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Executives

Kieran T. Gallahue - Chairman and Chief Executive Officer

James F. Hinrichs - Chief Financial Officer

Jim Mazzola - Senior Vice President of Global Marketing and Communication

Analysts

Lennox Ketner - BofA Merrill Lynch, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Amit Bhalla - Citigroup Inc, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Matthew Taylor - Barclays Capital, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

David R. Lewis - Morgan Stanley, Research Division

Carefusion Corporation (CFN) F2Q12 Preliminary Results and 2012 Guidance Update Call January 9, 2012 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the CareFusion Corporation Investor Meeting. My name is Pamela, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. At this time, I would like to turn the conference over to Mr. Jim Mazzola. Please proceed.

Jim Mazzola

Thank you, Pamela. This is Jim Mazzola, and thanks for joining us on today's call as we discuss CareFusion's preliminary results for the second fiscal quarter ended December 31, 2011, and provide updated guidance for our fiscal 2012.

We issued a news release containing our preliminary financial results this morning at 8:00 a.m. Eastern time, which is posted in our website at carefusion.com and filed on Form 8-K with the SEC. Joining me on today's call are Kieran Gallahue, our Chairman and CEO; and Jim Hinrichs, our CFO.

Before I turn the call over to Kieran, I would like to make a few remarks. In today's call, we will discuss some non-GAAP financial measures, including financial results on an adjusted basis. A reconciliation to GAAP measures can be found in today's release and on the Investors section of our website. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into CareFusion's ongoing results of operations, particularly in comparing underlying results from period to period.

Additionally during today's call, we'll be making some statements that are forward-looking, including statements about expected financial results for the fiscal quarter and our fiscal 2012 guidance. These results are preliminary and subject to change as we complete our quarterly close and reporting process. Our actual results could differ materially from those expressed in our forward-looking statements due to risks and uncertainties, including the risk factors set forth in today's release and our filings with the SEC. We ask that you refer to these materials for a more detailed explanation of the inherent limitations of such forward-looking statements. With that, let me turn the call over to Kieran.

Kieran T. Gallahue

All right. Thanks, Jim, and thanks, everyone for joining us on this call on such short notice. We're in San Francisco today, meeting with a large portion of our investors. And as such, we wanted to provide this update in order to be as transparent as possible and to make those discussions today as productive as possible.

While we're still in the process of closing our second quarter, and we'll report our results on February 2, we felt it was important to release these preliminary results. Revenue for the quarter is expected to be between $910 million to $915 million and adjusted operating income is expected to be $148 million to $153 million. Adjusted EPS is expected to be $0.41 to $0.45.

Our largest segment, Medical Systems, performed very well in the quarter, growing in the high-single digits and continuing its positive organic growth momentum. Bookings in all 3 Medical Systems businesses, Dispensing, Infusion and in Ventilation, were strong and remain in a good position for the full year.

Sales and gross margins in Procedural Solutions were lower than we have forecasted, which is the primary reason operating income is lower than our expectations. Segment revenue declined about 5%, or about 2% after adjusting out revenue from our on-site divestiture in the prior year.

Procedural Solutions is comprised of 4 business groupings: Infection Prevention, Medical Specialties, specialty disposables and our diagnostics businesses. Our core products in this segment continued to grow faster than the market, just slightly below our internal expectations. In addition, our margins in the segment were negatively affected by pricing pressure on our less clinically differentiated products. The net effect was lighter conversion volumes for our products like ChloraPrep and MaxGuard and margin pressure on respiratory disposables and Medical Specialties.

It's important to note that we are not losing share in our clinically differentiated products. We believe growth rates will continue to be above market in ChloraPrep and Medegen. ChloraPrep grew in the mid-single digits during the quarter, for example, and we've revised our fiscal year '12 forecasts to reflect this trend. When we announce the full quarter, we expect to revise downward our fiscal year '12 revenue guidance for the Procedural Solutions segment and the Infection Prevention businesses.

On the positive side, we continue to see the benefits of our reorganization last year into the 2 business segments. It provides us and our investors greater transparency into the business. We are focused on investment in our core businesses and isolating those areas where we need to take action. As an example, we reorganized at the Procedural Solutions segment level during the quarter, and realigned our sales territories to decrease the windshield time of our reps and increase the selling capacity. This will take a quarter or so to ramp, but we expect will drive additional growth in the near term.

Across the company, we continued in Q2 to make the necessary investments we've talked about to strengthen our foundation to grow faster over the long term. We must continue to invest during the balance of the fiscal year. So while we continue to have scenarios that enable us to meet our original full year EPS guidance, we felt it was prudent to lower the bottom end of the adjusted EPS range by $0.05 to a new range of $1.75 to $1.90. This provision will be reflected in the Procedural Solutions segment and largely in the Infection Prevention business within that segment.

Recall, again, there are 4 components in Infection Prevention business: ChloraPrep and Medegen, which continue to grow above market rates; and our legacy skin and legacy non-dedicated infusion disposables, which are more subject to pricing pressure. This new EPS range reflects some upside we anticipate below the operating income line, largely due to our tax rate, which is a result of our geographic business mix and our tax planning efforts. Because we're providing you with preliminary results so early in our close process, it would be premature to give a tax rate for the quarter or the year. Based on where it comes in, we should be in a position to tighten the EPS guidance when we report on February 2.

Across both segments, the environment continues to look similar to what we discussed last quarter. Hospitals in the U.S. continue to prioritize their investments, based on those products necessary to their operations. This trend has highlighted the strength of our Medical Systems products. In the Procedural Solutions segment, we continue to take share and convert markets, but as I said, at a slower rate for the reasons I described earlier. Outside the U.S., Western Europe remains soft, but not materially different than we indicated last quarter. And recall, we are still growing our international presence, so the impact there is relatively minor.

We have a lot of good things going on and I feel more confident than ever in the plan that we've laid out. The segment split is going well and giving us greater visibility. The work we're doing to simplify the business is on track and ongoing. We are building a foundation for growth and remain optimistic and committed to those plans, including our 20-plus percent operating margin goal exiting fiscal year 2014. We will provide a more complete update when we have the full results of February 2. So I'm going to say in advance that we won't have all the details today, but wanted to provide you with as much detail as we can at this early point in our close process.

With that, I want to make sure that Jim and I have time for your questions. So Pamela, if we can open up the Q&A line we'll begin.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Amit Bhalla with Citi.

Amit Bhalla - Citigroup Inc, Research Division

Two quick questions for you. First, last quarter when you were talking about the Infection Prevention business, you talked about the impact of procedure volumes and distributor purchasing being slightly weaker. Can you comment on that in particular? And then just secondly, can you quantify the level of pricing pressure that you're seeing?

James F. Hinrichs

Yes. Amit, it's Jim Hinrichs, and Kieran can chime in here if he'd like. We're not seeing increased pressure in procedure volumes. I wouldn't say that things are rebounding dramatically, but we're not pointing at that as a major driver here. And when it comes to -- the second part of your question was about pricing pressure. We do continue to see pricing pressure in specific businesses, and those are the ones that are less clinically differentiated. So when I look at our product lines in respiratory disposables and legacy prep, as well as our legacy non-dedicated infusion sets, those are the areas where we're seeing pricing pressure and it ranges from a few points into the mid-single digits of pricing push back to us from our customers.

Kieran T. Gallahue

So just a cheap shot on that. It's not as if we're seeing a rebound on the procedure volume side. It's just that we wouldn't point to that as the primary driver. We are seeing it across both of our conversion-oriented businesses. What we're seeing is that we're not losing market share. We still feel very good from a competitive perspective, and that's the feedback that we're getting from the orthogonal checkpoints in the field. What it does seem is that in the environment that we're at, some of the conversion efforts are just taking a bit longer than they have in the past. And what you do is when you're sitting across from these hospital administrators, they see the value. Sometimes what you'll do is you'll get a conversion of 50% of the hospital or the hospital systems, and that second part of the conversion is usually a lot of street fighting, where you're in there and you're looking for different levels of the organization to support you in that conversion. Right now they're a bit distracted and we're not seeing that same level of support, simply because they've got multiple priorities. But the good news, we're not losing market share there. We're still growing above market rates and we're steady as she goes. And also, this adjustment in the sales force is going to allow us to have greater resources being focused in front of the customers as opposed to in front of the windshield. So we're taking the actions to become more efficient and more effective with our customers as well.

Amit Bhalla - Citigroup Inc, Research Division

And Kieran, you mentioned distributors as an issue last quarter. Was that resolved or...

James F. Hinrichs

Yes. Amit, it's Jim. That very specific -- I mean, obviously, inventory changes throughout the channel all the time and all the product lines. The specific issue we pointed to last quarter did not repeat in this quarter, so that seems to have leveled itself out. Now that was specifically, if you remember, destocking in the Infection Prevention businesses, which seems to have leveled off now. So we're kind of -- we feel we're back to normal in that part of the business from that perspective.

Operator

And your next question comes from the line of Matt Taylor with Barclays.

Matthew Taylor - Barclays Capital, Research Division

A couple of quick ones. One, I just wanted to understand: within Procedural Solutions, I know you talked about pressure on products that were not clinically differentiated. But was there any 1 or 2 areas in particular with the surgical tools or some of the disposables where the pressure was kind of outside?

Kieran T. Gallahue

Well, Jim and I will sort of tag team a little bit on this. Certain areas such as the respiratory disposables, where there is very little clinical differentiation -- in some segments, there's a lot. But there's other niches within that where there's not as much differentiation. That's subject much more to the pricing pressures we've seen. We haven't really, on the surgical tool side, seen dramatic pricing pressure at all. In fact, we feel like we're doing -- we're not doing gangbusters there, but we feel like from a competitive perspective, when we look around, we actually thought we're doing better than competitors and we feel like we're gaining some share. So it is in some very targeted areas, some on the valve business. The newer stuff like the Medegen and whatnot, very clinically differentiated. Some of the existing product lines that have been in the market for a longer time, they're going to be a little bit more subject to those pressures.

James F. Hinrichs

That's exactly right. Again, the 3 product lines we have mentioned that have pricing pressure, respiratory disposables, legacy prep, legacy non-dedicated, all those products that are just not as clinically differentiated therefore are tougher to command a price premium.

Matthew Taylor - Barclays Capital, Research Division

Okay. And you lowered the low end of EPS guidance, but I think you mentioned in the beginning of your comments that you saw really no change to your longer-term margin improvement goals. And I was curious, with this increase pressure, how you're going to be able to absorb or offset that and still achieve those goals.

Kieran T. Gallahue

Look, we've got a lot of things going on around the company. There's a lot of shots on goal when it comes to building efficiencies, to reducing complexities and to be helping us become more efficient in front of those customers. When you're going through these changes, sometimes it can get a little bit bumpy on a quarterly basis, and I think we've been pretty open about that from the beginning. And so when you have a little bit of changes in the mix like we've seen this time, we're feeling pretty good about year end on the top line overall. It's just about sort of the mix of getting there. And so we think that the focus that we have on simplifying the business, on continuing to gain efficiencies on some of the improvements we're making in the sales force, particularly in the Procedural Solutions side, to be able to help those reps be able to spend more time in front of the customers, we think they're going to pay dividends and we're steady as she goes on this. We don't want to pull back on the investment on this.

James F. Hinrichs

Exactly.

Operator

And the next question comes from the line of Mike Weinstein with JPMorgan.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Help me out here. I just want to understand a couple of items. So if I look at the details you gave out in the release, your revenues are actually pretty close to where we were at, but there's a much bigger drop off on the EBIT line. And then when you guide to EPS, it's actually relatively close. So can you just explain that sequence there? So revenues don't appear like they're that different that we were forecasting, but there's a much larger drop on the EBIT line. And then EPS seems like you seem to make up some of gaps. So is the expectation for the quarter and then for the year that you'll make up some of the EBIT shortfall below that line with a lower tax rate?

James F. Hinrichs

Yes, it's a great question, Mike. And this is probably worth taking a minute to go through. A couple of things going on. The first is revenue came in a little bit light -- I mean, we were facing an EBIT number for the quarter, based on preliminary results, that was different enough from our expectations that we thought it worthwhile saying it now, so when we're in front of 50% or 60% of our shareholders today, we could have meaningful conversations. And so that was sort of the reason for the pre-announcement. Revenue, as you mentioned, coming in just slightly below what the street was expecting and also below what our expectations were. But 2 things are really going on. One is there is a revenue shortfall. And the revenue shortfall is largely in our higher-margin products. So that's driving a larger -- a disproportionately large EBIT miss. The second thing going on is these less differentiated products with the pricing pressure we have seen in this quarter is also driving a margin push or margin -- driving margin pressure. So you end up with a -- what I would describe as a disproportionate gross margin and EBIT impact on our bottom line for the quarter. And that was really the reason for the release. Now we do have some below-the-line upside in interest and other, and we believe in the tax rate, although the tax rate won't be finalized until the end of this week. That will offset some of the difference and that will carry through to the year. So when you take what we said today and translate it for the year, the way you need to look at it is to say, look, revenue probably still within the range we provided, but we are losing some revenue growth in the higher-margin products. We've got gross margin pressure creating a sort of what I would describe as a dime of EBIT pressure out of Procedural Solutions that we will make up below the line primarily on the tax rate, which is why we only took that tax rate -- the EPS number, the bottom of the range down by a nickel until we can get our tax forecast done. And then we'll retighten up the range back to $0.10 and that's the goal. So did that make sense?

Kieran T. Gallahue

Let me just make one final comment on that, which is maybe a little bit more qualitative. When you walk through this, I think it's not unlikely that maybe 90% of the companies would not have pre-released an earnings today with regard to this. We feel that the environment is out there. Clearly there's a lot going on in the world economy and the stock market, et cetera. We've committed that we would be as transparent as we can with everybody. And even in situations where we think we can claw back quite a bit through things like our very aggressive and worthwhile tax management strategies, our view is that if we got there different, we wanted to be able to talk openly and give you as much visibility as we can. So that's the intention of doing this.

Operator

And our next question comes from the line of David Roman with Goldman Sachs.

David H. Roman - Goldman Sachs Group Inc., Research Division

Two quick questions. One is, am I correct that FX neutral revenue growth for the first half of the year is running between 2% and 2.5%? And if that is correct, can you maybe bridge these current levels to the 3% to 5% you're guiding to for the full year?

James F. Hinrichs

Yes, David, it's Jim. I don't have those constant currency revenue growth yet, but I think the first quarter was around 2% and in this quarter, we don't have that adjusted out yet completely. But that's probably about right. We are expecting a pickup, obviously, in revenue in the back half of the year. We'll give all of that detail as to where we expect that to take place in the earnings release.

David H. Roman - Goldman Sachs Group Inc., Research Division

Okay. And then secondly and maybe more broadly, if you look at the long-term operating margin targets that you've put out there and we look at this quarter, can you maybe just remind us to what extent top line performance and EBIT margin performance are connected? And what flexibility you have to continue to expand EBIT margins should, in fact, the top line remain under pressure?

James F. Hinrichs

Yes, certainly the 2 things are connected. We believe we have different plans and different contingencies that continue to allow us to drive margin even in a lower growth environment. Certainly top line helps, and we've been very consistent in saying all along, top line growth certainly helps our leverage story, but we're not dependent on it. We got -- what we saw this quarter was a mix working against us a little bit and we saw pricing pressure working against us a little bit, but we're now -- just as Kieran mentioned earlier, we're doing some things that are making changes that we think will reignite the mix back in our favor in terms of putting our sales forces together and making them more productive and filling their bags more and increasing their overall capacity. So I think there continue to be opportunities to get mix working back in our favor. We're still very committed to that long-term growth, the long-term margin target. It does require top line growth, but we have scenarios planned out under low growth and sort of medium or higher growth that can still get us there, which is why we're still absolutely committed to those targets. It just requires a slightly different way of getting there.

Kieran T. Gallahue

And just to add on a little bit. As you might expect, when we look at our investment philosophy within the business, we're certainly targeting those areas that we think: a, have the most opportunity for expansion and growth; and b, would have a disproportionate impact on the profitability. So you'd expect that of us, and that's certainly what we're doing. This movement to the 2-segment structure, it was really critical in that process, because by separating out the Medical Systems business and the Procedural Solutions, you invest differently in each of those businesses and you need to manage them different. And they were subsumed in these more complicated business units before that didn't allow for true execution on a differentiated investment strategy. So the benefit to that are going to be yielded over time, but the structural changes are the things that were absolutely required for us to gain the visibility and be able to differentially invest in those businesses.

Operator

And the next question comes from David Lewis with Morgan Stanley.

David R. Lewis - Morgan Stanley, Research Division

Jim, I know you don't have the specifics on sort of where the leverage, both gross margin and EBIT, kind of landed for the quarter. But I wonder, given the gross margin pressures would seem obvious whether they're pricing or mix, last quarter we didn't see the type of SG&A leverage l think some investors were hoping for. Is it possible to share with us whether despite that gross margin pressure, whether you think there was evidence that you drove SG&A leverage in this particular quarter as you anniversary-ed some of that front-end spend last quarter?

James F. Hinrichs

Yes, so I mean certainly my expectation is, and preliminary results would indicate that our SG&A as a percent of sales was considerably lower in the second quarter than in the first quarter. Again, the numbers aren't final, but that is my expectation -- that was my expectation. And the preliminary results indicate that, that is the case. Year-over-year, given some of the gross margin pressure that we've seen and given some of the revenue pressure that we had, I think it's probably going to be, SG&A as a percent of sales will likely be in line with what we saw last year. I don't think either a strong move one way or the other. Again, very preliminary results. So you're not going to see a reduction, but you're also not going to see an increase, so we continue to look at that line. That's one of the things we're taking a look at over the course of the next 30 days, to figure out what we can do there to continue the trends that we want to see.

Kieran T. Gallahue

It's also important to note that in that SG&A line is where some of our investments for simplification in investment for growth are. A good example of that would be some of the outside resources that we pulled in, in order to help us work through the project planning process to make sure that as we attack these, the complexity, and we attack the cost structure, that we do it in a way that orients us towards growth and towards execution capability, as opposed to sort of meandering your way through it. So there's some investments in that as well that I think is important for us to know.

James F. Hinrichs

The other thing we look for in that line too, just to continue on that theme, is the other thing we look for in that line, and we will be getting to that in the next couple of weeks, is where were we spending? And was it in the front office versus the back office? And last quarter, we were quite successful in getting spend moved from administrative functions into customer-facing and revenue-generating and to R&D and innovation-type spend. And I'm assuming and hoping that we'll see that continue to trend in the second quarter.

David R. Lewis - Morgan Stanley, Research Division

Okay. And just, Kieran, one quick question on ChloraPrep. I mean, what we're seeing with this business is some periods of acceleration and deceleration. Most specifically, coming off the New England Journal of Medicine article we saw an acceleration in this business and a renewed sales effort. Is what we're seeing now sort of a relative level of maturation in the ChloraPrep product line? Or do you think this is just more of a -- kind of a breathing quarter for the product, if you will?

Kieran T. Gallahue

Yes, it's a good question and it's one that we're obviously trying to dig in and understand at a very deep level. I think what would give me confidence to say that we still have a lot of headroom in that business is that we saw very similar dynamics with the Medegen business as we did with the ChloraPrep business. And both those businesses have the same core drivers, which is their conversion businesses. And when you tend to convert, you convert large parts of hospital systems and then got to street fight to get it all the way across and change behavior. So the fact that they had similar dynamics would lead us to believe that -- and obviously, as I said it was orthogonally checked. You're out in the field and you're asking questions -- that, that was the primary driver. Now obviously, whenever you get -- the more penetrated you get, it does get harder, so there's no question about that, and the percentage change has always changed over time, right, the law of big numbers. But again, I think just from what we think happened this quarter, I think it was much more about converting practices across the businesses as opposed to any specific line item.

Operator

And your next question comes from the line of Lennox Ketner with Bank of America Merrill Lynch.

Lennox Ketner - BofA Merrill Lynch, Research Division

Just to follow-up on the ChloraPrep line. I'm just wondering -- you're saying that it's become more difficult to convert accounts. I'm just wondering if you're assuming that, that changes going forward? In other words, is 5% growth kind of the new normal? Or are you assuming in your guidance that, that improves?

Kieran T. Gallahue

Yes, again, good question. I think it's too early to say, near term, what we think those figures will be. And we will, certainly, I think, in February at the release time be able to give a little bit more detail on that. I think the conservative way that we're looking at it is to say, near term, there's probably still going to be some reticence on the part of the hospital to convert their practices at the same rate that they were converting, say, 1 or 2 years ago. That being said, that doesn't mean it's going to stay that way and it's not going to change back. And from our perspective, part of what we're doing to help that along is to recognize that we have the ability to put more effective resources in front of the customers. And so this adjustment I referred to a couple of times in the sales force that we did during the second quarter, was really taking reps that had different products but they had the same call points, the same customers, the same territories overall. And by combining their bags and helping them manage the way that they message in front of the customer, it makes their interactions with the customers more holistic, right? They're able to sell the full portfolio of products that are oriented in our Infection Prevention area on one side. And then on the other side, it says that they don't have to spend most of their life traveling around their territory, but they can actually use it in a more practical way. So there's lots of things that influence this. The behavior of the customers themselves and then there's how we help manage it. Because our job is not to accept market growth; it's to drive market growth. And we'll continue to focus on that.

Lennox Ketner - BofA Merrill Lynch, Research Division

Okay. And then one more just big-picture question. I think, as Jim talked about, you guys grew about 2% on an organic constant currency basis for the first half of the year, which is actually 3% just on a constant currency basis, so within your guidance range. But comps get tougher in the back half of the year, so I'm just wondering kind of what -- how investors can get comfort that you guys can keep top line growth within that range even in spite of difficult comps. Are there certain areas where you expect to see growth accelerate? Or maybe if you can speak a little bit to the back half of the year.

James F. Hinrichs

Yes, and again, we'll give a much more complete update and I wouldn't want to be -- I mean, like I said, those constant currency growth rates, all of that will be out in the second quarter. So until we get -- I don't want to get pinned down to any specific numbers in the first half or second quarter until we have all the results in front of us. Kieran can chime in on this as well. We have set in place, at the beginning of the year, and continue to see a faster growth in the second half of the year than we will see in the first half of the year. There are a number of businesses where we would expect to see that. Certainly, you know that we initially expected that the Procedural Solutions business would grow faster in the second half of the year than the first half. I think we still believe that to be the case, absolutely. It's just not going to be as much as what we had originally planned. In addition, some of the businesses in Medical Systems are getting traction. In particular, I'd point to respiratory technology and ventilation where, if you remember, we started off the year a little bit down in the first quarter. And I think we're going to see continued improvement in that business through the year. That will drive some growth in the second half of the year. And some of the other businesses in Medical Systems and Infusion as well might continue to accelerate growth in the back half of the year. So there will be faster growth in the second half -- or we believe there will be a faster growth in the second half of the year versus the first half of the year. And again, as I said, once we get everything buttoned down, we'll make sure we give you the detail on where we think that's going to come from on February 2.

Operator

And the last question comes from the line of Kristen Stewart with Deutsche Bank.

Kieran T. Gallahue

Kristen, are you there?

[Technical Difficulty]

Kristen M. Stewart - Deutsche Bank AG, Research Division

I just wanted to double check. You guys said you expect, I guess, in February to revise down for Procedural Solutions and that was just because of the Infection Prevention business. Is that correct?

James F. Hinrichs

It's primarily Infection Prevention, but there's also some pricing pressure in some of these non-differentiated businesses that will probably continue through the year. So we'll be making that revision. As I mentioned earlier, we're looking at a revision downward in EBIT, primarily in the Procedural Solutions business, and then we believe there's some upside below the line that we'll also be taking into account. So when we narrow that range, it will be somewhere between the $1.75 to $1.90. That's correct.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. And then just on the Medical System sales, you had mentioned Dispensing, Infusion and Ventilation were all strong. Can you just maybe give us a little bit more color there? It sounds like you're not seeing any changes with like hospital CapEx or anything in that regard. I was a little bit surprised by Ventilation also being up.

Kieran T. Gallahue

Yes, so we can't at this point go into all the details. We'll certainly go into more details as we get to the release, but I will say that, yes, the business segment overall is performing very well. I think we're very fortunate that the Medical Systems that we sell are essential to the efficient operations at hospitals. And we're seeing a lot of interest from customers as they look to try to get better scale on their human capital, particularly in the nursing area, where they're trying to get better control over their supply chain and particularly in pharmacy. And we help in each of those areas. So we're quite fortunate. And yes, I can appreciate the question on Ventilation, but the Ventilation business has been performing well. That was across the segment.

James F. Hinrichs

Yes, and it's always life is easier in general when your biggest businesses -- not that there's anything easy about this, but life is in general is good when your biggest businesses are performing well. And that continues to be the case in Medical Systems, so that's a good thing.

Kieran T. Gallahue

Pamela, we're going to enter wrap-up mode here. I know people have things to do. So again, I want to thank everybody for getting on the phone call on very short notice. I hope what you see here is our continued commitment to being as transparent as possible with you and to bring you along this journey of improvement.

We continue to have a lot of great things going on at the company. We feel very comfortable and confident in the improvements that are being made throughout the organization. As always, I'd like to take the opportunity to thank the CareFusion team throughout the world for their stellar efforts. And I look forward to updating you in a couple of weeks as we get on to the Q2 earnings call. Thanks, everybody.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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