ICU Medical Inc (ICUI) 2014 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to your ICU Medical, Incorporated, Q3 2013 earnings conference call.

(Operator instructions)

As a reminder this conference is being recorded. I would now like to introduce your host for today's conference, Mr. John Mills with ICR. Sir, you may begin.

Good afternoon everyone. Thank you for joining us today for the ICU Medical's financial results for the third quarter ended September 30, 2014. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman, and Scott Lamb, Chief Financial Officer. Vivek will start the call with a brief overview of our third-quarter results and then Scott will discuss third-quarter financial performance in more detail and provide financial guidance for the fourth quarter and full year 2014. Finally the Company will open the call for your questions.

Before we start I want to touch upon any forward-looking statements made during the call, including belief and expectations about the Company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be representation of future results and are subject to risk and uncertainties. Future results may differ materially from management's current expectations. Will we refer all of you to the Company's SEC filings for more detailed information on the risk and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call we'll discuss non-GAAP financial measures including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into ICU's ongoing results of operation, particularly when comparing underlying results from period to period. We have included reconciliation of these non-GAAP measures for today's release and have a provided as much detail as possible on any addendums that are added back.

With that said, I'll now turn call over to Vivek Jain. Please go ahead Vivek.

Thanks John. Good afternoon everybody. Now I recognise that the last two quarterly calls have been a bit late on the calendar after the quarter close We've been working to provide you with more transparency into on our business hence the additional preparation time so we appreciate your patience.

Our third-quarter results were slightly above our expectations. We generated strong cash flow and adjusted EBITDA and we expect Q4 to look very similar to Q3. As a result, we expect full-year revenues and adjusted EBITDA to be approximately $305 million and $70 million respectively both a little ahead of the previous guidance. Scott will go through it in more detail including the EPS and the various ranges.

Our third quarter, and even with what has been going on through today in Q4 showed essentially the same trends as the first half of the year. We had consistent performance in our direct operations, in particular our direct oncology sales and our international direct infusion sales, and those were offset by a decline in our OEM results.

Running out the full year 2014 at the ranges we just mentioned, we expect our direct operations to have full-year growth in the range of 4% to 6% and our OEM business to be down 12%. As we had mentioned on previous calls, the third quarter of last year was the peak of the Company's transition period, and we expected the year-over-year comps to look as they did. That will reverse in the Q4 quarter and we will see more normal trends as the correction happened between Q3 and Q4 of 2013.

What I've been focused on are those same three value drivers I've mentioned on previous calls. One, our manufacturing scale in the category which reflects itself in our gross margins and their trends. Two, the sticky nature of our products which shows in the sequential quarters of our direct business, which is what we control; which has been plus or minus $1 million for the last few quarters as the Company's been going through this transition period. And three, our cash generating ability which can improve if we execute on our margin improvement activities.

I'll talk momentarily on how we see 2015 unfolding but before that I will update you on the different growth in margin improvement actions that we have had going on at the Company. As a reminder, on previous calls we've tried to bookend two basic scenarios, both of which we believe will generate improved value creation relative to where we are today. Those scenarios were framed as in the best case we'll have better execution to improve our top line performance, responsibly deploy capital, drive operational improvements, and explore returning to shareholder to the extent it makes sense. In the worst case, we continue to fight headwinds on the top line but we can still drive operational improvements and we're actively exploring returning capital to shareholders.

So, I wanted start with the two items we control the most directly. Improvement in our direct commercial operations and driving operational improvements leading to margin expansion. Improvement in our direct commercial operation is about two things: improving our sales and marketing execution, and the development of new products.

Continuing from the last call we have been focused in getting the right people in the right seats with clear authority and discipline around customer targeting. A lot of those things were not done here historically as the OEM business drove much of the growth. We've pulled the resources from less value creating markets for products whose channels could be managed more centrally. We've reallocated those resources to filling international rolls and candidly trying to upgrade the level of talent across the Company.

Those activities take time, but we have made significant progress in the last three months towards a stronger commercial organization. The second piece of improving direct commercial execution is new products. We will likely start talking about those some point next year.

Improvement in driving our operations from margin expansion has been moving along quickly. I would characterize these actions as fully identified and deployed and should be realized in 2015. As I've said previously, this is not the long-term answer for ICU but it is really important what has been going on from an OEM perspective to position us for better margin improvement in the future.

In addition to the cost actions on the selling teams, new actions have ranged from cleaning up our various distribution channels domestically, slowing unnecessary outside spend, really, just questioning a lot of that which is deemed necessary but sometimes is not. It has been helpful to put all of our assets and people and infrastructure into very separate measurable teams for infusion therapy, critical care international, where performance and returns can be tracked closely.

I continue to believe ICU is a company that is big enough to be big and small enough to be small where our income statement can be influenced quickly. Just some basic common sense choices can make a meaningful improvement in our P&L. We continue to be keenly focused on timing to deliver improved performance for FY15.

Okay, so it's good that all these activities have been going on, but they really only matter in the context of the whole picture which includes what has been going on with our OEM business. I think it's helpful to layout where we expect to get to on at least an adjusted EBITDA forecast for the business in 2015 and how we are thinking about setting up the future.

Right now we believe we can manage the business to deliver approximately $85 million in adjusted EBITDA for 2015 with a couple of assumptions. We are currently thinking our OEM partner will be down potentially at least another 5% to possibly 10% next year. We see them finishing this year at around $108 million, down an additional 10% next year would put them or OEM business at roughly $98 million in 2015. We believe we'll have direct revenue growth in an amount to deliver aggregate positive top line growth and we will give more color on that on the next call.

When I think about what we're trying to set up, if I reflect for second, $85 million in adjusted EBITDA is basically equal to the peak levels, ever at this Company which is when our OEM partner was at $132 million in 2012. If they're actually down 10%, 2015 over 2014, our largest customer will have been down $35 million over that period. Equaling three years of steep declines through the end of 2015. During that time while a lot of standardized OEM product came out of the system, ICU's gross margin held firm and we've been forced be more productive. That kind of illustrates the long-term earnings opportunity if volumes increased here. There's obviously risk in this model if they were down more than 10%.

So from a value perspective 2015 versus 2014, I think we're saying we can deliver some positive revenue growth, substantially improve adjusted EBITDA and adjusted EPS while facing those headwinds. And in my mind that sets up a future in 2016 that could have tailwinds from our new products making their way into the market, with a US sales force with more time under their belt, our regular international growth around infusion, the continued push around oncology with impending policy changes, and perhaps a return to normalcy for our OEM business. And that's without the opportunity to deploy capital.

I recognize we are forecasting our OEM results perhaps out of line with published estimates or even recent trends in their business. We are delighted to see our OEM partner deliver strong results and make so much progress on many different fronts. We benefit from their success but for now I think we must be cautious here make sure our infrastructure is priced with caution. I think we'll also see a reduction in our CapEx needs which will run below D&A and I think we could have north of $50 million of free cash flow generation next year which will make our cash balance near $400 million at the end of next year.

Hopefully that gives some transparency to how we're thinking about the future and the puts and takes on the P&L. I do think we have a real value creating scenario, but it does make the strategic issue of having a single customer exposure of our size, even though our OEM partner will be at a 10 year low in terms of percentage of the overall business, an important issue to address eventually as one looks at the absolute math.

We do need to begin thinking about adjacencies that are logical and leverage our competencies to help mitigate that issue. I say adjacencies because growth with our own direct operations can never offset the size of our OEM partner in a time period that mattered. Things are moving fast. We're trying to improve the Company with urgency but I wanted to remind everyone as I've said on previous calls, there are still core areas we need to solidify: with investments, and one time costs into quality, certain technical competencies, and a little bit of infrastructure to be able to deploy capital. We need to keep working in those areas and they are not all to my satisfaction yet.

I think people inside the Company are starting to see the range of plans that are coming together. We're trying to take responsible action and break some of the inertia that many companies in our position face. We may hit some bumps as we take on these cleanup actions and we will overcome them and emerge stronger. On our next call we'll continue to provide you with more transparency and color by the additional parts of the plan and how they will improve our overall returns. With that I'll turn it over to Scott.

Thanks Vivek. Before I begin I'll remind all of you that the sales numbers we are covering as well as our financial statements and the reconciliation from our GAAP to adjusted EBITDA and EPS are available on the investor portion of our website for your review. As we mentioned on our last call, we will continue to report adjusted earnings per share and adjusted EBITDA in order to provide a better and more consistent view of our earnings. We will continue to provide as much detail as possible on any adjustments. Those key adjustments we're talking about include items such as stock, compensation expense, restructuring, and transaction related costs.

So now on to reporting our Q3 results. Our third quarter results exceeded our guidance and were driven primarily by consistent performance in our international direct infusion therapy and global direct oncology sales. Total revenues were $77 million in the third quarter compared to $83 million in the third quarter of 2013. Third-quarter adjusted EBITDA was $19 million compared to $23 million last year. This decline was primarily due to lower sales and increased R&D expenditures.

Adjusted diluted earnings per share for the third quarter were $0.66 compared to $0.84 last year. GAAP net income for the third quarter was $6 million or $0.42 per diluted share as compared to GAAP net income of $11 million or $0.72 per diluted share last year. The decrease was primarily due to lower revenue, higher non-cash, based on compensation expense, and increased R&D were slightly offset by a lower tax rate.

Now let me discuss our third quarter revenue performance by market segment and you can also view our detailed markets segmentation in our earnings press release. For the third quarter, sales in infusion therapy decreased 6% to $55 million and represented 71% of our total sales. International direct infusion therapy sales increased 8% but were more than offset by a 12% decrease in OEM sales and a 6% decrease in the US direct sales.

Sales in oncology decreased 5% to $9 million and represented 12% of revenue. An increase in our global direct oncology sales of 10% was offset by a 28% decrease in our OEM oncology sales. What matters to us as we think about the stickiness of our business are the rolling sequential trends which at this moment is perhaps an equally important comparison due to the volatility in 2013.

For the last three quarters direct sales of our infusion and oncology pipelines have been $34 million, $36 million, and $36 million respectively. Our sales in critical care decreased 10% to $13 million and represented 17% of our sales. We do see critical care being roughly flat for the full fiscal year for the first time in three years.

Our third quarter sales for domestic and international were as follows. Domestic sales were down 9% to $55 million for the third quarter compared to $60 million for the same period last year. The primary reason for this decline was lower OEM sales. International sales were up 1% to $23 million as an increase in international direct infusion sales was mostly offset by weaker OEM, infusion, and oncology sales.

Our gross margin for the third quarter was 49.3% compared to 49.5% last year. The change is primarily due to product mix. SG&A expenses decreased 2.5%, primarily due to lower sales and marketing costs partially offset by higher stock compensation costs.

During this quarter, we began to see a reduction in our sales and marketing costs due to the restructuring we implemented in August. We also incurred approximately $3 million in related restruction costs in the third quarter. Our research and development expenses increased 61% year over year to $5 million as we continue to invest in organic growth opportunities in all of our primary markets and in particular, critical care.

Now moving to our balance sheet and cash flow, as of the end of September our balance sheet remained very strong with no debt. We generated $19 million of operating cash flow and increased our cash, cash equivalents and investment securities to $330 million. This equates to approximately $21 per outstanding share.

As Vivek already mentioned we expect the fourth-quarter revenue adjusted EBITDA and adjusted EPS to primarily look like the third quarter results. So based on third-quarter results and expected fourth-quarter results we are adjusting our previously announced annual expectations for revenue, adjusted EBITDA, EPS and GAAP EPS as follows. For the year we expect revenue to be in the range of $304 million to $307 million compared to the previous range of $285 million to $300 million. We expect our adjusted diluted earnings per share for 2014 to be in the range of $2.25 to $2.33 compared to the previous range of $1.95 to $2.15.

We are raising our adjusted EBITDA for the full year to now be in the range of $69 million to $71 million compared to the previous range of $63 million to $68 million. We expect GAAP diluted earnings to be in the range of $1.62 to $1.70 compared to the previous range of $1.30 to $1.50. And to remind you, you can find a reconciliation of these metrics in our press release and on our website.

We expect our full year gross margins to be approximately 49% and we expect SG&A to be approximately 30% of revenue excluding any restructuring charges. We also expect research and development spend to be approximately 6% of revenue and for modeling purposes we expect our tax rate to be approximately 32%. This includes discreet tax items.

In addition, we expect our CapEx spend to be $16 million to $19 million this year and to start declining in 2015. Lastly, I believe it's important to note that the initiatives that we began implementing after Vivek arrived are beginning to take shape. And while there is still more to do, it's exciting to be part of the beginning of driving the Company through greater earnings and growth opportunities. And with that, I'd like to turn the call over to your questions.

Thank you.

(Operator instructions)

Tom Gunderson with Piper Jaffray.

Good afternoon everybody. Maybe you could talk a little bit about, as you gave us some indication about how 2015 might look, a little bit more about how you would expand, if at all, geographically. You're doing well on the direct side on international and obviously one way to keep growth going higher is to place bets on your winners. Can you talk a little bit about that Vivek?

Sure. Hi Tom. I think it's really important. That's the one place that has been working for many quarters in a row now. I think ICU was very early in bringing valves to the global market, bringing oncology to the global market. I think both of those things have been really well received both a direct basis and with our distribution customers. There's three different ways to grow that business, and that's where I've been spending a lot of time.

The first is, in the countries we're direct, we need to get the right people and add more resources. We've been doing that. We've added probably four or five people. We need a little bit more over time. The second thing is that's where we should be signing up new distribution partners on a very local by local basis so it's not making any big bang kind of stuff but really figuring out who is the market share winner, and who's the right horse to ride on a country by country basis. And try to make the right partnerships with them.

And the third is just on the M&A front. We've said on previous calls, finding something in the US is probably low likelihood. It's going to have to be things outside the US and hopefully that dovetails with something that can broaden our distribution channels. It's hard for small companies do all of that globally. Particularly with the competitors we're up against organically. So we're good to have to supplement a little bit at some point.

Got it thanks. And then my second question would be on R&D. Scott talked about how it went up, it crossed over the $5 million for a quarter level. I see how that fits with the broad strategies that you've been talking about the last couple of quarters but I'm wondering if you could give us a little bit more color. Is R&D going up as the number of people go up, the number of projects go up? You're trying to accelerate time to approval. Give us a sense of where those extra dollars are going.

It's Vivek, I'll start and then Scott can jump in. I think our R&D here is at a record historical high. As I said in the last call I'm not huge believer in some magic percentage of sales that you should spend on R&D at small companies. I can make the argument that the OEM business shouldn't be in the part of that calculation right if you're really [$200 million] and [$300 million] net of sales you're looking at. So I feel like our spend is a very large number right now. It was trickling up because some the things going on in the critical care business that were going on when I walked in here as I think we said on previous calls, historical levels of R&D, were $9 million, $10 million, we're not going to get all way back there.

But we are going to get somewhere through where we are today and a more right size looking number. So that's part of the way that we're going to fill that gap of where we want to get to on an earnings perspective. And I don't feel that's like taking out permanent innovation costs from the Company. I think there's been very specific projects on the critical care side of the ledger that are drawing much more to a close even now or in the next 90 or 120 days. And I think that's going to have come down just candidly.

Okay. Thanks it that's it for me guys.

Thank you. Jayson Bedford with Raymond James.

Good afternoon and thanks for taking the questions. I guess the first question is, you reposition the US sales team to focus a little bit more are your hospital customers and oncology. Two parts, did you see any disruption from that in the third quarter, and two, I guess the flipside is are you starting to see a benefit from this initiative, maybe what you're seeing so far in the fourth quarter?

I think it's right down the middle right now, no negative, no positive. The oncology growth in the US in Q3 was really strong, which is good, but I don't believe that's because in August we made a change in the salesforce and it got better in the last six weeks I think there's just a lot of tailwinds there. Just like I don't think the infusion year-over-year downdraft of a couple of points is because we made a change. I think we're already saying on a previous call what happened last year was going be the bigger influencer of that.

So right now I'm happy with no negatives and I think we see no negatives you know we had a lot open seats, we're being careful and getting the right people in each seat even if it takes time. I think that's kind of all I would say. We should not get ahead of ourselves at all and believe that it's making a big impact yet. It takes time for those things to work through.

Okay and just maybe piggybacking on your on comments on oncology. We've always viewed that is a pretty attractive market. I think you did 10% growth direct. I'm guessing the business in oncology can grow faster than that. Can we assume or think about a faster growth rate at least on a direct basis when we think about 2015?

I think if you went back to the beginning of this year when we, right when I got here and we put out this13% to 17% were the prime numbers of oncology, I think our direct business actually would be very close to being in that range. I think what we didn't handicap well was a little of a disconnect on the OEM side there. So I still don't know that we know the absolute bottom of it in aggregate. I feel like the 10% that we've been running around the last quarter or so or two quarters on direct feels like a good place to be. That's kind of what our view of market growth is. I'm not sure we're smart enough right now that it's 10% versus 15% or something like that.

Okay. And then lastly for me and then I'll get back in queue. On your OEM relationship, appreciate the color on 2015, but just trying to reconcile their results versus your view, to be clear there's been no change in the contract or the relationship at all. It seems like this is more of a function of you taking perhaps more of a conservative view?

There's been absolutely no change in the contract. I don't really think it's our place to comment on where they are in their status on things. But it affects us and you know I've been around infusion a little bit and things move slowly. And I feel like ICU felt the discomfort of what went on there a number of months after it started because there's a lag time to feel that affect, both in the tough way, but also I suspect there's going to be a lag time to field in the positive way. And there's just no advantage we have to being over exuberant or whatever the right word is about that so if we can price our infrastructure to be [cautious] we can still create value even if that goes on and if it gets back to normal great. I think we're the beneficiaries of it. I don't think it was a more kind of complex view of the world than that.

Okay. Thank you.

Chris Lewis, Roth Capital Partners.

Hi guys, good afternoon thanks for taking the questions.

Hi Chris.

First Vivek you mentioned you still see a need for investment in some core areas within the business maybe can you elaborate on what specifically those kind of main focus core areas are and when do you expect you'll be able to fully addressed -- adjust this?

I think, ICU did an amazing job on a lot of different fronts, on manufacturing, on innovation on things building an industry and a class of trade that nobody focused on. But I think like many small companies it didn't necessarily put the right pieces in place everywhere across the board. And so I learned in infusion, making sure that you are rock solid on quality is a huge value driver and I think ICU is in a great place on quality but you can always be better. So I want to make sure we can afford investments, lets get the best thinking we can around some of those topics.

I feel that way around business development activities. I feel that way around some finance activities. I feel that way around IT. I think there's a number of things that just kind of running the business that if you want to grow globally you need to have a bit more infrastructure around you. Thinking through every one of those topics I just mentioned country by country is a different skill set that we may have had on our own. And so when I say a little bit of infrastructure, that's what I mean.

Understood. In terms of the 2015 revenue outlook you provided today can you elaborate on what gives you confidence that, that OEM decline marginally improves from 2014 to 2015.

Yes. Just to be clear I don't think we put out revenue guidance per se, right? We try -- (multiple speakers).

Right initial outlook, ballpark outlet.

No matter -- we have to play the cards that were dealt. Right now the OEM partner will be down in our estimate 12% this year and we try to put forward a math model that says if they were down 10% next year the math still works for us. I think if we look at the trend rates and we separate out in regular old infusion and valves versus oncology we basically straight-lined the rate that's been going on over that period. It's the same analysis you can do yourself. You just don't necessarily have the visibility into -- well maybe now you do actually -- how much is oncology versus everything else. That was essentially the analysis and then trying to triangulate that off of the public comments in the data that we see around the potential there.

Okay great. And just one more, returning capital to shareholders can you talk about were the Company is in terms of the stage of those discussions and perhaps when the Company may be announcing a more aggressive strategy around returning capital to shareholders. Thanks.

I think we're on the clock. We said that on previous calls. I don't think -- it's a huge drag if we have $400 million on our balance sheet at the end of next year. That's half the enterprise value of the Company. That's a little silly to all of us, so I don't think it's realistic to say that we're going to hold onto that forever. But when I think about buyback, I do think we have to be really mindful of the concentration that we currently have in our business and even though it's a lower percentage is still a very large absolute number of dollars even if back to post 2007, 2008, or 2009 levels or whatever.

I don't know that it's wise -- and it's a bit of a black and white statement -- I don't know but it's wise to say buyback makes sense when it concentrates everybody's exposure to that issue even more than maybe exploring a little bit of diversification first and then unlocking the capital return power of this Company. I don't think we have any definitive decisions today but we're looking at it in the context of also what's going on through an OEM perspective and trying to see the whole picture before we make a definitive decision. But I think we also recognize that you can't over the long-term have half the enterprise value of cash on your balance sheet.

Okay, thanks for the time.

Thank you.

(Operator instructions)

Larry Solow with CJS Securities.

Thanks good afternoon. Vivek, can you just discuss the cost cuts and I know I think you made about $10 million on annualized basis. Did you realize most of those on a run rate in Q3 and could you sort of ballpark how much more you've done since then?

Sure. I think we said on the last call that we made a number of changes equating to about $10 million annually and that we would realize roughly $3 million or so of that this year and the balance would lap into next year. It's probably maybe a tad more than $3 million that's going to be realized this year. Maybe a little bit less than $7 million will be realized next year. Then there's a couple of other items that we've been working on and then there's the decrease in R&D. Right?

If you've annualized -- if we're saying Q3 and Q4 in our gut right now is going to be in the same place, and you rolled the additional cost saving that have been identified, rolled a little bit of decrease in R&D and added some growth on an organic basis. Even if it was in the 4% to 6% range that we had this year, that's how we're saying that why -- we felt like there's enough information to give an approximation of what next year could be even in the face of some downdraft on the OEM situation. So still being able to grow value through that, and that's how we were thinking about it.

And ballpark the $85 million target outlook -- I realize it's not guidance, does that assume, can you reach that number even with the OEM partner -- declining OEM sales declining 10%? Or would have to be more like the 5% number?

I think we were saying we believe that would be our approximate level even if they decreased 10%. I think the way we thought about is it was 5%, we could handle it with the cost stuff we have going on. If it was 10% it would eat into the margin that is generated from our direct sales increases.

Got you. And the slight improvement of whatever you think the midpoint -- its 5 percentage points absolute in slowdown in contraction next year. Is it fair to say that -- without getting into specifics, the 12% or whatever, low double digit decline to the large OEM partner, is their end-market demand declining that much as well or is there some inventory drawdowns?

I think we don't control that. We don't have perfect transparency into what's in exactly in the system versus end customers, so that's exactly what we're trying to do. Put our best view of it out there let everybody make their own decisions. There's a lot more people looking at that thing than there are ICU. Everybody can do their own work on that.

And just lastly, critical care I realized it's probably little bit lower on the totem pole in terms of strategic importance going out over the next several years, but obviously still a significant piece of your business. Insight into sales have flattened, is the market growing faster and you're able -- have you stopped losing share? And I imagine some of the newer products that are coming out are going to be in critical care, are maybe more in the noninvasive part of the ICU. Is that fair to say?

Yes, that's fair to say on the new products when they eventually come. I think critical care has really lacked focus here. I mean there's not a nice way to say that. It's taken a lot of resources, the integration of it from the acquisition and it's day forward. ICU took over business and then watched it decline a third over that period. While allocating more R&D, allocating more quality, allocating more regularity et cetera to it has been a difficult slog. As we said on the other calls I don't think we've done anything dramatic. The thing that we have done over the last three months is that there's now a dedicated general manager of that business. We've hired one or two people out of that industry who know something about the space and all the basics that one would do.

I would say we survived a lot in critical care and we self inflicted -- the market there is a nice market structure industry. We self inflicted a lot of wounds because we didn't understand the business. So basics around pricing or how you go to market et cetera, so now we have people combing through those types of things and say, let's just makes them good judgments based on facts about what happens in the market.

I think right now two things one, we've got some people making the right decisions that way and the other thing is the install base for us has gotten actually quite small out there. We are coming close to I think the bottom of that core group of loyalists, I think the competitors have taken a lot of share and most of the people that they could take and I'm sure they're going to keep trying but I feel like we're just a small number now we're bumping along that a little bit.

Got it. Great thanks, appreciate it

Mitra Ramgopal Sidoti.

Just a couple questions, Vivek I know on the last call you'd mentioned you'd identified some low hanging fruit in terms of helping to boost efficiencies with the third quarter behind you and now half way through the fourth. Would you say you've realized most of that and we should see it appearing more next year or it starts showing up in the third quarter?

I think, we talked a little bit of the cost savings were in the third quarter. They'll be more into the balance of next year. I think we felt like on that issue we were on the clock too because what was going on with the OEM situation that we had to take action quickly. And so all those things have been identified and the programs are in place. We really want them to start you know and be fully implemented for next year. So whether that happens in October, November, December, again it really hasn't concern me that much.

I think that really next year's activities. I don't think there's anything new to find there. I think from a value perspective at a small company it's not the answer. It's buying time for people to see another card frankly. What I feel proud about with the Company is we can get back to level of profitability that was at historic highs even with $35 million of standardized revenue coming out of the system. I think that's really, really good.

But that's not a game you can play forever and I hope what it's setting up is we get more time under our belt on direct sales, new products come, maybe OEM gets a little bit better, the earnings power that you see through the whole gross margins there can be good at least we live to fight another day. We done almost no investor out reach and I appreciate that people been patient with us. In the limited interactions that we've had that issue around the OEM is one we've spent a lot of time getting asked about and so we're just trying to frame it up with total transparency how we look at it today.

Okay thanks for the color. And then I don't know if you could give us maybe your thoughts on the pending acquisition of CareFusion. Do you see that significantly changing the competitive landscape or providing some opportunities for you? I don't know if you have anything to share with us?

I think they are each on their own two unbelievably successful companies and great companies. At a high level you know we compete at each one of them for many years. ICU have completed against each one of them for many years and held its own. I think ICU's business, direct business in the US -- let me talk a little bit more specifically, ICU's direct business in the US is only $70 million or so and a lot of that is where it's really, really clinical preference, not full-line business. So yes there's risk there, but the customer's made a choice on specific reasons and I think that business has been sticky for a long, long time.

I think on emerging markets our distributors were early into the market and helped build the market and ultimately even though there might be a new competitive entrant there the technology is still being adopted in a lot of those places in the world so that's a good thing. I think where I have the most concern about it is where the distribution channel's got a lot stronger and certainly in a relative basis than ICU has in what I would call the international developed markets. So we just don't have that much scale there in places where direct and now I suspect they'll have more distribution power. So that's why we've been -- we were investing there anyway and it's upped our intensity and focus around that. But I think again we're a small company. We don't need big bites to live off, the crumbs can feed us pretty well.

Great. Thanks for taking the questions.

Thank you. I'm showing no more questions in the queue at this time. I would like to hang the call over to Vivek Jain for any closing remarks.

Thanks everybody. Again apologies the call was a little bit late in the quarter, we're trying to give us much transparency as to what's going on both on an OEM basis and a direct basis. I think it's important that we recognize it's still a work in progress there are still going to be bumps, we're trying to move quickly. We don't want to get ahead of ourselves and we don't want anyone else to get ahead what we're doing out there either.

It's just trying to apply a lot of logic and fact decision-making to what's gone on here. And I think there's -- the thing I'd like to be talking about next year that I feel like every one of these calls is very much around cash flow and cost et cetera. And that's really important to make it through this period. But eventually we need to talk about what made ICU great which is new products and bring value to customers in the market.

I'd like to thank everybody both in our Company and the advisors that have been helping us get up to speed a lot of these topics. Thanks for the support. Everybody out there on the call and their interest in ICU. We forward to updating you more early next year.

Ladies and gentlemen thank you for your participation. This concludes the presentation. You may now disconnect.