Icu Medical Inc/De Q2 FY2021 Earnings Call

Good day. And welcome to the ICU Medical, Inc. Q2 2021 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss ICU Medical's financial results for the second quarter of 2021. On the call today, representing ICU 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 Calendars and the presentation will be under the Second Quarter 2021 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 full 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 a direct bearing on operating results and financial position. Please note that during today’s call, we will be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU Medical's ongoing results of operations, particularly when comparing underlying results from period-to-period. We have also included a reconciliation of these non-GAAP measures in today’s release and provided as much detail as possible on any addendums that are added back. And with that, it is my pleasure to turn the call over to Vivek.

Thanks, John. Good afternoon, everybody, and we hope you and your families are well. With all the volatility in the broader environment over the last 18 months, our businesses in 2021 have been more normal than in a while. Except for a few regions in the United States and a few international geographies, our hospital customers are improving activity monthly as vaccinations have progressed. Like everyone in our industry, we want to start first by thanking all of our customers and their frontline workers for trusting us to serve you during these times, and it’s been great to finally see some of our teams face-to-face around the world. Today, we hope for a shorter call as results were generally in line with our previous comments and not much has changed, but we did want to comment on the intra-quarter trends of our business and the geographic flows, provide an update on our housekeeping items, highlight our improving cash flow metrics, outline how we see the near-term business, articulate how we feel about our positioning in this environment, comment on the criteria by which we are judging ourselves, and talk a bit about capital deployment and how we think about that given the fluid environment. The short story on Q2 is as follows: as we described on the last call, we did see sequential revenue growth in our most differentiated business segments. On a year-over-year basis, this resulted in a reported sales increase of 8% globally or 5% constant currency, driven by market share gains in consumables, stable IV solutions, offset by prior year COVID-related surge purchases in IV systems. We finished the quarter with $311 million in adjusted revenue, adjusted EBITDA came in at $67 million, and adjusted EPS was $1.88. It was a clean quarter with no unusual production or other items, and it highlighted the power of mix and our operating improvements as gross margins moved upwards. We had a strong quarter of free cash flow generation and added $38 million to our balance sheet as operational improvements materialized and restructuring and integration costs dramatically reduced. When looking deeper at the results, it was really specific international markets that had year-over-year declines in IV systems due to the surge pandemic ordering in Q2 2020 that impacted the results but were offset by strong IV consumables globally. Volumes at our customers were up everywhere around the planet, with the exception of some pockets in Asia. Currently, and updated from the last call, Europe and LatAm are improving on both a sequential and year-over-year basis. Canada was down in Q2 due to pandemic orders last year, and some pockets of Asia remained challenged, as I mentioned before. We do expect Asia and ANZ to improve on a year-over-year basis in Q3 and beyond. We are most tilted to the U.S. market where we are dependent on admissions and electives, and we saw electives as pretty solid and admissions are okay. I know there’s been a wide range of commentary here from all the companies, but the simple message from us is our U.S. customers were busy. Even within the quarter, there was month-to-month volatility, and again, we did well in the U.S. market in the face of varying utilization and acuity rates, and I will describe some of that in the segment discussion. So let’s go through the businesses quickly and then come back to discuss the current environment. Starting as usual with the Infusion Consumables, which is our largest business. Infusion Consumables had revenues of $136 million, which was a 23% increase year-over-year on a reported basis and 18% on a constant currency basis. We had 24% growth in the U.S. market and 10% international growth, even with some negative performance year-over-year in Asia. Both core infusion therapy and oncology growth were over 20% in the U.S. market, which is extremely important to us, and we had stronger sequential growth in oncology. We felt positive about our growth products, and our performance in the market sets us up well for the balance of the year. The rest of the world opening up could be additive to this, but we are cautious on a few selected geographies that are delayed in opening. As highlighted on the last call, Q2 of 2020 was severely impacted in the U.S. market downward. So the growth was a bit inflated, but we believe going forward, we can be at or above these levels. Moving to Infusion Systems, which is primarily our LVP pumps and associated dedicated sets. This segment did $85 million in adjusted revenue, which was a decline of 8% on a reported basis and 10% on a constant currency basis. On a year-over-year basis, the decline was essentially completely due to the pandemic ordering in Q2 of 2020, as we previewed on the last call. So in the U.S., just like consumables, we held our own, even with utilization declines that impacted the dedicated pump sets with some softness in May and continued expected deterioration in the non-LVP products. The math works because we had more of our pumps active in the U.S. marketplace than last year. It’s been hard to follow exactly what has been happening in pumps between the loss of our installed base in the first two years when we bought the business, the decrease in non-LVP products, and the growth in LVP products. Let me try to give a few facts that may help make that clearer. First, if you go back to our comments in the middle of 2019, we talked about our installed base of LVP pumps bottoming out in the middle of 2019. Today, as compared to that time, our U.S. LVP installed base is about 20% larger, and LVP revenues are about 10% larger, reflecting our 50-50 geographic mix. Second, at a segment level, we have had a decline of about $35 million in the non-LVP products since we bought the business to this year. The last point would be, in Q2 of 2021, we had the best quarter of competitive installation since we have owned the business and have a strong backlog heading into Q3. The obvious question is where does this show up on the P&L, and it shows up over time as we begin to get the dedicated disposables and software revenues associated with these items. I will come back to square this up against total company profits related to the historical periods. Our installation calendar continues to be strong, and we continue to not see customer capital as a constraint, and we still believe relative to our size, there's solid competitive opportunity, and we are focused on commercial execution here. Again, we think in the near-term of Q3, this business could be at or above current levels. Finishing the segment discussion with Infusion Solutions, we had $78 million in adjusted revenue or an increase of 6% year-over-year on a reported basis and 5% on a constant currency basis. A little bit of the same bumpiness in May, but we were more impacted by the timing of some non-hospital orders. We continue to believe the quality of our customer book has improved, with us holding the best list of sustainable relationships versus the day we bought the business, and the entire industry has moved forward into renewals of longer-term contracts. We had a very normal quarter of production, no unexpected interruptions or planned plant shutdowns, and that consistency helped us underpin our overall corporate gross margins. No change here in 2021, as we continue to believe this is an $80 million average quarterly business. Moving on to some more general updates. Commercially, relative to last quarter, the majority of U.S. customer calls are live now, and that’s also become the case in Europe. Customers are interested in getting on with decisions that have been stagnant or stuck because of COVID. Canada and some spots in Southeast Asia are still a bit challenged. On quality, there’s nothing new, we had some successful notified body audits again that all went fine. Operationally, the manufacturing network, logistics, and systems of the company are all running well. Again, in Q2, we had solid global fulfillment rates for our customers with finally no unusual challenges. We too have some labor and raw material inflation and higher than expected transportation and logistics costs. We view labor inflation as permanent, and we don’t know whether the transportation costs are permanent or not. For the time being, we have assumed they continue, and if they get better, great. On the Pfizer discussion related to the calculation of an earn-out payment, we have been engaged in an arbitration process pursuant to our agreement. Pfizer has been a solid partner, and we have worked with them to cooperate in all aspects of our relationship. Pfizer was an equity participant here and on our Board of Directors, and we have tried to treat them well at every step as we address the litany of issues that came with Hospira. We feel confident in our position but do not control the decision and expect that it will be resolved in the next few weeks. Okay, on the other items, we are pleased that we have gotten back to strong cash flow generation. We have had a solid focus on the high-hanging fruits from our integration that we talked about in 2019. Those have been about improving working capital and efficiencies in how we run. Q2 was really clean, and as we previewed on the last call, EBITDA margins did look different in Q2 even with utilization slightly below historical levels. For a few quarters now, we have been in a place where free cash flow has been in excess of net income, and what it really shows is the economics of more disposables in the mix with more IV consumables and dedicated pump sets. The simplest metric on how we judge ourselves is our businesses larger or smaller and more profitable. That is the score, regardless of how hard we have worked, and it’s also been hard to follow the growth and value creation within the segments as the hangover from the IV Solutions challenges moved right into the COVID environment, combined with some unique segment issues like the shift from non-LVP pumps or the contract manufacturing work for Pfizer being inconsistent. But we finally think we are getting to a more normal environment. To be clear in how we judge ourselves, we have said for a while, we can grow our valuable items of consumables and dedicated sets on a year-over-year basis. From a revenue perspective, our IV consumables segment will be the largest it has ever been in 2021, and we feel good about that continuing to 2022. Our Infusion Systems segment, clearly helped by a COVID surge last year, was the largest under our ownership in 2020, and we believe our U.S. and global installed base of LVP infusion pumps and related disposables will be the largest under our ownership in 2021. The bottoming out of the non-LVP products, combined with the wins we have and installs we are doing, sets up this business well for the future. From a profitability perspective, we are approaching the run rate profitability we had historically when we had $150 million more in uncontracted high-margin IV solution sales and almost $20 million more in non-LVP products. That is a testament to how hard we have worked to profitize the rest of our business and the power of growth and mix in the high-margin items. And this is the case without all regions having improving utilization dynamics or new products, which could be additive. The other criteria to evaluate ourselves is whether we are delivering innovation, and we hope on the next earnings call or two that we will be talking about important regulatory filings that are a culmination of a few years of work. Obviously, the capital deployment topic has been a real-time discussion. I think everyone knows the challenges in this market environment; in our experience, it’s been very situational. In the case of Pursuit Vascular, we allocated capital more aggressively to something that was a high-growth new market creation situation. In the case of Hospira or Excelsior, those are more turnaround or must-do type of scenarios. But in each of those, we found ourselves in a situation where we believe we could add value to the product, company, or circumstance, and the counterparty felt the same way. That’s not always the case, and that’s the nature of business; situations are competitive, and we have to simultaneously manage the desire to allocate capital with growth in circumstance or in any given situation. If there is alignment, we always remain open to win-win situations. With all that said, a bit more bluntly, we are trying to do some things in a tough market. Yes, we are probably hitting the sensible limit of cash on hand and no leverage to adequately manage the risks of an infusion business along with appropriate strategic flexibility. So we know we should have a point of view on that heading into 2020. I believe many of our investors here know that we run ourselves lean, with excess money going to quality, regulatory, and R&D. We don’t want to squander our capital; we take the job seriously of allocating it as we have or will, get all our cash back in every transaction we have done over the last few years. And I know that kind of talk does not necessarily jive with the current market environment. But at some point, we hit a lever where we know we may have to do some traditional things. While the pandemic introduced substantial volatility, strategically, we do think the weaknesses that are exposed in the healthcare supply chain add to the argument for all participants to be healthy and stable, which has been our commentary since we became a full-line supplier. We make essential items that require significant clinical training, capital expenditures, and in general, items that customers do not want to switch unless they have to. We are a U.S. manufacturer that’s deeply vertically integrated and has core redundancy on products that we do not produce domestically between Ensenada and Costa Rica. We do not believe the market broadly defined was a winner-takes-all setup in these essential items categories, and that’s before each category is assessed on its own innovation, clinical outcomes, et cetera. In the new normal COVID-19 world where supply chain resiliency and diversity matters, we believe our essential items logically benefit, and our most differentiated items are still differentiated. So we focus on what we can control: having the best list of supportive, healthy customers, winning important new customers while waiting for volumes to get back to historical levels, keeping our employees safe while delivering the best operational stability for customers, making sure we drive differentiation in the most valuable categories, having the best liquidity we can for a company our size, using all of the above to be prepared for whatever realignments or opportunities arise, and focus on our execution. Our company has emerged stronger from all the events over the last few years. Thank you to all the employees, customers, suppliers, and frontline healthcare workers who have supported us. Our company appreciates the role each of you has had to play. With that, I will turn it over to Brian.

Thanks, Vivek, and good afternoon, everyone. To begin, I will first walk down the P&L and discuss our results for the second quarter and then talk a little about cash flow and the balance sheet. Starting with the revenue line, our second quarter 2021 GAAP revenue was $322 million, compared to $303 million last year, which is up 6% or 4% on a constant currency basis. For your reference, the 2020 and 2021 adjusted revenue figures, which exclude contract manufacturing sales to Pfizer, can be found on slide number three of the presentation. Our adjusted revenue for the quarter was $311 million, compared to $289 million last year, which is up 8% or 5% on a constant currency basis. Infusion Consumables was up 23% or 18% on a constant currency basis. Infusion Systems was down 8% or 10% on a constant currency basis. IV Solutions was up 6% or 5% on a constant currency basis, and Critical Care was up 2% or flat on a constant currency basis. As you can see from slide number four of the presentation, for the second quarter, our adjusted gross margin was 40%. This was in line with our expectations and represents an improvement of 2 percentage points to last year’s second quarter gross margin and 3 percentage points compared to this year’s first quarter. The higher gross margin reflects the benefits of favorable product mix from faster growth in our consumables business, along with higher volumes in our plants, offset somewhat by inflationary cost increases. Sequentially, two negative items from the last quarter did not repeat. The first is the impact from the annual scheduled maintenance shutdown of our Austin manufacturing facility, and the second is the additional manufacturing and distribution costs related to the February weather events in the south. During our last call, we said we expected adjusted gross margin for the full year 2021 to be in the range of 38% to 39%, and that remains the case. But it’s worth noting that the specific adjusted gross margin rate for any given quarter will fluctuate based on the level and mix of Infusion Systems hardware installations and the timing of our annual plant shutdowns. Moving further down the P&L, SG&A expense of $74 million in Q2 was in line with our expectations and represents a year-over-year increase of 10% as last year’s second quarter spending was muted because it was the peak of COVID restrictions. The year-over-year increase reflects higher selling expenses from increased sales, higher travel and entertainment expenses, and the impact of foreign exchange. R&D expense was $11 million for the quarter, up 10% year-over-year and up slightly relative to the first quarter of this year. We expect the level of R&D spend to increase a bit in the back half of this year, as we get closer to regulatory submissions on a few larger projects. Restructuring, integration, and strategic transaction expenses were $4 million in the second quarter versus $6 million last year. The second quarter 2021 spending was spread across a number of smaller projects related to acquisition integration and one-time regulatory initiatives. We continue to expect full-year spend to be in the range of $15 million to $20 million. Adjusted diluted earnings per share for the second quarter of 2021 were $1.88, compared to $1.65 last year, an increase of 14%. Diluted shares outstanding for the quarter were 21.7 million. Finally, adjusted EBITDA for Q2 increased 15% to $67 million, compared to $58 million last year. Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $39 million, and Q2 was another strong quarter of cash flow generation, driven by a combination of solid earnings, declining restructuring and integration spending, and disciplined working capital management, with both accounts receivable and inventory at the same levels as Q1 of this year. Going forward, for AR, we expect DSO to generally remain around current levels, but we may see a slight ramp in inventory over the remainder of this year to ensure that we can successfully onboard and support new business. The strong Q2 cash flow allowed us to end the quarter with $492 million in cash and investments on the balance sheet. Just as a reminder, we do expect to make the $26 million earn-out payment for Pursuit Vascular during the third quarter. In the second quarter, we spent $16 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. Our CapEx spending in Q2 was a bit light due mostly to timing, and we expect the level of CapEx to pick up a bit over the remainder of the year. We plan to spend around $75 million for the full year. Now on to guidance: the solid performance in the second quarter provides us enough confidence to narrow our adjusted EBITDA and adjusted EPS guidance for the full year, even in light of current inflation pressures and a less-than-certain COVID environment. For the full year adjusted EBITDA, we are narrowing our previous guidance range of $245 million to $265 million to a range of $250 million to $260 million. For full-year adjusted EPS, we are raising the bottom end of our guidance range from $6.50 per share to $7.20 per share, increasing it to $6.80 per share to $7.20 per share. For modeling purposes, the adjusted EPS guidance assumes a tax rate of 21% in the third and fourth quarters. To summarize, our results for the second quarter were very much in line with the expectations we had set for ourselves at the beginning of the year and reflected continued recovery of non-COVID volumes within U.S. hospital systems. We also saw continued sequential topline growth in our most valuable business unit of consumables, implemented a record number of competitive pumps, recorded the highest adjusted gross margin since Q3 of 2019, and generated strong free cash flow. Overall, we are pleased with the business performance in the second quarter and feel good about our opportunity to drive growth in our most differentiated businesses going forward. And with that, I’d like to turn the call over for any questions.

And we will now take our first question from Larry Solow with CJS Securities.

Great. Good afternoon, guys. Vivek, maybe you can just discuss real quick from a high level. You mentioned sort of elective surgeries and whatnot certainly coming back. But overall, utilization sounds like is it still a little bit volatile, more than you would like to see, obviously, or are we pretty much back to normal with exceptions of some pockets here and there?

Hi, Larry. The answer varies depending on the region, especially in Asia where we have a strong market presence in specific areas. For instance, the Philippines has been quite unstable, with quick shutdowns occurring. That said, if this is more about the U.S. market, I believe we are somewhat more optimistic than some of the general observations made. In our systems business, half of our operations are based outside the U.S. Regarding the U.S. business, it seems to be nearing normal levels; while not completely back, it might only be down by about 1% or 2%. There are various factors in play, including different levels of service requirements. However, if we look at reports from public hospital companies, most of them appear to be ramping up their activity. We sense a slight disconnect between what they are reporting and what we have heard from suppliers. Overall, we align more closely with the trends being reported by public hospital entities.

The consumables growth is certainly showing an increase from a low point last year, and it appears to be about 10% higher than your best quarterly sales since the Hospira period. This growth seems mostly sustainable, though we might see some stabilization at this level. Is there perhaps a bit of catch-up in those numbers? There's nothing particularly unusual driving these sales; it seems to stem from more normalized demand.

I mean, I think, in the prepared remarks, the last sentence was, I think we feel like we can stay at or above this level heading into Q3. There were competitive wins in there. So it wasn’t all just catch up, and it obviously makes a big difference in margins, et cetera, right?

Is there any catch-up in terms of competitive implementations and installations, or does that align well with the rate of new business wins? Is that a bit more inconsistent as well?

I think the answer varies by business unit. In the consumables sector, we have been effective in installing with minimal disruption to the customer site, using methods like video and online tools when necessary. However, we still have some invasive hardware installations to handle. As mentioned in our last call in March, we had a solid plan for Q2 that mostly held up. However, given the current situation, we are starting to see some disruptions. We still feel positive about our backlog size, but there is some volatility in areas where progress is stalling, which is causing some schedules to be pushed back.

Got it. And then just on gross margin, it sounds like maybe a little bit ahead of itself this quarter or things sort of aligned, and there were no shutdowns. Longer term, do you think we can get back into at least the low 40s as your mix continues to improve?

I think I will let Brian share his thoughts on this. We have mentioned in these calls that we will never return to the levels of 43 or 44 that we experienced when we had many high-margin solutions, but reaching the low 40s is certainly our goal. This goal depends on what we install on the hardware side. As we gain market share and increase our consumables business, we will be in a better position to achieve that. We've faced several challenges in recent quarters due to weather events and production volatility, which affected operations. This is why Brian reiterated the annual number, but Brian, is there anything else you would like to add?

Yeah. No. I’d just reiterate for us, Q2 was fairly clean from a gross margin standpoint, and we have said that, longer-term, one of the drivers of improving our current consolidated gross margin rate is going to be mix, and I think Q2 kind of showed just what impact having faster growth in consumables can have on our gross margins.

All right. Great, guys. Appreciate the call. Thanks.

Thanks, Larry.

We will take our next question from Matt Mishan with KeyBanc.

Thank you for the question. Vivek, it looks like you've addressed most of the key issues you wanted to tackle in the business, and you've navigated through some significant events over the past couple of years. I'm curious about your main focus moving forward. Is it on optimizing margins or driving revenue growth? How do you view your balance sheet and capital allocation? What is your primary area of focus?

Thank you. It's a good question. I think our team has worked hard to return to a level of profitability, even though our income statement and revenue numbers look quite different than they did a few years ago. Our priorities remain balanced. We still need to create value by developing new markets. Creating new markets, like those in dialysis and oncology or with custom products, is our top priority. The second focus is on gaining market share across different parts of our business. It's a competitive market, and we must execute well to create value. Third, we need to introduce new products to the market. We acknowledge that we have been somewhat quiet on that front intentionally, but that will become more evident soon. Lastly, capital allocation is crucial, especially since we find ourselves in a capital-rich environment relative to our market capitalization. We spend time thinking about this, as it's a unique time in the market. Overall, I see these areas as evenly important, and my colleagues also emphasize the constant priority of serving our customers well. This focus is what has helped us maintain the quality of our offerings and grow our business.

Okay. That leads to my next question. What are your expectations regarding the impact of competitors launching new pumps and how effectively they can re-enter the market in terms of medical necessity? First, could you explain what percentage of your sales is linked to that capital purchase? Secondly, do you believe you can maintain your position and any market share in a more competitive environment?

It's a great question and one we consider. When we entered this four years ago, we acquired a business that had lost a significant portion of its market share in IV pumps. We also stepped into a scenario where much of the existing technology was outdated and easy for competitors to take advantage of. Our initial step was to refresh the installed base with the latest technology. We have done this with nearly all of our U.S. customers, and while the global business operates differently, almost all of our U.S. clients are using newer technology. As for the challenges of losing our installed base, which was occurring previously, we believe that reclaiming those customers is now more difficult, and we have strengthened our relationships across various product categories. Moving forward, we must continue to communicate our value proposition regarding the quality of our technology and the economic benefits of our products to gain market share. Our IV systems business is roughly half international and half domestic, so we don't need much growth to maintain momentum in the U.S. market if we're successfully retaining our current customer base. We believe there are opportunities to attract customers looking to switch, and at some point, we will discuss our numbers and installed base openly, which will illustrate the market potential. Although the competitive landscape may create confusion for customers, it also offers them better options. We have multiple choices and many products that provide clinical value, and we need to focus on marketing and executing effectively.

And when you think about the portfolio cleanup, the ambulatory and the declines in the PCA. How much further does that have to go, and I guess, how much opportunity is it for you guys when you are starting from a very low base to go after those complementary markets with the LVP?

I mean, the money in the infusion hardware business, right? The money is in the LVP business largely. Ambulatory has some economic value around it. The other pieces don’t have that much economic value associated with them. So it’s really what do you need to deliver it to the customer with. There are ways to participate in those markets and, as you can imagine, we have been thinking about those questions for many years, and if there’s an economically sensible way to participate in them, we will.

All right. Thank you very much.

Thank you, Matt.

And our last question will come from Jayson Bedford with Raymond James.

Hi. Good afternoon. I have a few questions on different topics. Just on the capital deployment, Vivek. I think you mentioned you are trying to do some things in a tough market. You also mentioned you may have to do some traditional things. Can you just expand on those comments and maybe define traditional?

I understand your point, Jayson, regarding our market cap. While it's not the case today, we may be holding more cash than we need given our leverage, equity issuance potential, and cash requirements for our strategic goals. The logical consideration is whether we can reinvest that capital back into our business. Over the last four years, we've invested heavily in capital expenditures and have strengthened our production network. Our primary inquiry is if we can reinvest that capital into the business, particularly towards customer growth, which is our main focus. Additionally, we look at its potential to support company growth in adjacent areas. If we can achieve these objectives, we then consider how to approach returning some capital. However, we're not at that stage yet; honestly, very few—almost just one person—has asked about it, but we are aware of our responsibilities.

Okay. And the expectation should be that we should start to see some more active capital deployment by year-end? Is that a fair expectation?

No. I was trying to say, as we roll into next fiscal year, we will have probably a more formal capital allocation strategy than we have today, because people are going to be wondering, given the cash balance and where it sits.

Okay. Just a couple of product category-related questions, just on oncology. It seems like it’s back up and running as a growth category. Can you just remind us where you think adoption is both in the U.S. and OUS?

It's likely that around 65% has been converted globally, which still leaves a significant market to tap into. Additionally, there are opportunities for trading among existing accounts with various suppliers. We see potential for growth, and we're actively working to expand our product offerings and use cases to meet customer demands. There is still room for growth.

The U.S. relative to that 65% kind of worldwide conversion, is it higher or lower?

I think they are both in line.

Okay.

I mean, if you look at our estimate of the market size, you look at some of the other market participants, the other market participants probably have a larger estimate of the overall market size, and we would be delighted if that’s the case; that would imply less than 65% converted, but that’s at our speech.

Right. Okay. And just on the pump side of things, I think you entered the year with, I think, your words were over 100 basis points of committed share gain. How much of that have you been able to deploy or recognized here in the first half of 2021?

It's a bit easier to refer back to the figures we outlined earlier. We've seen $35 million in non-ambulatory products reduced in this segment, which is roughly $10 million lower this year compared to when we initially acquired the business. This suggests that we have lost a couple of points in market share up to now. I won't specify what was installed in any particular quarter, but we believe we have maintained a similar backlog starting in Q3 as we did at the beginning of Q2, and we have been actively refreshing the pipeline, which is positive.

Okay. Do you believe you are still gaining additional market share, particularly in the second quarter?

Yes. I think we had some good competitive signings we like, yes. That’s why we could say we feel like the backlog was okay at the beginning of Q3. I mean, to the question that was just asked, of course, it will be more competitive when more people have new things, but you have to fight through that; that’s business.

Right. Okay. That’s it for me. Thank you.

Good to talk to you, Jayson. Thanks.

And that will conclude our question-and-answer session for today. I’d like to turn the conference back over to Mr. Jain for any additional or closing remarks.

I hope everybody is having a good summer. I hope folks get a little bit of time off. Thanks for your support, and we will talk to you soon. Take care.

And once again, that does conclude today’s conference. We thank you all for your participation. You may now disconnect.