Q4 2020 ICU Medical Inc Earnings Call

Ladies and gentlemen, please stand by your fourth quarter two Thompson's many ICU medical incorporated earnings conference call will begin momentarily again. Please stand by your conference will begin in two minutes. Thank you.

[music].

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter 2020, ICU Medical incorporated earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions.

<unk> will follow at that time, if anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to turn the conference over to your house, Mr. John Mills of ICR managing partner.

Please go ahead.

Thank you for joining us today to discuss the ICU medical financial at the.

<unk> fourth quarter of 2020.

On the call today, representing ICU medical is Vivek Jain Chief Executive Officer, and Chairman and Brian Banal, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks to view. The presentation. Please go to our investor page click on the events calendar and it will be under the fourth quarter 2020, that's before.

Before we start our prepared remarks I want to touch on any forward looking statements made during the call, including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable.

Such statements are not intended to be a full representation of future results and are subject to risks and uncertainties actual results may differ materially from many current experts.

We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position.

Please note that during today's call. We will also discuss non-GAAP financial measures, including results from an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU medical's ongoing results of operations, particularly when comparing underlying results from period to period.

We've also included a reconciliation of these non-GAAP measures in today's release and provided as much detail as possible on any addendums that are added back.

And with that it is my pleasure to turn the call over to the next.

Yeah.

Thanks, John Good afternoon, everybody and we hope you and your families are well.

We are happy 2000, twenty's over and we look forward to our hospital customers stabilizing after much volatility and our company continues to adapt well in a challenging environment.

Like everyone in our industry, we want to start first by thanking all of our customers and their frontline workers for trusting us to serve them during these times and.

And we would like to thank our employees, our number of whom had to again deal with weather related challenges as our largest domestic employee basis are in Texas around our production and distribution sites.

On today's call we wanted to comment on our Q4 results.

Explain our view on the full year fiscal 2020, and what drove revenues and impacted earnings in our desktop performance in a volatile market.

Provide our opinions on 2021, the transition to reopening and our build and timing for a return to a more normal environment.

Update on the new effects of the pandemic to ICU medical the recent weather disturbances and our normal housekeeping items.

Outline our near term 2021 financial expectations, and lastly, articulate how we feel about our positioning in this environment any strategic implications and reflect on the criteria by which we are judging ourselves and our belief that each of our business can continue growing into 2021 and beyond.

The short story on Q4 is as follows.

We did see revenue growth in all of our lines of business, which supported 4% total company reported growth year over year for the quarter.

And we again did have variance across the regions, albeit a bit more muted than Q3.

Specifically in the U S market, we had 8% year over year growth, which was the net effect of utilization still being down from our view a baseline.

Offset by higher temporary COVID-19 admissions, new customer Onboarding hardware sales and the addition of pursuit vascular.

Europe, and Latam did thoughts with sequential improvement and we did have some declines in selected South Asian markets.

We finished the quarter with $309 million and adjusted revenue adjusted EBITDA came in at $60 million and adjusted EPS was $1 77 per.

Profit was impacted slightly by our Austin maintenance shutdown being in October and additional costs for sales compensation and bonus accruals we.

We had our best quarter of free cash flow generation in the last two and a half years and added $60 million to our balance sheet as operational improvements have materialized and restructuring and integration costs have dramatically reduced.

When we reflect on the full year of 2020.

Which started out quite solid for us and then experienced turbulence in Q2, and Q3 and found stronger footing again in Q4.

We believe at a minimum volumes were down from normal levels at least 10% in Q2 and Q3 in 2020.

Q4 is a bit harder to triangulate as well procedures and admissions were still down there was an incremental amount of COVID-19 related admissions in the system.

Each of our lines of business is directly dependent on admissions, including the majority of sales in the infusion systems segment as dedicated pump sets represent the majority of sales and in the face of these dramatic utilization Stuart false or consumables and solutions segments were essentially flat on a year over year basis.

And our infusion systems segment was up double digits for most of the years helped by competitive share wins and expansion orders directly related to Covid.

So we feel optimistic that we still grew in the face of this environment and believe in our ability to continue in a normal environment returns.

<unk> ability was impacted from our original expectations, most acutely buyer mix less consumables and utilization of dedicated pump sets contribute more profit than infusion systems hardware.

Currency, while painful earlier in the year did give some back in the back half on a translational basis.

So let's go through the businesses quickly and then come back to discuss the current environment.

Starting as usual with infusion consumables, which is our largest business.

Infusion consumables had revenues of $123 million in Q4, 2020, which was a 3% increase year over year on a constant currency basis from 2% on a reported basis, we had the strongest quarter in the U S region for consumables in a few years and oncology was not the major driver of this in Q4.

While we did have sequential improvement in Europe in aggregate the rest of the world are lines of business pretty close to flat to 2019 levels.

Oncology was much stronger in the U S. In the second half of the year compared to the first but did not reach double digit growth for the year.

We do not think we had any pandemic stocking in Q4 anywhere in the world.

The story for Q4 was really again about sequential improvements in U S volumes.

Implementation, starting to happen and frankly, just holding serve and waiting for volumes to increase while finding more stability internationally for.

For 2021, we believe this segment gets back to mid single digit growth with oncology again being a strong driver.

Moving to infusion systems, which is primarily OBP pumps and associated dedicated sets. This segment to $92 million and adjusted revenue, which was growth of 8% on a constant currency and reported basis. As a reminder, this segment captures not only infusion from hardware, but the lock and key dedicated pump sets.

Those pumps. That's also improved sequentially Q4 versus Q3 and finished the year essentially flat in the face of pretty steep utilization declines as I just mentioned.

That math works, because we had more pumps active in the marketplace and the overall segment results were aided by not only the competitive wins and installations, but a healthy amount of pandemic orders from governments and add ons from existing customers.

The other challenge we faced over the last few years since we bought the business has been the declines of our non LBP products, which are down more than $30 million in aggregate over the last few years.

Those items in 2021 should account for 5% or less of the segment now.

We believe we have enough demand in expansion to eventually jump over these declines.

We're holding the best amount of rollover and competitive signings you've had in many years. The challenge continues to be getting into hospitals and implementing these conversions. We continue to believe we have stabilized the 10 plus year installed base decline, we still know that safety is a critical factor when choosing an infusion pump, we believe our plum LBP technologies position.

We've gotten back to the core marketing message around our plum ELV pump as these independent and clinical reviews have validated our differentiation.

The infusion systems segment delivered 10% growth in 2020.

And in 2021, it's difficult to predict the exact installation timelines as our customers are battling with everything from vaccine rollouts to weather related delays.

We think the safest thing to say at the moment is that the business could be up or down a little for the year as.

As we said last year, we would come back to mention those government in excess of orders we received in the spring and summer of 2000, 22020 timeframe that would be difficult to repeat.

We believe we will have more regular non COVID-19 surge pumps in the market. Each day, and then we hold enough to ensure sustained growth over time.

Most important to us is as vaccinations rollout and the customer base eases on Covid cases in house it should allow for improved focus and decision making on new technology.

We do not see capital is a constraint and we still believe relative to our size there are solid competitive opportunity and we're focused on commercial execution here.

Finishing the segment discussion with infusion solutions, we had $82 million of revenue adjusted revenue in the quarter of 1% year over year growth. We do not believe we had any material customer stocking in the quarter. We continue to believe the quality of our customer book has improved with US holding the best list of sustainable relationships versus the day, we bought the business.

And the entire industry has move forward into renewals of longer term contracts.

We are healthy on safety stock and our new national distribution centers running in Texas to help improve our supply chain costs longer term and provide enhanced supply chain services to our customers. We hope the recent events have illustrated the value of having a healthy and diverse supply chain in the country.

Regarding the recent weather and its impact on our Texas operations.

We have invested nearly $100 million in capex into the site. Since we took ownership and we saw the benefits of that during the decrease we had no infrastructure damage in either our production our distribution sites. However, due to the impossible road conditions for employees and Austin, We did have a few days of unplanned shutdown.

Until a little roads cleared we had didn't have adequate inventory on hand to ensure continued high customer service levels in our facilities and engineering teams worked tirelessly to quickly bring back up operations.

We're not going to penalize our employees due to the unforeseen weather and we will have to spend a bit more in overtime over the next few weeks, which makes an impact as that cost rolls through gross margins.

But all that Capex investment did protect our infrastructure and has ensured items like the move away from Pfizer Rocky Mount and a more efficient distribution network is happen.

No change here into 2021 as we continue to believe this is an $80 million per quarter business.

Okay moving on to some general updates.

Really we have seen sequential in person customer calls picking up ballpark as of the moment, we see about 30% of our calls live and do assume teeny and other discretionary spending will resume at some point this year.

Quality, there's not much new we have had some successful smaller notified body audits in the last quarter. We continue to make progress on meeting all of the new regulation guidelines related to EU MTR.

Operationally the manufacturer network logistics and systems of the company are all running well in Q4, we had solid global fulfillment rates to our customers. We handle the weather challenges in 2020 for the full year, we invested in employee safety provided incremental compensation, we have focused on securing our supply of raw materials and components.

And we will continue to invest in incremental inventory as a buffer for unforeseen disruptions like the one two weeks ago.

As a reminder, our primary manufacturing locations are in Texas, Utah, Costa Rica Ensenada, Mexico.

On the Pfizer discussion related to the calculation of an earn out payment. It is more likely than not we will enter in the arbitration process. Pfizer has been a solid partner and we've worked with them to provide additional details pursuant to our agreement.

There was obviously an equity participant here and our board of directors and we've tried to treat them well at every step as we address the litany of issues that came with Hospira.

We feel very comfortable with our position are prepared for the matter, but we do it assumes it will take possibly up to another six months for an arbitration result.

Okay to give a little bit more color.

And what we experienced throughout the quarter and even more recently and how it impacts our thinking for 2021.

In Q4, we believe that U S hospitals at a high level of ICU utilization with Covid patients and we saw that trend continue through January.

In Europe, we had sequential growth even in the face of some pretty severe lockdowns and we did not see international markets with the same patient mix obviously.

Obviously for the U S now with the drops in infections and related hospitalizations, there is capacity freeing up in the system.

But the hardest item to predict the timing of when it's replaced with normal recurring volume we.

We have seen large companies give a wide variety of ranges from very quickly to only in the back half of 'twenty one.

But we just don't know the answer right now and what's more important to US is that we can still grow our valuable items of consumables and dedicated sets on a year over year basis.

Regarding our Q1 'twenty regarding Q1 2021 near term financial results, even with this uncertainty. We think we will have sequential growth in consumables, we expect pumps to have a little less hardware be installed and be slightly down for.

From an expense perspective, we do expect a 10% or so increase in R&D spending because we have a number of key projects that are reaching filing status in 2021, and we would expect some of the discretionary expenses to return in the back half of the year.

The largest driver of profit will again be mix, depending on how much hardware gets implemented we think it's prudent for now to take the view that adjusted EBITDA would be in the 245 million to $265 million range and Brian will walk it down to EPS. This assumes a steady build through the year and some caution that it does take time for <unk>.

Sales to return to normal levels, decreasing COVID-19 cases free up capacity.

As a reminder, the net effect of the pandemic was neutral to down in earnings for the company in 2020.

While we generated margin from excess hardware sales and cost savings from discretionary expenses hit in absolute volumes to consumables was a large negative.

To synthesize all these comments on the business segments. The pandemic, how we're trying to judge ourselves.

Stated for a while that we have the ability to improve our position in our most differentiated businesses of IV consumables and IV systems, and we have proven stability in our less differentiated businesses IV solutions.

While there can be quarter to quarter variations and jumping over the excess hardware is tougher earlier in the year.

We believe each of the businesses can be bigger over time, we've talked about the industry structure attractiveness for years, why we fit in the puzzle and then our products are in a good position from a technology quality and manufacturing perspective.

While the pandemic has introduced substantial volatility strategically we do think the weakness is it is exposed in the health care supply chain add to the argument from all participants to be healthy and stable, which has been our commentary since we became a full line supplier.

We make essential items that require significant clinical training capital expenditures and in general are items that customers do not want to switch unless they have to.

We're a U S manufacturer, that's deeply vertically integrated and as core redundancy and products that we do not produce domestically between ensenada in Costa Rica, we do believe the market broadly defined does not want a winner take all setup in these essential items categories and Thats before each category is assessed on its own innovation clinical outcomes et cetera.

And the new normal or Covid, 19 world, where supply chain resiliency and diversity matters. We believe are essential items logically benefit at our most of our franchisees are still differentiation.

So we focus on what we can control in these moments having the best list of supportive healthy customers win important new customers, while waiting for volume to normalize keeping our employees safe, while delivering the best operational stability for our customers, making sure we drive differentiation in the most valuable categories.

Have the best liquidity, we can for a company our size.

Using all of the above to be prepared for whatever realignments or opportunity arise and focus on our own execution.

Our company has emerged stronger from all the events over the last few years. Thank you to all the employees customers suppliers and frontline health care workers, our company appreciates the role each of US. Each of you has had to play with that I'll turn it over to Brian.

Thanks, Vivek and good afternoon, everyone to begin I'll first walk down the P&L and discuss our results for the fourth quarter, including a recap on full year performance per the businesses.

And then move onto cash flow and the balance sheet before wrapping up the discussion with our guidance for 2021.

So starting with the revenue line, our fourth quarter 2020, GAAP revenue was $320 million compared to $316 million last year, which was up 2% or 1% on a constant currency basis.

For your reference the 2019 and 2020 adjusted revenue figures, which exclude contract manufacturing sales to Pfizer can be found on slide number three of the presentation.

Our adjusted revenue for the quarter was $309 million compared to $297 million last year, which is up 4% or 3% on a constant currency basis.

Fusion consumables was up 3% or 2% on a constant currency basis infusion systems was up 8% on both a reported and constant currency basis.

Solutions, which we saw primarily in the U S was up 1% on both a reported and constant currency basis and critical care was up 6%, we're 5% on a constant currency basis.

When looking at full year 2020, adjusted revenue on a constant currency basis. The business in total was up 3% compared to 2019, and we grew total adjusted revenue in every quarter during the year.

Infusion consumables, which was the business most impacted by lower hospital census finished the year down only 1%, while infusion systems was up 10% due to competitive wins and COVID-19 related expansion.

IV solutions was flat at critical care grew 7% for the year. Overall, we were pleased with this level of performance given the volatility and other challenges presented by Covid.

As you can see from slide number four the presentation.

For the fourth quarter, our adjusted gross margin was in line with our expectations at 39% compared to 40% for the fourth quarter last year.

Year over year decline of one percentage point reflects the timing of the annual scheduled maintenance shutdown of our Austin manufacturing facility that was completed in October as compared to the summer months in prior years sequentially. Adjusted gross margins improved by one percentage point compared to 38% in the third quarter as a result of <unk>.

<unk> mix as our consumables volumes during the fourth quarter approached more normal levels.

SG&A expense of $74 million in Q4 was up 4% year over year and reflected a $3 million increase compared to the third quarter driven by higher commissions expense, primarily in our infusion systems business, along with year end adjustments to incentive compensation.

R&D expense was $12 million per the quarter down $1 million year over year, but up $2 million compared to the third quarter.

The changes compared to both prior year and the third quarter, primarily driven by timing of project spend.

Restructuring integration and strategic transaction expenses were $6 million in the fourth quarter versus $11 million last year.

Fourth quarter 2020 spending related primarily to the transfer of manufacturing lines for certain products currently produced in Pfizer's Rocky Mount facility as we prepare to exit the MSA.

Along with other one time restructuring costs.

Adjusted diluted earnings per share for the fourth quarter of 2020 were $1 77 compared to $1 94 last year. This years Q4 results were favorably impacted by a lower tax rate that contributed approximately 15 cents of benefit to adjusted EPS for <unk>.

Your tax rate was the result of excess tax benefits related to equity compensation.

Diluted shares outstanding for the quarter were 21 6 million.

And finally, adjusted EBITDA for Q4 decreased 2% to $60 million compared to $61 million last year.

Now moving onto cash flow and the balance sheet for.

For the quarter free cash flow was $55 million in Q4 was another strong quarter of cash flow generation driven by a combination of solid earnings day.

Climbing restructuring and integration spending and further reductions in working capital net.

Working capital at the end of the fourth quarter was down $37 million compared to the end of the third quarter due mostly to improvements in accounts receivable.

The strong Q4 cash flow allowed us to end the year with $424 million of cash and investments on the balance sheet.

She is well ahead of our 350 million target communicated at the beginning of 2020.

For the full year 2020, the company generated $137 million of free cash flow after investing over $90 million in Capex and an additional 28 million in restructuring integration and strategic transaction expenses were very pleased with our cash flow results for 2020.

Looking forward, we feel we have now mostly optimized our levels of working capital.

And don't expect to further benefit from large onetime reductions like those we generated in 2020.

But we do continue to believe the annual free cash flow of $100 million or more exclusive of any acquisition related payments is appropriate based on our current profile.

In the fourth quarter, we spent 30 million on Capex for general maintenance and capacity expansion at our facilities as well as placement of revenue generating infusion pumps with customers outside of the U S.

This was in line with our expectations and brought our total capex spending for 2000 $20 million to $92 million.

Moving forward to 2021, Vivek already provided some guidance related to our expectations for each of our businesses. So I'll cover the rest of the P&L.

For 2021, we expect adjusted gross margins to be in the range of 38% to 39%, which reflects the benefits from improved consumables mix.

Set by the impact from higher infusion systems hardware revenues as we implement competitive wins.

In terms of operating expenses, we expect SG&A to increase in the low to mid single digit range as selling marketing and travel expenses returned to more normal more normal levels over the course of the year.

In 2021, we will prioritize R&D investment, which should increase approximately 10% compared to 2020.

We anticipate further declines in restructuring integration and strategic transaction spending, which we estimate will be between 15% and $20 million per the year, mostly related to the Pfizer MSA exit and improvements to our customer facing systems and processes.

For the full year 2021, we expect adjusted EBITDA to be between 245 and $265 million.

And adjusted EPS to be between $6 50, and $7 20 per share the adjusted EPS guidance assumes a tax rate in the normalized range of 21% to 23% and for modeling purposes, you can assume average diluted shares outstanding during the year of <unk>.

One eight.

$8 million.

And finally, we expect to see our Capex requirements decline for the third year in a row to around $80 million in 2021.

To emphasize vic's earlier comments similar to revenues, we expect earnings in 2021 to reflect a steady ramp over the course of the year driven by one continued recovery of volumes to pre COVID-19 levels to implementation of infusion systems pump.

As hospital resources free up and three getting beyond some of the incremental costs related to recent weather events.

During our second quarter call.

After having reported topline growth in the quarter for the company as a whole we stated that our near term goal was to get all four business is growing at the same time in Q4, we achieved that goal, which was a nice end to a year full of challenges as we start off 2021. This remains our goal.

And although quarterly year over year growth rates. This year will vary due to the impacts of the pandemic, we feel good about our opportunity to continue to drive growth in our most differentiated businesses.

And with that I'd like to turn the call over for any questions.

Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you were starting to move yourself from the queue. Please press the pound key.

Your first question comes from the line of Matthew Nissan.

With Keybanc you May now ask your question.

Hey, good afternoon, Vivek, Brian I get care.

Hey, Matt Hey, Matt.

So I think just these two questions actually are interesting.

Come together.

First can you give us a sense of the backlog of installations, you have them systems heading into 2021, and then secondly.

Every piece of your guidance makes it makes a lot of sense of what the gross margin.

Coming off a quarter in which infusion systems.

Was elevated coming off a year, where infusion system. Those elevated next year consumables are going to be a higher mix of the volume.

And I'm, assuming there should be some kind of margin benefit from moving the manufacturing from rocky Mount to Austin, So what am I missing as far as as far as the gross margin guidance being flat year over year.

Why don't I do the first one and Brian will do the second one right on.

The systems I don't think we are in a place where we would quote a backlog number or something like that I think we tried to say in the script that which is we have more competitive wins that we haven't installed yet than we've ever had before.

And I think.

A year ago.

January we said we thought we had gained a point from a pretty low place we work on MVP.

I think we thought we were in a better place than that.

Good day competitively so that's probably all I'd want to say on the backlog and I'll, let Brian comment on the margin.

Your question on the margin, it's a good one and it relates actually back to your first question.

Round infusion systems hardware and backlog in <unk>.

And really what we're expecting for 2021 is margins to be a little bit negatively impacted as a result of a higher mix of infusion systems hardware installations related to competitive captures.

Those those tend to be.

Much lower margin initially at the time of the implementation and revenue recognition on the pumps followed by.

Improving margins from the dedicated disposables that follow afterwards, but there is a.

Timing difference between the initial installation and the subsequent dedicated disposables.

Okay.

And then.

Last question from me.

Got you cleaned up very well.

Can you talk through some of the new products that you'll be focusing your attention on them in 2021.

Yeah.

Sure I mean, I think we have a number of things getting on the filing docket in 'twenty one as I said, that's why spend is going up.

As you would expect the majority of dollars.

We've been putting in over a three year period have been certainly since we had the full freedom to do so on the systems side.

And.

That obviously means finishing the software products that we've been talking about.

Getting those out of kind of the LMR phase and really into the market.

And then some some different.

On the hardware side that we've been working on so as usual we want to talk about those more when they happen, but I think we've been pretty transparent.

And it's easy to figure out historically, our spend on the consumables related business is very much what ICU used to spend and the rest has been on the systems side since we did the acquisition.

Alright, Thank you very much.

Your next question comes from the line of Larry Solow with CJS Securities. Your line is open you may ask your question.

Hello.

Yeah, Hi, it's Pete Lukas for Larry.

So just to clarify sorry on the on the margin side in terms of US margin support solutions do you see increased volume as being able to help you out with that should we think about that as a positive given now the Austin and the new distribution plant.

I think I would say, it's been a bit of a wash there Pete.

We can't obviously margins were higher for the company when we were selling more solutions two years ago, two and a half years ago.

The distribution center has added some efficiencies, but we've also.

<unk> added a number of the contracts et cetera, and a lot of activity happening around that in.

Late 19, and through most of 'twenty and a garbled some of that back up so I think for US. It's much safer to say solutions is what it is right now and it's not going to be driving a lot more incremental margin is not going to be getting worse. It just kind of exists.

Perfect and you guys covered a lot most of what I had here just one more just a general question in terms of M&A can you discuss just broadly what you're seeing in terms of from the sellers in this environment and they're willing willingness to engage given all the impacts of Covid.

Yeah, I mean, I think it's a balancing act, depending on where where what part of the market you're playing in there certainly folks who have.

Had COVID-19 make an impact on their business or safe operations or as a constructive dialogue.

Otherwise I mean, I think the market is challenging.

As everybody has seen on on that front, so I'm not sure that.

I would say Covid has made the M&A environment easier, if that's where you're.

Youre going yeah.

Yeah very helpful. Thanks, I'll jump back in queue. Thank you.

Again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key. Your next question comes from the line of Jayson Bedford with Raymond.

James You May now ask your question.

Good afternoon, thanks, guys.

Wanted to get back to the gross margin pump dynamic question and I. Appreciate there's a lot of moving parts here, but just I guess simply.

Spectrum to sell more pumps in 'twenty, one than you did in 'twenty.

I think Jason it's a it's not only the absolute number of pumps.

What class of trade or are they going into right whether it was maybe pandemic surge in some of the international markets versus some of the.

Competitive situations.

That's probably a bigger factor than the absolute number of pumps in terms of the absolute number.

We are saying pumps could be down a little which means we wouldn't sell as many pieces of hardware as we did last year that there is an outcome where that happens if we can't get all the installations on and win still some things we want to win and get in.

This year.

Okay.

And just I guess just to follow on on the pump side.

You mentioned the government orders in the spring and summer kind of inferred that you didn't see any kind of government orders in the fourth quarter. One is that correct and then was there anything exceptional on the pump side here in the fourth quarter.

That is correct. There was no material government business really from August September onward.

Nothing very unusual in Q4, and the pump business uptick probably a bit due to acuity on some of the dedicated sets hard to triangulate exactly and a little bit maybe accelerated add on expansion at a few customers, but nothing out of the ordinary.

Okay.

Gross margin in the quarter to 39% was that negatively impacted by the plant shut down I'm just wondering the impacts of that.

Yes, Jason that's right it was.

Negative impact for Q4, and if you are comparing that to prior years.

In prior years, we shut down was typically in the summer months.

We usually did in June.

It rolled in over the next two or three months or the summer quarter. If you went back on the scripts and with the pandemic kind of in full flight last year, we made a call to keep producing and just delayed until.

Till October.

Okay, and I don't want to be greedy with the question, but is there a basis point impact from that.

They're way quantify it.

Almost 39.

Probably.

Around a percentage point somewhere in that neighborhood.

Okay.

And then just a clarification on the commentary around one Q.

I think you mentioned quarter on quarter growth in consumables pumps might be slightly down I was little unclear, whether that's quarter over quarter year over year sequentially quarter over quarter. Okay.

Okay sequentially and then similar the other comment I think with respect to <unk> 10 per cent increase in the R&D and assume that quarter over quarter sequential net.

I don't actually think I don't know if the right number from a I don't think it's I don't know if I was even a bit for the balance of the year over the balance of the year.

Most things probably back half weighted.

Okay. So that was an annual okay.

Okay. That's it from me thank you.

Thanks, guys.

Again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchstone telephone. If your question has been answered or at least starting to move yourself from the queue. Please press the pound key.

I'm showing no further question at this time I would now like to turn the conference back to Vivek Jain for any closing remarks.

Great. Thanks, everybody. Appreciate the time you made for US today, we are the company, calling for all of our employees. It's still a lot of things in the last couple of weeks and for everybody on the phone issue. The company. We hope you have a great 2021, and we look forward to speaking you have later in the year. Thank you.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.

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