John Mills - Partner, ICR Inc, IR Vivek Jain - Chairman & CEO Scott Lamb - CFO.

Tom Gunderson - Piper Jaffray Chris Lewis - ROTH Capital Partners Larry Solow - CJS Securities Jayson Bedford - Raymond James & Associates Mitra Ramgopal - Sidoti & Company.

Welcome to the ICU Medical, Inc, First Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would like to induce your host for today's call, John Mills, from ICR. Sir, please go ahead..

Good afternoon, everyone. Thank you for joining us today for the ICU Medical financial results for the first quarter ended March 31, 2015. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman and Scott Lamb, Chief Financial Officer.

Vivek will start the call with a brief overview of our first quarter results and then Scott will discuss first quarter financial performance in more detail. Finally, the company will open up the call to your questions.

Before we start, 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 representation of future results and are subject to risk and uncertainties. Future results may differ materially from management's current expectations.

We will refer all of you to the company's SEC filings for more detailed information on the risk and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call we'll discuss non-GAAP financial measures, including results on 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 included a reconciliation for these non-GAAP measures for today's release and provided as much detail as possible on any addendums that are added back. With that said, I'll turn the call over to Vivek Jain. Please go ahead, Vivek..

Thanks, John. Good afternoon, everybody. It has been an active quarter at ICU as we continue to build on the positive trends that began in the latter half of 2014 and we're working hard to continue to drive performance, value and long-term growth.

We had previously talked about our first quarter results resembling our third quarter 2014 results and our actuals came in above those expectations. We generated strong cash flow and adjusted EBITDA as the operational improvements we made to ICU Medical over the last month have started to become more visible.

Today, I will illustrate the effect of the actions we have laid out on the last few calls, then characterize the currents revenue status with our direct business and our OEM customer and summarize the drivers for the growth and medium and long term.

We finished the first quarter of 2015 with approximately $81.5 million in revenues and $26 million in adjusted EBITDA. Total company revenue growth was 11%, 15% on a constant currency basis, adjusted EPS growth was 89% and adjusted EBITDA growth was 55%.

Q1 of 2014 was a lighter quarter last year, so please take that into context when evaluating our results, but we had good performance in all of our direct lines of business and somewhat unexpectedly our first quarter 2015 results were enhanced by growth in our OEM business.

Our direct operations were strong with 9% growth on a reported basis, 13% constant currency and our OEM business returned to positive territory this quarter with 16% first quarter growth on a reported basis, 18% constant currency after two years of decreasing revenues.

We will come back to the stability of the OEM business momentarily as we realize this quarter is a little different than our previous discussions. I said at every call since I've been here ICU is a company that is big enough to be big and small enough to be small where the income statement can be influenced quickly.

I think the first quarter earnings leverage and cash flow generation power we see now with just a little more revenue growth and being predictable in managing ourselves illustrates this important point. Our three core value drivers continue to be intact this quarter.

Our manufacturing scale in the category and ability to improve gross margins even with volatile volumes, the sticky nature of our products as shown in the sequential quarters on our direct business and our cash-generating abilities.

On previous calls we outlined the items we most directly control for execution around our commercial operations and operational improvements leading to margin expansion. To date, we split our energy equally around these two topics.

Specific to margin expansion, we talked about most of this work having been identified and deployed for realization in 2015. Basically, all the major renovation work around Legacy items and issues were cleaned up by the end of the first quarter as we projected.

I care just as much about the sequential quarter-over-quarter results as I do the year-over-year results which I think are sometimes misleading in either direction for a small company like ours.

When we compare sequentially versus Q4 2014, really the primary differences are $2 million more of revenue from our OEM partner and $4 million more of adjusted EBITDA.

Scott will get into detail about the drivers, but at a high level gross margins improved due to first capturing more of the top to bottom margin as we cleaned up our distribution channels. Second, through better price discipline on our critical care business and, third, through continued improvement in manufacturing.

SG&A expenses year-over-year were down approximately $2.5 million, annualizing it to $10 million we talked about last year. But please remember that GAAP SG&A includes increased non-cash equity compensation as new folks came in here last year, so actually cash expenses are down more than $10 million year-over-year.

It's great that the margin expansion story is materializing and our cash flow generation is improving, but as we said before, it has to be about revenue growth over the medium and long term for small companies like ours.

Our time and attention has rapidly been shifting to focus on revenue growth over the last few months, so let me start with some comments on our direct business which is the vast majority of sales and the item we control the most.

We have stated in improving our direct commercial operations is about two things, better sales and marketing execution and the successful launches of new products. Continuing from the last call, the main update is that the majority of our U.S. sales and marketing seats are filled now.

We're down to less than five open positions and everyone will have gone through training by the end of the second quarter. Internationally, we're down to two or three open positions, so the sales and marketing portion of our SG&A is reaching a normal run rate as opposed to the previous quarter where we still had a lot of open positions.

Q3 is likely when all costs have been in for a full quarter and then the only add backs to SG&A after Q2 will be for positions that accelerate capital deployment or continue to improve quality or manufacturing efficiencies. In Q4 of 2014 and Q1 of 2015, our direct business grew approximately 7.5% and 9% respectively, even after currency effects.

We continue to feel comfortable with our 2015 guidance, delivering an increase growth rate versus 2014 and Scott will go through the details that will show good improvement in certain areas. The second piece of improving direct commercial execution is new products.

On the last call we talked about re-launching of our newer products ChemoLock and the Diana automated compounding system. We'll only talk about these products with specific numbers in the future when we have a material amount of sales, but it is important to note that new products are starting to come into the mix for the medium term growth.

We're seeing a good level of customer activity around these products. Early returns appear positive, but we do not expect them to be material to our 2015 results.

It is good that achieving growth in our direct business is happening and it's good that we're improving our manufacturing efficiencies and cost structure, but that all has to be taken into context with the whole picture of what's going on with our OEM business.

While there have been a number of positive developments for our OEM partner that are good for us in the medium and long term, including FDA approval of their infusion pumps, better execution and alignment of their value proposition and the announced transaction with Pfizer.

But what's difficult to predict is exactly when we will see the sustained benefits of these developments. We're downstream to improvements in our pump business and we continue to believe there is a lag in feeling the positive downstream effects just like there was a lag a few years ago when they had issues selling the pump.

If there are positive effects, it will take time to realize them. As we indicated on the prior call we expect that the earlier part of this year to have better year-over-year results than the back half of the year for our OEM revenue line as inventory gets built back up in the channel.

And we said as a result we would expect our quarters to be more balanced throughout this year as compared to last year, but we didn't expect to see 16% growth in our OEM revenue during Q1. Don't get me wrong, no one likes it more than we do.

We want them to win and be fully armed for market reentry, but we believe there are unique circumstances around this quarter, including ensuring adequate inventory levels, some specific customer builds, et cetera.

When we said last November we expected this business to be down 5% to 10% to us, we acknowledged we had a different view than their published estimates.

Since then, most of the published estimates that are able to be kept current have moved essentially to flattish and I believe they announced 3% constant currency growth for their device and disposals business in Q1. The reality for us is likely somewhere between the two, but we just don't see it with enough precision today.

So, we're going to wait until Q2 when we have a lot more color on the balance of this line for the full fiscal year to offer any revision to our existing guidance. We have been burned on this item before, so we don't want to make a mistake. The macro situation around infusion therapy in the U.S.

is the best it has been for a while, but we have to be careful around the micro effects to ICU. Given recent results, we continue to feel comfort with our previous guidance on OEM business and know anything positive here is additive to the positive things going on in our direct business.

As of right now we expect our OEM business to sequentially decrease a bit in Q2 and in aggregate we expect our Q2 to resemble Q4 of 2014 from a revenue perspective. We did have one unusual item related to our OEM customer in Q1.

We recorded an accrual for approximately $7 million in March related to a minor contract dispute that started in 2013 related to some international markets. We both felt the best way to resolve the dispute was to let it play out in arbitration as the contract dictates. It was handled under confidential arbitration.

We expect no impact to our results going forward and solving this item in a one-time nature was best for us. This was by far the largest legacy cleanup item we faced. That said, even if small we don't like it and we believe we have a few shots on goal from other situations to recoup a good portion of this cash this year.

So the last year was centered around getting our foundation right, adding intensity and focus around what drives value, improving our commercial execution, investing internationally, getting the right people in the right seats and improving our cost structure.

Two quarters do not make a long-term trend, but we're encouraged by the recent results and are deeply focused on continual improvements throughout the company. As we think about the future we continue to consider the knowns and the unknowns. The knowns are the aspects under our control.

Focused on positioning ICU Medical for sustainable growth and including revamping our direct sales force with a full year in seats by the end of this year, the consistent growth of our direct infusion and oncology products, predictability of new products after they've been in the market for over 12 months and more appropriate cost structure.

The unknowns are those factors affecting our OEM partner that I just described and the potential we have for capital deployment. We believe the combination of the knowns and unknowns could set up an attractive medium-term scenario for ICU.

We were not expecting to see any positive impact from either the market reentry or the transaction of our OEM partner until the medium term for us which is 2016 and 2017. That is how we're thinking about the future.

In the short term of FY '15, we have already disclosed our goal of returning EBITDA to the peak levels ever achieved at this company which is when our OEM partner was $132 million of revenue in 2012.

We continue to believe we'll see aggregate positive revenue growth, the team continues to be deeply focused on true free cash generation coming out of the business and all of the other comments made in our Q3 and Q4 calls still apply.

We believe our Q2, 2015 call will provide a lot of incremental information including more specific actions that are occurring to drive global revenue growth, more precision on how gross margins and the improvements will play out over the year and the best picture for the full year on our OEM business. So we hope investors are eager to listen to that.

We have a real value-creating scenario with the improving cash flow in 2015 and the medium-term opportunity of 2016 and beyond. I do think we're an interesting sized company that can strategically move in a number of directions and one of a limited number of smaller med tech companies that can complete globally.

The strategic issue of having a single customer exposure of our size, even though they could be at a 10-year low in terms of percentage of overall business, is an important issue to address over time which I consider a medium term. Things are moving fast.

We're trying to improve the company with urgency, but I wanted to remind everyone as I have said on previous calls that there are still core areas we need to solidify with investments and one-time costs, quality, certain technical competencies and little bit of infrastructure to be able to deploy capital.

We need to keep working in those areas and they're not all to my satisfaction yet. I do feel the company is healthier and hungrier than we have been in many years. We're trying to take responsible action and break some of the inertia that many companies in our position face.

We may hit some bumps as we take on some of these actions and we will overcome them and emerge stronger. I really appreciate the efforts of all ICU employees to adapt, move forward and focus on improving results and our company appreciates the support we received both from our customers and our shareholders. With that, I'll turn it over to Scott..

Thanks, Vivek. Before I begin, I will remind all of you that the sales numbers we're covering, as well as our financial statements and the reconciliation from our GAAP to adjusted EBITDA and adjusted EBIT EPS are available on the investor portion of our website for your review.

Also on today's call, given the current currency headwinds in addition to providing year-over-year revenue comparisons on a U.S. GAAP basis, we will also provide year-over-year comparisons on a constant-currency basis. Now, on to reporting our Q1 results.

As Vivek already mentioned, our first quarter results exceeded our expectations and were driven by improved performance in both our direct and OEM sales channels. Total revenues increased 11% as reported or 15% on a constant-currency basis, to $81 million in the first quarter compared to $73 million in the first quarter of 2014.

In the first quarter of 2015, the stronger U.S. dollar negatively impacted international sales by approximately $2.4 million.

GAAP net income for the first quarter was $10 million or $0.60 per diluted share which includes a one-time cost of approximately $7 million already mentioned by Vivek and discrete tax benefits as compared to GAAP net income of $7 million or $0.43 per diluted share last year, an increase of 45%.

Adjusted diluted earnings per share for the first quarter were $1.02 compared to $0.54 last year, an increase of 89%. The increase in adjusted EPS was due to strong top-line growth, improved gross margin, decreased SG&A expenses and lower tax expense. First quarter adjusted EBITDA increased 55% to $26 million compared to $17 million last year.

This increase was due to the same drivers except for tax. Now let me discuss our first quarter revenue performance by market segment and you can also view our detailed market segments in our earnings press release.

For the first quarter, sales and infusion therapy increased 17% as reported and 20% on a constant-currency basis to $59 million and represented 72% of our total sales.

Direct infusion therapy sales increased to $32 million or 13% as reported and 18% on a constant currency basis and global OEMs infusion therapy sales increased to $27 million or 21% as reported and 22% on a constant currency basis.

Sales in oncology were flat as reported and increased 8% on a constant currency basis to $9 million and represented 11% of revenue. An increase in our global direct oncology sales of 11% as reported or 21% on a constant currency basis, was offset by a decrease in our OEM oncology sales of 20% as reported or 15% on constant currency basis.

As previously mentioned on our last two calls, we expect our oncology OEM sales to be flat to down through the second quarter. Our sales in critical care decreased 2% as reported and were flat on a constant currency basis to $14 million and represented 17% of our sales. Our first quarter sales for domestic and international were as follows.

Domestic sales were up 19% to $58 million for the first quarter compared to $49 million for the same period last year due to a 27% increase in OEM sales and a 12% increase in direct sales. International sales were down 3% as reported to $24 million, but actually rose 7% on a constant currency basis.

Our gross margin for the first quarter was 52.2% compared to 49.2% last year. As Vivek already mentioned, part of the improvement came from capturing more margin by leveraging pricing inefficiencies in some of our distribution channels and continued improvements in our manufacturing processes.

SG&A expenses decreased 10% primarily due to sales and marketing cost improvements we implemented last year and partially offset by higher non-cash stock incentive compensation costs. Our research and development expenses increased 19% year-over-year to $4 million as we continue to invest in organic growth opportunities in all of our primary markets.

We're introducing a number of new products into our sales channel this year but do not expect meaningful effects to our revenues until 2016. As previously discussed, we expect R&D costs to decrease beginning in the second half of the year. Now moving on to our balance sheet and cash flow.

As of the end of March our balance sheet remained very strong with no debt. We generated $13 million of operating cash flow during the quarter and increased our cash, cash equivalence and investment securities to $355 million and this equates to approximately $22 per outstanding share.

We obviously have made significant strides in improving our overall business in the past year and while we were pleased to see an increase in OEM sales, we recognize that a single quarter does not make a trend.

We would like to wait until the end of the second quarter when we will have much greater clarity around that business before updating full-year guidance. As Vivek already mentioned, we believe our second quarter earnings call will be very informative to the remainder of our year as well as lay out the groundwork for 2016.

I believe we're in a better place as a company than we have been for some time and while all of this helps drive a better 2015, it's really about setting us up for an even better 2016 and beyond. And so with that I'd like to turn the call over to your questions..

[Operator Instructions]. Our first question comes from the line of Tom Gunderson with Piper Jaffray. Your line is open. Please go ahead..

I want to make sure I understand the difference in OEM and how apparently Vivek has seen the bottom coming back out. From the prepared remarks I'm getting a sense that you feel this is mostly inventory build that got down a little low during their times and now they're building it back up.

Was that a one-time order, a constant order? Can you give us a little bit more detail on that?.

As we said on the last call we expected it to be stronger in the beginning of the year, the back of the year given their reentry and we really want them to be fully armed, right and make sure there is zero service interruptions, et cetera.

So, they order all the time very consistently, so it wasn't a spot order, I think it's just the sum of the ordering that happens every day over the course of the quarter. It's different than what we thought, right? We had said minus 5 to minus 10. This obviously is a very different situation. We expected it to be up a little bit.

We didn't expect this amount. We do think some of it was related to inventory and we do think a little bit may have been to one or two specific customer situations where there is some transition going on.

We don't believe it's going to stay at this level for the balance of the year and so I don't think we're smart enough to say it is the bottom or anything else. That is why we're saying we're not actually putting a point of view out there until Q2, this is better than we thought it was going to be..

And then we've talked in the past about R&D and critical care and trying to fill some holes there.

Is there any update on what's going on in critical care with new product development?.

Sure. We've spent a lot on critical care R&D and we're in the stages of working on a new hardware platform, as we've talked about in our public presentations. We continue to believe that that platform will be in the market by the end of this year.

That's been a big chunk of the spend and as that project reaches conclusion we expect the spend to go down. I felt we've been in a tough place in our critical care business and I got here and we had to finish making those investments to get on more solid footing. And so what I feel good about is our revenues are up and costs are down.

We continued to put money into R&D. Now the next measurement is going to be are we going to get a return on that money and get the products out the door. And so the thing we're really focused on for critical care is the new hardware platform and it getting into the market by the end of this year..

Last question on this round for Scott. Scott, when you gave us guidance for the year, the dollar was at one level, now it is even stronger. You told us what FX impact was in Q1.

Is there a delta for Q2, 3 and 4 that we can input?.

Tom, the way I think best to look at it for ICU Medical, we have a natural hedge in Europe. Most of our products we sell in Europe are manufactured in Europe and in fact of the rest of the world we get positive impact from a strong dollar from our Mexico facility, as well.

So, from a bottom line perspective we actually don't suffer from a stronger dollar and that's probably the best way to look at it from an FX perspective..

Is there a chance that you could benefit from a stronger dollar?.

Benefit more - it's probably a little bit of benefit, more so than neutral..

Strong dollar is actually a positive versus negative force. Most of our input labor costs are non-dollar denominated and we sell in dollars just about everywhere else out of Europe, so it is a good thing for us..

So we actually drop a few pennies to the bottom line because of that..

Our next question comes from the line of Chris Lewis with ROTH Capital Partners. Your line is open. Please go ahead..

I wanted to start on the OEM strength in the quarter. I understand one quarter doesn't make a trend, but this is a pretty substantial improvement over the past two to three years.

Understand you don't want to update the guidance, given the, perhaps, lack of visibility but, Vivek, maybe you can just provide some additional color on what you've seen so far this quarter in that OEM segment, just to help us try to gauge how that segment is trending from these levels..

I think you have to unfortunately go back in history and the Q1 of 2014 was about the lowest quarter we had on an OEM basis right when I got here last year. And so the growth rate looks high year-over-year.

I think when we look at the sequential numbers, that is what I was trying to say in the comments, it is basically up $2 million bucks from Q4 and then we're saying that we expected it to be down a bit sequentially.

So maybe it took a little bit more than it was running at this quarter and will give back a little bit more - took a little bit more in Q1 and will give back a little bit more in Q2.

That was sort of what we were saying and the unknown for us is the back half of the year and that is why we want to wait to Q2 to talk about it, but certainly I mean it's not lost on us, plus16 doesn't mean minus 5 to minus 10..

Vivek mentioned it is probably somewhere in the middle..

And then on the direct business that actually came in at 9% growth, I think, with FX headwinds in there, still came in above your guidance of 4% to 8% for the year.

Can you just talk about how you feel your sales and marketing initiatives that have been implemented are ramping relative to your expectations and the benefits you're seeing from those?.

Sure. I think right now, with the changes we made on the sales force and new people we're hiring etcetera, I think there are no net negatives to the equation. Sequentially our direct business was equal almost in Q1 as Q4. But, we had a huge currency issue in Q1, so it sequentially grew to a level I think we felt pretty good about.

Again, if you compare that to Q1 of last year it looks a lot better because that really was the bottom in that case of our direct business, but I think initiatives are going well and again for me the proof will be can we keep sequentially doing this, right, regardless of what the year-over-year stuff says.

And I take currency out of that equation when I am looking at whether sequentially we're doing the right thing or not..

Our next question comes from Larry Solow with CJS Securities. Your line is open. Please go ahead..

Vivek, just in terms of the macro situation, you mentioned it has been the best you've seen in several years. We sort of assume the OEM business was flat.

What growth would you expect if they just participated in market growth?.

It is different for different parts of the world. I think we see the U.S. broad market growth as 2% to 3%, probably faster in some other spots in the world. You really have to go deeper, Larry. Look at how much available U.S.

infusion channels are out there to go get given all the change that's happened over the last four years and make your own model as to what the available market and what's a realistic capture rate for them. And I think we've been appropriately conservative through that since we've started talking about it..

Okay. Just looking at your expenses, your expected expenses, just in terms of SG&A, I think on the Q4 call you had spoken about some unknowns, maybe some additional investments you might need later in the year. It sounds like SG&A looks like at least sequentially it was even down a little bit and I realize it probably benefited from currency.

I think you mentioned a little bit of an uptick in Q2, but perhaps it sounds like some of your thoughts and expenses might go up a little more in 2015 won't come true?.

No, I think it will come true. I think we're being cautious, right? We're very sensitive to adding costs until we're certain the revenues are there, so we have been trying to be conservative and cautious waiting to see what the revenue picture looked like before we put anything back in, because we made commitments about what we would take out.

I think we actually had more than $10 million of cash cost reductions. We talked about 10, but we wanted to make sure the revenues came through before we added anything back. If we can afford it, there is not some magic margin target out there that we're shooting for. I feel good about where our adjusted EBITDA margins came out this quarter.

We know what best-in-class in the industry is, but there's an opportunity to make an investment that can help us deploy capital or drive revenue growth or do something strategic we're going to make it. It's not about like hitting some magic margin number. That's just a static thing. That is [Technical Difficulty] not over long term..

I think as Vivek mentioned, look at Quarter Two. That is going to be a fairly good run rate going forward for our SG&A..

Okay. Let me turn to oncology. It seems like it sounds like that was pretty much in line with your expectations and your direct sales continue to be offset by inventory drawdowns at the OEM level.

Are you still comfortable with 10%-ish growth for the year and are you satisfied with your sales initiatives on the direct side?.

On oncology, as Scott said, constant currency growth was pretty solid, like 20%. We actually sell more oncology outside the U.S. than we do inside the U.S., I have been saying for a long time. So, we feel the pinch of currency on that line, but I think we feel really good about what we did there and then reported 11 on a direct.

Yes, we have been suffering because it's been choppy on the OEM side of that business and I think we continue to believe what we said in the last call or the call before that which is we think by the middle of this year that should bleed itself out. There was a lot of extra stuff in 2013 and I think they are doing what they can.

I do think our partner continues to be focused on that and it will get more intensity and we should see the results of it..

Just last question. Scott, do you have what the effective tax rate was on the non-GAAP number? On the $1.02..

You mean excluding the discrete?.

What was the discrete to get you - it was clearly a benefit in that number to get you to $1.01, correct?.

The discrete was about $2 million..

Our next question comes from the line of Jayson Bedford with Raymond James. Your line is open. Please go ahead..

Just digging into the top line growth a little bit on the 13% constant currency in the direct business, is there any way you can parse out whether there was a bit of a bump in market growth, share gains in any potential disruption from consolidation in the industry?.

I'll go first and see if Scott has got anything to add. I think, Jayson, again it is misleading to look a little bit - I feel for our business it is misleading to look year-over-year and so again I'm very focused are we chipping away and improving at every quarter? We did improve over Q4.

I think the components of that growth were not due to big industry changes. I think the overall consumption rate, as we talked about in the last call continues to be positive for us. We've had some wins, but there is not some sort of massive individual piece of business that we can point to. It is a lot of little things than just being focused.

So I don't think there is some big individual thing, it's really the market went up in general..

Just compare it on a constant currency basis sequentially, Jayson and then it goes back to our thoughts around our product that it's extremely sticky and I think you're seeing the results of that..

And are you seeing - I realize you're not going to quantify the new products, but are you benefiting from a pull-through of the rest of the portfolio from introducing the new products?.

I don't think we've seen any - maybe I would say on Diana system, Jayson, I think it does help us get a better conversation going around a complete solution, around closed system transfer devices oncology. Particularly high-volume centers, we have a unique offering there to make clinicians safer, more productive, et cetera.

In core IV, I don't think it's driving the attachment rate with the new valves. The new valves are their own conversations..

Okay. And your comment on 2Q revenue looking like 3Q revenue from last year, that was in reference to OEM sales, not necessarily total revenue.

Is that correct?.

Yes, that's correct..

Okay. I wanted to touch on gross margin. You mentioned capturing more value within the supply chain.

Is there opportunity for more and can you just comment on the sustain ability of this 52%?.

I'll go and then Scott will pop in.

So when we got here and we talked about cleanup activities last year, there were a number of legacy items that made a lot of sense as a small company that probably didn't make as much sense when we became the scale that ICU was and so we were passing a lot of value top to bottom to other people sitting between us and the customer and it didn't make a lot of sense.

It wasn't moving market share. And so we cleaned those items up and we get the full margin and so that's been a big driver in that. That's in the books now. That is not going to get any better.

The thing that is going to get better from here on is volume, right? More volume, any sort of revenue growth or even at these levels you see anything we're able to do, you see above these levels it would get better. If we're not above these levels, it's hard to argue it should get better. Right now we feel pretty good about--.

Improved margins..

Improved margins for the balance of this year relative to where we were last year..

Right and we'll update you in more detail how we see the rest of the year ending up margin wise, but there is sustainability to what Vivek mentioned and then the rest of the year we'll update you next call..

Was there a benefit on the gross margin line from the stronger dollar?.

No, at the gross margin line it is neutral because we get a pickup from Mexico and a slight loss from Europe..

Okay. And then just finally for me on the sales and marketing line, it looked like, what, $20 million X the legal settlement. You have to add seven, eight more sales people.

Is that pretty much it from a new cost perspective?.

Outside of anything that we would have to do to keep manufacturing margins improving, quality folks or capital deployment, people can help on that, yes, that's it. And those are all included in the guidance we gave for the year last time. The concern in Q4 was we didn't have them filled so the Q4 SG&A I felt looked too light.

We gotten a lot of them filled. Some of that just came in in February or March, so it is still not a perfect number. By the time Q3 happens everything will be for good..

We have time for one last question from the line of Mitra Ramgopal with Sidoti. Your line is open. Please go ahead..

Just a couple of questions. Vivek, just to follow up on that last question on the SG&A.

Once you have those positions filled, am I to understand pretty much at least for the next year out you don't really need to add positions, obviously, depending upon the revenue growth?.

No, I think for what we see right now that's the right number, but we will debit EBITDA margins and invest if we see something that can add revenue growth. So I don't want to put a line in the sand and say it is permanently absolutely what it is. If something can drive value, we'll make the investment.

Again, it is not perfecting margins for one quarter. I think for what we see right now and the guidance we've given, we think it makes sense. If we can do better, maybe it will change a little bit. I think we're pretty disciplined and it has got to pay itself back in a reasonable amount of time..

And just quickly on the critical care side. I believe you're planning on launching the patient monitoring platform in 2015.

I am just wondering where we're on that?.

Getting closer. We hope to release it by the end of this year..

And then finally obviously you continue to build cash and I know last quarter you indicated you were looking at something.

I was wondering if as you look at the overall improving macro environment if you can comment maybe on potential opportunities out there or is it pretty much continuing to focus on the internal business right now?.

It's hot out there. We're looking. We know we're on the clock. At the minute right now we're focused on keep driving performance in the business, keep trying to improve. Keep looking at things and when something makes sense, we'll do it. I just feel like we can't count on that happening.

It's a very robust and frothy market out there and I don't want us to make a mistake and so that's where we're..

I'm showing no further questions. I would now like to turn the call back to Vivek Jain for further remarks..

Okay. Thanks, everybody, for investing the time to learn about what we're doing here. The company is moving forward in a very positive way. We have come together as a team and serving customers well and I think we're really excited about what we're doing.

Our Q2 call I think is going to be super informative and I hope people dial into that and we're going to be working hard over the next 90 days to get there. Okay. Thanks, everybody. Thanks for the support..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..