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Edited Transcript of ICUI earnings conference call or presentation 11-Nov-19 9:30pm GMT

Q3 2019 ICU Medical Inc Earnings Call

San Clemente Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of ICU Medical Inc earnings conference call or presentation Monday, November 11, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Scott E. Lamb

ICU Medical, Inc. - CFO & Treasurer

* Vivek Jain

ICU Medical, Inc. - Chairman of the Board & CEO

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Conference Call Participants

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* Jayson Tyler Bedford

Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst

* Matthew Ian Mishan

KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst

* Peter Lucas

* John Mills

ICR, LLC - Managing Partner

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Q3 2019 ICU Medical, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. (Operator Instructions) I would now like to hand the call over to Mr. John Mills with ICR. Thank you. Please go ahead.

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John Mills, ICR, LLC - Managing Partner [2]

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Thank you. Good afternoon, everyone. Thank you for joining us today to discuss the ICU Medical Financial Results for the Third Quarter of 2019. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Scott Lamb, Chief Financial Officer. We wanted to let everyone know we have a presentation accompanying today's prepared remarks and to view the presentation, please go to our Investor page at icumed.com and click on the Events Calendar and it will be under the Third Quarter 2019 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 be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency in the 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's my pleasure to turn the call over to Vivek.

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [3]

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Thanks, John. Good afternoon, everybody. The third quarter of fiscal 2019 showed commercial stability, with revenue improvement in our most valuable product lines and allows us to hold firm on our view of profitability in the near term. We showed cost improvements on the P&L from TSA savings and operating efficiencies, and our actual cash restructuring expenses have begun to come down.

We were also able to deploy a modest amount of capital into the Pursuit acquisition that we will further describe. We had a number of important customer wins during the quarter and are executing well with high service levels to our customers. Our time was equally split on external commercial activities and internally on the work to mitigate the operational slowdown in IV Solutions, which we started in the summer and described on the last call.

On today's call, we wanted to first comment on Q3 results and discuss our current view of the business and the recent performance trends; second, provide an update of the actions we've been taking, given the market dynamics and their impact; third, mention a few quality and housekeeping items; and lastly, outline the criteria we are judging ourselves by and our near-term goals and how they fit with the longer-term positioning of the company and the opportunity for value creation.

Q3 was a reasonably clean quarter after our difficult Q2 commentary. The company is operationally running well, the competitive environment seems to have stabilized a bit, and we have been catching up on our lingering production issues. The income statement was straightforward, with a sequential increase in our consumables revenues and stability in our other lines that allowed us to deliver EBITDA down the middle of our revised guidance provided during the last call. We finished the quarter with $291 million in adjusted revenue, adjusted EBITDA came in at $63 million, adjusted EPS came in at $1.65, and cash was $337 million. Adjusted revenue was down 3% quarter-over-quarter on a constant currency basis due largely to the IV Solutions segment. There were no unusual charges. Restructuring and integration charges were down to $8 million, and we added cash to our balance sheet before the Pursuit acquisition.

Let's start with Infusion Consumables, which is our largest business and try to go into a bit more detail than on previous calls. Infusion Consumables had revenues of $120 million in Q3 2019, which implied a 3% increase year-over-year, adjusted for currency, and 2% growth on a reported basis. U.S. volumes were okay, not great, and we did have a number of important customer wins that have slowly started to implement.

We know it has been on our and our investors' minds why is this segment slowed down versus historical periods. And at the same time, we've been saying for the last few calls that there hasn't been major customer churn, volumes are okay, we had some wins, et cetera. To go into a bit more detail, over the last 3 or 4 quarters, we've been dealing with a number of items, and hopefully, most of these are in the rearview mirror. Starting just about a year ago, we cut over our IT systems and that did have an impact in Q4 of 2018 and a portion of the first half of 2019. That is behind us now. We also were capacity-constrained in our oncology products and could not serve the full market demand. It's still a bit slow but that also is getting behind us now.

Lastly, we had some unique subcategory dynamics outside of the normal horsetrading of the competitive environment. As we mentioned on the last call, we went backwards on our OEM orders for our SwabCap products, and we also faced competitive pressure from external innovation in certain of our dialysis product lines. The OEM situation will normalize over time, and we felt we had to address the challenge on external innovation via the acquisition of Pursuit Vascular.

It was a situation we have been tracking for years, and the time and circumstance just made it actionable now. We recognize it is a bit different from our historical transactions from a value perspective, but we felt if we were going to take a bit of risk anywhere, it would be in our consumables segment.

So what did we like about Pursuit Vascular? First, we felt it was a straightforward acquisition, a small number of product SKUs with consumables manufacturing that we deeply understand; second, aside from the cannibalization factor, it gave us what we thought was the best product in a globally growing market category; third, we liked the clinical positioning. They underwrote a number of solid studies that showed strong clinical superiority and allowed them to get important label claims that really require a lot of time and investment to receive, and we had some familiarity with this topic from previous experiences. Lastly, we felt that the core technology, and as much their know-how, could help differentiate our consumables business over time. So that's why we did it.

The rest of the segment was pretty much as we expected. This is the segment where we're the most advantaged now as a joint entity. We have largely rationalized the product portfolio and brought together the operational efficiencies of the combination. Commercially, we have all the pieces, all the technology, all the scale to compete globally and should be able to offer more value to the customer. Again, there may have been individual puts and takes in this segment so it may not be a perfectly smooth curve, but we continue to feel positive about this segment into Q4 and beyond.

On Infusion Systems, which is the business selling pumps, dedicated sets and software, which is important because it's a business that brings a lot of recurring revenues and helps to support our competitiveness in consumables. This segment did $80 million in adjusted revenue, which was flat on a constant currency basis and down 2% reported, which was in line with our expectations.

To give a bit of a longer story on pumps, we have a few different product categories in which we operate. The vast majority of our product line is our core large volume infusion pumps, LVP for short, segment here, and the primary product line is called the Plum LVP pump. This is a product that the old ICU Medical, pre-deal, was deeply dependent on and that had lost significant ground in the U.S. market since 2010.

For the first time in many years, we can say that our U.S. installed base actually was larger at the end of Q3 versus the end of the prior year. Now, this is not a big amount, but it validates our comments on saying we felt we had stabilized the Plum installed base of pumps. And while we know there are still maybe historical losses that have not yet come out of our installed base, we believe we are holding enough competitive wins to offset those and potentially surpass. We've gotten back to the core marketing message as there's been a number of independent clinical reviews that had validated the differentiation of the Plum. Some of those are around the original core technology benefits and some of those are in the newer differentiators like cybersecurity and connectivity.

So that's good for us that the core LVP segment, our Infusion Systems, business is growing. However, we do have some headwinds on the periphery from the non-LVP products in this segment such as the dedicated pre-filled or empty syringes for the PCA pumps that we get from Pfizer Rocky Mount. We described this issue on the last call and it continues to hurt. Pfizer does seem to be making progress on the issue but the challenge has been, given the lack of consistent supply, a portion of the installed base has chosen to move away from these products.

For us strategically, the Plum line drives the majority of value since it's more closely linked to the rest of our businesses and is very sticky when customers commit, and we feel the best we have about it since we bought the business. Growing our pump installed base is a long-term strategic priority, but the short-term practical challenge is we do not realize positive cash flow or earnings in the initial period of pump wins and these non-LVP products still generate positive cash flow earnings, and we're absorbing those hits on our P&L and we wanted to make that clear to investors.

The value-creation aspects of real incremental cash flow happen over time as we improve our installed base, and we continue to feel like we are in good dialogue across a number of geographies.

Finishing this segment discussion with Infusion Solutions. We had $81 million in adjusted revenue or down 12% year-over-year or up $1 million sequentially. We did see and feel some more stable footing here at these levels. We'll skip the usual solution stump speech for this call and just cut to the chase. Commercially, we did have some wins that have started to come into our book. These wins allowed us to handle the change in competitive environment better as we stepped in to defend our market share and handle the continued erosion of our noncommitted business. We continue to believe the quality of our customer book has improved with us holding the best list of sustainable relationships versus the day we bought the business, and we have survived the bleed-out of the majority of the trading oriented business.

Operationally, everything we stated on the last call was happening. We have significant safety stock in place that we now characterize as permanent. We have reduced production, slowed the factory, took extra down days, have stopped taking delivery of unnecessary volume from Pfizer, et cetera. On the 2 main items we described in the last call, the negativity from manufacturing variances and the negativity from supply chain overage costs, we're actively getting after the manufacturing variances and feel good about our ability to run the best production environment we can. The supply chain variances are slower to show improvement. Doesn't make sense even if it helps the P&L to destroy more product as necessary, and it will eventually come out of the system. We are still trying to make the best choices with our capital and resources here, and it doesn't make sense to put good money after bad for short-term decisions.

Moving on to housekeeping items. In Q3, global fulfillment rates have been very solid to the customer. I would like to thank our teams, again, even in this reporting quarter, with other companies reporting. We've seen the impact that these IT system cutovers can have. While painful and expensive, we did survive our extraction from Pfizer. The only item left is the conversion of the manufacturing site in Austin, which is still on schedule to be completed by mid-next year. Then we're fully stood up, and our attention will shift to optimizing what we've done.

At some level, we were on a shot clock from Pfizer with the deadline to stand up, and we do wonder, did we overbuild a bit relative to if we were starting with a clean sheet of paper. We do think this is one of our competencies, and we'll address the opportunities as they present themselves over time.

From a quality perspective, not much really to report as there were no material audits or inspections in Q3. We are still awaiting the next Austin inspection and we're prepared. We did have some disclosure around certain recalls of products made in 2017 and 2018, which were necessary and done in the right fashion to communicate to the customer and to be compliant and in-sync with the regulatory agencies.

We wanted to reflect a bit on our previous comments and discuss about how we feel about them today. We said for many quarters that we felt we could still create value even in the face of a tougher revenue environment, and we've always said that we believed in our most differentiated businesses of IV consumables and IV systems and the attractiveness of the industry structure merited that point of view.

Today, given the reset in revenues in IV Solutions, the first comment still applies but probably to a somewhat lesser degree. We will show again this year our ability to reduce costs and run as efficiently as possible but it gets harder to have this be a material contribution given the improvements we've already made. So for us, and the criterion lens we're judging ourselves by from this basis has to be the ability to improve our position in the most differentiated businesses and to prove stability in our less differentiated businesses.

We've been consistently saying that we've been actively calling on customers and trying to illustrate the value we can add to the system and the value to the system in having us as a healthy participant. While it's a long journey, we do believe that this message is resonating, and we have the right to win across the product lines. Feedback on the products continues to be solid. The products are necessary for the system and have been reliable for many years. We never assumed it was a straight line up, and we cannot flip our behavior into short-term focus even with the recent changes.

We'll continue investing in R&D, appropriate capacity expansion into our production network and into commercial resources to serve our customers. In the short term, meaning the rest of 2019, we feel solid on our previous guidance for the full fiscal year. In the medium term, we're working through the various puts and takes, and we'll provide guidance on our year-end earnings call. We're trying to balance our return to predictability in consumables, the improvement in our LVP category and related investment in manufacturing offsets against the negativity of the non-LVP items in Infusion Systems, slowness in realizing some of the supply chain savings and making sure we budget to compete properly in the less differentiated items. Ultimately, it comes down to growing our differentiated highest margin lines and running ourselves as efficiently as possible over time.

We need to continue to be cautious given the environment and what we did to our shareholders and ourselves when we rebased our view on the last call. We know what we put everyone through, and we still have a belief that we'll absolutely maximize profitability over time to the most sensible level in our business like we always have. We still believe that even with a little less cash, we have a safe and strong balance sheet that can protect shareholders and be deployed for value creation as opportunities emerge. We have made significant capital investments into our factories and systems over the last 2 years and are in the final stages of some major production upgrades, with more sterilization vertically integrated across our network and as aside, we could talk about our EtO exposure, new tooling and an investment mindset for quality and growth.

We still believe the categories are deeply valuable with a number of intrinsic value drivers, including high-quality or hard-to-reproduce production assets and sticky product categories where there is strong differentiation. We have a set of experienced people do the work, and we have a culture of not wasting shareholder resources and respect for our capital. But even with all of this, the environment is still fluid, earnings lag revenues in some of our businesses, and we do not -- anyone to get ahead of our actual results because the competitive environment is still hard.

As always, I'd like to close with, things are moving fast. We're trying to improve the company with urgency, we're trying to take responsible actions and break some of the inertia that many companies in our position face. We have hit some bumps, we've taken action to overcome them, and we will emerge stronger.

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

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Scott E. Lamb, ICU Medical, Inc. - CFO & Treasurer [4]

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Thanks, Vivek, and good afternoon, everyone. To begin, I'll first walk down the P&L and then talk a little about cash and balance sheet. So our third quarter 2019 GAAP revenue was $307 million compared to $327 million or down 6% from last year, down 5% on a constant currency basis. For your reference, the 2018 and 2019 adjusted revenue numbers, which exclude contract manufacturing sales to Pfizer at cost, can be seen on Slide #3 of the presentation.

Our adjusted revenue for the quarter was $291 million compared to $305 million last year, down 5%, or 3% on a constant currency basis. Infusion Consumables were $120 million, up 2%, or 3% on a constant currency basis. IV Solutions, which we primarily sell in the U.S., were $81 million, down 12%. Infusion Systems were $80 million, down 2%, or flat on a constant currency basis, and Critical Care was down $2 million, 21%, or 20% on a constant currency basis. Adjusted diluted earnings per share for the third quarter of 2019 were $1.65 compared to $1.88 for the third quarter last year. Our adjusted earnings per share for the quarter was unfavorably impacted by approximately $0.10 related to certain adjustments in connection with the filing of our 2018 tax return.

We estimate our GAAP tax rate for the full year to be in the range of 16% to 18% and the non-GAAP rate to be in the range of 20% to 22%. And finally, adjusted EBITDA decreased 8% to $63 million for the third quarter of this year compared to $68 million last year.

Now as you can see from Slide #4 of the presentation, our adjusted gross margin for the third quarter was 41% compared to 44% for the third quarter last year. The 2 largest drivers for the year-over-year decrease were similar to the last quarter and included the impact from the ramp down of IV Solutions production and the associated lost overhead absorption as well as additional supply chain costs related to higher-than-optimal inventory levels.

And as expected, year-over-year SG&A decreased approximately $11 million and were 21% of revenues compared to 23% of revenues for the third quarter last year. The decrease came primarily from TSA savings as a result of separating from Pfizer and standing up the business on their own. And as a percent of revenue, R&D expenses were relatively flat year-over-year.

Restructuring, strategic transaction and integration expenses were down to $8 million in the third quarter versus $24 million last year and this is primarily the system integration costs for our Austin manufacturing facility.

Now moving onto cash and our balance sheet. For the quarter, free cash flow was $26 million as cash increased to $337 million in the quarter. And as expected, net working capital increased slightly in the quarter due to an increase in cash and inventory, offset by a decrease in accounts receivable. And with the closing of the Pursuit Vascular acquisition, we would expect cash at the end of the year to be approximately $275 million.

In the third quarter, we spent $25 million on CapEx, primarily related to general maintenance, system integration, capacity expansion for our consumables business and transferring a portion of our contracted solutions products from Pfizer to our Austin manufacturing facility. And as we said on our last call, we still expect to invest in the business this year similar to what we spent last year or approximately $100 million.

Lastly, I would like to say we are looking forward to working with our new associates at Pursuit Vascular for even greater success and continue to help drive our business forward.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jayson Bedford from Raymond James.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [2]

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Just a few here. Maybe I could start on the gross profit line, which came in higher than we expected, and I assume most of it's on the IV Solutions side. You mentioned that results earlier were generally in line with your expectations. Was gross profit -- or gross margin also in line with your thinking?

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Scott E. Lamb, ICU Medical, Inc. - CFO & Treasurer [3]

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Yes, Jayson. On the gross margin, we expected the second half of the year to be down from the first half of the year and we expect the fourth quarter to be down from the third quarter.

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [4]

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Most of the cost, Jayson, and the -- gets rolled into the manufacturing costs, and so you don't see it right away. So the slowdown, as we talked about before, is going to be felt largely into Q4, maybe a little bit in Q1. I think we said publicly that those were going to be the most painful from a gross margin perspective.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [5]

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Okay. So maybe just to follow up on that. When looking at the $15 million in supply chain costs that you identified last quarter, roughly how much of this did you recognize or incur in 3Q? And is this still -- $15 million, is it still a good number?

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Scott E. Lamb, ICU Medical, Inc. - CFO & Treasurer [6]

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It still a good number. As we mentioned earlier on the call, the supply chain costs are going to take a little bit longer to come out of the system than we had originally thought, but we do see a path forward and that's still a good number.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [7]

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Okay. Just jumping to the top line a bit. On consumables, you identified a few headwinds. Is there any way to, kind of, quantify the impact of those headwinds in the quarter or at least discuss your thoughts in the fourth quarter? What's the right run rate here on consumables?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [8]

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I mean, there's been a lot of puts and takes since the day we did the cutover last October between Oncology, between SwabCap, between some of these other things. I'd rather say, Jayson, that we just -- back to normalcy for us is proving that we can grow that business, right? We had 4 years of good growth and it slowed down a bit as we went through this thing. I don't know that we have a magic number that we're targeting. Let us get through Q4 and finish the rest of the stuff and then we'll put it out there for next year.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [9]

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Okay. On systems, and specifically on the PCA pump dynamic, I think, last call, you mentioned that Pfizer should be running consistently by year-end. Is that still the case or has that been pushed out a bit?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [10]

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It's gotten better and has gotten better. But we still were behind for a portion of this quarter and so we were paying some combination fees and stuff. So it's -- it hurts. It hurt us this quarter too. It is getting better. They've put up real time and money in it but it's been slow.

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Jayson Tyler Bedford, Raymond James & Associates, Inc., Research Division - Senior Medical Supplies and Devices Analyst [11]

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Okay. And I'll take the bait on the ethylene oxide exposure teaser there. Can you just maybe comment on your relative exposure there?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [12]

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Yes. I'm sorry, I went off the script there. Almost none. We have less than 4% of our outsourced sterilization in EtO. We don't use either Illinois or Georgia. We use the other company. And for us, that's where a portion of all that CapEx we've been putting into the business has gone, and we were vertically integrated in Ensenada. We've doubled down on that, and we put up the capital to vertically integrate our own sterilization in Costa Rica. So that's, sort of, something we did right with e-beam right at the offset of these deals. That's not to say we were so smart, we were just already committed to e-beam, and we believe in the integration ourselves.

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Operator [13]

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Our next question comes from the line of Larry Solow from CJS Securities.

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Peter Lucas, [14]

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Yes. Actually, it's Pete Lucas for Larry. Just a question on the IV therapy market. I think you categorized it as still slow but capacity issues getting behind us. Just wondering, looking at how we should look at sales growth going forward, is 4% to 6% still attainable as you look out over the next several years or any number or guidance you could give us towards that?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [15]

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Sure. I'm not totally certain. So we think about our businesses, IV consumables or IV systems, the hardware business or solutions, I think we were a little bit of different across those lines. I think in consumables, we generally were a positive momentum behind our consumables business for 3 or 4 years, that slowed down. I think what we're trying to say is, we feel like we're getting back to being consistently positive there. In solutions, it's been unbelievably negative for the last 4 quarters with big volatility in the actual amount of sales. And I think there, we're trying to say, we revised guidance in a painful way. I think we still believe the revised numbers we put out there in the summer apply, and we felt like we feel okay about that for the current moment. I don't want to add it up to a whole company level, we'll do that when we put our guidance properly after what we've been through.

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Peter Lucas, [16]

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Great, very helpful. And you guys have answered a lot of the questions. Just one big-picture question for you. Any update on anything new with regards to Smiths Medical? Some recent articles in the press had suggested they may reconsider a sale or at least willing to entertain talks with potential interested parties. I don't know if there's anything you could add to that.

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [17]

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I think we would say we have no comment, and we do not want any of our shareholders to speculate or make assumptions about things happening. We had shareholders who suffered last year as a result, and we want to be very transparent about that. So please no -- I don't want to say anything, we have no comment on that situation or any other situation, right, we're not going to do that.

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Operator [18]

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Our last question comes from the line of Matthew Mishan from KeyBanc.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [19]

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Congratulations on stability and nice work you've put.

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [20]

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Have you ever had to say that before? Have you ever said that before at a call?

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [21]

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It's the first one I said congratulations on. Going back to Pursuit, this is like the first one, you -- the first bolt-on type acquisition you've done in a while. Are there -- is there a pipeline of these type of deals that you're potentially looking at, small, strategic technology rises?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [22]

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I don't know that there's a long list. There's a very few number of those types of things out there. Yes, I feel like we didn't have time until we finish the integration or got very close to the end here of integration even look, we've put somebody in a job who spends their time doing that. And our model has always been -- we're not that big, right? And so the free cash flow we could make out of our business could support just one of those things each year, if they were available. I don't necessarily think there's one of those available every single year. But there's a -- there are a few out there, but you just have to be patient. I mean, we really, tongue in cheek, we pursued this thing for a while, and it took time to just find this moment. It's not a huge list.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [23]

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Okay. And then could you maybe give some scale to the LVP versus the other category in the infusion business so we can understand a little bit of the headwind you're facing versus, I guess, is it something in which -- or is it easily overcome?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [24]

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It's getting close from a revenue perspective, I think, to overcome it. It's a 90/10-ish type situation or something like that. But you still make some money on the 10, so it hurts from an earnings perspective because you're not substituting with equal margin contributive stuff right out of on day 1, right? So it hurts economically even if it's manageable from a revenue perspective.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [25]

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Okay. And then, you've typically given, like, directionally forward EBITDA guidance on the third quarter call, and I do appreciate that you want some more visibility this time. But can you go over some of the larger moving pieces that we should be thinking about into next year?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [26]

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Sure. I mean, I think we're trying to say our criteria for ourselves is can we grow the stuff that's the most differentiated? And so for us, it's getting back to normals consumables growth. Oncology is a portion of that and regular consumables is a portion of that. Then on the systems business, revenue-wise, how much positive revenues do you have in LVP minus the negative of the PCA, et cetera, even though that may hurt from an earnings perspective? And in solutions, we tried to offer -- we're judging ourselves by stability, meaning we said a little bit below where we actually landed this quarter is where we thought things are. I think that continues to be our view. That was our framework plus capital deployment, if any, minus the negatives of getting back the supply chain costs and the other things that we talked about in the last call.

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Matthew Ian Mishan, KeyBanc Capital Markets Inc., Research Division - VP and Senior Equity Research Analyst [27]

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Okay. And last one, then I'm going to jump back -- then I'm going to jump off. How are customers, kind of, gearing up for USP 800 at this point? I think there's some delays and there's a language change? Are -- have you seen it impact, kind of, the customer behavior and how they're looking to adopt it?

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [28]

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I think it's a different answer for different parts of the market. I think the customer base that we currently hold, which I would call as, kind of, large institutions, they, for the most part, have recognized that this is coming a budget for it and have to operate within like a best-in-class environment for even their own clinicians' safety, and so we could sell every piece we could make to that audience. Some states have delayed, there has been some language changes. The more local office, clinic stuff, where the cost is additional, et cetera, probably, we would expect to slow down a little bit but that's not where really our business is tilted at the moment. So that's a bit of tomorrow's problem because we think we have enough opportunity just to get the larger institutions that are in front of us.

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Operator [29]

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We have no further questions at this time. I will now turn the call back to Mr. Vivek Jain for closing remarks.

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Vivek Jain, ICU Medical, Inc. - Chairman of the Board & CEO [30]

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Okay. Thanks, everybody. It was a quick call on Q3. We appreciate you joining us on Veterans Day here. For those of you who don't know, our office backs up to Camp Pendleton, and we see how hard and how serious the people who work there are, and so we appreciate everything that they do. And we look forward to talking to everybody on our year-end call. Thanks very much.

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Operator [31]

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