Good morning. Thanks for joining us at the 25th Annual Needham Healthcare Conference. I'm Mike Matson, and I lead the MedTech & Diagnostics Equity Research team at Needham & Company. I'm pleased to introduce ICU Medical. We have CEO Vivek Jain and CFO Brian Bonnell. Instead of a standard presentation, we are going to do a Q&A or fireside session. If you have questions you'd like to ask, you can submit them electronically through the Needham conference website, or you can email them to me at mmatson@needhamco.com, and I'll do my best to fit them in. I want to start with a question on kind of the bigger picture here, before we get to individual businesses and some of the macro headwinds or challenges. Can you maybe just remind us how the company's developed over time and what you think makes ICU a compelling opportunity for investors? Yeah. Sure. Good morning, Mike. Thanks to you and Needham for the support for us and having us at the 25th Annual Conference here. I think the journey of ICU has been obviously an interesting one. Eight years ago, we were essentially an OEM parts supplier to a company called Hospira. Today, after the various acquisitions of Pursuit Vascular and Hospira and Smiths and some of the divestiture stuff, joint venture stuff, we are really the world's only pure-play infusion company. The question as to what makes us a compelling investment is, I think we are a company that has new technology in a highly consolidated market that plays in every corner of the world. A couple of years ago, maybe 18 months ago, we started saying, at a higher valuation than we are today, we started saying the risk-reward felt tilted to the advantage of the investor. Since then, we've demonstrated pretty good earnings growth in our core businesses. We put our lowest ROIC, most capital-intensive business of IV Solutions in a joint venture that kind of disassembled it from our P&L. We're very close to the cash we expected in our most recent transaction to start showing up on a quarterly basis as our cleanup money, whether that's restructuring, integration, or quality remediation, comes to an end. Ultimately, what we meant when we said we thought the situation was tilted in the interest of the investor was that our growth rate and our earnings castle were not in line with our multiple, to sound like old guys. Obviously, that was before tariffs and before fuel, and each year has had its own thing, but in the belief that logic will prevail on those topics, right? We think the positioning of the company, the newness of the product portfolio, and the size of the market in its consolidated nature is a good place for us to be. Yeah. Okay, that's great. I want to dig into some of the different categories within the business here. Moving into the Consumables area, so can you maybe just explain this business from a high level and what drives growth in that business? Sure. In our $1 billion-ish Consumable segment, which is a left bar in our investor slide, that's our original, that's our core business. That's the business of making largely pipes that delivered medications around an infusion pump. They're not dedicated razor blades. They're an open system. There's four components of that business, the legacy ICU infusion therapy business, the specialty Oncology business, the Vascular Access business, which is really the last mile into the patient of catheters, et cetera, that came from Smiths, and then a smaller tracheostomy business, which isn't necessarily an infusion business, but is a business that has a lot of characteristics very similar to the infusion business in terms of customization and clinical preference, et cetera. Each of those businesses has their own unique growth drivers. The legacy ICU portion, which is 75%-80% of it, infusion therapy and oncology, has been growing at 5%, 6%, 7% a year for half a decade here and has been very reliable. Really, the drivers of that growth has been, until this year, was getting a little bit of price back on the inflation pain that we took in 2022 and 2023. It's been creating these niche markets, things like dialysis that are in the infusion therapy bucket or things like our oncology that are their own segment. It's been winning when we win pumps. We mostly drag the Consumables, not always, but more often than not. International growth benefits when there were some national shortages. There's been four or five very consistent reasons for growth and ultimately price over the next couple of years, not this year, but next year, starts to come back into the mix in the way the GPO contracts were structured. It's a confluence of clinical hand-to-hand combat, economic power in multi-category deals, and trying to do the right thing to get our value back in line. Okay, great. Just pricing, so you mentioned that. Maybe talk about what you're seeing there. You mentioned 2027 potentially being a bigger factor. Why is it kicking in in 2027, and is that related to the contracting cycles? It is. It's related to the most recent set of contracts we had with the largest GPO groups. The beauty of our business pre-2022, right, not just us, I would argue a lot of device companies, is we sold under long-term contracts with very little price erosion. That was the beauty of industry, but that was in a pre-inflationary environment. It's taken the industry, ourselves included, a long time to try to recoup the inflation that we took in 2022 and 2023. We did have a new set of contracts kick in in early 2025. At that moment, we were trying to recoup as much of that inflation in one period as we could, and then we took a year off from a contractual perspective, which is this year. The numbers aren't huge, but they at least start to kick in again next year, where the contracts were structured so that there is some annual escalators in them. Again, I don't think they necessarily tie with what the real-world inflation is again at the moment, but it's still additive to all the other things we have going on. Okay. The escalators are sort of preset numbers or percentages. Yeah. It's not tied to CPI or PPI or something like that. Exactly. I think we tried. It's a very complicated equation for customers to get their head around. Just getting fixed improvements was still the best place we could be in early 2025. Sure. Are there any newer products and C onsumables that you'd like to highlight or talk about? Again, I think we said on the earnings calls that the niches we create around the billion-dollar business drive a disproportionate amount of growth. Those, I think, could be listed to date and historically as really oncology, dialysis with the ClearGuard product, some of the custom IV sets that we make. Going forward, it's, are there other areas at the intersection of vascular access and infusion therapy in subcutaneous delivery or other spots where we should be innovating in to not only keep the reliable growth we've had, but try to supplement it with more new products? We've been hinting at that on the earnings calls, and ultimately, you'll see us talk about more approvals there over time. Okay, got it. You mentioned oncology, and I know that's historically been a strength for ICU Medical. Can you maybe talk about that part of the business and what sort of sets your products apart there? I think it goes hand in hand with the strength we have in overall infusion therapy and the pump business. If I was to just explain oncology in very basic language, it's expensive plumbing. It's parts and pieces that handle more expensive drugs. If a drug is hazardous, you don't want it exposed to any participant, whether it's the person who prepares it, the person who delivers it, the patient themselves. Oncology is essentially handling systems for those expensive drugs or dangerous drugs. I think we benefit from not only the design of those parts, but the way that they integrate with the overall delivery of medications in a hospital. If you're using our pump system, they fit exactly on the pump set. If you're using it in the pharmacy, it's the same parts and pieces that is used on the nursing floor, et cetera. It's really the ability to make the workflow and the standardization easier in all the various handoffs between a medication hitting the dock to the time it makes its way to the patient. Okay. Just finally, in the Consumables area, how much inventory do the hospitals typically maintain? Do you ever see kind of any destocking or stocking cycles in this business? As a company, if you look at our track record over the last 10 years, I don't think in a single earnings call, we've said the word destocking. We always kind of chuckled when people have a great sales quarter and the next quarter say, "Oh, I did it because it was destocking," right? That's just business. For us, it's very hard to actually know what the hospital is holding. I think it's a little bit easier on what wholesalers hold. Most of our stuff goes via the large med-surg distributors, and they hold a normal amount, 30 days or 45 days. When there are national shortages, like there was in IV Solutions, everybody hoards all the way up and down the chain, and it takes time. It really does take time for that to sort itself out. We experienced that in IV Solutions. We haven't experienced that in Consumables, which is much more kind of fast-moving. Yeah. Okay. All right. Moving on to the Systems part of the business, I was wondering if you could start by giving us an update on the LVP category and kind of the competitive landscape there, where you see ICU Medical fitting. Sure. The large volume parenteral pump category is the most valuable part of infusion therapy, of the Infusion Systems business. After the Smiths transaction, we now play in all the different pump modalities, the LVP pump, the ambulatory pump, which is also very valuable, and the syringe pump. Having the full portfolio is something we desire really to put our LVP business in the best light, given the opportunities we thought were in front of us. For us, there's really two ways to create value in the LVP business. The first goes directly to your question, to take competitive market share. There's obviously been a lot of moving parts in the market with all suppliers. It's a very fragile market. We live in a glass house too, so we're sensitive about making comments about anybody's individual outlook. I think the simplest way we would characterize it is a large portion of the market has older devices, and given the refresh that's had to happen with the market share leader, who will by far and away hold the vast majority of their market share, our business is so small that the remaining older devices that are competitive, some portion of them are attractive to us and will come to us, and that's been driving our Infusion Systems business over the last couple of years. Our numbers are very clear what we've put up. The second way you create value in the pump is through refreshing your own installed base. Our devices were all relatively new in the market, starting in 2016 and 2017, and they're finally getting old. The opportunity to provide new technology to those customers that has more value, that carries a higher price point and better margins for us, can make a big difference on our company. We're just in the very early stages of starting those discussions with our customers, which will go on for two or three or four years. Okay, got it. To what degree are you seeing opportunities from the current regulatory situation with the competitors' ship hold that they've got? Yeah, again, I think I'd go back to just the age of the devices. Regardless of how a customer got here, if a device is 10 or 12 years old, there's a finite life to these things. It needs to be replaced. Obviously we encourage customers, if they're putting capital to work and investing in new technologies, to have the most modern architecture, the most modern products they can, that are built to last. As boards change and chips change and cybersecurity changes over the next 10 or 12 or 15 years, we think our devices are at the forefront of that. For folks who do have old equipment and need refresh, we think we have a very compelling value proposition. Obviously, if a customer is only economically considering things, maybe they don't care about that. There's enough out there that actually have a long-term view on technology that, regardless of the competitor's issues, just the age of the device, that we're in that conversation. Okay. You've got on the LVP side, your newer products are Plum Duo and Plum Solo. I think Solo is the newer addition there. Can you maybe talk about where they fit into the product lineup, particularly with regard to Solo? Yeah, sure. The strategy around Duo and Solo, the criticism of the legacy Hospira infusion devices, which if you went back 25 years, were the market share leading devices. I think the perception was the devices were always clinically very robust due to the fact that they were an actual volumetric pump and therefore they were the most accurate and the most precise. The criticism as time emerged was that they were clunky and they couldn't multiplex deliver multiple drugs and sort of didn't have a form factor that was particularly appealing to the customer. Our newer devices, in particular Plum Duo, was designed exactly to alleviate those issues. The curb appeal is amazing. The architecture is as modern as you can get, and it's multiplexed where you can deliver multiple medications on a single device. It takes up less real estate next to the bed. The Solo was really designed as a substitute for our own Plum 360, where a customer is running a single tubing. You can still deliver two drugs, but a single tubing set device. We wanted to address all parts of the market by having both Duo and Solo. What we're seeing with customers is many places quickly are becoming mixed houses, where they'll have a high complexity device in the operating room or in the critical care environment. Regular med-surg will have a single channel Solo device. We thought by having both types of devices that have the same user interface, same way, same exact screen, same exact software, same exact tubing sets, et cetera, it gives the customer the most choice. Not to be over-pumped necessarily to buy more than they need, right? We have the right tool for the right job. Yeah. Got it. I know you're close to getting the new syringe and ambulatory pumps cleared through the FDA. Can you just give us an update there and what that sort of means for the business once you are able to launch the new versions of those products? I think as we've said on the earnings call, right, the bar has gone up at the regulatory. First of all, even with all the noise out there, the regulatory folks at the agency have been very responsive. Everything is happening on the timelines and discussions it should. The bar has gone up in terms of testing, and as we've said, we have to continue to do some more testing to get where we want, really more on the interaction between the disposables and device. I think we're in a pretty good place on the hardware, on the software, et cetera, around the devices. I don't want to give a precise timeline, but we have real experience getting these devices through. We know exactly what needs to be done, and we're continuing to try to move those forward. I don't think it necessarily, whether it happens next month or two months or six months, I don't think it makes a difference on the LVPs, because any customer who wants to move their LVPs, who's serious, buys into a 10-year technology roadmap from us. They're fully up to speed, and you're not stepping into our LVPs without a belief that those devices are eventually going to be available to you and eventually be integrated. It's not holding us back in any way. The decision is largely made, almost unilaterally made around the LVP, and the other things get pulled alongside of it, but you have to have them because it will make a vision to make it easier over time once they're integrated. Yeah. Okay. It's not really holding customers back because they know it's coming. As long as it's near-term, then they're kind of okay with that. Yeah. Again, if a customer needs a syringe pump or a ambulatory pump, those pumps are available for them in the market today from us, right? Yeah. They aren't today the most modern ones. Of course, we have an economic value prop to the customer that they can upgrade it and the like over time. Sure. I think an important part of the new platform is the LifeShield software. Can you maybe provide an overview of it and how it kind of compares to what your competitors are offering? Yeah, I think to make it simple, any customer that was running, roughly 40% of the market, any customer that was using sort of the second market share player, the third market share player in pumps had to run two separate drug libraries and software systems because they didn't have an all-in-one system. I think for us, the first most important feature of LifeShield is that all the modalities will be connected on a single software solution. What that means is you can control your drug management of a syringe pump, an ambulatory pump, or an LVP pump with one software package. That was a huge headache for customers, and the ability to unite those was the best feature of LifeShield. The second is the deployment of LifeShield. You don't need physical on-prem infrastructure. It's in the cloud. It's very scalable. It's easy-to-use training. Third is it does contain a bunch of specialty applications on analytics, et cetera, workflows that we hope to profitize over time. The business of LVPs has largely been this razor and razor blade business. You sell a piece of hardware, and you get the blades via dedicated sets. Like all businesses, we have to migrate that into software and more annuity things over time and get away from just the plastic or the reliance on the razor blades, if that makes sense. Is what you're getting at, kind of there's an opportunity to charge for upgraded capabilities or a subscription or something like that for some of the software? Today, customers in infusion from all the vendors already have a subscription, right? They already pay. I think the question is does the software package itself carry enough value that you can reprice that as you roll over your customers into better technology? That is upcoming. The jury is still out on that. I would say the customers we won from a competitive standpoint have accepted software at a higher value than we had charged historically. We need to figure out can we carry that forward into our rollover base. Okay. Is there any opportunity to tie in AI to the software? I think we're exploring what that means. I think it's still a ways out for us, and obviously, the regulators are going to have a point of view on that. Yeah, for sure. They're also trying to come up to speed. It would be fun to throw all those words into the conversation. I'm not sure we can tell you exactly what they are yet. Yeah. Finally, just on the pump interoperability and the software adoption, where do you think the market is today in terms of the penetration, and where do you think it ends up in the next five to 10 years? The interoperability is essentially the land grab that all vendors, not just in infusion, in all modalities want, right? It's the ability to be deeply connected into the workflow in the clinical environment. In the infusion example, it's the ability not just to populate a patient record with data, but it's really to direct the orders, to have pre-programmability, to add safety checks, to make sure billing is in the right place at the right time. Once you're interoperable, it's difficult to sort of become un-interoperable. It's a lot of work for people to move you out. That's why all vendors want to be that. I don't know that we have a perfect number, but I would say it's a safe assumption, maybe 20% of the market in the U.S. is really interoperable today. There's a lot left to go. If you just step back from a global picture, the U.S. is probably the most interoperable of every place in the world. It's going to happen, and we need to make sure we have a package that makes it easy for folks, and quick, to get interoperable. Okay. You see that kind of inevitably going toward the majority of the market over time? Yeah. It may take 10 more years, but yes. Okay. Moving on, just a few on Vital Care and the IV Solutions joint venture. It's been almost a year since you started or set up the joint venture. Can maybe you give us a quick update on that? I think the joint venture was something we were really honored to have Otsuka as our partner, and we are very proud of. It's been 10 months or something since it's been up and running, and our partner is deeply committed, and as committed as we expect them to be, as committed as we are. I think ultimately they're going to put their money where their mouth is, and it's something we could not have afforded on our own, right? It was a difficult return on capital equation for us because we didn't have other technologies or products to add to the mix. I believe our partner has those products and technologies and deeply commits bringing them to the United States market, and therefore is willing to make those investments. I think we couldn't be happier with the operational footprint and the commitments and certainty we can offer customers, both in terms of global redundancy and ultimately long-term technologies that will shift here. Okay. I think we feel really good about the JV. The Vital Care business, it has been a bit slower growth than the rest of the company. Why is it growing slower, and is there anything you can do to change that? Is it competition? Is it just poor pricing trends or something else? There's four or five different businesses in there, and it's too much detail to have the story on each one. I would say each of those product categories is probably more fragmented than the core big businesses, and so the nature of the underlying markets means they're a bit more competitive. That's not for all of it, but for some of it. There are things that were just sort of wilting away in there, so to speak, and one thing we can do to make it more reliable is to just finish the wilting away. We said that on the year-end call, right? We said in Q1, there are things we are exiting, things we are just stopping because they're value destructive. We weren't at a place, as long as they were positive cash flow historically, right? From a leverage perspective, we couldn't give away $1 of positive cash flow. Things are obviously different here now, and we can take a little bit more risk on adjustments. As things reached a natural contract cycle revolution, we could shut them down or walk away from them. That's the first thing we can do in Vital Care. The second is there are juicy pieces of Vital Care, to make sure those parts are growing. The third is to figure out, okay, where do you put the rest? I think the ability to do something else, which is a question I think you had asked on one of the earnings calls, first, we had to make sure our warning letter was removed. That covered some of those products. That just happened in February. The cleanup activities, and then we can kind of explore. We've been spending more time on it, and what should happen with the rest of the portfolio. Sure. As long as you're owning it sounds like, at least in the near term, there's sort of a headwind as you're exiting certain categories. While it's a headwind to growth, it's probably accretive to your margins. Exactly. I think we would not make a negative cash decision, right? For us, it's been about maximizing value of each of those pieces, even if it means you take a little bit of pain on revenue growth, because the belief is we will sort it out, right? We got through much harder things. Okay. All right. I have to move on to sort of the elephant in the room here with sort of what's happening in the rest of the world with the macro issues. I think you probably have a little more exposure to oil prices than some of the other companies I cover. Can you maybe just talk about that, with oil being at $100+ versus where it was a few months ago? Where do you see this impacting the business the most? Is it more on kind of the resins and raw material side, or is it on the freight side, or is it both? Yeah. As it relates to the impact of oil prices, I think the area that we do see it most directly is in our freight expense, which includes shipping products within the network, within our different locations, as well as sort of that final leg to the end customer. Really, this expense is reflected in the diesel prices that we pay, that are really passed along from our freight carriers to us. If you try to correlate the impact of oil prices as far to our P&L, I think we would say, a $10 increase in the price of a barrel of oil is probably a $2 million annualized P&L expense for our core business. The impact is probably similar to the joint venture, which we still own 40% of. In addition to the freight expense, there is probably a secondary impact on the price of resins that we use in our manufacturing process. While over the long term, there is some degree of correlation between oil prices and resins, I think that the degree of correlation really isn't as obvious as, let's say, diesel. I think there's probably much more of a lag time there. If you go back and just read the scripts from 2022 and 2023 when fuel went through the roof, we never really talked about raw material cost changes, right? Fuel is the biggest price. Yeah. Okay. I just want to clarify one thing you said there. You said $10 of oil price going up is $2 million to the P&L. You said it's similar for the joint venture. Does that mean every $10 equals another $2 million just from the joint venture? Am I understanding that correctly? Yeah, that's right. I think if you recall, we've deconsolidated the joint venture. Yeah. With P&L, so that it only really shows up in a single line item down below, I was just trying to kind of bifurcate the impact across the different P&L captions. Again, the impact of the joint venture isn't in our gross margins, and we only own 40% of that. Yeah. It'd be 40% of the $2 million would be what? Yes. The impact to your P&L? Exactly. Okay. Got it. All right. Just on the tariff topic, there's been some headlines there around the Supreme Court ruling. I know Trump has put new tariffs into effect. Is there any difference, positive or negative, with the new tariff regime versus the old one, or is it largely a wash? Is there potential for you to get any of the prior tariffs back that you paid previously? As it relates to refunds, yeah, we expect, like all companies, to go through the refund process, which will take a little bit of time to have that sorted out. Yeah, we expect a refund for the entire amount of the IEEPA tariffs that we've paid to date, which is roughly $30 million. We should recoup that over the course of the next several months as that process is solidified. As it relates to kind of the current situation with tariffs, yes, the Section 122 tariffs were put in place after the Supreme Court ruling to replace IEEPA. Relative to the IEEPA rates, the 122 tariffs are probably a slight benefit to us. That's probably been more than offset by some of the currency volatility that we saw after the Supreme Court ruling. We, like all other companies, are sort of now just in this state of limbo, where we're kind of waiting to see really what is the permanent tariff structure that gets put in place after the 122 tariffs expire here during the summer. Okay. All right. Just a few financial questions. Smiths Medical, is the integration largely completed at this point? Is there anything left to be done? Any kind of synergies, have they been fully baked in? I would say generally speaking, the integration is operationally reaching conclusion. The last step was closing these plants that we've done here in the first quarter. We haven't, though, got all the economic benefits of that yet. Some will start to flow through towards the end of this year and will annualize into next year because there's a lag time from when you close the plant to when you get the benefit. We did cut over our European and order-to-cash system, so we had a full ERP conversion for Europe, Middle East in the first quarter. We have a small bit left to do in Asia. That's really the last remaining. The commercial stuff happened right away. The regulatory stuff has obviously made progress in it. There's not a lot more to do. I would say that the last chapter of the story is getting the approvals on the legacy Smiths pumps, the ones that are in process right now, and capturing the full benefit of the logistics and operations consolidations and IT consolidations. That's really what's left. Okay. Just in terms of gross margin, for 2026, I think you've guided to around 41%. That's obviously the oil and everything, but oil price is going up. I know that that's near your prior EBITDA target if you adjust for some of the things that happened that you hadn't originally contemplated, like the JV and the tariffs. Looking beyond this year, what can you do to drive both gross and EBITDA margins higher? Yeah, I think on the gross margin line, we did say 41% would be the average for this year. We expect to exit the year a little bit higher than that. I would say the first thing that we have kind of in future years that will benefit us is just the annualization of some of those synergies that we're getting this year. Beyond that, we should benefit from higher volumes from our two core segments growing at the mid-single-digit range. That certainly adds volumes to our factories and will help with absorption. Second is some of the price increases that Vivek mentioned earlier that we'll see again beginning in 2027. I think as long as the inflation environment is stable, those price increases should be beneficial to us. I think there's kind of the unknown items, some of the macro items that we've been talking about, whether it's tariffs or currency, that could be probably either a positive or negative to the gross margin. I think as it relates to EBITDA margins, I think, again, depending on the inflationary environment, we do have an opportunity to get a little bit of leverage on the SG&A line. I think historically we've kept SG&A growth at less than what our revenue growth is. I think that's another opportunity to expand EBITDA margins in addition to the gross margin rate improvement that we've been talking about for so long. Okay. Just in terms of the balance sheet, your leverage ratio's come down. I think it's around or maybe under 2.5x. Are you comfortable kind of staying at that level? Second part of the question would just be around capital allocation. What's the outlook there? It sounds like you believe your stock's pretty undervalued. Could we see you coming in and starting to do share repurchases or anything like that? Yeah. Where we are today at roughly 2.5x leverage is certainly much more comfortable than when we were in the mid-to-high 3s. I think we've been saying for a long time now that the goal is to get down to 2x net leverage. That's where we think we feel most comfortable, and we have a very clear path to being able to get down to that level organically, probably by the end of this year. That could actually be accelerated if there was a transaction for maybe one of the Vital Care product lines. Regardless, once we do get down there, yeah, the priority around capital allocation then turns to share repurchases, and we think timeline for that is beginning of next year. Just to leave nothing unsaid there, Mike. We think we have enough organic R&D and technology development in-house. We don't need to allocate capital to external things. We put people through a lot. It's not lost on us. Cash flow should improve as our structuring cost comes down, and we would like to be a reliable mid-single-digit grower on the core parts of a portfolio. Return capital, we think, on a small share count, it's the exact words we say in the call script, can drive a lot of value. It's the right thing to do. There's no ambiguity around that. Okay. All right. I think we're almost out of time, so we're going to have to wrap up there. Thanks for coming to our conference, and hope you have some good meetings today. Great. Thanks for the interest in ICU Medical, for those on the phone. We look forward to the one-on-ones. Again, Mike, thanks for having us and participating in this great conference. Thank you, Mike.