All right, I'd like to welcome everyone to the KeyBanc Life Sciences and MedTech Forum, day two. My name is Brett Fishbein, MedTech analyst, and I'm pleased to be joined today by ICU Medical, who is represented today by Vivek Jain, CEO, and Brian Bonnell, CFO. I'll start us off with a bunch of questions, but as always, we have a text box right below the video screen. The audience can feel free to submit questions right to me, and I'll relay them to management. So maybe just to kick off here, similar question that I've been asking to almost all the participating companies, maybe just if you could touch on a brief update to how you're viewing the underlying environment, really around hospital activity and volumes as we kick off 2024, compared to the past couple of years coming out of COVID. Okay. Sure. Thanks, Brett, for including us. Thanks to KeyBank for having us at this event. We appreciate your reinitiating on us. We're excited to be participating today. You know, I think on our Q4 call, we said very transparently that Q4 was probably the most active quarter since COVID started, that we saw in the global hospital environment, not just US. I think that has continued through a portion of Q1. It seems a little too good, frankly, in January, February. It's probably cool. We expect it to cool off a little bit, but it's been, it's been okay. All right, great. And yeah, you mentioned the earnings call, very similarly positive message there. And then just to refresh the audience a little bit, you did issue initial 2024 guidance, on an EBITDA perspective, $325 million-$375 million. Maybe just walk through a little bit of your approach to setting guidance for this year, coming off of a relatively challenging 2023. And maybe what you would point to as some of the biggest swing factors, given the wide range to begin the year. Sure. Look, I think we wanted to get back to being more predictable and consistent, right? It was hard to be that recently, and it's really weighed on us, and so we're very, very focused on that. And I think we took that into contemplation with our discussion and guidance this year. The questions that we've been asked, I think what you're nicely trying to ask is: What does it take for you to be at the high end, or what could go wrong and be at the low end? For us, it's very much about what develops with our gross margin line, which is a function of solving what we've been working through on the inventory side, as well as what the absolute revenue number is. I mean, for us, there's not a lot between growth that changes, that we can impact meaningfully between gross margin and earnings, right? It's very much about what happens at the gross margin line. Sure, sure. And maybe just to follow up there, I thought a really positive part of the 4Q update was on the revenue side, and just having the confidence to, you know, at least to begin the year, think that you're gonna get back to, you know, a level of revenue growth, you know, in the low single digit to mid-single digit range. So maybe, maybe if you could just touch on the current level of visibility there, to achieving that target, and particularly around some of the product areas that were, like, clear headwinds last year, maybe on the Smith side. Yeah. Well, I mean, I think if you look at the way we've outlined the company in our investor presentations, the largest stack we have is our consumables businesses, which we believe drives the majority of value at the company. And the legacy ICU businesses, those we had before the Smiths acquisition, have been compounding at a very nice rate for a number of years in a row. We were challenged last year. We had thought, certainly after owning the business for a year, heading into last year, that the line called Vascular Access would have improved. It deteriorated on us and caused a lot of negative variance in that consumables segment. I think the stability we found there, and finally some improvements in Q4, and what we believe heading into this year, give us some conviction that the consumable stack can once again grow appropriately. That really underpins cash and performance. I would say it's a bit more volatile or lumpy in the pump business. So a very strong Q4 and some different performance in Q2 or Q3 of last year. I think that volatility is gonna continue. It's really about where the year ends, given some of the unique stuff going on in the pump business. And on the vital care segment, our, our last reporting segment, a huge amount of variance was caused there by our IV solutions business last year. The sum of all the, the, those issues we just talked about too, was essentially flat revenues year-over-year. And if those businesses can stabilize and the rest of our portfolio grows, I think we feel that we're on better footing for revenue growth, certainly this year. All right, no, thank you for that additional color by product area. Definitely helpful. Maybe just to finish kind of the near-term 2024 conversation, you know, a big topic, and you alluded to it, underlying the guidance and particularly gross margin, is some of the inventory dynamic that you have, like, where you're working down some excess inventory. So maybe just refresh the audience a little bit on what's going on there, and how—how we should think of that in the context of your gross margin guidance for this year versus, you know, what would be a more normalized level. Yeah. Yeah, I'll start with the inventory and then kind of discuss what the gross margin impacts are that result from that. So a little bit here on the history of our inventory levels. For the first 6 quarters or so after the acquisition, we increased our inventory levels by an average of $50 million a quarter, and this was really related to 3 initiatives. 1, we needed to address the legacy Smiths Medical backorder situation that we inherited. 2, we needed to build bridge stock in anticipation of the new EU MDR regulations that were scheduled to take effect, which ultimately got delayed. And then 3, to just generally bolster safety stock across the company, kind of in response to some of the supply chain disruptions that came from COVID. So, you know, kind of each one of those situations evolved over time, but in early 2023, we started taking actions to bring down inventory levels, because we got to the point where we probably had a little bit more than we really needed. And we saw a reduction in inventory for the first time then in Q3 of 2023, with a more meaningful decrease in Q4, where inventory levels had actually come down by $60 million. And what we said on the Q3 call last year was that we thought there was probably ballpark $100 million of opportunity for inventory takedown. 60 of that came in Q4, that means there's probably $40 million left that we'll see during 2024. It won't come down at the same rate that we saw in Q4, maybe a little bit more spread out over the year, but we think that's still kind of the right level of opportunity. Now, obviously, as you're building inventory, you're taking it down, it does impact gross margins because you're over-absorbing in periods in which you're building, under-absorbing where you're taking it down, and that's impacted our gross margins here over time. But what that ultimately means is that we provided guidance for 2024 of 35% gross margins. We expect the first and probably second quarters to be a little bit less than that, as the P&L absorbs the impact from those inventory takedowns that we saw in Q4, and also in the beginning of 2024. But we should exit 2024 slightly above that 35%. And we think, you know, something a little bit above 35% is really the normalized gross margin for the business as it exists today. All right. Super helpful there. Then maybe a couple follow-up questions on the Smiths topic, and before we move to a couple longer term topics, you know, for full company. Vivek, you touched on, you know, what was definitely the biggest headwind on the revenue side, which was the vascular access dynamic. And you know, that's probably the biggest driver for why the total Smiths revenue is a little bit lower than you originally thought during, you know, the deal model and original close of the deal. I guess my question is, it feels like we're getting to a like, a level of a little bit more stability, which is really positive. But I'm wondering, like, longer term, if you actually see some upside opportunity to maybe recapture or go back after some of those lost sales or market share? Sure. I mean, when we did the transaction, we thought Smiths was gonna be $1.1 billion or slightly larger than that. Since that day, there was probably more than $50 million of currency variance that made an impact. But realistically, we're still $100 million plus below that level from the products. We think we can get some of that back this year, probably with the business being the products that came from Smiths being $900 million on the lowest end, $1 billion on the highest end, somewhere in that range. But that does imply that these product lines that were going backwards, start to grow again. And obviously, they're still below historical levels. It's not just the vascular access you referenced, it was products in the infusion systems bucket, as well as some of the products in the vital care bucket. I think the simplest way, if I was a investor looking at it, the question we've obviously been asked for months, quarters, is: Where is the bottom? I think we believe, at least in the vascular access product lines, in the systems product lines, and in the vital care product lines, that we are growing in each of the legacy Smiths product families. Yeah, no, that's, as a starting point, definitely great to hear. And then just on the FDA warning letter topic, I know it's something that it's hard to give updates when you know, if nothing's really happened since the earnings call. But just curious on, you know, what work there still remains to do around addressing some of the observations, if any, and how investors should think about a range of outcomes around the timeline for a possible reinspection? Yep. I mean, The FDA warning letter, again, it's, it is, something we've been working on diligently for two years. We feel like we've been through a lot of the remediation work internally, in terms of complaint analysis, quality system remediation, et cetera, some of the issues that caused the warning letter in the first place. And we continue to iterate and make sure we are taking field actions where appropriate, to the extent we find new issues about any product, and we've seen some of that in the market. That's all part of the cleanup act. You know, I don't think we can sit here and predict when the agency will come in and do the work. And each day until they do, we continue to improve, and we feel like we're in a much better place than we were. Most good companies have these types of situations resolved, you know, 3 ± 3 years from when a letter was received. We received the business we bought received that letter in October of 2022, excuse me, October of 2021, so. And then, you know, one other question on Smiths. You, you've had a lot of work to do, and, you know, you've made a lot of progress, but I think, you know, some of those initiatives have probably gotten in the way, or, or gotten in the way, or at least delayed some of the opportunities you have from a cost perspective, and you've quantified that a little bit. But maybe if you can just walk through how you look at some of the remaining synergy opportunities, or just general efficiencies you see that are still available, you know, once you get past some of, like, the more, you know, fire drills or fire alarms that you, you've had to address over the last year or so? ... Yeah, I mean, if you go back to when we originally announced the transaction, at the time, we said that we expected $50 million of synergies by the end of year three. And although there's been a number of distractions along the way, we actually ended up capturing that $50 million of synergies within two years. So we did better than we had expected or at least had set expectations around. And so we now see an opportunity for an additional $50 million of synergies on top of that, which we always knew there might be opportunity there, but we thought that would be upside to the business case. But now it seems like, you know, that additional $50 million of synergies is gonna be something that we have to use to get back closer to the original deal model. But the areas where we expect to see that additional opportunity, it tends to be these longer lead time projects, mostly around the manufacturing network consolidation, as well as logistics network, real estate, and also savings within the various business support functions that are unlocked as a result of doing the ERP system integration. I think we'll see some P&L benefit from those projects, beginning in 2025, and all of the implementation work required to fully realize them will happen probably by the end of 2025, with then, you know, some of the P&L benefit flowing through in 2026. And as far as the ERP integration that you referenced, yes, it's a multi-year project, but I think the phase in which we see a lot of the value in terms of unlocking synergies will happen here later this year with the U.S. order to cash cut over, so we're looking forward to that. Yeah, thanks so much for that color, Brian. Definitely wanted to switch gears a little bit to some more interesting topics that are a little bit more long-term in nature and maybe around the infusion pump market opportunity. I think, you know, you had a comment, it can be lumpier at times, but at a high level, like, how would you characterize the landscape right now, you know, maybe with a focus on the LVP pump category from a customer demand, you know, availability for implementations or considering competitive conversions, and then how you're viewing some of the competitive dynamics really across manufacturers as we move into 2024? Yeah. I mean, that's, that's sort of the $64,000 question for us. It's a good time to be a customer. There's more choice available in the market than there's been probably in the history of this category since Smart Pumps came into the market. And so if there's more choice, right, we, we feel like the way you help customers choose that choice is to focus on the technology. And there were features of the technology we had, that we inherited and we relied on, frankly, from our lineage of Hospira, Abbott, et cetera, that were very clinical in nature, but that sort of got forgot along the way. And we've doubled down on those and addressed some of the technology limitations of our older devices in what we just got approved with Plum Duo, and we think that's in customers' hands to decide. I think what's good about this moment, back to the question, what's the moment, is because of some of the dynamics that have happened in the segment, customers are forced over the next 2 years, 2.5 years or so, to actually make decisions now with a little bit of the COVID labor, all those other stuff you referenced, in the rear view mirror. People have to make a choice, and we feel with the acquisition, which has obviously been difficult for us, but with the acquisition we did and the completion of the portfolio and the innovation, we have a pretty good hand in those conversations. And inertia is a huge element in this market, so incumbency is a huge advantage. But there is enough change happening, enough people have to make a change, and enough new technology in the market, that some portion of those will make new decisions, right? And it's our job to get as many of them to make new decisions as we can. Sure. No, I think that's a good way of thinking about it. Like, absolutely. And then my question would just be, I think there are just, like, some really clear points of advantage that you have, you know, with, with your existing pumps, that have helped you, you know, win and maintain share over time. And then, you know, you made the move with Smiths to really round out the portfolio and probably over time, work toward, you know, modularity or something along those lines. So just thinking, like, how important do you think it is to have, you know, not only the Plum Solo, which you've talked about, but the updated syringe pump, across the finish line before being able to compete optimally with certain competitors? You know, maybe Alaris being an example. Yeah. I mean, I think you—there was a couple parts to that question. You know, as it relates to the Plum Solo, we want to give customers choice of the complexity of technology that they need or the size of technology they need for a given situation. Most of our devices in the market today are new over the last five or six years, so we haven't had the opportunity to refresh our own installed base. And so most of what you see reflected in our revenue line is truly competitive wins. The Plum Solo gives us an opportunity to monetize our own installed base and offer more choice and technology differentiation in the existing. So that's one particular aspect of bringing a line. Two is, it's another arrow in the quiver of what's the right modality for the right clinical situation. And then three, to your question on the technology roadmap, I think we've demonstrated our ability to get these things through the regulatory agency. And again, you make a decision on an infusion system for the next decade, I think people trust that these items will get through the various regulatory clearance. And lastly, to the last point, your question on interoperability, we want to drive connectivity across all these devices, but you know, in a way that adds value to the customer. A very small portion of the U.S. market is actually interoperable today, and that is the land grab that the manufacturers are prying, because if you can drive that interoperability and add value to the customer, you're entrenched into that workflow for a long period of time. And so for us, we want the best, most precise, individual devices for a clinical use case, but we want them to connect in a way that they're seamless in the workflow environment. Absolutely. And then just like another one, kind of on new products. I think on the 4Q call, you really briefly mentioned a couple other new product areas that have maybe quietly been launched over the past year or so. So was just wondering if there's any in particular that you would call out as, you know, more meaningful opportunities, more meaningful opportunities. I think a couple examples would be, you mentioned some new Diana capital and disposables, some products in trach, and then I believe a refreshed hemodynamic monitor as well. I mean, I don't think we'd wanna pick on any... We'd much prefer talking about them when they have actual results that match up with revenue growth, right? I think it was more to assure the investor community that the portfolio didn't need external refresh, that a lot of things have been happening with the money we've been spending organically in R&D to drive innovation. And if we finish the projects on the pump roadmap with some of the things we think consumables, that we can get done, then a large portion of the company's product portfolio is frankly refreshed and new in the last two or three or four years. It obviously matters a lot more when it delivers predictable revenue growth, but there isn't a lot we need externally. Absolutely. And, you know, one more on, I guess, product flow. It's been coming up more and more in conversations, but maybe if you just have some high-level thoughts on how you're thinking about some of the upcoming, you know, contract negotiations with some larger IDNs that are coming up over the next couple of years, and, you know, how much risk you might see associated with some of those contracts. I mean, I think there's risk, and then there's opportunity, and there's two different levels of contracts, right? There's the high-level GPO contracts that have to get renewed, and I think we and other manufacturers are probably in the throes of those discussions right now. But then you have to take those contracts and work with your customer, the IDNs, to get them implemented, and that's its own unique discussion, negotiation, whatever you wanna call it. And so one I would call sort of the high watermark, and the other one is what happens at the individual member level. I think we would see more opportunity in those than risks, to your question, that there's an opportunity to try to recoup some of the inflationary effects that we've had from the last couple of years. I don't, I certainly don't think we're gonna get them all back, but it is a unique moment to at least have that discussion and, and illustrate the value of what we do and the limited amount of people who do it. It'll become very clear over the next 12-18 months because it all has to get sorted out, both the ultimate price and the commitments that the individual customers will make. I do feel like all market participants have been challenged with inflation. But we sold these products under long-term fixed price contracts forever, right? Which used to make a lot of sense. Obviously, that math doesn't work anymore, and this is the opportunity for the industry to sort of get things a bit more sensible given what's going on. No, certainly. I think, yeah, everyone is hoping that everyone in the industry acts in, in a rational way. I think that would be incentivized by some of the margin pressures we've seen from different companies, you know, particularly on the solution side. Maybe just moving along a little bit, kind of just like a general question, like, are there any like, kind of like, major investments or changes to, to the legacy business that you were hoping to either put in place or invest in, that have been put on hold, given, like, some of the other challenges that have popped up, that might become, you know, more of a focus over the next couple of years and potentially drive some upside? I think from an R&D product standpoint, that was the point of the comment on the script and where you just asked on new products. We were trying to say we didn't skimp on some of the development activities on the R&D side. But there may be some areas that we would love to invest more commercially. Home care is an example where we have a nice position with the ambulatory pump portfolio. There's a couple other spots commercially in some of the international markets with some of the newer products we have that we'd wanna exploit, that we haven't made every single investment we want. So if we have the resources everywhere, we'll do it. We certainly haven't skimped from an R&D perspective. Got it. And then just one quick one on, on margins. Brian, you had a, you know, really helpful answer on the inventory question and impact on gross margins this year, and I think that kind of leaves you in the neighborhood, you know, 36%-37% as kind of a baseline. But understanding that there are some other headwinds that are weighing on, you know, recent margins, just think, like, wondering how you look at the right level of profitability for ICUI longer term, compared to what's, you know, implied in the 2024 guidance, or, or even looking at that, you know, some of the inventory headwinds. Yeah. And I think Vivek did lay it out on the Q4 earnings call, kind of where we're at today and what's implied in the 2024 guidance in terms of profitability, as measured by EBITDA margin versus where we should be, and also where we've been historically prior to this Smiths acquisition. And I think if you just sort of boil it all down, that gap is probably around five percentage points, and we feel like that's the opportunity over time to close that gap. And so we talked about the $50 million of additional synergies. If you do the math, that's roughly half of that 5 percentage point gap, and the rest is gonna come from a combination of price and additional volume from revenue growth, and a few other areas. But that's kinda how we're looking at sort of where we should be long term versus where we stand today. All right, appreciate that. And wanted to ask also a couple on some of the free cash flow topics, as well as capital allocation, been a little bit more of a discussion point. So maybe first, if you could just start off by talking through some of the moving pieces impacting your expectations for free cash flow this year. And understanding, like, there might be a little bit of a wide range of outcomes, just starting with the EBITDA guidance. But just thinking about, you know, differences between this year and last year, you know, how you look at 2024, like, as a... like, what's a reasonable baseline compared to last year? Yeah. I mean, if you kinda start with where we ended up in 2023, just to put it in context, free cash flow for 2023 was a little over $80 million. And there's always puts and takes when it comes to cash flow, but most of that benefit really came from the one-time implementation of the accounts receivable sale program that we did in the first quarter. And so absent that, free cash flow was kind of just break even for 2023. And what we guided to for 2024 is we said we would expect to do the same level of free cash flow in 2024 that we did in 2023, but without the one-time benefit from the AR program, and have that actually just come from operations exclusively. And so as we think about sort of relative to that, level of free cash flow that we've guided to, what are some of the risks and opportunities? I think there's really two areas that are gonna determine where we end up. One is, how successful are we in being able to get after the remaining $40 million of inventory? That's number one. And number two is, how quickly do we want to complete some of the work around the product quality remediation, as well as the integration? Because the sooner that we complete that work, the sooner we would realize the synergies, and so there's some trade-offs that we can make there. And depending on how much we choose to invest in those areas in 2024, is really gonna, I think, be the key variables in terms of where we end up in terms of free cash flow. Yeah, and then as you think about, you know, free cash flow and some of the leverage considerations, you know, one topic that's come up a couple of times is the idea of some portfolio rationalization as an avenue to shore up the balance sheet and potentially take down, you know, interest expense at a little bit of a faster rate. Do you still think that... Nothing's happened yet, but do you still think that there could be some opportunities, you know, to explore this avenue? Is that something that you're still actively looking at? I think, you know, the word shore up the balance sheet, obviously we would love less. We were accustomed to a very different leverage profile historically pre-transaction. I think we would say with our cash generation that we showed in Q4, and what we think we're capable of doing, it may be, you know, a higher leverage ratio than certainly we expected to be at, but if we believe it's manageable, then we should maximize value of the assets. And if we thought there was an opportunity to maximize that value better, even if it took a little bit of relief or a little bit of pressure off, we still wouldn't wanna give away value. And it hasn't felt like it's the market where those things have been available on the right terms, and so if that day comes, we'll cross that bridge. But it's not something we sit here today and say we absolutely, positively have to do, but, but frankly, we would do if the right situation arose. We just haven't been there yet. Totally understandable. One more quick question. We had some news post earnings around Smiths selling approximately a third of their remaining position or their full position in ICU, and, you know, I really- I'm looking at this as a positive. I think it's something that we knew was gonna happen eventually, and to see that happen, you know, it relatively harmlessly was good. And just wondering if you have, like, any visibility to when the rest of that might take place, or if it's just kind of like an open item. I think it's an open item. Frankly, we were obviously surprised, they showed the hand, and that they're not a long-term owner. I think we always knew that. I think we were a little surprised by the timing, 'cause we expected in the context of a very specific use of proceeds, but it's their prerogative, and we've tried to arrange direct contact for them with organized buyers on the other end, and they decide what they wanna do, and we'll probably leave it at that. Absolutely. But regardless, you know, we're now a third of the way, no, you know, no major harm, so the sooner, probably the better. And, you know, just to wrap it up, where we have about a minute left, you know, touched on a lot of different topics today, but wanted to just give you the rest of the time, if there's any, you know, remaining things you wanted to leave investors with, or if there's any opportunities that you're particularly excited about, in the coming years that we haven't touched on yet. I mean, I think your questions narrated a lot of the main issues. You know, the theme of our Q4 call was relative to where we stand today, which is obviously a different place. We thought the risk/reward was attractive, and we tried to be very transparent on our view that we're under-earning. There were days in our history where we over-earned. We tried to say that too. There's days today where we think we're under-earning, and we have the opportunity to correct that, and that we have multiple shots on goal, both in terms of... To create value, both in terms of correcting that, some of the unique things going on in the, in the market dynamics and the questions you asked of the individual business segments, hardware, as well as some of the portfolio-type questions. So we didn't commit to a timeframe of achieving the right level of profitability that we want on the Q4 call, but all oars are in the water to enable it to happen as fast as possible, and there's a lot of corporate activity going on right now. And so I don't know if there's something, you know, to your question that is underappreciated or unsaid, but that's really the opportunity in front of us. No, sure, and it's, it's just a matter of timing, and I think that's a great message to leave it off with. Thank you so much, Brian and Vivek, for participating, and everyone in the audience for listening in. Thank you. Once again, thanks for including us. We appreciate the interest in ICU Medical. Thanks, Brett.