ICU Medical Inc. Q1 2023 Earnings Call
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Please note that this event is being recorded I would like to turn the conference over to Mr. John Mills managing partner at ICR. Please go ahead.
Thank you good afternoon, everyone and thank you for joining us to discuss ICU Medical's financial results for the first quarter 2023.
On the call today, representing ICU medical is <unk> Jain Chief Executive Officer, and Chairman and Brian Bonnell, 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 and click on events calendar and it will be under the first quarter 'twenty.
'twenty three events before we start our prepared remarks I want to touch upon 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 representation of future results.
And they are subject to risks and uncertainties future results may differ materially from management's current expectations.
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 be discussing non-GAAP financial measures, including results on 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 Vivek.
Thanks, John Good afternoon, everyone, and we hope you're well.
Even with the volatility in the economic environment, we are enjoying 2023 to date much more than last year.
ICU medical is operationally running well and largely back to playing offense in serving and expanding customers with the proper balance of time between internal self help versus commercial focus.
The macro environment eased a bit with finally, some relief in the supply chain as freight fuel and foreign exchange were all at their best levels in a while in Q1.
And the rollover in labor inflation did materialize predictably.
Global demand was healthy in Q1 with the U S having improving admissions.
Everyone in our industry, we want to first start by thanking all of our customers and their frontline workers for trusting us to serve you during these times.
We hope today's call is shorter and we will use the time to do.
Discuss the Q1 revenue performance of our reporting segments as we said we would define them starting in 2023.
The best color on revenue performance for these segments in the near term explain.
Explain our profitability in Q1 and outlined the items in the near term that impact this level, both positively and negatively.
Characterize those items in the context of the comments from the year end call on what comes back in the medium term and long term and what is permanent.
Update the normal housekeeping items, including quality remediation integration and separation satish.
And reiterate and check on our progress against our key short term priorities that we outlined to start the year and we will skip any comments on longer term value creation and self help and just get to the financials.
We finished the quarter with $556 million and adjusted revenues adjusted EBITDA came in at $102 million and adjusted EPS was $1 74.
Revenue growth was 7% on a constant currency basis, and 4% growth reported and we had just over 200 basis points sequential improvement in gross margins largely due to having a healthier supply chain with better service levels and the improving macro landscape.
We did have a comparable quarter of inventory investment into the business and believe we are near peak on that to sustain the appropriate service levels.
Relative to Q4 currency eased a bit but did not materially improve earnings as both the Mexican peso and Costa Rican local currency strengthened meaningfully against the dollar.
At the highest level, we feel better about revenue growth for each product line, where we've been historically stable, meaning legacy ICU.
And revenue recapture where we are now stable, meaning legacy the legacy Smiths medical portfolio.
Near term profitability is impacted.
Some duplicative costs as we separate from Smiths IP systems, and buy decisions, we're making to improve working capital and cash flow like we did relentlessly for many years.
So let me start with our consumables segment, which is our largest and most profitable segment we.
We had $236 million in revenue, which was up 1% on a constant currency basis, and minus 2% reported with customer demand good across all product lines.
Going a bit deeper there were a few different drivers that will become clear over the balance of the year the.
The legacy ICU IV therapy product lines, which are the largest component of this segment had a record quarter with the business being the largest largest it's ever been.
That growth was driven by new customer wins strong underlying census in increased capacity and ability to serve the market.
We continue to focus on clinical differentiation and there was a publication in April's journal of infection control and hospital epidemiology, which highlights the favorable infection control features of our claim needle free connector technology.
The growth in IV therapy was offset by the vascular access portion of this segment, having the lowest level of sales in the five quarters, we've owned the business.
This low level was driven by customer losses that we are still occurring until recently.
We believe this to be bottom and it feels very similar to the IV consumables and pump losses, when we purchased Hospira when customer losses were still felt in the four to six quarters post deal.
The other components of the segment, our oncology and tracheostomy, both of which had year over year improvements in both of those businesses will be benefiting over the balance of this year from increased capacities.
In the near term, we believe all four underlying lines are improving commercially and operationally and with the losses predominantly out in improved capacities and we should start seeing the benefits of this in Q2, we have the right to win in all these categories and are focused on the innovation between the legacy Smiths products and the legacy ICU.
Alex.
Moving to infusion systems, which is the combination of the legacy ICU LBP pump business and the legacy Smiths arrange an ambulatory pump businesses.
This segment reported a $162 million in revenues, which equated to 21% growth constant currency or 17% reported Q1 of 'twenty. Two was obviously miserable last year, which made an impact but the core message is each of the product lines is expected to increase on a year over year basis, the legacy Smith <unk>.
Lines, we expect to be getting closer towards historical levels, meaning they are still down from what we would deem normal levels, but improving quickly.
We see that most directly in the hardware sales were both ambulatory and syringe hardware improved quarter over quarter.
And regarding the legacy ICU portfolio of Lv piece, we've had good signings year to date increased our install base again in Q1 also increased our number of EHR integrated customers. We continue to believe our <unk> line of infusion pumps addressed is the most important clinical issues and in addition to being recognized as the <unk>.
Being recognized as the best in class Smart pump and EHR integrated pump for the past six consecutive years. Additionally.
Additionally, we are starting to see some commercial benefits of having a full infusion device portfolio.
Smiths medical in the ICU medical portfolios.
We continue to believe as we said in the previous few calls the customer retention is generally back with bandwidth to have real discussions as some of the fatigue from Covid has passed and the acceptance of inflation in the cost of nursing et cetera have been internalized.
Yes, the stresses of the current environment to make it a bit bumpier for decision, making but we don't believe over the medium term relative to our size. There is any change in our competitive opportunity and we're focused on commercial execution here in a more.
Action oriented market.
Finishing the business unit discussion with vital care, which had $158 million in revenue with growth of 6% on a constant currency basis, and 3% reported IV.
IV solutions for the largest portion of vital care improved sequentially and was close to flat on a year over year basis, which was the net effect of some under supply from Pfizer being tight on inventory on certain skus.
Both offset by some price improvement that we received the.
The growth in this segment was driven by the combined critical care product lines and the temperature management franchise that temperature management product line does go hand in hand, with our infusion and anesthesia oriented businesses, it's important to get that right as it contributes attractive margins and is still meaningfully below historical levels.
The short story message here is our differentiated legacy ICU businesses are doing well and we're focused on regaining some of the lost revenues in the Smiths categories that are outlined in our investor presentations, we're operating with better service levels for customers and believe in Q2, all three of the segments growing year over year and have hit the bottom on the Smiths product.
Lines that were going backwards.
We're already impacting the self inflicted challenges on infusion pumps temperature management and tracheostomy and now have had more time with stable vascular access supply under our watch to begin to improve there.
As a result, we've been more reliable for customers and able to engage in rebuilding the trust and service is the products have always been well liked.
And the reasonable underlying demand and improving census worked in our favor.
On the last call we tried summarizing the various headwinds to earnings last year in 2022, the impact on gross margin rate and in which of the items where possible to recruit recoup over the near medium and longer term.
As a reminder, two of the largest three buckets, where freight and logistics currency and obviously mix as we lost revenues and some of the higher margin categories.
We focused on driving improvements on expedited freight and domestic land cost as we increased inventory levels and we see some relief and fuel surcharges. However.
However, no meaningful profit improvement was really related to currency as the dollar weakened in our core manufacturing sites, Brian will go through the sequential improvement in gross margin in more detail. We just wanted to note as it came in higher than our target for the year that we just can't roll that through the full P&L, yet as the continuing and rollover into.
<unk>, Israel, and we don't want to make a mistake given what we went through last year.
And we still have work to do to offset inflationary effects and the impact of lower production as we address working capital.
But clearly we spared no expense last year in the supply chain raw material procurement et cetera, and in the medium to longer term there is clear opportunity for improvement.
Just a few quick notes on the housekeeping front, and then I'll come back to our priorities for the year.
On quality, we had a long list of normal notified body inspections. During the quarter. We did have a thorough FDA inspection in Q1 at the legacy Smith's corporate office, which as mentioned on the last call a bit earlier than we had anticipated we had a few fair and manageable comments from the inspection that were in line with the work we've been doing.
To address the root causes of the Smiths medical warning letter, we've made heavy investments into remediation and believe the majority of remediation work will be done over the next few months and spend will ramp down over time.
This part feels very similar to Hospira and our collective previous experiences and we have the right people have been through the exact same experience and our team is fully embedded into the operation same.
Same speech on the warning letter the existence of the warning letter while undesirable is the regulatory agency trying to move the ball forward and we've talked about how these regulations give us the right to participate.
Again, regardless of where it appears on the P&L, we're spending heavily so making progress here is extremely important to us.
In addition to the quality improvements another current topic is our separation from Smiths It systems as we bear some duplicative costs. This year and successful execution is important as we've seen the challenges in the industry from systems cutover.
Over the next few weeks will fully separate from Smiths and should exit all <unk> within 18 months of closing.
Standing on our own is the first step towards real integration next year to capture the next wave of synergies in manufacturing supply chain and functional support over time. It's also important to the extent, we want to be able to make any decisions on the underlying portfolio.
Broader production and logistics operations in the quarter improved again.
And really the current challenge and opportunities optimizing the interplay between production output the right level of inventory and working capital as we were scrambling for most of last year and it takes time to get this right.
We wanted to reiterate our priorities for 2023 that we outlined on the last call. So investors can assess our progress in light of the comments we've made today.
Our key goals for the year were as follows deliver.
Deliver revenue growth as expected in our differentiated business units, while progressing the key product platforms.
Progress, our quality remediation and ensure quality for patients and high compliance for regulatory authorities regulatory authorities respectively.
Focus on cash flow again by improving working capital and addressing all the available items on the P&L, whether above or below the line.
The groundwork via separation and then integration for capture of the remaining synergies.
And lastly, rationalize the portfolio, which becomes easier after separation and stability.
To close we're getting back to normal operations and the customer logic that underpins. This project continues to make sense like with the Hospira transaction, we're changing the conversation from the historical perception of Smiths to demonstrating our value through innovation and service. The core premise of the Smiths transaction is to enhance the product offerings.
For the categories that drive our returns as well as add logical adjacencies predicated on the same characteristics.
Sticky categories low capital intensity single use disposables, where there's opportunities to innovate and participate in a logical industry structure. These portfolios make sense together and we're working on how to integrate them either literally or economically sensible more doors are being opened as a result of having a broader set of items that are mandatory for care.
And it's slowly starting to show up on the P&L.
While the pandemic introduced substantial volatility strategically we do think the weakness is it exposed in the health care supply chain add to the argument for all partitions participants to be healthy and stable.
And our commentary since we became a full line supplier.
Smiths medical also produces essential items that require significant clinical training hold manufacturing buyers and in general are items that customers do not want to switch unless they must.
The market need Smiths medical to be a reliable supplier and the combination positions us better.
Our company has emerged stronger from all of the events of the last few years, we've gotten knocked down a bit but we're getting closer to the top of the hill to drive value out of the combination.
Thank you to all the customers suppliers and frontline health care workers as we improve each day our company appreciate throughout each of us must play and 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 first quarter and then move on to cash flow and the balance sheet. So starting with the revenue line. Our first quarter 2023, GAAP revenue was $569 million compared to $543 million last year, which is up five.
Sent on a reported basis or 7% on a constant currency basis.
Our adjusted revenue for the quarter was $556 million compared to $532 million last year, which is up 4% on a reported basis or 7% on a constant currency basis for.
For revenue by business unit as we've previously mentioned for the first year. After the acquisition, we maintained the historical ICU and Smiths medical business unit revenue reporting structure to provide transparency and insight into underlying performance and the individual legacy businesses.
But now that we have a full year of operating as a combined business. We have migrated to our new three business unit reporting structure of consumables infusion systems and vital care slide number three of the presentation highlights the key product lines that comprise these three business units and provides the quarterly revenues for 2022.
And year to date 2023.
As shown on this slide adjusted revenue for consumables was down 2% on a reported basis or up 1% constant currency.
Infusion systems was up 17% reported or 21% constant currency and vital care was up 3% reported or 6% constant currency.
As you can see from the GAAP to non-GAAP reconciliation in the press release for the first quarter, our adjusted gross margin was 38%.
Relative to the fourth quarter gross margin of 36%. This represents a sequential improvement of two percentage points driven by one lower logistics expenses from a combination of reductions in expedited freight along with lower diesel prices and lane rates.
Two.
The impact from recently implemented price increases in three favorable product mix.
This was the second consecutive quarter of gross margin improvement and provides us further confidence in our previously stated full year guidance of 37%. However, it is worth noting that there are a few items that will impact gross margins over the remainder of the year that will partially offset the improvements we realized in.
In the first quarter.
The first is lower manufacturing absorption as we reduce production volumes over the remainder of the year. During our last earnings call. We said, we expected to slow the build of inventory levels over the first half of 2023, and then maintain or even slightly reduce those levels.
During the second half to help drive positive free cash flow.
The first quarter gross margin rate continues to benefit from higher production levels as we increased inventory by approximately $50 million and that benefit will not continue for the remainder of the year now that inventory levels have reached appropriate high levels.
The second item is the impact from the scheduled plant shutdowns during the second and third quarters as part of the <unk> TSA.
TSA separation for the legacy Smiths medical plans as well as the annual maintenance shutdown of the Austin IV solutions manufacturing plant.
So while we are pleased to see the recent positive trajectory in gross margins the combination of lower volumes and scheduled plant shutdowns will impact the rate over the remainder of the year.
Over the long term, we expect to be able to return to our historical gross margin rate of over 40% from a combination of price increases operational synergies from the Swiss medical integration and the return to a more normal macroeconomic environment and its worth noting that this includes an.
<unk> five percentage point drag on our consolidated gross margins from the solutions business as a result of current contract pricing as well as permanent labor inflation and above average logistics costs.
Adjusted SG&A expense was $113 million in Q1, and adjusted R&D was $19 million total operating expenses were generally in line with Q4 of last year and reflect favorability from timing of R&D project spending as well as our usual focus on SG&A.
<unk> management.
We expect a slight uptick in operating expenses during the remainder of the year as we invest in R&D and incur overlapping expenses related to the exit of the Smiths medical.
TSA.
Restructuring integration and strategic transaction expenses were $11 million in the first quarter and related primarily to the integration of the Smiths medical acquisition.
Adjusted diluted earnings per share for the quarter was $1 74 compared to $1 82 last year. The current quarter results reflect net interest expense of $23 million, which is an increase over the prior year of $9 million, which equates to just under 30 on a per share.
Basis.
The first quarter adjusted effective tax rate was 24, 1% and includes a one percentage point negative impact from a discrete item related to equity compensation.
Diluted shares outstanding for the quarter were $24 4 million.
And finally, adjusted EBITDA for Q1 increased 20% to $102 million compared to $85 million last year.
Now moving onto cash flow and the balance sheet for the quarter free cash flow was a positive 27 million and included a one time benefit of $58 million related to the implementation of an accounts receivable sale program that provides enhanced liquidity at a lower cost of capital.
During the quarter, we continued to invest in the three key areas of the business that we have highlighted for the past. Several calls the first is higher levels of inventory to bolster safety stock and allow for Onboarding of new customers. As previously mentioned, we invested approximately $50 million in additional raw.
Materials and finished goods inventory during the quarter in order to protect our manufacturing operations from supply disruptions and to repeat replenish our distribution channels to better serve customers.
Second was quality improvement initiatives for Smiths medical and during the quarter.
We spent $17 million on quality system and product related remediation and the third area was the integration of the Smiths medical business, where as previously mentioned, we spent $11 million on restructuring and integration. Additionally, we spent $14 million on capex for general maintenance and capacity expansion.
At our facilities as well as placement of revenue generating infusion pumps with customers outside the U S.
For the remainder of the year the aggregate level of spending on these items will decrease with the largest decrease coming from the moderation of inventory builds as we've already taken a number of the operational actions that will ultimately impact inventory levels as they work through the supply chain cycle.
Additionally, we should see slightly lower spending in the back half of the year for both quality remediation.
And restructuring and integration, while capital expenditures will likely increase over the remainder of the year compared to a light first quarter.
And just to wrap up on the balance sheet. We finished the quarter with 165 billion of debt and $224 million of cash and investments.
In summary, while 2022 was a difficult year. The first quarter of 2023 started to feel more normal a lot of hard work and sizable financial investments have been made to stabilize the operations of the legacy Smiths medical business and the results are reflective of this progress as we have improved.
Adjusted EBITDA each quarter since the acquisition and while this work is not yet complete our progress here has allowed us to shift some focus during 2023 to recapturing lost business and the deeper operational synergy opportunities. Our progress also allows us to remain convinced of the longer term opportunity.
Financial returns and our ability to tackle the remaining issues, we look forward to providing updates on our progress along with a more formal update on our full year guidance during the second quarter.
Which is consistent with our usual cadence and with that I'd like to turn the call over for any questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speakerphone, please pick up your handset before pressing dickies.
Draw. Your question. Please press Star then two.
At this time, well pause momentarily to correct to collect the questions.
First question comes with Jason Bedford with Raymond James. Please go ahead.
Good afternoon, and congrats on the progress.
Maybe just a few questions first just on revenue can you comment on your backlog meaning.
You exited <unk> with an elevated backlog given all that what went on last year. The backlog exiting one Q increased stayed the same trend lower be curious.
Yeah.
Jason It's Brian here.
During the quarter we.
We did make progress as it relates to the back orders.
Both on the legacy Smiths medical side.
Along with.
The legacy ICU side.
But I think it's probably in terms of progress.
The most recent.
In terms of the recent quarters, probably the one where there's been sort of the least amount of progress just given the fact that most of the progress happened over Q3 and Q4 of last year.
We're always going to have a little bit there's always going be a little bit of back order out there I would say ICU is kind of close to normal levels Smiths is still elevated but it didn't really have an impact on the results for the quarter and it didn't turn out to be some magic catch up if that was the real question Jason that there wasn't a bolus. In addition, we worked through it last year.
Nevertheless, as too.
Okay, but it sounds like.
It's still a little elevated on the cement side little bit, but not not meaningfully customers are well served right now okay.
And just Smith revenue in the quarter.
Is there any way to kind of break out what was missing was ICU.
I think I think we're trying to talk at the segment level and that's the way we manage the business internally I think we tried to give color Jason and each of the.
Segments, the pump portion of Smiths executed well, both syringe and ambulatory.
<unk>.
And there was back order catch up there in Q3 and Q4, but it was a more normal kind of number this quarter.
We tried to give the color that the vascular access as we said in the last two or three calls was the thing that needed attention and it is a very specific area of the vascular access that needs attention.
That still was negative substantially year over year.
And just about everything else was up year over year from the Smiths portfolio.
Everything else Thats in the in the consumables segment, meaning <unk> and <unk>.
Everything that's in the Medicare segment.
Okay.
And then maybe vivek.
<unk>.
The state of the MVP market today.
Our active decisions being made out there is still some paralysis in the other players in the market.
I'll wait a new FDA clearances clearances.
I don't think that's changed that much from Q4, I think everybody is.
Kind of have the same story for a while so.
It's more just stuff is getting older and so decisions have to get made I felt like there were more decisions made in Q1 than there were in Q4.
It's still it's still not.
Near normal historical levels, but it's enough for us to make a living on right now.
Okay, and then maybe just last one for me and I'll, let others get in.
<unk>.
Vivek you mentioned that results were in line with your expectations, but profitability was clearly well ahead of at least consensus expectations and I realize you're not changing guidance.
Can we assume that your blessing.
End of the range or was that <unk> really turn out as expected within the framework of your original guide.
Jason we've used the same words in the press release.
Sure.
I think we didn't hyper analyze those words that much.
What we don't have perfect.
Perfect.
View on us as we try to manage the interplay between inventory.
Cash working capital there are decisions that are probably good on a cash basis that Ken.
Hit margins, a little bit and if you look at the raw raw materials in total inventory built but a lot of the things we did to ensure the supply chain last year.
We can slow down a little bit that hits margins and therefore, we may make decisions that helped the balance sheet a bit more than the income statement and I don't want us, Brian and I don't want us to be pinned down.
On that right now I think we'll have a better sense, we have the Q2 call and we will.
Trying to keep things as same as we do talk about it after the Q2 call.
Okay, that's fine thanks.
Thank you.
The next question comes from Larry Solow with.
Ask.
Please go ahead.
Great. Thanks, Congrats on a you know.
Definitely like Jason had good good movement forward improvement in operational efficiencies just a couple of follow ups.
Just on the revenue side first it feels like and I know you don't break out legacy Smith, but I'm just a couple of categories within the vascular access I know you highlighted that vivek as sort of a.
Similar to what Oscar on the system side, you kind of you kind of acquired a falling knife here, but what what kind of gives you the confidence that you have a right to win in this segment and when could we.
Okay.
Potentially see some return to growth is it going to take awhile. You know is there a lot of lifting heavy lifts and you have to do with what you know what do you what needs to be done.
It is in that area of Larry first tanks on both of US on the congrats Gratulation sentence I mean, I think we just feel like we're kind of getting closer to what we are supposed to be I don't I don't think we're thinking this is some heroic things so far right sure. It was a difficult year, it's slightly gone in the right direction.
On the vascular access products.
100% about commercial execution right, we started life with some supply.
Issues, and there's three or four sub lines in there each of them is producing fine now, it's literally getting back to customers, where Smiths made some short term trades.
Historically to get some government business et cetera, and move volume away from long term committed customers.
You can imagine how those customers felt about that we need to go back there.
And when those customers back.
And they use these products for a long time and they use many of the other ICU products, we have a right to be there and making those calls and its a lot of the same clinical areas, where the original consumables business started so I feel like we have scale commercial breadth adequate supply.
And economic value across all the pieces of that portfolio that there is no reason, we shouldn't be able to compete.
Okay, and then just on the on the Smith legacy pumps business.
It seems like I know you lost a little bit of sales last year, but.
Longer term now that you're sort of back in the market are getting more normalized.
Do you feel like you have some share ground to did you lose any share how did you kind of maintain that share or whatnot.
What's sort of the current state of those businesses.
To help with that or really the syringe piece.
Well I think the value Larry value comes from the legacy Smith's pump market on in two dimensions. One is it comes from actually gaining market share in <unk> and.
Placing more hardware.
I think that is much more of the conversation today and going forward.
The other part of that conversation is are all the assets being used.
Meaning the pumps being used effectively in the market.
And are they pumping as much as possible and when we were short.
Dedicated disposables for those pumps a lot of the fleet wasn't pumping at the historical rates and so as we've improved not only disposables by service and repair turnaround time.
Training et cetera, the assets are getting better utilized and so there should be more pumping going on with pumps that are out there and then as those capacity is filled up with those pumps. There is a reason for people to acquire new hardware. So it's a little bit self fulfilling we had to get the basics right. That's most of what we've done so far is that.
Got it and then just a couple of gross margin on the other price from a price benefit. This quarter did you mentioned that you actually got some price increases even in the solutions piece did I hear that right.
I imagine that's just a small hopefully you'll have a lot more in the next couple of years, but is that did I hear that correctly.
Yeah, Larry I mean, that's correct.
You mentioned three drivers of gross margin improvement in Q1 relative to Q4.
Supply chain and logistics was probably the biggest contributor to that improvement and then both pricing and mix I would say, we're a close second and third.
Okay, and then the sort of increase absorbed absorption the better absorption this quarter or the drop off that you're kind of guys feel you'll have as you slow inventory down.
I know, it's not an exact science, but is that like can you see our gross margins declining just on that like 100, bips that like a good place to start just looking at that in a vacuum.
Yes, Larry I think.
I think our.
Original guidance around gross margins for the full year was 37% and right.
We don't we don't see.
A reason to deviate from that at this point so.
It's probably something.
100, 250 basis points less than in Q1.
Over the course of the rest of the year.
Okay.
We take it quarter to quarter, we see what trades are in front of me, but selling with what's what's there on the shelf from an inventory perspective, but the decisions are real time right. Now so I don't want we really don't want to make a mistake on that in that five points of gross margin that disappeared last year was the variance of where we thought we'd be and where we wound up so we clearly know thats where the value.
We don't want to get it back and were trying to illustrate in the script that.
There are a number of things that are still yet to come but right we need to optimize for.
Absorption cash working capital service levels everything in the calculation right now.
And clearly your ideas Cutler capital usage improve free cash flow do you I mean do you expect 23 to be to working capital to be still a usage and any thoughts on what your free cash flow will be this year.
For 'twenty three I think.
Yeah.
Overall working capital when you include.
Both inventory and kind of this onetime benefit that we got from the accounts receivable sale program.
I should probably be.
Somewhat.
Neutral I would say over the course.
Over the course of the year.
Got it.
Do you have one more kind of cut you off sorry.
I just have to free cash flow number at what if you. If you have a thought on total net free cash flow I guess, you do see there'll be positive this year on the free cash flow side, but I don't know if you I think.
That's what we can read in the last call again on Q2, and we'll have a better sense of numbers. Okay. Okay. Thanks, I appreciate all the color.
Sure we can say more in the script and we're very focused on it.
Got you no that's fair all right excellent. Thanks again guys.
Thank you. The next question comes with Matthew <unk> with Keybanc. Please go ahead.
Hey, good afternoon, and thanks for taking the questions and I'll Echo my congratulations on a really nice quarter.
Well.
Just first on the consumables it sounds.
One is if you expected vascular access to be to be down in the quarter. I think last quarter, you said something around that you expected mid single digit growth for the full year is that sort of still.
How you're looking at that business.
Yes, I think the.
I think that pulse.
The story in vascular access has been going for six or nine months, Matt. So even on the summer call last year, we said that a good number of vascular access had too much catch up in it in Q4, which are.
The Q3 call in the Q4 call, we said it's going to start.
Going down a little bit I think we've known for a while and I think we finally got to the predominant amount of losses out where you have a sense of where they were and we secured the supply chain.
I don't think our comments on the whole segment.
Performance is different than what we set out the year before it was mid single digit consumables, obviously that means we have a steeper climb on some of the categories and we obviously need to make sure that the basis at the bottom like we're saying but.
We feel we feel reasonable about it today and I hope it'll be five quarters September .
Yeah and then.
And that's why we keep on going on cut you off there.
No that's really it I think I think it just means the other stuff has to go and it needs to stabilize right to get to where we want and the other stuff I think we feel very comfort on the other main lines in consumables going and we have to ensure that that scratches at a minimum stabilizes Martinez.
Okay, and then and then could you just comment on this.
This happened through the quarter, but just comment on your interest in Medtronic, respiratory and patient monitoring assets or parts of it.
I think we would never talk about any <unk>.
Strategic thing we were I appreciate the question and it's flattering that people would say things like that including us with what we went through but.
Still going through.
But.
I don't think it's right that we comment on whether big or small.
Whatever it may be that we comment on our strategic situation I'd prefer to.
To not have anything to say on that.
Okay Alright. Thank you guys wanted to keep this one short so I'll stop there. Thank you I hope you're okay. Your voice sounds a little raspy, so get a little.
A little bit.
We've had a long earnings side of a long earnings season. So anyway. Thanks, everybody for your interest in ICU medical we appreciate it and I'll turn it back over to them.
Thank you very much. This concludes our question and answer session and I would like to turn the conference back over to Mr.
James CEO of the company for any closing remarks. Please go ahead.
Thanks folks I should have waited here thanks folks for your interest in the company. We look forward to updating you on our Q2 call in August and thanks to everybody at the company who's been working tirelessly to improve.
Our situation and thanks to our customers have been very supportive along the way have a good summer everyone.
Yes.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect and have a great day.
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