Q2 2024 ICU Medical Inc Earnings Call

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Operator: Good afternoon, ladies and gentlemen, and welcome to the ICU Medical Incorporated second quarter 2024 earnings conference call. At this time, all lines are in a listen-only mode.

Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the ICU Medical Incorporated Second Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.

Operator: Following the presentation, we will conduct a question-and-answer session.

John Mills: I would now like to turn the conference over to John Mills, ICR managing partner. Please go ahead.

Speaker Change: I would now like to turn the conference over to John Mills, ICR Managing Partner. Please go ahead.

John Mills: Thank you.

John Mills: Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the second 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 as well. To view the presentation, please go to our investor page and click on the events calendar, and it will be under the second quarter 2024 events.

John Mills: Thank you, good afternoon everyone. Thank you for joining us to discuss ICU Medical's financial results for the second quarter of 2024. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman, and Brian Bonnell, Chief Financial Officer.

Speaker Change: We wanted to let everyone know that we have a presentation accompanying today's prepared remarks as well. To view the presentation, please go to our investor page and click on events calendar, and it will be under the second 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 risks and uncertainties. Future results may differ materially from management's current expectations.

Speaker Change: 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.

Speaker Change: 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 uncertainties. Future results may differ materially from management's current expectations.

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.

Speaker Change: We refer all of you to the company's SEC filings for more detailed information on the risk 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.

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 in the ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period. We 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.

Speaker Change: 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.

Speaker Change: We also included a reconciliation of these non-GAP 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.

Vivek Jain: And with that, it is my pleasure to turn the call over to Vivek. Thanks, John, and good afternoon, everyone. I'll walk through our summary Q2 revenue and earnings performance, provide some highlights for each segment, and then turn over Brian to recap the full Q2 results and outline our current thinking on the balance of the year.

Vivek: Thanks, John, and good afternoon, everyone.

Vivek: I'll walk through our summary Q2 revenue and earnings performance, provide some highlights for each segment, and then turn it over to Brian to recap the full Q2 results and outline our current thinking on the balance of the year.

Vivek Jain: After that, I'll come back with updates on the various integration and consolidation efforts that will benefit our medium-term profit outlook and discuss the overall improving health of the company. Revenue for Q2 was 581 million for total company growth of 10% on a constant currency basis or 9% on a reported basis. Adjusted EBITDA was $91 million and EPS was $1.56. Gross margins were a little higher than expected, again due to earlier capture of supply chain efficiencies and sales mix. We had a good quarter of cash generation with 63 million in pre-cash flow, of which 7 million was inventory drawdown, and our cash balance finished just over 300 million.

Speaker Change: After that, I'll come back with updates on the various integration and consolidation efforts that will benefit our medium-term profit outlook and discuss the overall improving health of the company.

Brian Bonnell: Revenue for Q2 was $581 million, for total company growth of 10% on a constant currency basis or 9% on a reported basis. We had a good quarter of cash generation with $63 million in pre-cash flow, of which $7 million was inventory drawdown, and our cash balance finished just over $300.

Brian: Revenue for Q2 was $581 million for total company growth of 10% on a constant currency basis, or 9% on a reported basis.

Brian: adjusted EBITDA was $91 million and EPS was $1.56 gross margins were a little higher than expected again due to earlier capture of supply chain efficiencies and sales mix

Brian: We had a good quarter of cash generation, with $63 million in free cash flow, of which $7 million was inventory drawdown, and our cash balance finished just over $300 million.

Vivek Jain: The broader demand and utilization environment in Q2 was healthy across all geographies and has felt that way this year to date, but of course we've all noticed the increasing volatility in the environment. The capital environment was status quo, and investments that customers need to make are getting made. The macro headwind of a strong US dollar has not broken everywhere yet and specifically is still strong in the areas where we have our largest international commercial footprints, and again this impacts our IV system segment the most. Getting into our businesses more specifically, consumables grew 11% constant currency and 10% reported.

Brian: The broader demand and utilization environment in Q2 was healthy across all geographies and has felt that way this year to date. But of course, we've all noticed the increasing volatility in the environment.

Brian Bonnell: The capital environment with the status quo and investments that customers need to make are getting made. The macro headwind of a strong U.S. dollar has not broken everywhere yet and is specifically still strong in the areas where we have our largest international commercial footprints, and again, this impacts our IV system segment, to mention a few highlights across the unit. And these types of examples thematically have helped our results to date, but I'll give a few more specific forward-looking examples. For the balance of 2024, nothing else is new here.

Brian: The capital environment with status quo and investments that customers need to make are getting made. The macro headwind of a strong U.S. dollar has not broken everywhere yet, and specifically is still strong in the areas where we have our largest international commercial footprints, and again, this impacts our IV system segment the most.

Brian: Getting into our businesses more specifically, consumables grew 11% constant currency and 10% reported. All four lines in this unit grew well with vascular access and tracheostomy in the teens and the legacy ICU product lines of IV therapy and oncology in the mid to high single digits.

Vivek Jain: All four lines in this unit grew well with vascular access and tracheostomy in the teens and the legacy ICU product lines of IV therapy and oncology in the mid to high single digits.

Vivek Jain: Dimension a few highlights across the unit, and these types of examples semantically have helped our results to date, but I'll give a few more specific forward-looking ones. The first example is around our core focus of improving outcomes, patient safety, and improving workflows. In our IV therapy line, there was an important study published in the Journal of Vascular Access a few days ago, which is a great example of the clinical and economic value of our slave family of connectors. As the study noted, the improved safety with these projects' products as measured by infection reduction. A second example is our continued efforts in new adjacent market creation, like we did in oncology closed systems a number of years ago.

Brian: To mention a few highlights across the unit, and these types of examples thematically have helped our results to date, but I'll give a few more specific forward-looking ones.

Brian: The first example is around our core focus of improving outcomes, patient safety, and improving workflows.

Brian: In our IV therapy line, there was an important study published in the Journal of Vascular Access a few days ago, which is a great example of the clinical and economic value of our clave family of connectors, as the study noted the improved safety with these products as measured by infection reduction.

Brian: A second example is our continued efforts in new adjacent market creation, like we did in oncology closed systems a number of years ago.

Vivek Jain: We've also been doing that in the renal markets since our acquisition of Pursuit Vascular and recently signed a multi-year committed agreement with a leading US operator of dialysis clinics and believe this will help us grow our evidence base to attract other operators.

Brian: We've also been doing that in the renal markets since our acquisition of Pursuit Vascular and recently signed a multi-year committed agreement with a leading U.S. operator of dialysis clinics and believe this will help us grow our evidence base to attract other operators.

Vivek Jain: Lastly, we've been focused on getting our geographies right. For the most part, we have historically been a very small player in China. Shortly after rebate finding the acquired Smith Medical Business in China, we've been working to register additional core infusion products to expand our cell board portfolio in the country and expect several approvals over the next years. We have nothing to lose here as our business is currently limited in China. Our manufacturing costs are competitive, and we're now big enough to try to compete.

Brian: Lastly, we've been focused on getting our geographies right. For the most part, we have historically been a very small player in China.

Brian: Shortly after rebase-finding the acquired Smith's Medical Business in China, we've been working to register additional core infusion products to expand our Cellaborg portfolio in the country and expect several approvals over the next years.

Brian: We have nothing to lose here as our business is currently limited in China, our manufacturing costs are competitive, and we're now big enough to try to compete.

Vivek Jain: And lastly, over the medium term, each of these lines has its innovation roadmap, as we mentioned previously. For the balance of 2024, nothing else is new here. We would expect results in line with our original targets and would legacy ICU-consumable lines being at record levels. Our IV systems business unit grew 11% constant currency and 7% on a reported basis. Again, we had a wide range of performance across the product lines here. As we mentioned on the last call, we finally saw stabilization in our ambulatory line. Then there were some tailwinds emerging with the macro trends of home care remaining solid.

Brian: And lastly, over the medium term, each of these lines has its innovation roadmap as we mentioned previously.

Brian Bonnell: We would expect results in line with our original targets and with legacy ICU consumable lines being at record levels. Those have started to generally come true, and we had a very strong quarter of ambulatory hardware sales, and those pumps will soon start using dedicated, We're pleased with what we're seeing so far. Third, as we wait for responses, much of our energy shifts towards the refreshed syringe platform of our MedFusion product with the goal of filing that 510k submission over the next several quarters and also having it connect to our LifeShield safety software.

Brian: For the balance of 2024, nothing else is new here. We would expect results in line with our original targets and with legacy ICU consumable lines being at record levels.

Speaker Change: Our IV systems business unit grew 11% constant currency and 7% on a reported basis. Again, we had a wide range of performance across the product lines here. As we mentioned on the last call, we finally saw stabilization in our ambulatory line, and there were some tailwinds emerging with the macro trends of home care remaining solid.

Vivek Jain: Those have started to generally come true, and we had a very strong quarter of ambulatory hardware sales, and those pumps will soon start using dedicated sets. We had a lighter quarter of LVP hardware installs just based on the calendar, and we expect both lines to perform well in Q3.

Brian: Those have started to generally come true, and we had a very strong quarter of ambulatory hardware sales, and those pumps will soon start using dedicated sets.

Brian: We had a lighter quarter of LVP hardware installs just based on the calendar, and we expect both lines to perform well in Q3. Some key highlights here include

Vivek Jain: Some key highlights here include: First, we now have multiple signed contracts for our plum duo system with a variety of customers, and in general, customer decisions are more active than they have been over the last couple of years. We're pleased with what we're seeing so far. Second, since the last call, we have filed 510(k) submissions for our Plum Solo precision infusion pump and several enhancements to our Life Shield safety software and are already cleared Plum Duo device. After these products are cleared, the combination of the dual channel Plum Duo and the single channel Plum Solo will provide customer flexibility across all clinical care areas.

Brian: First, we now have multiple signed contracts for our Plum Duo system with a variety of customers, and in general, customer decisions are more active than they have been over the last couple of years.

Brian: We're pleased with what we're seeing so far.

Brian: Second, since the last call, we have filed 510k submissions for our Plum Solo Precision Infusion Pump and several enhancements to our LifeShield safety software and our already cleared Plum Duo device.

Brian: After these products are cleared, the combination of the dual-channel PlumDuo and the single-channel PlumSolo will provide customer flexibility across all clinical care areas.

Vivek Jain: Third, as we wait for responses, much of our energy shifts towards the refreshed syringe platform of our med fusion product with the goal of filing that 510(k) submission over the next several quarters and also having it connect to our Life Shield safety software. Our ambition is to have the most modern fleet of infusion devices that can anchor the portfolio for many years to come. Simplistically, we want customers to have the right tools for the right job, all connected with a common user interface and software solution that minimizes training, improves onboarding, and drives standardization. For the balance of 2024, nothing else is new here either; we would expect results in line with our original targets.

Brian: Third, as we wait for responses, much of our energy shifts towards the refreshed syringe platform of our MedFusion product with the goal of filing that 510K submission over the next several quarters and also having it connect to our LifeShield safety software.

Brian: Our ambition is to have the most modern fleet of infusion devices that can anchor the portfolio for many years to come.

Speaker Change: Simplistically, we want customers to have the right tools for the right job, all connected with a common user interface and software solution that minimizes training, improves onboarding and drives standardization. For the balance of 2024, nothing else is new here either, we would expect results in line with our original targets.

Vivek Jain: Just wrapping up the business segments, our Vital Care segment grew 8% constant currency and 7% reported. The majority of the growth was driven by IV solutions, which did have an easier comp as it was at a low level last year and by critical care. The rest of the segment was generally flat.

Brian Bonnell: Just wrapping up the business segments, our vital care segment grew 8% consonancy and 7% reported. The majority of the growth was driven by IV solutions, which did have an easier comp as it was at a low level last year, and by critical care. The rest of the segment was generally stable.

Speaker Change: Just wrapping up the business segments, our vital care segment grew 8% constant currency and 7% reported. The majority of the growth was driven by IV solutions, which did have an easier comp as it was at a low level last year, and by critical care. The rest of the segment was generally flat.

Vivek Jain: From an operational perspective towards our customers, like the comments on the last call, the companies running the best it has in the last few years. There are, of course, many areas to still improve and some of the normal bumps and bruises and manufacturing. But customer back orders remain low, and hopefully our comments from the last time, hopefully our comments from the last few calls that are effort shifting to innovation and displaying our integrated value to customers has been noted.

Speaker Change: 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. There are, of course, many areas to still improve and some of the normal bumps and bruises in manufacturing, but customer back orders remain low, and hopefully our comments from the last time.

Speaker Change: Hopefully our comments from the last few calls and our efforts shifting to innovation and displaying our integrated value to customers has been noted. That's my brief recap of Q2 at a high level. I'll turn it over to Brian and then come back with some comments on our medium-term outlook and a few other thoughts.

Vivek Jain: That's my brief recap of Q2 at a high level.

Brian Bonnell: I'll turn it over to Brian, and then come back with some comments on our media term outlook and a few other thoughts. Thanks, Vivek, and good afternoon everyone. Since Vivek covered the Q2 revenue for each of the businesses, I'll focus my remarks on recapping the Q2 performance for the remainder of the P&L, as well as the Q2 balance sheet and cash flow, and then provide our updated outlook for the full year. As you can see from the gap to non-GAAP reconciliation in the press release, adjusted gross margin for the second quarter was 36.6%, which was slightly better than our expectations.

Brian: Thanks Vivek, and good afternoon everyone. Since Vivek covered the Q2 revenue for each of the businesses, I'll focus my remarks on recapping the Q2 performance for the remainder of the P&L, as well as the Q2 balance sheet and cash flow, and then provide our updated outlook for the full year.

Speaker Change: As you can see from the gap-to-non-gap reconciliation in the press release, adjusted gross margin for the second quarter was 36.6%, which was slightly better than our expectations.

Brian Bonnell: Similar to the first quarter, we experienced favorable product mix with a higher proportion of disposable revenue relative to hardware during the quarter compared to our plan, as well as supply chain synergies captured earlier in the year than expected. Adjusted SG&A expense was 117 million in Q2, and adjusted R&D was 23 million. Total adjusted operating expenses were up 6% year-over-year and reflected a combination of increased selling expenses from higher revenues, R&D investments, and higher incentive compensation. Adjusted operating expenses were 24.2% of revenue for the quarter. Restructuring integration and strategic transaction expenses were up 17 million in the quarter and the second quarter, and related primarily to IT system integration and manufacturing network consolidation.

Speaker Change: Similar to the first quarter, we experienced favorable product mix, with a higher proportion of disposable revenue relative to hardware during the quarter compared to our plan, as well as supply chain synergies captured earlier in the year than expected.

Brian Bonnell: Adjusted SG&A expense was $117 million in Q2, and adjusted R&D was $23 million. Total adjusted operating expenses were up 6% year over year and reflect a combination of increased selling expenses from higher revenues.

Speaker Change: Adjusted SG&A expense was $117 million in Q2 and adjusted R&D was $23 million.

Speaker Change: Total adjusted operating expenses were up 6% year over year and reflect a combination of increased selling expenses from higher revenues.

Speaker Change: R&D Investments, and Higher Incentive Compensation. Adjusted operating expenses were 24.2% of revenue for the quarter.

Speaker Change: Restructuring, integration, and strategic transaction expenses were at 17 million in the quarter, in the second quarter, and related primarily to IT system integration and manufacturing network consolidation.

Brian Bonnell: Foundation. Adjusted deluded earnings per share for the quarter was $1.56 compared to a $1.88 last year. The current quarter results reflect net interest expense of $24 million. The second quarter adjusted effective tax rate was 16 percent and includes the discrete benefit from the release of tax contingencies as a result of the expiration of various tax statute of limitation periods, which contributed approximately $0.15 per share. For comparison purposes, the prior year tax rate reflected discrete benefits, which contributed approximately $0.25 per share. Deluded shares outstanding for the quarter were $24.4 million. And finally, adjusted EBITDA for Q2 decreased to $91 million compared to $98 million last year.

Speaker Change: Adjusted diluted earnings per share for the quarter was $1.56 compared to $1.88 last year. The current quarter results reflect net interest expense of $24 million.

Speaker Change: The second quarter adjusted effective tax rate was 16% and includes a discreet benefit from the release of tax contingencies as a result of the expiration of various tax statute of limitation periods, which contributed approximately 15 cents per share.

Speaker Change: For comparison purposes, the prior year tax rate reflected discrete benefits which contributed approximately $0.25 per share.

Speaker Change: Diluted shares outstanding for the quarter were 24.4 million.

Speaker Change: And finally, adjusted EBITDA for Q2 decreased to $91 million compared to $98 million last year. The lower profitability on higher revenues this year reflects the prior year manufacturing absorption benefits from inventory bills combined with the current period impacts from inventory reductions.

Brian Bonnell: The lower profitability on higher revenues this year reflects the prior year manufacturing absorption benefits from inventory builds, combined with the current period impacts from inventory reductions.

Brian Bonnell: Now, moving on to cash flow in the balance sheet. For the quarter, free cash flow was $63 million, which represents the best free cash flow quarter since the acquisition, as well as the fourth consecutive quarter of positive free cash flow generation. Reductions and inventory contributed $7 million of cash, and we also benefited from lower cash outlays for capital expenditures and quality remediation due to the timing of these projects, along with some one-time cash flow benefits from the integration. During the quarter, we invested $10 million of cash spend for quality system and product-related remediation activities, $17 million on restructuring and integration, and $19 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.

Brian Bonnell: Now, moving on to cash flow and the balance sheet. For the quarter, free cash flow was $63 million, which represents the best free cash flow quarter since the acquisition, as well as the fourth consecutive quarter of positive free cash flow generation. Reductions in inventory contributed $7 million of cash, and we also benefited from lower cash outlays for capital expenditures and quality remediation due to the timing of these projects. And just to wrap up on the balance sheet, we finished the quarter with $1.6 billion of debt and $303 million of cash.

Speaker Change: Now, moving on to cash flow and the balance sheet. For the quarter, free cash flow was $63 million, which represents the best free cash flow quarter since the acquisition, as well as the fourth consecutive quarter of positive free cash flow generation.

Speaker Change: Reductions in inventory contributed 7 million of cash and we also benefited from lower cash outlays for capital expenditures and quality remediation due to the timing of these projects, along with some one-time cash flow benefits from the integration.

Speaker Change: During the quarter, we invested $10 million of cash spend for quality system and product-related remediation activities.

Speaker Change: $17 million on restructuring and general maintenance and capacity expansion at our facilities, as well as placement of revenue-generating infusion pumps with customers outside the U.S.

Brian Bonnell: And just to wrap up on the balance sheet, we finished the quarter with $1.6 billion of debt and $303 million of cash.

Speaker Change: And just to wrap up on the balance sheet, we finished the quarter with $1.6 billion of debt and $303 million of cash.

Brian Bonnell: As we think about the balance sheet and cash flows over the remainder of the year, there are a few items worth mentioning. First, we believe the current cash balance is adequate to support the day-to-day liquidity needs of the business, and we would anticipate any further increases to the cash balance to be used for either early paydown of term loan principal or reducing usage of the accounts receivable factoring program. Second, over the course of the past 12 months, we've been able to reduce inventory levels by approximately $100 million, and we believe current levels are appropriate to support the near-term needs of the business, including onboarding of new customers, providing adequate safety stock to ensure supply chain resilience, and to facilitate our planned manufacturing network consolidations.

Speaker Change: As we think about the balance sheet and cash flows over the remainder of the year, there are a few items worth mentioning.

Speaker Change: First, we believe the current cash balance is adequate to support the day-to-day liquidity needs of the business, and we would anticipate any further increases to the cash balance to be used for either early pay-down of term loan principle.

Speaker Change: or reducing usage of the accounts receivable factoring program.

Speaker Change: Second, over the course of the past 12 months, we've been able to reduce inventory levels by approximately 100 million, and we believe current levels are appropriate to support the near-term needs of the business.

Speaker Change: including onboarding of new customers, providing adequate safety stock to ensure supply chain resilience, and to facilitate our planned manufacturing network consolidations.

Brian Bonnell: While we may have opportunities for additional inventory efficiencies over time, we don't expect any meaningful further reductions in the near term. In third, year-to-date free cash flow is $93 million, which is already ahead of our original full-year guidance. For the second half of the year, we do not expect the same level of cash flow generation due to the reasons already mentioned, which are the lack of one-time benefits from inventory reductions and other integration-related items we experienced in the first half, as well as the potential reduction in the utilization of our accounts receivable factoring program given our improving liquidity position.

Brian Bonnell: While we may have opportunities for additional inventory efficiencies over time, we don't expect any meaningful further reductions in the near term. Consistent with our usual cadence, we are updating our full-year guidance for adjusted EBITDA and adjusted EPS. For full-year adjusted EBITDA, we are narrowing and raising the midpoint of our previous guidance range of $330 to $370 million to a range of $345 to $365 million, reflecting solid first-half performance and higher confidence in the expected back-half earnings, For full-year adjusted EPS, we are narrowing and raising the midpoint of our previous guidance range of $440 to $510 per share to $495 to $535 per share, which includes the same impacts as adjusted EBITDA plus the previously mentioned $0.15, tax benefits recognized in the second.

Speaker Change: While we may have opportunities for additional inventory efficiencies over time, we don't expect any meaningful further reductions in the near term.

Speaker Change: And third, year-to-date free cash flow is $93 million, which is already ahead of our original full-year guidance.

Speaker Change: For the second half of the year, we do not expect the same level of cash flow generation due to the reasons already mentioned.

Speaker Change: which are the lack of one-time benefits from inventory reductions and other integration related items we experienced in the first half, as well as the potential reduction in the utilization of our accounts receivable factoring program given our improving liquidity position.

Brian Bonnell: In addition, capital expenditures, which we expect to be in the range of 85 to 100 million for the full year, will be more weighted towards the second half.

Speaker Change: In addition, capital expenditures, which we expect to be in the range of 85 to 100 million for the full year, will be more weighted towards the second half.

Brian Bonnell: Consistent with our usual cadence, we are updating our full year guidance for adjusted EBITDA and adjusted EPS. For full year adjusted EBITDA, we are narrowing and raising the midpoint of our previous guidance range of 330 to 370 million to a range of 345 to 365 million, reflecting solid first half performance and higher confidence in the expected back half earnings improvement. For full year adjusted EPS, we are narrowing and raising the midpoint of our previous guidance range of 440 to 510 per share to 495 to 535 per share, which includes the same impacts as adjusted EBITDA, plus the previously mentioned 15 cent tax benefit recognized in the second quarter.

Speaker Change: Consistent with our usual cadence, we are updating our full-year guidance for adjusted EBITDA and adjusted EPS.

Speaker Change: For fully-adjusted EBITDA, we are narrowing and raising the midpoint.

Speaker Change: our previous guidance range of 330 to 370 million to a range of 345 to 365 million reflecting solid first half performance and higher confidence in the expected back half earnings improvement.

Speaker Change: For full-year adjusted EPS, we are narrowing and raising the midpoint of our previous guidance range of $4.40 to $5.10 per share to $4.95 to $5.35 per share, which includes the same impacts as adjusted EBITDA plus the previously mentioned $0.15.

Speaker Change: tax benefits recognized in the second quarter.

Brian Bonnell: On the revenue line, there are no changes from our original expectations for full year consolidated adjusted revenue growth of low to mid single digits. Comprise of mid single digit growth for both consumables and infusion systems, and roughly flat for vital care. For gross margin, we expect full year adjusted gross margin of approximately 36 percent, which is 1 percentage point higher than our original guidance. We expect gross margin in the back half to reflect the benefits of improving manufacturing volumes and a stable supply chain environment. Offset by the impacts of our scheduled annual maintenance shutdown of the Austin plant, as well as sales product mix more heavily weighted towards hardware.

Speaker Change: On the revenue line, there are no changes from our original expectations for full year consolidated adjusted revenue growth of low to mid-single digits, comprised of mid-single digit growth for both consumables and infusion systems and roughly flat for vital care.

Speaker Change: For gross margin, we expect full-year adjusted gross margin of approximately 36%, which is one percentage point higher than our original guidance.

Speaker Change: We expect gross margin in the back half to reflect the benefits of improving manufacturing volumes and a stable supply chain environment.

Speaker Change: Offset by the impacts of our scheduled annual maintenance shutdown of the Austin plant as well as sales product mix more heavily weighted towards hardware.

Brian Bonnell: Adjusted operating expenses should be approximately 24.5 percent of revenue for the back half of the year, consistent with what we saw in the first half. There is no change to our full year expectations for interest expense of 105 million, and for modeling purposes, you can assume a back half adjusted tax rate of 23 percent and back half diluted shares outstanding of 24.6 million. Our forecast for the remainder of the year generally assumes a macroeconomic environment that is consistent with what we experienced over the course of Q2. We're obviously aware of the volatility the markets have experienced over the past several days, and it's too early to know where things will ultimately settle.

Speaker Change: Adjusted operating expenses should be approximately 24.5% of revenue for the back half of the year, consistent with what we saw in the first half.

Speaker Change: There is no change to our full year expectations for interest expense of $105 million, and for modeling purposes, you can assume a back half adjusted tax rate of 23%, and back half diluted shares outstanding of $24.6 million.

Brian Bonnell: Our forecast for the remainder of the year generally assumes a macroeconomic environment that is consistent with what we experienced over the course of Q2. The latest market views on currency and interest rates would be positive, whereas other factors, such as hospital censuses and capital budgets, could be less favorable in a slowing economy. I'll now hand the call back over to Vivek, who will provide updates on the specific initiatives underlying that earnings improvement.

Speaker Change: Our forecast for the remainder of the year generally assumes a macroeconomic environment that is consistent with what we experienced over the course of Q2.

Speaker Change: We're obviously aware of the volatility the markets have experienced over the past several days, and it's too early to know where things will ultimately settle.

Brian Bonnell: The latest market views on currency and interest rates would be positive, whereas other factors such as hospital census and capital budgets could be less favorable in a slowing economy.

Speaker Change: The latest market views on currency and interest rates would be positive, whereas other factors such as hospital census and capital budgets could be less favorable in a slowing economy.

Brian Bonnell: To the extent we see any meaningful impacts from these developments over the course of the third quarter, we'll provide updates on our next call.

Speaker Change: To the extent we see any meaningful impacts from these developments over the course of the third quarter, we'll provide updates on our next call.

Brian Bonnell: To wrap up, we're happy with our performance for the first half of the year, including improvement in our gross margin rate, continued progress in free cash flow generation, and a more stable balance sheet. And our updated full-year guidance reflects continued improvement for both revenue and earnings in the second half. We remain focused on the foundational work that will drive earnings improvement in 2025 and beyond.

Speaker Change: To wrap up, we're happy with our performance for the first half of the year, including improvement in our gross margin rate.

Speaker Change: continued progress in free cash flow generation and a more stable balance sheet. And our updated full year guidance reflects continued improvement for both revenue and earnings in the second half.

Speaker Change: We remain focused on the foundational work that will drive earnings improvement in 2025 and beyond.

Vivek Jain: I'll now hand the call back over to Vivek, who will provide updates on the specific initiatives underlying that earnings improvement. Thanks, Brian. On the last few calls, we've talked about revenue stabilization and the ability to grow our differentiated product lines. While it's nice to have that revenue growth now and earnings and cash flow a bit higher than our expectations, it's not lost on us that we're still under earning as a company relative to the industry and is evidenced by the fact that we had higher earnings on less revenues historically. As a result, we're extremely focused on the actions to improve profit in the medium term, which are about obviously revenue growth, mix and pricing, operational efficiency, and eventually waiting for the macro items on currency and interest rates to improve.

Speaker Change: I'll now hand the call back over to Vivek, who will provide updates on the specific initiatives underlying that earnings improvement.

Vivek Jain: Thanks Brian. On the last few calls, we've talked about revenue stabilization and the ability to grow our differentiated product. First, the cutover of our U.S. and Canada order-to-cash systems is in flight as we... Second, as previously discussed, we have been doing the basic blocking and tackling of factory network consolidation. It is as simple as to have fewer production sites, have them fuller, and in the right geography. These are not easy choices.

Vivek: Thanks Brian . On the last few calls we've talked about revenue stabilization and the ability to grow our differentiated product lines.

Speaker Change: While it's nice to have that revenue growth now and earnings and cash flow a bit higher than our expectations, it's not lost on us that we're still under-earning as a company relative to the industry and it's evidenced by the fact that we had higher earnings on less revenues historically.

Speaker Change: As a result, we're extremely focused on the actions to improve profit in the medium term, which are about, obviously, revenue, growth, mix, and pricing, operational efficiency, and eventually waiting for the macro items on currency and interest rates to improve.

Vivek Jain: Our innovation efforts have become more visible in the market as that is mandatory for sustained revenue growth. The other area we continue to be focused on is pricing, as we've not fully recouped the substantial inflation that we experienced. We do see more logical behavior here, both from the market and customers in general. From an operational efficiency standpoint, we have been pursuing several work streams, which will each add to our margin improvement over time. First, the cutover of our US and Canada order-to-cash systems is in flight as we speak. We have done these typically early in a quarter to be able to handle any of the bumps that come.

Speaker Change: Our innovation efforts have become more visible in the market, as that is mandatory for sustained revenue growth.

Speaker Change: The other area we continue to be focused on is pricing, as we've not fully recouped the substantial inflation that we experienced. We do see more logical behavior here, both from the market and customers in general.

Speaker Change: From an operational efficiency standpoint, we have been pursuing several workstreams which will each add to our margin improvement over time.

Speaker Change: First, the cutover of our U.S. and Canada order-to-cash systems is in flight as we speak.

Speaker Change: We have done these typically early in a quarter to be able to handle any of the bumps that come.

Vivek Jain: This integration allows for the optimization of our physical logistics networks and corporate infrastructure. After we ensure that the US and Canada flows are stable, we'll begin these activities internationally next year. Second, as previously discussed, we have been doing the basic blocking and tackling of factory network consolidations. It is as simple as to have fewer production sites, have them fuller and in the right geographies. These are not easy choices. It impacts real people who have been team members for many years, but it must be done to drive value for us and our competitive positioning to the customer.

Speaker Change: This integration allows for the optimization of our physical logistics networks and corporate infrastructure. After we ensure that the U.S. and Canada flows are stable, we'll begin these activities internationally next year.

Speaker Change: Second, as previously discussed, we have been doing the basic blocking and tackling of factory network consolidations. It is as simple as to have fewer production sites, have them fuller, and in the right geographies.

Vivek Jain: It impacts real people who have been team members for many years, but it must be done to drive value for us and our competitive positioning. 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 the tightest and most optimized manufacturing network in each with a multi-year innovation portfolio, and we want the rest of the portfolio to add up to levels where we deliver an There is no confusion within the company in the pursuit of these goals, and we don't have any frivolous activities. We produce essential items that require significant clinical training, have manufacturing barriers, and, in general, items that customers do not want to switch unless

Speaker Change: These are not easy choices. It impacts real people who have been team members for many years, but it must be done to drive value for us and our competitive positioning to the customer.

Vivek Jain: Lastly, we continue to make progress on our various real estate commitments, with a number of consolidations and reprisings kicking in over the next 18 months. While these may seem like mundane topics, all three items I just mentioned are economically meaningful and contribute to getting where we need to be and help to offset the normal bumps that happen in business, but it takes a little time to execute.

Speaker Change: Lastly, we continue to make progress on our various real estate commitments with a number of consolidations and repricings kicking in over the next 18 months.

Speaker Change: While these may seem like mundane topics, all three items I just mentioned are economically meaningful and contribute to getting where we need to be and help to offset the normal bumps that happen in business, but it takes a little bit of time to execute.

Vivek Jain: Given what we've been through on the last few quarters, we're not willing to commit to exact dates and absolute margin levels, but our team's experience and integration allows us to go as fast as possible. We have been talking about the macro items of rates, currencies, etc. for frankly too long, and just as recent as the last call, we said we were operating with a higher-for-longer mindset. These will play out whoever they do, but from a value perspective, we felt that more sensible to bear more interest expense as long as manageable versus not maximizing the asset values where the revenues, earnings and quality of our assets and business are improving, but take a little bit of time and investment.

Speaker Change: Given what we've been through in the last few quarters, we're not willing to commit to exact dates and absolute margin levels, but our team's experience and integration allows us to go as fast as possible.

Speaker Change: We have been talking about the macro items of rates, currencies, etc. for frankly too long and just as recent as the last call we said we were operating with a higher for longer mindset.

Speaker Change: These will play out however they do, but from a value perspective, we felt it more sensible to bear more interest expense as long as manageable versus not maximizing the asset values where the revenues, earnings, and quality of our assets and businesses are improving, but take a little bit of time and investment.

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 in 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 value, transfer value from debt to equity, which Brian noted we are finally better prepared to move on. There is no confusion within the company and the pursuit of these goals, and we don't have any ferviless activities here.

Speaker Change: To be direct on our goals for the next year or two, we want our consumables and systems businesses to be reliable growers.

Speaker Change: with an industry acceptable profit margin with the tightest and most optimized manufacturing network in each with a multi-year innovation portfolio.

Speaker Change: 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 debt to equity.

Speaker Change: which Brian noted we are finally better prepared to move on. There is no confusion within the company in the pursuit of these goals, and we don't 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 to be an innovative, reliable supplier, and our company is stronger from all the events of the last few years.

Brian: We produce essential items that require significant clinical training, hold manufacturing barriers, and in general are items that customers do not want to switch unless they must.

Speaker Change: 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. Thanks to all the team members and customers as we improve each day, and with that, we'll open it up to questions.

Vivek Jain: Thanks to all the team members and customers as we improve each day, and with that, we'll open it up to questions.

Operator: At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question.

Operator: At this time, if you would like to ask a question, please press star 1 on your telephone keypad. We'll take our first question from Larry Solow with CJS Securities.

Speaker Change: At this time, if you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: You may remove yourself from the queue at any time by pressing star 2.

Speaker Change: Once again, that is Star 1 to ask a question.

Lawrence Solow: We'll pick our first question from Larry Solow with CJS Securities. All right, Dathin, in thanks for taking the question.

Speaker Change: We'll take our first question from Larry Solo with CJS Securities.

Lawrence Solow: Great. Good afternoon.

Larry Solo: All right. Good afternoon. Thanks.

Vivek Jain: I guess the first question, obviously, really nice revenue growth off of a little bit of a lower base last year. I guess Q2 was your weakest point last year, but I'm just curious, you know, just your pulse on the environment. It sounds like things are running really well. You know, are hospitals maybe stocking up a little bit when times are a little bit better? I'm just trying to figure that out, and you know you did kind of mention, you know, hospital stemming and capital budgets, and the goal is to concern that could change. But can you just give us kind of a feel on where that is today.

Larry Solo: for taking the questions. I guess, Vivek, first question. Obviously, really nice revenue growth off of a little bit of a lower base last year. I guess Q2 was your weakest point last year.

Lawrence Solow: Thanks for taking the questions. I guess, Vivek, the first question is obviously, really nice revenue growth off of a little bit of a lower base last year. I guess Q2 was your weakest point last year, but I'm just curious, you know, just your pulse on the environment. It sounds like things are running really well. You know, are hospitals maybe stocking up a little bit when times are a little bit better? I'm just trying to figure that out.

Speaker Change: Just curious, you know, just your pulse on the environment. It sounds like things are running really well. You know, our hospitals maybe...

Speaker Change: stocking up a little bit when times are a little bit better. I'm just trying to figure that out and you know you did kind of mention you know hospital spending and capital budgets and there's always a concern that could change but could you just give us kind of a feel on where that is today?

Lawrence Solow: And, you know, you did kind of mention hospital spending and capital budgets, and there's always a concern that those could change. But can you just give us kind of a feel for where that is today?

Vivek Jain: Yeah, I think on the last call today, Larry, thank you. I think on the last call we said we gave the update and we were, I think, speaking in May, we said Q1 was pretty good. Things were a little bit maybe just a touch lighter in March, but it kind of came back to normal, and I think we've continued to feel it as reasonably normal. I think one of the other analysts call us times volumes have been good; they continue to be. What we're watching is obviously what's going on in the broader economic environment and making sure there's no surprises there.

Vivek Jain: Yeah, I think on the last call, hey, Larry, thank you. I think on the last call, we said, we gave the update, and when we were, I think, speaking in May, we said Q1 was pretty good. Things were a little bit, maybe just a touch lighter in March, but it kind of came back to normal, and I think we've continued to feel it as reasonably normal. I think on one of the other NLSAS calls last time, volumes have been good, and they continue to be. What we're watching is obviously what's going on in the broader economic environment.

Speaker Change: Yeah, I think on the last call, hey Larry, thank you, I think on the last call we said

Larry: We gave the update and we were I think speaking in May we said Q1 was pretty good things were a little bit maybe just a touch lighter in March but it kind of came back to normal.

Speaker Change: And I think we've continued to feel it as reasonably normal. I think one of the other analysts asked this call last time. Volumes have been good. They continue to be. What we're watching is obviously what's going on in the broader economic environment.

Vivek Jain: I don't think we would say anybody stocking up on anything. No items are short in the market, etc.

Speaker Change: making sure there's no surprises there. I don't think we would say anybody's stocking up on anything. No items are short in the market, etc. The world feels pretty normal right now and that's in all geographies.

Vivek Jain: The world feels pretty pretty normal right now, and that's in all all geographies.

Vivek Jain: Okay, could you speak good comprising to maybe you know your positioning maybe not you know so much this year but going to next year. I know there's a couple of big GPO contracts though I think we're resolved and you know particularly in solutions. What do you how do you feel your positioning is you know today as you head into a little bit early but just looking at over the next few quarters for 25 of the on yeah clearly inflation was it was a huge hit to earnings here over the last two and a half years certainly where we had the flexibility to try to first we had to improve the business and be stable for our customers. We were able to do that across the entire portfolio. Once that was done the areas that we had the contractual flexibility to try to make sure we make a fair return we sought to make a fair return.

Speaker Change: Okay, could you speak to pricing, too? Maybe, you know, your positioning, maybe not, you know, so much this year, but going into next year, I know there's a couple of big GPO contracts that I think were resolved, and, you know, particularly in solutions. What do you, how do you feel your positioning is, you know, today as you head into...

Speaker Change: We're a little bit early, but just looking out over the next few quarters for 25 and beyond.

Speaker Change: Clearly, inflation was a huge hit to earnings here over the last two and a half years.

Speaker Change: Certainly where we had the flexibility to try to, first we had to improve the business and be stable for our customers. We were able to do that across the entire portfolio. Once that was done, the areas that we had the contractual flexibility to try to make sure we make a fair return, we sought to make a fair return.

Vivek Jain: There are a number of contracts coming up in the U.S. the GPOs are sort of the entry tickets so to speak. you still have to make the business with the individual customers and that'll be next year's activity. I do think the comments in the script were intended to say we approach us seeing some a little bit optimism that customers know that some of these categories that are valuable have been this price. they at least need to get a bit more fairly price. so I think we... We feel okay about it.

Speaker Change: There are a number of contracts coming up in the U.S. The GPOs are sort of the entry ticket, so to speak. You still have to make the business with the individual customers, and that'll be next year's activity. I do think the comments in the script were intended to say...

Vivek Jain: We approach this with a little bit of optimism that customers know that some of these categories that are valuable and have been mispriced; they at least need to be a bit more fairly priced. So I think we should.

Speaker Change: We approach this seeing a little bit of optimism that customers know that some of these categories that are valuable and have been mispriced, they at least need to be a bit more fairly priced.

Vivek Jain: Great. And just lastly, just a couple of things that have been kind of some negatives feel like they're turning positive. First, I guess just vascular access. I know that had been down or even, you know, flat; where recently it looks like that returns to grow up this quarter.

Lawrence Solow: And just lastly, just a couple of SMITs, just a couple of things that had been kind of some negatives that feel like they're turning positive. First, I guess, just vascular access.

Speaker Change: We feel okay about it.

Speaker Change: Great. And just lastly, just a couple on Smiths, just a couple of things that have been kind of...

Vivek Jain: I know that had been down or even flat more recently, but it looks like that returned to growth this quarter. And then the second part of the question, just an update on quality issues, particularly on the syringe side. It sounds like things continue to progress. I know you called out a whole new refreshed product line coming out, too. So I guess things are looking more positive on that end, too.

Speaker Change: Some negatives feel like they're turning positive. First, I guess, just vascular access. I know that had been down or even, you know, flat more recently, but it looks like that.

Vivek Jain: And then the second part of that question just update on quality issues, particularly on the syringe side. It sounds like things continue to progress. You know, you called out a whole new refreshed product line coming out too. So I guess things are looking more positive on that end too.

Speaker Change: return to growth this quarter? And then the second part of the question, just update on quality issues, particularly on the syringe side. It sounds like

Speaker Change: Things continue to progress. You called out a whole new refreshed product line coming out too, so I guess things are looking more positive on that end too. Hey Larry, I think we're going to ask you to get back in the queue after this one. Yeah, I'm done, I'm done.

Vivek Jain: Okay. Hey, Larry, I think we're going to ask you to get back in the queue after this one, though, but... Yeah, I'm done. I'm done. Aye.

Operator: Hey, Laura, I think we're going to ask you to get back in the queue after this one.

Vivek Jain: I'm done. I think on the first point Q2 was particularly weak in solutions last year. That was the real departure. So you are correct on solutions. It was lower. It was relatively consistent sequentially on the consumables business, including vascular access. And vascular access, we, as we said last year, the base so much business is eroded. Just a little bit of focus and work would help get us back. That clause, some of that back; that's what's gone on. And then yes, the Smith portfolio in aggregate, this was the best quarter of sales since sort of the back order catch up on this most portfolio, but there's still a long way to go.

Larry Solo: I think on the first point

Speaker Change: Q2 was particularly weak in solutions last year. That was the real departure. So you are correct on solutions. It was lower It was relatively consistent sequentially on the consumables business including Vascular Access

Speaker Change: And Vascular Access, as we said last year, the base, so much business has eroded, just a little bit of focus and work would help get us back, claw some of that back, that's what's gone on.

Speaker Change: since sort of the backwater catch-up on this portfolio, but there's still a long way to go. So I appreciate the comment, but there's still areas for improvement.

Vivek Jain: So I appreciate the comment, but there's still hairs for improvement.

Vivek Jain: Thanks.

Vivek Jain: Thanks for all the calls. I appreciate it.

Speaker Change: Thanks for all the call. I appreciate it.

Christian Stewart: The next question comes from Christian Stewart with CL King. Hi, thanks for taking the question. I was wondering if we could just focus in a little bit on growth margins. They came in a little bit better than expectations, at least my expectations for the quarter. I was wondering if that was the case for you guys as well. And how should we think about that as we look out into the third and fourth quarters of the year? Do you still feel confident that you can kind of exit at a higher rate than when you came in in 2Q, or how should we just think about the puts and takes there?

Operator: The next question comes from Kristen Stewart with CL King.

Speaker Change: The next question comes from Kristen Stewart with CL King.

Kristen Stewart: Hi, thanks for taking the question. I was wondering if we could just focus in on gross margins for a little bit. They came in a little bit better than expectations, at least my expectations for the quarter. I was wondering if that was the case for you guys as well. And how should we think about that as we look out into the third and fourth quarters of the year? Do you still feel confident that you can kind of exit at a higher rate than when you came in in 2Q? Or should we just think about the puts and takes there? Thanks.

Kristen Stewart: Hi, thanks for taking the question. I was wondering if we could just focus in a little bit on gross margins. They came in a little bit better than expectations, or at least my expectations for the quarter. I was wondering if that was the case for you guys as well, and how should we think about that as we look out into the third and fourth quarter of the year?

Speaker Change: Do you still feel confident that you can kind of exit at a higher rate than when you came in in 2Q, or how should we just think about the puts and takes there? Thanks.

Brian Bonnell: Thanks.

Brian Bonnell: Yeah, Kristen, we would agree to two growth margins were a little bit better than we had planned. Part of that was from just product mix in that we had more disposable and less hardware revenues, and there's different margin profiles between those two categories. And we also had the benefits of some supply chain synergies show up a little bit earlier than we had planned this year. So, as we kind of think about the back half, we won't have kind of the benefits from the product mix. In fact, we expect to kind of go the other way.

Kristen: Yeah, Kristen.

Speaker Change: We would agree Q2 gross margins were a little bit better than we had planned.

Speaker Change: Part of that was from just product mix and that we had more disposables and less hardware revenues and there's different margin profiles between those two categories.

Speaker Change: And we also had the benefits of some supply chain synergies show up a little bit earlier than we had planned this year. So as we kind of think about the back half,

Speaker Change: You know, we won't have kind of the...

Speaker Change: from the product mix. In fact, we expect it to kind of go the other way. So that'll pressure gross margins in the second half relative to the first, but we should benefit in the second half from improving volumes. And so I think as we...

Brian Bonnell: So that'll pressure growth margins in the second half relative to the first, but we should benefit in the second half from improving volumes. And so I think as we think about it, kind of how we exit the year, I think our view on where we exit is kind of similar to our view on full year, meaning full year growth margins are going to be about a point better than we expected. And we said we would exit the year at 35% or slightly better. And I think we would say, okay, now it's probably Department of Agriculture.

Kristen Stewart: as we think about how we exit the year, I think our view on...

Speaker Change: where we exit is kind of similar to our view on full year, meaning full year gross margins are going to be about a point better than we expected, and we said we would exit the year at 35% or slightly better, and I think we would say okay now it's probably 36% or slightly better.

Christian Stewart: So exiting the year at 36 is what I'm hearing correctly? Yeah. Okay.

Brian Bonnell: So exiting the year at 36 is what I, if I'm hearing you correctly.

Speaker Change: soexiting the year at thirty six is what i 'm hearing correctly

Christian Stewart: And I guess in terms of just the operating expense, why can't you get a little bit more leverage? I think you'd mentioned you got it to 24.5%. Last year, you were 23.8. Is there anything unusual we should be thinking about just from a year of your comparison basis there? Yeah. I mean, last year, given we didn't hit our financial goals, the incentive plans did not fund at the target level. And so this year we're sort of at or a little better when it comes to the incentive plans and potential payouts. So I would say that's probably one of the bigger differences.

Speaker Change: Yeah, yeah.

Kristen Stewart: Okay.

Speaker Change: And I guess in terms of just the operating expense, why can't you get a little bit more leverage? I think you'd mentioned you got it to 24.5%. Last year you were 23.8. Is there anything unusual we should be thinking about just from a year-over-year comparison basis there?

Brian Bonnell: Yeah, I mean last year, given we didn't hit our financial goals, the incentive plans did not fund at the target level, and so this year, we're sort of at, or a little better, the incentive plans and potential payouts. So I would say that. Okay, perfect. Thanks. I'll get back to you.

Speaker Change: Yeah, I mean, last year, given we didn't hit our financial goals,

Speaker Change: The incentive plans did not fund at the target level. And so this year, we're sort of at or a little better.

Speaker Change: when it comes to the incentive plans and potential payouts. So I would say that's that's probably one of the bigger differences on a year-over-year basis.

Brian Bonnell: Differences on a year over your basis. Okay.

Christian Stewart: Perfect. Thanks.

Christian Stewart: I'll get back in queue. Thanks, Kristen.

Speaker Change: Okay, perfect. Thanks. I'll get back in queue.

Brett Fishbin: Our next question comes from Brett Fishbin with Cuban capital markets. Hey guys. Thank you for taking the questions. Just wanted to start off with a really quick follow-up on the previous gross margin question. You called out a lot of drivers in both directions, but didn't necessarily catch commentary on the inventory under absorption topic. So just carry us like how much of a headwind that's still representing in terms of the second quarter from, you know, just absorbing the inventory that was on under produced a few quarters ago and then how much that might also improve into the second half.

Operator: Our next question comes from Brett Fishbin with KeyBank Capital Markets.

Kristen Stewart: Thanks, Kristen.

Kristen Stewart: Our next question comes from Brett Fishbin with KeyBank Capital Markets.

Brett Fishbin: Hey guys, thank you for taking the questions. I just wanted to start off with a really quick follow-up on the previous gross margin question.

Brett Fishbin: You called out a lot of drivers in both directions, but didn't necessarily catch commentary on the inventory underabsorption topic. So just curious, like, how much of a headwind that's still representing in terms of the second quarter from, you know, just absorbing the inventory that was underproduced a few quarters ago, and then how much that might also improve into the second half.

Brian Bonnell: Yeah, I'd say Brett, kind of the drag from the inventory under absorption has been kind of diminishing over the course of this year. And as we had in the queue three with only, you know, with a more modest $7 million reduction in inventory levels in the second quarter, I wouldn't consider that drag really to be that material going forward. Alright, perfect.

Brett Fishbin: Yeah, I'd say, Brett.

Brett: Yeah, I'd say, Brett...

Speaker Change: kind of the

Speaker Change: The drag from the inventory under absorption has been kind of diminishing over the course.

Speaker Change: of this year and as we had into q three with only you know with a more modest seven million dollar reduction in inventory levels in the second quarter i wouldn't consider that drag really to be that material going forward

Brett Fishbin: And then you're just moving to the consumables, definitely called out last quarter that you were expecting some level of improvement sequentially, but I don't think anyone was expecting to see, you know, close to like 8% sequential growth versus one queue. I mean, you called out a couple areas. I think I picked up like VA and Creek were positive.

Speaker Change: All right, perfect. And then...

Kristen Stewart: Now just moving to the consumables.

Speaker Change: You definitely called out last quarter that you were expecting some level of improvement sequentially, but I don't think anyone was expecting to see close to 8% sequential growth versus 1Q. You called out a couple areas. I think I picked up VA and TRIC were positive. Maybe if you could just unpack that sequential change a little bit more, and then sustainability into the back half.

Vivek Jain: Maybe if you just unpacked like that, sequential change a little bit more and then sustainability into the back cast. Thank you. Sure. Thanks. All four lines in the consumables business groups sequentially, different drivers for each one. The biggest one is obviously the core fusion therapy business. That was an all of them grew kind of equally globally is in the US. So census is a huge part of that. Census has been good and was good. On infusion therapy, it was about getting a little bit of price as we as the previous question was, and it was also getting some implementations and installs done that we knew were out there.

Speaker Change: Thank you.

Speaker Change: Sure, thanks.

Speaker Change: All four lines in the consumables

Speaker Change: business groups sequentially.

Speaker Change: different drivers for each one.

Speaker Change: The biggest one is obviously the core infusion therapy business, and all of them grew kind of equally globally as in the U.S., so census is a huge part of that. Census has been good and was good.

Vivek Jain: On infusion therapy, it was about getting a little bit of price, as the previous question was, and it was also getting some implementations and installations done that we knew were out there. And we think we have a decent slate of those for the balance of the year, so I think we will continue on. The biggest piece of it, which is almost half the segment, I think we still feel very comfortable.

Speaker Change: On infusion therapy, it was about getting a little bit of price, as the previous question was, and it was also getting some implementations and installs done that we knew were out there. And we think we have a decent slate of those for the balance of the year, so I think we can continue on. The biggest piece of it, which is almost half the segment, I think we've still built,

Vivek Jain: And we think we have a decent slate of those without fear. So I think we continue on the biggest piece of it, which is almost half the segment. I think we still feel very comfortable. It feels like to us on the oncology lines that things have come back in terms of screening, diagnosis, et cetera. So even if we've done well, converting some business, it does feel like there's some market uplift there. I haven't had a moment to look at all the other screening companies. What they're saying, but there's more activity. And on the vascular access line, I'm not sure it's necessarily worth spiking the ball over.

Vivek Jain: It feels like to us on the oncology lines that things have come back in terms of screening, diagnosis, etc. So even if we've done well in converting some business, it does feel like there's some market uplift there. I haven't had a moment to look at all the other screening companies and what they're saying, but there's more activity. And on the Vascular Access line, I'm not sure it's necessarily worth spiking the ball over.

Speaker Change: very comfortable. It feels like to us on the oncology lines that things have come back in terms of screening, diagnosis, etc. So even if we've done well converting some business, it does feel like there's some market uplift.

Speaker Change: There I haven't had a moment to look at all the other screening companies what they're saying, but there there's more activity and

Speaker Change: On the vascular access line, I'm not sure it's necessarily worth spiking the ball over. It had gotten so low, just eliminating the negatives and doing something positive made a big difference, and we have a good product that makes sense. I've been calling on customers with two years of consistency as we said in the last call. Took two years from hospital to change the.

Vivek Jain: It had gotten so low; just eliminating the negatives and doing something positive made a big difference. And we have a good product that makes sense. I've been calling on customers for two years of consistency. As we said in the last call, it took two years from the hospital to change the consumables business around. And Trach's is just focused. Trach's still has some bumpiness, a little bit, but it's a valuable category, and we need to keep improving it.

Vivek Jain: It had gotten so low; just eliminate the negatives, and doing something positive made a big difference. And we have a good product that makes sense. I've been calling on customers with two years of consistency. We said in the last call it took two years from our sphere to change the consumables business around. And Trakes is just focused. Trakes still has some bumpiness a little bit, but it's a valuable category. And we need to keep improving it. And it's a nice chronic care market that also has some demographic good things with us. A lot is better to be in the right neighborhood.

Speaker Change: Consumables business around and Trakes is just focused. Trakes still has some bumpiness a little bit, but it's a valuable category and we need to

Vivek Jain: And it's a nice chronic care market that also has some demographic good things. So it's better to be in the right neighborhood, and I think we're in the right neighborhood in all those categories. Then we've had some good execution and focus. All right, I appreciate it.

Vivek Jain: keep improving it and it's a it's a nice chronic care market that also has some demographic good things so that's a lot it's better to be in the right neighborhood and I think when the right neighborhood and all those categories then we've had some good execution and focus with time

Vivek Jain: And I think when the right neighborhood and all those categories, then we've had some good execution. with Tommy.

Brett Fishbin: I appreciate all that color. Thank you.

Brett Fishbin: Alright, I appreciate all my color. Thank you.

Speaker Change: I appreciate all that color. Thank you.

Mike Matson: The next question comes from Mike Matson with Needham and Company. Yeah, thanks. Thanks for taking my question. I guess just on the news to range pump.

Speaker Change: The next question comes from Mike Mattson with Needham & Company.

Brett Fishbin: Yeah, thanks. Thanks for taking my question. I guess just on the new syringe pump. So, you know, how important do you think that is to winning pump share, in terms of coming into the hospital with a complete range of products on your new software platform? Or do you think you can kind of sell features to some degree and just promise them that it's on its way is enough to kind of satisfy them?

Mike Mattson: Yeah, thanks. Thanks for taking my question. I guess just on the new syringe pump. So,

Vivek Jain: So, you know, how important do you think that is to winning pump share, you know, in terms of coming into the hospital with the complete, you know, the range of products on your new software platform, or do you think you can kind of, you know, sell features to some degree and just, you know, promising them that it's on its way is enough to kind of satisfy them. I'm Mike. Welcome to the call. It's nice to meet you. I think a key driver for us. I mean, there were three or four core reasons we took on the difficulties we did with the most recent acquisition.

Mike Mattson: You know, how important do you think that is to winning pump?

Speaker Change: chair.

Speaker Change: you know, in terms of coming into the hospital with a complete, you know, range of products on your new software platform? Or do you think you can kind of, you know, sell features to some degree and just, you know, promising them that it's on its way is enough to kind of satisfy them?

Speaker Change: Hi Mike, welcome to the call. It's nice to to meet you.

Vivek Jain: I think a key driver for us, I mean, there were three or four core reasons we took on the difficulties we did with the most recent acquisition. One of them was to have an opportunity in the syringe market again. We have been in this market for a long time, and a large chunk of the U.S. market, 40-ish plus percent or more, bought LVP pumps separate from who provided their syringes. So it's certainly not an end-all and be-all issue, but it is better for customers if they can have a simpler setup, depending on their use cases.

Speaker Change: i think a key driver for us i mean there was three or four four reasons we took on the difficulties we did with the most recent acisition one of almost to have an opportunity in the syring market again

Vivek Jain: One of them was to have an opportunity in the syringe market. Again, we have been in this market for a long time, and you know, a large chunk of the US market, 40-ish plus percent or more, bought LVP pumps, separate from who provided their syringe. So, it's certainly not an end-all and be-all issue, but it is better for customers if they can have a simpler setup, depending on their use cases. And so we want the flexibility to offer both situations. I'm not sure necessarily, you know, that these things are not that far away when you say selling futures.

Speaker Change: we

Speaker Change: have been in this market for a long time and, you know, a large chunk of the U.S. market

Speaker Change: 40-ish plus percent or more bought LVP pumps separate from who provided their syringe. So it's certainly not an end-all and be-all issue, but it is better for customers if they can have a simpler set up.

Vivek Jain: And so we want the flexibility to offer both situations. I'm not sure necessarily that these things are not that far away when you say selling futures. We still are the leading standalone syringe pump company in the United States today. And so it's more about the innovation that is connected to the other pieces and a little bit of modernization of the device, the same as we've done in the other areas.

Speaker Change: depending on their use cases. And so we want the flexibility to offer both situations. I'm not sure necessarily that these things are not that far away. When you say selling futures, we still are the leading standalone syringe pump company in the United States.

Vivek Jain: We still are the leading standalone syringe pump company in the United States today. And so it's more about the innovation that connected to the other pieces and a little bit of modernization advice, same as we've done in the other areas. I think it can play either way. It's certainly a convenient item, but not everybody makes the choice. Nobody, nobody likely in our opinion chooses a full LVP system solely on the notion of what the syringe is; a combined decision. Yeah, okay. I understand.

Speaker Change: today. And so it's more about the innovation that connected to the other pieces and a little bit of modernization of the device, the same as we've done in the other areas. I think it could it can play either way. It's certainly a convenient item, but

Brett Fishbin: I think it can play either way; it's certainly a convenient item. But not everybody makes the choice. Nobody likely, in our opinion, chooses a full LVP system solely on the notion of what the syringe is. It's a combined decision.

Speaker Change: Not everybody makes the choice. Nobody likely, in our opinion, chooses a full LVP system solely on the notion of what the syringe is.

Brett Fishbin: Yeah, okay, I understand. I was just wondering if there was maybe some sort of reflection point once you get that piece in place, but okay.

Mike Matson: I was just wondering if it was maybe some sort of reflection point once you get that piece in place, but okay.

Speaker Change: combined decision.

Speaker Change: Yeah, okay, I understand. I was just wondering if there was maybe, you know, some sort of reflection point once you get that piece in place. But, okay, and then I guess just also in the pump market, you know, what are you hearing and seeing out there with, you know, Becton kind of back in the market now with their Aleris pump?

Vivek Jain: And then I guess just also in the pump market, you know, what are you hearing and seeing out there, you know, back then kind of back in the market now with their layers, pump. Is, you know, you able to pick off and share there. Well, I mean, I think everybody, but all public companies have been commenting on it is a and all have said the same thing, which is a very active time. The power of income and see is very high here. And so there's a, you know, it can sound like a consultant. Incumbent advantage is high.

Vivek Jain: And then, I guess, just also in the pump market, you know, what are you hearing and seeing out there with Becton kind of back in the market now with their Alaris pump? And, you know, are you able to pick off and share there? Well, I mean, I think everybody, all public companies have been commenting on it.

Speaker Change: are you able to pick off and share there? Well, I mean, I think all public companies have been commenting on it, and all have said the same thing, which is a very active time. The power of incumbency.

Speaker Change: is very high here.

Speaker Change: And so, there's a, you know, it can sound like a consultant, incumbent advantage is high. However, it's our job, and it's all parties' jobs, to create the competitive case for change across the most relevant set of products. And so...

Vivek Jain: However, it's our job, and it's all party jobs to create the competitive case for change. Across the most relevant set of products. And so we do think people are out there evaluating all vendors, and it's our job to have the most innovation and put ourselves in the best light. And obviously, all the energy you see with multiple companies trying to get in here isn't because everybody thinks the market is going to be static. People do think there's going to be choice. And the words we set on two years of call strips, so why which is relative to our side.

Speaker Change: We do think people are out there evaluating all vendors and it's our job to have the most innovation and put ourselves in the best light and

Speaker Change: Obviously, all the energy you see with multiple companies trying to get in here isn't because everybody thinks the market is going to be static. People do think there's going to be choice. And the words we said on two years of call strips, SoPi, which is relative to our size,

Vivek Jain: Highs. Even small changes make a huge difference in our earnings potential, and so we think we have what was once the market share leading technology in the most modern format, with more coming, and I'm business that's actually much smaller today where incremental wins can make a huge difference. So I think we feel like the investment we wait to get duo on the market to get solo file, but we are going to do the diffusion are worthwhile investments where we group the amount of dollars we put into those investments with market share games over time.

Speaker Change: Even small changes make a huge difference in our earnings.

Vivek Jain: Even small changes make a huge difference in our earnings, and John C. We are the American Heart Association. We are a non-profit organization. We have a lot of potential. We think we have what was once the market share-leading technology in the most modern format with more coming and a business that is actually much smaller today.

Speaker Change: potential and so We think we have what was once the market share leading technology in the most modern format with more coming And a business that's actually much smaller today where? Incremental wins can make a huge difference. So I think we feel like

Speaker Change: The investment we weighed to get Duo on the market, to get Solow filed, what we are going to do with Medfusion, are worthwhile investments where we recoup the amount of dollars we put into those investments when market share gains over time.

Speaker Change: Okay, thank you.

Jayson Bedford: Our next question comes from Jayson Bedford with Raymond James. Good afternoon. I imagine that I'm at the back of the bus, so I'll ask a few questions here.

Speaker Change: Our next question comes from Jason Bedford with Raymond James.

Jason Bedford: Good afternoon. I imagine that I'm at the back of the bus so I'll ask a few questions here. Take your time Jason, we've been waiting. That's fine. Just to be clear here, revenue was strong in 2Q, better than most expected.

Jayson Bedford: Thank you, Todd Jayson. Rev waiting. Just to be clear here, revenue was strong in 2Q, better than most expected. Just to be clear, there was nothing kind of one timish in the 2Q revenue number, correct? Yeah, Jayson, that's correct. Nothing. I mean, I think the only thing we thought, Jayson, that was there was a couple market issues in that ambulatory segment that we flagged in the last call. And that's why points on ambulatory. I was saying some of those things came true. Maybe there's just a tad of that. That would be the only thing.

Jayson Bedford: Just to be clear, there was nothing kind of one-timish in the 2Q revenue number, correct?

Speaker Change: Just to be clear, there was nothing kind of one-timish in the 2Q revenue number, correct?

Vivek Jain: I mean, I think the only thing we thought, Jason, was that there were a couple market issues in that ambulatory segment that we flagged on the last call. And that's why the points on ambulatory, I was saying some of those things came true. Maybe there's just a tad of that.

Vivek Jain: yeah jason that's that's that's correct had nothing but between mean i think the only thing we thought jason that was just a there was a couple market issues in that amator segmentthat we flag on the last call and that's why points ample try was saying of those things came true maybe there's just a tat of that that would be the only thing

Vivek Jain: Okay. Curious, your comment on the multi-year dialysis partnership. I wasn't aware of that. Did you see an impact in 2Q and kind of when will you start to see an impact? It's been an impact. It's been the Clear Guard family of products has been helping to drive consumables for more than a year. It was mass by all the other negative stuff going on in the segment, but it is a key driver. And that's a relationship we had for a number of years, but it's just sort of been cemented now for a number of more years, which is great.

Jason: Okay. Curious, your comment on the multi-year dialysis partnership, I wasn't aware of that. Did you see an impact in 2Q, and kind of when will you start to see an impact?

Speaker Change: It's been an impact, it's been the ClearGuard family of products has been helping to drive consumables for

Jason: More than a year, it was masked by all the other negative stuff going on in the segment, but it is a key driver.

Speaker Change: that's a relationship we had for number ofyears but it' just sort of been cemented now for a number of more years which is great andthat's a lot of un the exampleyou try to make there i'm orry ing totoo any words with that it's an unlike oncogelogy unconverted whole cost market

Vivek Jain: And that's a lot of the example you're trying to make there, and I'm sorry, taking too many words with that. It's an un like oncology and unconverted whole cloth market where we only have a fraction of the global operators that we support. And there's more to get. Okay.

Speaker Change: where we only have a fraction of the global operators that we support and there's more to get.

Brian Bonnell: That's my fault for missing it. A few financial questions. The cash usage comment. I'm less familiar with the AR factoring program. Can we just assume that pay down a debt is probably the most shareholder-friendly use of cash? Yeah, I think that's that's right. Essentially, the AR factoring program is just sort of another financing program that we put in during the second quarter of 23 to help with our liquidity, as opposed to taking on additional borrowings. That's why I think cash you owe other people. It's a relative debt is more when you work generally on the question.

Jason: Okay, that's my fault for missing it.

Speaker Change: A few financial questions. The cash usage comment, I'm less familiar with the AR factoring program. Can we just assume that pay down a debt is probably the most shareholder friendly use of cash?

Vivek Jain: Yeah, I think that's right. Essentially, the AR factoring program is just sort of another financing program that we put in during the second quarter of 23 to help with our liquidity as opposed to taking on additional borrowings. That's fine, but the cash you owe other people is still your bill of debt. It's worse when you are turning on liquidity. So, we sort of view that as being not that dissimilar from debt. And, you know, that's another option. That's another use of cash at some point in the future for us.

Vivek Jain: Bye.

Vivek Jain: yes i think that's that's right essentially the a acttoringprogram is just sort of another financing program that we put in during the second quarter of twenty three to help with our liquidity as opposed to taking on additional borrowings

Vivek Jain: That's fine, but the cash you owe other people still is your bill of debt, is more when you are charging on liquidity. So we sort of view that as being not that dissimilar from debt and you know that's another option, that's another use of cash at some point in the future for us.

Brian Bonnell: So we sort of view that as being not that dissimilar from debt. And, you know, that's that's another option. That's another use of cash at some point in the future for us. Okay, but the message is. Excess cash generation from here is your mark for debt pay down. Yes, correct.

Jayson Bedford: Excess cash generation from here is your mark for debt pay down.

Speaker Change: Okay, but the message is...

Jayson Bedford: Excess cash generation from here is your mark for debt pay down.

Jayson Bedford: Okay. Okay, last one, I guess, just if I take the midpoint of the EBITDA guide for the year, it kind of implies a small step up in second half versus 2Q. You went over a lot of stuff, but maybe you can just remind us what's kind of tempering second half versus the 2Q print. Well, I think, Jayson, if you kind of think about just first half versus second half, the midpoint of the EBITDA guide does imply a $15 million improvement in the second half relative to the first half. So that's, there's obviously some level of improvement there.

Speaker Change: Yes. Correct.

Jayson Bedford: OK.

Speaker Change: Okay, last one I guess. Just, if I take the midpoint of the EBITDA guide for the year, it kind of implies a small step up in second half versus 2Q. You went over a lot of stuff, but maybe you can just remind us what's kind of tempering to tempering second half versus the 2Q print?

Brian Bonnell: Well, I think, Jason, if you kind of think about... Just first half versus second half, there's obviously some level of improvement there. Yeah, if you use Q2 as your starting point, it's more modest than that, but we do feel like there was substantial improvement in the second quarter, and we would like to kind of see that continue before getting too aggressive on the forecast. It's not lost on you what we've put everyone through, what we went through, Jason, and there's a lot of volatility in the markets out there, currencies, FX.

Brian Bonnell: Well, I think, Jason, if you kind of think about...

Brian Bonnell: Just first half versus second half.

Speaker Change: The midpoint of the updated guidance does imply a $15 million improvement in the second half Relative to that to the first half

Brian Bonnell: So that's...

Brian Bonnell: There's obviously some some level of improvement there.

Brian Bonnell: Yeah, if you use Q2 as your starting point, it's more modest than that. But we do feel like there was substantial improvement in the second quarter, and we would like to kind of see that continue before getting things on the forecast. It's not lost on you, whatever we throw, what we went through, Jayson, and there's a lot of volatility in the markets out there, currencies, FX, right? We don't know where everything's going to land.

Brian Bonnell: Yeah, if you use Q2 as your starting point, it's more modest.

Brian Bonnell: But we do feel like there was substantial improvement in the second quarter, and we would like to kind of see that continue before

Brian Bonnell: Getting aggressive on the forecast. It's not lost on you what we've put everyone through, what we went through, Jason. And there's a lot of volatility in the markets out there, currencies, FX, right? We don't know where everything's going to land.

Brian Bonnell: We don't know where everything is going to land.

Jayson Bedford: Okay, fair enough.

Jayson Bedford: Thanks, guys.

Jason: Okay. Fair enough. Thanks, guys.

Operator: We have no further questions at this time.

Operator: We have no further questions at this time. I will now turn the program back over to Vivek Jain, Chairman and CEO, for closing remarks.

Vivek Jain: I will now turn the program back over to Vivic Jane, Chairman and CEO for Closing Rebarks. Thanks, everyone, for your interest in ICU Medical. We look forward to speaking to you. We hope for continued strong momentum here, and we look forward to speaking to everyone on our Q3 call.

Speaker Change: We have no further questions at this time. I will now turn the program back over to Vivek Jain, Chairman and CEO , for closing remarks.

Vivek Jain: Thanks everyone for your interest in ICU Medical. We look forward to speaking to you. We hope for continued strong momentum here and we look forward to speaking to everyone on our Q3 call. Have a great rest of summer. Thanks very much.

Operator: Have a great rest of summer. Thanks very much.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect it.

Vivek Jain: This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Speaker Change: Hi. Hi. Hi. Hi. Hi.