to Carl Icahn and Bill

Ackman by Bloomberg

His fund made 753% in 2009 http://www.businessweek.com/articles/2012-

12-20/ryan-morris-28-year-old-activist-investor


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Overview of Activist Investor


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Cost Cutting- Eliminating IrregularBoard Compensation

In 2010 the board awarded $7.2 million in salary, stock, andother compensation to the CEO and gave $1.3 million to ViceChairman and awarded at least $400,000 to almost everyother member of the board. InfuSystem had to pay the

personal income taxes they triggered. 6x median comp of comparable micro caps

Since then, a new board has been appointed by a councilheaded by the activist Ryan Morris.

After the takeover, Morris and the board laid off the New York

staff and sublet the midtown office space, saving InfuSystemabout $1 million a year

These cost-cutting moves helped InfuSystem post its firstquarterly profit since 2010 in November.

Efficiency has increased by $1.6 million, non-employment

costs


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Better Vertical Integration ofSubsidiary, First Biomed

First Biomed evaluates, certifies and repairs medicalequipment, primarily ambulatory, infusion, syringe andenteral pumps.

Due to poor management in the past, Infu, which

manages a rental fleet of 36,000 pumps that will needrepair in the future, did not properly utilize FirstBiomed's services.

Because refurbished and new pumps are

indistinguishable, there is a high resale value. New management looks promising in taking advantageof cost centric synergies in repair.

Strong management of cross-advertising andadministrative redundancies will further drive down

costs.


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Valuation Methodology

INFU has averaged between 6-8X EBITDAmultiple over last three years

Used 6X for low-end and 8X for high case Estimated 2013 EBITDA using low and high

estimates for annualized EBITDA low case: uses avg. of last 2 qtrs ACTUAL EBITDA

high case: uses annualized Q4 adjusted EBITDA # Assumed reasonable cash generation/debt

paydown


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Valuation Summary

Market is currently implying ~$10 mmEBITDA run-rate This is in-line with historical results

'08: $10.5, '09: $11.3, '10: $7.7, '11: $10.3, '12: 11.4 Q3 Actual EBITDA: $3.19 Q4 Actual EBITDA: $3.34

Annualized $13.06 mm (average)

However, this ignores the recentimprovements, potential for more cost-cutting, and the effects of one-time charges


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Valuation Scenarios


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EBITDA to Adjusted EBITDA Reconciliation


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Risks

Medicare Reimbursement Cuts The net impact is that, based on cuts other industries

experienced, INFU has a potential revenue headwind upto 1.2% (~40% cuts on 3% of revenue) in 2013-2014 and

then ~ 12% (40% cuts on 30% of revenue) in 2017. While the margins of this business segment will likely

compress somewhat, this will create an enormousmarket share opportunity as INFUs fragmentedindustry becomes increasingly consolidated as a

result of competitive bidding INFU is inlikely to experience these cuts given it is in

a very unique niche and is the low cost provider soanyone bidding on these segments against INFU isunlikely to bid prices shockingly lower than INFU.


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Risks

Xeloda Drug There is a Roche drug called Xeloda (capecitabine)

that is an oral alternative to 5FU cancer treatmentand it is set to become generic in 2013.

Many investors believe it may cause a shift in marketshare at the expense of infusion.

Based on historical impact of Xeloda and talking topeople in the industry we do not believe this is likely.

The most bearish analyst out there from (apharma specialist) thought that Xeloda would bea couple hundred bps per year revenueheadwind annually to INFU.


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Summary

An exciting special situation opportunity tofollow on the coattails of a smart, successfulactivist investor

Great business with high margins and networkeffects that have historically been masked byabysmal management

Given the current price, market is using

historical performance and thus placing zerovalue to improved output in 2013

Reflecting cost reductions from two most recentquarters gets us a price between 53%-174%

undervalued

infu stock presentation

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