Icu Medical Inc/De Q2 FY2022 Earnings Call

Good day, and welcome to the ICU Medical, Inc. Second Quarter 2022 Earnings Conference Call. Please note this event is recorded. I would now like to turn the conference over to John Mills with ICR. Please go ahead.

Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the second quarter of 2022. 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 second quarter 2022 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.

Thanks, John. Good afternoon, everyone. We hope you are doing well. It's been a brief 90 days since our last call, and our legacy ICU business unit revenues are on track for 2022. We've observed weekly improvements in our operational performance for the businesses that came with Smiths Medical over the past 8 to 10 weeks. The economic uncertainties surrounding supply chain issues, particularly freight and fuel, reached their highest level in Q2 since our team entered this industry. However, the difficulties with raw material availability are beginning to narrow, although volatility remains. From our customers' perspective, hospital census levels have remained stable, and demand is strong across all regions. We want to thank all our customers and frontline workers for their trust during these challenging times. While Q2 revenues for legacy ICU Medical were generally aligned with our previous forecasts, results for Smiths Medical fell short of our initial expectations. We plan to use this call to discuss the year-over-year drivers of our three main legacy ICU businesses, update the current inflation situation and its negative effect on legacy ICU profits, which largely relate to fuel costs. We will also review Smiths Medical revenues for Q2 in relation to our previous remarks, provide updates on current challenges and opportunities in the Smiths Medical businesses, discuss sequential revenue for Smiths Medical, and outline what we anticipate for each segment in the upcoming quarters to clarify our outlook for the remainder of the year. Lastly, we will explain our short- and medium-term views on revenue and profitability, and how we assess value. Regarding our Q2 2022 performance, we reported $547 million in adjusted revenues, with adjusted EBITDA at $85 million and adjusted EPS at $1.37. It was a quarter of significant investment in our operations, including inventory builds. The quarter was less straightforward due to high spending to enhance Smiths Medical service levels and integration costs that we aim to reduce next year to positively influence cash flow. Additionally, the strong dollar has posed challenges for us. Now turning to legacy ICU Medical, which presents a relatively straightforward narrative, we reported $324 million in revenue for Q2, reflecting a 6% increase on a constant currency basis and 4% as reported. We continue to experience robust year-over-year growth in our most differentiated businesses, with minimal impact from COVID, as we have been normalizing our operations predictably. There has not been significant change in underlying demand based on our previous macro-level insights. Public hospital companies have confirmed our perspective in recent discussions that elective procedures have stabilized in U.S. hospitals. Specifically, our legacy ICU businesses grew 7% in the U.S. and 6% on a constant currency basis internationally. Moving to our product segments, starting with infusion consumables, our largest category, revenues were $144 million, marking a 9% year-over-year increase on a constant currency basis and 6% as reported. Growth was primarily driven by core IV therapy and some specialty items in the U.S. However, we have faced constraints in oncology due to persisting raw material challenges, which we expect to ease by the year’s end. We are optimistic about the U.S. market, and growth prospects appear promising as global markets open up. The base for infusion consumables rose significantly in Q3 2021 due to pandemic-related ordering patterns, making currency fluctuations particularly impactful. Next, in Infusion Systems, which includes our LVP pumps and associated equipment, we recorded adjusted revenue of $87 million, a 5% increase on a constant currency basis and 3% as reported. We saw a decent number of installs in Q2 and expect a stronger second half globally compared to last year. While dedicated utilization remains inconsistent, we are prioritizing hardware sales. Customer engagement has improved as pandemic fatigue diminishes and as the industry adapts to inflationary pressures and nursing costs. We maintain our belief in solid competitive opportunities in relation to our size and continue to focus on commercial execution. Lastly, for Infusion Solutions, we reported $80 million, a 3% year-over-year increase both in constant currency and as reported. Capacity constraints are easing, and on the revenue front, this segment has absorbed a substantial portion of the inflation challenges faced by legacy ICU Medical. The unexpected inflation and pressure on profits have been primarily driven by fuel and shipping costs, with labor being more stable this year. Although there has been some surge pricing for raw materials, we believe these costs will not be sustained long term, especially given aggregate demand levels. We are committed to running stable, predictable operations while seeking price improvements when possible to illustrate the need for indexed costs to our customers, and we intend to weather the storm while maintaining focus on supply and demand balance over time. There is a tactical component to this in some regions, and we have noted price actions from larger players in the industry that we support, but we aim to address how we distribute cost items in our next contracting phase. Now, moving to Smiths Medical. I will first discuss the overall revenues and then how they align with the concerns we've covered in prior discussions, which resulted in a broader range of potential outcomes, including monthly variations in the first half of the year. The Smiths Medical businesses contributed $223 million in revenues, with vascular access at $77 million, infusion systems at $78 million, and Vital Care at $68 million. To clarify, while we improved shipping days, we also faced setbacks in the first half of Q2, requiring us to make specific fulfillment choices based on customer needs and product availability. We experienced several down days related to IT and operational issues, leading to a worse fulfillment environment in the first half of Q2 compared to Q1. Consequently, we prioritized fulfillment of critical clinical items, which resulted in sequential improvements for Smiths Medical infusion systems but impacted other segments in the earlier part of the quarter. It’s essential to focus on where we stand now, which is notably better. In prior calls, we outlined two main categories of challenges and how we're addressing them. The first category pertains to production and fulfillment. In general, the Smiths production network is performing at acceptable demand levels, with the exception of a few silicone-related items. We are working to secure supply and in-source key high-margin components while ensuring proper staffing levels in factories. Although the fulfillment process remains a challenge, it has improved since mid-May, with notable progress in June and July. We are still facing bumps in key IT systems but are actively working to enhance customer service levels, which has impacted gross margins in the short term. The second category encompasses quality-related interruptions. We've made notable strides in communication with customers and regulators and have implemented significant decisions, such as halting sales of certain older generation products while committing to timely remediation plans. This allows us to better support existing Med Fusion Syringe Pump customers. We are also making headway in addressing the root causes behind the warning letter received in late 2021. This situation is reminiscent of our past experiences with Hospira, and our team is well-equipped to navigate these challenges. While the existence of a warning letter is unfortunate, it is an opportunity for regulatory engagement, and we are optimistic about demonstrating further progress soon. Despite the expenses incurred, moving forward is crucial. Now, revisiting our segments in light of medium- and long-term profitability, we expect continued sequential growth for Smiths infusion systems as they will eventually integrate into the legacy ICU segments in 2023. Smith's vascular access is receiving increased focus, and we anticipate near-term growth, but we must execute commercially to regain market attention. Significant improvements in Smith's Vital Care are not expected until Q4, as it has seen the most neglect and represents the most international component of Smiths. Adding together our expectations for Smiths business in the latter half of 2022 with legacy ICU, we believe we will approach the original $2.4 billion annual revenue run rate despite currency pressures. Operational performance is on the rise, and we are deliberately investing to build a healthier and more stable foundation for next year. We project adjusted EBITDA of $180 million to $200 million in the latter half of 2022, leaning toward a Q4 focus. This outlook suggests a departure from our initial expectations for the full year, which weighs heavily on us. We know that the steeper ramping in the second half was challenging, and there exists a wider range of possible outcomes. After evaluating the situation through mid-May, we needed to adopt a realistic perspective. We have prioritized month-over-month improvements to ensure an appropriate exit run rate heading into next year. To discuss medium-term revenue and profitability, we can estimate around $600 million in Q4 revenues and nearly $100 million in EBITDA, akin to our projections at the end of Q1 or early Q2. Although we've faced setbacks over a few quarters, we acknowledge the positive aspects that still lie ahead, particularly in revenue growth. However, certain areas, like negative margin situations reminiscent of the Hospira deal, are present and impact our financials. Additionally, we are mindful of operational performance that leads to expedient fulfillment. We will incur over $25 million in expedited fulfillment costs this year beyond basic fuel rate increases, and we aim to reduce this amount. We have broader control over synergies, although they take longer to realize than immediate cash flow items. Although we don't directly control fuel costs, we aim to handle tactical items and their integration into specific products over time. Fuel and currency fluctuations have likely added $40 million to $50 million in expenses compared to our initial budget this year. While we will encounter offsets and other challenges moving forward, we have a significant list of self-help items that we can tackle as stability increases. Though we will skip detailed discussions of specific features today, many of these items will be independent of revenue growth. In closing, we haven't addressed the overall positioning of our combined portfolio and its importance to customers. While the situation is tougher than expected, our value proposition is clear. Similar to our experience with Hospira, we must shift the conversation from historical perceptions to demonstrating value through innovation and service. The integration of our portfolios is logical, and we believe it will open more opportunities as we serve a wider range of essential care items. For legacy ICU, our most differentiated functions will be larger than ever by the end of 2022 with suitable profitability. The core rationale behind the Smiths acquisition is to enhance product offerings in key categories that yield returns, in addition to logical adjacencies based on strong market characteristics. Despite operating in a consumer-focused environment, we believe this strategy remains valid, and significant long-term opportunities await as we leverage our combined portfolio to thrive in existing markets and pursue new value-driven markets. The construction of the Smiths portfolio makes sense, which is why it has endured. Moreover, as we stabilize our operations, additional opportunities within the portfolio may arise. Our immediate priorities remain unchanged, and while the pandemic brought considerable volatility, we believe the weaknesses revealed in the healthcare supply chain reinforce the need for all participants to remain healthy and stable, as we've advocated since becoming a full-line supplier. Smiths Medical provides vital products that require extensive clinical training and possess manufacturing barriers, making them hard for customers to replace. Our market needs Smiths Medical as a dependable supplier, and our partnership enhances this position. Our company has emerged stronger after the past few years' challenges. While we've faced setbacks, we are optimistic about future growth alongside our new colleagues, working together to drive value from our combined efforts. We appreciate the contributions of all our customers, suppliers, and healthcare workers as we strive for improvement each day. Now, I'll turn the call 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 second quarter and then move on to cash flow and the balance sheet. Along the way, I'll provide our updated outlook for the full year for each of these areas. So starting with the revenue line. Our second quarter 2022 GAAP revenue was $561 million compared to $322 million last year, which is up 74% on a reported basis reflecting the impact of the Smiths Medical acquisition, along with growth in the legacy ICU business. For your reference, the 2021 and 2022 adjusted revenue figures by business unit can be found on Slide #3 of the presentation. For the legacy ICU business, our adjusted revenue for the quarter was $324 million compared to $311 million last year, which is up 6% on a constant currency basis and 4% reported. Infusion Consumables was up 9% constant currency and 6% reported. Infusion Systems was up 6% constant currency and 3% reported, and IV Solutions was up 3% on both a constant currency and reported basis. Overall, we were pleased with the results of the legacy ICU businesses. The second quarter was the first full quarter of Smiths Medical under our ownership, and the business contributed $223 million in revenue. As Vivek mentioned, this was less than we expected as the operational challenges we discussed on our last call have taken longer to address. However, over the course of the second quarter, revenue per billing day improved from April to May and from May to June, and we expect this trend to continue for July as we finalize those results. The June revenues, when annualized, were still not back to historical levels, but we have now seen multiple months of sequential improvement since the closing of the transaction. As you can see from the GAAP to non-GAAP reconciliation in the press release, for the second quarter, our adjusted gross margin for the combined company was 36%. This was lower than we had expected due to the impact of several specific items, which fall into a few distinct categories. The first category is operational inefficiencies being driven by the current supply chain environment. Here, we saw a 2 percentage point impact to gross margin from a combination of the continued effect of lower manufacturing absorption from reduced volumes plus additional expenses related to air freight and other forms of expedited shipping to customers. Most of this expense relates to the legacy Smiths Medical operations. The second category is higher market prices for freight and diesel as well as certain categories of raw materials. The higher freight rates were disproportionately driven by the legacy ICU solutions business, while the higher raw material prices were spread more broadly. These higher freight and raw material costs reduced adjusted gross margin by approximately 3 percentage points. And the final category is foreign exchange, which had a 1 percentage point negative impact on adjusted gross margin for the quarter as a result of the strengthening U.S. dollar. As we consider the outlook for the remainder of the year, we believe we have the opportunity to improve on the first category of operational items as we continue to increase manufacturing output and improve customer fulfillment. But given our willingness to expedite shipments to ensure product availability for customers, along with the lag between manufacturing improvements and the cost recognition in the P&L, we don't expect a meaningful improvement to adjusted gross margin this year. As it relates to the categories of freight and raw material cost increases as well as FX, the outlook we have assumes current levels for the remainder of the year. Therefore, we expect second half as well as the full year adjusted gross margins to be in the range of 36% to 37%. Adjusted SG&A expense was $114 million in Q2, and adjusted R&D was $22 million. After adjusting for the first quarter close timing of Smith Medical, total operating expenses in Q2 declined compared to Q1 by approximately $7 million from a combination of cost synergies and lower personnel costs. Moving forward, we expect total adjusted operating expenses as a percentage of revenue to remain around Q2 levels for the remainder of the year. Restructuring, integration, and strategic transaction expenses were $14 million in the second quarter and related primarily to the integration of the Smiths Medical acquisition. Going forward, we expect restructuring, integration, and strategic transaction expenses in each of Q3 and Q4 to be around the same level as Q2. Adjusted diluted earnings per share for the second quarter was $1.37 compared to $1.88 last year. The prior year results were favorably impacted by a lower tax rate due mostly to excess benefits from equity compensation, which contributed approximately $0.10. Basic and diluted shares outstanding for the quarter were $23.9 million. And finally, adjusted EBITDA for Q2 increased 27% to $85 million compared to $67 million last year. Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was a net outflow of $86 million as there were a number of discrete items. During our last two quarterly earnings calls, we said we would invest heavily this year into three key areas: the first was higher levels of inventory to bolster safety stock and allow for onboarding of new customers. Here, we invested $64 million in additional raw materials and finished goods inventory, most of which was related to the Smiths Medical product lines in order to protect our manufacturing operations from supply disruptions and to better serve customers. The second area was the integration of the Smiths Medical business. And as previously mentioned, we spent $14 million on restructuring and integration. And the third was quality improvement initiatives for Smiths Medical. During the quarter, we spent $17 million on quality systems and product-related remediation work. Additionally, we spent $24 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. And we continue to expect total CapEx spending in 2022 to be approximately $100 million. In future quarters, we don't expect this same aggregate level of spending as inventory levels will stabilize. But we also don't anticipate meaningful cash flow generation for the remainder of 2022 as we will continue to invest in the Smiths Medical integration and quality system improvements. And just to wrap up on the balance sheet, we finished the quarter with $1.7 billion of debt and $271 million of cash and investments. Given the results for the first half of the year, along with recent changes in the macro environment for freight expense, foreign exchange, and interest rates, we are updating our full year guidance for adjusted EBITDA and adjusted EPS. For full year adjusted EBITDA, we are updating our previous guidance range of $450 million to $500 million to a range of $350 million to $370 million. For full year adjusted EPS, we are revising our prior guidance range of $9 to $10.50 per share to $6.20 to $6.80 per share. For modeling purposes, for the back half of the year, the adjusted EPS guidance assumes interest expense of $40 million, a non-GAAP tax rate of approximately 23%, and diluted shares outstanding of 23.9 million. In summary, addressing the operational challenges of the Smiths Medical business in the current operating environment have knocked us back a few quarters. However, for the operational challenges, we saw a meaningful improvement in the back half of the second quarter. As Vivek mentioned, this improvement gives us line of sight to exiting 2022 at a total company revenue run rate of close to $2.4 billion annually, which is consistent with our original pre-closing assumptions. The profitability of the business will remain constrained as we invest to repair the legacy Smiths Medical business and fulfill to our customers and deal with the current macroeconomic pressures. But we remain convinced of the longer-term opportunity to improve the financial performance of the combined organization with the list of items under our control. Strategically, we have broadened our available markets and are working to get all portions of the business on the same trajectory as legacy ICU. We look forward to providing updates on our progress during next quarter's earnings call. And with that, I'd like to turn the call over for any questions.

Our first question comes from Jayson Bedford with Raymond James.

I guess a few questions here. Did the back order increase in 2Q versus 1Q?

It did. Jason, you were a little bit choppy in there; different answer for different regions. The U.S. backorder actually has started to come down now. It's been longer to get the products. OUS back orders went up a little bit. Net-net, probably holding in the same place.

Okay. Can you walk through the sequential decline in Smiths sales if we normalize for a full first quarter?

Smiths infusion systems increased from Q1 to Q2, while Vascular Access decreased by about $2 million sequentially. Brian, do you have the figures for Vital Care? I believe it also dropped by roughly the same amount as those four.

About the same amount as those four.

Infusion systems saw an increase, while the other two categories experienced a slight decline, with vascular access down minimally. I'm just waiting for Brian to confirm the final care number.

And is that demand or supply related?

We didn't ship as much, Jason, so Vital Care was impacted as well. Our focus was on getting the dedicated pump sets out for the infusion business during the first four to five weeks of the quarter, which affected our performance in those two areas. However, we believe we can achieve consistent sequential growth in the Smith Pump segment moving forward. We expect to see improvements in the medium-term vascular access, although we still need to execute better. I think we will not see significant sequential improvement in the Vital Care segment by the end of this year; it has not performed as well.

And I think early on in the year, you talked about the potential contribution from the legacy business in the Smiths business. I'm just curious, within the $350 million to $370 million in the '22% EBITDA guide, what is the expected contribution from Smith?

Jason, it's challenging at this point, as we are nearly six months into the integration, to clearly differentiate the earnings between the two businesses. However, it is evident that most of the shortfall for the full year is associated with the legacy Smith Medical business.

I think Brian was trying to indicate that, Jason, when you mentioned the three points related to increased freight and raw material costs, most of that, but not all, was associated with solutions. When you take that percentage and compare it to the legacy ICU business, some extrapolations can be made. However, I do not want to imply that everything is attributed to that; some of the inflation is also occurring in the Transport Solutions business.

Okay. And then maybe the last one, and then I'll give someone else a shot. You mentioned Medfusion and kind of the reintroduction of that product. I think you also mentioned you're serving current customers. Are there any restrictions in terms of your ability to fulfill demand there?

No, I believe we have reached a point where we feel confident and dependable in the testing we’ve conducted. It’s ultimately our decision on how to introduce products to the market. We think that considering the product's history, a significant portion of the market is already using it, which keeps us occupied, and for those who are familiar with the technology, we can address existing issues in a timely manner. So, I think that's where we are starting from.

Our next question comes from Matthew Mishan with KeyBanc.

Just the first question is for me. For you to reach the lower end of your guidance for partial improvement, did something need to happen that was beyond your control, or is that a possible outcome based on your current levels of manufacturing?

I don't actually think right now, Matt, it's the manufacturing piece so much for the back half. It's all about fulfillment costs. And I think we've gotten burned certainly from January 6, which is January 6 to mid-May. We felt like we really got burned and we don't want to overestimate any rate of improvement here, right? Yes, it's great. We've had 10 weeks that have gotten a lot better. It's still expensive in 10 weeks; it doesn't make a long-term trend. So I think we're just trying to be mindful of the journey we've put everybody through ourselves.

I think that makes sense. And then last quarter, you've bucketed the quality issues around like a quarter in revenue. What does it mean in relative to that $16 million to be back to supporting existing customers?

It means a portion of that 15%, I think we feel like we can participate in now. Not all of that was related to just the common Med Fusion. So range are some other products in Vital Care, some other self-inflicted European quality holds, etc. But there is a portion of it that comes back online; that's where we're going.

And then just if things do continue to get better, is there a hangover from manufacturing absorption of the inventory that still needs to be worked through the P&L, or will things continue on a trajectory and you can actually see a better sequential improvement?

I'll go first and then let Brian speak. Right now, we're experiencing challenges because if the product is made today in less productive factories, the impact will be felt when we sell that product later. Currently, we're affected by unproductive factories in the first quarter and part of the second quarter, although some product was still moving from last fall. Those factories have become much more productive now, and the products are just beginning to enter the market. Despite any increases in labor and raw material costs, we are working to become more efficient moving forward. I'll stop there and let Brian add more.

Yes. Matt, in response to your question, there is a slight delay between the actual improvements in manufacturing operations and the time it takes for those benefits to reflect in the profit and loss statement. This delay can be around 1.5 quarters before you start to see it.

I asked last quarter about whether you have lost any customers and if you have a sense of whether they are now happier with the overall process of remediation and moving forward with ICU and SMEs.

I think to give a very market-oriented answer would be, where there were lots of multiple choices in the market, I think we do believe we've lost some share, and we need to turn that back, very similar to some of the analogies we lived through in Hospira, where the products were maybe a little bit more limited in the market? Or were there were heavy capital outlays and people have equipment that's running fine where they just need a predictable disposal to shop, they've hung in there. So it's a little bit of a different answer. If it's not related to a piece of capital equipment, it's truly a single-use disposable that has lots of choice in the market; at some point, brand matters less if you can supply. There are spots where brand matters a lot; safety matters, quality matters a lot, and if it's correlated to hardware, it's even more sticky. So I think that my story, my opinion on this stuff for all participants, these products last and are a lot longer than anybody expected and are stickier than a lot longer than anybody expect, right? We've seen that in multiple versions of the story.

Our next question comes from Larry Solow with CJS Securities.

I have a couple of quick follow-up questions. Let me rephrase one. Regarding the incremental impact of inflation, which you indicated was between $45 million and $50 million since the start of the year, I assume this figure is for the entire company and not just the legacy segment. Is that correct?

Yes. That's across the company, Larry. Sorry. That's what I was trying to say.

And then that's okay ...

It was all.

And then that $25 million is right, and that $25 million of expedited freight would mostly be from Smiths. Is that correct?

Yes, that's across the company, Larry. Sorry, that's what I was trying to say.

The $25 million to $45 million could potentially decrease if inflation decreases, but we can discuss that shortly. Meanwhile, if your fulfillment and production processes are optimized, that $25 million should ultimately be reduced to zero, correct?

There's always some. We always have. There's something happening somewhere, right?

Right. A few million may be under $10 million, certainly, right?

Even in legacy ICU, you have a little bit of that here and there. So I don't want to say it doesn't happen. But none of us are very superset like this. So basically, just to be super blunt, if stuff can get on the water, again, and the forward networks get fully replenished. We're spending money now to try to get the forward networks fully replenished, so stuff can stop going in the air and can go on both and on opening up as we speak.

Right. Yes, absolutely. And then what about the possibility of exiting the year at a revenue run rate similar to what you had before, excluding currency effects? Obviously, the margins will be lower due to expedited freight costs and other factors. Do you feel that taking a step back from when you acquired Smith to now has revealed any structural issues that you weren't aware of, or do you think it will just take more time? Additionally, with the higher inflation and other costs impacting not just your legacy business but many others as well, how does that factor into your outlook?

I think when we reflect on the transaction, it fundamentally begins with revenues. Achieving revenue is crucial, especially after dealing with challenging currency fluctuations. If revenues are not properly aligned, profits cannot follow. We believe our revenues are improving daily and weekly. By the fourth quarter, we expect to be where we should have been in terms of revenue, not immediately but soon. From a profit standpoint, we're approaching the levels we anticipated three or four months into this. Admittedly, we faced delays of seven or eight months, but we now have a significantly larger book of business and more synergy opportunities across the network. If we had been operating independently, coping with inflation would have been much harder. There are advantages to being larger with our combined portfolio. Regarding guidance, as mentioned before, it's not worth risking customer disappointment while we work to stabilize. Our priority is maintaining market share, serving our customers effectively, and proving our ability to resolve these challenges. By doing so, we can achieve our revenue targets, satisfy customers, and manage our costs effectively. We have a comprehensive list of improvement initiatives that, if executed properly while keeping customers happy, can lead to substantial gains.

Absolutely. Lastly, you never want to squeeze your customers, and there are certain situations where that's not possible. Regarding pricing, as you have mentioned in several calls, a big question many industries face is how companies with large market shares are able to increase prices. I understand that your businesses are mostly contracted, but you talked about contract negotiations and renegotiations for future agreements. Do you believe you'll be able to secure higher prices? And is there a reason you can't implement a surcharge to cover fuel and other expenses, similar to what many other healthcare companies do with contracted businesses? This could be beneficial during challenging periods.

I would say that we are exploring all options. There is no ongoing renegotiation. We are trying to articulate our perspective on how we think the industry should reassess value on these matters, as traditional methods may not be applicable anymore. In the short term, we are definitely monitoring the competitive landscape and will adapt our approach if new opportunities arise.

This concludes our question-and-answer session. I would like to turn the conference back over to Vivek Jain for any closing remarks. Please go ahead.

Thanks, folks. It's obviously been an interesting 6 months. We really appreciate everybody's interest in ICU, your patience. The situation is improving, and we look forward to updating you on our next call.

Thank you for attending today's presentation. You may now disconnect.