ICU Medical Inc (ICUI) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2005 ICU Medical, Inc. earnings conference call. My name is Mia, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS.] I would now like to turn the presentation over to your host for today's call, Dr. George Lopez. Please proceed.

Good afternoon. Thank you for joining us for our review of ICU Medical's results for the second quarter and six months ending June 30, 2005. I am Dr. Lopez, the Chairman and President of ICU Medical. And with me today is Frank O'Brien, our CFO. On today's call, I will provide an overview of our operational results, and then Frank will provide detailed financial information for the second quarter and the six months ending June 30th. I will wrap up with our prepared remarks with an update on targets for the remainder of the year and a discussion of current business trends before we go to the Q&A. As always, we will limit the length of the call to about 45 minutes.

But before we begin, in the event that we touch on forward-looking statements on this call, please be aware that they are based on the best information currently available to management and assumptions that management believes are reasonable but 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 refer all of you to our filings with the SEC for more detailed information on the risks that have a direct bearing on our operating results, performance, and financial conditions.

I am pleased to report such a strong second quarter, with revenue and earnings per share of significantly ahead of expectations. Our performance demonstrates the success of our business model. We reported an 88% increase in revenue to 40.7 million, from 21.7 million in the same period last year. While approximately 13.2 million of the increase was attributed to products from our current -- our recently-acquired manufacturing facility in Salt Lake City, our existing product lines also performed very well. Our CLAVE and custom IV system products both showed growth, and our progress with these products that we make in the plant in Salt Lake City, which we bought from Hospira on May 1st, is exceeding our expectations.

Demand for our innovative product -- CLAVE product remains strong, and our custom IV system products continue to grow well in all channels. Seasonality, the second -- the second quarter historically down from the first -- seasonally, the second quarter is historically down from the first, so we are pleased with our ability to maintain sales on a sequential basis. Excluding sales from the Salt Lake City facility, our sales grew 27% from the same period last year, and we were slightly ahead of the first quarter in 2005. We also continued to expand our international sales channels for the first -- for the quarter, the international sales grew approximately 14%.

We continue to diversify our product line. We completed the acquisition of Hospira's Salt Lake facility -- in Utah -- manufacturing on May 1st. And we entered into a 20-year manufacturing, commercialization, and development agreement with the company. Most of what we made at the plant are Hospira's critical care products, which includes medical devices such as catheters and the angiography kits and cardiac monitoring systems. The purchase of the Salt Lake City plant from Hospira was a significant step for us.

Frank will have more to say about it, but let me highlight what it does for us. It diversifies our product lines into a new area, but an area we can bring our custom manufacturing expertise to make a lot of money for ourselves and for Hospira. At the same time, we will benefit from Hospira's determination to succeed in marketing and selling the critical care products we are making there at the plant. What we have is a clear case of two companies that have an established, excellent relationship, expanding on that relationship to work together in a new venture by each focusing on the efforts -- their efforts on the area of expertise -- Hospira on the commercial aspects, and ICU on the custom manufacturing aspects.

We expect to greatly benefit from more diversification of our product line and increase revenue and earnings over the long term by lowering costs associated with the manufacture of these lines, and increase overall market penetration as we work together with Hospira to deliver leading critical care products. Before I get into greater detail about the current business trends and our outlook for the remainder of the year, I would like to turn the call over to Frank to discuss our second quarter and six-month financial results. Frank?

Thanks, Doc. As Doctor Lopez mentioned, revenue for the second quarter was 40.7 million. This represents an 88% increase from the $21.7 million recorded in the same period last year, and is significantly better than expectations. Net income for the quarter was $4.7 million, versus net income of $3.4 million in 2004, which on a diluted earnings per share basis equates to $0.31 in the second quarter of '05 versus $0.23 last year. Some of our strong top-line growth was offset by continued increases in operating expenses.

For the six-month period, revenue was $67.8 million, versus $43.9 million last year. Net income was $9.2 million, versus -- versus $7.6 million in '05, and earnings per share was $0.61 for the first half, versus $0.50 for the first half of 2004. Second quarter sales growth was driven primarily by a combination of our flagship CLAVE product line, custom IV systems, and the contributions produced at our new plant in Salt Lake City. We also experienced good sales growth internationally. Sales through Hospira were especially strong, and more than doubled to $30.4 million for the quarter, due to the addition of the products produced in Salt Lake City. As Doc indicated, we closed this acquisition in May, and this is the first quarter of contribution from this group of products. Excluding products from the Salt Lake City facility, Hospira sales increased 52% to $17.2 million.

During the second quarter, the breakdown of our revenue of our product line changed due to the effect of adding Salt Lake City products to the mix. CLAVE products, excluding custom sets were 37% of revenues. Custom sets were 19% of revenues. Salt Lake City products were 33% of revenues. Punctur-Guard, 4%. CLC products, 4%. And other non-product revenue was 2%. This compares to the same period last year, when CLAVE products, excluding custom sets, were 50% and custom sets were 32%.

Our total custom IV set sales continued to be solid -- to be a solid performer, growing by approximately 12% compared to the same period last year, to $7.9 million. But our CLAVE sales were the strongest performer for the quarter, as demand for products, particularly from Hospira continued to improve. CLAVE sales were $15.1 million in the second quarter an approximately 39% improvement from the $10.8 million in the same period last year. CLAVE and custom IV sets, including a CLAVE were $20.8 million for the quarter, versus $15.9 million in the second quarter of '04. International sales for the quarter increased approximately 14%, to $3.2 million, from $2.8 million in the same period last year. Punctur-Guard sales were up over 20% from the same period last year and over 30% from the first quarter on a large increase in orders from Hospira.

Our gross margin of product sales was 39%, versus 54% in both the same period last year and the first quarter of '05. But to properly view our gross margin, it is necessary to look at our business in two pieces. The legacy business in San Clemente, Mexico, and Connecticut, and Italy must be viewed separately from the Salt Lake City production, which as we previously stated, currently has relatively low margins. The legacy business had a gross margin of 51% on sales, below our standard because of low margins for Punctur-Guard products and production in Italy. The gross margin in Salt Lake City was 15%. Margins in Salt Lake City can be expected to improve as we make changes in that plan.

While our revenue and gross profit showed improvements in the quarter, those positive gains were partially offset by increased operating expenses. SG&A expenses were up 45%, to $9.6 million in the second quarter. Similar to the first quarter, we faced expenses associated with patent lawsuits we brought against two companies we alleged infringed our patents. We did settle one of those suits during the second quarter, so we should get some relief on legal costs after the second quarter. Operating expenses were up also because of added sales personnel, the cost of new product launches, and the addition of Salt Lake City. Our research and development expenses were one point -- were $1 million in the second quarter of 2005, versus four thousand -- $400,000 in the same period last year. This reflects increased starting -- increased spending at a start-up company we invested in last year, as well as the addition of R&D in Salt Lake City.

Our balance sheet remains strong, and we ended the quarter with 64.3 million in cash and liquid investments, even after the acquisition of the Salt Lake City facility. We spent approximately $32 million to purchase the assets, and operations required an additional $10 million of working capital during the quarter, principally new receivables from -- from Hospira for the new sales to them. We are still evaluating the effect of Salt Lake City on our capital expenditures for the balance of 2005. So we'll have to wait until the next quarter to give you an updated estimate for the year for capital expenditures.

Trade receivables at the end of the second quarter were $26.8 million, up $15 million from March 31, 2005. Nearly all of that increase is associated with Salt Lake City. Receivables should come down in the third quarter as we get Salt Lake City integrated into our operations. Our days sales outstanding increased considerably to 61 days at June 30, 2005, up from 41 days at the end of the year, but we do expect DSOs to drop back to normal levels next quarter. We also expect -- we also experienced a big jump in inventory for the quarter to $16.2 million, from 7.4 million at the end of March '05. This is all related to inventory at Salt Lake City.

Let me fill in a few of the details on the Salt Lake City plant that we purchased from Hospira. On May 1, 2005, ICU acquired Salt Lake -- Hospira's Salt Lake City, Utah manufacturing facility, related capital equipment, and certain inventories for approximately $32 million in cash and the assumption of certain liabilities. We entered into a 20-year manufacturing, commercialization, and development agreement -- referred to as the MCDA -- with Hospira, under which ICU produces for sale to Hospira on an exclusive basis substantially all the products that Hospira had manufactured at the Salt Lake City plant. Hospira retains commercial responsibility for the products ICU is producing, including sales, marketing, distribution, customer contracts, customer service and billing. The majority of the products ICU produces under the MCDA are Hospira's critical care products, which include medical devices such as catheters, angiography kits, and cardiac monitoring systems. ICU has also committed to fund certain research and development to improve critical care products and develop new products for sale to Hospira, and has also committed to provide certain sales specialist support.

Our prices and gross margins on the product for sale to Hospira under the MCDA are based upon cost savings that we're -- we are able to achieve in producing these products, as compared to Hospira's cost to manufacture these same products at the acquisition date. Initially, we expect our gross margins under the MCDA to be small, but we expect them to expand as we achieve cost savings. We estimate that our sales under this agreement will approximate $40 million in 2005, with only small profits in 2005 and increasing sales and profits in future years. ICU is moving all molding and automated assembly to Salt Lake City -- to the Salt Lake City location from the San Clemente and Connecticut locations. In addition, ICU is expanding its production facility in Mexico to take over all manual assembly currently done in Salt Lake City. These changes are expected to be completed by early 2007. The assets we purchased in Salt Lake City consisted of the facility and capital equipment, valued at approximately $15 million; raw material and work-in-process inventory of approximately $10 million; and we allocated approximately $9 million to the 20-year MCDA with Hospira.

Let me briefly comment on one -- one other event during the quarter. As you are aware, we changed auditors during the quarter from Deloitte & Touche to McGladrey & Pullen. We didn't comment at the -- on this at the time, other than to -- other than to say that there were no disagreements. A number of you asked why we changed. The answer is quite simple. The service level from Deloitte over the past year was poor, and Deloitte concluded they could no longer service us and resigned. There were no disagreements of any type, and the change was not made to save in audit fees. And I still believe Deloitte is a fine firm. We are not the only Company experiencing the inability of a big-four accounting firm to continue to serve them. McGladrey is an excellent firm, and we feel we will be better served by them.

Now, I'd like to turn the call back over to Dr. Lopez to discuss the ongoing business trends and our outlook for the balance of 2005.

Thanks, Frank. On past -- as on past earnings calls, I'd like to take a moment to highlight a few of the financial numbers that Frank mentioned. Sales by product group for the quarter, custom set source, $3.5 million compared to -- all my comparisons will be to last year same quarter -- as compared to 2.9 million. Custom total, 7.8 million, up from 7 million. CLAVE and CLAVE custom, 20 million, up from 15.9 million. CLAVE only, 15 million, up from 10.8 million. Punctur-Guard, 1.4 versus 1.1.

Sales by Hospira, CLAVE sales, 12 million, up from 7.4 million. Set source, 3.5, up from 2.9. CLAVE and CLAVE with custom, 14.8, up from 9.9.

Sales by channel, Hospira, 30.4 million, up from 11.3 million. Distributors, domestic, 6 million, down from 6.4 million. Distributors, international, two point -- 3.1 million -- almost 3.2 million, up from 2.7 million.

Operating cash flow, negative 613,000. Keep in mind -- negative 613,000. Free cash flow, negative 1.8 million. Both of these will reverse next quarter substantially. Cash and cash investments, 64 million, despite the fact that we purchased the plant for 32 million and had 10 million working capital which equals 42 million, our cash from December 31st only dropped 23 million. CapEx, total, 1.2 million. CapEx, maintenance, 1.2 million.

Gross margin totaled 40%. SG&A as a percent of revenue, 24%. R&D unchanged at 2%. Operating expenses as a percent of revenue, 26%, down from 32%. Operating income as a percent of revenue, 14%, down from 23%. Net income, 12%, down from 16%. Income tax percent rate, 35.2, down from 37.5.

AR, 26.8 million, down from 16.2 million. DSOs, as Frank mentioned, 61 versus 70. Finished goods turns, 19, up from 11 -- same period last year. ESI, 63, down from 102.

In summary, this has been a very strong quarter, and we are encouraged by the long-term growth opportunities. We have a leading, diversified product line, and proprietary manufacturing processes that will enable us to deliver shareholder value for many years to come. To ensure ICU's continued growth, we are focused on increasing the market penetration of our products and have identified several attractive ways to accomplish this.

Let me talk for a minute about our strategy for the Salt Lake City facility. This is an exciting transaction for us. But keep in mind that we just bought this facility and brought it onto our books. We believe that it will take at least 18 months to two years to begin to achieve the real synergies and efficiencies that we believe we can achieve. It turned out, after careful study, that it was far more cost effective to keep the plant open and move our manufacturing San Clemente to Salt Lake City. At the same time, we move -- we will move all manual assembly currently in Salt Lake City to our Mexico plant, where we -- where fully-burdened labor rates are just one quarter of what they are in Salt Lake City. When we get everything moved, we will have a very efficient, fully-absorbing facility in Salt Lake City.

Another feature are internal systems, which are heavily automated -- and in which we have invested millions of dollars in the past years -- are very scalable and will readily accommodate the added volume from Salt Lake City products with very little additional expense for people or systems once we get everything converted. We are excited at -- we are very excited about these possibilities. We estimate that our sales from Salt Lake City will be approximately 40 million in 2005, with only small profits in 2005, and increasing sales and profits in future years.

On the product development front, we continue to work on internal, innovative new products and to actively look for companies or product lines to acquire, such as the Salt Lake City transaction to diversify our product offerings. We have several products that will be moving into full-scale production in the later half of the year. Initial feedback on our controlled environment launch of the Tego valve has been very positive, and we are making some minor modifications based on sponsored studies in the U.S., Brazil, Canada, Spain, and other European countries. At this point we are still in manual production mode and will -- and just trying to keep up with increasing demand. But we expect production to ramp up in the second half of the year.

Another new project is a Y-CLAVE connector with integral check valve, which is currently being used on our products before we move to an OEM model. We expect to see OEM sales from this product beginning in the later half of 2005. We continue to move forward on development of our new Orbit Diabetes set. And we have 510K -- 510K approval, and in the final stages of preparing for production. Our international sales also continue to be an area of focus for ICU. We believe that the -- one of our largest opportunities for market expansion is abroad, and we continue to make inroads with international distributors to increase our sales. In the first half of '05, international sales represented approximately 5.8 million, and we expect to grow this business to surpass 10 million -- 10 million for the full year. We continue to move more closely with Hospira in planning our international expansion.

Now, based on a strong performance in the first half of the year and contributions from the new Hospira agreement, we are raising our revenue and earnings targets. For the year, we are targeting revenue of 140 million with corresponding diluted earnings per share of $1.06 to $1.08. We believe our gross margins on the product sales will approximate -- approximate 53 to 55% for the second half of the year, excluding Salt Lake City products. We expect our operating expenses in '05 to be approximately 25 to 28% of revenue in '05. We may see a normal seasonality, with the third quarter down from the second quarter, and the fourth quarter usually being our best quarter of the year.

In summary, we just reported a strong quarter, and are pleased with our prospects for the remainder of the year and beyond. Working with Hospira on the Salt Lake City products is a huge opportunity. We continue to see overall growth for our core CLAVE products, and we are the market leader in the growing custom IV set market, and we see good growth in the international market. We expect to continue to build our custom product lines, with several exciting new products in the pipeline and increase our distribution of existing products.

Now, I'd like to turn the question over to -- questions -- turn the call over to questions.

[OPERATOR INSTRUCTIONS.] Your first question comes from Mitra Ramgopal of Sidoti. Please proceed.

Yes. Hi, good morning, guys.

How you doing? Good afternoon.

Good afternoon, actually. Sorry. Could you run through, again, the -- by product line, the revenue contribution? I missed a couple in terms of CLAVE, custom, et cetera.

Sure. Sure. By product group or sales by channel?

By group.

By group. All right. Custom set source, 3.5 million. Custom, total, 7.8 million. CLAVE and custom with CLAVE, 20.7 million. CLAVE only, 15 million. Punctur-Guard, 1.4 million.

Okay. Thanks

13 million -- 13.2 million for Salt Lake City.

Okay. And I guess right now you're not breaking that out?

Well, we broke out the 13.2 million.

The Salt Lake, I mean.

Yes.

That'd be under that number.

Okay. Okay. Now, coming back to Salt Lake. I think on the last conference call, I think you had said you were looking for about 50 million in revenue from that? I know now it's $40 million. Is this just that you've gotten the best feeling for what you have acquired?

No. No, it's -- it's prorated for the year.

Okay. So -- on an annual basis 50 million, but this year is more like 40?

No, I think what we -- Mitra, there's one piece of the business that is changing a bit and will not -- one that wasn't -- was not going to be very profitable, but we expect it to drop off from the sales there. Everything else is as planned.

Well, I think he's asking whether you -- for a full year, what do you expect --

For the full year -- you talking about for '06 for instance?

2006

Yes.

We haven't put that number together, but if it is 40 for two-thirds of a year --

Prorate it.

The best I can offer is you can do the math.

Right, okay. No, that's fine. And I think you mentioned the gross margin right now for the Salt Lake business is about 15%?

Yes.

Where do you see that, I guess, obviously you expect to improve on that over the next -- as we look out in couple of year's time, where do you see that getting to?

Mitra, let me -- we don't have an answer for you, where it ultimately can go yet. But let me explain a few things. One is that we -- I mentioned that -- or Frank might have mentioned that we are moving -- as we move the facility manufacturing down to Mexico where, I mentioned that our labor costs are about one quarter -- fully-burdened labor costs are one quarter what they are in Salt Lake City. So we should be able to spread margins there.

There's another place where we'll continue to spread margin, and that is on our -- the plant right now, as we acquired, it was running maybe at 30% capacity. Something like that. That will move to 90%-something capacity, because we're moving our automation equipment and our molding, which is -- you've seen our business as it’s growing. That will keep the plant fully absorbed. So we'll spread out the -- spread out the absorption over many, many units, which will spread our margins there also. So we're -- and then you -- when you add upon -- when you add manufacturing efficiencies and paperless environment that we are almost -- we are very close to being paperless. That when you add those efficiencies and scalability, that should all spread the margins. So look for the margins to increase and spread.

The other part -- the other factor is -- is custom sets. Is the business -- the reason we acquired the business is because two-thirds of one product line and one-third of the other product line are custom sets already. And the plan with Pat Moran (ph), who is a -- who is a very talented marketing person they brought over to join Hospira. His plan is to move all of this to customization. And with customization, the margin spread, you get a better value proposition to the customer. For all these reasons, we don't expect the business to stay standard and custom. We expect it all to become custom. And as that happens, margins will spread.

So look for the margins to continue to increase, and we'll keep you updated as we go along. They certainly won't say at 15%. That is very clear.

Okay. Thank you.

Frank, do you want to add to that, anything?

No, I think you covered it -- covered it very well.

Your next question comes from Daniel Owczarski of Belmont Harbor Capital. Please proceed.

Yes, thanks. Good afternoon, and really nice quarter, guys.

Thanks, Dave.

Thanks.

Just to clarify, to go back to that 50 million previously. I had in my notes that that was kind of a nine-month number, assuming that it was -- is that correct? That assuming that you had Salt Lake up and running for nine months you would have done $50 million?

Dan, I've forgotten whether it was nine months or eight months.

Okay. But -- so that -- so -- but now it's the 40 million beginning May 1st.

Yes.

Okay. So are we -- we're just shortening that time table, is that what it is, versus -- ?

That would be -- that would be a piece of it, yes.

Okay. And the other piece is -- ?

Just -- just one group of products that is declining.

Okay.

It was no -- it was one group of products we actually did not want. We didn't want the product line. It was very narrow margin with no ability to customize. So we actually did not want that product line, and that is out of the equation.

Okay.

For another reason, though.

All right. And can you give you an update on litigation, future court dates? I thought you had something coming up, or was that the B. Braun this summer?

B. Braun is settled. It's a -- we can't disclose how much money was paid, but it's under confidentiality. But that one is behind us. The only one in front of us is Alaris, and we really don't comment on litigation.

Okay. But as far as -- was -- was it -- did you have court dates scheduled for this summer?

Yes, those are -- those are -- with the settlement, those are gone.

Okay. That's -- okay. And as far as the Tego. You were talking about a limited launch and some tweaking and manufacturing. Is there -- can you give us an idea of how much revenue you're expecting out of your 140 million for this year? Will that be fully launched?

We don't -- Daniel, on new products we don't put any number, because new products have a way of getting out there and bringing them back in and perfecting them, improving them, and such. And so, until I hit a million in sales -- annualized sales, we really don't talk about it. But we don't -- we put nothing in the revenue number for that. And the Y-check valve, we put nothing in -- or the Diabetes set.

Okay.

Even though we have purchase orders for them, we do not put them in the numbers. These numbers are based on -- $1.06 to $1.08 is based on without any of these -- anything in these numbers.

For the new, okay.

Or the revenue number.

Okay. And then could you talk about that Orbit a little bit? It's for Diabetes. I mean, who's the customer there? Is it inpatients, or is this for insulin pumps or -- ?

It's for insulin pumps.

Okay. So you're selling them to the manufacturers, the insulin pump manufacturers?

Yes. And also to -- to distribution companies that distribute the product.

Okay.

It's still early in that product line.

Okay. And you gave a number of international growth numbers. But could you just repeat as far as the international business, the Hospira international, versus non-Hospira and the growth for those two?

We haven't broken out Hospira and non-Hospira in the international side, Dan.

Okay. Is it about half and half or -- ?

No, no.

Okay. Okay. Thanks.

[OPERATOR INSTRUCTIONS.] You do have a follow-up question from Mitra Ramgopal. Please proceed.

Yes. Hi, guys, just a couple of quick follow-ups. In terms of the guidance of the $1.06 to $1.08, I believe you said Salt Lake is going to be fairly minimal, but should we assume a couple of pennies are in that number or more?

Good assumption.

Okay. And I think you mentioned earlier, typically the second quarter is weaker than the first due to some seasonality, but, obviously, this quarter was better than what we have seen in the past. Any particular reason for that you can point to?

Sometimes it's the second quarter. Sometimes it's the third quarter. It's moved back and forth. It's usually the third quarter. But sometimes it moves back and forth, Mitra. We just -- it depends on how -- if they're looking forward into the summer, they'll decrease their orders, the distributors will decrease their orders. If they look at late, then it's the third quarter, and they -- when they -- in the reactive mode. But it's either the second or the third quarter. Although, there've been years when we haven't seen it.

Right. Okay. Thank you.

Your next question comes from Bruce Cranna of Leerink Swann. Please proceed.

Hi, good afternoon.

Hi, Bruce. I was wondering when you'd get over the Red Sox loss yesterday.

Oh, that hurt, Frank. But I'm struggling here because I got the press release late, so I'm still trying to catch up in a little -- on a couple things here. But -- I know the change, just on the critical care business. Can you tell us, that is maybe slightly lower expectations there? What -- can you tell us what product line you're -- I guess you weren't crazy about, and can you sell it? Or can you take a charge with respect to that?

It's one that we ultimately did not purchase from Hospira anyhow, so it's going away.

Oh, I see, so it kind of never made it over?

That's right.

And I think you said second half of this year -- I believe this is what you said, correct me if I'm wrong -- but on the legacy side of the business, if you will, gross margins in the 53 to 55% range?

Right.

And I think there was 51% this quarter in your comments. So what should we be thinking about there? What's going to move the needle in terms of gross margins on the legacy side? And then, to kind of put a -- push a little bit on another comment you made, you're raising the EPS guidance here. Is that really more on that side of things, seeing better margins on the legacy side? Or is it more on the critical care patient?

I'll let you take that one.

Yes, let me start with the second question. It's more on the legacy -- legacy side. But in fairness Mitra found $0.02 on the critical care side. The margins later in the year we're anticipating will go up. They were somewhat lower in the current quarter because of some products mix, things that pulled them down, particularly some things on Punctur-Guard which shouldn't recur.

Okay. So it's mix in the second half of the year that you're talking.

Yes.

Which is a good segue, actually, the Punctur number's big in the quarter. And I know you mentioned you had a bold sales to Hospira. Can you give us some guidance as to how you think about that part of the sales line for the remainder of the year?

Bruce, that's a tough one. Not looking for a lot there. We'd be happy to get some growth on it, but it's been tough.

So kind of -- I guess, second half of the year, maybe more returning to, kind of, prior levels of a million or so a quarter?

Well, we're working to -- we're working to increase it, but it's -- it's been kind of rocky for us. And while it might go up, I'm not going to give you any guarantees on that one.

Okay. And then -- I know when you -- when you guys closed on -- or, I guess, when you announced the critical care part of the deal with Hospira, you were talking about some potential accretion in '06. And I know you don't want to talk about revenue guidance at this point. But are you still thinking that that guidance you gave on '06 accretion from the HSP deal is still sort of intact in your mind?

Yes.

Should be.

Maybe a -- maybe a little better, I mean, after this quarter or -- ?

We'll -- we may have more to say about that later in the year.

Okay. And, I guess, last question. You -- you were going pretty fast, Frank, so this is -- this is your fault, actually. But you were talking about moving -- physically moving operations. And I know you said there was a press release a while back about the manual assembly from Utah to Mexico, and I think, San Clemente, the automation just to Utah, is that correct?

Yes.

And did you mention Connecticut in there as well? Is that manufacturing going to Utah?

Yes, it is.

So that's all being closed down?

Some of it. Some of it, yes.

So just some of it's leaving that facility?

Some of it. It's on a schedule. Along -- it's not the most important part to move right now. It's a very low-cost structure there.

But do you think at some point you just shutter that, or is it too soon to tell?

If you're talking over a long period of time, and -- and it all -- a lot -- some of it depends on how the wing set does. We've seen an uptick in sales, and it all depends on how it does. It's really too early to say right now. What is clear is we'll be shuttering our more expensive operating facility here in San Clemente across the street. And our management -- most -- every manager that we wanted to entice to move, 100% of them have agreed to move to Salt Lake City. So there'll be no interruption in product flow, or should not be any interruption in product flow. And we will shutter the facility across the street and sell it or lease it and bring in revenue from that. But if that helps you.

Doc, you're not moving to Salt Lake, are you?

Buying a house.

Okay. Last question. Just -- Frank, any sense at all on resin cost? It's been kind of an issue jumping around.

Yes. It's up, but it's still not to the point where it's that significant us to. The actual material costs, while we're seeing it going up, is not -- that -- it's an important part of our product costs, but it's not huge.

Can you ball park -- somehow ball park for me year-over-year percent increase, just as a point of reference?

Bruce, I can't, but it's relatively small.

Okay. All right. Thanks, guys.

You have no further questions at this time.

Okay, then. Just want to wrap it up.

Thank you.

Do you want to announce the dial-in instructions and things like that? Hello?

This concludes today's conference. You may now disconnect. Have a great day.