Icu Medical Inc/De Q4 FY2021 Earnings Call

Thank you for your patience. This is the conference operator. Welcome to the ICU Medical Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to John Mills, Managing Partner with ICR. Please go ahead.

Great. Thank you. Good afternoon, everyone. Thank you for joining us today to discuss the ICU Medical financial results for the fourth quarter and full year of 2021. 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 fourth quarter of 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 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 also discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period. 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.

Thank you, John. Good afternoon, everyone. I hope you and your families are doing well. It has been another busy three months since our last call, which included finalizing the acquisition of Smiths Medical and experiencing strong sales across our most differentiated businesses. The ongoing volatility in the supply chain and hospital census for our customers, as we outlined in previous calls, resulted in a more challenging quarter than we encountered in the first half of 2021. Q4 showed balanced improvements across all regions. Like others in our industry, we want to extend our gratitude to our customers and their frontline workers for trusting us during these times. It has been wonderful to meet many of our new colleagues from Smiths Medical as our teams have visited most sites and production centers in person. While the results for Q4 were generally consistent with our earlier comments, we want to take this opportunity to discuss the year-over-year drivers for our three main legacy ICU businesses, provide insight into anticipated growth for the upcoming year, highlight profitability improvements expected in 2022 despite current market volatility and inflation, briefly review performance over the past few years using the criteria we typically apply in these calls, outline the current challenges and opportunities we see with the Smiths businesses six weeks into our ownership, discuss the range of outcomes anticipated for the first two quarters, detail our priorities for the near, medium, and long term including our perspective on connected care, and conclude with a summary of our value creation outlook post-deal. In summary, Q4 revealed sequential revenue growth in our differentiated business segments and stability in IV Solutions. Year-over-year, we reported a 7% increase in sales, driven by market share gains and increased usage of IV systems and consumables, partially supported by some pandemic-related ordering amidst a challenging supply chain. We ended the quarter with $330 million in adjusted revenue, $64 million in adjusted EBITDA, and an adjusted EPS of $1.82. It was another solid quarter, despite some costs associated with the transaction and our maintenance shutdown in Austin, highlighting additional costs that impacted gross margins. We generated an impressive $61 million in free cash flow and ended with $572 million in pre-transaction cash after allocating some funds for the Pursuit Vascular earn-out and a small international deal. Analyzing the results more closely shows that growth reasons differed from those in Q3 to Q2. Growth in consumables was fairly balanced between the U.S. and other regions, compared to the previous quarter, which saw a significant increase primarily in the U.S. business. Europe and Asia also experienced substantial growth compared to the easy year-over-year comps from the prior period. Notably, our U.S. customers managed COVID spikes alongside routine procedures and admissions, which appeared solid. As we indicated earlier in the year, international markets have returned much closer to normal. We recognize the various perspectives offered across the industry, yet our message emphasizes that our U.S. customers dealt with COVID spikes within their day-to-day operations. Now, let's quickly review the businesses before addressing the current environment. Starting with Infusion Consumables, our largest segment, we recorded revenues of $148 million, a 20% year-over-year increase in both reported and constant currency terms. The U.S. market grew in the mid-teens annually, while international markets were in the mid-20s, both benefitting from low volumes at the end of 2020. Global core IV therapy experienced over 20% growth, with oncology around 15%. We've previously expressed confidence in the U.S. market and how our growth products would perform as global markets opened, which proved accurate. Our improved market position and the finalization of the Hospira integration have allowed us to refocus on our core clinical marketing. Recent positive media coverage regarding the U.K.-based NICE guidelines for our ClearGuard product also gives us optimism, and we expect further evidence-based data on our broader portfolio since consumables remain a highly clinical product. Additionally, the continued pandemic ordering, stemming from COVID spikes in some areas combined with industry shortages, likely encouraged wholesalers and direct customers to increase their ordering frequency. Looking ahead to 2022, we anticipate mid-single-digit growth in this segment, anticipating eventual destocking in the U.S. market that has yet to materialize. Moving to Infusion Systems, primarily our LVP pumps and dedicated sets, we reported $93 million in adjusted revenue, a 1% increase on a reported basis and 2% on a constant currency basis. This annual growth was primarily due to implementing more competitive pumps earlier in the year, increasing demand for dedicated sets partly related to COVID spikes. We experienced delays in installations due to the Omicron surge, yet concluded with our best year for competitive installations. We expect this segment to also achieve mid-single-digit growth in 2022. We do not see capital as a customer constraint; however, nursing and labor shortages, along with COVID fatigue, are ongoing concerns. Despite this, we believe there is solid competitive potential as long as we maintain strong commercial execution. Lastly, Infusion Solutions recorded $77 million in adjusted revenue, reflecting a 7% decline year-over-year. While we managed well in the initial seven quarters of COVID, we faced challenges from Omicron and raw material issues in Q4 consistent with the industry trend, and could have sold more with a healthier supply chain. Improvements have been noted since mid-December and early January, and we believe we've correctly budgeted for 2022. This business is expected to stabilize around $80 million per quarter, although Q1 holds some potential weather-related exposures and difficulties attributed to Omicron. Regarding EBITDA and profitability for the legacy ICU business, inflation has eroded a considerable amount of incremental contribution margin from additional consumables and dedicated set sales. We estimate a rollover effect into 2022, impacting our profits. Nevertheless, we project meaningful EBITDA improvements for 2022 from $265 million to $285 million for the ICU standalone segment. While labor trends are likely permanent, predicting the permanence of other categories is more challenging. We contend that many of the raw materials or transportation services have become notably more expensive in a post-pandemic environment despite overall healthcare utilization remaining below historical levels. In the context of our ongoing evaluation of the Smiths assets, our primary objective is to ensure our businesses grow larger, and are increasingly profitable over time. Our consumables business has doubled its size since the pre-Hospira days, leading to improved economies of scale. We anticipate our pump business will exceed $360 million in revenue for 2022 with minimal non-LVP impact, even though full optimization remains a goal as we integrate the asset base. Meanwhile, our Solutions business has seen a significant decline since its peak in 2018, with inflation impacting profitability. The primary rationale behind the Smiths transaction is to enhance product offerings for those businesses driving our returns and introduce logical adjacencies based on characteristics such as low capital intensity and opportunities within single-use disposables. As we are now six weeks into this acquisition, we believe the combined portfolio will offer substantial long-term opportunities, albeit we are entering during a challenging period. One key challenge continues to be execution issues, particularly ensuring reliability as a supplier. Similar to prior situations at Hospira, any neglect here has resulted in back orders, fulfillment challenges, and low product inventories, all occurring in a market with significant demand. There's no issue with the products themselves; rather, it’s about returning to fundamental operational effectiveness. Another challenge is related to quality interruptions. Frequent changes in personnel and strategies have complicated maintaining consistent quality processes, highlighted by a public warning letter issued to Smiths in 2021. Running a compliant quality operation is essential, and our team brings substantial experience in this area, focusing on necessary investments and decision-making to improve quality management systems. Our main priorities include addressing current issues to stabilize our customer base while executing on existing synergies. In the medium term, this means delivering incremental innovation, connecting our pump platforms with IT, and enhancing the consumables portfolio. Looking further ahead, we aim to broaden markets both inside and outside the hospital environment while enhancing our Infusion Systems business, which already holds a significant market share in home care. From a value creation perspective, we foresee two scenarios for the Smiths Medical acquisition. The best-case scenario involves improved execution leading to better top-line performance, while the worst-case retains headwinds but allows for operational improvements and solid cash returns. Either outcome generates value relative to our acquisition targets. Achieving core profit levels for Smiths Medical aligned with our differentiated businesses is our minimum standard, with prospects for rapid returns once we ascertain what incremental CapEx will be post-integration. We aim to maintain clarity around revenue reporting, particularly for product lines that may be non-strategic or loss-making. The income statement will become complicated this year as products and teams merge, but we remain committed to measuring performance across our legacy ICU businesses separately for comparisons. Despite pandemic-induced volatility, it strengthens our argument for stable supply chains in healthcare, aligning with our commitment as a full-line supplier. Smiths Medical also addresses essential products requiring significant clinical training and investment, creating a scenario where customers seldom switch suppliers. The market needs Smiths Medical to be a reliable supplier, further enhancing our combined position. We are confident that our company has emerged stronger from recent challenges. Thank you to our shareholders for your patience and to our teams and new colleagues from Smith for embarking on this journey to create value together. Thank you to our customers, suppliers, and frontline healthcare workers as we continue to improve. Now, I’ll turn it over to Brian.

Thanks, Vivek, and good afternoon, everyone. To begin, I'll first walk down the P&L and discuss our results for the fourth quarter, including a recap of full year performance for the business. I'll then move on to cash flow and the balance sheet before wrapping up the discussion with our guidance for 2022. As a reminder, the Smiths Medical transaction closed on January 6, 2022, and the historical results being discussed today will not include Smiths Medical. However, our 2022 guidance will include the expected impact from consolidating the Smiths Medical results beginning January 7. So starting with the revenue line. Our fourth quarter 2021 GAAP revenue was $341 million compared to $320 million last year, which is up 6% reported or 7% 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 3 of the presentation. Our adjusted revenue for the quarter was $330 million compared to $309 million last year, which is up 7% on both a reported and constant currency basis. Infusion Consumables was up 20% on both a reported and constant currency basis. Infusion Systems was up 1% reported or 2% on a constant currency basis. IV Solutions was down 6% reported or 7% on a constant currency basis, and Critical Care was up 5% reported or 6% on a constant currency basis. When looking at full year 2021 adjusted revenue on a constant currency basis, the business in total was up 4% compared to 2020, and we grew our largest and most valuable business of Infusion Consumables by 15%. Overall, we were pleased with this level of performance, given the volatility and other challenges presented by COVID. As you can see from Slide number 4 of the presentation, for the fourth quarter, our adjusted gross margin was in line with our expectations at 39% and was the same as the fourth quarter last year. On a year-over-year basis, we were able to offset the negative impacts from inflation with favorable mix driven by faster growth in our highest margin business of Infusion Consumables. It's also worth noting that both the current and prior year fourth quarter adjusted gross margin rates reflect the impact of the annual scheduled maintenance shutdown of our Austin manufacturing facility. For the full year, our adjusted gross margins were 39%, which is the high end of the range that we communicated in our initial 2021 guidance despite experiencing meaningful inflation, particularly in the second half of the year. SG&A expense of $81 million in Q4 was up 11% year-over-year and reflected a $6 million increase compared to the third quarter driven primarily by higher sales-related expenses from increased revenues, along with year-end adjustments related to incentive and equity compensation. R&D expense was $13 million for the quarter, up $1 million both year-over-year and sequentially compared to the third quarter, and the changes compared to both prior year and the third quarter are primarily driven by timing of project spend. Restructuring, integration and strategic transaction expenses were $9 million in the fourth quarter versus $6 million last year. The fourth quarter 2021 spending mostly consisted of expenses related to the Smiths Medical acquisition, along with one-time regulatory initiatives. Adjusted diluted earnings per share for the fourth quarter were $1.82 compared to $1.77 last year. Both the current and prior year results were favorably impacted by lower tax rates due mostly to excess benefits from equity compensation, which contributed approximately $0.10 in the current year and $0.15 in the prior year. Diluted shares outstanding for the quarter were 21.8 million. And finally, adjusted EBITDA for Q4 increased 7% to $64 million compared to $60 million last year. Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $61 million, and Q4 was another strong quarter of cash flow generation driven by a combination of solid earnings and continued strong working capital management with both accounts receivable and inventory at their lowest levels in several years. Going forward for the legacy ICU business, for AR, we expect DSO to generally remain around current levels. But we do expect to see a buildup in inventory over the next several quarters to ensure we can successfully onboard and support new business and carry additional safety stock to buffer any supply chain disruptions. The strong Q4 cash flow allowed us to end the quarter with $572 million in cash and investments on the balance sheet, even after making payments in the quarter of $26 million for the Pursuit Vascular earnout and $15 million for a small foreign acquisition. For the full year 2021, the Company generated $199 million of free cash flow after investing approximately $90 million in CapEx and restructuring, integration and strategic transaction expenses. This represented the best free cash flow year in the history of the Company. In the fourth quarter, we spent $22 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. This was in line with our expectations and brought our total CapEx spending for 2021 to $69 million. Moving forward to 2022, Vivek already provided some guidance related to our expectations for each of the businesses. So I'll cover the rest of the P&L for the new combined company. Starting with adjusted EBITDA, we expect 2022 adjusted EBITDA for the combined company to be in the range of $450 million to $500 million. Of this amount, we expect the legacy ICU Medical businesses to generate approximately $275 million of EBITDA driven by top line growth in our most differentiated businesses of Infusion Consumables and Infusion Systems offset somewhat by the impacts of inflation and foreign exchange. Specifically, compared to 2021 within just the legacy ICU businesses, we expect to absorb an additional $20 million to $30 million impact from inflation and $5 million to $10 million from foreign exchange. Next, we expect the Smiths Medical base business to contribute $150 million to $200 million of adjusted EBITDA. The midpoint of this range is a bit lower than the $190 million expected run rate that we shared back on the call in September and reflects the expected 2022 impact from the quality-related interruptions and supply chain challenges that Vivek described in his comments. Additionally, the wider range is to accommodate the uncertainty regarding the degree and the timing of the recovery during the year for these two items. And finally, we expect cost synergies to contribute approximately $25 million of adjusted EBITDA in 2022. Moving down the P&L, we expect 2022 adjusted EPS to be in the range of $9 to $10.50 per share. The vast majority of this range relates specifically to the previously mentioned quality and supply chain matters. But in addition to that, there is a $0.40 impact related to the transaction itself and includes the combined effect of: one, closing sooner than expected; two, slightly higher depreciation expense coming from the purchase accounting valuation of the Smiths Medical assets; and three, higher year one interest expense as we hedged a larger portion of the debt than originally expected in order to reduce exposure to rising interest rates in future years. The low end of the guidance range of $9 assumes limited recovery during 2022 of the quality interruptions and supply chain challenges and assumes no further worsening of the supply chain issues. The high end of the range of $10.50 reflects our upside case for these two areas and also includes some other opportunities that we didn't build into our base case scenario. Moving along to the rest of the P&L, for modeling purposes, the combined company adjusted gross margins should be around 40% after adjusting Smiths Medical's historical classification of freight and logistics costs to be consistent with ICU. And that gross margin rate does assume the quality and supply chain matters are not fully resolved this year. Interest expense is expected to be approximately $60 million. The combined company tax rate should be in the range of 21% to 23%. With the non-GAAP rate at the high end of this range, this is about 1 percentage point higher than ICU's stand-alone normalized tax rate driven by Smiths Medical's income mix. And finally, diluted shares outstanding are estimated to average 24.4 million during the year. While we expect the businesses of the combined company to generate meaningful cash flow during 2022, we anticipate a significant amount of that cash will be reinvested into three key areas. The first is the integration of the Smiths Medical business. The second is quality improvement initiatives for Smiths Medical, and the third is higher levels of inventory mostly related to the legacy ICU businesses in order to bolster levels of safety stock and allow for onboarding of new customers. The planning related to the exact amount and timing of these investments is still underway, and we will provide updates over the next few quarters. And finally, we expect our CapEx requirements for the combined company to be in the range of $100 million to $120 million in 2022. In summary, we are pleased with how we finished the year and the momentum we have in the legacy ICU businesses as we move into 2022, even in the face of a challenging environment for supply chain stability and inflation. While the Smiths Medical businesses are facing some temporary headwinds, we remain convinced of the long-term opportunity, financial returns and our ability to tackle the issues. Strategically, we needed to broaden our available markets, and we look forward to getting that portion of the business on the same trajectory as legacy ICU. And with that, I'd like to turn the call over for any questions.

Our first question is from Jayson Bedford with Raymond James.

So just a few questions. And Brian, you kind of touched on it a little bit here, but perhaps you can clarify for me. So the $450 million to $500 million in EBITDA guidance is, I think, pretty well aligned with expectations. The EPS guidance, I think, is a bit below some expectations out there. So can you maybe walk through why there's a bit wider of a variance here between the two profitability metrics?

Yes, Jayson, I think the first thing I would point out is within that EPS guidance, there are a total of $0.40 worth of impact related to the transaction itself, and most of that $0.40 relates to items that don't impact EBITDA. It's higher depreciation expense from the valuation of some of the assets and it's also a little bit of additional interest expense because we did end up hedging a higher percentage of the outstanding debt to protect ourselves in future years. So that's definitely a portion of that. In addition, it depends on kind of where you're starting as it relates to EBITDA. We had expected to do actually a little bit better than that $190 million in the first year. So we may be starting from a little bit of a higher base than what you are starting with.

Okay. Okay. Just with respect to the quality-related interruptions, Vivek, I think you mentioned that the decisions and remedies are in flight. I guess, when will you have better visibility on these dynamics? And how much is in ICU's control versus, say, reliance on any type of regulatory body out there, i.e., the FDA?

Yes, I think we are actively engaged in this situation, and I want to proceed cautiously without rushing to conclusions based on data we still need to collect. The regulatory agency has indicated that the Company has room for improvement in compliance, and it is the Company's responsibility to assess its progress with regular assessments. We recognize what this entails and are working on enhancing our systems, having navigated similar challenges in the past. There isn't a specific date we can pinpoint; it's more about our understanding, making informed product decisions, addressing technical and broader systemic issues, and finding resolutions. Work on this has already commenced, but without a definitive date, it's difficult to provide a specific number or narrower range.

Okay. And is the level of back order at Smiths, which I think you alluded to, is that a function of cleaning this up? Or is that more of a supply chain...?

I'm sorry to interrupt there. Totally unrelated, just falling down. Plenty of demand. Customers calling and asking where is my stuff every day, purely unrelated.

Okay. And then just in terms of the base business; is the expectation that EBITDA margins improve in '22 versus '21?

It's difficult to determine right now because we've projected that inflationary pressures will continue. There hasn't been any relief in expedited shipping costs, transportation expenses, or the costs of raw materials. Some of these costs are increasing at rates that are three times the Consumer Price Index or are significantly above typical prices, especially for expedited shipping when a product needs to be moved quickly. We've anticipated that these additional costs will persist throughout the year, and Smiths has also been absorbing a significant amount of these excess costs. Given this situation, it's challenging to expect an expansion of EBITDA margins if conditions remain the same. Therefore, the margin percentage is likely to remain close to our current levels. Despite these challenges, we believe we have managed to absorb a considerable amount of the pressures we've faced and are still aligned with our margin expectations for this year, allowing for reasonable year-over-year profitability. We felt slightly more optimistic about margins in September, but we incurred substantial costs in the fourth quarter that we have now included in our forecasts. This situation is evolving in real time.

Okay, I have one last question. Can you share if there was a specific level of revenue that Smith gained from the COVID situation last year? Would that anniversary potentially create some challenges for the top line in 2022?

It's hard to determine, Jayson. It was a deal, right? In the first half, when the business was owned by someone else and we were waiting, everyone's motivations varied. So it's challenging to distinguish between the effects of COVID and just trying to maximize the value of whatever could be sold at that time. I would say there are several factors at play. That’s why we want to establish the right baseline for this year and build from there.

Our next question is from Matthew Mishan with KeyBanc.

Just to start on the revenue side, when you completed the acquisition, you mentioned it was around $2.5 billion in pro forma revenue. I'm trying to clarify what you mean by core versus noncore, and what would be the appropriate pro forma revenue to consider for the combined company at this stage?

Thank you for the question, Matt. If we consider all possibilities, I don't think we're ready to fully address that. Assuming there are one or two nonstrategic assets, we wouldn’t want to give the impression that we can resolve those situations. Historically, the business ranged from $1 billion to $1.25 billion. In our January presentation, we noted that we're a $2.4 billion revenue company. Some of that adjustment was due to currency changes that occurred around late August and early September when we announced the deal, and also because we were aware of some interruptions and back orders. Therefore, we’re not providing firm revenue guidance on the Smiths segment, but we are offering good direction on the legacy ICU business. We feel comfortable stating that we are approximately a $2.4 billion company combined.

Okay. I think that makes sense. And then when you say that you're frozen at this point, does that mean you're not able to ship products from that facility? And how much revenue is associated with that?

Yes. I think when I said the word frozen I meant just in terms of like decision-making, taking a decision, deciding do this, don't do that, et cetera. And the decision-making and the people involved, things were not moving, and that's changed now. In terms of what we're able to ship or not ship, I'd rather not comment on that. There are obviously some products that we have chosen, until we understand the situation fully, to not put back into the market, and that's exactly the items we're working through right now. And there is no regulatory agency that said you can or can't do something with any product in the U.S., right? This is our own decision-making about doing things the right way.

Okay. I think that's fair then. And then the reason for the wide range of outcomes on the EPS side is the flow-through from that and the timing of that. It probably flows straight down to earnings per share at a fairly high rate given the low share count. Is that right?

That's 100% correct.

Our next question is from Larry Solow with CJS Securities.

Just a couple of quick points on the guidance. Regarding the Smiths segment, I believe they reported $190 million for the trailing 12 months last year. That figure was already adjusted for COVID, correct? They had some COVID-related profit that we excluded, right? So I hope there isn't too much more that will drop off. Is that accurate?

Actually, Larry, if you went back in history and kind of looked at their publicly audited reported number, it was probably another $230 million or something north of that. We knew some of these issues were brewing, and that's why it was Brian said we ran our model at kind of $190 million or slightly above, and that was the number we put out there. We said please use this as your assumption. And then the variance from that is exactly these two issues we described and it's picking up on this next question.

You initially thought that the timing would be delayed by a quarter or two, which you might be glad to have resolved now. However, during that additional time, there was a commitment to address certain issues, but it appears that no attempts were made. The situation may have even deteriorated, but it seems manageable rather than a critical problem, primarily related to comparative effects.

I think the first part was exactly right. We did assume they would get the house in order on these topics with a few more months of experience. Our business is a bit larger in the second half, not significantly, but a little. So there is some timing involved. However, what you mentioned earlier is absolutely correct. We are very pleased that reason prevailed, allowing us to achieve early termination, close in January, and take control of the situation. This is a crucial aspect for us, and we acknowledged it among ourselves.

Better under your umbrella than someone else's. And then on the core business, $265 million, $285 million or just $275 million midpoint. Obviously, there were some inflation this year. And I know you threw out a $20 million to $30 million number, Brian. I think Vivek in the prepared remarks, you said something what there was this year. Did you actually quantify that?

Brian, I'll take my turn. I mentioned at least $40 million or more over the two-year period, and then Brian explained the actual rollover in more detail.

Yes, it's in the range. That was the year-over-year.

Go ahead. That was an additional $20 million to $30 million incremental in 2022. Right. And obviously, on solutions, you answered part of my question. I think solutions were significantly impacted by inflationary pressures due to being U.S.-based. How about Smiths? Where is that other half coming from? Is it some legacy, or is there some inflation related to Smiths?

Larry, Brian was only discussing the legacy ICU. You are correct that we strive for transparency regarding the significant amount of inflation. It typically breaks down as we've mentioned in the last couple of calls: one-third labor, one-third raw materials, and one-third transportation. Solutions are heavily impacted by transportation costs due to shipping within the U.S., which is where we have the largest segment of our manufacturing presence. On the Smiths part, we attempted to account for that in the initial adjustment we made back in September because we anticipated more developments there. Therefore, we are not indicating that there is anything additional to report; that was included in our previous statements. We simply did not categorize the first and second issues at the levels they were at, as we expected more time to address the initial question.

Right. Okay. And I know you don't give quarterly guidance. And clearly, for cadence for the year, it's going to be back-end loaded. There's just a lot of factors, integration for one. So it sounds like maybe even more back end loaded with currency and inflation comps at least will ease in the back half. So any thoughts to that? Any color to that?

I'm looking at Brian. There are many moving parts, and I'm not sure we feel confident in making quarterly statements right now. I don't know, Brian.

Yes. As we progress further into the year, we will likely have made more progress on these two issues, which would naturally shift our focus more towards the later part of the year. However, our visibility on this matter is limited at the moment.

In terms of restructuring for Smiths, is there any possibility that you might consider selling some of their assets? Or is there anything in particular that you think about selling that isn’t central to your core business?

I believe we were indicating that, similar to Hospira, we've exited a few regions shortly after closing. There are some areas where we're considering whether we should handle it ourselves or if a distributor would be a better option, which could have a slight effect on revenues, although it won't impact earnings. Ultimately, this could improve margins on the surface. Regarding business units, it's challenging to gauge without being in a stable position to supply customers consistently. The priority is to stabilize the core business, as it will provide us with the most opportunities.

Last question, just on Pursuit Vascular. Can you remind us about the earnout there? What was the level? Is it based on sales numbers?

That was a $26 million earnout payment made based on the business achieving a specific gross margin target.

But in general, we're very pleased with what's happening there.

It's been doing very well, right? Yes. Yes, yes, absolutely.

We don't talk about clinical stuff that often, but if you have a minute look at that study, it was some pretty compelling data. So anything else?

Absolutely. No, I'm all set.

We do not have any additional questions at this time. I would like to turn the conference back over to Vivek Jain for any closing remarks.

Okay. Thanks, everybody. It's obviously an interesting world out there. We appreciate the interest in ICU. We've got a big hill to climb in front of us. We've got the right people to do it, and our team is engaged and actively involved in making this valuable. So thanks, everybody. We'll talk to you soon.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.