Greetings and welcome to the ICU Medical Inc. First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr.

John Mills with ICR. Thank you. You may begin..

Good afternoon everyone. Thank you for joining us to discuss ICU Medical's financial results for the first quarter of 2022. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our Investor page and click on Events Calendar and it will be under the first quarter 2022 events.

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

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

We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call, we will also 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 Medical's ongoing results of operations particularly when comparing underlying results from period to period.

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

first, as we always say legacy ICU is most tilted to the US market where we're dependent on admissions and electives and we saw procedures improving and admissions consistent with Q4 while inventory was easing in the channel which tells us that there are less COVID spikes and lower acuity patients and maybe that's obvious given the public hospital company results.

Second, with the exception of Asia international markets are really back to normal. It's hard to show clearly, with the strong dollar impact but sequentially they are improving on a unit basis which we were talking about last year in getting back to normal.

We believe our global customers being back to some baseline and managing less COVID spikes and substantial benefit to our aggregate portfolio. We still don't know the real US baseline with a high confidence interval but it felt more normal in Q1. So let's go through the businesses quickly, and then come back to discuss the current environment.

Starting as usual with Infusion Consumables, which is our largest business. Infusion Consumables had revenues of $141 million which was a 13% increase year-over-year on a constant currency basis of 11% on a reported basis.

Both core IV therapy and oncology grew in the low teens with obviously, both looking a bit inflated as we had lower volumes in Q1 2021. We've talked in the previous calls about feeling positive in the US market and our growth product is setting us up well for the rest of as the rest of the world opened up, which is what happened.

We would offer the same general comments on the drivers. First, we're benefiting from the annualization of the new business we implemented last year.

Second, we've gotten back to our core clinical marketing building on the good press we talked about on the last call and the UK-based NICE guidelines for our ClearGuard product we now have been presenting some interesting analyses and data sets on infection reduction for our core consumables business and continue to expect additional evidence-based data on our broader portfolio.

Lastly, we did see some relief in the pandemic ordering as COVID spikes waned and wholesalers and direct customers could ease up on hitting the order button more than normal. We've always said we'd rather talk about this now versus customer destocking later.

For 2022, we continue to believe this segment is capable of mid-single-digit growth, which had incorporated some of the just mentioned channel behavior. Moving to Infusion Systems, which is primarily our LVP pumps and associated dedicated sets.

This segment did $87 million in adjusted revenue, which was an increase of 5% on a constant currency basis or 3% on a reported basis. We did have a good level of installs in Q1, which is what we talked about on the last call as installations were pushed out of Q4.

It is likely that the same underlying trends as IV consumables applied here with some softening on the US ordering levels of dedicated pump sets and us installing a larger amount of hardware, which will be new competitive pumps utilizing new sets in the future.

It feels like the customer attention is back with bandwidth have real discussions and capital still does not feel like a constraint even if customer P&L is likely quickly becoming one. It does seem some of the fatigue from COVID is abating and the acceptance of inflation and future costs of nursing et cetera are being internalized.

We still believe relative to our size, there's solid competitive opportunity and we're focused on commercial execution here and continue to see this segment as a mid-single-digit grower in 2022 and Infusion Systems will be the largest it has been under our watch. Finishing the segment discussion with Infusion Solutions.

We had $77 million in adjusted revenue or a decrease of 4% on a year-over-year basis both constant currency and reported. This segment was different than the others due to more specific industry issues of general shortage. IV Solutions was flat sequentially and again, we could have sold more if we had excess inventory on hand.

On the last call, we talked about Q1 having exposure to the hit from Omicron for a few weeks in late December and January and the weird weather in Texas in February. We're past all that now and production has improved versus the December-January timeframe. We continue to believe this business annualizes at plus or minus $80 million in the quarter.

Okay.

So, what does this all mean in the context of EBITDA and profits for legacy ICU before we turn our comments to Smiths? On the last call, we sketched out the specific math on the impact of inflation and the rollover affected in 2022 and highlighted the impact of a strong dollar and said we could still deliver meaningful EBITDA improvement with a range of $265 million to $285 million for 2022 ICU standalone.

While it's harder to measure this exactly as expenses between the business have become co-mingled, we continue to believe this is true with the only new information since the last call being the volatility in fuel and freight and the continuing saga of ensuring proper raw material availability.

We had budgeted freight cautiously for legacy ICU to start the year, but the recent events make it hard to predict what the actual costs will be.

Everything else is the same as the last few calls where we find ourselves asking the question of why some of these raw materials or transportation services are really so much more valuable over the long-term than they were before the pandemic, particularly as the total utilization for healthcare end markets is still below historical levels.

Obviously, some of these costs are indexed to CPI, but we believe in markets and when capacity increases pricing should rationalize.

So, for us it's about trying to run a stable and predictable operation in a normal environment to get price improvements where we can and to try to illustrate the customers the need to have some of these cost index and to ultimately to just ride it out, serve customers in the belief that supply and demand will balance over time.

So, now let me move to the Smiths businesses. First, talking about aggregate revenues and then how that fits broadly with the two buckets of issues we laid out on the last call, which we said could lead to a wide range of outcomes in the first few quarters and that is what's happening now.

And then I'll give some updates on progress on the issues synergies et cetera. Starting with revenues, the Smiths Medical businesses contributed $215 million with Vascular Access being the largest at $79 million, Infusion Systems of $66 million, and with Vital Care in between at $70 million.

To try to make sense of this the first question is how does this compare to historical levels, not just year-over-year or sequential, as were the same people that have been saying these are sticky categories where there's inertia and things move slowly et cetera, et cetera.

Going back 10 years and taking out the COVID-related items, these businesses have typically been in the $280 million to $300 million a quarter range. So, let me try to explain the bridge from that range to Q1 in three buckets.

The first item is really math and accounting, as we closed on January 6 and the Smith systems closed the quarter a few days before the calendar end of the quarter, so we didn't capture about seven days or $25 million in revenue.

The second item is about being a reliable supplier with a strong supply chain and we shipped about $20 million to $30 million less than we targeted in Q1 and back orders actually went up through the quarter. The third bucket is due to the quality-related interruptions described in the last call, which equals about $15 million across the portfolio.

The answer to how do we find ourselves in this position and are we doing to fix it dovetails with the two main categories of issues described in the last call. The first challenge was just around the poor execution of the basics on being a reliable supplier.

It's akin to the Hospira situation where we used to say they forgot they were a manufacturing company and lived in some alternate universe of technology partnerships and distribution et cetera. It's a very same -- it's a similar situation here, but at a moment when the entire supply chain has been very weak.

We find ourselves in this position because actions were not taken to solidify the Smith supply chain as the volatility grew in 2021 and we walked in to find inventory down production down and a weak fulfillment network. In plain English, the buffer stock got sold over the back half of last year.

But we bought the business, we did the deal and it's our problem to fix it and it starts with a high level of intensity and understanding of the end-to-end business and it fundamentally starts with being a reliable manufacturer. Our folks are now in charge of all these areas and bringing that focus.

We have made significant progress since the last call on production output levels, particularly of the most critical and highest margin items. This has meant staffing up the factories which we've made real progress on and securing the base of supply.

What we need to do now and there's a lag time is to move that increased production through the global fulfillment network which has been the primary focus for a few weeks. To be extremely clear a few things happened here that impacted the Q1 results. From a revenue perspective we did not ship as much as we wanted and that was a hit to revenues.

From an expense perspective we've been spending parlance to improve customer service levels with an ICU mindset and the factories were running at lower absorption levels in Q4 and early Q1 and the combination is a huge hit to gross margin in the short term. There's plenty of demand. None of this has to do with product features.

It is self-inflicted harm on the basics of blocking and tackling and absolutely none of it requires any significant capital or technological innovations just pure focus on good operations. The last item of $15 million in revenues is related to what we call the bucket of quality-related interruptions.

When you change people and strategy so frequently it's hard to run a consistent quality process. It is public information that Smith received a warning letter in 2021 then with all the twists and turns of what was happening with the company they were essentially frozen.

Just like being a good manufacturer running a compliant quality operation and ensuring safety is what gives us the right to participate in these markets. The existence of a warning letter, while undesirable is the regulatory agency trying to move the ball forward.

We entered a similar situation when we acquired Hospira and our team worked under an even more stringent framework at the previous infusion company many of us came from.

It's the same story here know what business you're in be compliant with regulators investing in our quality management systems which we have and have the people that can make decisions and deliver on the commitments made to regulatory agencies. And just like the first challenge none of this requires groundbreaking technological innovation.

It's just the basis. Since the last call we've made significant progress on getting unfrozen. We have communicated to both customers and regulators on our view of a path forward and have made some significant decisions.

Those decisions include moving aggressively on identification of all known product issues communicating them clearly with an action plan for remediation. It is also included making decisions to stop supporting older product generations. And that information too has been related to customers.

I don't want to get into more specifics in that other than the decision and remedies are in flight as we speak. But we know as you have the right people have been through the exact same experiences and our team is now fully embedded into the operation.

We've tried to get unfrozen by breaking items into smaller manageable pieces with clear decision-making. The other part of value and M&A deals or synergies. From a complementary product and logic perspective, customers get it and would like to see all parts of the portfolio executing well towards them.

Specifically, we continue to feel confident in our year one $25 million synergy target and see many opportunities in the medium term. But we cannot focus on them until we stabilize and get the basic operations running well and prepare for our IT systems cutover.

We've moved very quickly and the full US commercial integration happened within 90 days of closing, with all relevant cross-trainings happening as we speak. The actions for Europe and LatAm have been aligned around and implementation is starting now and then we faced some common sense decision in Asian work -- commonsense decisions in Asian markets.

We certainly expect to have all commercial facing integration globally finished within this calendar year. So where did that leave us for the full year. We started the year saying there's a wide range of financial outcomes in the near term, as we sort through the operational cleanup and achieve synergies and that's still true thing.

With Q1 being a little less than we wanted, it does create a harder steeper ramp for the balance of the year. At the same time, we do see many addressable issues and frankly just open orders that if we can produce and ship that can make a substantial positive impact.

We would like as usual, and because things are so fluid right now, to update our view of the year as we usually do on our Q2 call. We're trying to balance being logical, serving customers well, while spending somewhat responsibly.

And we're also very focused on sequential improvements for the year as each month goes by to make sure we have the right exit run rate heading into next year.

But what we don't know yet is when we can call them all clear on supply chain or a complete quality and regulatory compliance or all the complete quality and regulatory compliance-related improvements to be as predictable as we try to be in our legacy ICU business.

Just a few words on the medium and long term here, as we're head down on the immediate term right now. For legacy ICU, our returns have been driven by our most differentiated businesses, which will end larger than ever, with appropriate profitability levels.

The core premise of the Smiths transaction is to enhance the product offering for these exact categories that drive our returns, as well as add logical adjacencies predicated from the same characteristics of sticky categories low capital intensity single-use disposables with opportunities to innovate and the logical industry structure.

Even though we're consumed right now with basic operations, we still believe this to be the strategic pace and the big opportunity over the long term is using the combined portfolio to improve in existing markets and also move as the value shifts into new spaces.

The construction of the Smiths portfolio was logical and frankly why it survived over the years. The priorities we outlined to start the year are also the same. In the varied immediate term our goal is to progress on the issues described and stabilize the customer base in acquit transparency, while realizing the low-hanging synergies which all exist.

In the medium term, it's about focusing and delivering a few key areas of incremental innovation, connecting all the pump platforms with IT and finishing some of our own projects and a few iterations of the combined consumables portfolio and then using the combined portfolio to increase our value and relevance to customers and focusing on the higher and synergies after we integrate core IT systems and processes.

And in the long term, it justifies all the effort expended here, is to be able to broaden the available markets that we can participate in inside and outside of the hospital compartment. From a value creation perspective, in short to medium-term in Smiths Medical, just like Hospira we see two basic book-end scenarios, for this acquisition.

In the best case, we'll have better execution to improve Smith's top line performance, drive operational improvements and focus on cash conversions and returns. In the worst case, we continue to fight headwinds on Smiths Medical's top line, but we still can drive operational improvements and generate solid cash returns overtime.

Either ones of those cases is value-creating relative to the transaction math, and the bare minimum standard is to get the core revenues of Smiths Medical to a profit level that aligns with our differentiated businesses.

If we do that, along with understanding what incremental CapEx is really needed post integration, returns could be generated quickly. But over the long-term, the same compounding criteria that I started with applies are the businesses bigger or smaller and more profitable, and our team understands that point.

Yes, we're doing all of this in an unusual time and an unusual framework, when we have a normal operating business in legacy ICU in a PE-like situation side. But we'll get it sorted out as quickly as possible.

While the pandemic introduced substantial volatility, strategically we do think the weaknesses it's 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.

Smiths Medical also produces essential items that require significant clinical training, capital expenditures and in general items that customers do not want to switch unless they have to. The market needs Smiths Medical to be a reliable supplier and the combination positions us better.

Our company has emerged stronger from all the events of the last few years, thank you to our shareholders who are patient with the time it took to deploy capital and use our liquidity. Thanks in advance to our teams and the new colleagues from Smiths as we're running up that hill again to drive value out of the combination.

And thank you to all the customers, suppliers and frontline healthcare workers as we improve each day. Our company appreciates the role each of us has had to play. With that, I'll turn it over to Brian..

Thanks, Vivek and good afternoon everyone. To begin, I'll first walk down the P&L and discuss our results for the first quarter. And then, move on to the cash flow and balance sheet.

So starting with the revenue line, our first quarter 2022 GAAP revenue was $543 million compared to $318 million last year which is up 71% on a reported basis reflecting the impact of the Smiths Medical acquisition, along with growth in the legacy ICU business.

For your reference, the 2021 and 2022 adjusted revenue figures which exclude contract manufacturing sales to Pfizer can be found on slide number 3 of the presentation.

For the legacy ICU business, our adjusted revenue for the first quarter was $317 million compared to $304 million last year, which is up 4% on a reported basis and 6% constant currency. Infusion Consumables, was up 11% reported or 13% constant currency.

Infusion Systems was up 3% reported or 5% constant currency and IV Solutions was down 4% on both a reported and constant currency basis. Overall the results for the legacy ICU businesses were in line with our expectations. For the quarter, the Smiths Medical businesses contributed $215 million in revenue.

As a reminder, the Smiths Medical acquisition closed on January 6th and our first quarter results include the impact from Smiths Medical's operations, beginning on January 7th and continuing through March 26th.

This is the fiscal period end under Smiths Medical's historical financial reporting calendar, on which, the financial systems are still aligned.

Therefore, while the ICU results for the first quarter reflect 63 business days of activity, Smiths Medical represents 56 business days, which is seven days fewer given the timing of both the transaction closing and their quarter end cutoff.

As you can see from slide number 4 of the presentation for the first quarter our adjusted gross margin for the combined business was 37%.

This was a bit lower than we had expected due to the follow-on impacts from the Smiths Medical challenges that Vivek mentioned, specifically the lost absorption from lower production volumes along with additional freight costs from expedited shipping to customers, both of which are related to supply chain constraints, plus some impact from labor inflation catch-up as we increased wages in the Smiths Medical factories.

Over the course of the year, we expect the gross margin for the legacy Smiths Medical business to improve as we make progress on the supply chain challenges.

For the legacy ICU business, adjusted gross margin was consistent with prior year, and it was in line with our expectations, with the exception of lost absorption from lower manufacturing production volumes in our Austin plant.

Otherwise, we were able to offset year-over-year inflation pressures, with the benefits of favorable product mix coming from faster growth in our consumables business, as well as higher LVP dedicated set volumes within infusion systems.

SG&A expense was $153 million in Q1, and we estimate that the legacy ICU spending was about the same as the fourth quarter. R&D expense was $24 million for the quarter and that was roughly evenly split between the ICU and Smiths Medical businesses. Restructuring, integration and strategic transaction expenses were $34 million in the first quarter.

Of this amount $32 million was related specifically to the Smiths Medical acquisition, including approximately $20 million of fees and taxes associated with closing the transaction, the remaining $12 million related to integration activities.

Going forward, we expect total restructuring integration and strategic transaction expenses to decline relative to Q1 as the transaction closing expenses will not recur. However we will continue to invest in integrating the businesses. Adjusted diluted earnings per share for the first quarter was $1.82 compared to $1.62 last year.

Both the current and prior year results were favorably impacted by lower tax rates due mostly to excess benefits from equity compensation. The favorable tax rates contributed approximately $0.20 in the current year and $0.10 in the prior year.

Basic and diluted shares outstanding for the quarter were 23.6 million, reflecting the 2.5 million shares issued as part of the Smiths Medical acquisition consideration. And finally, adjusted EBITDA for Q1 increased 47% to $85 million compared to $58 million last year. Now, moving on to cash flow and the balance sheet.

For the quarter, free cash flow was negative $24 million, as there were a number of discrete cash outflows. During last quarter's call, we said, we would invest heavily this year into three key areas. The first, was the integration of the Smiths Medical business.

And as previously mentioned, we did spend $32 million on transaction expenses and integration activities. The second, with quality improvement initiatives for Smiths Medical and during the quarter we spent $13 million on quality system and product-related remediation.

And the third, was higher levels of inventory to bolster safety stock and allow for on-boarding of new customers. Here, we invested $36 million in additional inventory across both the legacy ICU and Smiths Medical businesses in order to better serve customers.

These three areas, when combined with our annual incentive compensation payouts, totaled over $100 million of discrete cash items for the quarter. Going forward, we don't expect this same level of spending in future quarters.

However, as we previously mentioned in aggregate, we don't expect meaningful free cash flow generation for the full year as we address the Smiths Medical supply chain and quality system matters and invest in integrating the businesses.

In the first quarter, we spent $24 million on CapEx for general maintenance and capacity expansion at our facilities as well as placement of revenue-generating infusion pumps with customers outside of the U.S. And just to wrap up on the balance sheet, we finished the quarter with $1.7 billion of debt and $347 million of cash and investments.

In summary we are pleased with how we started off the year for the legacy ICU businesses even in the face of a challenging environment for supply chain stability and inflation.

While the Smiths Medical acquisition has a wide range of potential outcomes in the short-term, we remain convinced of the longer-term opportunity, financial returns and our ability to tackle the issues. Strategically, we needed to broaden our available markets and we're working to get that portion of the business on the same trajectory as legacy ICU.

We look forward to providing updates on our progress during next quarter's earnings call along with any updates to our full year forecast consistent with our historical cadence. And with that, I'd like to turn the call over for any questions. .

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question. .

Hi. Good afternoon. Lot to unpack here. So, I guess, maybe just to start on the first quarter EBITDA came in a little lower than expected at least we expected and sounds like you expected. Revenue was largely in line.

I realize that it's tough to tease out but was ICU profitability from a margin standpoint similar to 2021 levels?.

Jayson, yes, it was the legacy ICU businesses were generally in line with last year. .

Okay. You mentioned, Vivek that the $280 million to $300 million in quarterly revenue. What needs to happen to get back to that level? I know you mentioned a few things but if you had to kind of win or it down to the punch line what needs to happen here you get back to that $280 million to $300 million. .

I mean -- hey, Jayson, how are you?.

We tried to give the actual bridge. I mean, we're the same people that said things all move that fast in this industry, right? For years we've been saying that and they don't move that fast. So why such a spread. One piece was just math. That should happen right? As long as there's been some IT bumps and stuff along the way too.

As long as the IT platforms remain stable that should automatically happen. Then the second and third issues are related to the two big buckets. One is just clearing the backorders and producing enough stuff and getting into the channel. We didn't make as much progress as we wanted on that in Q1.

We thought we would get an extra five or six days out the door. That's the difference and that's $20 million to $30 million and we're trying as hard as we can to get all of that out. It's just been tough with a very inconsistent supply chain. So that's kind of item one that has to happen to get back to normal.

And then some portion of it the small portion is associated with the quality related interruptions and we're working those issues.

It's really the same three buckets that went through on the script the punch line is run a good operation, right? The first thing happens on our pilot seconds on a good operation where that relates to quality or productionship. .

Is the expectation that the backlog will come down in 2Q versus 1Q?.

I think that is our expectation, but I don't want to quote an amount, because it's really been -- it's only started to improve frankly over the last seven to 10 days even we didn't make progress in January, February or March. We were really buried. So -- and it's hard if you're going 24/7 anyway or max shift anyway to increase beyond that.

We're certainly trying, but we're spending like orders of magnitude more on solving that than we had sort of -- and so we're trying to balance the right value in there all the time too..

Okay. And not to get too granular Vivek, but what's allowed it to improve over the last seven to 10 days..

Just getting stuff out the door. And so I mean, this is basic warehouse operations, receiving, clearing out space by shipping and getting stuff received into warehouse and moving it out literally focused on not most acute customer backorders and the things that really impact patient care on a day-to-day basis getting that prioritization.

And then first, adjusting the IT systems and the workflows so that you could actually run your business that way that wasn't necessarily happening. .

Okay. So it sounds like, and again, this is my interpretation. So, please, correct me, if I'm wrong.

Assuming there's not a big bolus in demand here, the backlog based on the last seven to 10 days of improvement should start to work its way down in 2Q and beyond?.

I mean, right now Jayson, I would say, if we just had a normal quarter of sales, put the backlog on the side almost, I don’t know is that we had a normal quarter of sales, we would be happier than we are today, right? Obviously, what we want to make sure we want to fill that back on because you don't want to evaporate, right? And there's a lot of old orders in there that we've kind of scrubbed through and tried to remove things we didn't think were real.

I don't want you leaving that comment saying, oh, we'll get a normal quarter of sales and all the black on will get cleared on top of that. Right now we wouldn't say that. We would just be happy if we get a normal quarter today, I think, to come down a little bit. .

Okay. Okay. That's helpful. And then just maybe lastly for me. Yes, go ahead. .

No, no. You're on the right topic here. Go ahead. .

Gross margin, I think, you explained it away and it sounds like it's all Smith. But previously, I think, you talked about a 40% bogey out there for gross margin.

Is that still on the table, or does that come down a bit?.

I mean, I think, over the long-term certainly, I mean, I think that's a minimum frankly over the long-term. I think you'd be shocked if we told you how many points were impacted by just trying to catch up and by running an unabsorbed factory and by it's dramatic. It's dramatic.

And we'd rather take that pain right now trying to serve customers and catch you. .

Okay. That's helpful. Thanks guys..

Hello, Brian, would you like to add. I don’t know want to stop probably there. .

Thanks, Jayson..

Thank you, Jayson..

Thank you. Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question..

Great. Thanks. Good afternoon, guys. Can you -- just a follow-up on the revenue growth sort of at Smith. You mentioned the bookends where one scenario your revenue is sort of flat, but you value add other ways. And then you have the other -- the opposite side where your revenue grows.

Can you sort of -- I miss particular, can you speak maybe a little bit historically, why it's been flat? What has been growing? And what maybe hasn't been growing? And what's going to change -- what could maybe -- what would be the growth drivers in the future that could maybe turn this into more of a growth revenue grower than it has been?.

Yeah. I mean I could -- I'll try to give a short answer there Larry because in aggregate, if you just look at like -- if you look at a 10-year plot of revenues, it would be almost flat from 2011 to 2021 something like that plus or minus $25 million currency adjusted.

Underneath that, there were pockets that really went up like ambulatory infusion went up right because of all the drivers underneath that market and the inherent market structure.

Some of the categories in Vital Care went up and will probably continue to go up, if remediated properly because of the unique nature of the markets and the market structure.

And then there were categories like consumer -- their version of consumables that went down where we actually believe if we can focus on that both from a production and commercial standpoint, we can improve there.

And so something should grow because the market structure should enable it with the underlying dynamics and just with focus and some we actually need to turn around a bit more. But the belief was, even if it could hold flat at the revenues was we have synergies. And duplication in lots of places and that's value.

A little bit like the Hospira story right consumables, it took one year, 1.5 years to get Hospira consumables moving, but it became very powerful once we did that, I think some of those categories we continue to have that belief in. So it's a complicated answer because there's a lot of different lines of business.

But right now, we think a normal quarter that equaled their flat historically where we were adding value below the revenue line. We'd start with that..

And is the consumables piece is that in the catheters is that in the bar access mostly, or is that sort of spread out?.

It's not just catheters everything in that vascular access bucket.

Right, right..

Which is what was the largest factor..

Yeah, yeah, absolutely. And then just on pricing, I know you disclosed, you have significant inflation impacts. And I know you've been raising prices a little bit, but it does seem like you're sort of limited on the ability to raise price. So people have asked me this question. Is it just the industry there was only a few providers.

Why can't you raise price a little more. Like I see – I mean I know. It's more like an open and maybe you can answer that question but it seems like a lot of – in a lot of industries people are raising prices everywhere. So can you eventually raise price and you just have contract and stuff you can't raise price on. There's no kickers in them.

Is that kind of what restricts you, or can you maybe speak to that?.

I'll sort of – I mean I obviously been paying very close attention to the public commentary on this topic for months. I think we would say for many years we sold under long-term fixed-price GPO contracts, which people enjoyed because we had 0 price erosion and the opportunity to take little increments here and there.

I think we've tried to address that framework constructively. Obviously, our customers are suffering and operate on thin margins. And each unique product category has its own competitive dynamics. I think we have tried to illustrate our value and historically legacy I certainly in many categories was a low-price player.

And we've tried to address that wherever have the opportunity to address that. It's absolutely the right topic, difficult to implement everywhere and you have to do the partnership with customers who have their own problems every day right now as we're all reading about. I mean the journal had a great. .

And I guess it's a long term. It takes a long time. I mean a low-cost product you have to change. Yes I understand. .

But our competitive position actually works in that where we were participating like that's how I see care out its original roll way back aside from the clinical. So I think we're trying to be – do everything we can possibly do there..

If I can just sneak one more in real fast. So the guidance basically sounds like that the legacy is basically in line. I mean inflation may be hurting you more but you have this big range. So maybe you're at the lower or middle part of the range or something. I mean that's met not worsen to your mouth.

And then Smith I guess is – it sounds like it might be hard to get to your number but maybe your goal is at least you can exit the year at the target you started with but maybe you don't get quite all that EBITDA in this year. Is that at least one scenario..

Yes. I mean I think that is one scenario but there's so many moving parts going back to this back order. Like you can't say it's me because I'm playing for the back half. right now, right? But we just see off? Like that doesn't make sense. We're improving things each day.

And there's so many pieces and by the way in the regular business even if you go like you there's – every week there's been challenges for the last 12 months on raw material availability, components at that.

And we've done a pretty good job of Bob and we've been surviving all of those right because it was our core business but there's just more stuff. So, it's just it's hard right now with the randoms that come in each week to say. So we'd rather take our time. We're seeing what's happening each week do it the right way.

And prove to ourselves that even with another 90 days we can -- because it was a short time between the last call and today even with other 90 days we can add real value and it will take stock on where we where we are, right? You can't malt..

No less confident. Right. No, I get it.

But you’re no less confident in maybe the exit year or what you do in 2023 than you were a few months ago unless barring something on that spectrum?.

I think the issues are all solvable. Nothing structurally changed in the market. There's no even pass now..

Okay, great. And I’ll appreciate all that color. Thanks so much..

Thanks, Larry..

Thank you. Our next question comes from the line of Matthew Mishan with KeyBanc Capital Markets. Please proceed with your question..

Great. Thank you for taking my question and good afternoon, guys. I guess my question is on the customers.

Do the customers have enough inventory to work through this backorder issue, and are they sticky with Smiths?.

We think about that every minute of the day and that is absolutely the right question. In certain areas, it's very lean out there, which is why we're spending like crazy to solve the issues and going at it so hard. So that answer is it universal in all categories.

So our fear is, if it goes on too long, you lose -- you could lose the business and it goes out of your permanent book of business. We don't want that right? And that's why we're trying to be transparent to the customer. And again, it's akin to our last big situation.

It was pretty ugly when we walked into it, right? People have had the experience with us about fixing these things and we're trying to make it very clear what's going on with real timelines and real commitments and show them we'll at some level like we did in Hospira, we put our money where our mouth is on a number of supply items and we're crossing the bridge on some of those topics now.

But it starts with really being honest and transparent to everyone of what's going on with a real calendar of when to fix it. So the answer -- the direct answer is in some items inventory is very thin out there.

Those are the ones we talked about improving production on the fastest, the critical items and the highest and they often are the highest margin items and getting those into the channel right now is what we're currently do..

Okay. Excellent. Thank you. That’s all I had..

It's the right question. Thanks guys. We appreciate the support and the questions as always and answer anything else offline if we need to..

Thank you. We have reached the end of the question-and-answer session. I'd like to turn the call back over to Mr. Jain for any closing remarks..

Thanks Michelle. Nothing else. The team is working incredibly hard. We appreciate the interest in ICU. It's a very unusual time out there. And I think we're committed to improve what we got our hands around here every single day. So we'll talk to you in 90 days and hopefully have constructive things to say then. Thanks very much..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..