ICU Medical at 24th Annual Needham: Strategic Moves Amid Tariff Challenges

On Monday, 07 April 2025, ICU Medical (NASDAQ: ICUI) presented at the 24th Annual Needham Virtual Healthcare Conference, outlining its strategic initiatives amidst both opportunities and challenges. The company discussed its response to tariffs, updates on its consumables and systems businesses, and the progress of its Smiths Medical integration. While expressing optimism about future growth, ICU Medical acknowledged external pressures such as tariffs and supply chain challenges.

Key Takeaways

• ICU Medical is targeting a 40% gross margin organically, with additional improvements expected post-IV Solutions joint venture.
• The company is navigating tariff impacts on Mexican and Costa Rican imports, with mitigation strategies in place.
• The consumables business, particularly oncology, continues to be a strong performer for ICU Medical.
• The IV Solutions joint venture with Apsuka is anticipated to close in Q2, enhancing manufacturing capabilities.
• Operational expenses are expected to increase slightly due to investments in R&D and commercial resources.

Financial Results

• Gross Margin:

- Aiming for a 40% gross margin organically, with expectations to exit this year around 38%.

- The IV Solutions joint venture is projected to add 3-4 percentage points to the gross margin.

- Targeting 20% EBITDA margins.

• Operating Expenses:

- Anticipated to rise by 3% relative to 2024, driven by R&D and commercial investments.

• IV Solutions JV:

- Apsuka is acquiring 60% for approximately $200 million, expected to enhance ICU Medical's capabilities.

Operational Updates

• Tariffs:

- 25% tariff on Mexican imports mitigated to $20 million or less under USMCA.

- 10% tariff on Costa Rican imports under analysis, with sourcing strategies being evaluated.

• Consumables Business:

- Strong growth in infusion therapy and oncology, driven by regulatory demands and customer contracts.

• Smiths Medical Integration:

- Synergies noted in the vascular access and OEM consumables sectors.

• Systems Business:

- Launch of PlumSolo LVP following 510k clearance, with a limited market release planned.

- MedFusion syringe pump and ambulatory pump developments are underway.

Future Outlook

• LVP Market:

- Anticipating accelerated replacement cycles due to competitors' device refreshes.

- PlumSolo and Duo pumps position ICU Medical favorably in competitive scenarios.

• Vital Care Business:

- Projected flat growth this year, with ongoing strategic evaluations.

• Gross Margin Improvement:

- Focus on achieving 40% gross margins through synergies, pricing strategies, and enhanced manufacturing absorption.

Q&A Highlights

• Tariffs:

- Ongoing efforts to quantify and mitigate the impact of Costa Rican import tariffs.

• Consumables Pricing:

- Plans to adjust prices to counter past inflation, awaiting new contract implementations.

• Pump Interoperability:

- Less than 20% market implementation due to various challenges.

In conclusion, ICU Medical's presentation at the conference highlighted its strategic focus on growth and innovation, while managing external challenges. For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - 24th Annual Needham Virtual Healthcare Conference:

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Good morning. Thanks for joining us again at the twenty fourth Annual Needham Healthcare Conference. I'm Mike Matson, and I lead the med tech and diagnostics equity research team at Needham and Company. I'm pleased to introduce ICU Medical. With us today, we have CEO Vivek Jane and CFO, Brian Vanell.

So instead of instead of a standard presentation, we're gonna do a q and a session or fireside chat. If you do have questions you'd like to ask, you can submit them electronically through the meeting conference website, and I'll try to fit them in. Or you can also email them to me at mbatson@Needhamco.com. So with that, we'll just go straight into the questions. And know, I'm gonna start with a topic that I think everyone's focused on right now, which is the the tariff situation.

I know there's a lot of uncertainty here, but I just wanna get your take on kind of where things stand. So I guess just let's start with the kind of prior tariffs, which was, you know, Mexico and Canada. So I think you the ICU Medical does have a few plants in Mexico. Can you maybe talk about what products are made in these facilities? And I believe you said previously that the the plants there account for about one third of your sales.

So does that also mean sort of one third of your cost of goods as well?

Vivek Jane, CEO, ICU Medical: Morning, Mike. Thank you for including us. Thanks, Anita, for having us. I'm glad we could do it this year. We had a a little bit of a scheduling conflict last year after you picked us up, so it's great to be here.

Obviously, we love talking about tariffs, and we've spent the last number of months talking about them. And and by all measures, things broke in in the circumstance as well as they could have for us. The largest area of production we have with multiple sites is in Mexico. We have three different locations. One of those is a legacy ICU site that accounts for the majority of our infusion consumables and oncology business.

The other two sites came with the Smiths acquisition in Tijuana and Monterrey, and they impact almost every single Smith's product category. So we are all in on Mexico, so to speak, and we were very happy that the USMCA was carried forward in our and we were frankly tired of talking about this topic in early March. We stuck a slide towards the end of our investor presentation, which has been updated for recent events, that tried to articulate the financial exposure based on the value of production out of those Mexican sites. And that slide said if it was 25% across all Mexican imports, that would be really bad. In the USMCA framework, we said the exposure was 20,000,000 or less and outlined a number of mitigation activities, try to work that number down.

Those mitigation activities really are in three areas. It's one, dealing with products that are headed internationally with the right chain of custody to make sure they don't actually touch The US, so to speak. Two, analyzing, can those products become compliant? What are the reasons they're not compliant That's a long pole item.

And the third is sort of making sure we're claiming the value made in The US under $98.00 2, etcetera, properly. So there are multiple mitigations there. I don't wanna leave you with the impression that 20 goes to zero or something. There will be an impact, and it will take time to work it down, but but there's teams working on the three remediations around that that portion right now.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And it and it's at this point, it's a % certain that the USMCA compliant manufacturing will not be tariffed from Mexico.

Vivek Jane, CEO, ICU Medical: I I I I I'm not saying a %. It is the law of the land as of what that 08:06AM Pacific this morning.

Brian Vanell, CFO, ICU Medical: I I would characterize it as being indefinite it's it's indefinite for now. Fair enough. The end of the tariff.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Alright. And then just given the more recent news from last week about the tariffs on basically anything being imported to The US, you know, does that provide any incremental exposure? I guess what I'm wondering is, you know, supply chain wise, are you, you know, sourcing any components or raw materials from outside The US that would see tariffs? I guess if it's going into Mexico, then maybe it wouldn't until you bring it into The US, but then it's m USMCA compliant. So Well,

Vivek Jane, CEO, ICU Medical: I think that's I mean, that issue, right, the routing is certainly what part of this whole discussion is about. But more specifically, that slide towards the end of our investor deck outlines the three new knock on effects that happened from last week's decision. The biggest one, they are negative repercussions to us, though, again, we have to mitigate them. The most dramatic one, which is equal to all of our peers and in some ways better given our geographies, was the 10% flat across the board. And that 10% applies to Costa Rica.

If you read our 10 k's or q's, you would see that Costa Rica has been a long time manufacturing site for us that came with our acquisition of Hospira in 2017, where the majority of our LVP pump products are made. We are doing the same analysis to quantify that so we can provide a precise number like we did on Mexico. Our segment revenues were pre the last transaction publicly disclosed there. So that gives some estimate, but what's not clear is how much of that business is international versus domestic. A large portion of the LVP business is obviously international.

The Costa Rican currency corrected somewhat. Markets actually were efficient there. But Costa Rica's Ten Percent is an issue. We need to start working on that topic. Second issue is the tariff on other inbound raw materials and presume that this kind of pass through stuff gets sorted out eventually.

Like, it it that's what I think the government is after at some level to really analyze, are we buying those in the right geographies, and are we buying them with the right price protection, etcetera? Because the knock on impact is not only just short term tariffs on those items, but even if we're buying them in the right geographies via The US, are we gonna face price increases? So we're starting to think about that. Right? That is the inflationary effect of all of this stuff.

Right? The manufacturer who's providing us raw material is not gonna wanna eat that. So we have to think about protecting ourselves on that front. And then the third is kind of the unquantifiable, which is what our retali I don't know the right word is retaliatory or reciprocal or whatever. What if other countries start adding to what we send outbound?

Now, again, most of it's coming from Mexico. There's very little we send out other than because of logistics that are really made in The US and sent directly to other drivers, so we'd have to work on that issue too. And so that slide outlines those three impacts. What it doesn't have is a number against it yet, and that's that's what I imagine we and every other company in the world are scrambling to put on paper. But we at least got the Mexican numbers on paper.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. No. That was all really helpful. So I wanna move on and focus on the rest, you know, the the actual business as opposed to the the tariff headlines. So, you know, starting with the consumables business.

So I think that, you you know, within that business, the infusion therapy products are, you know, mainly driven through contracts with your customers that have pump your pumps. But, you know, aside from just, you know, selling more pumps and winning share there, are there ways that you can, you know, drive increased, you know, infusion therapy product growth without, you know, just placing more pumps out there?

Vivek Jane, CEO, ICU Medical: Yeah. I mean, just just to be nitpicky about it, the minority of what I would call our legacy infusion therapy business, which is in IV therapy and oncology, which is about 700,000,000 of that billion dollar consumables business, 700,000,000 plus, a a minority of that is correlated to pump purchases. That is our original business. It's open where we compete based on clinical price, service, customization, etcetera. There that business has been growing very successfully even without being correlated to pumps.

Being correlated with pumps helps it, but it's been doing great on its own for its own unique drivers. It's compounded, I don't know, five or 6% a year, right, for six years in a row. I think our guidance was mid single digits there. We continue to feel like those underlying drivers independent of pumps are still pretty strong. And so it's it's about finding the niche markets.

It's about calling on the demonstrating the value of the product with clinical evidence and delivering them to a way the customer that makes it easy to use workflow standardization training, etcetera. So I think independent of pumps, we feel very good about our consumables. And then pumps is a secondary conversation, which can help make it better.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. And then, you know, the other part of the business, you know, oncology, I think has been a particular strength for ICU Medical. So can you just provide an overview of oncology and, you know, why the products are kind of different from the, you know, conventional infusion products and, you know, why you've been able to to do so well in this category?

Vivek Jane, CEO, ICU Medical: Yeah. Sure. I mean, at the simplest level for those new to ICU Medical, we are we make the plumbing that gets a medication to a patient. Right? And that plumbing can either go directly in the patient or that can go via an infusion pump.

Oncology is is essentially the expensive plumbing to make sure that dangerous drugs or expensive drugs are used fully and never exposed in a hazardous way to a clinician, tech, patient, etcetera. We think we've been the innovator there also because we've combined those aspects of drug preparation, which happened in the pharmacy, and and attach them physically in the most literal sense to the nursing use of infusion sets. So the products connect together. It's a it's a very natural staircase adjacency to the IV therapy business. And I think what ICU understood early was hazardous drugs were becoming a greater and greater market share of the valuable items flowing through a pharmacy.

How do we add value to those situations? Participate in that ICU got lucky, so to speak, as the industry did with. There's also been a set of tailwinds and regulatory guidance around the world saying you have to use safe plumbing when you use dangerous drugs. And so it's a combination of kind of natural adjacency, innovator, regulatory framework, all of which continues today.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then, you know, just with regard to the Smiths deal, it's been a couple of years now. You know, I think there's been a lot of focus on kind of the the pump side in terms of the the synergies there. But can you maybe talk about what sort of synergies, if any, there there's been on the the consumable side between the two companies?

Vivek Jane, CEO, ICU Medical: Sure. I mean, I think if we were to outline the strategic reasons for taking on the headache that we did, it was first and foremost about the pumps. Right? So you're you're right on that. But it also benefited the consumables segment.

The third largest business I'm sorry. The second largest business in the consumables segment is the vascular access business, and that's the catheters that we lacked historically that physically attach the infusion set and the pump set itself. Smiths was the number two player in that market for a long time, lost its way a little bit. We've been clawing our way back, but that's a very back to this point, like oncology, a very natural staircase adjacency for us. And so if we're winning in the first two in, you know, IV therapy and oncology gives us a right to win in PIVC.

The products, again, literally connect to each other, and it's a good example where we can improve our lot in life in consumables there. And then Smith's had its own 20 or 30,000,000 niche business of other OEM consumables, etcetera. Right? All that existed despite their best efforts because because the products were unique. And those are areas where we can innovate a little bit and add some add some value.

So there's been synergies with Smiths on the consumable side also.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then can you maybe just talk about pricing trends in the in consumables? You know, what are you seeing there? I know there was you you signed some new contracts, I think, with GPOs.

Vivek Jane, CEO, ICU Medical: I mean, obviously, it would be great to say that we've recaptured all the inflation of the last few years in price. We have not done that yet. We are working to do that. We started it one, we had to be healthy from a supply side, which on the legacy businesses we were, we had to get there on some of the other ones. We we have been now for a long time.

We started in earnest really in the international markets maybe eighteen months ago because the US dollar strength was really painful, and the only way to recoup that internationally was through price. That was a concerted effort. That efforts continues today despite what's going on with the dollar. And then domestically, we had to wait for a series of big contracts, which were negotiated last year and just started their implementation this year from a from a GPO perspective. And so I think we talked last year about the company having the opportunity to get a point.

We talked early this year and late last year about the company have an opportunity to get a point of price across IV Solutions, which we won't fully capture anymore, either consumables and pumps, to a large degree that kicks in this year, and consumables is also a beneficiary of that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then just curious about kind of inventory levels in the channel either from the through the GPOs or hospitals. Is, you know, is is there much inventory or consumables out there? Have you ever seen, you know, stocking or destocking cycles in this business?

Vivek Jane, CEO, ICU Medical: I hope in the x amount of years that we've been here, you don't hear us say the word stocking or destocking in an earnings script. Like, know, the joke is you have a good quarter. It was next quarter, so it's it's always destocking. You know, we try to stay away from that. The only things that make inventory levels out of the ordinary business is when there's some national shortage.

And there was a national shortage in IV Solutions in the fourth quarter last year. I would suspect distributor inventories are a little bit high there because everybody goes into hoarding mode. That's the only place where I think, right, where we would we would say that the the whole channel thing is even a discussion.

Brian Vanell, CFO, ICU Medical: Yeah. Most most of our end customers do purchase through distributors. And so if there is any stocking or destocking, that's generally where it happens within the supply chain.

Vivek Jane, CEO, ICU Medical: I mean, nobody wants to hold excess capital in these things. Right? It's only when there's a shortage.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. Alright. And then, you know, moving on to the the systems part of the business. So, you know, starting with the the large volume pumps, you know, there's a lot of movement in that market, obviously, you know.

Can you just talk about the competitive landscape here? I know you've had some new pumps from some of your competitors, some new pumps from you guys, and then, you know, Beckman's obviously, you know, been back in the market now for a few quarters, I think. So

Vivek Jane, CEO, ICU Medical: Well, I mean, it's it's a very interesting time. Right? We've grown up in this business having been in it now for, like, sixteen, seventeen years. And it's it's had all these kind of strange periods because of what's happened from a regulatory perspective. I think we're in one of those periods right now, and it's a great it's a great time to be a customer.

There's multiple choice on the market. But the biggest issue was the market share leader had to refresh a lot of its devices due to its own regulatory situation. I give them credit. They fixed the device, and they're out there trying to do that. And they're appear to be applying very logical behavior to, you know, what's the fair value and life cycle of the device.

And those decisions mean some portion of The US market, a meaningful portion, has to make real decisions about purchasing new equipment because they didn't have the ability to purchase equipment for a number of years. And as a nature of fixing the product, they have to to make some decisions. That circumstance plus the natural aging of our own fleet and the other competitors' fleets means for the next couple of years is probably an accelerated replacement cycle. And that's why all vendors have been pushing new technology. This morning, we received approval for our PlumSolo device, which finishes our work really in having the most modern LVPs.

And we think across the Duo and Solo pump, it positions us well for any of the competitive situations we're in. And and the way you really create value over the long term in pumps is winning competitive share. Right? Short term wins of refresh of of capital could help period to period revenues, which which is separate conversation, great opportunity for us. But there's a lot of action going on.

There's an accelerated pricing cycle. We have new technology. Happy to go through why we think our technology is superior and what's the incremental innovation we've had, but it's a good time. It's a good time in pumps.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. So that leads into my next question. You know, I was gonna ask about, you know, when PlumSolo was gonna be launched, but we did have the announcement this morning about the five ten k or, I guess, the clearance. You know, so does that imply that are you ready to launch it now, or is there gonna be some kind of period where you have to you do a limited release or ramp up production or something, or is it pretty much ready to go now?

Vivek Jane, CEO, ICU Medical: You know, I mean, our experience great question. Our experience in these markets is nothing goes that fast even if there's a the the right way to do it to avoid future problems to put it into a limited market release, make sure we fully understand its use, the use cases, etcetera, and test drive it a little bit before we go with a full release, the same way we did on Duo.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And and then PlumSolo, maybe you could just talk about, you know, how it fits with Duo or kind of, you know, where you're at in terms of, you know, offering that comprehensive, you know, platform on a single software system.

Vivek Jane, CEO, ICU Medical: I mean, I think there's there's three pump specific things about Solo that are important to us. The first is Duo was clearly designed for the high clinical acuity environments where you needed multiplexing of drugs. That was a limitation on the old plum products that you couldn't deliver multiple drugs, and the footprint was too large. Duo modernized all of that. But, candidly, the customer and sometimes is also over pumped.

They have more devices than they need. And the solo offers an opportunity in competitive high clinical discussions to say, we have the right product for the ICU, the CCU, the OR, and the right product for the general med search for it. And you don't need to be using so much tubing. You don't need so much real estate. You don't need so much tech in every single situation.

And so I think it it again our whole business model, the small guy has to customize more, be more unique to the customer's needs. And we think having the two together and offering choice is great in the high competitive situations. 40% of The US market is still a single channel pump, not a multichannel pump. And that represents kind of our market share and and the third the third player in the market's market share. A single channel pump is attractive for those customers that are comfortable using a single channel pump, and Solo offers that opportunity with kind of the 2025 finish of a medical device.

And then more specifically, our own devices, part of the value in infusion is refreshing your own install base. It may not create NPV because you're already getting the dedicated sets, but it certainly does help period to period revenues and potentially margin if you bring enough technology. ICU Medical's devices are only hitting nine or ten years in the old in the market. We've never had the opportunity to refresh our own install base, and it was very important for us to get solo to have valuable new technology. People have been committed to the Plum platform.

And so there's three really important drivers there. And then, yes, all Duo Solo and ultimately even MedFusion and long term CAD will be connected on a single IT solution. Right? So the 40% of America that didn't go with the market share leader was largely running two IT solutions anyway. They can all have one now as we consolidate the the platforms.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. And then just on the, I guess, on the syringe pump. So I guess that's kind of the next product that will be cleared. So can you give us update on the timing on that and, you know, how meaningful that is to the to the product lineup?

Vivek Jane, CEO, ICU Medical: I think the syringe pump is on deck and as fast as we possibly can. We're close. We're not that far away, and we talked about it being on file this year. I think we stick by that disclosure. And solo, again, was a first pass approval for us, is rare in the infusion industry.

And so we feel pretty we hope we have some track record there. And I think it's sorting out some of the long term issues that the business we acquired had on just older technology, and that's just not to the customer. That's raw you know, the supply chain parts, pieces, everything that these devices usually run a lot longer than the people intend to provide parts from wanna stay in business, modernizing all of these things really matters. And so there's a bunch of reasons MedFusion needs to get done. Customer facing integration IT is number one, but just having a better business long term is is a important downstream effect.

And so it's it's happening as fast as it can possibly happen.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then just similar question on the the ambulatory pump timing. You know?

Vivek Jane, CEO, ICU Medical: Ambulatory pump will be after med fusion. I don't know if we see the timing with perfect clarity. It's also close, but the resources it's the same people, and those resources are dedicated more to MedFusion. I think the market share position in ambulatory, you know, we're we're certainly back and very competitive there. The market share position and the market structure is different than the LVP syringe markets.

And so we obviously have to get the device modernized for the long term, but we've been spending the last two years making sure what we inherited was rock solid, and and our efforts continues to be on that. And you've seen some of our our cleanup activities on that device.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then can you just maybe compare I I don't know if you can give us specific amounts or just on a relative basis kind of the the pricing differentials between, you know, starting with pump solo sorry, pump duo, pump solo, the syringe pump, and then the ambulatory pumps. I assume salt duo is the most expensive followed by solo. I

Vivek Jane, CEO, ICU Medical: would say it's almost a tie. Right? The the the next generation syringe potentially could be at duo levels Because if you can imagine the syringe, you're just selling a dedicated piece of capital. It doesn't have an annuity.

It doesn't have a raise rate. So it's a single single instance. And a so the irony was a syringe pump sold for multiples more than LVP pump in this country for many, many years. And so I think our view is that if the syringe brings the right technology, it doesn't carry annuity, then you have to make money selling the straight up piece of capital at a different margin expectation. I don't know that we know final market pricing yet.

There's not enough data points on the duo solo market, but any of them are clearly positive margin items superior to where we were selling historical device because it it it brings a lot more technology. And it's kind of a silly market in a way if you think everybody the expectation was to get capital at or below cost to clip these razor blades. Right? If the tech if the the advantage the market share leader had for many years, certainly when we were helping build that that situation was carrying very attractive margins on the hardware itself. That makes a huge difference, and we think we have enough technology to do that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, the the LifeShield software, maybe you can just talk a little bit about that. And, you know, I think there was some enhancements with this latest clearance that you're applying to the Duo product as well.

Vivek Jane, CEO, ICU Medical: I think on the Duo enhancements, there were a few things that didn't get through on the first label, blood, etcetera, and I think those have all now been included in the label. That was the biggest item and some probably mechanical pieces and parts changes inside the device to ensure there's long term supply stability. Those are the main reasons on Duo. On LifeShield, I think it was more just getting the connection to Solo validated and then a a few modules. I'm not I'm not sure there's lot more detail.

We'd go into it about that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, just in terms of operability, I think you've said recently that less than 20% of markets implemented the pump interoperability. So why is it at that level? Why isn't it higher? And, you know, where do you see this going?

Do you think it becomes a majority of hospitals? I've kind of heard some mixed things where it's pretty difficult and costly to implement. Maybe there's some questions about, you know, whether the benefits outweigh the costs.

Vivek Jane, CEO, ICU Medical: I mean, certainly, if you look at the nation's two large IT vendors, they dedicate a lot of time to this topic. I think the reasons for slow implementation have been there hasn't been consistency in the situation, right, for anybody to do anything last five years between COVID to to where we are today. I'm not sure hospitals have had the time in the midst of their own upgrades and integrations to deal with getting all the way there. I certainly think it matters because it's safer. It's safer to have a a pump program by a pharmacist sitting far away from patient validating and having a second set of eyes coming in and just validate the order.

I think it's better for reimbursement and billing to make sure you know exactly where the drug is being infused and capturing all of that information. I think it's better for efficiency to know how many devices you need, etcetera. I think there's lots of reason. But you're right. It's hard.

It's a lot of work to get implemented. It's a lot of downtime, and it's a lot of work for nurse training. People haven't wanted to take on those things. I think the way we would look at it, Mike, is the ramp from kinda 2015 to 2021 was pretty steep, and it slowed down since then. But the drivers that made it steeper from 15 to 20 are still here today.

We just need the world to be a little bit normal.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. That makes sense. And then, you know, moving on to vital care business, you know, I want to start with the IV Solutions joint venture. So maybe you can just quickly give us an overview of that for for maybe people that, you know, haven't been paying attention.

And then can you talk about, you know, why it makes sense for both companies? And, you know, is this still on track to close in the second quarter? I think you've said maybe, like, kind of late April timing if I'm remembering correctly, but maybe I'm confusing with something else.

Vivek Jane, CEO, ICU Medical: No. I think that's I think I think Brian said after the last call, just assume a May 1 date just to make it somewhat orderly in a monthly basis for the year. Goal is still to close in q two. For those new to it, we were mostly we mostly made dry items. We mostly made pumps, consumables, etcetera.

With the acquisition of Hospira a number of years ago, it put us into the IV fluids business, which is a, what I would call, a more generic drug like manufacturing business. It certainly was necessary and continues to be necessary for our customers because people buy the infusion pump and the consumable and the IV solutions together. Like, you started the conversation with us again. It's still a minority, but a a chunk of of people purchased that way. So it was advantageous for us to have it.

Over the last couple of years, it's been evident in our results, it's been sort of a boom or bust business where we had windfall moments and we had very difficult moments. But at its core, it's a capital intensive manufacturing business that had lower margins than the rest of our company. And even if we could live with that over time, I think our view was it was difficult for us to be the innovator, the same way we were in some of our other categories. And so we were searching for years for a partner who could bring that innovation, and that innovation is along packaging. It's along formulation.

It's along manufacturing technologies. And that it's also about capital because it's it's significant capital to modernize these types of facilities. We think we found the best partner in Apsuka, the the leader in Asia who has 17 of these sites around the planet. And the transaction is they are buying we're creating a true joint venture, which is complicated, not as easy as exiting something, but we couldn't exit because this is important to our customers. It's important to value prop of our consumables.

They're going to purchase 60% upfront for approximately 200,000,000 in value to us, and then there's a series of milestone payments, back end payments if we choose to exit the JV minimum five years. So we're in it for the as long as we can think. And they bring all the boxes were checked, the new technology, capital, patients, long term Japanese investment horizon, and innovation. And I so I think it's very interesting. And in in their minds, look just look at the last week.

Right? You have a multinational that makes good margins on its branded pharmaceutical business in The United States investing into US manufacturing. I think all parties are pretty happy with what's gone down here, and we got the requisite government clearances. So we're ready to go. It's the it's the technical parts of the IT setup, the order to cash process to ensure nothing feels different for our customer that's taking the setup time right now.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. And then, you know, what I mean,

Vivek Jane, CEO, ICU Medical: it seems

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: pretty straightforward. And, you know, putting aside, like, when the deal actually closes, I mean, what what if any risks are there here that we should be maybe thinking about, or is it not really any kind of real material risk?

Vivek Jane, CEO, ICU Medical: As it relates to the transaction, I think it's a giant win for customers because even if people loved us and were with us for years, the criticism of ICU in the moment of the hurricane last fall would be, hey. You still are a single site manufacturer. And now we're part of an airline alliance. Right? We have 17 sites around the world, a handful of which have excess capacity and will get registered to be a US manufacturer with very, very competitive costs.

So I think it's a total win for customers. And then in the other categories of nutrition, in other words, effective monopolies or duopolies, you're gonna have someone who's very disruptive enter those markets, and, you know, we're gonna help them do that.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then so Vital Care kind of putting aside the the IV Solutions part of it, I think you've guided to kind of flat growth there for for this year. So, you know, why is this business growing more slowly, And is there anything you can do to to drive faster growth here?

Vivek Jane, CEO, ICU Medical: I think it just hasn't got the attention yet versus the rest of the portfolio. And there's really three businesses in there. There's that that are of scale, restaurant anesthesia, critical care, and temperature management. Each has their unique circumstance, which is too much for this call. I I would answer the Vital Care question.

Vital Care is kind of a bit of a strategic option for us. If there's ways to add to get to make them better, I think we would look at that. If there's ways to monetize, I think we'd look at that too. Obviously, hard given the current environment, but it it's all been secondary to figuring out what to do with infusion solutions, with IV Solutions, and that was the most important thing to get done.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Got it. And then there I think you announced the recall for endotracheal tubes recently. I just wanted to ask about this and see. Is there any kind of material impact from this?

It's always hard with these recalls to know, you know, what the numbers are or, you know, how meaningful it is from a cost standpoint.

Brian Vanell, CFO, ICU Medical: I mean, Mike, we we actually recognize the the expense for that in the fourth quarter of twenty four, and it was it wasn't very much. So Okay. It really falls in that material bucket.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. I

Vivek Jane, CEO, ICU Medical: mean, there's not just the ET tube we call, Mike. There's been a lot of them, and it's been about cleaning up the portfolio that we bought and making sure. One one of our views is you don't if if you something smells bad or see something bad, say it. And it's better to be in full disclosure on every item around the products and put everything out there. It's painful because each one of them costs money, but it's the right thing to do to ensure a clean regulatory bill of health.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. Okay. Got it. And then just a few financial questions in the last few minutes here. So in your latest investor presentation, you showed kind of a path for gross margin improvement.

Maybe you could just talk about kind of the the main components here that will drive that and, you know, how much you know, to what degree does that account for for pricing increases?

Brian Vanell, CFO, ICU Medical: Yeah. And maybe just to to recap our margin improvement initiatives, we had originally set targets for ourselves of eventually getting to 40% gross margins on an organic basis, and that would happen over time. And that margin expansion of the gross margin level would drop through and yield 20% EBITDA margins. And this was sort of before the IV Solutions transaction, so, you know, kinda just setting that aside. At the time we had set those targets around gross margin to get to 40, we were sort of operating at a normalized 36% gross margin level.

So we were looking for a 4% four percentage point margin improvement there, And that was gonna be driven really by a combination of three areas. First, and and maybe the most important is the integration synergies, and contributing to that is the manufacturing network consolidation that we're in the middle of doing, along with the supply chain consolidation that's happening as we're as we're consolidating our IT systems. And then third area, which is probably a little less meaningful but still important, which is real estate savings. So kind of all three of those areas fall within the integration synergies bucket. And then as you mentioned, price also is a contributor.

So that's kind of the second category. And then third, we would say is just higher absorption within the manufacturing plants as a result of increased volumes. And so for '25, we I I would say really all three of these categories are contributing to that one percentage point of gross margin improvement that we've guided to. And and kind of this is all before all this craziness of the last. Exactly.

So, know, it's it's sort of that's we're getting that in addition to kind of the normal stuff you have to offset, plus maybe some of the things that have happened recently around tariffs that that are that are not so normal. So I guess in terms of kind of where we stand relative to our original goals of of getting to 40%, I think we would expect to exit this year around 38% gross margins, and and I think that kinda puts us halfway towards our goal. And and then when you, I guess, add the impact of the joint venture transaction and the deconsolidation from IV Solutions, we said that once that transaction happens going forward, we would expect three to four percentage points of gross margin improvement above and beyond the the 40% targets that we had originally established.

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Okay. Alright. And then just for OpEx, I mean, your OpEx has been pretty flat as a percentage of sales. So and it's pretty low. So, I mean, is is there any opportunity to drive leverage there?

It's really just about driving gross margins higher at this point.

Brian Vanell, CFO, ICU Medical: I mean, I think, yeah, for for 02/2025, we did guide to 3% increase in operating expenses relative to 02/2024. And really that that 3% increase, though, it's very heavily tilted towards some incremental investments that we're making in both r and d and on the some commercial resources. So I do think that, you know, when you look at the 3%, kind of the back office stuff is a is a small portion of that, and and I do believe we are getting some natural leverage leverage. It's just that this year, we are trying to reinvest some of that into areas of the business that can that can really help with future future growth.

Vivek Jane, CEO, ICU Medical: I mean, if you have a gross margin in the forties, Mike, and we haven't even got there yet. If you have a gross margin of forties, you don't have the luxury of having a lot of OpEx. Right? That's the reality of

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. I understand. Okay. I think we're out of time.

Vivek Jane, CEO, ICU Medical: Sugarcoating that. You know?

Mike Matson, Lead Med Tech and Diagnostics Equity Research Team, Needham and Company: Yeah. I think we're out of time, so we're gonna have to wrap up there. But thanks, guys. Hope you have some good news at the conference.

Vivek Jane, CEO, ICU Medical: A great schedule. Thank you. Thanks for your interest in ICU Medical. We appreciate your efforts, Mike, and happy to spend time with anybody Just email Brian or

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.