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

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss ICU Medicals financial results for the second quarter of 2021. On the call today, representing ICU is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today’s prepared remarks. To view the presentation, please go to our Investor page and click on Events Calendars and the presentation will be under the Second Quarter 2021 Events.

Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call, including beliefs and expectations about the company’s future results. Please be aware they are based on the best available information to management and assumptions that are reasonable.

Such statements are not intended to be a full representation of future results and are subject to risks and uncertainties. Future results may differ materially from management’s current expectations.

We refer all of you to the company’s SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position. Please note that during today’s call, we will be discussing non-GAAP financial measures, including results on an adjusted basis.

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

We have also included a reconciliation of these non-GAAP measures in today’s release and provided as much detail as possible on any addendums that are added back. And with that, it is my pleasure to turn the call over to Vivek..

Thanks, John. Good afternoon, everybody, and we hope you and your families are well. With all the volatility in the broader environment over the last 18 months, our businesses in 2021 have been more normal than in a while.

Except for a few regions in the United States and a few international geographies, our hospital customers are improving activity monthly as vaccinations have progressed.

Like everyone in our industry, we want to start first by thanking all of our customers and their frontline workers for trusting us to serve you during these times and it’s been great to finally see some of our teams face-to-face around the world.

Today, we hope for a shorter call as results were generally in line with our previous comments and not that much has changed, but we did want to comment on the intra-quarter trends of our business and the geographic flows of our business, provide an update on our normal housekeeping items, highlight our improving cash flow metrics, outline how we see the near-term business, articulate how we feel about our positioning in this environment, comment on the criteria by -- and comment on the criteria by which we are judging ourselves and talk a bit about capital deployment and how we think about that given the fluid environment.

The short story on Q2 is as follows, as we described on the last call, we did see sequential revenue growth in our most differentiated business segments.

On a year-over-year basis, this resulted in a reported sales increase of 8% globally or 5% constant currency, driven by market share gains in consumables, stable IV solutions, offset by prior year COVID-related surge purchases in IV systems.

We finished the quarter with $311 million in adjusted revenue, adjusted EBITDA came in at $67 million and adjusted EPS was $1.88. It was a clean quarter with no unusual production or any other items and it highlighted the power of mix and our operating improvements as gross margins moved upwards.

We had a strong quarter of free cash flow generation and added $38 million to our balance sheet as operational improvements have materialized and restructuring and integration costs have dramatically reduced.

When looking deeper at the results, it was really specific international markets, which had year-over-year declines in IV systems due to the surge pandemic ordering in Q2 2020 that impacted the results but were offset by strong IV consumables globally.

Volumes at our customers were up everywhere around the planet, with the exception of some pockets in Asia. At the current moment, and updated from the last call, Europe and LatAm are improving on both a sequential and year-over-year basis.

Canada was down in Q2 due to pandemic orders last year and some pockets of Asia remained challenged, as I mentioned before. We do expect Asia and ANZ to improve on a year-over-year basis in Q3 and beyond. We are most tilted to the U.S.

market where we are dependent on admissions and electives, and we saw electives as pretty solid and admissions is okay. I know there’s been a wide range of commentary here from all the companies, but the simple message from us is our U.S. customers were busy.

Even within the quarter, there was month-to-month volatility, and again, we did well in the U.S. market in the face of varying utilization and acuity rates and I will describe some of that in the segment discussion. So let’s go through the businesses quickly and then come back to discuss the current environment.

Starting as usual with the Infusion Consumables, which is our largest business. Infusion Consumables had revenues of $136 million, which was a 23% increase year-over-year on a reported basis and 18% on a constant currency basis. We had 24% growth in the U.S.

market and 10% international growth, even with some negative performance year-over-year in Asia. Both core infusion therapy and oncology growth were over 20% in the U.S. market, which is extremely important to us and we had stronger sequential growth in oncology.

We felt positive about our growth products and our performance in the market sets us up well for the balance of the year. The rest of the world opening up could be additive to this, but we are cautious on a few selected geographies that are delayed in opening. As we highlighted on the last call, Q2 of 2020 was severely impacted in the U.S.

market downward. So the growth was a bit inflated, but we do believe going forward, we can be at or above these levels. Moving to Infusion Systems, which is primarily our LVP pumps and associated dedicated sets. This segment did $85 million in adjusted revenue, which was a decline of 8% on a reported basis and 10% on a constant currency basis.

On a year-over-year basis, the decline was essentially completely due to the pandemic ordering in Q2 of 2020 as we previewed on the last call.

So in the U.S., just like consumables, we held our own, even with utilization declines that impacted the dedicated pump sets with some softness in May and with continued expected deterioration in the non-LVP products. The math works because we had more of our pumps active in the U.S. marketplace than last year.

It’s been hard to follow exactly what has been happening in pumps between the loss of our installed base in the first two years when we bought the business, the decrease in non-LVP products and the growth in LVP products. Let me try to give a few facts that may help make that clearer.

First, if you go back to our comments in the middle of 2019, we were talking about our installed base of LVP pumps bottoming out in the middle of 2019. Today, as compared to that time, our U.S. LVP installed base is about 20% larger and LVP revenues are about 10% larger, reflecting our 50-50 geographic mix.

Second, at a segment level, we have had a decline of about $35 million in the non-LVP products since we bought the business to this year. The last point would be, in Q2 of 2021, we had the best quarter of competitive installation since we have owned the business and have a strong backlog heading into Q3.

The obvious question is where does this show up on the P&L and it shows up over time as we begin to get the dedicated disposables and software revenues associated with these items. I will come back to square this up against total company profits related to the historical periods.

Our installation calendar continues to be strong and we continue to not see customer capital as a constraint, and we still believe relative to our size, their solid competitive opportunity and we are focused on commercial execution here. Again, we think in the near-term of Q3, this business could be at or above current levels.

Finishing the segment discussion with Infusion Solutions, we had $78 million in adjusted revenue or an increase of 6% year-over-year on a reported basis and 5% on a constant currency basis. A little bit of the same bumpiness in May, but we were more impacted by timing of some nonhospital orders.

We continue to believe the quality of our customer book has improved, with us holding the best list of sustainable relationships versus the day we bought the business, and the entire industry has moved forward into renewals of longer term contracts.

We had a very normal quarter of production, no unexpected interruptions or planned plant shutdowns and that consistency helped us underpin our overall corporate gross margins. No change here in 2021, as we continue to believe this is an $80 million average quarterly business. Moving on to some more general updates.

Commercially, relative to last quarter, the majority of U.S. customer calls are live now and that’s also become the case in Europe. Customers are interested in getting on with decisions that have been stagnant or stuck because of COVID. Canada and some spots in Southeast Asia are still a bit challenged.

On quality, there’s nothing new, we had some successful notified body audits again that all went fine. Operationally, the manufacturing network, logistics and systems of the company are all running well. Again, in Q2, we had solid global fulfillment rates for our customers with finally no unusual challenges.

We too have some labor and raw material inflation and higher than expected transportation and logistics costs. We view the labor inflation as permanent and we don’t know whether the trans costs are permanent or not. For the time being, we have assumed they continue and if they get better, great.

On the Pfizer discussion related to the calculation of an earn-out payment, we have been engaged in an arbitration process pursuant to our agreement. Pfizer has been a solid partner and we have worked with them to cooperate in all aspects of our relationship.

Pfizer was an equity participant here and on our Board of Directors and we have tried to treat them well at every step as we address the litany of issues that came with Hospira. We feel confident with our position, but do not control the decision and expect that it will be resolved in the next few weeks.

Okay, on the other items, we are pleased that we have gotten back to strong cash flow generation. We have had a solid focus on the high hanging fruits from our integration that we talked about in 2019. Those have been about improving working capital and efficiencies and how we run.

Q2 was really clean and as we previewed on the last call, EBITDA margins did look different in Q2 even with utilization slightly below historical levels.

For a few quarters now, we have been in a place where free cash flow has been in excess of net income and what it really shows is the economics of more disposables in the mix with more IV consumables and dedicated pump sets. The simplest metric on how we judge ourselves is our businesses larger or smaller and more profitable.

That is the score, regardless of how hard we have worked, and it’s also been hard to follow the growth and value creation within the segments as the hangover from the IV Solutions challenges moved right into the COVID environment, combined with some unique interest segment issues like the shift from non-LVP pumps or the contract manufacturing work for Pfizer being inconsistent.

But we finally think we are getting to a more normal environment. To be clear in how we judge ourselves, we have said for a while, we can grow our valuable items of consumables and dedicated sets on a year-over-year basis.

From a revenue perspective, our IV consumables segment will be the largest it has ever been in 2021 and we feel good about that continuing to 2022. Our Infusion Systems segment, clearly helped by a COVID surge last year, was the largest under our ownership in 2020, and we believe our U.S.

and global installed base of LVP infusion pumps and related disposables will be the largest under our ownership in 2021. The bottoming out of the non-LVP products, combined with the wins we have and installs we are doing sets up this business well for the future.

From a profitability perspective, we are approaching the run rate profitability we had historically when we had $150 million more in uncontracted high margin IV solution sales and almost $20 million more in non-LVP products.

That is a testament to how hard we have worked to profitize the rest of our business and the power of growth and mix in the high-margin items. And this is the case without all regions having improving utilization dynamics or new products, which could be additive.

The other criteria to evaluate ourselves is are we delivering innovation and we hope on the next earnings call or two that we will be talking about important regulatory filings that are a culmination of a few years of work. Obviously, the capital deployment topic has been a real-time discussion.

I think everyone knows the challenges in this market environment, in our experience, it’s been very situational. In the case of Pursuit Vascular, we allocated capital more aggressively to something that was a high growth new market creation situation. In the case of Hospira or Excelsior, those are more turnaround or must-do type of scenarios.

But in each of those scenarios, we found ourselves in a situation where we believe we could add value to the product, company or circumstance and the counterparty felt the same way.

That’s not always the case and that’s the nature of business, situations are competitive and we have to simultaneously manage the desire to allocate capital with growth in circumstance or in any given situation. If there is alignment, we always remain open to win-win situations.

With all of that said, a bit more bluntly, we are trying to do some things in a tough market. Yes, we are probably hitting the sensible limit of cash on hand and no leverage to adequately manage the risks of an infusion business along with appropriate strategic flexibility. So we know we should have a point of view on that heading into 2020.

I believe many of our investors here know that we run ourselves lean with excess money going to quality, regulatory and R&D. We don’t want to squander our capital, we take the job seriously of allocating it as we have or will, get all of our cash back in every transaction we have done over the last few years.

And I know that kind of talk does not necessarily jive with the current market environment. But at some point, we hit a lever where we know we may have to do some traditional things.

While the pandemic introduced substantial volatility, strategically, we do think the weaknesses that are exposed in the healthcare supply chain add to the argument for all participants to be healthy and stable, which has been our commentary since we became a full line supplier.

We make essential items that require significant clinical training, capital expenditures, and in general, items that customers do not want to switch unless they have to. We are a U.S. manufacturer that’s deeply vertically integrated and has core redundancy on products that we do not produce domestically between Ensenada and Costa Rica.

We do not believe the market broadly defined once a winner take all set up in these essential items, categories and that’s before each category is assessed on its own innovation, clinical outcomes, et cetera.

In the new normal COVID-19 world where supply chain resiliency and diversity matters, we believe our essential items logically benefit and our most differentiated items are still differentiated.

So we focus on what we can control, having the best list of supportive healthy customers, win important new customers, while waiting for volumes to get back to historical levels.

Keeping our employees safe while delivering the best operational stability for customers, making sure we drive differentiation in the most valuable categories, having the best liquidity we can for a company our size, using all of the above to be prepared for whatever realignments or opportunities arise and focus on our own execution.

Our company has emerged stronger from all the events over the last few years. Thank you to all the employees, customers, suppliers and frontline healthcare workers who have supported us. Our company appreciates the role each of you has had to play. With that, I will turn it over to Brian..

Thanks, Vivek, and good afternoon, everyone. To begin, I will first walk down the P&L and discuss our results for the second quarter and then talk a little about cash flow and the balance sheet.

So starting with the revenue line, our second quarter 2021 GAAP revenue was $322 million, compared to $303 million last year, which is up 6% or 4% on a constant currency basis. For your reference, the 2020 and 2021 adjusted revenue figures, which exclude contract manufacturing sales to Pfizer can be found on slide number three of the presentation.

Our adjusted revenue for the quarter was $311 million, compared to $289 million last year, which is up 8% or 5% on a constant currency basis. Infusion Consumables was up 23% or 18% on a constant currency basis. Infusion Systems was down 8% or 10% on a constant currency basis.

IV Solutions was up 6% or 5% on a constant currency basis and Critical Care was up 2% or flat on a constant currency basis. As you can see from slide number four of the presentation, for the second quarter, our adjusted gross margin was 40%.

This was in line with our expectations and represents an improvement of 2 percentage points to last year’s second quarter gross margin and 3 percentage points compared to this year’s first quarter.

The higher gross margin reflects the benefits of favorable product mix from faster growth in our consumables business, along with higher volumes in our plants, offset somewhat by inflationary cost increases. Sequentially, two negative items from the last quarter did not repeat.

The first is the impact from the annual scheduled maintenance shutdown of our Austin manufacturing facility, and the second is the additional manufacturing and distribution costs related to the February weather events in the south.

During our last call, we said we expected adjusted gross margin for the full year 2021 to be in the range of 38% to 39% and that remains the case.

But it’s worth noting that the specific adjusted gross margin rate for any given quarter will fluctuate based on the level and mix of Infusion Systems hardware installations and the timing of our annual plant shutdowns. Moving further down the P&L.

SG&A expense of $74 million in Q2 was in line with our expectations and represents a year-over-year increase of 10% as last year’s second quarter spending was muted given it was the peak of COVID restrictions.

The year-over-year increase reflects higher selling expenses from increased sales, higher travel and entertainment expense and the impact of foreign exchange. R&D expense was $11 million for the quarter, up 10% year-over-year and up slightly relative to the first quarter of this year.

We expect the level of R&D spend to increase a bit in the back half of this year, as we get closer to regulatory submissions on a few larger projects. Restructuring, integration and strategic transaction expenses were $4 million in the second quarter versus $6 million last year.

The second quarter 2021 spending was spread across a number of smaller projects related to acquisition integration and one-time regulatory initiatives. We continue to expect full year spend to be in the range of $15 million to $20 million.

Adjusted diluted earnings per share for the second quarter of 2021 were $1.88, compared to $1.65 last year, an increase of 14%. Diluted shares outstanding for the quarter were 21.7 million. And finally, adjusted EBITDA for Q2 increased 15% to $67 million, compared to $58 million last year. Now moving on to cash flow and the balance sheet.

For the quarter, free cash flow was $39 million and Q2 was another strong quarter of cash flow generation, driven by a combination of solid earnings, declining restructuring and integration spending, and disciplined working capital management, with both accounts receivable and inventory at the same levels as Q1 of this year.

Going forward, for AR, we expect DSO to generally remain around current levels, but we may see a slight ramp in inventory over the remainder of this year to ensure that we can successfully onboard and support new business. The strong Q2 cash flow allowed us to end the quarter with $492 million in cash and investments on the balance sheet.

And just as a reminder, we do expect to make the $26 million earn-out payment for Pursuit Vascular during the third quarter. In the second quarter, we spent $16 million on CapEx for general maintenance and capacity expansion at our facilities, as well as placement of revenue-generating infusion pumps with customers outside of the U.S.

Our CapEx spending in Q2 was a bit light due mostly to timing and we expect the level of CapEx to pick up a bit over the remainder of the year. We plan to spend around $75 million for the full year.

Now on to guidance, the solid performance in the second quarter provides us enough confidence to narrow our adjusted EBITDA and adjusted EPS guidance for the full year, even in light of current inflation pressures and a less than certain COVID environment.

For the full year adjusted EBITDA, we are narrowing our previous guidance range of $245 million to $265 million to a range of $250 million to $260 million. For full year adjusted EPS, we are raising the bottom end of our guidance range of $6.50 per share to $7.20 per share to $6.80 per share and to $7.20 per share.

For modeling purposes, the adjusted EPS guidance assumes a tax rate of 21% in the third and fourth quarters. To summarize, our results for the second quarter were very much in line with the expectations we had set for ourselves at the beginning of the year and reflected continued recovery of non-COVID volumes within U.S. hospital systems.

We also saw continued sequential topline growth in our most value business -- most valuable business unit of consumables, implemented a record number of competitive pumps, recorded the highest adjusted gross margin since Q3 of 2019 and generated strong free cash flow.

Overall, we are pleased with the business performance in the second quarter and feel good about our opportunity to drive growth in our most differentiated businesses going forward. And with that, I’d like to turn the call over for any questions..

[Operator Instructions] And we will now take our first question from Larry Solow with CJS Securities..

Great. Good afternoon guys. Vivek, maybe you can just discuss real quick from a high level. You mentioned sort of elective surgeries and whatnot certainly coming back.

But overall, utilization sounds like is it still a little bit a little volatile, more than you would like to see, obviously or are we pretty much back to normal with exceptions of some pockets here and there?.

Yeah. Hi, Larry. Different answer depending on where in the world, so Asia for us, where we have high pump share in a few specific geographies. I will give one example, Philippines, right, has been very volatile, where it’s just literally shut down quickly. There’s a few spots like that. If that’s really a U.S. oriented question, I think, we probably….

Yeah….

We -- but for us on the systems business, half the business is outside the U.S. As it relates to the U.S. business, I think, we are probably a bit more optimistic than some of the broader commentary we heard out there. We think it is closer to normal. It’s not all the way back but it may just be 1% or 2% down to normal.

There are different mixes of acuity, et cetera, around. But if you read the public hospital companies that have reported, clearly, most of them are stepping on the gas a bit, right? And that’s -- it’s felt to us, there’s been a little bit of a disconnect from what we have heard from all the suppliers on that.

So I think we are probably more in line with what the at least the public folks on the hospital set are reporting..

Right. And the consumables growth, obviously, off a trough last year, but I think its 10% higher, I think, than your highest quarter sales, last -- I think, post-Hospira.

So it sounds like its mostly sustainable, maybe we could -- maybe we flat line a little from this level or is there some catch-up in there, anything -- doesn’t sell anything unusual, right? Just more normalized demand?.

I mean, I think, in the prepared remarks, the last sentence was, I think, we feel like we can stay at or above this level heading into Q3. There were competitive wins in there.

So it wasn’t all just catch up and it obviously makes a big difference in margins, et cetera, right, so?.

And how about that in terms of the competitive implementations, installations, is there some catch-up there or is that sort of correlate well with the pace of new business wins, is there any -- is that a little bit more choppy also?.

I think a different answer by business unit there and so if you think about the consumables business….

Right..

… by and large, I think, we have gotten pretty good at installing with as efficient means as possible, whether that’s video, online, et cetera, with limited disruption at the customer site only when they really need it and request it. Still have to do some of it, much more invasive on the hardware side.

As we talked about in the last call in March, we had a really good calendar set up for Q2. It mostly stuck together. That said, with what’s going on right now, again, disruptions are starting a bit. I think we still feel good relative to the size of our backlog.

But that does have a little bit of volatility in -- you know the spots in the country where things are not moving in the right direction and some of those schedules are getting pushed at that..

Got it.

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

I think, I will let Brian give his thoughts on this. I mean, I think, we have said on these calls, we are never -- it’s up -- we are never going to get back to that kind of 43, 44, where we were when we had a lot of high margin….

Right. Okay..

… solutions flying through, but we said the low 40s certainly was our goal, but it dependent on what we are installing on the hardware side. To the extent we are gaining share in there and driving more consumables and the regular consumables business is growing, it certainly puts us in the best position to do that.

We had a lot of hits in the last few quarters in terms of weather events and volatility in production, so that all went away. We saw the plant shutdown.

The other things that’s why Brian was reiterating the annual number there, but I don’t know, Brian, what else you would add to?.

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

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

Thanks Larry..

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

Great. Thank you for taking the question. Vivek, it seems like you have hit a point where you fixed mostly everything you really wanted to fix with this business and you have gotten through some -- just kind of major events over like the last couple of years.

Just curious where is your primary focus from here, is it optimization of margins, revenue growth, like what is your balance sheet, capital allocation, look like where is your primary focus?.

Thank you. Hey, Matt. It’s good question. One, I mean, I think we, the team, I mean, a lot of people have really worked hard to almost get back to that level of profitability, we had with a very different looking income statement with a very different looking revenue number from a few years ago. I think our priorities are equal.

We still have to -- you create value by creating new markets. So the most valuable thing we do and these spots like on some of the dialysis spots or on oncology or some of the custom products, creating new markets is the most valuable thing we do. That’s our biggest priority. The second thing is the share gains across the different parts of businesses.

It is a competitive market. I mean we can see it in the tension of all suppliers and we have to execute well to create value there. Third thing is we got to get new products in the market. We recognize we have been a little bit quiet on that, that’s intentional and I think that will start to become more visible.

And then, lastly, it is capital allocation, because we are in a capital rich, so to speak, relative our market cap environment and we come from that background and so we do spend time thinking about that.

It’s just a very unique time in the market, as you certainly can appreciate, right? I think it’s evenly among those four and my colleagues across the company, they have another one, right, which is always ever present, which is just serving the customer well.

That is really why we have been able to call a lot of this thing back to the quality and the book we have. We are very, very focused on growing and protecting it..

Okay. And that leads to my next question, I think, what -- we are likely to get, I think, and your team is likely to get a lot of questions around what happens when competitors launch new pumps and another one gets back on the market more effectively versus medical necessity.

Just first, could you just help explain what percentage of your sales are actually tied to that capital purchase? And then, just secondly, do you feel like you can defend your position in any gain share in a more competitive market?.

Yeah. Sure. It’s a great question and one that we think about. When we got into this four years ago, we bought a business that had lost half of its market share in IV pumps, maybe a bit more. And we also entered a moment where a lot of the technology that they had out there that ultimately we have out there was not new.

It was old technology that was easy to pick off. The first act was sort of refreshing the installed base with the latest technology app. So we did that virtually all of our customers and this is more of a U.S. answer globally, the business kind of sets up a different way. Virtually all of our U.S.

customers, for the most part, are holding newer technology. So in terms of going backwards and taking our installed base from us, which is what was happening, I think we believe that’s a harder thing to do and we have gotten deeper with those customers across the broader categories.

Going forward, we need to continue to articulate our value proposition on the quality of the technology, on the economics around the product to keep taking share. Again, we are pretty small. Of our -- to get to the second part of your question on the numbers, our IV systems business is 50%-ish or so OUS and 50% U.S.

and so we don’t need a lot to keep us moving in the U.S. market if we are holding on to our base reasonably well.

And so we think there is a case to find those customers who do want to make a change and we -- at some point, we will get out here and talk openly about numbers and installed base and stuff and I think that will show that there is market to take. It’s obviously going to be more confusing for a customer, but it’s also a good time for customer.

We have three or four choices and we have a lot of products around this area that drives clinical value, and we just need to market and execute commercially..

And when you think about....

And I guess, the last point -- Matt, the last point I’d make there, sorry, just having been around this stuff for a long time. Infusion moves pretty slowly, right? It takes a long time to have market share changes or new entrants come into new products. It’s great that there’s innovation.

I think it’s great for patients, great for our providers, but things don’t move that fast..

Okay. And then just when you think about the portfolio cleanup, the ambulatory and the declines in the PCA.

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

I mean the money in the infusion hardware business, right? The money is in the LVP business largely. Ambulatory has some economic value around it. The other pieces don’t have that much economics associated with them. So it’s really what do you need to deliver it to the customer with.

There are ways to participate in those markets, and as you can imagine, we have been thinking about those questions for many, many years, and if there’s economically sensible way to participate in them we will..

All right. Thank you very much..

Thank you, Matt..

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

Hi. Good afternoon. I have a few questions on different topics. Just on the capital deployment, Vivek. I think you mentioned you are trying to do some things in a tough market. You also mentioned you may have to do some traditional things.

Can you just expand on those comments and maybe kind of define traditional?.

Yeah. I mean, I -- it’s not lost on us, Jayson, relative to our market cap. We are -- at some point, I am not saying it’s today, but at some point, we are probably carrying a bit more cash than we would responsibly need between leverage and the equity we could issue and cash to meet our strategic objectives.

So the natural thing would be to think about could you put that money first back into your business? I mean, we put a ton of CapEx in the last four years. We have really sharpened and solidified the production network.

But the first question we ask, can we put that capital back into the business? Saying we deploy it toward customers to grow the business, that’s the most interesting, then can we put it to help grow the company in adjacencies.

And if you can still do all of those things, and the obvious question is how do you think about returning some capital? We are not there yet, frankly, very few -- almost none, really one person only ask us about it, but it’s not lost on us. I am just saying, we know what we are supposed to do..

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

Is that a fair expectation?.

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

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

and OUS?.

Ballpark, it’s probably 65% or so converted globally. So there’s still a decent sized market to go out there and get and then there’s also trading in existing accounts between the various suppliers. So there’s room -- there’s headroom left and the way we are delivering the products, we try to keep expanding the SKUs and the use cases.

So we are trying to grow the market just follow the needs of the customer. There is headroom..

The U.S.

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

I think they are both in line..

Okay..

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

Right. Okay. And just on the pump side of things, I think you entered the year with, I think, your words were over 100 basis points of committed share gain.

How much of that have you been able to deploy or recognized here in the first half of 2021?.

Yeah. I guess, I -- it’s a little bit of an easier answer just to kind of go back to the math in the script that we were illustrating there, which is we have had $35 million of non-ambulatory products go away in the segment. The segment is maybe $10 million less this year or so ballpark than the originally when we bought the business.

So that would imply a couple of points of market share have been clawed back through today. That’s sort of how the math works. I don’t want to get into exactly what was installed in any given quarter.

We were just trying to say, we felt we are holding as much backlog starting in Q3, as we were holding a start in Q2, which we have continued to refresh the pipeline, which is good..

Okay.

And do you still -- do you feel like you are still gaining additional share with, I don’t know, like get into every month here, but do you feel like you captured some additional share here in 2Q?.

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

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

Good to talk to you Jayson. Thanks..

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

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

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