ICU Medical Inc (ICUI) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ICU Medical Inc. second quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, John Mills, Partner at ICR. Please go ahead, sir.

Great, thank you. Good afternoon, everyone. Thank you for joining us today for the ICU Medical financial results for the second quarter ended June 30, 2015. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Scott Lamb, Chief Financial Officer. Vivek will start the call with a brief overview of our second quarter results, and then Scott will discuss second quarter financial performance in more detail. Finally, the Company will open up the call to your questions.

Before we start, I want to touch upon any forward-looking stamens made during the call including beliefs and expectations about the Company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be representation of future results and are subject to risks and uncertainties. Future results may differ materially from management's current expectations.

We will refer all of you to the Company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call we will discuss non-GAAP financial measures including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period.

We have included a reconciliation of these non-GAAP measures for today's release and provided as much detail as possible on any addendums that are added back. In addition, the sales numbers that Scott will be covering, as well as the Company's financial statements, the reconciliation from GAAP to adjusted EBITDA, and adjusted EPS, are available on the investor portion of the website for your review. Now with that, I will turn the call over to Vivek. Please go ahead, Vivek.

Thanks, John. Good afternoon, everybody. Our second quarter was a very active quarter that continued to build on the momentum of the last few quarters, and we are working hard to continue to drive operating performance, value, and long-term sustainable growth.

We had previously talked about our Q2 resembling Q4 of 2014 from a revenue perspective. Our actuals came in above those expectations. Q2 was a very clean quarter, and we generated strong cash flow and adjusted EBITDA, as both revenue growth and the operational improvements we have been making to ICU Medical have become more visible.

Today I will update you on some activities that are more tangible examples versus previous calls, characterize the current revenue status with our direct business and our OEM customer, and summarize the drivers for growth in the medium and long term. We finished the second quarter of 2015 with approximately $84 million in revenues and $28 million in adjusted EBITDA. Total Company reported revenue growth was a little over 6%, and 10% on a constant currency basis.

We had good performance in all of our direct lines of business and stability in our OEM business. Our direct operations continued positive growth with 8% growth on a reported basis, and 13% on a constant currency basis. And our OEM business, as previously discussed, was slightly down sequentially with 4% year-over-year growth on a reported basis, and 5% constant currency. We will come back to the stability of the OEM business momentarily, as we committed to giving a full year of OEM on this call, and I will conclude with some updated full-year guidance, and then Scott will walk you down the P&L.

I've said on every call since I have been here at ICU that we are a Company that's big enough to be big and small enough to be small where the income statement can be influenced quickly. I think the earnings leverage and cash flow generation power we have seen year-to-date, with just a little more revenue growth and being predictable in managing ourselves, illustrates this important point.

Our three core value drivers continued to be intact this quarter, our manufacturing scale in the category and ability to improve gross margins, the sticky nature of our products, as shown in the sequential quarterly results on our direct business, and our cash generating abilities. Our previous calls have largely been addressing the operational improvements leading to the demonstrated margin expansion. And while we do have additional margin expansion opportunities, our time and attention has rapidly been shifting to focusing on a revenue growth.

So today the focus of my comments will be on the drivers for growth in the medium and the long term. The only comment on margin expansion is that while we have previously talked about most of this work having been identified and deployed for realization in 2015, a few new additional opportunities have emerged which I would characterize as the high hanging fruit, and we hope to see the benefits of these items next year.

I care just as much about the sequential quarter-over-quarter results as I do the year-over-year results, which I think are sometimes misleading in either direction for a small company. When we compare sequentially versus Q1 2015, really the primary differences are $2 million more of revenue from our direct business and approximately $2 million more of adjusted EBITDA.

Scott will get into the details about the drivers, but essentially they were the same as last quarter. We have stated that improving our direct commercial operations is about two things, better sales and marketing execution, and the successful launches of new products. Continuing from the last call, all of our US sales and marketing seats are filled and everyone has been through training.

Q3 is likely when the vast majority of all sales and marketing costs will have been in for a full quarter, including the positions that accelerate capital deployment or continue to improve quality or manufacturing efficiency. We still have a few international sales positions to fill and expect to have those completed by the end of this year. Going into a little bit more detail on what we control most, our direct business, I wanted to provide some updates into the activities by business segment.

As I said in the opening, our direct operations continue to perform well, with 8% growth on a reported basis and 13% constant currency. Our direct infusion therapy segment grew 11% on a reported basis, or 15% on a constant currency basis. I believe, frankly, the biggest driver of this has been increased utilization. We have been closely monitoring the results of the companies that produce the devices that our products attach to and it's logical that our growth is following theirs.

That has been supplemented by renewed focus, time and seats of the sales force, and urgency to find every possible channel to sell our IV therapy products. International markets and surprisingly Western Europe continue to perform very well. We've also been focused on sustainability here. In our 10-K, we disclosed some additional patent coverage in the US around our MicroClave clear connectors. As customer preference continues to move towards clear connectors, this new coverage is important for protecting the key features in the clave technology that make it best at protecting patients.

While we believe our products are deeply sticky in nature, and while we are seeing the benefits of increased utilization, it is important to make sure we are investing and defending the value of our franchise. Our oncology business in aggregate, meaning our direct and OEM combined, had growth of 12% reported, or 22% on a constant currency basis in Q2. We had previously talked about not disclosing separately our oncology segment between direct and OEM, and only did so because we believe there was a disconnect in the inventory levels which we said should have bled out by mid-2015.

We believe we are there now, so we will go back to only providing aggregate reporting. There is good customer momentum here as the tailwinds of increased regulatory guidelines are being adopted. Our entire sales force are trained on these products and supported by deep clinical specialists. The highlights in Q2, alongside the 12% growth, include the awarding of a dual sourced contract to serve the US oncology network supported by McKesson Specialty Health with our closed system transfer devices.

This is one of the largest networks of independent community oncology practices in the country and we are delighted to see the network's commitment to clinician safety. As mentioned on the previous earnings call, we have also relaunched our newer products of ChemoLock and the Diana automated compounding system, and are in the early stages of a limited market release.

We will only talk about these products with specific numbers in the future when we have a material amount of sales, but it is important to note that new products are starting to come into the mix for medium-term growth. We are seeing a good level of customer activity around these products and customer opportunities. Early returns appear positive, but we do not expect them to be material to our 2015 results.

In our critical care segment, we reported second quarter growth of 4% on a reported basis, or 6% on a constant currency basis. This continues to be a challenging market with limited growth, and I don't think this quarter's growth is reflective of a particular trend, as we had some timing in orders that just happened to make it into this quarter. While we had growth, the numbers are so small it could easily have been in the other direction. And when we review the results of our competitors, we don't see the same underlying market growth or utilization trends that we are seeing in our other businesses.

The most important update in this business unit is that we did finally file the 510(k) for our new hemodynamic monitoring platform. This gives us the best chance to at least be at product parity in this segment, and equally important, relieves us of a significant R&D spend that had been going on for years. Relative to the sharp declines in critical care when I arrived at ICU, this business even staying at flattish levels helps the overall value picture.

Our international sales increased 8% on a reported basis, and 20% on a constant currency basis. We see competition increasing here but have been able to continue to find pockets of growth. We still have a few remaining important positions to fill. We been focused on cleaning up our legacy distribution channels where we either had duplicative or less productive go-to-market situations.

This may cause some bumps in our international revenues for the balance of the year, but is absolutely the right long-term value creating thing to do. We are slowly starting to pick which markets to invest in more and I wish it could be faster. This quarter, we did consolidate our distribution channels in South Africa for our whole business and in Australia for our critical care business. These subtle moves give us an opportunity to deliver more focus and the legal entity to do direct business and we hope to keep progressing these initiatives. It's just hard for a small Company, so it takes time.

So it's good that we are seeing better utilization in achieving growth in our direct businesses. But that has to be taken into context with the whole picture of what is going on with our OEM business. While there have been a number of positive developments for our OEM partner that are good for us in the medium term and long term including FDA approval of their infusion pumps, better execution and alignment of their value proposition and their announced transaction with Pfizer, but what's difficult to predict is exactly when we will see the sustained benefits of these developments.

We are downstream to improvements in their pump business, and we continue to believe there's a lag in feeling the positive downstream effects. Just like there was a lag when they had their regulatory headwinds, if there are positive effects, it will take time to realize it. Within OEM, we did commit on the last call to giving an updated full-year outlook now as we needed more time to determine what was our OEM forecast of the year. In Q2, our OEM business had 4% growth reported, 5% on a constant currency basis, and was down very slightly on a sequential basis as we had previously indicated.

Year-to-date, our OEM business has grown 9% on a reported basis and 11% constant currency. Given these results, our guidance from last November of that business being down minus 5% to minus 10%, where we acknowledged we had a different view than the published estimates is proving to be too conservative. At this moment, we expect the balance of this year to resemble the back half of 2014 for our OEM business. That would imply full-year results of low-single-digit growth for our OEM business.

As we indicated on the prior calls, we expected the earlier part of this year to have better year-over-year results than the back half of the year for our OEM revenue lines as inventory got built back up in this channel. We see our partner is executing well and holding their market share as evidenced by the reported year-to-date results of essentially flat. Please do not get us wrong, no one likes to see them growing more than we do, and we want them to win and be fully armed for market reentry, but we have been burned on this item before and so we don't want to make a mistake.

We see the underlying OEM business is holding steady at flat market share levels, with perhaps some of the same utilization uptick we have seen. I want to be very clear that we do not control this item and have been trying to build a business that could create value independent of the results here. Given the knowns of the items we control, what we've been doing in our direct business, the potential of new products and better execution, and the unknowns of the OEM business that we don't control and the potential for capital deployment, we think we have a very good case for value creation moving forward.

Even if our OEM partner revenue is flat in 2016, we believe we can still grow value, and if they turn out to do better than that for 2016, or even for the balance of this year, it will only be additive to our results. The macro situation around infusion therapy in the US is the best it has been in a while, but we have to be careful around the micro effects to ICU. Given the results year-to-date of both our direct business and our OEM outlook, we are updating our guidance.

We see our direct business coming in towards the higher end of our 4% to 8% previous guidance, and our OEM business coming in in the low-single-digits. We're amending our revenue guidance to $325 million to $330 million, and our adjusted EBITDA guidance to $100 million to $105 million. Scott will walk you down through EPS. We recognize that the midpoint implies a slight decrease relative to the first half, but we feel it gives us the flexibility to invest, clean up some historical stuff, and it is an improved solid base relative to where we started and positions us well to grow into 2016.

From a sequential perspective, we see Q3 of 2015 being between Q1 and Q2 of this year. While Q2 was very clean, we will have some small charges in Q3 as we clean up a few items on legacy contracts and monetize some real estate, and the net of that will bring in a little bit of cash. I'll try to preempt some of the questions on capital deployment. I feel like we are getting closer to earning our right to deploy capital and our infrastructure and operations are more ready to handle it.

That said, it continues to be an unbelievably frothy market out there and it's very hard to find the right value creating opportunity. Ideally, we would find a smaller tuck-in to prove we can build value and then explore a larger, more global opportunity. We can't let our cash balance tempt us too much.

So the last few quarters have centered on getting our foundation right, cutting intensity and focus around what drives value, improving our commercial execution, investing internationally, getting the right people in the right seats, and improving our cost structure. Three quarters do not make a long-term trend, but we are encouraged by the recent results and are deeply focused on continual improvements throughout the Company.

In the short term of FY15, we will achieve our goal of returning EBITDA to the highest level ever achieved at this Company, which was when our OEM partner was at a much higher revenue level of $132 million in 2012. We will see aggregate positive revenue growth. The team continues to be deeply focused on true free cash generation coming out of the business, and all the other comments we made on previous calls still apply.

We believe this call would provide a lot of incremental information including more specific actions that are occurring to drive revenue growth, more evidence on the stability of gross margins over the year, and the best picture for the full year on our OEM business. We have a real value creating scenario with the improving cash flow in 2015 and the medium-term opportunity of 2016 and beyond. I do think we're an interesting sized Company that can strategically move in a number of directions, and one of a limited number of smaller med tech companies that can complete globally.

The strategic issue of having a single customer exposure of our size, even though they could be at a 10-year low in terms of percentage of our overall business, is an important issue to address over time, which I consider the medium term. Things are moving fast. We are 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 that we need to solidify in certain technical competencies and keep driving continuous improvement in quality.

We need to keep working in those areas because they're not all to my satisfaction yet. I do feel the Company is healthier and hungrier than we have been in many years. We are trying to take responsible action and break some of the inertia that many companies in our position face. We may hit some bumps as we take on some of these actions, and we will overcome them and emerge stronger.

I really appreciate the effort of all ICU employees to adapt, move forward, and focus on improving results. And our Company appreciates the support we have received both from our customers and our shareholders. With that, I'll turn it over to Scott.

Thanks, Vivek. Our second quarter results were above our expectations, as we achieved gains in both our direct and OEM sales channels including our infusion oncology and critical care markets. Total revenues increased 6% as reported, or 10% on a constant currency basis, to $84 million in the second quarter compared to $79 million in the second quarter of 2014.

GAAP net income for the second quarter was $14 million, or $0.83 per diluted share, as compared to GAAP net income of $6 million, or $0.38 per diluted share last year, an increase of 118%. Adjusted diluted earnings per share for the second quarter were $0.97 compared to $0.51 last year, an increase of 90%. The increase in adjusted EPS was primarily due to positive top line growth, improved gross margin, and decreased SG&A expenses.

Second quarter adjusted EBITDA increased 72% to $28 million compared to $16 million last year. This increase was due to these same growth drivers. Now let me discuss our second quarter revenue performance by market segment, and you can also view our detailed market segments in our earnings press release. For the second quarter, sales in infusion therapy were $58 million, an increase of 6% as reported, and 9% on a constant currency basis, and represented 69% of our total sales.

Direct infusion therapy sales were $33 million, an increase of 11% as reported, and 15% on a constant currency basis. And global OEMs infusion therapy sales were essentially flat at $25 million, or up 2% on a constant currency basis. Sales in oncology were $10 million, an increase of 12% as reported, and 22% on a constant currency basis, and represented 13% of revenue. Our sales in critical care were $15 million, which is an increase of 4% as reported, and 6% on a constant currency basis, and represented 18% of our sales.

Our second quarter sales for domestic and international were as follows. Domestic sales were $58 million, an increase of 6% from the second quarter of the same period last year due to a 7% increase in direct sales and a 4% increase in OEM sales. Due to the strong dollar in the second quarter of 2015, overall, international sales were negatively impacted by approximately $2.7 million. International sales increased 8% as reported, and 20% on a constant currency basis, to $26 million.

Our gross margin for the second quarter was 52.2% compared to 47.7% last year. As Vivek already mentioned, the drivers were the same as last quarter, including capturing more margin by leveraging pricing and efficiencies in some of our distribution channels, and continued improvement in our manufacturing processes. We expect to maintain margins at approximately 52% for the remainder of this year.

SG&A expenses decreased 16%, and primarily due to sales and marketing cost improvements we implemented last year, which were partially offset by higher non-cash stock incentive compensation costs. Our research and development expenses decreased 32% year-over-year to $3 million and $1.2 million sequentially. This was primarily due to the ramping down of development costs for our new critical care monitor that Vivek already announced as being submitted for 510(k) approval.

On average, for the next two quarters, we expect R&D cost to be similar to the $3.1 million we spent in the second quarter. Our tax rate for the second quarter was 34%, following a first quarter of only 16%, which included discrete tax benefits. We expect the rate of 34% to continue for the second half of the year. Now moving on to our balance sheet and cash flow. As of the end of June, our balance sheet remained very strong with no debt.

We generated $12 million of operating cash flow during the quarter and increased our cash, cash equivalents, and investment securities by $12 million to $367 million. This equates to approximately $23 per outstanding share. Given the improvements to our overall business year-to-date, and our expectations about the second half of 2015, we are updating our full 2015 guidance.

For the full-year 2015, we now expect revenue to be in the range of $325 million to $330 million compared to the previous range of $312 million to $317 million. We expect our direct business to be up approximately 6% to 8% for the year, and our OEM business to increase approximately 2% to 4% year-over-year. GAAP diluted earnings per share to be in the range of $2.63 to $2.83 compared to the previous range of $2.15 to $2.25. Adjusted diluted earnings per share to be in the range of $3.49 to $3.69 as compared to the previous range of $2.70 to $2.80.

And adjusted EBITDA to be in the range of $100 million to $105 million compared to the previous range of $84 million to $86 million. As Vivek mentioned, the management team is working hard on the opportunities we have already identified and that are in front of us for the remainder of 2015 which will set us up for an even better 2016 and beyond. We look forward to keeping everyone updated on our next quarter's earnings call. And with that, I'd like to turn the call over for any questions.

(Operator Instructions)

Tom Gunderson with Piper Jaffray.

Hi, good afternoon, guys.

Hi, Tom.

So -- a number of the questions I was going to ask you covered, so good job on the prepared remarks. Vivek, you talked about doing well with increased utilization. And finding those razors out there that can use more of your razor blades.

Can you put a little bit more color on how that is working with your direct sales and what -- was that something that was started three quarters ago? Or was that this year's sales meeting's top priority? Where are we in the progression of getting that utilization up?

Hi, Tom, how are you? Thank you for the question. I think when I say utilization, I meant more volume in the system. And the things we study are PIC placement, CVC placement, the companies that provide those items where we are natural followers. And if we had a huge disconnect in that we would be concerned.

And so our goal is to try to stay ahead of those placements and say ultimately we are taking some market share. I feel like that rising tide has been happening, again, I don't want to know what the exact percentage is, but a large portion of just the environment out there, our direct sales force supplements all that and has been a work in progress and is getting better every day.

But I don't think our direct sales force so far has driven the increased utilization that we are seeing on our acute care business. On some of this stuff, we have outside of the hospital, yes, we have been driving that and picking up market share. So the two aren't super connected in the acute environment for me today.

Got it, thanks. Thanks for the clarification. Then you have been talking about sequential improvement. I get that.

Can you talk a little bit about sequential -- I heard year-over-year numbers on international, but I didn't hear sequential kinds of numbers. Do you feel like that's also a ramp up that will improve through the rest of the year and into 2016?

We don't disclose sequential international numbers. I'm looking at Scott to make sure that's the case. I guess I feel like big picture international is doing what we expected in aggregate.

It turned a little bit on us where Western Europe is actually kind of the out performer relative to our own expectations, and maybe Asia is a tad lighter than we thought. That wasn't the case year ago. That is what is different for us. Sequentially, yes, it is all growing in all markets, but I think the geography has surprised us where the growth was a little bit.

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

No. We know -- we have normal, obviously, everyday business interaction with the folks at our OEM partner. On the transaction, (inaudible), we only know what we read in the newspaper. It seemed to us that they got some important regulatory clearances or conditional clearances, and I assume once it is all done we will hear from them, but right now there's been nothing.

Got it. That's it for me. Thanks, guys.

Thank you, Tom.

Larry Solow from CJS Securities.

Hi, good afternoon. Vivek, I was wondering just a follow-up on the utilization question. Clearly, it is more of -- it sounds like it is more of a macro industry level thing.

Any way you can provide a little more color or quantify how much utilization has increased or what IV therapy market is growing, maybe even ballpark, today versus what it was or what it was thought to be growing historically? And what is driving this acceleration in growth?

I'd rather -- it's really the thing we spent a lot of time wrestling with, right. At a small company, our information is never as good sometimes as the big places, but we spent a lot of time looking at sales depth and levels at existing customers versus new pieces of business. And we see very good growth rates at existing customers going on out there.

I don't know that it is the market absolutely. I could say there's been a change in the growth rate. Either our customers are winning or the whole market growth rate. So if we are in the right places where volume is popping up, I think that is great for us, if the whole market is going up it is great for us. It could be either one of those.

But we see -- the market share changes aren't that dramatic. And so it's about what is happening with your installed base. It seems like our installed base is seeing more people.

Right.

Right now and that could change. I want to be very clear, that could change.

Absolutely.

Not (inaudible) on that issue right now, it's just what's happening right now.

Well, I guess that's why you still take a somewhat of a conservative stance because you never know what could happen. The 6% to 8%, just to clarify, on the direct side, that's a reported number, right? So the currency adjusted number would be whatever, 8% to 12%?

Currency adjusted it would be double digits.

The number you gave this year initially go back to November of last year. So, obviously, there was a little bit of currency in there, but the impact has gotten a lot greater, so you are actually significantly seeing those numbers and then you get offset on the --

Since the euro has weakened, it's not as we came back and revised our guidance from -- we were, early last year in November like most of this change happened after that.

I think that was fair, Tom. Or, Larry.

You said, you mentioned there's a few additional opportunities for operational improvement. Is that something --

Yes, that is the tough stuff. That is the tough stuff, deepen supply chain and manufacturing, et cetera. And you can't -- it doesn't happen quickly. And so I am happy there is more opportunities to keep getting better, it just takes time.

Right. I know you don't break out, or guide on a different market basis, but it sounds like critical care was -- it's up high-single-digits year-to-date. It sounds like it is basically a pretty flat type of environment for you guys. Is that fair to say? It could tail back in the back half of the year?

I think that's exactly what we are saying. Where the trends we just talked about, same-store orders, might be a little different than new customer. Just because we were so in the hole on that business when we started. So it's just a different dynamic.

Right. And any color on this new hemodynamic product platform you have out there? Is it something you would think can actually drive even modest revenue growth, or is it something just to flatten your business and stop market share bleed?

I think the fancy strategy we had on critical care -- we were joking about a couple quarters ago -- was just to stop the bleeding a little bit. That product at least gets us to more parity, gives us the best chance of holding our book of revenues. Since ICU bought that business, it was a pretty difficult four- or five-year run with it. So just trying to get stable is a victory.

Got it, great. Thanks.

Thanks, Larry.

Mitra Ramgopal with Sidoti.

Yes, hi, good afternoon. I was wondering if you could give us a sense as it relates to the cost savings initiatives, how far along are you in terms of what you're expecting to realize by the end of the year?

I think what we talked about last year, I think we started that discussion in this call last year. We believed we had $10 million of cash expenses that can come out and I think we are showing that on a cash basis we actually did a little bit better than that this year.

So I think it's not different than what we talked about. Again, I just want to be super clear about it. It effects the guidance.

We are not trying to solve for some magic margin number. It's nice that we took those costs out. Even if there is a little bit more floating out there that is harder to get and will take a number of quarters to go get, if there is good investments into the Company to be made that drive revenue growth we will do that first. We are not trying to perfect a cost savings number or margin number.

Okay, so that's pretty much behind you. Going forward it's just focusing, again, in terms of the existing business.

I think we know what best-in-class in the industry is. I think we were at 33% or 34% adjusted EBITDA margin. The question is, is this as good as it is going to get.

It's probably as good as it is going to get for a while. Could we do better? Maybe, but it's not worth the risk of that or the blood of that, and we have seen other people fall down trying to solely solve for that.

Right, okay. And on the gross margin side, how much of a drag, if any, is the Slovakia facility for you right now?

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

Okay, thanks. And from a competitive standpoint, with CareFusion now being part of Becton Dickinson, are you seeing any change in the competitive space?

Yes, I think it will be more competitive over time. It is an awesome Company and that's -- the comments in international are saying, yes, we see increased competition. I think they have a lot of resources in a lot of places.

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

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

Okay, thanks, again.

(Operator Instructions)

Chris Lewis with ROTH Capital Partners.

Hey, guys, can you hear me all right?

Perfect, go ahead.

I wanted to start on oncology, the first quarter there, you said that 10% year-over-year growth in some time. How much of that improvement has driven been driven by the inventory backlog wearing down versus the relaunch of the new products you mentioned? And is this double-digit growth kind of a sustainable level in that segment going forward that we should think about?

Yes, I think so. First of all, to answer your question, as you know, there is significant amount of revenue outside the US, as a matter fact, and we have talked about that in the past. And so on a constant currency basis, oncology would have been up 18% on the direct side. And so we see continued bullish behavior coming from the regulatory side. And the additional opportunities that Vivek talked about, we don't see a slowdown in oncology.

I think there's some good that tailwinds there. Again, we don't want to get into the habit of breaking out international by product line, or in the case of oncology direct versus total. I think we're very comfortable with the guidance, which was it was double-digits for the year on a reported basis. And I don't think we're moving off of that.

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

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

Sure. Last quarter, I think we went into a little bit more detail. There were three real reasons that we have seen the margin improve. One of those three reasons was getting more of the value between us and the end customer.

ICU did what a startup small company does in a very sensible way, is it had a whole series of specialty dealers or other people that sat between the customer and ICU, or the mainline wholesalers and ICU, and we just decided some of those things we don't need anymore, and we can capture more of that value. I would think about that as a one-time event in nature. We made the transition at the end of last year, that's why it picked up in Q1 and it's not going to get a lot better for that reason. From here on out, it's the hard stuff, it is the high hanging fruit, it is the work and manufacturing, et cetera.

Great. And then lastly, and I apologize if someone has already asked this, been bouncing around. But internationally you mentioned there is still a few more seats to fill. When do you expect to fill those?

And you also talked about some increased competition you have seen or you're expecting, so maybe you can just elaborate on both of those, and maybe just provide an overall outlook of how you feel you are positioned going forward internationally? Thanks.

Sure. In our prepared comments, I think we said we would have the international roles filled by the end of this year. We're not going to rush and not get the right resources. So that gives us another four months and change or something to get them in.

In terms of how we feel, I think we feel like international growth has been terrific. There's a lot of things that make the US market pretty sticky, not necessarily all of those trends apply in international and we feel competitive intensity around that. So we want to be prepared. There is no specific event to point to. We are not the same scale outside the US as we are in the US and it is on our minds.

Okay, thanks for the time.

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

Great, thank you. Thank you, everyone, for listening and participating on our conference call today. As a reminder, we will be attending a number of investor events during the back half of this year and hope to see you at these events. Thanks, again, for your time today, and we look forward to updating you on our business progress during our third quarter conference call. And this now concludes our second quarter call.

Thanks, everybody, appreciate it. Have a nice rest of the summer.

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