Good morning, everyone, and welcome to InfuSystem Holdings Third Quarter 2016 Conference Call. This is your operator, Paulette. Let me first give you to Mr. Christopher Downs, Interim Chief Financial Officer.

Good morning, everyone. The Company issued a press release yesterday after the market close. The release is available on most financial websites. Additionally, a web replay of this call will be available on the Company’s website for 30 days. The press release and associated Form 8-K as well as the Company’s restated Form 10-K/A for 2015, restated Form 10-Q/As for the first and second quarters of 2016 and the Form 10-Q for the third quarter of 2016 were filed with the SEC yesterday after the market close as well. Except for the historical information contained herein, the matters discussed on the conference call are forward-looking statements that involve risks and uncertainties. Such risks and uncertainties could cause actual results to differ materially from those predicted by such forward-looking statements. The words believe, expect, anticipate, and estimate or other similar statements or expectations identify forward-looking statements. These risks and uncertainties include general economic conditions, as well as other risks detailed from time-to-time in InfuSystem’s publicly filed documents with the Securities and Exchange Commission. Specifically, information about risks and uncertainties that could cause the Company’s actual results and financial conditions to differ from those predicted by forward-looking statements are disclosed in the Company’s restated in amendment to yearend report on Form 10-KA for the year ended December 31, 2015 under the heading Risk Factors, and elsewhere in the report, and in other filings made by the Company from time-to-time with the Securities and Exchange Commission, including the just filed quarterly reports on Form 10-Q/A for the first and second quarters of 2016 as well as on Form 10-Q for the third quarter of 2016 and finally on subsequent quarterly reports on our Form 10-Q. Forward-looking statements reflect management’s analysis only as of today. The Company has no obligations to update the forward-looking information contained in this conference call. While discussing the Company’s performance, the Company will refer to certain non-GAAP measures, such as adjusted EBITDA and adjusted net income, which are not considered measures of financial performance under Generally Accepted Accounting Principles or GAAP. A reconciliation of the differences between non-GAAP financial measures and those measures such as adjusted EBITDA, and adjusted net income, and the most comparable GAAP measures are contained in today’s press release. With that, I would like to turn the call over to Mr. Eric Steen, Chief Executive Officer.

Thanks Chris. Good morning, everyone, and thank you for joining the InfuSystem Holdings, Inc. third quarter of 2016 earnings call. Joining me today are Jan Skonieczny, Chief Operating Officer; and Chris Downs, Interim Chief Financial Officer. The past several months have been a challenging time for InfuSystem. We started out 2016 with a strong head of steam on the revenue side and plan to be placed to roll out our new EXPRESS computer system that reduces the amount of paper we handle and streamlines workflows lowering cost. As we followed the EXPRESS conversion plan, we received the surprising news from the Center from Medicare and Medicaid Services that after 30 years of reimbursing InfuSystem for providing ambulatory pumps for Medicare patients going home from an outpatient infusion clinic, they clarified their rules and declared that these DME billings would no longer be accepted. Our world changed quickly. And we responded rapidly by taking 1,800 infusion clinics to a direct bill to the provider business model, all while rolling out a new IT system and continuing to run two Medicare processes as we continue to bill Medicare for treatments that occurred prior to July 1st. This required our sales people to focus on transitioning clients to a new contracted payment relationship, and this temporarily impacted the time available to our sales force to train customers on EXPRESS and to track and process paper work for infusion treatments. As we changed our business model, we took the opportunity to make changes to our processes. We had one-time non-recurring cost of over $1 million in the quarter related to pumps, supplies and billings. As we closed the third quarter, we noticed a formula error related to our revenue recognition estimation model, which was announced on November 7, 2016. As a result, with the assistance of independent outside professionals, we have now restated our financial results with an impact of lowering our revenue and earnings by $1.6 million in fiscal year 2015 and $1.7 million affecting the first and second quarters of 2016. We have also implemented new procedures to ensure such errors do not recur in the future. I understand that this has been a frustrating time for our shareholders, difficult time for our share price and I apologize that it’s taking us so long to report our third quarter earnings. I want to reassure you that we are highly focused on returning to normal operations, driving profitability and strengthening our balance sheet through cash generation and debt reduction. Today, we want to address all your questions regarding the restatement, the impact of the Medicare changes and any other aspects of our ongoing operations. But first, I’d like to ask our Interim Chief Financial Officer, Chris Downs, to summarize our third quarter results.

Thank you, Eric. For the third quarter, total net revenues were down 6% versus the restated prior year period to $17.2 million. Total net rental revenues were down 15% versus prior year to $14.6 million. Gross profit was down 24% versus prior year to $10.4 million. Operating income was down 73% versus prior year to $0.6 million. Net income was $0.1 million, a decrease of 94% versus prior year. Adjusted EBITDA was $3.4 million, a decrease of 32% versus prior year. EBITDA margin decreased from 25.5% to 19.8% versus prior year. Adjusted diluted earnings per share were $0.00, a decrease of nearly 100% compared to $0.05 per share for the prior year period. With that, I’ll turn it back over to Eric.

In regards to the error that caused the restatement, our internal auditor discovered that a formula error had been made on one of the spreadsheets that we used to calculate revenue recognition rates from our third party insurance payers and patient co-pays of insurance billings. This formula error led to an overstatement of estimated account receivable collections which in turn overstated revenues and pretax income by a corresponding amount. The impact of this error was determined to be material and we filed a Form 8-K on November 7th. Our audit committee conducted an independent investigation of the error and engaged several external advisors. The audit committee’s advisors delivered an opinion to the audit committee that the revenue recognition model was reasonably designed and with accurate data input and maintaining correct formulas is an effective tool for estimating net revenue recognition. This model has been used by InfuSystem for over 15 years to estimate its net revenue recognition and was implemented when Infu was still a division of publicly held I-Flow Corporation. Each month, we calculate the net realizable value of our gross billings recorded during the month, which results in determining a net account receivable balance and the net realizable value of our billed revenue for the month. We record an allowance for doubtful accounts on patient owed balances and a contractual allowance on payer owed balances, reducing our gross billings based on the estimated collectability of these accounts. When we determine that account is uncollectable, the account is written off and charged against the contractual allowance for third party payers or the allowance for doubtful accounts for patients. The Company calculates its net realizable revenue based in part from what our historic actual collection experience has been by tracking our actual receivable collections experience over a two-year period to…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. And our first question comes from James Adam from MAX [ph] Solutions. Please go ahead. MAX, your line is now open. I’ll release you. And our next question comes from Doug Weiss from DSW Investment. Please go ahead.

Hi, good morning. So, a lot of moving pieces. Could you talk just in a little more detail what the $1 million onetime cost is in the quarter?

Yes. The $1 million of non-recurring cost, there were a variety of items that add up to it. Part of it had to do with cleaning up our fleet and supplies, and it was a number of smaller items that add up. And I think this was a good quarter with the restatement to clean some things up and put them behind us. And so, that’s what we’ve done.

Is that primarily in the depreciation and disposal line?

It’s split between the two and some other things as well.

Okay. So, is it reasonable then that -- when you give the adjusted EBITDA number where you add back couple of hundred thousand, is any of that $1 million already added back to that adjusted EBITDA, or is that totally separate that includes I guess the integration expenses for acquisitions?

Let me turn it over to Chris. Chris, could you address that please?

Yes. Thanks, Eric. We did not add back the $1 million that Eric is referencing to adjusted EBITDA. They are true onetime expenses that we expect to improve going forward. But, we made a decision that in order to keep the adjusted EBITDA kind of as clean and consistent without trying to throw everything in it, we made a decision to not add those back.

Okay. So, will that completely drop off for the fourth quarter or is there some residual expense that kind of has to get worked off?

Yes, this is Chris again. When we calculated those items, we tried to take the amount that we expected to actually drop-off in the fourth quarter. Again, it’s our best estimate, but yes, I would expect those items to be onetime from here forward meaning that they would not recur in the fourth quarter.

Okay. And it was a good quarter on the sales line; you had a sequential lift of 700,000. Does the additional cost for those sales show up in the depreciation and disposal line?

Yes. As we previously discussed, our costs generally actually lead our revenue because of the timing of when we recognize these expenses and when we recognize the revenue due to the nature of the business model. And so, yes, all the revenues that are recognized currently in the current quarter are fully -- already have the expenses fully recognized.

Okay. And those tend to be somewhat lower margin, is that right, versus your overall Company gross margin, those direct -- those onetime sales.

Yes. One thing that we’re doing more in the business is selling more of the disposable products. So, I think in past years, when you look at InfuSystem sales, a lot of that was selling pumps, and now we are doing more -- selling the dedicated disposables that go with the pumps to provide a continuing revenue stream, and those sales are at lower margin than the pump sales.

And those are also in that sales item as opposed to…

Yes, they are. And the disposables, as I mentioned, disposables are growing 28% year-over-year. So, disposables are becoming a bigger component of the sale. And the bad news is they got a lower margin; the good news is the customers buy them every month where [indiscernible] in the past we achieved those bigger onetime pump sales and so we have big spike in our sales revenue. So, this gives us a more continual selling relationship with our customers.

Right. Is it possible to say what -- how big disposables are today?

I think we are not going to disclose that number today.

Okay. But it sounds like that sales number might actually be able to grow over time from…

Yes, that’s certainly -- the point of it in my career in the IV infusion business, it’s the -- I always use the analogy of razor and the razor blade, the pump is razor and the disposables are razor blades. And I -- Gillette gives razors for free because they want the ongoing razor blade sale. And so that was certainly one thing when I came to InfuSystem is we need to start selling more of the razor blades that people use every day and it’s a good percentage increase on still a fairly small base. But I certainly look it as opportunity. I think there are a lot of changes in our marketplace, but one thing I would comment is I don’t want to underplay the importance of what’s happened in our market. Six months ago, we had relationships with the largest hospital systems in America, but we didn’t sell them anything. We had our pumps in the closet for them on consignment. Now, after the turmoil in this marketplace, we couldn’t have gotten 1,800 contracts out of those hospitals with a gun last year. And now thanks to CMS we’ve got 1,800 contracts with the biggest hospitals in America that are going to allow us to be able to sell pumps and disposables [indiscernible] rentals outside and beyond our typical oncology go home from the clinic to home infusion model.

Okay. And then on the -- you had a couple of comments towards the end of the call -- towards the end of your prepared remarks, I just wanted to go back to, you said there were price increases with -- you negotiated price increases, did you say five of your payers?

Yes, five of our private commercial payers took price increases of between 5% to 20%, and we have -- and I mentioned, we had more we are currently in negotiations to finalize.

Yes, that’s -- and I think that’s great, because I know it sounded like -- when we began talking a few years back that seemed to be the trend and then it seems like there was a period where maybe there was a little more pushback and you feel the -- that we’ve sort of inflected the other way again, you’ve got a little more room to - payer prices have stabilized and maybe are moving in a more favorable direction?

Well, certainly, over the past several years, we’ve had success getting more new payer contracts, and price increases has been a more recent trend. And so, we talk in a little more detail about our revenue recognition process, which I mentioned has a two-year look back period. And so, there is a lot of moving parts in that look back. We’ve got Medicare that was declining with competitive bidding and price cuts on that Medicare while at the same time we were adding more payer contracts. Now, we’ve added more payer contracts plus we are going to see price increases and those price increases are going to start to work through the look back and provide better pricing as the months go by.

Okay. I think your last comment was regarding the fourth quarter, you said you expect to see growth off the restated number, which surprises me a little, given the changes to Medicare.

Thanks for calling that out. I think when I am -- I probably should have said, at the end of the year, when I was saying continue to see single-digit growth. I guess when I look at the business, I’m always looking at it kind of visionary and what I expect to see in the year or years ahead versus just what happen right now. So that single-digit, I think, I was given a trend of what I think in my view of this marketplace. We haven’t even begun to seeing the changes that are going to happen here. I believe that as the 21st Century Cures Act get signed, we’re going to see additional companies leaving this segment, because their models no longer make sense. And so, I think we’re going to be able to continue to have maybe modest share gain by taking the equipment we’ve invested in over this last year and placing in the most significant opportunities. And so, I think when I was saying single-digit growth, I was talking about the year ahead, not necessary the fourth quarter.

Right. And sort of pro forma for the changes in CMS?

Right, right.

Yes, okay. So, those -- I think that’s mostly. I guess the one thing I just want to make sure that I understand correctly is that the quarter would have been -- hedging on, I have this $1 million in costs that would have been 4 million plus EBITDA. And it sounds like that just disappears, maybe this is a slightly better than usual quarter on the sales line, but it sounds like there should be a nice sequential pump just from the disappearance of those costs. Is that reasonable?

That’s my expectation as well.

Okay. All right. Thanks. I’ll get back in the queue.

Thank you.

And our next question comes from Andrew Walker from Rangeley Capital. Please go ahead.

Hey, guys. Thanks for taking the question. I had a couple, so just looking at Q4. How much extra expenses the restatements drive in Q4?

Chris, what’s your thought on that, statement driving?

What’s that?

I just want to make sure I understand the question. How much is the restatement driving in Q4, so that means our new -- net revenue…

I believe you’re asking what are the actual expenses related with the restatement process, outside advisors et cetera. That’s right?

Yes, exactly.

Okay. We don’t have the final numbers in. I’ve seen a couple, it is not -- I would classify it as not nearly as much as I expected. And so, it’s a little bit of positive news. It’s still going to be a meaningful number. But, I would hate to even give an estimate at this point, it’s just too early.

Okay, that’s fair. And then I guess, just stepping back, there is a clear difference in tone here. The past couple of years, the Company has all been -- it’s been about growth, investing in the IT, investing in new pumps. And this quarter, the earnings release mentioned strengthening balance sheet, paying down debt, the 10-Q says dramatic decrease in capital investments. So, even your investor presentation past couple of quarters has been all about focusing on growth, is this a step change in the business?

I’m certainly looking at the world with the new lens after what’s happened. And I think the IT was planned anyway. Upon arrival here, we had a business that was run primarily on fax machines and we wanted to take it to IT and we were going to finish our IT spending and I think spend I want to say around $3 million less in IT capital next year and reducing expense. And I think the other thing is I’ve been working for growth opportunities and buying a lot of pumps as those opportunities presented themselves. Now, it’s a really different marketplace in this oncology segment, tremendous upheaval. And so from the customer’s mindset, these big clinics had before equipment that they didn’t pay for in a closet to put on their patients that were going to be billed by insurance. Now, they are paying for that equipment. So, suddenly, they are lot more interested in what is the most efficient, economical partnership with InfuSystem. And so for me with those changes in the marketplace, the way I look at the world, it’s not the time to sell and grow share; that’s what we just did during this time of upheaval is this was a massive change. People said all these clinics that have gotten pumps for free, they are not going to be your customers anymore. Hey, well, guess what, after all of this goes in, we actually have more customers. And now the game is going to be how to work with them most efficiently and keep our eye on profitability because now when you are pricing the service yourself, versus putting together a service that’s going to build by insurance, I think there becomes a better look at profitability. We weren’t doing as well as I thought we were with the restatement, we had a growing debt since I was here with a couple of little acquisitions, IT investment, buying the pump fleet. So, there comes time when you spend money to build the bicycle and there is time you peddle the bicycle and there is time when you ride the bicycle. So, now, I feel with our investment in pumps and IT, the bicycle is built. It’s perfect time for us in the marketplace, and we’re going to ride it into looking at the most profitable placement for our pumps. So, definitely, I am looking at a change in the market and a change in our reaction to the market as well.

Okay, that’s helpful. And then, just looking at the cash generation, accounts payables, current liabilities, I think you guys have drawn down like $3 million there year-to-date. And obviously that’s a pretty big drag on cash flow. Can you walk me through what’s going there and why kind of terms are getting so much tighter?

Chris?

For the AP balance at the end of the third quarter, generally we try to manage our AP and honestly with all the restatement going on, I did not manage it as closely as I normally do.

This is the end of Q3, so that’s before the restatement even starts, right?

Well, I am sorry. Yes, you’re correct. I am sorry. So, my comment was not that.

Okay. Well, I guess what I am just trying to drive that is look, last quarter there is the big increase in accounts receivable, and I even asked on the call and you guys said we’re going to drop down, and then there is the restatement. And then this quarter accounts payable is way down and the business isn’t cash growing like it should. And it just kind of calls in question, [ph] like the underlying cash generation of the business and if the day-to-day is being appropriately taken care of?

Yes, it’s a fair question, good observation. I will say that yes, we’re going to take a look at it and make sure that we’re managing that working capital appropriately and maximizing everything we can from it.

Okay, that’s helpful. And then, just two more questions and then I’ll hop back into queue. The previous questioner was asking a little bit about it, but you guys have traditionally given guidance and you can’t help but notice there is not guidance this quarter. Is this just a onetime thing or are you guys kind of out of the guidance giving business going forward?

Well, the only guidance that I have given in the past has to done with our revenue growth of single-digit I think before was high single-digit. And now I am still seeing that we’re going to grow single-digit through 2017.

Okay, that’s helpful. And then just kind of last one, and I will follow-up offline. Obviously, the stuff has been -- the restatement has been tough, the CMS stuff and everything is out of your hand, but I think one thing that would be a nice sign to investors, you are talking about cutting costs, I think the Board costs are very, very high for a Company of this size. I think it would be a nice sign, I am sure the Board is listening, I think it would be a nice sign for the Board to kind of bring costs and their annual expenses more in line with a Company of this size. So, I am just throwing that out there. Thanks for taking the call. And I’ll follow-up everything offline.

Thanks for your questions.

[Operator Instructions] Our next question comes from [Tim Westo from Kline Heights] [ph] Capital. Please go ahead.

Hey, one quick point of clarification. So the numbers that you filed for Q3, there is not going to be a restatement for those numbers, right? Those are just the as reported Q3 numbers?

Yes, those are the as reported Q3 numbers with how the formula error removed from how we will do in our net revenue recognition estimate before.

Right. Okay.

This is Chris. One clarification I want to make there is that the prior year 2015 numbers contained in the current Q for third quarter are restated.

Right, okay.

Yes.

So, Andrew’s question on accounts payable, I mean, it looks like accounts payable were down about $2 million from the end of 2015. So, I just wanted to clear that out, give you a chance to clear that out, there was a little bit of confusion there. But, so that helps me you’re saying that there is not going to be any kind of restatement. So, I guess my other question is in Q3 2016, there was a $100,000 cost for strategic alternatives and transition costs. Can you elaborate on that a little bit, what that related to?

No comment at this time on that.

Okay. I’ll follow-up with you, guys.

I think just one comment I will say is I think in the last call, we had that in there and I made the comment that we are -- have that in our rearview mirror, in the second quarter was in our rearview mirror and we’re continuing to operate our -- to our plan going forward. I think that was my comment from the second quarter call. But that’s a history lesson and we are moving forward.

Got it. Okay. Thank you.

[Operator Instructions] And we are showing no further questions. I will now turn the call back over to Eric Steen for closing comments.

Thank you. We appreciate the questions today. And one thing I know that Chris and I talked about doing and we will do shortly is updating our cash flow statement for the investor presentation. And we’ll have that updated and help answering these other cash flow related questions that you have. And with that I certainly look forward to continuing our dialog with our shareholders. And thanks for your participation on the call today.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. And you may now disconnect.