Q1 2024 ICU Medical Inc Earnings Call

Okay.

[music].

Good afternoon, ladies and gentlemen, and welcome to the ICU Medical incorporated first quarter is what he'd want before earnings conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answers.

Operator: Good afternoon, ladies and gentlemen, and welcome to the ICU Medical Incorporated First Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 7, 2024. I would now like to turn the conference over to John Mills, ICR Managing Partner. Please go ahead.

Operator: If at any time during this call you require immediate assistance. Please press star zero for operator. This call is being recorded I don't you'll see me said that when he went before.

Operator: I'd now like the third took on French celebrate the John Mills ICR managing partner. Please go ahead.

John Mills: Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the first quarter of 2024 on.

John Mills: Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the first quarter of 2024. On the call today, representing ICU Medical is Vivek 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 the events calendar, and it will be under the first quarter 2024 event.

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

John Mills: 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 2024 events.

John Mills: 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 are subject to risk and uncertainty. Featured results may differ materially from management's current expectations.

John Mills: 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 are subject to risks and.

John Mills: <unk> future results may differ materially from management's current expectations we.

John Mills: 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 on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency in ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period.

John Mills: 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 the operating results and financial position.

John Mills: Please note that during today's call. We will also discuss non-GAAP financial measures, including results on 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.

John Mills: 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.

John Mills: We've also included a reconciliation of these non-GAAP measures in today's release and provided as much detail as possible and then he addendums that are added back and with that it is my pleasure to turn the call over to Vivek.

Vivek: Thanks, John and good afternoon, everyone I'll quickly walk through our summary, Q1 revenue and earnings performance provide some commentary on the overall health of the company and then turn it over to Brian to recap. The full Q1 results after that I'll come back with updates on the various integration and consolidation efforts that will improve our medium term profit outlook.

Vivek Jain: Thanks, John. And good afternoon, everyone.

Vivek Jain: I'll quickly walk through our summary Q1 Revenue and Earnings performance, provide some commentary on the overall health of the company, and then turn it over to Brian to recap the full Q1 results. After that, I'll come back with updates on the various integration and consolidation efforts that will improve our medium-term profit outlook. Revenue for Q1 was $553 million, for a total company growth of 1% on a constant currency basis, or minus 1% on a reported basis. Adjusted EBITDA was $79 million, and EPS was $96 million.

Vivek Jain: Revenue for Q1 was $553 million for total company growth of 1% on a constant currency basis from minus 1% on a reported basis adjusted EBITDA was $79 million and EPS was <unk> 90, adjusted EPS was <unk> 96.

Vivek Jain: Gross margins were a little higher than expected due to supply chain efficiencies, and our cash balance was near flat sequentially as we continued to reduce inventory and had our typical higher Q1 cash out. The broader demand and utilization environment in Q1 was healthy across all geographies, with March seeing some reduction in census, and it appears to be fine in Q2 at the moment. The capital environment with the status quo and investments that customers need to make are getting made. The only additional macro headwind is the strong U.S. dollar in certain commercial geographies, which impacts our IV system segment the most, as it's our largest OUS.

Vivek Jain: Gross margins were a little higher than expected due to supply chain efficiencies and mix our cash balance was near flat sequentially. As we continued to reduce inventory and had our typical higher Q1 cash outflows.

Vivek Jain: The broad the broader demand and utilization environment Q1 was healthy across all geographies with March seeing some reduction centers, but it appears to be fine in Q2 at the moment the capital environment was status quo and investments that customers need to make are getting made.

Vivek Jain: The only additional macro headwind is the strong U S dollar and certain commercial geographies, which impacts our IV systems segment. The most as it is our largest O U S business.

Vivek Jain: Getting into our businesses more specifically, our consumable segment grew 3% in constant currency and reported. Growth was driven by our oncology and vascular access lines, which were both at or above 6%. IV therapy was low single digits, and trachs was closer to flat. We did expect some sequential declines given the very robust volumes we saw in Q4. Nothing else is new here.

Vivek Jain: Getting into our businesses more specifically, our consumables segment grew 3% constant currency.

Vivek Jain: And reported growth was driven by our oncology and vascular access lines, which were both at or above 6%.

Vivek Jain: IV therapy was low single digits and takes was closer to flat.

Vivek Jain: We did expect some sequential declines given the very robust volumes. We saw in Q4 nothing else is new here, we would expect sequential improvements in this segment as we wrap up Q2.

Vivek Jain: We would expect sequential improvements in this segment as we wrap up Q2. Our IV systems business was flat on a constant currency basis or down 3% reported due to the currency impact I just mentioned. Again, we had a wide range of performance across the product lines. However, our LVP pump business grew 8% with good dedicated set utilization due to census and a larger installed base. Syringe pumps sold slightly above normal quarterly levels and grew by 5%.

Vivek Jain: Our IV systems business was flat on a constant currency basis or down 3% reported due to the currency impact I just mentioned.

Vivek Jain: Again, we had a wide range of performance across the product lines, our Lv pump business grew 8% with good dedicated set utilization due to census, and a larger installed base syringe pumps sold slightly above normal quarterly levels and grew 5%.

Vivek Jain: Ambulatory pumps were down 10% as Q1-23 was the last quarter of the catch-up we were dealing with at the time, which will finally get lapped up. But more importantly, ambulatory was sequentially flat, the line is stable, and the macro trends of home care remain solid. We have some specific opportunities that are additive to getting the business back to historical levels, which are first, the replacement of our own life care PCA products in the market, and second, a market event with a smaller player, which is relevant.

Vivek Jain: Ambulatory pumps were down 10% as Q1 'twenty three it was the last quarter of the catch up we were dealing with at the time, which will finally get lapped now.

Vivek Jain: More importantly, ambulatory was sequentially flat as the lightest stable and the macro trends of homecare remains solid.

Vivek Jain: We have some specific opportunities that are additive to getting the business back to historical levels, which are first the replacement of our own lifecare PCA products in the market and second a market event with a smaller player which is relevant to us.

Vivek Jain: Our new Plum Duo device and LifeShield IV safety software have been fully available for the last few weeks, and we've had our first customer. The early feedback is meeting our expectations, and we are incorporating super user feedback into our roadmap. We believe we have a hardware product and related safety software that can be the anchor of our offering for many years. Just to wrap up the business segments, our vital care segment was down 4% both on a constant currency and reported basis.

Vivek Jain: Our new Plum duo device like shield IV safety software have been fully available for the last few weeks and we've had our first customer signing the early feedback is meeting our expectations and we are incorporating super user feedback into our roadmap and believe we have a hardware product and related safety software that can be the anchor.

Vivek Jain: Of our offering for many years to come.

Vivek Jain: Just wrapping up the business segments are vital care segment was down 4% both on a constant currency and reported basis IV solutions. The largest component of the segment was flat and the entire decline was essentially due to critical care, where we had a reduction in non hospital OEM sales due to a large order we had in Q1 of last year the rest of the segment.

Vivek Jain: IV solutions, the largest component of the segment, was flat, and the entire decline was essentially due to critical care, where we had a reduction in non-hospital OEM sales due to a large order we had in Q1. From an operational perspective, towards our customers, like the comments on the last call, the company is running the best it has in the last few years. Customer back orders are at the lowest level in nine quarters, and fulfillment has been very stable because of all of the efforts.

Vivek Jain: Flat.

Vivek Jain: From an operational perspective towards our customers like the comments on the last call. The company is running the best It has in the last few years customer back orders at the lowest level in nine quarters and fulfillment has been very stable because of all of the efforts of our team the discussions have shifted far more to innovation and the integrated value of what we've amassed.

Vivek Jain: The discussions have shifted far more to innovation and the integrated value of what we do. Quality has been an area of heavy investment. We feel we're on solid footing. We have had and likely will have a few more important customer notifications, all as part of the overall remediation efforts previously discussed and enhancements. Our goals in 2024 are not so different from our historical goals, as we lost time in the first six to seven quarters following the epidemic.

Vivek Jain: Quality has been an area of heavy investment we feel we're on solid footing, we have had and likely will have a few more important customer notifications all as part of the overall remediation efforts previously discussed and enhancements we have made.

Vivek Jain: Our goals in 2024 are not so different from our historical goals as we lost time in the first six to seven quarters following the acquisition.

Vivek Jain: We expect revenue growth in all of our differentiated product lines. We have substantially progressed our quality remediation and ensured quality for patients and high compliance for regulatory authorities, and we desire to bring our open warning letter to a close. We intend to execute the substantial integration work as we have operational stability in place to pursue remaining synergies. And ultimately, and obviously, these actions are intended to improve our profit levels and cash flow over the next few years. We're focused on optimizing the portfolio from a revenue growth and quality perspective, which will increase any opportunities to rationalize the portfolio. That's my brief recap of Q1 at a high level. I'll turn it over to Brian, and then I'll come back with a few thoughts and comments on our immediate term outlook, some targets, and a...

Vivek Jain: We expect revenue growth in all of our differentiated product lines, we have substantially progressed, our quality remediation and ensured quality for patients at high compliance for regulatory authorities and desire to bring our open warning letter to a close.

Brian: We intend to execute the substantial integration work as we have operational stability in place to pursue remaining synergies.

Brian: And ultimately and obviously these actions are intended to improve our profit levels and cash flow over the medium term.

Brian: And we're focused on optimizing the portfolio from a revenue growth and quality perspective, which will increase any opportunities to rationalize the portfolio at sensible levels. That's.

Vivek Jain: That's my brief recap of Q1 at a high level I'll turn it over to Brian and then come back and then I'll come back with a few thoughts and comments on our immediate term outlook some targets and a few other thoughts.

Brian Michael Bonnell: Thanks Vivek, and good afternoon everyone. Since Vivek covered the Q1 revenue for each of the businesses, I'll focus my remarks on recapping the Q1 performance for the remainder of the P&L, as well as the Q1 balance sheet and cash flow, and along the way provide commentary on any implications on our expectations for the full year. As you can see from the gap to non-gap reconciliation in the press release, adjusted gross margin for the quarter was 35%, which was higher than expected for this point in the year.

Brian: Thanks, Vivek and good afternoon, everyone. Since Vivek covered the Q1 revenue for each of the businesses I'll focus my remarks on recap into Q1 performance for the remainder of the P&L as well as the Q1 balance sheet and cash flow and along the way provide commentary on any implications to our expectations for the full year.

Brian Michael Bonnell: As you can see from the GAAP to non-GAAP reconciliation in the press release adjusted gross margin for the quarter was 35%, which was higher than expected for this point in the year.

Brian Michael Bonnell: The drivers of this favorability were roughly equally split between first, product mix, where we experienced a higher proportion of disposable revenue relative to capital during the quarter compared to our plan, and second, supply chain synergies achieved earlier in the year than expected.

Brian Michael Bonnell: The drivers of this favorability were roughly equally split between first product mix, where we experienced a higher proportion of disposables revenue relative to capital during the quarter compared to our plan and second supply chain synergies captured earlier in the year than expected.

Brian Michael Bonnell: These favorable items help to offset much of the anticipated negative impact from the manufacturing under-absorption related to the recent inventory reduction, which is reflected in the Q1 gross margin rate consistent with our previous guidance. I'll get into the implications for the full year outlook in a moment when taken into consideration with some other items. Adjusted SG&A expense was $115 million in Q1, and adjusted R&D was $21 million. Total adjusted operating expenses were up 3% year-over-year and reflect a combination of increased selling expenses and R&D investment. Adjusted operating expenses were 24.7% of revenue for the quarter, and we continue to expect the full-year rate to be at or below 24%.

Brian Michael Bonnell: These favorable items helped to offset much of the anticipated negative impact from the manufacturing under absorption related to the recent inventory reductions, which is reflected in the Q1 gross margin rate consistent with our previous guidance.

Brian Michael Bonnell: Get into the implications to the full year outlook in a moment when taken into consideration with some other items.

Brian Michael Bonnell: Adjusted SG&A expense was $115 million in Q1, and adjusted R&D was $21 million total adjusted operating expenses were up 3% year over year and reflect a combination of increased selling expenses and R&D investments.

Brian Michael Bonnell: Adjusted operating expenses were 24, 7% of revenue for the quarter.

Brian Michael Bonnell: And we continue to expect the full year rate to be at or below 24%.

Brian Michael Bonnell: Restructuring integration and strategic transaction expenses were $16 million in the first quarter and related primarily to it system integration and manufacturing network consolidation.

Brian Michael Bonnell: Restructuring, integration, and strategic transaction expenses were $16 million in the first quarter, related primarily to IT system integration and manufacturing network consolidation. Adjusted diluted earnings per share for the quarter was $0.96, compared to $1.74 last year. The current quarter results reflect net interest expense of $24 million. The first quarter adjusted effective tax rate was 28% and includes a discrete expense related to equity compensation. We continue to expect the full-year adjusted effective tax rate to be around 23%.

Brian Michael Bonnell: Adjusted diluted earnings per share for the quarter was <unk> 96.

Brian Michael Bonnell: Compared to a $1 74 last year.

Brian Michael Bonnell: The current quarter results reflect net interest expense of $24 million.

Brian Michael Bonnell: First quarter adjusted effective tax rate was 28% and includes a discrete expense related to equity compensation. We continue to expect the full year adjusted effective tax rate to be around 23%.

Brian Michael Bonnell: Diluted shares outstanding for the quarter were $24.4 million. And finally, adjusted EBITDA for Q1 decreased to $79 million compared to $102 million last year. The lower profitability on roughly similar levels of revenue reflects the prior year benefits from inventory builds combined with the current period impacts from inventory reduction. Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $30 million, which represents the third consecutive quarter of positive free cash.

Brian Michael Bonnell: Diluted shares outstanding for the quarter were $24 4 million.

Brian Michael Bonnell: And finally, adjusted EBITDA for Q1 decreased to $79 million compared to $102 million last year.

Brian Michael Bonnell: The lower profitability on roughly similar levels of revenue reflects the prior year benefits from inventory builds combined with the current period of impacts from inventory reductions.

Brian Michael Bonnell: Now moving onto cash flow and the balance sheet for the quarter free cash flow was $30 million, which represents the third consecutive quarter of positive free cash flow.

Brian Michael Bonnell: Reductions in inventory contributed $14 million of cash, and we remain on track to reduce inventory levels this year by our previously stated target of around $40 million, with most of this reduction coming in the first half of the year. The focus on inventory allowed us to generate meaningful free cash flow while still investing in the areas that will drive future returns. These investments included $10 million of cash spent on quality system and product-related remediation.

Brian Michael Bonnell: Reductions in inventory contributed $14 million of cash and we remain on track to reduce inventory levels. This year by our previously stated target of around $40 million with most of this reduction coming in the first half of the year.

Brian Michael Bonnell: Our focus on inventory allowed us to generate meaningful free cash flow, while still investing in the areas that will drive future returns. These investments included $10 million of cash spend for quality system and product related remediation.

Brian Michael Bonnell: $15 million on restructuring and integration, and $15 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 US. As anticipated and consistent with last year, our CapEx spend was a bit lighter in Q1 and should pick up over the course of the year. And just to wrap up on the balance sheet, we finished the quarter with $1.6 billion of debt and $251 million of cash.

Brian Michael Bonnell: $15 million on restructuring and integration and $15 million on Capex for general maintenance of capacity expansion at our facilities as well as placement of revenue generating infusion pumps with customers outside of the U S.

Brian Michael Bonnell: As anticipated and consistent with last year, our capex spend was a bit lighter in Q1 and should pick up over the course of the year.

Brian Michael Bonnell: And just to wrap up on the balance sheet, we finished the quarter with $1 6 billion of debt and $251 million of cash.

Brian Michael Bonnell: As we think about our full year earnings in light of Q1 performance, we still plan to make any revisions to our guidance if necessary on our Q2 call consistent with our historical cadence.

Brian Michael Bonnell: As we think about full-year earnings in light of Q1 performance, we still plan to make any revisions to our guidance, if necessary, on our Q2 call consistent with our historical cadence. For now, we believe the correct approach is to continue to assume adjusted gross margin for the year at our original guidance of 35%. While a portion of the supply chain synergies that provided upside in Q1 are more permanent in nature, there is volatility in the global environment that may impact fuel and transportation costs from the current level.

Brian Michael Bonnell: For now we believe the correct approach is to continue to assume adjusted gross margin for the year.

Brian Michael Bonnell: Our original guidance of 35%.

Brian Michael Bonnell: While a portion of the supply chain synergies that provided upside in Q1 or more permanent nature. There is volatility in the global environment that may impact fuel and transportation costs from the current levels.

Brian Michael Bonnell: Also, and more importantly, currency in a higher-for-longer interest rate environment does make an impact, as we don't report currency-adjusted earnings. Over the course of the first quarter, we saw our large international sales currencies, the yen, the euro, etc., weaken against the dollar, with no strengthening of the dollar against our production currencies of the Mexican peso and the Costa Rican cómodo, which for the full year adds up to over $10 million of EBITDA variance from the rates assumed in our plan.

Brian Michael Bonnell: Also and more importantly, currency and a higher for longer interest rate environment does make an impact as we don't report currency adjusted earnings.

Brian Michael Bonnell: Over the course of the first quarter, we saw our large international sales currencies yen euro et cetera weaken against the dollar with no strengthening of the dollar against our production currencies of the Mexican peso and Costa Rica Cologne.

Brian Michael Bonnell: Which for the full year adds up to over $10 million of EBITDA variance from the rates assumed in our plan.

Brian Michael Bonnell: While we believe our supply chain synergies, if things remain stable, can offset most of this currency impact, it's too early in the year to be precise. And finally, as it relates to the Q1 Gross Margin Benefit from Product Mix, our original full-year forecast for capital and disposables revenue mix hasn't changed, as we expect to be selling more capital in future quarters. To wrap up, we're happy with the first quarter performance, including improvement in our gross margin rate and continued progress in free cash flow generation. We remain focused on the foundational work that will drive earnings improvement in 2025 and beyond. I'll now hand the call back over to Vivek, who will provide updates on the specific initiatives underlying that earnings improvement.

Brian Michael Bonnell: While we believe our supply chain synergies if things remain stable can offset most of this currency impact it's too early in the year to be precise and.

Vivek Jain: And finally as it relates to the Q1 gross margin benefit from product mix, our original full year forecast for capital and disposables revenue mix Hasnt changed as we expect to be selling more capital in future quarters.

Brian Michael Bonnell: To wrap up we're happy with the first quarter performance, including improvement in our gross margin rate and continued progress in free cash flow generation. We remained focused on the foundational work that will drive earnings improvement in 2025 and beyond.

Brian Michael Bonnell: I'll now hand, the call back over to Vivek, who will provide updates on the specific initiatives underlying net earnings improvement.

Vivek Jain: Okay, thanks Brian. On the last call, and we don't need to rehash all the reasons here, we tried to articulate our belief that we were under-earning as a company relative to the industry, and we wanted to go through the actions we had taken to improve profit in the medium. We still need to prove that we're capable of predictable, sustained revenue growth but do believe we have seen less volatility over the last few quarters as the business matures. Our original model expectations continue for a number of our acquired products where the goal is to get back to near historical sales levels and for some of the legacy ICU lines to recoup the substantial inflation we absorbed over time with price. But sustainable revenue growth is also about innovation. And on the last call, we described some of the key programs.

Vivek Jain: Okay. Thanks, Brian.

Vivek Jain: The last call and we don't need to rehash all of the reasons here, we tried to articulate our belief that we were under earning as a company relative to the industry and we wanted to go through the actions to date to improve profit in the medium term.

Vivek Jain: We still need to prove that we're capable of predictable sustained revenue growth, but do believe we have seen less volatility over the last few quarters as the business has stabilized.

Vivek Jain: Our original model expectations continue for a number of our acquired products, where the goal is to get back to near historical sales levels and for some of the legacy ICU lines to recoup the substantial inflation, we absorbed over time with price improvements.

Vivek Jain: But sustained revenue growth is also about innovation and on the last call. We described some of the key programs and update versus the last call is that we now expect to get our plum solo IV pump and lifestyle safety software with interoperability five 10-K submission to the FDA before the end of Q3 and a quarter earlier than <unk>.

Vivek Jain: An update versus a last call is that we now expect to get our Plum Solo IV pump and LifeShield safety software with interoperability 510K submissions to the FDA before the end of Q3, a quarter earlier. This is an important program because, in addition to broadening out the full infusion hardware suite, it specifically allows us to approach our existing install base with a better tech solution. As a reminder, most of our current Plum 360 pumps were only put into service from 2015 onward, and we've never really had the benefit of having our own installed base rolled over to any substantial demand. We continue to expect a refreshed syringe pump on file by the end of the year, and all of these products will work with the latest version of LifeShield.

Vivek Jain: Expected.

Vivek Jain: This is an important program because in addition to broadening out the full infusion hardware suite. It's specifically allows us to approach our existing installed base with a better tech solution.

Vivek Jain: As a reminder, most of our current plum 360 pumps, we're only putting into service from 2015 onward, and we've never really had the benefit of having our own installed base rolled over to any substantial degree.

Vivek Jain: We continue to expect a refresh syringe pump on file by the end of the year and all of these products will work with our latest version of life shelf software. We also expect certain important new filings over the next 12 months to 24 months and our consumables area and the valuable temperature management business, we're growing our position with existing products are today and these.

Vivek Jain: We also expect certain important new filings over the next 12 to 24 months in our consumables area and the valuable temperature. We're growing our position with existing products of today, and these will be supplemented by significant refreshment in key parts of the portfolio, with a large portion already. We have been careful targeting these investments because innovation drives.

Vivek Jain: Will be supplemented by significant refresh in key parts of the portfolio with a large portion already done.

Vivek Jain: We have been careful targeting these investments because innovation drives sustained revenue growth.

Vivek Jain: The other half of improving our earnings power is about gross margin expansion outside of the price or mix or volume inputs. We're even.

Vivek Jain: The other half of improving our earnings power is about gross margin expansion outside of price or mix or volume. Where we've had businesses at or near record levels, those production environments are fully utilized and improving efficiency. But where we've had businesses that are smaller, we've absorbed real inefficiencies, and the pain was compounded with inventory choices. This leads to the basic blocking and tackling of network consolidations, which is not some grand transformational program or anything like that.

Vivek Jain: That business is at or near record levels. Those production environments are fully utilized and improving efficiencies, but where we've had businesses that are smaller we've absorbed real inefficiencies and the pain was compounded with the inventory choices. We made this leads to the basic blocking and tackling of network consolidations, which is not some grand transformational program.

Vivek Jain: Or anything like that.

Vivek Jain: Since the last call, we've announced additional closures of two large underutilized production sites and consolidation of those products into existing space in our network, dovetailing with our previous comments to have fewer places, have them full, and have them in the right shape. We can handle this now as our pump production has almost been fully consolidated in Costa Rica. These aren't easy choices, and they impact real people who have been team members for many years, but they must be done to drive value for us and for our competitive position.

Vivek Jain: Since the last call, we've announced additional closures of two large underutilized production sites and consolidation of those products into existing space in our network Dovetailing with our previous comments to have fewer places have them fall and have them in the right geography.

Vivek Jain: We can handle this now as our pump production has almost been fully consolidated into Costa Rica.

Vivek Jain: These arent easy choices and the impact real people, who have been team members for many years, but it must be done to drive value for us and for our competitive positioning to the customer.

Vivek Jain: Additionally, we're just about ready to consolidate our U.S. order-to-cash systems over the summer, which will lead to available logistics and back-office synergies in the quarters to follow. And we continue to whittle down underutilized real estate as leases present.

Vivek Jain: Additionally, we're just about ready to consolidate our U S order to cash systems over the summer, which will lead to available logistics and back office synergies in the quarters to follow.

Vivek Jain: And we continue to whittle down underutilized real estate as leases present themselves.

Vivek Jain: This list of actions is economically meaningful and contributes to getting where we need to be and offsets the normal bumps that happen in business, but it will take some time. Given what we've been through in the last few quarters, we're not willing to commit to specific dates and absolute margin levels, but our team's experience in integrations allows us to go as fast. Out of our control are interest costs, which we do expect to change eventually, but we are operating with higher ones for longer.

Vivek Jain: This list of actions is economically meaningful and contributes to getting where we need to be and offsets the normal bumps that happen in business, but it will take some time to execute.

Vivek Jain: Given what we've been through the last few quarters, we're not willing to commit to specific dates and absolute margin levels, but our team's experience and integrations allows us to go as fast as possible.

Vivek Jain: Out of our control our interest costs, which we do expect to change eventually, but we're operating with higher for longer mindset from a value perspective, we felt a more sensible to bear more interest expense as long as manageable versus not maximizing the assets, where the revenue earnings and quality of those assets is improving but requires investment.

Vivek Jain: From a value perspective, we felt it was more sensible to bear more interest expense as long as it was manageable versus not maximizing the assets where the revenue, earnings, and quality of those assets are improving but required. Debt paydown continues to be our highest capital allocation priority, and any extra cash above our needs would go to repayment. To be direct on our goals for the next year or two, we want our consumables and systems businesses to be reliable growers with an industry-acceptable profit margin, and each to have the tightest and most optimized manufacturing network with a multi-year innovation portfolio.

Vivek Jain: Debt pay down continues to be our highest capital allocation priority and extra any extra cash above our needs would go to repayment.

Vivek Jain: To be direct on our goals for the next year or two we want our consumables and systems businesses to be reliable growers with an industry acceptable profit margin with the tightest and most optimized manufacturing network to each with a multiyear innovation portfolio and we want the rest of the portfolio to add up to levels, where we deliver an acceptable profit margin that ultimately allows us to transfer.

Vivek Jain: And we want the rest of the portfolio to add up to levels where we deliver an acceptable profit margin that ultimately allows us to transfer value from. There is no confusion within the company in the pursuit of these goals, and we don't really have any frivolous. We produce essential items that require significant clinical training, have manufacturing barriers, and, in general, items that customers do not want to switch unless. The market needs ICU Medical to be an innovative, reliable supplier, and our company is stronger from all the events of the last few years. Thank you to all of our team members and customers as we improve. With that, we'll open it up for questions.

Vivek Jain: Value from debt to equity.

Vivek Jain: There is no confusion within the company and the pursuit of these goals and we don't really have any frivolous activities here.

Vivek Jain: We produce essential items that require significant clinical training hold manufacturing barriers and in general items that customers do not want to switch unless they must the market needs ICU medical being an innovative reliable supplier and our company is stronger from all of the events over the last few years. Thank you to all our of all of our team members and customers as we improve.

Vivek Jain: Each day with that we'll open it up for questions.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your thoughts going forward.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline the polling process, please press the star followed by the number. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Jayson Bedford from Raymond James. Your line is now open.

Operator: We will hear from that Youre head has been race should you wish to decline from the pooling Ross's. Please press the star followed by denim breakthrough.

Jayson Tyler Bedford: If you are using a speaker phone please lift the handset before pressing in the Wattenberg.

Jayson Tyler Bedford: One moment. Please for your first question.

Operator: Your first question comes from the line of Jayson Bedford from Raymond James Your line is now open.

Jayson Tyler Bedford: Hi, good afternoon, and congrats on the quarter so.

Jayson Tyler Bedford: Hi, good afternoon, and congratulations on the quarter. So maybe just a few questions. Just, I know you're not changing any guidance here, but revenue. I don't think you necessarily guided it, but on the last call, you talked about low- to mid-single-digit revenue growth in 24 based on one cue. Would you tweak any of the segments or that commentary?

Jayson Tyler Bedford: Maybe just a few questions.

Jayson Tyler Bedford: I know you are not changing any.

Speaker Change: <unk> here, but the revenue.

Jayson Tyler Bedford: I don't think it necessarily guided but last call last call you talked about low to mid single digit revenue growth and 24 based on one Q when you tweak any of the segments of that commentary at all.

Vivek Jain: I don't think we have made any change at all, Jayson. Yeah, certainly not on a constant currency basis, which is what our guidance was based on.

Speaker Change: I don't think I don't think we have any change at all Jason on that.

Vivek Jain: Okay, Yes, that's certainly not on a constant currency basis, which was what our guidance was based off of.

Vivek Jain: Okay.

Brian Michael Bonnell: Gross margin was clearly the highlight here. I understand the mixed dynamics, but what were the supply chain dynamics that went better in the quarter, and just can you talk about the sustainability of that?

Vivek Jain: Gross margin was.

Brian Michael Bonnell: Clearly the highlight here I understand the mixed dynamic.

Brian Michael Bonnell: What more of the supply chain dynamics that went better in the quarter and just can you talk about the sustainability of that.

Brian Michael Bonnell: Okay.

Brian Michael Bonnell: Jayson, I would say it wasn't necessarily any one thing related to the supply chain, it was just a number of initiatives to bring together the supply chain operations of the combined, from the two separate companies into one, and we were able to get some of those things in place a little bit sooner than expected. We had anticipated that it would happen at some point in the year; it's just that we got it a quarter or two sooner.

Speaker Change: Jason I would say it wasn't necessarily any one thing related to supply chain. It was just a number of initiatives.

Brian Michael Bonnell: To bring together.

Brian Michael Bonnell: The supply chain operations from the from the combined from the two separate companies into one.

Brian Michael Bonnell: And.

Brian Michael Bonnell: We were able to get some of those things in place a little bit sooner than expected.

Brian Michael Bonnell: We had anticipated it would happen at some point in the year.

Brian Michael Bonnell: It's just that we got it a quarter or two sooner.

Brian Michael Bonnell: Okay.

Vivek Jain: And then maybe, Vivek, on the Duo rollout. Where are you in terms of a kind of full launch, and when would you expect the full launch?

Brian Michael Bonnell: And then maybe vivek on the duo rollout.

Vivek Jain: Where are you in terms of kind of a full launching and when would you expect the full launch.

Vivek Jain: I would say, Jayson, for the last eight weeks, ten weeks, we've essentially been in a full launch. We're getting people familiar with the architecture of the system, and that's why it's really important for the SOLO and the syringe to follow on the heels of that, as people get comfortable with it, with all the different pieces of the system. So I would say we're there right now. Again, things don't happen that fast in pumps, in our experience, but it is a long game, and there will be a lot of activity in the next two or three years in the market, so... we're in a pretty good place.

Vivek Jain: I would say Jason for the last eight weeks 10 weeks, we've essentially been in a full launch we're getting people familiar with the architecture of the system and that's why it's really important for the solo and the syringe to follow on the heels of that as people get comfortable with that.

Vivek Jain: With the <unk>.

Vivek Jain: All the different pieces of the system. So I would say, we're there right now again things don't happen that fast and pumps.

Vivek Jain: And our experience, but it is a long game and there is a lot of activity in the next two or three years in the market. So.

Vivek Jain: We think we're in a pretty good place.

Speaker Change: Okay, and just the competitive landscape, you've got obviously three big players with.

Jayson Tyler Bedford: Okay, and just the competitive landscape, you've got obviously three big players with kind of the hand that's out there, and so I guess my question is, is the competitive environment favorable? Where do you see opportunity, and you kind of alluded to the capital dynamic, but is there a desire to make decisions out there today? Two parts to that.

Jayson Tyler Bedford: Kind of the hand, all the hands are out there and so I guess my question is the competitive environment.

Jayson Tyler Bedford: Is it favorable where do you see opportunity and.

Jayson Tyler Bedford: You kind of alluded to the capital dynamic, but is there a desire to make decisions out there today.

Vivek Jain: Two parts to that. The first is capital environments. OK.

Jayson Tyler Bedford: Two parts in that.

Vivek Jain: The first is the capital environment.

Vivek Jain: I mean, it's not any better, it's not any worse than it has been for a while; stuff that needs to get done gets done. Obviously, it's a good time to be a customer. There's more choice, which is good for the market. In terms of The market itself, people have dragged their feet on making some decisions, and given some of the industry dynamics, customers have to make decisions over the next few years, and so there are more decisions being made.

Vivek Jain: I mean, it's not that.

Vivek Jain: It's not any better it's any worse than it has been for a while it's stuff that needs to get done gets done.

Vivek Jain: Obviously, it's a good time to be a customer there is more choice, which is good for the market.

Vivek Jain: In terms of.

Vivek Jain: The market itself.

Vivek Jain: People have dragged the feet on making some decisions and given some of the industry dynamics.

Vivek Jain: Customers have to make decisions over the next few years and so there are more decisions being made finally.

Vivek Jain: Finally, and folks, given some of the background, the equipment's gotten older in the marketplace and requires refreshment for a variety of different reasons, and so the decision-making is better than it has been. And yes, while there are more vendors, there are more decisions being made, which one could argue is good for all parties.

Vivek Jain: And folks given some of the background the equipment has gotten older in the marketplace and requires refreshment variety of different reasons and so the decision making is better than it has been and yes. While there is more vendors there are more decisions being made which one could argue is good for all participants.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks, Jason.

Vivek Jain: Your next question comes from the line of Brad <unk> from Keybanc. Your line is now open.

Brett Adam Fishbin: Your next question comes from the line of Brett Fishbin from Key Bank. Your line is now open.

Brett Adam Fishbin: Hey, guys. Thank you so much for taking the questions just wanted to follow up on one of the opening comments that you guys made around hospital utilization trends sounded like January and February were particularly strong months and you might have noted a little bit of normalization into March and you said things into <unk> had been looking fine just maybe like.

Vivek Jain: Hey guys, thank you so much for taking the questions. I just wanted to follow up on one of the opening comments that you guys made around hospital utilization trends. Sounded like January and February were particularly strong months, and you might've noted a little bit of normalization into March, and you said things into QQ have been looking fine. Just maybe a little bit more on how you define that March and trend into QQ and how much of a pullback you may be seeing versus Shannon and Feb.

Vivek Jain: A little bit more on how you define that march and trend into <unk>.

Vivek Jain: And how much I would like a pullback you may be seeing versus Shannon fab.

Vivek Jain: Yeah.

Vivek Jain: Yeah, I mean, Brett, obviously, we don't want to get into that because you don't have perfect information about what's happening, you know, every day or every week out there. It was really busy for three months in the fourth quarter of last year, and then January and February, and March started to go below those levels. I think when we make those comments on a relative basis of the trend going, we would consider the status quo to mean flat to up. That's probably what we see, and bad to us would be down. I don't think we're... So when we say fine, we would say it's equal to or greater than what the most. Period, everybody.

Speaker Change: Yes, Brent obviously, we don't want to get into like the because you don't have perfect information of what's happening every day or every week out there. It was it was really busy.

Vivek Jain: For three months in the fourth quarter of last year, and then January and February and March are to go below those levels I think when we make those comments on its a relative basis is a trend going we would consider as status quo to mean flat to up.

Vivek Jain: That's probably what we see in bad to us would be down.

Vivek Jain: I don't think were so when we say fine we would say it's.

Vivek Jain: Equal to or greater than what the most recent peer.

Vivek Jain: Period everybody's talked about has been.

Brian Michael Bonnell: Alright, yeah, no, definitely fair. One quick follow-up on gross margins. Definitely appreciate some of the puts and takes and then... Presumably not wanting to get too far ahead of like how you're thinking about the full year after only one quarter. Just wanted to get a sense. You know, we did 35.3% this quarter, we're talking about a 35% range for the year. Some of the potential headwinds or offsets around currency or like fuel, are those things that you're seeing already in 2Q, Or is that comment more around just some of the puts and takes, like for the full year?

Vivek Jain: Alright, yes definitely there.

Brian Michael Bonnell: One quick follow up on gross margins definitely appreciate some of the puts and takes and then.

Brian Michael Bonnell: Presumably not wanting to get too far ahead of like how you're thinking about the full year. After only one quarter just wanted to get a sense.

Brian Michael Bonnell: 35, 3% this quarter, we're talking about 35% range for the year some of the potential headwinds or offsets around currency or like you. All are those things that you're seeing already in <unk> and we should be modeling some type of reduction in <unk> or is that comment more around just some of the puts and takes.

Brian Michael Bonnell: Mike for the full year.

Brian Michael Bonnell: Yeah, Brett. I think on that. The couple items that we've mentioned as being headwinds were the impact of FX, as well as potential volatility within the freight rate and diesel markets. I think the first one of those, FX, is very real, and we are seeing it, and we started to see some impact late in Q1, and I think that is something that should be considered as we think about how the rest of the year plays out. I think as it relates to, though, the broader environment around supply chain expenses, there's the potential for some volatility there, but I don't think there's anything specific worth modeling.

Speaker Change: Yes, Brett I think on that.

Brian Michael Bonnell: Just a couple of items that we've mentioned as being headwinds.

Brian Michael Bonnell: The impact of FX as well as potential volatility.

Brian Michael Bonnell: Within the kind of freight rate and diesel markets.

Brian Michael Bonnell: It's the first one of those FX is very real and we are seeing it and we started to see some impact late in Q1, and I think that is something that should be considered as we.

Brian Michael Bonnell: Think about what how the rest of the year plays out.

Brian Michael Bonnell: I think as it relates to the broader environment around supply chain expenses.

Brian Michael Bonnell: There is the potential for some volatility there, but I don't think.

Brian Michael Bonnell: There is anything specific worth modeling.

Speaker Change: Alright very helpful. And then last question for me it feels like the quality remediation and warning letter item like all of the stuff. That's on Europe and then in your control is seems to be progressing at least in line with how you were thinking about it. So the question is just what still needs to get done besides.

Vivek Jain: All right, not very helpful. And then the last question for me, feels like the quality remediation and warning letter item, like all of the stuff that's on your end and in your control seems to be progressing, at least in line with how you were thinking about it. So the question is just what still needs to get done? Besides waiting around, you know, for an eventual FDA inspection, I guess, is there still some stuff that, you know, is in your hands that still needs to get done before that can happen? Thanks very much for taking the time to answer the question.

Vivek Jain: Waiting around for an eventual eventual FDA inspection is there still some softness in.

Vivek Jain: In your hands that still needs to get done before that can happen. Thanks very much for taking the questions.

Vivek Jain: Sure, I'll answer that one. Um, you know, our job, our responsibility, regardless of our own or what we acquire, is to be improving the quality scores every single day. And so there's never a day of sort of waiting around. I think the expectation is that you're improving; you're improving your situation. And that can mean assessing every single product and where there are applicable notifications to customers, making some of those notifications like we referenced on the last slide, and call scripts that you've seen in the various reports.

Speaker Change: Sure I'll answer that one.

Vivek Jain: Yes.

Vivek Jain: Our job our responsibility regardless of our own or what we acquired is to be improving on the quality scores every single day.

Vivek Jain: So there's never a day are sort of waiting around I think.

Vivek Jain: The expectation is that you are improving.

Vivek Jain: You are improving your situation and that can mean, a lot of different things that can mean assessing.

Vivek Jain: Every single product and where there is applicable notifications to customers, making some of those notifications like we've referenced in the last two call scripts and you've seen in the.

Vivek Jain: In in the various reports it can also mean researching all the historical planes to make sure everyone is adequately from closed we've done a mountain of work you've seen the investments.

Vivek Jain: It can also mean researching all the historical plates to make sure everyone is adequately enclosed. We've done a mountain of work. You've seen the investments into the quality remediation that we've put in for eight quarters. You're never really done. We think we've come a long, long way, and we hope we get the opportunity to show that to somebody.

Vivek Jain: Into the quality remediation that we've put in for eight quarters.

Vivek Jain: You're never really done we think we've come a long long way and we hope we get the opportunity to show that to somebody but it's not it's not really just you just had a light and stop it never never ends.

Vivek Jain: But it's not really, you just hit a line and stop; it never happens.

Speaker Change: Yes makes a lot of sense. Thanks, Thanks again for taking the questions.

Brett Adam Fishbin: Yep, that makes a lot of sense. Thanks again for taking the questions.

Brett Adam Fishbin: Your next question comes from the line of Kristen Stewart from BL King Your line is now open.

Kristen Marie Stewart: Your next question comes from the line of Kristen Stewart from DL King. Your line is now open.

Kristen Marie Stewart: Hi, congratulations on a good quarter and thanks for taking the question. I was wondering if you could just focus a little bit on free cash flow. In the quarter, it was positive, which is a great thing. How are you looking for the rest of the year from a cash flow perspective?

Kristen Marie Stewart: Hi, Congrats on a good quarter and thanks for taking the question I was wondering if you could just focus a little bit on free cash flow in the quarter was positive which is a great thing. How are you looking for the rest of the year from a cash flow perspective.

Speaker Change: Yes, Chris I think we got off to a pretty good start to the year, especially given Q1, we do tend to have more outflows.

Brian Michael Bonnell: Yeah, Kristen, I think we got off to a pretty good start to the year, especially given Q1. We do tend to have more outflows in that quarter each year. We feel like our previous guidance around free cash flow was still relevant in that it would be basically the same as last year, but without some of the financing benefit that we got, which means $80 million, roughly, give or take for the full year this year. And so I think we're still very much on track for that.

Brian Michael Bonnell: In that quarter each year I think.

Brian Michael Bonnell: We feel like our.

Brian Michael Bonnell: Previous guidance around free cash flow was still relevant in that it would be.

Brian Michael Bonnell: Basically the same as last year, but without some of the financing benefit that we got.

Brian Michael Bonnell: Which means $80 million roughly give or take.

Brian Michael Bonnell: For the full year this year and.

Brian Michael Bonnell: And so I think we're still we're still very much on track for that.

Vivek Jain: Okay, great. And then I just wanted to turn over to vascular access. It sounds like that had a good quarter. How should we be thinking about that business going forward?

Kristen: Okay, Great and then I just wanted to turn it over to vascular access it sounds like that had a good quarter, how should we be thinking about that business going forward.

Vivek Jain: Yeah.

Speaker Change: Hey, Chris it's for that.

Vivek Jain: Hey, Kristen, it's Vivek. I mean, we assumed in our mid-single guidance for the consumables segment for the year that vascular access would be in line with that. It is still far below peak historical levels, but we've just gotten the house in order a bit over the difficulties we had in the first six quarters or something. So it feels a lot to us, sort of like what we went through post-Hospiro with consumables, where it really did take two years to be stable and to show that we could move it upwards.

Vivek Jain: I mean, I think in our mid single guidance for the consumables segment for the year.

Vivek Jain: We assumed vascular access would be in line with that.

Vivek Jain: It is still far below peak historical levels, we've just gotten our house in order a bit over the difficulties we had.

Vivek Jain: In the first six quarters or something so.

Vivek Jain: It feels a lot to us sort of what we went through post hospira with consumables, where it really did take two years to be stable and to show that we could move it upwards.

Vivek Jain: And we think we're in kind of the first part of that journey right now. There's a long way to go, but I think we, at minimum, believe it would be in line with the overall segment.

Vivek Jain: We think we are in kind of the first part of that journey right now Theres, a long way to go but.

Vivek Jain: I think at a minimum believe it will be in line with the overall segment guidance.

Kristen: Okay, great. Thanks for taking my questions.

Kristen Marie Stewart: Okay, great. Thanks for taking my questions.

Speaker Change: Again participants if you would like to ask a question you can press Star then the number one.

Operator: Again, participants, if you would like to ask a question, you can press star, then the number one on your telephone keypad. Again, that star, then the number one on your telephone keypad. You will hear a prompt that your hand has been raised. Your next question comes from the line of Larry Solow from CJS Securities. Your line is now open.

Operator: Phone keypad again, that's far then the number one on your telephone keypad you will hear from that Youre head has been raised your next question comes from the line of Larry Solow from CJS Securities. Your line is now open.

Lawrence Scott Solow: Great. Thank you.

Lawrence Scott Solow: Great, thank you. Coming back to Jayson's question on the pump market, he said, "sounds like decisions are being made." But where do you stand? You know, how do you feel with a lot more jump balls, I guess, if you will, and share on ProGrad? Do you feel like you have an opportunity? Clearly, you've gained some share in the last couple of years. Now, Ectin is back on the market. I think Baxter has a new pump. How do you feel, you know, your position is to continue to, I know it's a slow-moving market, but to continue that positive momentum?

Lawrence Scott Solow: But coming back to it.

Speaker Change: Good question.

Lawrence Scott Solow: Paul.

Lawrence Scott Solow: Hum.

Lawrence Scott Solow: <unk>.

Lawrence Scott Solow: So it sounds like.

Lawrence Scott Solow: No.

Lawrence Scott Solow: Where do you stand how do you feel a lot more jump balls I guess.

Lawrence Scott Solow: Sure.

Lawrence Scott Solow: We feel like we have an opportunity gain.

Lawrence Scott Solow: Gain from shale a couple of years.

Lawrence Scott Solow: Now I can move back in the market I think Baxter com.

Lawrence Scott Solow: How do you feel.

Lawrence Scott Solow: To continue.

Lawrence Scott Solow: Global markets continued sort of that positive momentum.

Lawrence Scott Solow: It is it is jump ball season.

Vivek Jain: It is, it is jump ball season. It is the playoffs.

Vivek Jain: It is the playoffs.

Vivek Jain: I think.

Speaker Change: I think our view is.

Vivek Jain: I think, I think our view is, also, not to sound, you know, less than ambitious here or hedging, it's also relative to the size of our business, right, which is the point we were trying to make on the other scripts the last two years, which is that our business is actually, it's big, but it's not that big relative to the total available market opportunity. And so if we can increase our win rate above historical levels, it makes a real meaningful difference to our P&L.

Vivek Jain: Also.

Vivek Jain: Not to sound.

Vivek Jain: Yes that ambitious here or hedge.

Vivek Jain: It's also relative to the size of our business right, which is the point we were trying to make on the other other scripts in the last two years, which is our business is actually.

Vivek Jain: It's big but it's not that big relative to the total available market opportunity and so if we can increase our win rate above historical levels. It makes a real meaningful difference on our P&L.

Vivek Jain: And we think we have the right technology and all participants, I suspect, have more conversations going on than they've had in the last number of years, which is good. Things will settle out, and we just need to know what our peak share of our products was. We know how low they got, and why we had to step into the hospital, and we know what the opportunity is in front of us. So we feel good.

Vivek Jain: We think we have the right technology.

Vivek Jain: And all participants based I suspect have more conversations going on that they've had in the last number of years, which is good things will settle out and we just need to.

Vivek Jain: We know what our peak share of our products, where we know how low they got and why we had to step in Hospira and we know what the opportunity is in front of us. So we feel good I would leave it at we feel very good about the technology investments, we've made and have been committed to for a good sensitivity.

Vivek Jain: I would leave it at we feel very good about the technology investments we've made and have been committed to, in a good sense, what we think customer preference could be. Got it, and we have, and we, you know, we've obviously suffered a little bit, but we have.

Vivek Jain: What we think.

Vivek Jain: Customer preference could be in this product family.

Speaker Change: Got it.

Vivek Jain: And we have and we've.

Vivek Jain: We've obviously suffered a little bit bipolar.

Vivek Jain: We undertook getting the full line, which again right between syringe ambulatory et cetera.

Brian Michael Bonnell: Okay, I appreciate that call. On gross margin, back to that, the cadence sounds like maybe we'll come back down a little bit in Q2. That's where you have a little more inventory, a scale back as well, and then maybe a little bit of stabilization in the back half, but disregarding the cadence, but just kind of situationally, where do you think you'll stand as you exit the year? Most of the inventory management should be behind you, hopefully, mix is starting to improve, but do you think you can, you know, sort of, as we start next year, packed a little bit off of this sort of mid-30s number, and then we'll get more consolidation benefits next year and work from that, you know, kind of, maybe you can give us just a little more.

Speaker Change: Okay I appreciate that color.

Brian Michael Bonnell: On the gross margin back to that but the cadence it sounds like maybe we come back down a little bit in Q2.

Speaker Change: That's right.

Brian Michael Bonnell: <unk> scaled.

Brian Michael Bonnell: Scale back as well.

Brian Michael Bonnell: Yes.

Brian Michael Bonnell: Maybe a little bit of stabilization in the back half.

Brian Michael Bonnell: Regarding with regard to Makena.

Brian Michael Bonnell: Situationally, where do you think.

Brian Michael Bonnell: Yeah.

Brian Michael Bonnell: What's the inventory management should be behind you.

Brian Michael Bonnell: Hopefully things will improve.

Speaker Change: Thank you.

Brian Michael Bonnell: As we start next year.

Brian Michael Bonnell: Yes.

Brian Michael Bonnell: Little bit off of the midpoint.

Brian Michael Bonnell: Number one we'll get more consolidation benefit next year from that.

Speaker Change: Maybe just a little more.

Speaker Change: Got it.

Speaker Change: Yes, Larry I think as it relates to.

Brian Michael Bonnell: Yeah, Larry, I think as it relates to this year. On the last call, we said we would expect to exit this year slightly above the 35% average for the year, absent something unusual happening in terms of product mix or currency or anything like that. I think we still think that's probably the most likely scenario. And you're right, that means that throughout the year, we won't have the steep trajectory in gross margins that we were expecting. It'll be a bit more flattish, I suppose. But I think our views on where we go out really haven't changed.

Brian Michael Bonnell: This year on the last call. We said, we would expect to exit.

Brian Michael Bonnell: This year slightly above the 35% average for the year.

Brian Michael Bonnell: Absent something unusual happening in terms of <unk>.

Brian Michael Bonnell: Product mix or currency or anything like that I think we still think that's probably the most likely scenario and youre right that means that then throughout the year, we won't have the steep trajectory.

Brian Michael Bonnell: And gross margins that we were expecting it will it'll be a bit more flattish I suppose, but I think our views on where we exited really haven't changed.

Brian Michael Bonnell: I mean, I think Larry back I think the bigger picture, Brian was trying to say it.

Vivek Jain: I mean, with a lot of respect, I think the bigger picture is that Brian was trying to say, as simply as he could in the script, which was last year, we had just a little less revenue than we had this quarter, and look how much more money we made.

Brian Michael Bonnell: As simply as he put it in the script, which was last year. We had just a little less revenues than we had this quarter and look how much more money. We made and then I talked about all this manufacturing consolidation et cetera, and other things to drive gross margin synergies right.

Vivek Jain: And then I talked about all this manufacturing consolidation, etc., and other things to drive gross margin synergies, right? The difference between Q1 this year and Q1 last year was a little bit of investment, but it was the difference in gross margin, obviously. The perception of the situation is very different in those moments, so we understand the value of getting the gross margin where it is.

Vivek Jain: The difference in Q1 this year in Q1 last year was.

Vivek Jain: A little bit of investment.

Vivek Jain: It was the difference in gross margin obviously.

Vivek Jain: Perception of of the situations are very different in those moments so.

Vivek Jain: We understand the value of getting the gross margin where it needs to.

Vivek Jain: It needs to be.

Vivek Jain: Alright.

Vivek Jain: Just lastly, I know price, especially in solutions, could be at least somewhat of a driver too, not this year but going forward. But when do we see, when does that, those contracts? I think some of them are coming more to contracts up for grabs or coming up for renewal, I think, in the back half of this year. When will there be some better visibility?

Vivek Jain: Yes.

Vivek Jain: Could be.

Vivek Jain: Yes.

Vivek Jain: What are the drivers.

Vivek Jain: Mark will share more going forward.

Vivek Jain: That contract I think that some of them will come.

Vivek Jain: A program coming up for renewal I think in the back half of this year.

Vivek Jain: Better blah blah blah blah blah.

Vivek Jain: I mean, the contracts are only part of the equation. They'll get done first in the process, and then it's really getting individual systems and members to absorb whatever you may have been contracted for, which has its own set of challenges to work through. All of that probably doesn't become effective until some point in Q1 of next year.

Vivek Jain: The contracts are only part of the equation they'll get done first in the process and that it is really.

Vivek Jain: Getting individual systems and members to absorb whatever you may have been contracted which has its own.

Vivek Jain: Set of challenges to work through all of that probably doesn't become effective until some point in Q1 of next year.

Speaker Change: Got it okay.

Lawrence Scott Solow: Okay. Thanks. Thanks, guys. I appreciate it.

Speaker Change: Thanks Mark.

Lawrence Scott Solow: And speakers, we don't have any questions. So very different I would like to hand over the call. Mr. Vivek Jain Chairman and Chief Executive Officer. Please continue.

Operator: And speakers, we don't have any questions over the phone. I would like to hand over the call to Mr. Vivek Jain, Chairman and Chief Executive Officer. Please continue. Thank you.

Vivek Jain: Thanks, Franzi. Look, we hope today's call was direct and to the point, a little bit shorter. We look forward to speaking to everybody on our Q2 call, and we'll update everybody on all these various items we're working on to make the company more valuable and drive innovation for patients. Thanks very much, everyone.

Vivek Jain: Transit.

Vivek Jain: Look we hope today's call was direct into the point a little bit shorter we look forward to speaking to everybody.

Vivek Jain: On our Q2 call and we'll update everybody on all of these various items are working to make the company more valuable and.

Vivek Jain: Drive innovation for patients thanks, very much everyone appreciate it.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Okay.