ICU Medical (NASDAQ:ICUI) Incorporated (NASDAQ: ICUI) has reported a stable financial performance in its First Quarter 2024 Earnings Conference Call held on May 7, 2024.
Despite a slight decline on a reported basis, the company's revenue saw 1% growth on a constant currency basis, reaching $553 million. Adjusted EBITDA stood at $79 million, with adjusted EPS at $0.96.
The company highlighted the impact of the strong US dollar on its IV Systems segment and outlined its strategy for growth and quality improvement in the upcoming periods.
Key Takeaways
- Q1 revenue of $553 million, up 1% on constant currency basis but down 1% on a reported basis.
- Adjusted EBITDA of $79 million; adjusted EPS was $0.96.
- Healthy demand and utilization but slight reduction in census in March.
- Consumables segment grew 3%, driven by Oncology and Vascular Access lines.
- IV Systems business flat due to currency impact; Vital Care segment declined 4%.
- Operational stability and quality remediation efforts are progressing.
- Gross margin higher than expected due to supply chain efficiencies and product mix.
- Positive free cash flow for the third consecutive quarter and reduced inventory levels.
- Full-year adjusted gross margin expected to be 35%, with potential volatility.
- Plans to close two underutilized production sites; products to be consolidated into existing network space.
Company Outlook
- Revenue growth anticipated in all differentiated product lines for 2024.
- Continued focus on completing quality remediation efforts and pursuing integration work.
- Submission of 510(k) applications for Plum Solo IV pump and LifeShield safety software by end of Q3.
- New filings expected in consumables and temperature management business in the next 12 to 24 months.
- Emphasis on being an innovative and reliable supplier in the market.
Bearish Highlights
- Impact of foreign exchange and volatility in freight and diesel markets as potential headwinds for Q2.
- No specific timeline for FDA inspection regarding quality remediation.
- Vascular Access business has room for improvement and is expected to align with the overall segment.
Bullish Highlights
- Growth in capital and disposables revenue mix expected in future quarters.
- Gross margin expansion and network consolidations considered key to improving earnings power.
- Focus on debt paydown and prioritizing capital allocation to transfer value from debt to equity.
- Optimism about increasing market share in the pump market.
Misses
- Slight reduction in census in March impacting overall performance.
- Vital Care segment's decline due to reduced non-hospital OEM sales in Critical Care.
Q&A Highlights
- Free cash flow for the year projected to be similar to last year, minus the financing benefit.
- Gross margins expected to be slightly above the 35% average for the year, with a flat trajectory.
- Contract renewals and price pressure in solutions could impact future quarters, likely visible in Q1 of the following year.
- Commitment to driving innovation for patients as a core company value.
ICU Medical Incorporated continues to navigate a challenging market landscape, with a focus on operational stability and product innovation.
The company remains committed to driving growth and improving its financial metrics despite the headwinds posed by currency fluctuations and market volatility.
Full transcript - ICU Medical (ICUI) Q1 2024:
Operator: Good afternoon, ladies and gentlemen and welcome to the ICU Medical Incorporated. First Quarter 2024 Earnings Conference Call. [Operator Instructions]. This call is being recorded on Tuesday May 7, 2024. I would now like to turn the conference over to John Mills, ICR Managing Partner. Please go ahead.
John Mills: Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the first quarter of 2024. On the call today, representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer. We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our Investor page and click on Events Calendar and it will be under the first quarter 2024 events. Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call including beliefs and expectations about the company's future results. Please be aware, they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results and are subject to risks and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have been direct bearing on the operating results and financial position. Please note that during today's call we will also discuss non-GAAP financial measures including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency in ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period. We've also included a reconciliation of these non-GAAP measures in today's release and provided as much detail as possible on any addendums that are added back. And with that, it is my pleasure to turn the call over to Vivek.
Vivek Jain: Thanks, John and good afternoon, everyone. I'll quickly walk through our summary of Q1 revenue and earnings performance, provide some commentary on the overall health of the company and then turn it over to Brian to recap the full Q1 results. After that I'll come back with updates on the various integration and consolidation efforts that will improve our medium-term profit outlook. Revenue for Q1 was $553 million for total company growth of 1% on a constant currency basis or minus 1% on a reported basis. Adjusted EBITDA was $79 million and EPS was – adjusted EPS was $0.96. Gross margins were a little higher than expected due to supply chain efficiencies and mix. Our cash balance was near flat sequentially, as we continued to reduce inventory and had our typical higher Q1 cash outflows. The broader demand and utilization environment in Q1 was healthy across all geographies, with March seeing some reduction in census and it appears to be fine in Q2 at the moment. The capital environment with status quo and investments that customers need to make are getting made. The only additional macro headwind is the strong US dollar in certain commercial geographies, which impacts our IV Systems segment, the most as it's our largest OUS business. Getting into our businesses more specifically, our consumables segment grew 3% constant currency and reported. Growth was driven by our Oncology and Vascular Access lines, which were both at or above 6%, IV therapy was low-single digits and Trex was closer to flat. We did expect some sequential declines, given the very robust volumes we saw in Q4. Nothing else is new here. We would expect sequential improvements in this segment as we wrap up Q2. Our IV systems business was flat on a constant currency basis or down 3% reported, due to the currency impact I just mentioned. Again, we had a wide range of performance across the product lines, our LVP pump business grew 8% with good dedicated set utilization due to census and a larger installed base, syringe pumps sold slightly above normal quarterly levels and grew 5%, ambulatory pumps were down 10%, as Q1 2023 was the last quarter of the catch-up we were dealing with at the time, which will finally get lapped now. More importantly, ambulatory was sequentially flat and the line is stable and the macro trends of home care remains solid. We have some specific opportunities that are additive to getting the business back to historical levels, which are first the replacement of our own LifeCare PCA products in the market; and second a market event with a smaller player, which is relevant to us. Our new Plum Duo device and LifeShield IV safety software have been fully available for the last few weeks and we've had our first customer signing. The early feedback is meeting our expectations and we are incorporating super user feedback into our road map and believe we have a hardware product and related safety software that can be the anchor of our offering for many years to come. Just wrapping up the business segments, our Vital Care segment was down 4%, both on a constant currency and reported basis. IV Solutions, the largest component of the segment was flat and the entire decline was essentially due to Critical Care, where we had a reduction in non-hospital OEM sales due to a large order we had in Q1 of last year. The rest of the segment was flat. From an operational perspective towards our customers like the comments on the last call, the company is running the best it has in the last few years. Customer back orders are at the lowest level in nine quarters and fulfillment has been very stable because of all of the efforts of our team. The discussions have shifted far more to innovation and the integrated value of what we've amassed. Quality has been an area of heavy investment. We feel we're on solid footing. We have had and likely will have a few more important customer notifications, all as part of the overall remediation efforts previously discussed and enhancements we have made. Our goals in 2024 are not so different from our historical goals, as we lost time in the first six to seven quarters following the acquisition. We expect revenue growth in all of our differentiated product lines. We have substantially progressed, our quality remediation and insured quality for patients and high compliance for regulatory authorities and desire to bring our open warning letter to a close. We intend to execute the substantial integration work, as we have operational stability in place to pursue remaining synergies. And ultimately and obviously, these actions are intended to improve our profit levels and cash flow over the medium-term. And we're focused on optimizing the portfolio from a revenue growth and quality perspective, which will increase any opportunities to rationalize the portfolio at sensible levels. That's my brief recap of Q1 at a high-level. I'll turn it over to Brian, and then come back -- and then I'll come back with a few thoughts and comments on our medium-term outlook, some targets and a few other points.
Brian Bonnell: Thanks, Vivek, and good afternoon everyone. Since Vivek covered the Q1 revenue for each of the businesses, I'll focus my remarks on recapping the Q1 performance for the remainder of the P&L as well as the Q1 balance sheet and cash flow and along the way provide commentary on any implications to our expectations for the full year. As you can see, from the GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the quarter was 35% which was higher than expected for this point in the year. The drivers of this favorability were roughly equally split between first, product mix, where we experienced a higher proportion of disposable revenue relative to capital during the quarter compared to our plan. And second, supply chain synergies captured earlier in the year than expected. These favorable items helped to offset much of the anticipated negative impact from the manufacturing under absorption related to the recent inventory reductions, which is reflected in the Q1 gross margin rate consistent with our previous guidance. I'll get into the implications to the full year outlook in a moment when taken into consideration with some other items. Adjusted SG&A expense was $115 million in Q1 and adjusted R&D was $21 million. Total adjusted operating expenses were up 3% year-over-year and reflect a combination of increased selling expenses and R&D investments. Adjusted operating expenses were 24.7% of revenue for the quarter and we continue to expect the full year rate to be at or below 24%. Restructuring integration and strategic transaction expenses were $16 million in the first quarter and related primarily to IT system integration and manufacturing network consolidation. Adjusted diluted earnings per share for the quarter, was $0.96, compared to $1.74 last year. The current quarter results reflect net interest expense of $24 million. The first quarter adjusted effective tax rate was 28% and includes a discrete expense, related to equity compensation. We continue to expect the full year adjusted effective tax rate to be around 23%. Diluted shares outstanding for the quarter were $24.4 million. And finally, adjusted EBITDA for Q1 decreased to $79 million, compared to $102 million last year. The lower profitability on roughly similar levels of revenue reflects prior year benefits from inventory builds, combined with the current period impacts from inventory reductions. Now moving on to cash flow and the balance sheet, for the quarter, free cash flow was $30 million which represents the third consecutive quarter of positive free cash flow. Reductions in inventory contributed $14 million of cash and we remain on track to reduce inventory levels this year by our previously stated target of around $40 million with most of this reduction coming in the first half of the year. The focus on inventory allowed us to generate meaningful free cash flow, while still investing in the areas that will drive future returns. These investments included $10 million of cash spend for quality system and product-related remediation, $15 million on restructuring and integration and $15 million on CapEx for general maintenance and capacity expansion at our facilities as well as placement of revenue-generating Infusion Pumps with customers outside of the U.S. As anticipated, and consistent with last year, our CapEx spend was a bit lighter in Q1 and should pick up over the course of the year. And just to wrap-up on the balance sheet. We finished the quarter with $1.6 billion of debt and $251 million of cash. As we think about full year earnings in light of Q1 performance we still plan to make any revisions to our guidance if necessary on our Q2 call, consistent with our historical cadence. For now, we believe the correct approach is to continue to assume adjusted gross margin for the year, at our original guidance of 35%. While a portion of the supply chain synergies that provided upside in Q1 are more permanent in nature there is volatility in the global environment that may impact fuel and transportation costs from the current levels. Also, and more importantly, currency and a higher for longer interest rate environment does make an impact as we don't report currency adjusted earnings. Over the course of the first quarter, we saw our large international sales currencies, yen, euro, et cetera, weaken against the dollar, with no strengthening of the dollar against our production currencies of the Mexican peso and Costa Rica Cologne, which for the full year adds up to over $10 million of EBITDA variance from the rates assumed in our plan. While we believe our supply chain synergies, if things remain stable, can offset most of this currency impact, it's too early in the year to be precise. And finally, as it relates to the Q1 gross margin benefit from product mix, our original full year forecast for capital and disposables revenue mix hasn't changed as we expect to be selling more capital in future quarters. To wrap up, we're happy with the first quarter performance, including improvement in our gross margin rate and continued progress in free cash flow generation. We remain focused on the foundational work that will drive earnings improvement in 2025 and beyond. I'll now hand the call back over to Vivek, who will provide updates on the specific initiatives underlying net earnings improvement.
Vivek Jain: Okay. Thanks, Brian. On the last call, and we don't need to rehash all the reasons here, we tried to articulate our belief that we were under earning as a company relative to the industry and we wanted to go through the actions to date to improve profit in the medium term. We still need to prove that we're capable of predictable sustained revenue growth, but do believe we have seen less volatility over the last few quarters as the business has stabilized. Our original model expectations continue for a number of our acquired products where the goal is to get back to near historical sales levels and for some of the legacy ICU lines to recoup the substantial inflation we absorbed over time with price improvements. But sustained revenue growth is also at innovation. And on the last call, we described some of the key programs an update versus the last call is that we now expect to get our Plum Solo IV pump and LifeShield safety software with interoperability 510(k) submissions to the FDA before the end of Q3, a quarter earlier than expected. This is an important program because in addition to broadening out the full infusion hardware suite, it specifically allows us to approach our existing installed base with a better tech solution. As a reminder, most of our current Plum 360 pumps were only put into service from 2015 onward, and we've never really had the benefit of having our own installed base rolled over to any substantial degree. We continue to expect to refresh syringe comp on file by the end of the year, and all of these products will work with the latest version of LifeShield software. We also expect certain important new filings over the next 12 to 24 months, in our consumables area and the valuable temperature management business. We're growing our position with existing products of today, and these will be supplemented by a significant refresh in key parts of the portfolio with a large portion already done. We have been careful targeting these investments because innovation drives sustained revenue growth. The other half of improving our earnings power is about gross margin expansion outside of the price or mix or volume inputs. Where we've had businesses at or near record levels, those production environments are fully utilized and improving efficiencies. But where we've had businesses that are smaller, we've absorbed real inefficiencies and the pain was compounded with the inventory choices we made. This leads to the basic blocking and tackling of network consolidations, which is not some grand transformational program or anything like that. Since the last call, we've announced additional closures of two large underutilized production sites and consolidation of those products into existing space in our network dovetailing with our previous comments to have fewer places have them full and have them in the right geography. We can handle this now as our pump production has almost been fully consolidated in Costa Rica. These aren't easy choices, and they impact real people who have been team members for many years, but it must be done to drive value for us and for our competitive positioning to the customer. Additionally, we're just about ready to consolidate our U.S. order-to-cash systems over the summer which will lead to available logistics and back-office synergies in the quarters to follow. And we continue to whittle down underutilized real estate as leases present themselves. This list of actions is economically meaningful and contributes to getting where we need to be and offsets the normal bumps that happen in business, but it will take some time to execute. Given what we've been through the last few quarters, we're not willing to commit to specific dates in absolute margin levels, but our team's experience and integration allows us to go as fast as possible. Out of our controller interest costs, which we do expect to change eventually, but we are operating with a higher for longer mindset. From a value perspective, we felt it more sensible to bear more interest expense as long as manageable versus not maximizing the assets where the revenue, earnings and quality of those assets is improving but requires investment. Debt paydown continues to be our highest capital allocation priority and any extra cash above our needs would go to repayment. To be direct on our goals for the next year or two, we want our consumables and systems businesses to be reliable growers with an industry acceptable profit margin 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 from debt to equity. There is no confusion within the company in the pursuit of these goals, and we don't really have any frivolous activities here. 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 over the last few years. Thank you to all of our team members and customers as we improve each day. With that, we'll open it up for questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Jayson Bedford from Raymond James. Your line is now open.
Jayson Bedford: Hi. Good afternoon, and congrats on the quarter. So maybe just a few questions. Just -- I know you're not changing any guidance here but the revenue -- I don't think you necessarily guided it. But last call you talked about low to mid-single-digit revenue growth in 2024 based on 1Q would you tweak any of the segments or that commentary at all?
Vivek Jain: I don't think we have any change at all Jayson on that.
Brian Bonnell: Yes, certainly not on a constant currency basis which is what our guidance was based off of.
Jayson Bedford: Okay. Gross margin is clearly the highlight here. I understand the mix dynamic but what were the supply chain dynamics that went better in the quarter? And just can you talk about the sustainability of that?
Brian Bonnell: Jayson, I would say, it wasn't necessarily any one thing related to supply chain. It was just a number of initiatives to bring together the supply chain operations from the combined from the two separate companies into one. And we're able to get some of those things in place a little bit sooner than expected. We had anticipated it would happen at some point in the year. It's just that we guided a quarter or two sooner.
Jayson Bedford: Okay. And then maybe Vivek on the Duo rollout. Where are you in terms of kind of a full launch? And when would you expect the full launch?
Vivek Jain: I would say Jayson for the last eight weeks, 10 weeks we've essentially been in a full launch. We're getting people familiar with the architecture of the system. And that's why it's really important for the solo and the syringe to follow on the heels of that as people get comfortable with all the different pieces of the system. So I would say we're there right now. Again, things don't happen that fast in pumps in our experience, but it is a long game and there is a lot of activity in the next two or three years in the market. So, we think we're in a pretty good place.
Jayson Bedford: Okay. And just the competitive landscape you've got, obviously, three big players with kind of the hand -- all the hands are out there. And so I guess my question is, the competitive environment is it favorable? Where do you see opportunity? And you kind of alluded to the capital dynamic, but is there a desire to make decisions out there today?
Vivek Jain: Two parts in that. The first is capital environment is fine. I mean it's not -- it's not any better, it's not any worse than it has been for a while. It's -- stuff that needs to get done, gets done. Obviously, it's a good time to be a customer. There's more choice, which is good for the market. In terms of the market itself people have dragged the feet on making some decisions and given some of the industry dynamics. Customers have to make decisions over the next few years. And so there are more decisions being made finally, and folks given some of the background the equipment, has gotten older in the marketplace and requires refreshment for a variety of different reasons. And so the decision-making is better than it has been. And yes, while there's more vendors there are more decisions being made which one could argue is good for all participants.
Jayson Bedford: Okay. Thank you.
Vivek Jain: Thank you.
Operator: Your next question comes from the line of Brett Fishbin from KeyBanc. Your line is now open.
Brett Fishbin: Hey, guys. Thank you so much for taking the questions. Just wanted to follow-up on one of the opening comments that you guys made around hospital utilization trends. It sounded like January and February, were particularly strong months and you might have noted a little bit of normalization into March and you said things into 2Q have been looking fine. Just maybe like a little bit more on like how you define that March and trend into 2Q and how much of like a pullback you may be seeing versus Jan and Feb?
Vivek Jain: Yes. I mean Brett, obviously, we don't want to get into like the -- because you don't have perfect information what's happening every day or every week out there. It was really busy for three months in the fourth quarter of last year and then January and February. And March had to go below those levels. I think when we make those comments on it's a relative basis is the trend going. We would consider status quo to mean flat to up. That's probably what we see and bad to us would be down. I don't think we're -- so when we say fine, we would say it's equal to or greater than what the most recent period everybody has talked about has been.
Brett Fishbin: All right. Yes, definitely fair. One quick follow-up on gross margins. Definitely appreciate some of the puts and takes and then presumably not wanting to get too far ahead of like how you're thinking about the full year after only one quarter. I just wanted to get a sense you had 35.3% this quarter. We're talking about 35% range for the year. Some of the potential headwinds or offsets around currency or fuel, are those things that you're seeing already in 2Q and we should be modeling some type of reduction in 2Q? Or is that comment more around just some of the puts and takes like for the full year?
Brian Bonnell: Yes Brett, I think on that the couple of items that we've mentioned as being headwinds were the impact of FX, as well as potential volatility within the kind of freight rate and diesel markets. I think it's -- the first one of those FX is very real and we are seeing it and we started to see some impact late in Q1 and I think that is something that should be considered as we think about what -- how the rest of the year plays out. I think as it relates to the broader environment around supply chain expenses. There's the potential for some volatility there, but I don't think there's anything specific worth modeling.
Brett Fishbin: All right. Very helpful. And then last question for me. It feels like the quality remediation and warning letter item like all of the stuff that's on your end in your control seems to be progressing at least in line with how you were thinking about it. So question is just what still needs to get done besides waiting around for eventual FDA inspection? I guess is there still some stuff in your hands that still needs to get done before that can happen? Thanks very much for taking the question.
Vivek Jain: Sure. I'll answer that one. Our job, our responsibility regardless of our own or what we acquired is to be improving on the quality scores every single day. And so there's never a day of sort of waiting around. I think the expectation is that you're improving, you're improving your situation. And that can mean a lot of different things that can mean assessing every single product and where there's applicable notifications to customers making some of those notifications like we've referenced on the last two call scripts and you've seen in the various reports, it can also mean researching all the historical plates to make sure everyone is adequate can close. We've done a mountain of work. You've seen the investments into the quality remediation that we've put in for eight quarters. You're never really done. We think we've come a long, long way and we hope we get the opportunity to show that too somebody, but it's not really -- you just hit a line and stop it and never ends.
Brett Fishbin: That makes a lot of sense. Thank you for taking the questions,
Operator: Your next question comes from the line of Kristen Stewart from CL King. Your line is open.
Kristen Stewart: Hi. Congrats on a good quarter and thanks for taking the question. I was wondering if you could just focus a little bit on free cash flow in the quarter. It was positive which is a great thing. How are you looking for the rest of the year from a cash flow perspective?
Brian Bonnell: Yes Kristen ,I think we got off to a pretty good start to the year especially given Q1 we do tend to have more outflows in that quarter each year. I think -- we feel like our previous guidance around free cash flow is still relevant in that it would be basically the same as last year. but without some of the financing benefit that we got which means $80 million roughly give or take for the full year this year. And so I think we're still very much on track for that.
Kristen Stewart: Okay. Great. And then I just wanted to turn over to Vascular Access. It sounds like that had a good quarter. How should we be thinking about that business going forward?
Vivek Jain: Hey Kristen, it's Vivek. I think in our mid-single guidance for the Consumables segment for the year, we assume Vascular Access would be in line with that. It is still far below peak historical levels. We've just gotten the house in order a bit over the difficulties we had in the first six quarters or something. So, it feels a lot to us sort of what we went through post Hospira with consumables where it really did take two years to be stable and to show that we could move it upwards. And we think we're in kind of the first part of that journey right now. There's a long way to go, but I think we at a minimum believe it would be in line with the overall segment.
Kristen Stewart: Okay. Great. Thanks for taking my questions.
Operator: [Operator Instructions] Your next question comes from the line of Larry Solow from CJS Securities. Your line is now open.
Larry Solow: Great. Thank you. I guess coming back to Jason's question, on the pump market. And you said, it sounds like decisions are being made, so where do you stand? How do you feel with a lot more jump I guess if you will and share of [indiscernible]. You feel like you have an opportunity – clearly, you've gained some share in the last couple of years, but now actually back in the market. I think factor is a new pump. How do you feel your positioning is to continue to -- I know it's a slow moving market, but to continue sort of that positive momentum.
Vivek Jain: It is jump ball season. It is the playoffs. I think our view is, also not to sound less than ambitious here or hedge, it's also relative to the size of our business right, which is the point we were trying to make on the other scripts the last two years, which is our business is actually -- it's big, but it's not that big relative to the total available market opportunity. And so, if we can increase our win rate above historical levels, it makes a real meaningful difference on our P&L. And we think we have the right technology. And all participants I suspect have more conversations going on that they've had in the last number of years, which is good things will settle out. And we just need to -- we know what our peak share of our products were. We know how low they got and why we had to step in Hospira and we know what the opportunity is in front of us. So, we feel good I would leave it at we feel very good about the technology investments, we've made and have been committed to for in a good sense of what we think customer preference could be in this product family. And we've obviously, suffered a little bit right, but we undertook getting the full line together right between syringe ambulatory et cetera.
Larry Solow: Okay. I appreciate that color. Just on the gross margin, back to that the cadence sounds like maybe we come back down a little bit in Q2, like that where you have a little more inventory scale back as well, and then maybe a little bit of stabilization in the back half, but regarding -- just regarding the cadence, but just kind of situationally where do you think they'll stand as you exit the year mostly inventory management, should be behind you hopefully mix is starting to improve. But do you think you can sort of as we start next year we’re getting -- back a little bit off of the sort of mid-30s number and then we get more consolidation benefits next year and work from that maybe you can give us put a little more guidance if you may.
Brian Bonnell: Yes, Larry I think as it relates to this year. On the last call, we said we would expect to exit this year slightly above the 35% average for the year. Absent something unusual happening in terms of product mix or currency or anything like that, I think we still think that's probably the most likely scenario. And you're right, that means that then throughout the year we won't have the steep trajectory in gross margins that we were expecting, it will be a bit more flattish I suppose. But I think our views on where we exit, really haven't changed.
Vivek Jain: I mean, I think that -- Larry it's Vivek. I think the bigger picture is Brian was trying to say as simply as you could in the script, which was last year we had just a little less revenues than we had this quarter and look how much more money we made and then I talked about all this manufacturing consolidation, et cetera and other things to drive gross margin synergies, right? The difference between Q1 this year and Q1 last year was a little bit of investment in SG&A, but it was the difference in gross margin. Obviously, the perception of the situation is very different in those moments. So, we understand the value of getting the gross margin where it needs to be.
Larry Solow: Just lastly. I know price pressure and solutions could be somewhat of a driver to -- not this year but going forward. When do we -- when those contracts I think that some of them will come more of your contracts up for grabs or coming up for renewal I think in the back half of this year? When will that be some better than [indiscernible].
Vivek Jain: I mean the contracts are only part of the equation. They'll get done first in the process and then it's really getting individual systems and members to absorb, whatever you may have been contracted, which is its own set of challenges to work through. All of that probably doesn't become effective until some point in Q1 of next year.
Larry Solow: Okay. Got it. Okay. Thanks. I appreciate it.
Vivek Jain: Thanks, Larry.
Operator: And speakers, we don't have any questions over the phone. I would like to hand over the call to Mr. Vivek Jain, Chairman and Chief Executive Officer. Please continue.
Vivek Jain: Thanks, Franzi [ph]. Look, we hope today's call was direct into the point, a little bit shorter. We look forward to speaking to everybody on our Q2 call and we'll update everybody on these various items, we're working to make the company more valuable and drive innovation for patients. Thanks very much, everyone. Appreciate it. Bye
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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