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

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

Good day, ladies and gentlemen, and welcome to the ICU Medical, Inc. Second Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would now like to induce your host for today's conference, John Mills, Partner at ICR. Please go ahead, sir..

Great, thank you. Good afternoon, everyone. Thank you for joining us today for the ICU Medical financial results for the second quarter ended June 30, 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 second quarter results and then Scott will discuss second 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 an adjusted basis.

We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU Medical's ongoing results of operations, particularly when comparing underlying results from period-to-period.

We have included a reconciliation of these non-GAAP measures for today's release and provide as much detail as possible on any addendums that are added back.

In addition, the sales numbers are slowly recovering as well as the Company’s financial statements the reconciliation from GAAP to adjusted EBITDA and adjusted EPS are available on the investor portion of the website for your review. And with that, I'll turn the call over to Vivek. Please go ahead, Vivek..

Thanks, John. Good afternoon, everybody. Our second quarter was a very active quarter that continued to build in the momentum of the last few quarters and we are working hard to continue to drive operating performance, value and long-term sustainable growth. We have previously talked about our Q2 resembling Q4 of 2014 from a revenue perspective.

Our actuals came in above those expectations. Q2 was a very clean quarter and we generated strong cash flow and adjusted EBITDA as both revenue growth and the operational improvements we’ve been making ICU Medical have become more visible.

Today, I will update you on some activities that are more tangible examples versus previous calls, characterized the current revenue status with our direct business and our OEM customer and summarize the drivers for growth in the medium and long-term.

We finished the second quarter of 2015 with approximately $84 million in revenues and $28 million in adjusted EBITDA. Total Company reported revenue growth was a little over 6 % and 10% on a constant currency basis. We had good performance in all of our direct lines of business and stability in our OEM business.

Our direct operations continued positive growth with 8% growth on a reported basis and 13% on a constant currency basis. And our OEM business has previously discussed, was slightly down sequentially with 4% year-over-year growth on a reported basis and 5% constant currency.

We will come back to the stability of the OEM business momentarily as we committed to giving a full year view of OEM on this call and I will conclude with some updated full year guidance and then Scott will walk you down on the P&L.

I said in every call since I've been here at ICU that our 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 earnings leverage and cash flow generation power we have seen year-to-date with just a little more revenue growth and being predictable in managing ourselves illustrates this important point. Our three core value drivers continued to be intact this quarter.

Our manufacturing scale in the category and ability to improve gross margins, the sticky nature of our products as shown in the sequential quarterly results on our direct business and our cash-generating abilities. On previous calls have largely been addressing the operational improvements leading to the demonstrated margin expansion.

And while, we do have additional margin expansion opportunities, our time and attention is rapidly been shifting to focusing on revenue growth. So today, the focus of my comments will be on the drivers for growth in the medium and the long-term.

The only comment on margin expansion is that while we have previously talked about most of this work having been identified and deployed for realization in 2015. A few new additional opportunities have emerged which I would characterize as a high hanging fruit and we hope to see the benefits of these items next year.

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.

When we compare sequentially versus Q1 2015, really the primary differences are $2 million more revenue from our direct business and approximately $2 million more of adjusted EBITDA. Scott will get into the details about the drivers, but essentially they were the same as last quarter.

We have stated that, 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, all of our U.S. sales and marketing seats are filled and everyone has been through training.

Q3 is likely when the vast majority of all sales and marketing costs will have been in for the fourth quarter including the positions that accelerate capital deployment quarter continue to improve quality and manufacturing efficiency. We still have a few international sales positions to fill and expect to have those completed by the end of this year.

Going into a little bit more detail on what we control most, our direct business. I wanted to provide some updates into the activities by business segment. As I said in the opening, our direct operations continue to perform well with 8% growth in a reported basis and 13% constant currency.

Our direct infusion therapy segment grew 11% on a reported basis or 15% on a constant currency basis. I believe frankly, the biggest driver of this has been increased utilization. We have been closely monitoring the results of the Company that produce the devices that our products attached to and it’s a logical that our growth is following theirs.

That has been supplemented by renewed focus, time and seats of the sales force and urgency to find every possible channel to sell our IV therapy products. International markets, and surprisingly Western Europe continued to perform very well. We’ve also been focused on sustainability here.

In our 10-K, we disclosed some additional patent coverage in the U.S. around our MicroClave Clear connectors. As customer preference continues to move towards Clear connectors, this new coverage is important for protecting the key features in the Calve technology then makes it best at protecting patients.

What we believe, our products are deeply sticky in nature and while we are seeing the benefits of increased utilization, it is important to make sure we are investing and defending the value of our franchise. Our oncology business and aggregate meaning our direct and OEM combined had growth of 12% reported or 22% on a constant currency basis in Q2.

We have previously talked about not disclosing separately our oncology segment between direct and OEM and only did so because we believe there was a disconnect in the inventory levels which said should have blood out by mid 2015. We believe we are there now. So we will go back to [indiscernible] providing aggregate reporting.

There is good customer momentum here as the tailwinds of increased regulatory guidelines have been adopted. Our entire sales force are trained on these products and supported by deep clinical specialist. Highlight in Q2 alongside the 12% growth include the awarding of a dual source contract to serve the U.S.

oncology network, supported by McKesson Specialty Health with our closed system transfer devices. This is one of the largest networks of independent community practices in the country and we are delighted to see the network’s commitment to clinician safety.

As mentioned on the previous earnings call we have also relaunched our newer products of ChemoLock and the Diana automated compounding system and are in the early stages of a limited market release.

We only talk about these products with specific numbers in the future when we have a material amount of sales but it is important to know that new products are starting to come into the mix for medium term growth. We are seeing a good level of customer activity around these products and customer opportunities.

Earlier returns of your positive but we do not expect them to be material to our 2015 results. In our critical care segment we reported second quarter growth of 4% on a reported basis or 6% on a constant currency basis.

This continues to be a challenging market with limited growth then I don’t think this quarter’s growth is reflective of particular trend as we had some timing and orders that just happened to making in this quarter. What we had growth the numbers are so small to pick easily have been in the other direction.

And when we viewed the results of our competitors we don’t see the same underlying market growth or utilization that we are seeing in our other businesses. The most important update in this business unit is that we did finally file the 510-K for our new hemodynamic monitoring platform.

This gives us the best chance to at least be a product parity in this segment and equally important relieves us of the significant R&D spend that will be going on for years. Relative to the short declines in critical care when I [indiscernible] ICU, this business even staying at flattish levels helps the overall value picture.

Our international sales increased to 8% on a reported basis and 20% on a constant currency basis. We see competition increasing here, but have been able to continue to find pockets of growth.

We still have a few remaining important positions to fill we have been focused on cleaning up our legacy distribution channels where we either had duplicative or less productive go to market situations. This may constant bumps in our international revenues for the balance of the year but it is absolutely the right long term value creating thing.

We are slowly starting to pick which markets to invest in more and I wish it could be faster. This quarter we did consolidate our distribution channels in South Africa for our whole business and in Australia for a critical care business.

The [sudden moves] give us an opportunity to deliver more focus and the legal entities to direct business and we hope to keep progressing these initiatives. It’s just hard for small companies though it takes time.

So it’s good that we are seeing better utilization in achieving growth in our direct businesses but that has to be taken in the context with the whole picture of what is going with our OEM business.

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

But what's difficult to predict is exactly when we will see the sustained benefits of these developments. We are downstream to improvements in their pump business and we continue to believe there is a lag in filling the positive downstream affects.

Just like there was a lag when they have their regulatory headwinds if there are positive effects it will take time to [indiscernible]. Within OEM, we did commit on the last call to giving an updated full year outlook now as we needed more time to determine what was our OEM forecast for the year.

In Q2, our OEM business had 4% growth reported 5% on a constant currency basis and was down very slightly on a sequential basis as we had previously indicated. Year-to-date our OEM business has grown 9% on a reported basis and 11% constant currency.

Given these results, our guidance from last November of that business being down minus 5% to minus 10%, where we acknowledge we had a different view than the published estimate but it is proving to be too conservative.

At this moment, we expect the balance of this year to resemble the back half of 2014 for OEM business that would imply full year results of low single-digit growth for OEM business.

As we indicated on the prior calls, we expected the earlier part of this year a better year-over-year results than the back half of the year for our OEM revenue lines as inventory got built back up in this channel. We see our partners executing well in holding their market shares evidence by the reported year-to-date results of essentially flat.

Please do not get us wrong, no one likes to see them growing more than we do and we want them to win and be fully armed from market reentry but we have been burned on this side and before and so we don’t want to make a mistake.

We see the underlying OEM business is holding steady at flat market share levels with perhaps some of the same utilization uptake we have seen. I want to be very clear that we do not control this item and have been trying to build the business that could create value independent of the results here.

Given the knowns of the items we control, what we’ve been doing in our direct business, the potential of new products and better execution and the unknowns of the OEM business that we don’t control and the potential for capital deployment, we think we have a very good case for value creation moving forward.

Even if our OEM partner revenue is flat in 2016, we believe we can still grow value and if they turn out to do better than that for 2016 or even for the balance of this year it will only be additive to our results. The macro situation around the infusion therapy in the U.S.

is the best it’s been in a while but we have to be careful when the micro affects the ICU. Given the results, year-to-date of both our direct business and our OEM outlook, we are updating our guidance. We see our direct business coming in towards the higher end of our 4% to 8% previous guidance and our OEM business coming in a low single-digits.

We are amending our revenue guidance to $325 million to $330 million and our adjusted EBITDA guidance to $100 million to $105 million. Scott will walk you down through EPS.

We’ve recognize that the midpoint implies a slight decrease relative to the first half, but we feel it gives us the flexibility to invest, clean up some historical stuff and it is a improved solid base relative to where we started and positions us well to grow in the 2016.

From a sequential perspective, we see Q3 of 2015 being between Q1 and Q2 of this year, while Q2 was very clean we will have some small charges in Q3 as we clean up a few items on legacy contracts and monetize some real estate and the net of that will bring in a little bit of cash. I’ll try to preamp some of the questions on capital deployment.

I feel like we are getting closer to earning our right to deploy capital and our infrastructure and operations are more ready to handle it. That said, it continues to be an unbelievably floppy market out there and it’s very hard to find the right value creating opportunity.

Ideally, we would find a smaller tucking approve, we can build value and then explore a larger more global opportunity. We can’t let our cash balance to tempt us too much.

So the last few quarters have centered on getting our foundation right adding intensity and focus on what drives value improving our commercial execution, investing internationally getting the right people in the right seats and improving our cost structure.

Three quarters did not make a long-term trend but we are encouraged by the recent results and are deeply focused on continual improvements throughout the Company.

In the short-term of fiscal year ‘15, we will achieve our goal of returning EBITDA to highest level ever achieved with this Company, which is one of our OEM partner was at a much higher revenue level of $132 million in 2012. We will see aggregate positive revenue growth.

The team continues to be deeply focused on true free cash generation coming out of the business and all the other comments we made on previously calls throughout life.

We believe this call will provide a lot of incremental information including more specific actions that are occurring to drive revenue growth, more evidence on the stability of the gross margins over the year and the best picture for the full year on our OEM business.

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 are an interesting size company that can strategically move in a number of directions and one of a limited number of smaller med tech companies that can compete 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 the 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 there are still core areas that we need to solidify in certain technical competencies and keep driving continuous improvement in quality. We need to keep working in those areas because they're not all to my satisfaction yet.

I do feel the Company is healthier and hungrier than we’ve 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 effort of all ICU employees to adapt, move forward and focus on improving the results and our Company appreciates the support we’ve received both from our customers and our shareholders. With that, I'll turn it over to Scott..

Thanks, Vivek. Our second quarter results were above our expectations as we achieved gains in both our direct and OEM sales channels including our infusion, oncology and critical care market.

Total revenues increased 6% as reported or 10% on a constant-currency basis, to $84 million in the second quarter compared to $79 million in the second quarter of 2014.

GAAP net income for the second quarter was $14 million or $0.83 per diluted share as compared to GAAP net income of $6 million or $0.38 per diluted share last year, an increase of 118%. Adjusted diluted earnings per share for the second quarter were $0.97 compared to $0.51 last year, an increase of 90%.

The increase in adjusted EPS was primarily due to positive top-line growth, improved gross margin and decreased SG&A expenses. Second quarter adjusted EBITDA increased 72% to $28 million compared to $16 million last year. This increase was due to the same growth drivers.

Now let me discuss our second quarter revenue performance by market segment and you can also view our detailed market segments in our earnings press release. For the second quarter, sales and infusion therapy were $58 million an increase of 6% as reported and 9% on a constant currency basis and represented 69% of our total sales.

Direct infusion therapy sales were $33 million an increase of 11% as reported and 15% on a constant currency basis. And global OEM infusion therapy sales were essentially flat at $25 million were up 2% on a constant currency basis.

Sales in oncology were $10 million an increase of 12% as reported and 22% on a constant currency basis and represented 13% of revenue. Our sales in critical care were $15 million which is an increase of 4% as reported and 6% on a constant currency basis and represented 18% of our sales.

Our second quarter sales for domestic and international were as follows. Domestic sales were $58 million an increase of 6% from the second quarter of the same period last year due to a 7% increase in direct sales and a 4% increase in OEM sales.

Due to the strong dollar in the second quarter of 2015, overall international sales were negatively impacted by approximately $2.7 million. International sales increased 8% as reported and 20% on a constant currency basis to $26 million. Our gross margin for the second quarter was 52.2% compared to 47.7% last year.

As Vivek already mentioned, the drivers were the same as last quarter including capturing more margin by leveraging pricing and efficiencies in our some of our distribution channels and continued improvements in our manufacturing processes. We expect to maintain margins at approximately 52% for the remainder of this year.

SG&A expenses decreased 16% and primarily due to sales and marketing cost improvements we implemented last year which were partially offset by higher non-cash stock incentive compensation costs. Our research and development expenses decreased 32% year-over-year to $3 million and $1.2 million sequentially.

This was primarily due to the ramping down of development costs for our new critical care market that Vivek already announced as being submitted for 510-K approval. On average for the next two quarters, we expect R&D cost to be similar to the $3.1 million we spent in the second quarter.

Our tax rate for the second quarter was 34% following the first quarter of only 16% which included discrete tax benefits. We expect the rate of 34% to continue for the second half of the year. Now moving on through our balance sheet and cash flow, as of the end of June, our balance sheet remained very strong with no debt.

We generated $12 million of operating cash flow during the quarter and increased our cash, cash equivalents and investment securities by $12 million to $367 million. This equates to approximately $23 for outstanding share.

Given the improvements to our overall business year-to-date and our expectations about the second half of 2015, we are updating our full 2015 guidance. For the full year 2015, we now expect revenue to be in the range of $325 million to $330 million compared to the previous range of $312 million to $317 million.

We expect our direct business to be approximately 6% to 8% for the year and our OEM business to increase approximately 2% to 4% year-over-year. GAAP diluted earnings per share to be in the range of $2.63 to $2.83, compared to the previous range of $2.15 to $2.25.

Adjusted diluted earnings per share to be in the range of $3.49 to $3.69 as compared to the previous range of $2.70 to $2.80. And adjusted EBITDA to be in the range of $100 million to $105 million, compared to the previous range of $84 million to $86 million.

As Vivek mentioned, the management team is working hard on the opportunities we have already identified and that are in front of us for the remainder of 2015, which will set us up for an even better 2016 and beyond.

We look forward to keeping everyone updated on our next quarter’s earning call and with that I’d like to turn the call over for any questions..

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

Hi, good afternoon guys..

Hi, Tom..

So, number of the questions I was going to ask you’ve covered so good job on the prepared remarks, Vivek you talked about doing well with increased utilization and finding those razors out there that can use more of your razor blades, can you put a little bit more color on how that’s working with your direct sales and what, is that something that was started three quarters ago or was that this year’s sales meetings, top priority, where are we in the progression of getting that utilization up?.

Hey, Tom, how are you? Thank you for the question.

I think when I say utilization, I meant more volume in the system and the things we study are pick placements, CVC placements, the companies that provide those items where we are natural followers and if we had a huge disconnect in that we would be concerned and so our goal is to try to stay ahead of those placements and say ultimately we are taking some market share.

I feel like that rising tight has been happening again I don’t want to know the exact percentages but a large portion of just environment out there. Our direct sales force supplements all that and has been work in progress and is getting better every day.

But I don’t think our direct sales force so far has driven the increase utilization that we are seeing on our acute care business. And some of the stuff we have outside of the hospital yes, we’ve been driving that in particular market share. So the two are super connected in the acute environment for me today..

Got it, thanks. Thanks for the clarification.

Then you’ve been talking about sequential improvement I get that, can you talk a little bit about sequential -- I heard year-over-year numbers on international, but I didn’t hear sequential kinds of numbers do you feel like that’s also a ramp up that that will improve through the rest of the year and into 2016?.

We don’t disclose sequential international numbers, I’m looking at Scott to make sure that’s the case.

I guess I feel like the big picture international is doing what we expected in aggregate it turned a little bit on us where Western Europe is actually kind of the outperformer relative to our own expectations and maybe Asia is [tab lighter] than we thought that wasn’t the case a year ago.

And so that that’s what difference was sequentially, yes it is growing in all markets but I think the geographies surprises where the growth was a little bit..

Okay and then last question, you talked a little bit about Hospira and Pfizer, I assume they have a transition chain that’s working to make sure everything goes smoothly when deal is finally done, has there been any contact or discussions with that transition team with you guys?.

No, I mean, we know what we -- we have normal obviously everyday business interaction with folks at our OEM Partner on the transaction and [indiscernible] we only know reading the newspaper it seem to us it take up some important regulatory clearances or conditional clearances and I assume once this all done with your from them but right now there has been nothing..

Got it. That’s it from me. Thanks guys..

Thank you, Tom..

Thanks Tom..

Thank you. The next question comes from the line of Larry Solow from CJS Securities. Your line is now open..

Hi, good afternoon.

Vivek I just wondering just on – just a follow up on the utilization question, clearly it’s more of a -- it sounds like a some of a macro industry level thing, anyway you can provide a little more color or quantify sort of how much utilization is increased or what IV therapy market is growing and even ballpark today was maybe -- was start to be growing historically and what’s sort of driving this acceleration in growth?.

Yes, it’s really the thing we spend a lot of time, we are actually [indiscernible] at a small company our information is never as good sometimes as big place despite. We spend a lot of time looking at sales debt and levels at existing customers versus new piece of business and we see very good growth rates at existing customers going on up there.

I don’t know that, it’s the market absolutely I can say there’s been a change in growth rate either our customers are winning all the whole market growth rates. So for in the right places where volumes popping up I think that’s great for us if the whole market is going up it’s great I think it could be either one of those…...

Great..

But we see the market share changes, our impact dramatic right and so it’s about what’s happening with your installed basis it seems like installed basis seeing more people. Right now, I mean that could change. I mean, we got clear that could change, right..

Absolutely..

And not spiking all that issue right now, just it was happening right now..

So that’s why you sort got to still take somewhat of a conservative stands, because you never know what is going to happen. With the 16% just to clarify on the direct side, that’s a reported number, right. So the currency adjusted number would whatever 8 or 12..

Double that, correct..

Currency adjustable will be double-digits..

So the number you gave this year initially go back to November last year. So obviously it was a little bit of currency -- and therefore the impact has gotten a lot greater. So you actually really significantly be in those numbers and then you get the offset on average..

Since the Euro has weakened, it’s that we came back and revised or guidance from, we were early last year November like most of this change happened after that..

Yes. I think that was fair..

You said, you mentioned there is a few additional opportunities for operational improvement.

Is that something?.

Yes. I that’s the top stuff, that's the top stuff deep in supply chain and manufacturing et cetera, and you can't, it doesn’t happen quickly. And so I’m happy there is more opportunities keep getting getter, it just take time..

And I know you don’t breakout or guide sort of on a component, on a different market basis. But it sounds like critical care was, it’s up whatever high-single-digits year-to-date.

It sounds like, it’s basically a pretty flat type of environment for you guys, is that sort of fair to say, so it could sort of tail back in the back half of the year?.

I think it’s exactly what we’re saying, where the trends we just talked about same-store orders might be a little different in new customer -- right, just because we were still in the whole of the business when we started. So it’s a different dynamic..

And any color on this new hemodynamic product platform you have out there.

Is it something you think can actually drive even modest revenue growth or is it something just to sort of flatten your business and stop market share bleed?.

I mean, I think that the fancy strategy we had on critical care, we’re jumping about a couple of quarters ago -- we just stopped the bleeding a little bit right.

And that product at least gets us some more priority because it's a best chance of holding a book of revenues, I mean since ICU bought that business it was a pretty difficult four or five year run with it. And so just trying to get stable is a victory..

Thank you. Our next question comes from the line of Mitra Ramgopal of Sidoti. Your line is now open..

I was wondering if you can give us a sense as it relates to the cost savings initiatives how far along are you in terms of what you are expecting to realize by the end of the year?.

I think what we’ve talked about last year, I think we started that discussion in this call last year than we believe we had 10 million of cash expenses that can come out, I think we’re showing that our cash basis, we actually did a little bit better than that this year. So I think that's not different than we talked about.

Again I just want to be super clear about it and it affects the guidance. We’re not trying to stop for some magic margin number, right. It's nice so we took those cost out even if there is a little bit more floating were out there that's harder to get and it will take a number of quarters to go get.

If there is good investment into the company, we’ve made that, revenue growth will do that..

First we’re now trying to perfect the cost savings number or margin number..

So that's been what’s behind you’re going forward, and just focusing again in terms of the existing business?.

I think we know what best in class in the industry is, I think we’re at like 33% or 34% adjusted EBITDA margin if this is going to get, and probably it’s going to get for a while.

I just don't think there is -- could we do better, maybe, but it's not worth the risk of that or the blood of that and we’ve seen other people fall down trying to [indiscernible]..

On the gross margin side, how much of a drag, if any at the Slovakia facility for you right now?.

We really don't, we haven’t broken that out. Let me try, I wouldn’t call it a huge drag. Because of the weakened euro as to we get some benefits from that as well on the manufacturing side. So I don't think that's where we want to put our focus today. It’s more like Vivek said, it's growing the topline..

Okay. Thanks.

And from a competitive standpoint, that CareFusion are being part of Becton, Dickinson; are you seeing any change in the comparative space?.

Yes, I think it will be more competitive overtime. It's an awesome company and that's the Commerce International were saying, yes, we see increased competition. I think they have a lot of resources in a lot of places..

And finally again, Vivek, I know it's only so much you can say regarding acquisitions, but I know you alluded to maybe doing a talking et cetera; with the focus be more on expanding distribution would it be trying to acquire some company with a certain technology or products to expand your existing offering, any color and that would be helpful?.

Yes, I don't think we alluded to a transaction I think that would our preference in the order if we could decide it. I think the candid answer is in this market we take either one of those scenarios, product or channel; if it drove value, it's just very hard find things that are value created..

Thank you. [Operator Instructions]. Our next question comes from the line of Chris Lewis with Roth Capital Partners. Your line is now open..

I just wanted to start on oncology. The first quarter there you hit that 10% kind of year-over-year growth and sometimes, yet how much of that improvement has been driven by the inventory backlog kind of wearing down versus the re-launch of the new products you mentioned.

And this is double-digit growth kind of a sustainable level in that segment going forward that we should think about?.

Yes. I think so, first of all to answer your question, as you know there is significant amount of revenue outside the U.S. as a matter of fact, I have talked about that in the past. And so on a constant currency basis, oncology would have been up 18% on the direct side.

And so we see continued bullish behavior coming from the regulatory side and the additional opportunities that Vivek talked about, we do not see slowdown in oncology..

I think there is some good tailwinds there, again we don’t want to get into the habit of breaking out international by product line or in the case of oncology direct versus total, I think we are very comfortable with the guidance which was double-digit three years on a reported basis. So I don’t think we are moving off that.

And by the way, the last one on new products there, the new product there which was kind of the old product and coming new product together is still in a very early soft launch. So we were very clear, it did not impact our view of this year's results..

Great.

And maybe the gross margins, couple of quarters now you have talked about efficiency within some of the distribution channels, can you just elaborate on maybe what those are exactly and if there is further opportunities for efficiencies to drive potential further gross margin expansion going forward?.

Sure. There were, last quarter I think we went a little bit more detail, over three real reasons that we have seen margin improved. One of those three reasons was getting more of the value between us and the end customer. ICUI did what a startup small company does in a very sensible way.

It had a whole series of specialty dealers [indiscernible] sat between the customer and ICUI or the mainline wholesaler and ICU and we just decided some of those things we don’t needed more and we can capture more of that value.

I would think about that as a one-time event in nature and we’ve made the transition at the end of last year that’s why picked up in Q1, it’s not going to go up better for that reason. Here now is the hard stuff the high-end include, it’s the work and manufacturing et cetera..

And then lastly and I apologize if somebody has already asked this in balance around. But internationally, you mentioned they’re still few more seats to fill, when do you expect to fill those, you also talk about some increase competition you’ve seen or you’re expecting.

So maybe can you just elaborate on both of those and maybe just provide overall outlook of how you feel your position going forward internationally? Thanks..

Sure. I mean in our prepared comments I think we said we would have the international roles still by the end of this year, we’re not going to rush and not get the right resources. So that gives us another four months in changes something we can win. In terms of how we feel, I think we feel like international growth has been terrific.

There is a lot of things that make the U.S. market pretty sticky, not necessarily all of those trends apply in international and we feel competitive intensity around there so we want to be prepared, there is no specific event point to and where not to think scale outside of the U.S. as we are in the U.S. in several months..

Thank you. I’m showing no further questions at this time. I would now like to turn the call back to John Mills for any closing remarks..

Great, thank you. Thank you everyone for listening and participating on our conference call today. As a reminder, we will be attending a number of investor events during the back half of this year and hope to see you at these events.

Thanks again for your time today and we look forward to updating you on our business progress during our third quarter conference call. And this now concludes our second quarter call..

Thanks everybody. I appreciate it..

Have a nice rest of summer..

Ladies and gentlemen, this does conclude today’s program. And you may all disconnect. Everyone have a great day..