ICU Medical Inc

NASDAQ:ICUI

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 ICU Medical, Inc. Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. John Mills of ICR. Thank you. Please go ahead, sir.

[John Mills]

Great. Thank you. Good afternoon, everyone. Thank you for joining us today to discuss the ICU Medical financial results for the third quarter of 2020. On the call today, representing ICU Medical, is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. And to view the presentation, please go to our Investor page and click on the Events Calendar, and it will be under the Third Quarter 2020 Events.

Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call, including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results and are subject to risks and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position.

Please note that during today's call, we will also 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've also included a reconciliation of these non-GAAP measures in today's release and provided as much detail as possible on any addendums that are added back.

And with that, it is my pleasure to turn the call over to Vivek.

[Vivek Jain, executive]

Thanks, John. Good afternoon, everybody, and we hope we find you and your family is well. For the last few years, we have been ending every call with the same comment about support from our customers and the ability of our employees to adapt in a changing environment. While it was never intended for the pandemic, that belief was again required in Q3 as our company ran well and adapted to more distinct geographic volatility in our end markets.

Like everyone in our industry, we want to start first by thanking all of our hospital customers and their frontline workers for trusting us to serve them during these times. And we would like to thank our employees, a number of whom have had, again, to deal with the local fires here in the middle of everything else. It's been a long week and a long quarter and a long year, so we'll try to be brief today.

On today's call, we wanted to comment on Q3 results with a bit more geographic and regional color as we had a wider spread on performance, explain the volume and product trends we experienced during the quarter and at least what we're seeing through October given the recent pandemic challenges globally, update any new effects of the pandemic on ICU Medical and our normal housekeeping items, tighten our near-term financial expectations, and lastly, articulate how we feel about our positioning in this environment, any strategic implications and reflect on the criteria by which we are judging ourselves.

The short story on Q3 is as follows. We did see sequential improvement in all of our lines of business in the U.S. market, which supported 4% total company growth year-over-year, but we did have some specific international geographies that had more volatility than we experienced so far in the pandemic. Specifically, in the U.S. market, we had 7% year-over-year growth, which was the net effect of utilization still being down 5% to 10% from our view of baseline, offset by new customer onboarding, hardware sales and the addition of Pursuit Vascular.

There were again substantial differences between international markets and the U.S. market, but unlike Q2, this was due to certain international markets freezing up, in particular, all of LatAm and a major slowdown in Canada with the rest of the OUS markets generally being flat year-over-year.

There was commercial stability in the sense of there was not a lot of customers switching, which is both a positive and negative. We finished the quarter with $303 million in adjusted revenue, adjusted EBITDA came in at $62 million and adjusted EPS was $1.90 due to better profitability than expected at a better tax rate. We added a good amount of cash to our balance sheet as restructuring and integration costs have dramatically reduced, and we paid back our revolver. Nothing was unusual with currency.

So let's go through the businesses quickly and then come back to discuss the current environment. Starting as usual with Infusion Consumables, which is our largest business. Infusion Consumables had revenues of $116 million in Q3 2020, which was a 4% decrease year-over-year on a constant currency basis and 3% reported. We did not necessarily have predictable consistency in all places and product lines. The U.S. region grew 5% in the face of utilization that was still down 5% to 10%, as I initially mentioned, driven by mostly new customer onboarding and Pursuit Vascular and a very small amount of U.S. oncology growth. The OUS markets in aggregate were down 16%, mostly due to year-over-year declines in Canada and LatAm. This was not some customer change, rather just impact of the pandemic.

As we discussed on the last call, the oncology CSTD market was down in July and part of August. It looked better in September, but in aggregate, and please remember, we had a massive international Q2 for oncology, we did not have the same oncology growth that we've been used to with the product line being essentially flat globally. Again, no significant customer changes, and we have been back implemented -- implementing physically on-site at accounts starting in September. We do not think we had any pandemic stocking in the quarter. The story for Q3 was really about sequential improvements in U.S. volumes implementation starting to happen, and frankly, just holding our book and waiting for volumes to increase while absorbing the international volatility.

Moving to Infusion Systems, which is primarily our LVP pumps and associated dedicated sets. This segment did $88 million in adjusted revenue, which was growth of 12% on a constant currency basis or 11% on a reported basis. As a reminder, this segment captures not only infusion pump hardware, but also the lock and key dedicated pump sets. Those pump sets were also down, ballpark, 5% to 10% globally in utilization. But for the reasons we have been talking about in the last few calls, we were able to sell hardware, which improved the results for this segment.

Even before the pandemic, we were holding the best amount of rollover and competitive signings we had in many years. The challenge continues to be getting into hospitals and implementing these conversions. We continue to believe we've stabilized a 10-plus year installed base decline. We still know that safety is a critical factor when choosing an infusion pump. We believe our Plum LVP technology is positioned well, as evidenced by the recent clinical guidelines around IV pumps. We have gotten back to the core marketing messages around our Plum LVP pump as these independent and clinical reviews have validated our differentiation.

As for the non-LVP products, which include PCA and our ambulatory pumps, nothing has changed with the PCA pumps since the last call. And regarding ambulatory, our goal, and we'll get close, is to have enough demand and expansion to finally jump over the annual declines we've had in ambulatory pumps.

The Infusion Systems segment in total will deliver revenue growth this year, but it is difficult to predict exact installation time lines as our customers are battling on many fronts. While the implementation calendar is unpredictable and the pandemic has slowed decision-making down, we still believe, relative to our size, there is solid competitive opportunity, and we are focused on commercial execution here.

Finishing the discussion with Infusion Solutions. We had $86 million in adjusted revenue or 6% year-over-year growth. Picking up from the comments on the last quarter, the SVP presentations held firm sequentially and the LVPs and irrigation products tied to surgeries and ER visits picked up sequentially with the improvement in admissions. We had a small amount, maybe $1 million or $2 million of new customer stocking, but nothing else unusual.

We continue to believe the quality of our customer book has improved us holding the best list of sustainable relationships versus the day we bought the business. We are healthy on safety stock and our new national distribution center is running in Texas to help improve our supply chain costs longer term and provide enhanced supply chain services to our customers.

We hope the recent events have illustrated the value of having healthy and diverse supply chain in the country. The Grifols relationship and sourcing of PVC-free product is making its way into the customer messaging. In the last few days, we have started commercial production on our new 0.5 liter line in Austin as part of the transition away from Pfizer Rocky Mount. This, combined with sourcing of PVC-free and a few minor -- other minor items, allows us to be on track for full operational separation from Pfizer Rocky Mount.

Bigger picture, we've now largely secured the customer base with a better quality lift, have basics coming online, have distribution efficiencies coming from all the investments in supply chain, and we made substantial CapEx investments over the last few years, all of which we hope solidifies our position in the category.

Moving on to some general updates and housekeeping. Commercially, we have seen far less government tenders recently than in the March to July period. On-site implementations and in-person customer calls have started to happen again slowly. More of that seems to be in the U.S., in the Southwest and Southeast markets.

We continue to evolve our sales channels and marketing efforts with the assumption that it will not return to fully normal in any near-term time frame. Nothing significant on quality. Operationally, the manufacturing network, logistics and systems of the company are all running well. Again, in Q3, we had solid global fulfillment rates [indiscernible] our customers with the items described in Austin, we are ready for that operational separation from Pfizer.

We've adapted our operational footprint, shift hours, local transportation and redundancy plans. We continue to invest in employee safety and have provided incremental compensation over the balance over periods this year. We have focused on securing our supply of raw materials and components, and we will continue to invest in incremental inventory as a buffer for unforeseen disruptions. And as a reminder, our primary manufacturing locations are in Texas, Utah, Costa Rica and Ensenada, Mexico.

On the Pfizer discussion related to the calculation of an earnout payment, there is no change in status. Pfizer has been a solid partner, and we are working with them to provide additional details pursuant to our agreement as we addressed a litany of issues that came with Hospira. We feel comfortable with our position, and we'll address the inquiry with our usual finesse.

From an expense perspective, there's not very much to talk about. We continue to run favorable on discretionary costs. Okay. To give a little bit more color on what we experienced throughout the quarter, Europe was generally flat. And usually, the summer months there are a little slower.

The U.S. market sequentially improved each month of the quarter like other med device companies have said on their calls, and we don't want to get in the habit of real-time sales data. And for us, it's about the long term, but October continued to feel okay for us. But we do want to be clear, like we were in our Q1 call, it's really hard to predict the pandemic impact and how much it carries into Q4 or next year.

So far, we have not seen any impact of recent European lockdowns, but we have built some caution into that as we try to tighten up our guidance. Regarding our near-term financial results and after all the events of this year, we still think currency will be the largest variance to our original 2020 earnings expectations. We sounded the alarm bell on admissions early and continue with the assumption that the pandemic's impact on U.S. hospitals does not worsen from the current level.

We continue to be cautious on admissions number in our longer-term forecasting. All in all, the net effect of the pandemic is probably neutral to down in earnings for the company. While we have generated margin from excess hardware sales and cost savings from discretionary expenses, the hit in absolute volumes to consumables has been a large negative.

We also continue to be cautious on implementation timing for system installations. We still think Q2 was the low point for our consumables and solutions segments and the peak in the near term for the systems unit as there was so much hardware in it. Our profitability in the short-term of the next quarter will be impacted by the mix of hardware versus consumables.

To synthesize all these comments on the business segment, the pandemic and how we're trying to judge ourselves, we've stated for a while that we have the ability to improve our position in our most differentiated businesses of IV Consumables and IV Systems, and we have to prove stability in our less differentiated business of IV Solutions.

We've talked about the industry structure attractiveness for years, why we fit in the puzzle and that our products are in a good position from a technology, quality and manufacturing perspective.

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

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

We do lead the market, broadly defined as not one a winner-take-all setup in these essential item categories, and that is before each category is assessed on its own innovation and clinical outcomes, et cetera. In the new normal or COVID-19 world, where supply chain resiliency and diversity matters, we believe our essential items logically benefit and our most differentiated items are still differentiated.

So we focus on what we can control in these moments, having the best list of support of healthy customers, win new important customers while we wait volumes to normalize. Keeping our employees safe while delivering the best operational stability for those customers. Making sure we drive differentiation in our most valuable categories, hold the best liquidity we can for a company our size and using all of the above to be prepared for whatever realignments or opportunities arise. And ultimately, to focus on our own execution.

Our company has emerged stronger from all the events over the last few years. Thank you to all the employees, customers, suppliers and frontline health workers. Our company appreciates the role each of us has had and each of you has had to play.

With that, I'll turn it over to Brian.

[Brian Bonnell, executive]

Thanks, Vivek, and good afternoon, everyone. To begin, I'll first walk down the P&L, and then talk a little about cash flow and the balance sheet.

So starting with the revenue line. Our third quarter 2020 GAAP revenue was $319 million compared to $308 million last year. It is up 4% or 3% on a constant currency basis. For your reference, the 2019 and 2020 adjusted revenue figures, which exclude contract manufacturing sales to Pfizer, can be found on Slide #3 of the presentation.

Our adjusted revenue for the quarter was $303 million compared to $291 million last year, which is up 4% on both a reported and constant currency basis. Infusion Consumables was down 3% or 4% on a constant currency basis. IV Solutions, which we saw primarily in the U.S., was up 6% on both a reported and constant currency basis. Infusion Systems was up 11% or 12% on a constant currency basis, and Critical Care was up 15% or 14% on a constant currency basis.

As you can see from Slide #4 of the presentation, for the third quarter, our adjusted gross margin was in line with our expectations at 38% compared to 41% for the third quarter last year. The year-over-year decline of 3 percentage points reflects the impact from lower production levels of our IV Solutions products, less favorable product mix from lower consumables and higher Infusion Systems hardware revenues as well as temporary COVID-related manufacturing costs recognized in the third quarter.

For the full year, we continue to expect gross margins to be in the range of 38% to 39%, and we expect the balance of the year to be impacted by the mix of consumables versus Infusion System's hardware as well as incremental costs related to the annual scheduled maintenance shutdown of our Austin manufacturing facility that was completed in October.

SG&A expense was 22% of revenues during the third quarter, which is similar to the second quarter and up slightly compared to last year due mostly to lower incentive compensation expense last year. R&D expenses were $10 million for the quarter, down $2 million year-over-year. We do expect R&D expense to be slightly higher in the fourth quarter due to project spend timing and should be around 3.5% of revenue for the full year.

Restructuring, integration and strategic transaction expenses were $4 million in the third quarter versus $8 million last year. The third quarter 2020 spending related primarily to the transfer of manufacturing lines for certain products currently produced in Pfizer's Rocky Mount facility as we prepare to exit the MSA.

The third quarter spend of $4 million was the lowest level since the Hospira acquisition, and we anticipate future quarters to generally be at this level or lower.

Total restructuring, integration and strategic transaction expenses for the full year should be around $30 million. Adjusted diluted earnings per share for the third quarter of 2020 were $1.90 compared to $1.65 last year. This year's Q3 results were favorably impacted by a lower tax rate that contributed $0.23 of benefit to adjusted EPS. The lower tax rate was a result of discrete adjustments, recognized in connection with filing our 2019 federal and state tax returns. We expect our tax rate in the fourth quarter to reflect a more normal rate in the low 20% range.

Diluted shares outstanding for the quarter were 21.6 million. And for modeling purposes, this same number can be assumed for the full year. And finally, adjusted EBITDA decreased 1% to $62 million for the third quarter of this year compared to $63 million last year.

Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $52 million, and Q3 was another strong quarter of cash flow generation, driven by a combination of solid earnings, declining restructuring and integration spending, and reductions in working capital, specifically lower accounts receivable balances from improved collections.

Over the past 4 quarters, the company has generated over $100 million of free cash flow after investing over $85 million in CapEx and an additional $34 million in restructuring, integration and strategic transaction expenses. And this $100 million plus level of annual cash flow generation is what we would expect, given our current profile.

Net working capital at the end of the third quarter was down $16 million compared to the end of the second quarter due to improvements in accounts receivable. Inventories at the end of Q3 were generally flat compared with Q2. However, as we are seeing record levels of COVID cases in the U.S. and Europe, we do expect to maintain higher levels of inventory in the near-term to ensure we can continue to meet any surges in customer demand as well as provide a buffer in the event of any supply chain interruptions.

In the third quarter, we spent $24 million on CapEx for general maintenance and capacity expansion at our facilities as well as placement of revenue-generating infusion pumps with customers outside the U.S. This was in line with our expectations, and we continue to expect $85 million to $90 million this year, which includes expenditures related to transferring a portion of the contract manufactured solutions products from Pfizer to our Austin manufacturing facility as well as the build-out of our new Dallas distribution center.

In March of this year, as the COVID situation was causing a deterioration in the financial markets, we preemptively drew $150 million on our revolving credit facility and expected to hold the proceeds as cash, while the COVID situation and market conditions remained uncertain. Since then, the financial institutions have demonstrated adequate liquidity to meet funding needs of the market. We've seen continued improvement in customer demand for our products, and our internal operations have remained stable, and our free cash flow generation has been very strong. As a result, during September, we repaid the full $150 million.

During the first quarter call, despite not having perfect visibility as to how the rest of the year would play out, we updated our full year guidance for adjusted EBITDA and adjusted EPS to reflect what we knew at that point in time. This included the impact of 2 specific items. The first was foreign exchange, most of which related to transaction losses on intercompany balances during the first quarter. The second was lower interest income on cash balances and higher interest expense from the $150 million revolver draw. We felt that we could mostly absorb the commercial and operational downsides from COVID with a combination of additional demand for infusion pumps and cost savings, which we have largely done.

And today, our outlook for the year remains the same as it did 6 months ago. As such, for the full year, we are narrowing our previous guidance range for adjusted EBITDA from $230 million to $250 million, to $235 million to $245 million. For adjusted EPS, after considering the tax rate benefit, we are raising our prior guidance range of $5.95 to $6.65 per share to $6.65 to $7 per share.

In closing, it has been a long and challenging year, but I take comfort in our strong balance sheet, ample liquidity and improving cash flows from declining restructuring and integration spending and better working capital management. The company is operating well, and we continue to focus on serving our customers.

And with that, I'd like to turn the call over for any questions.

[Vivek Jain, executive]

Darius, are you there?

[Operator]

[Operator Instructions] And your first question comes from the line of Matt Mishan with KeyBanc.

[Matt Mishan, analyst]

It seems like you guys are getting some opportunities to get back into the hospital and start doing those implementations. Can you give us a sense of the scale of the backlog that's developed over the course of the last like 9 months?

[Vivek Jain, executive]

It's different by different business units. It's been easier on the consumables front to keep the implementations moving because there's just generally a higher underlying familiarity with the products and some of the training can be done in a more remote fashion.

On the hardware side, it's longer. We have to absolutely positively be on site for physical implementation. I wouldn't want to say that we've got some massive backlog of people awaiting on-site implementations. I would just say more it's getting back somewhat to normal in certain parts of the country. I'll leave it at that. Just to give a sense that it's moving beyond remote in some spots.

[Matt Mishan, analyst]

And then moving to gross margin. As you think about the 37% level we're at today and the phasing of recovery from that over the next couple of quarters, are you through the majority of the manufacturing absorption issues you've had in IV Solutions? And does mix start to normalize from here for you?

[Vivek Jain, executive]

The #1 driver of gross margins is total consumables mix in the whole company, whether those are in the IV Consumables segment or whether those are dedicated pump sets in the Pump business, which is the vast majority of what's reported in that pump systems number. And so those 2 items, which have had utilization declines, make a really big impact on the gross margin line, more than anything else.

There is still some, not a lot of cleanup going on from the solution stuff at the end of last year. That's why we're spending time talking about the Dallas Supercenter Warehouse coming online, the efficiencies, et cetera. But Brian, please feel free to add anything beyond those two.

[Brian Bonnell, executive]

Yes. No, I think that's correct. I think for the Q4, we'll probably see, at this point, while there's puts and takes, gross margin's fairly consistent with what we saw in Q3.

[Vivek Jain, executive]

That was a point we were trying to make on the earnings side, Matt. Just -- we absorbed a big body blow. There've been favorability on selling some more pumps, which was COVID related, right, not having all those consumables hurts a lot. And we feel like we've done okay through that.

[Matt Mishan, analyst]

Okay. Yes, for sure. And then the last question is what does the M&A environment look like for you guys right now?

[Vivek Jain, executive]

We presented at a conference in September for one of the firms. And we said we would love to deploy capital if given the opportunity for something responsible. But that doesn't mean you can do something irresponsible or that doesn't generate returns, which is kind of the generic standard answer we believe and always have given. I think we have spent a lot of time making sure that the company finished its integration from Pfizer Hospira, and we are with the exception of a few manufacturing [ surplus ] largely getting there. So it's a topic that we know we can't turn our back towards.

[Operator]

Your next question comes from the line of Jayson Bedford with Raymond James.

[Jayson Bedford, analyst]

I have a few. Maybe just to pick up on one of the lines of earlier questioning on gross margin. Yes. I appreciate the consumables dynamic, but overall revenue levels are higher than where you were, at least for most of '19. And I'm just wondering what are the sources outside of mix of gross margin improvement from here. Meaning the breakoff from Rocky Mount, is that additive to margins? If you could just kind of walk us through how they improve from here outside of mix.

[Vivek Jain, executive]

Brian, do you want to go first?

[Brian Bonnell, executive]

Yes, I'm happy to. So Jayson, I think that prod mix is going to be the biggest driver. And then beyond that, there's some improvement that we will likely see as a result of our supply chain and logistics efficiencies. And I think that's what's going to be -- have the biggest impact, I think, going forward.

[Vivek Jain, executive]

Yes. I mean we took 2 pieces of pain over the last 12 months, Jayson, as you well know, right?

One was price pain on some of the solutions business, price and volume pain, as that changed at the end of last year. That made a big difference and then knock on that -- all of the -- it's been interesting. All the manufacturers have been talking about the absorption impacts. And again, I thought we were like early in that. And we've been working our way through that. So to Brian's point, as the supply chain gets healthier, there should be something there. Ultimately, it is mix more than anything to drive as much of the disposables through the pipe than anything else.

[Jayson Bedford, analyst]

Okay. IV Solutions, it's kind of bumped around a little bit this year, and I realize that this isn't a normal year. And I know you mentioned the $1 million to $2 million in the quarter. But is this kind of the new baseline? Again, you kind of went $91 million, $74 million, $86 million on solutions. What's the right baseline for solutions going forward?

[Vivek Jain, executive]

Yes. I think when we tried to talk about what we needed to do to be competitive, we said it's an $80 million a quarter business. And I feel like on Q1 call, we were very transparent, and we had $5 million or $6 million extra of -- that went into the channel, that came out in Q2 or it went minus $6 million from $80 million. And here, we had 1 or 2 and did $86 million. I think we certainly feel safer given how volatile, and it is hard to predict with the COVID environment out there. We'd probably stick with the saying it's still an $80 million business at the right assumption.

[Jayson Bedford, analyst]

Okay. That's fair. Again, I'm just looking for a baseline. On the pump side, you mentioned there were no government tenders. But where are the new pumps coming from, meaning is this new business? Is this business that you had previously won that you're just now getting to? Kind of where is the new business and new pumps going?

[Vivek Jain, executive]

Yes. I think most of -- well, I think that the lines you want to draw is, one, it's not government, it's not kind of spontaneous business and reaction to pandemic. It's still probably marginally heavier weighted to add-on expansion at existing customers, and competitive, it probably hasn't flipped yet in any given quarter to say more of it has been competitive than our own installed base. But it's easier to implement where you already or upgrade or implement where you already have the share because people are familiar with the product. On the competitive side, those installs take longer and require more scheduling and more ability to get into the sites to do it.

[Jayson Bedford, analyst]

Just on the competitive dynamic, clearly, there's been some disruption this year. The height of COVID was a tough time to capitalize on this disruption. Is now a better time, meaning, are you seeing more competitive opportunities today than you were, say, 3 months ago?

[Vivek Jain, executive]

I think we would say we're certainly in more conversations than we have been at any point this year, and it was -- and it's a tough time to get people to make decisions. On the other, it's going to be this way for a while, so we just have to get out there and illustrate the value that we can offer. And so I don't think our comments are different than before, which is it's not quite the ease it was than other moments in the industry when these things happen, but it's still a good window, and we should go execute.

[Jayson Bedford, analyst]

And there's no big, in your view, capital constraints from your customer side?

[Vivek Jain, executive]

No. We haven't felt it very much.

[Jayson Bedford, analyst]

Okay. And then just lastly, you did call out LatAm and Canada. How big is that percent of sales, just roughly?

[Vivek Jain, executive]

I don't think we want to get into a country by country, but we do sell each quarter several million dollars into Canada and maybe low single-digit millions into LatAm. LatAm really just shut, absolutely shut for quarter, went backwards materially. So it was -- it's the only way we had to give a little more detail to try to explain how those consumables numbers made sense in Q3.

[Operator]

We have 1 more question from the line of Larry Solow with CJS Securities.

[Lawrence Solow, analyst]

Most of my questions actually were answered, but I got to throw a couple out here, keeping you on your toes. Just a few on the follow-up. So you mentioned the consumables and certainly a nice sequential improvement, a little bit less than I would have expected and it sounds like you guys too. And I guess that's more on the international front. But just particularly on oncology and implementation, it does sound like it's starting to pick up now. But I guess, had you expected some more oncology implementations and contributions in the U.S. in Q2? It seems to be pushed there a little bit.

[Vivek Jain, executive]

I think oncology surprised us in -- and we tried to highlight this in the last call. Oncology surprised us already at the time we were having the last call. We experienced a big drop-off in sort of new starts, new patients. And it's been hard to prove that, that was directly related to screening, but really through July and a good chunk of August, just like regular census and admissions started to change at the beginning of June, oncology started to change at the beginning of September. And so September and October feel much more normal or closer to normal. But there's like a 2-month lag between oncology versus just regular admission stuff. And so I don't know that we could point to one thing or another, but even to our own expectations, it was still a little bit less in Q2.

[Lawrence Solow, analyst]

Okay. Okay. Got you. But it does sound like, hopefully, it's starting to ramp up.

[Vivek Jain, executive]

It's being normal in the last 8 weeks.

[Lawrence Solow, analyst]

Yes. And on the solutions -- excuse me, on the systems side, another -- I know you called out last quarter as probably being the peak short term. You had a nice amount of equipment sales there. But this quarter actually got pretty close to it, and I think low double-digit growth. Can you -- in terms of the growth, is most of that still coming on the, I assume, on the hardware side? Is that fair to say?

[Vivek Jain, executive]

Yes. I think that's very fair to say. I think all of it because if the utilization is down 5% or 10%, the actual sets that run with that hardware also down, right? Whether it's an IV Consumable disposable item in the consumable segment or a dedicated pump set, those are all the same admission and census-driven items. And so they too are down, but all year because we've been putting more hardware out there, we've been able to offset that, right? The goal would be to continue to win in hardware and then have census come back to normal, that would look like a different picture.

[Lawrence Solow, analyst]

Right, right, right. Okay. And then just last on the solutions piece. I think last year, when you sort of had that shortfall, you called out most of your business, the remaining piece, I think, over 90% is under long-term contract. But I think that was a piece that was expiring. Some contracts are up for bid at the end of this year, although I believe maybe you've already secured some of those over the last 12 months.

[Vivek Jain, executive]

Yes. I think we would feel comfortable with that comment on what portion was under contract, and that was the point we were trying to make. We largely secured our customer base. We think what we've been through this year. I mean there's a few little things here and there, but we feel pretty good about it.

[Lawrence Solow, analyst]

And just last question on the guidance, it sort of implies that sequentially flat to down. Am I reading that right? And is that -- I know you called out a little bit of a gross margin. So what's sort of the flat to down, if like revenues might actually be improving going to Q4?

[Brian Bonnell, executive]

Yes, Larry, I think what you're seeing there is on the consumable side, we do expect continued sequential improvement in Q4 relative to Q3. But then as you look at the rest of the businesses in Q4 on the Infusion Systems side, we won't see the same level of hardware that saw in Q3. So there's a bit of a tick there. And then in Q4, we probably see solutions somewhat closer to that $80 million range that we've kind of set at the baseline.

[Operator]

There are no other questions. I would now like to turn the call back to Vivek Jain for any closing comments.

[Vivek Jain, executive]

Thank you. I hope everybody is handling this environment well. We try to keep the call short today and allow you to get back to other items. And we appreciate the interest in the company very much. We will talk to you at the end of Q4.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.