Q4 2023 ICU Medical Inc Earnings Call

Operator: Good day and welcome to the ICU Medical Inc. fourth quarter. Mart Pierce, Dr. Terry Earnings, carpenter, All participants will be in, and we need a Conference Specialist for Pressing the Starkey, followed by... After today's presentation, there will be an opportunity to ask questions. Question, you may press star, then 1 on your telephone. Try your best, will host today's event. But now, I'd like to turn the conference over to John Mills. Please go ahead.

Good day and welcome to the ICU Medical Inc. Fourth quarter 2022 earnings conference call.

All participants will be in listen only mode.

Should you need assistance. Please you can have a conference specialist by pressing the Starkey followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note today's event is being recorded.

Ill turn the conference over to John Mills. Please go ahead Sir.

John F. Mills: Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the fourth quarter and full year of 2023. On the call today, representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman, and Brian Bunnell, Chief Financial Officer. We wanted to let everyone know that we have a presentation accompanying today's prepared remarks as well. To view the presentation, please go to our investor page and click on the events calendar, and it'll be under the fourth quarter 2023 events. Before we start our prepared remarks, I wanna touch upon any forward-looking statements made during the call, including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results and are subject to risk and uncertainty.

John F. Mills: Good afternoon, everyone. Thank you for joining us to discuss the ICU Medical's financial results for the fourth quarter and full year of 2023.

John F. Mills: On the call today, representing ICU medical is Vivek Jain Chief Executive Officer, and Chairman and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks as well to be the presentation. Please go to our investor page and click on events calendar and it will be under the fourth quarter 2023 events.

John F. Mills: So let me start our prepared remarks I want to touch upon any forward looking statements made during the call, including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable such.

John F. Mills: Such statements are not intended to be a representation of future results and are subject to risks and uncertainties.

John F. Mills: Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call, we will also discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency in ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period. We've also included a reconciliation of these non-GAAP measures in today's release and provided as much detail as possible on any addendums that are added back. And with that, it is my pleasure to turn the call over to Vivek. Thanks, John. And good afternoon to everyone.

John F. Mills: Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position.

John F. Mills: Please note that during today's call. We will also discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU medical's ongoing results of operations, particularly when comparing underlying results from period to period. We've also include.

John F. Mills: A reconciliation of these non-GAAP measures in today's release you provided as much detail as possible on any addendums that are added back and with that this is my pleasure to turn the call over to Vivek.

Vivek Jain: Thanks, John and good afternoon to everyone I'll walk through our Q4 revenue and earnings performance highlight and provide some commentary on the main topics of 2023, and then turn it over to Brian to recap the full Q4 and fiscal 2023 results and provide our 2024 guidance after that I'll come back with some brief comments on our media.

Vivek Jain: I'll walk through our Q4 revenue and earnings performance, highlight and provide some commentary on the main topics of 2023. And then I'll turn it over to Brian to recap the full Q4 and fiscal 2023 results and provide our 2024 guidance. After that, I'll come back with some brief comments on our medium-term outlook and the actions and opportunities in front of us to improve our performance. Revenue for Q4 was $576 million, for total company growth of 2%. Adjusted EBITDA was $86 million, and EPS was $1.56.

Term outlook and the actions and opportunities in front of us to improve our performance.

Brian Bonnell: Revenue for Q4 was $576 million for total company growth of 2% adjusted EBITDA was 86 million and EPS was $1 57, we added $56 million of cash to our balance sheet. As a result of the actions we've been taking on inventory combined with modest growth as we had anticipated we had sequential.

Vivek Jain: We added $56 million of cash to our balance sheet as a result of the actions we've been taking on inventory combined with modest growth. As we had anticipated, we had sequential growth in all the segments and a larger inventory reduction in Q4 versus Q3. The broader demand and utilization environment in Q4 was the most positive since 2021 across almost every geography. The capital environment was status quo, and it does appear that investments that customers need to get done are getting done. There were no additional macro headwinds or tailwinds as compared to earlier in the year, except for the inflationary labor environment in some of the larger production countries.

Brian Bonnell: Growth in all the segments and a larger inventory reduction in Q4 versus Q3.

Brian Bonnell: The broader demand and utilization environment in Q4 was the most positive since 2021 across almost every geography, the capital environment with status quo and it does appear investments that customers need to get done do get done there were no additional macro headwinds or tailwind as compared to earlier in the year, but the <unk>.

Brian Bonnell: Sherri labor environment, and some of the larger production countries continued.

Vivek Jain: Getting into our businesses more specifically, our consumable segment grew 4% in constant currency or 5% reported. The legacy ICU product families of IV therapy and oncology combined again hit a record level in absolute sales with 11% growth, which is probably a few points overstated due to the Italian tax accrual in Q4 of 2020. But more importantly to us, all four product lines in this segment grew well sequentially, with vascular access finally turning around and at least reaching Q4 2022 levels. The sequential growth was driven by new global customer implementations, improved census throughout the quarter, and increased capacity and ability to serve the market with focus on clinical differentiation and creation of niche markets. Our IV systems business was down 1% constant currency or down 2% reported and was the best quarter of the year in 2020. However, there was a wide range of performance across the product.

Brian Bonnell: Getting into our businesses more specifically, our consumable segment grew 4% in constant currency or 5% reported the legacy ICU product families of IV therapy, and oncology combined again hit a record level in absolute sales with 11% growth, which is probably a few points overstated due to the Italian tax accrual in Q4 2002.

Brian Bonnell: But more importantly to us all four product lines in this segment grew well sequentially with vascular access finally, turning around at least reaching Q4 2022 levels.

Brian Bonnell: Sequential growth was driven by new customer new global customer implementations.

Brian Bonnell: <unk> census throughout the quarter and increased capacity and ability to serve the market with focus on clinical differentiation and creation of niche markets.

Brian Bonnell: Our IV systems business was down 1% constant currency are down 2% reported and was the best quarter of the year. In total there was a wide range of performance across the product lines here are <unk> pump business grew 11% with the best performance. Since 2021. This was due to strong census environment larger install base and the usually robust.

Vivek Jain: Our LVP pump business grew 11% with the best performance since 2021. This was due to a strong census environment, a larger installed base, and the usually robust Q4. Syringe pumps sold near normal quarterly levels but were down year over year due to the higher shipments in Q4 of 2022 from the release of certain products. Ambulatory pumps and their dedicated consumables were down year over year and are still below historic levels, but they had a nice sequential improvement as Since our last call, we've been putting our newly created, newly cleared Plum Duo Infusion System and LifeShield IV safety software through real-world use cases in a large US IDN environment, and we're starting to be production ready to make Plum Duo generally available.

Brian Bonnell: Q4 for capital.

Brian Bonnell: Syringe pumps sold near normal quarterly levels, but were down year over year due to the higher shipments in Q4 of 2022 from the release of certain protocols.

Brian Bonnell: Ambulatory pumps and Theyre dedicated consumables were down year over year and are still below historic levels, but had a nice sequential improvement has been the segment.

Brian Bonnell: Since our last call we've been putting our newly created plump newly cleared plum duo infusion system and life Shield IV safety software through real World use cases in a large U S <unk> environment, and we're starting to be production ready to make plum duo generally available. The early feedback is meeting our expectations and we're.

Vivek Jain: The early feedback is meeting our expectations, and we're incorporating super user feedback into our roadmap and believe we have a hardware product and related safety software that can be the anchor of our offering for many years. Just wrapping up the business segments, our vital care seven grew 2%, with IV solutions being up 6% and flat sequentially. Temperature management and respiratory both had nice sequential improvements.

Brian Bonnell: Super user feedback into our roadmap and believe we have a hardware product and related safety software that can be the anchor of our offering for many years to come.

Brian Bonnell: Just wrapping up the business segments are vital care segment grew 2% with IV solutions being up 6% and flat sequentially temperature management and respiratory both had nice sequential improvements.

Vivek Jain: From an operational perspective towards our customers, the company is running the best it has in the last. Customer backorders are at the lowest levels in a quarter, and fulfillment has been very stable because of all of the efforts of our team and, finally, what appears to be a more predictable supply chain and logistics environment. The discussions have shifted far more to innovation and the integrated value of what we have. Quality has been an area of heavy investment. We feel we're on solid footing.

Brian Bonnell: From an operational perspective towards our customers. The company is running the best it has in the last two years customer back orders at the lowest levels in a quarter's end fulfillment has been very stable because all of the efforts of our team and finally, what appears to be a more predictable supply chain and logistics environment. The discussions have shifted to far more to innovation and the integrated value.

Brian Bonnell: You have what we've amassed.

Brian Bonnell: Quality has been an area of heavy investment we feel we are on solid footing, we have had and likely will have a few more important customer notifications all as part of the overall remediation efforts previously discussed and enhancements we have made with.

Vivek Jain: We have had, and likely will have, a few more important customer notifications, all as part of the overall remediation efforts previously discussed and enhancements we have. We started 2023 with five goals that we reiterated on each call last year. Ultimately, we had revenue growth in most but not all of our differentiated products. We did progress with our quality remediation and ensured quality for patients and high compliance for regulatory authorities, respectively. We finished the TSA separation and have the groundwork and operational stability in place to pursue the remaining.

Brian Bonnell: We started 2023 with five goals that we reiterated on each call last year. Ultimately we had revenue growth in most but not all of our differentiated product lines, we did progress our quality remediation and ensuring quality for patients and high compliance for regulatory authorities, respectively. We finished the TSA separation and have the <unk>.

Brian Bonnell: Groundwork and operational stability in place to pursue remaining synergies. We finally improved cash flow towards the end of the year, but continued to be burdened by necessary investments in quality and integration projects to unlock additional synergies as well as certain underutilized production assets that we're working to address and we're improving the portfolio from a revenue growth and quality.

Vivek Jain: We finally improved cash flow towards the end of the year, but continued to be burdened by necessary investments in quality and integration projects to unlock additional synergies, as well as certain underutilized production assets that we're working to address. And we're improving the portfolio from a revenue growth and quality perspective, which will increase any opportunities to rationalize the portfolio at a sensible level. That's my brief recap of Q4 and 2023 at a high level. I'll now turn over to Brian and then come back with a few comments on our medium-term outlook, some targets, and a few others. Thanks, Vivek. And good afternoon, everyone.

Brian Bonnell: Active which will increase any opportunities to rationalize the portfolio at sensible levels. That's my brief recap of Q4 and 2023 at a high level I'll now turn it over to Brian and then come back with a few comments on our medium term outlook some targets and a few other thoughts.

Brian Bonnell: Thanks, Vivek and good afternoon, everyone. Since <unk> covered the Q4 revenue for each of the businesses I'll focus my remarks on first recapping the full year revenue performance compared to our original expectations second discussing Q4 performance for the remainder of the P&L along with the Q4 balance sheet and cash flow.

Brian Bunnell: Since Vivek covered the Q4 revenue for each of the businesses, I'll focus my remarks on first recapping the full year revenue performance compared to our original expectations, and second, discussing Q4 performance for the remainder of the P&L, along with the Q4 balance sheet and cashflow. And third, providing guidance on our expectations for 2024. So to recap, our full-year 2023 revenue performance, consolidated adjusted revenue was down 1% on a reported basis in flat constant currency. At the business unit level, consumables revenue for the year was down 1%, reported in flat constant currency compared to our original expectations of mid-single-digit growth. The shortfall was due primarily to the vascular access product category, where the decline was larger than anticipated, along with a few other variances within the business chain.

Speaker Change: And third providing guidance on our expectations for 2024.

Speaker Change: So to recap our full year 2023 revenue performance consolidated adjusted revenue was down 1% on a reported basis and flat constant currency at the business unit level consumables revenue for the year was down 1% reported and flat constant currency compared to our original expectations of am.

Speaker Change: Mid single digit growth the shortfall was due primarily to the vascular access product category, where the decline was larger than anticipated along with a few other variances within the business unit, but Q4 was important because after three previous quarters of stability in vascular access we finally saw sequential improvement.

Brian Bunnell: But Q4 was important because, after three previous quarters of stability in vascular access, we finally saw sequential improvement. Infusion Systems revenue for the year was up 2% on a reported basis and up 4% in constant currency, in line with our original guidance of mid-single digits, driven by a combination of the LVP and syringe product lines. And vital care was down 3% reported and down 2% constant currency for the full year, which is at the low end of our original guidance range of flat, plus or minus a little.

Speaker Change: Movement.

Infusion systems revenue for the year was up 2% on a reported basis and up 4% constant currency in line with our original guidance of mid single digits, driven by a combination of the OBP and syringe product lines.

Speaker Change: And vital care was down 3% reported and down 2% constant currency for the full year, which is at the low end of our original guidance range of flat plus or minus a little.

Brian Bunnell: Here, IV solutions were the largest gap to our expectations, offset partially by solid growth within the temperature management and critical care product categories. Moving on to Q4 results and further down the P&L. As you can see from the gap-to-non-gap reconciliation in the press release, gross margin for the fourth quarter was 34 percent, which was in line with our expectations and reflects the impact of lower manufacturing absorption as we continue to reduce inventory and improve cash flow. Recall that for the first six quarters following the acquisition, we increased inventory levels each quarter by an average of almost 50 million in order to, one, address the legacy SM backorder situation, two, build bridge stock in anticipation of the new EUMDR requirements, the effective date of which was eventually delayed, and three, bolster safety stock levels across the combined company.

Speaker Change: <unk> IV solutions was the largest gap to our expectations offset partially by solid growth within the temperature management and critical care product categories.

Speaker Change: Moving onto Q4 results and further down the P&L.

Speaker Change: As you can see from the GAAP to non-GAAP reconciliation in the press release.

Speaker Change: Gross margin for the fourth quarter was 34%, which was in line with our expectations and reflects the impact from lower manufacturing absorption as we continue to reduce inventory and improve cash flow.

Speaker Change: Recall that for the first six quarters. Following the acquisition, we increased inventory levels each quarter by an average of almost $50 million in order to one address the legacy SM backorder situation to build a bridge stock in anticipation of the new EU MTR.

Speaker Change: Since the effective date of which was essentially delayed and three bolster safety stock levels across the combined company.

Brian Bunnell: However, as each one of these situations evolved in early 2023, we took action to bring inventory levels in line with underlying demand, and during the third quarter of 2023, we decreased inventory levels for the first time. We said on the Q3 earnings call that we expected inventory reductions to accelerate in the fourth quarter, and they did, as we saw a cash flow benefit from inventory reduction of over $60 million. However, lower production levels in Q3, and to some extent, Q4, negatively impacted gross margins in the quarter. Adjusted SG&A expense was $113 million in Q4, and adjusted R&D was $22 million.

Speaker Change: However, as each one of these situations evolved in early 2023, we took action to bring inventory levels in line with underlying demand and during the third quarter of 'twenty three we decreased inventory levels for the first time.

Speaker Change: We said on the Q3 earnings call that we expected inventory reductions to accelerate in the fourth quarter and they did as we saw a cash flow benefit from inventory reduction over of over $60 million.

Speaker Change: However, the lower production levels in Q3 and to some extent Q4 negatively impacted gross margins in the quarter.

Speaker Change: Yes.

Speaker Change: Adjusted SG&A expense was $113 million in Q4, and adjusted R&D was $22 million total adjusted operating expenses were up three 5% year over year and reflect a combination of increased selling expenses from higher revenues.

Brian Bunnell: Total adjusted operating expenses were up 3.5% year over year and reflect a combination of increased selling expenses from higher revenues along with lower incentive compensation in Q4 2022. Restructuring, integration, and strategic transaction expenses were $11 million in the fourth quarter and related primarily to acquisition integration. Adjusted diluted earnings per share for the quarter was $1.57 compared to $1.60 last year.

Speaker Change: Along with lower incentive compensation in Q4 2022 <unk>.

Speaker Change: Restructuring integration and strategic transaction expenses were $11 million in the fourth quarter and related primarily to acquisition integration.

Speaker Change: Adjusted diluted earnings per share for the quarter was $1 57 compared to $1 60 last year. The current quarter results reflect net interest expense of $24 million, which is an increase over the prior year of $4 million and equates to just under <unk> on a per share basis for.

Brian Bunnell: The current quarter results reflect net interest expense of $24 million, which is an increase over the prior year of $4 million and equates to just under 15 cents on a per share basis. The fourth quarter adjusted effective tax rate was a benefit of 1% and includes certain discrete benefits and year-end items that contributed approximately $0.35 per share. Diluted shares outstanding for the quarter were $24.3 million.

Speaker Change: Fourth quarter adjusted effective tax rate was a benefit of 1% and include certain discrete benefits in year end items that contributed approximately 35 per share.

Speaker Change: Diluted shares outstanding for the quarter were $24 3 million.

Brian Bunnell: And finally, adjusted EBITDA for Q4 decreased 11% to $86 million compared to $96 million last year. Now, moving on to cash flow on the balance sheet. For the quarter, free cash flow was a positive 61 million, which represents a significant step up relative to Q3 free cash flow of 14 million. And if you recall, Q3 was the first quarter of positive free cash flow since the acquisition if you exclude the one-time benefit from the accounts receivable sale program in Q1 of 2023. This improvement was driven primarily by a reduction in inventory during the quarter of more than $60 million. The focus on inventory allowed us to generate meaningful free cash flow while still investing in the areas that will drive future returns.

Speaker Change: And finally, adjusted EBITDA for Q4 decreased 11% to $86 million compared to $96 million last year.

Speaker Change: Now moving on to cash flow and the balance sheet for the quarter free cash flow was a positive 61 million, which represents a significant step up relative to Q3 free cash flow of $14 million and if you recall Q3 was the first quarter of positive free cash flow since the acquisition if you exclude the onetime benefit.

Speaker Change: From the accounts receivable sale program in Q1 of 2023.

Speaker Change: This improvement was driven primarily by a reduction in inventory during the quarter of more than $60 million.

Speaker Change: The focus on inventory allowed us to generate meaningful free cash flow, while still investing in the areas that will drive future returns. These investments included $14 million of cash spend for quality system and product related remediation.

Brian Bunnell: These investments included $14 million of cash spent on quality system and product-related remediation for Legacy SM, $11 million on restructuring and integration, and $30 million on CapEx for general maintenance and capacity expansion at our facilities, as well as placement of revenue-generating infusion pumps with customers outside the U.S. And just to wrap up on the balance sheet, we finished the quarter with $1.6 billion of debt and $255 million of cash and investments. Moving forward to the 2024 outlook, we expect full-year consolidated adjusted revenue growth in the low to mid-single-digit range, and we expect the growth rates for each of the underlying business units to be in line with the longer-term outlook that we've discussed before, which is mid-single digits for both consumables and infusion systems and Roughly Flat Providal. The consumables growth reflects a combination of volume and some price, with volume increases driven by continued share gains in corn fusion. Modest recovery in vascular access and the benefit of higher growth markets for oncology and specialties

Speaker Change: For legacy <unk>.

Speaker Change: $11 million on restructuring and integration and $30 million on Capex for general maintenance and capacity expansion at our facilities as well as placement of revenue generating infusion pumps with customers outside the U S.

Speaker Change: And just to wrap up on the balance sheet. We finished the quarter with $1 6 billion of debt and $255 million of cash and investments.

Speaker Change: Moving forward to the 2024 outlook, we expect full year consolidated adjusted revenue growth in the low to mid single digit range and we expect the growth rates for each of the underlying business units to be in line with the longer term outlook that we've discussed before which is mid single.

Speaker Change: Digits for both consumables and infusion systems and roughly flat providing care.

Speaker Change: The consumables growth reflects a combination of volume and some price with volume increases driven by continued share gain in core infusion.

Speaker Change: Modest recovery in vascular access and the benefit of higher growth markets for oncology and specialty.

Brian Bunnell: The infusion systems growth reflects normal market growth, a little bit of price, and the assumption of limited P&L impact from PlumDuo in 2024, given the usual lag between customer contract signing and implementation. Moving further down the P&L, we expect adjusted gross margin for the full year to be approximately 35 percent. The 35% includes price increases offsetting the negative impacts of labor inflation in our Mexican plants, as well as continued pressure from the peso exchange rate, and assumes a relatively stable environment for freight rates and fuel.

Speaker Change: The infusion systems growth reflects normal market growth, a little bit of price and the assumption of limited P&L impact from plum duo in 2024, given the usual lag between customer contract signing and implementation.

Speaker Change: Moving further down the P&L, we expect adjusted gross margin for the full year to be approximately 35% to 35% includes price increases offsetting the negative impacts from labor inflation in our Mexican plants as well as continued pressure from the peso exchange rate.

Speaker Change: <unk>.

Speaker Change: And assumes a relatively stable environment for freight rates and fuel. It also reflects the temporary impact from lower absorption as we expect further inventory reductions over the course of 2024.

Brian Bunnell: It also reflects the temporary impact of lower absorption as we expect further inventory reductions over the course of 2024. In terms of progression over the year, we expect gross margin to be the lowest in the first quarter as a result of the delayed P&L recognition from the inventory reduction that occurred in Q4 of 2023, with improvement over the course of 2024 from higher manufacturing volumes as inventory reductions taper and revenue growth takes effect. We are planning for adjusted operating expenses as a percentage of revenue to be similar to 2023 levels, which is just under 24%, reflecting the benefit from synergies, offsetting the impact from resetting incentive compensation plans, and general inflationary increases. Net interest expense is expected to be approximately $105 million based on current market forecasts for interest rates as well as the roll-off of a portion of our interest rate swap. The adjusted tax rate should be around 23%, which is our normalized tax rate before discrete items. And finally, diluted shares outstanding are estimated to average 24.6 million during the year.

Speaker Change: In terms of progression over the year, we expect gross margin to be lowest in the first quarter. As a result of the delayed P&L recognition from the inventory reduction that occurred in Q4 of 2023 with improvement over the course of 2024 from higher manufacture.

Speaker Change: <unk> volumes as inventory reductions taper and revenue growth takes effect.

Speaker Change: We are planning for adjusted operating expenses as a percentage of revenue to be similar to 2023 levels, which is just under 24%, reflecting the benefit from synergies offsetting the impact from resetting incentive compensation plans and general inflationary increases.

Speaker Change: Net interest expense is expected to be approximately $105 million based on current market forecast for interest rates as well as the roll off of a portion of our interest rate swaps.

Speaker Change: The adjusted tax rate should be around 23%, which is our normalized tax rate before discrete items and finally diluted shares outstanding are estimated to average $24 $6 million during the year.

Brian Bunnell: Bringing these components together results in 2024 adjusted EBITDA in the range of $330 to $370 million and adjusted EPS in the range of $440 to $510 per share. Now on cash flow, we ended 2023 with $83 million of free cash flow for the year, which is driven mostly by the one-time benefit from the implementation of the accounts receivable factoring program during the first quarter. For 2024, we expect free cash flow to be around the same levels as 2023, but to be driven entirely by operations. And the final amount will depend on, one, the degree of inventory reduction, and two, the amount that we choose to invest in quality remediation and integration activities as there is value in completing this work sooner to capture additional synergies.

Speaker Change: Bringing these components together results in 2024, adjusted EBITDA in the range of $330 million to $370 million and adjusted EPS in the range of $4 40 to $5 10 per share.

Speaker Change: Now on to cash flow, we ended 2023 with $83 million of free cash flow for the year, which is driven mostly by the onetime benefit from the implementation of the accounts receivable factoring program during the first quarter.

Speaker Change: For 2024, we expect free cash flow to be around the same levels as 2023, but to be driven entirely by operations.

Speaker Change: And the final amount will depend on one the degree of inventory reduction and to the amount that we choose to invest in quality remediation and integration activities as there is value in completing this work sooner to capture additional synergies.

Brian Bunnell: In terms of remaining inventory reduction, we said on the last call that the total opportunity was ballpark $100 million, and after more than $60 million captured in Q4, that would leave roughly $40 million left to go, and we think that's a fair assumption headed into 2024. In addition, we expect to see our CapEx requirements in 2024 to be in the range of 90 to 110 million.

Speaker Change: In terms of remaining inventory reduction we said on the last call that the total opportunity was ballpark $100 million.

Speaker Change: And after more than $60 million captured in Q4 that would leave roughly $40 million left to go and we think that's a fair assumption headed into 2024.

Speaker Change: In addition, we expect to see our Capex requirements in 2024 to be in the range of $90 million to $110 million.

Brian Bunnell: Timing of free cash flow throughout the year should be consistent with our historical trend, which is lighter in the first quarter as a result of payments for prior year annual incentive compensation, with improvement over the remainder of the year, helped by the benefit of revenue growth. To wrap up, we're happy with the sequential improvements in Q4 revenue that we saw across all three businesses, as well as the meaningful step up in free cash flow. For 2024, we're focused on foundational work that will drive earnings improvement in 2025 and beyond, which Vivek will expand upon. Now, I'll hand the call back over to Vivek.

Speaker Change: Timing of free cash flow throughout the year should be consistent with our historical trend, which is lighter in the first quarter as a result of payments for prior year annual incentive compensation with improvement over the remainder of the year helped by the benefit of revenue growth.

Speaker Change: To wrap up we're happy with the sequential improvements in Q4 revenue that we saw across all three businesses as well as the meaningful step up in free cash flow for 2024, we're focused on foundational work that will drive earnings improvement in 2025, and beyond which Vivek will expand upon now.

Speaker Change: Hand, the call back over to Vivek.

Vivek Jain: Okay, thanks, Brian. And that's the reality of where we are right now. But what's not lost on us is the reality of where we should be. Profitability in parts of this industry has obviously been impacted by the lag between inflation and pricing and the underlying competitive dynamics and differentiation in each category. But even with all that, we think most reasonably efficient companies in these types of markets now earn somewhere in the low 20s EBITDA margin level. We do not think this can apply to our IV Solutions business, which has its own unique competitive dynamics and with a general misvaluation of the product in the market. But we do think the rest of our portfolio is capable of achieving such a margin over time.

Okay, Thanks, Brian and Thats, the reality of where we are right now, but what is not lost on us as the reality of where we should be profitability in parts of this industry has obviously been impacted by the lag between inflation and pricing and the underlying competitive dynamics and differentiation in each category, but even with all of that.

Speaker Change: We think most reasonably efficient companies in these types of markets now arent somewhere in the low <unk> EBITDA margin level. We do not think this can apply to our IV solutions business, which has its own unique competitive dynamics and where the general midst evaluation of the product in the market, but we do think the rest of our portfolio is capable.

Speaker Change: <unk> of achieving such a margin overtime.

Speaker Change: Given what we have been through the last few quarters, we are not willing to commit to a certain date of being there, but our experience in time and the category makes us believe that Thats a fair metric.

Speaker Change: For our lean type of company achieving this metric is all about revenue growth and our gross margins, which for US includes all costs related to logistics and many other areas and most of the improvement opportunities with these items should be directly under our control.

Vivek Jain: Given what we have been through in the last few quarters, we are not willing to commit to a certain date of being there, but our experience and time in the category make us believe that that's a fair measure. For our lean type of company, achieving this metric is all about revenue growth and our gross margins, which for us include all costs related to logistics and many other areas. And most of the improvement opportunities with these items should be directly under our control. We still need to prove that we're capable of predictable, sustained revenue growth, which has not been the case as certain lines have gone backwards. But we are on more solid footing now. Our original model for a number of these products, and our goal, was to just get back to near historical sales levels, and we will need additional price given some of the share. But in the background, we've been actively refreshing the portfolio to ensure we're capable of either creating new markets or protecting product families that can take share.

Speaker Change: We still need to prove that we're capable of predictable sustained revenue growth, which has not been the case of certain lines were going backwards, but we are on more solid footing now.

Speaker Change: Our original model for a number of these products and our goal was to just get back to near historical sales levels, and we will need additional price given some of the share losses.

Speaker Change: But in the background, we've been actively refreshing the portfolio to ensure we're capable of either creating new markets. We're protecting product families that can take share plum.

Speaker Change: Plum duo was the first step of a series of products in our next in our next generation of infusion technologies, we should have a single channel plumbed solo and a refresh syringe pump on file at the FDA by the end of this year. These.

Speaker Change: These products will work with our already cleared life shield infusion safety software and would be just at the beginning of a long cycle in that space.

Vivek Jain: The Plum Duo was the first step of a series of products in our next generation of infusion technology. We should have a single-channel plumbed Solow and a refreshed syringe pump on file at the FDA by the end of the day. These products will work with our already cleared LifeShield Infusion Safety Software and would be just at the beginning of a long cycle in that.

Speaker Change: Alongside that over the last year or two there have been a number of new launches. Examples include a series of capital and disposable devices in the Diana family to be used in drug preparation that should help our CST prep products, a refresh tracheostomy series called Blue select and a refreshed hemodynamic monitor that upgraded the already in New York.

Vivek Jain: Alongside that, over the last year or two, there have been a number of new launches. Examples include a series of capital and disposable devices in the Diana family to be used in drug preparation that should help our CSTD prep products, a refreshed tracheostomy series called Blue Select, and a refreshed hemodynamic monitor that upgraded the already newer. We would expect certain new filings over the next 12 to 24 months in our consumables area and the valuable temperature management. We're growing our positions with the existing products of today, and these will be supplemented by significant refreshes in key parts of the portfolio, with a large portion already done. We've been carefully targeting these investments because, obviously, innovation drives sustained revenue. But the other challenge has been gross margin volatility, and we've mentioned some of the areas for optimization on this call last. Where we have businesses at record levels, those production environments are fully utilized and improving efficiently. Where we have businesses that are smaller, we have real inefficiencies where the pain has been compounded with the inventory choices we've made or the loss of revenue. There's no magic here, nor do we need to talk about transformational programs or anything like that.

Speaker Change: Jen.

Speaker Change: We would expect certain new filings over the next 12 to 24 months and our consumables area and the valuable temperature management business, we're growing our positions with the existing products up today and these will be supplemented by significant refresh in key parts of the portfolio with a large portion already done.

Speaker Change: <unk> been carefully targeting these investments because obviously innovation drive sustained revenue growth.

Speaker Change: But the other challenge has been gross margin volatility and we mentioned some of the areas for optimization on this call last year, where.

Speaker Change: Where we have businesses at record levels. Those production environments are fully utilized and improving efficiencies, where we have businesses that are smaller we have real inefficiencies, where the pain has been compounded with the inventory choices, we've made or the loss of revenue.

Speaker Change: There is no magic here, nor do we need to talk about transformational programs or anything like that this is the basic blocking and tackling of network consolidations.

Speaker Change: Some have been announced like the move of our syringe in ambulatory pump production of Costa Rica, and our U S pump service center consolidation of Salt Lake City and other projects are in flight simply said have less places and have them in the right place in fall and the same goes for real estate.

Vivek Jain: This is the basic blocking and tackling of network consolidation. Some have been announced, like the move of our syringe and ambulatory pump production to Costa Rica and our U.S. Pump Service Center consolidation to Salt Lake City, and other projects are in flight. Simply said, have fewer places and have them in the right place fully, and the same goes for real estate. Logistics network consolidation is also embedded in this cross-margin work for us, but it's more in the planning stage, and it depends on our IT system integration. That foundation has been laid and will integrate our U.S. system sometime in Q3 of this year. We've done that type of project several times before.

Speaker Change: Logistics network consolidation is also embedded in this gross margin work for us, but it's more in the planning stage and it depends on our it system integration that foundation has been laid and will integrate our U S system sometime in Q3 of this year, we've done that type of project. Several times now this list of actions is economically meaningful and.

Speaker Change: That's a huge portion of getting where we need to be an offsetting the normal bumps that happen in business, but they do take some time to execute.

Speaker Change: Out of our control our interest costs, which we do expect to change eventually.

Speaker Change: But from a value perspective, we felt it more sensible to bear more interest expense as long as manageable versus eroding value by not maximizing the assets, where the revenue earnings and quality of those assets is improving.

Vivek Jain: This list of actions is economically meaningful and contributes a huge portion of getting where we need to be and offsetting the normal bumps that happen in business, but they do take some time to execute. Out of our control are interest costs, which we do expect to change eventually, but from a value perspective, we felt it was more sensible to bear more interest expense, as long as it is manageable, versus eroding value by not maximizing the assets where the revenue, earnings, and quality of those assets are improving. Debt pay down continues to be our highest capital allocation priority, and any extra cash above our needs would go to repay, to be direct on our goals for the next year or two.

Debt Paydown continues to be our highest capital allocation priority and any extra cash above our needs would go to repayment.

Speaker Change: To be direct and our goals for the next year or two.

We want our consumables and systems businesses to be reliable growers with an industry acceptable profit margin with the tightest and most optimized manufacturing network and each with a multiyear innovation portfolio and we want the rest of the portfolio to add up to levels, where we deliver an acceptable profit margin that ultimately allows us to transfer value from that.

Speaker Change: Equity there is no confusion within the company and the pursuit of these goals and we don't really have any frivolous activities here.

Speaker Change: We produce essential items that require clinical training hold manufacturing barriers and in general items that customers do not want to switch unless they must the market needs ICU medical to be an innovative reliable supplier and our company is stronger from all the events of the last few years. Thanks to all our team members and customers as we improve each day and with that I'll open it up to questions.

Vivek Jain: We want our consumables and systems businesses to be reliable growers with an industry-acceptable profit margin, with the tightest and most optimized manufacturing network, and each with a multi-year innovation portfolio. And we want the rest of the portfolio to add up to levels where we deliver an acceptable profit margin that ultimately allows us to transfer value from debt to equity. There's no confusion within the company in the pursuit of these goals, and we don't really have any frivolous activities.

Speaker Change: Yes. Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys. So youre talking your question has been addressed and you would like to withdraw it. Please press Star then two.

Vivek Jain: We produce essential items that require clinical training, have manufacturing barriers, and, in general, items that customers do not want to switch unless the market needs ICU Medical to be an innovative, reliable supplier and our company stronger from all the events of the last year. Thanks to all our team members and customers as we improve each day. And with that, I'll open it up.

Speaker Change: We will pause momentarily to assemble the roster.

Speaker Change: And today's first question comes from Jason Bedford with Raymond James.

Jason Bedford: Good afternoon, and thanks for all the additional details, especially on the 24, so maybe just to start on the revenue guide.

Jason Bedford: Given the comps can we assume that the growth is higher in the second half than the first in terms of revenue growth.

Jason Bedford: Okay.

Operator: Yes, thank you. We will now begin the question and answer session. If you have a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the button.

Probably a little in between Jason I mean Q2 was.

Speaker Change: Uh huh.

Speaker Change: Pretty low for us in 'twenty three.

Speaker Change: I'd say, it's probably a little more balanced throughout the year, yes.

Jayson Bedford: At any time when your question has been answered and you would like to withdraw it, please press star 1. This time we will pause for a moment to... And today's first question comes from Jayson Bedford. Good afternoon, and thanks for all the additional details, especially on 24. So maybe just to start on the revenue guide, just given the comps, can we assume that growth is higher in the second half than in the first in terms of revenue growth? I think it's probably a little in between, Jayson.

Speaker Change: Part is so backend weighted right, yes, our margins by build different Q1 may be a little bit lower than.

The average guidance that we provided but the remainder of the quarters are probably pretty consistent.

Speaker Change: Okay, and then you mentioned price a couple of times is the expectation that price is a bigger tailwind in 'twenty four than it was in 'twenty three.

No it wouldn't be a <unk>.

Speaker Change: Greater magnitude probably around the same impact.

Vivek Jain: I mean, Q2 was pretty low for us in 23, but I'd say it's probably a little more balanced throughout the year. Yeah. I don't know if the revenue part is so back-end weighted, right? Yeah. Q1 may be a little bit lower than the average guidance that we provided, but the remainder of the quarters are probably pretty consistent. Okay, and then you mentioned price a couple times. Is the expectation that price will be a bigger tailwind in 24 than it was in 23? No, it wouldn't be of greater magnitude, probably around the same impact.

Speaker Change: Okay. Okay.

Speaker Change: And then just on an IV solutions good growth in the fourth quarter is this kind of the right level here to think about on a quarterly run rate for 'twenty four.

Speaker Change: Yes, we think thats.

Speaker Change: <unk>.

Speaker Change: That's kind of the same level it should be up from here on out.

Speaker Change: Okay, essentially Jason the gap would be the 80, we used to be at minor minus products. We were getting from Pfizer's, we've talked about in previous calls right. Okay.

Speaker Change: Sorry, I'm just going to.

Speaker Change: Ask a few more here, but just just on.

Vivek Jain: Okay, okay. And then just on IV solutions, good growth in the fourth quarter, is this kind of the right level here to think about on a quarterly run rate of 24? Yeah, we think that's kind of the same level it should be at from here on out. Essentially, Jayson, the gap would be the 80 we used to be at minus the products we were getting from Pfizer. Right, okay. Sorry, I'm just going to ask a few more here, but just on... IV solutions, margins, you kind of called that out. I think we all understand that. Maybe other than price, what else can you do to improve IV solutions' margin?

Speaker Change: IV solutions margins, you've kind of called that out I think we all understand that but.

Speaker Change: Maybe other than price what else can you do to improve IV solutions margins.

Speaker Change: I think Jason it's a traditional manufacturing industry.

And I think we try to find the right balance between ensuring.

Speaker Change: Our high quality and reliability of the customer there are areas for opportunities in terms of one how the value chain works for the customer specifically.

Speaker Change: What type of service model, what type of service delivery logistics costs et cetera, which are a huge component of the products. There is improvements available on the factory floor.

Vivek Jain: I think, Jayson, it's a traditional manufacturing industry, and I think we try to find the right balance between ensuring high quality and reliability for the customer. There are areas for opportunities, in terms of one, how the value chain works for the customer, specifically, you know, what type of service model, what type of service delivery, logistics costs, etc., which are a huge component of the products. There are improvements available on the factory floor.

Speaker Change: There are improvements potentially available if we put capex into the business, but we've we try to think about that very critically so it's sort of more normal manufacture outside of of long term price and trying to get the category revalued a bit it's really more traditional manufacturing operations and operational improvements.

Speaker Change: Okay.

Speaker Change: And then maybe lastly, and I'll, let someone else jump in but just on the Smith's integration kind of what's what's the last and what's the potential impact of those efforts on on the P&L.

Vivek Jain: There are improvements potentially available if we put CapEx into the business, but we try to think about that very critically. So it's sort of a more normal manufacture; outside of long-term price and trying to get the category revalued a bit, it's really more traditional manufacturing operations. Operational Improvement. Okay, and then maybe lastly, and I'll let someone else jump in, but just on the Smith's integration, kind of... What's left, and what's the potential impact of those efforts on the PNL? Well, some of this gap to what ideal margins would be where we are is underpinned by cost savings and synergies that come from a full system integration that allows us to get after duplicative logistics networks, and duplicative service orgs in some spots. That work, similar to it was when we did it with Hospira, is on track. It's probably simpler than we do with Hospira.

Well some of this this gap to what ideal margins would be where we are underpinned by cost savings and synergies that come from a full system integration.

Speaker Change: That allows us to get after la Dove Duplicative logistics networks duplicative.

Speaker Change: <unk> service orders in some spots.

Speaker Change: That work similar like it wasn't going to Hospira.

Speaker Change: Is.

Speaker Change: <unk> on track.

Speaker Change: Simpler than we get with Hospira is scheduled to happen in Q3 of this year and if you went back and looked at some of the previous scripts, we tried to detail where those things are valuable both in terms of.

Speaker Change: Logistics as well as support functions.

Speaker Change: Still have some duplication.

Speaker Change: Okay. Thank you.

Speaker Change: Yes.

Vivek Jain: It's scheduled to happen in Q3 of this year, and if you went back and looked at some of the previous scripts, we tried to detail where those things are valuable, both in terms of logistics, as well as support functions that still have some duplicates. Okay, thank you. Thank you. And the next question comes from Larry Solow with CGS. Great, good afternoon. Hey, good afternoon.

Speaker Change: Thank you and our next question comes from Larry Solow with CJS Securities.

Larry Solow: Hello, Good afternoon.

Larry Solow: How's it going guys.

Larry Solow: First question.

Larry Solow: First of all I. Appreciate you know lots of color. This call. Thank you for all that.

Larry Solow: Appreciate the sort of long term guidance and it sounds like.

Larry Solow: Youre confident in the business.

Larry Solow: That is reflected in talk about some recent filings.

Larry Solow: Recent investments.

Larry Solow: How's it going guys? I guess my first question, first of all, I appreciate, you know, lots of color. Thank you for all that, and I appreciate the sort of long-term guidance and it sounds like, you know, you're confident in the business. I guess that is reflected in checking out some recent filings regarding your recent investment, so good to see that. But just in terms of that margin, Vivek, that low 20s EBITDA margin, is that like a three to five-year target? I know you don't want to put an exact target on that, but is that a reasonable timeline for that expectation? I mean, I think Larry, what we would feel at a short answer is yes.

Larry Solow: Good to see that but just in terms of op margins in fact that low twenty's EBITDA margin.

Larry Solow: Is that like a three to five year target I know you don't want to put an exact figure on that but is that a reasonable timeline for that expectation.

Speaker Change: And I think Larry what we would we would feel the short answer is yes.

Speaker Change: But I think we would feel comfortable right now, saying Oh.

Speaker Change: All the cost savings aspect of those activities the network consolidations system.

Speaker Change: We will largely be fully implemented by the end of next year.

Speaker Change: With the big of a step up in value actually next year over this year. So some of the things take time to get in but there are some big stuff happening balance over this year than to get the last.

Speaker Change: Yes.

Speaker Change: A couple of points, it's about revenue growth and that's where I think you are saying is we don't want to put a line in the sand on most people's <unk> rarely come exactly in the way they think we'd prefer not to do that our revenues, but the part that is clear to us is all the synergies.

Vivek Jain: But I think we would feel comfortable right now saying that all the cost savings aspects of those activities, the network consolidation system, will largely be fully implemented by the end of next year, with the biggest step up in value actually next year over this year. So some of the things take time to get in, but there's some big stuff happening, balance over this year. Then to get the last... A couple of points. It's about revenue growth, and that's where I think you're saying is we don't want to put a line in the sand on most people's LRPs, which rarely come exactly in the way they think. We'd prefer not to do that on revenues, but the part that is clear to us is all the synergies that are still out there. I got it.

Speaker Change: That are still out there for us together.

Speaker Change: Got it and then in terms of revenue growth. Obviously, you kind of gave that percent target for your consumables on your system.

Speaker Change: This year.

Speaker Change: Like you are at a place now once we can maybe get a little bit of better pricing and vital care that you have sort of a sustainable that target a mid single digit.

Speaker Change: Revenue growth and maybe you'll need a little bit more or maybe you know when you actually get to that target. It may take awhile to get that leverage to get to that margin goal, but without again without putting a timeline on it but do you feel like youre in a comfortable spot now.

Vivek Jain: And in terms of revenue growth, obviously, you kind of gave that 5% target for your consumables and your systems, at least for this year. Do you feel like you're at a place now, you know, once we can maybe get a little bit better pricing and vital care, that you have sort of sustainable, you know, that target of mid-single-digit revenue growth? And maybe you'll need a little bit more, or maybe, you know, when you actually get to that target, it may take a little while to get that leverage to get to that margin goal. But again, without putting a timeline on it, but do you feel like you're in a comfortable spot now? Some visibility and confidence that you can kind of maintain these revenue growth levels. I mean, look, we're giving guidance for this year, and we're giving it with at least two years, the last two years of some struggles under our belt.

Speaker Change: Somewhat visibility and confidence that you can kind of maintain the revenue growth levels.

Speaker Change: I mean look we've given we're giving guidance for this year and we're giving it with at least two years. The last two years of of some struggles under our belt. So I think we do feel that way certainly about 24 revenues.

Speaker Change: And we do feel that way for the.

Synergies and expense items out there.

Speaker Change: The short story is the company is running the best it has a long time for customers for patients with innovation.

Speaker Change: Just under earnings.

Speaker Change: And the margin talk is saying there were moments in our history, where we over earned.

Speaker Change: But right now a moment is frankly, where we're under earnings and we need to work to get that in line, it's not lost on us.

And then just lastly, just your state of the Union or just your brief summary on the hospital outlook obviously.

Vivek Jain: So I think we do feel that way, certainly about 24 revenues. We do feel that way for the synergies and expense items out there. You know, the short story is the company's running, and the best it has in a long time for customers, for patients with innovation. We're just under-earning. And the margin talk is saying, you know, there were moments in our history where we over-earned.

Speaker Change: Yeah.

Speaker Change: With major customers of hospitals.

Speaker Change: In terms of just.

Speaker Change: Operational trends utilization, maybe to a lesser extent budgets and capital.

Speaker Change: <unk> expenses.

Speaker Change: Expenses going forward, but just.

Speaker Change: How do you feel about just your general customers to that.

Speaker Change: I tried to say it upfront I mean, I really I think our view is it's as reliable as it's been in a long time. It seems like the lag time between reimbursement changing and labor utilization sort of sorting itself out as all happened like feels like its getting back to normal so.

Vivek Jain: But right now, this moment is frankly where we're under earnings, and we need to work to get that in line. Okay, just lastly, Vivek, your State of the Union or just your brief summary on the hospital outlook, obviously, your major customers or hospitals, in terms of just operational trends, utilization, you know, maybe to a lesser extent, budgets and capital, you know, expenses going forward, but just, you know, just how do you feel about just your general customers? I tried to say it up front.

Speaker Change: We don't.

We don't really have anything.

Speaker Change: Negative to say on the customer environment right, it's it's really under our ability to execute.

Speaker Change: Got it alright, great. Thank you I appreciate the color. Thanks.

Speaker Change: Thanks Mark.

Speaker Change: Thank you and the next question comes from Kristen Stewart with C. L. King.

Kristen Stewart: Hi can you guys hear me okay.

Kristen Stewart: Hi, Kristen So first first time caller.

Vivek Jain: I mean, I really, I think our view is it's as reliable as it's been in a long time. It seems like the lag time between reimbursement changing and labor utilization sort of sorting itself out has all happened. Life feels like it's getting back to normal. We don't... We don't really have anything.

Kristen Stewart: Yes, thank you very much.

Kristen Stewart: Was wondering if we could just focus a little bit more on gross margins I appreciated all the long term coloring your share on EBITDA margins getting back to below 20.

Kristen Stewart: What does that imply for gross margins then.

Kristen Stewart: How quickly I guess can you get to a more normalized level.

Vivek Jain: Negative to say about the customer environment, right? It's really under our ability. Got it. All right, great. Thank you. I appreciate the time. Thank you. C-O-C-U-L-E-C-A-L-E-C-A-L-E. Hi, can you guys hear me okay?

Kristen Stewart: Yes, I guess thinking about gross margins in the context of the EBITA margin improvement that vivek laid out.

Kristen Stewart: First is I think we would expect most of that EBITDA margin expansion to also show up within gross margins given the nature of the items that.

Kristen: Hi Kristen, that's a first time caller. Yeah, thank you very much. I was wondering if we could just focus a little bit more on gross margins. I appreciated all the long-term color you shared on EBITDA margins getting back to below 20. What does that imply for gross margins and how quickly, I guess, you can get to a more normalized level? Yeah, I'm thinking about gross margins in the context of the EBITDA margin improvement that Vivek laid out. First, I think we would expect most of that EBITDA margin expansion to also show up within gross margins, given the nature of the items that will drive that.

That will drive that.

Kristen Stewart: And then I guess thinking about gross margin rates kind of over the near that over the near term. We did say 20 for full year rate is at 35% and we expect improvement throughout the year, which means we'll probably exit.

Kristen Stewart: 24, slightly above the 35% rate, but I do think it's important to note that.

Kristen Stewart: Where we exit 'twenty four it won't be at the same level of gross margin that we saw in Q1 and Q2 of 2023, because those quarters very much benefited from manufacturing volumes that were in excess of underlying demand, but for us to get back to those levels.

Brian Bunnell: And then I guess thinking about gross margin rates kind of over the near term. We did say 24 the full year rate is at 35%, and we expect improvement throughout the year, which means we'll probably exit. 24 slightly above the 35 percent rate, but I do think it's important to note that, where we exit 24, it won't be at the same level of gross margin that we saw in Q1 and Q2 of 2023 because those quarters very much benefited from manufacturing volumes that were in excess of underlying demand. But for us to get back to those levels, it does require some of the cost savings that Vivek talked about as well as some revenue growth on top of that. Okay, and I think Vivek had mentioned that those cost savings would largely come towards the end of 2025. Is that correct? Or will we see some improvements in 2025?

Kristen Stewart: It does require some of the cost savings that Quebec.

Kristen Stewart: Talked about as well as as well as some revenue growth on top of it.

Kristen Stewart: Okay, and I think that that can mention that those cost savings with largely come.

Kristen Stewart: But at the end of 2025 is that correct or can we see some improvements in 2025.

Kristen Stewart: No.

Kristen Stewart: Sorry, sorry, Chris if I wasn't clear I was saying of the synergy items the cost saving items. It would take to the end of 'twenty five to have them fully implemented meaning all the actions done.

Kristen Stewart: But the actual economic value will be more meaningful 25 over 24 than it would in future.

Vivek Jain: off of that. Sorry, sorry, Kristen, if I wasn't clear, I was saying of the synergy items, the cost-saving items, it would take until the end of 25 to have them fully implemented, meaning all the actions done, but the actual economic value would be more meaningful, 25 over 24, than it would have. There would still be some beyond that, but the value capture was fully intended.

Kristen Stewart: Periods that would still be some beyond that.

Kristen Stewart: The value capture was fully intended to make a difference next year.

Speaker Change: Okay perfect.

Speaker Change: Thank you for that.

Speaker Change: And then last question vascular access that seems to be stabilizing.

Speaker Change: What's the outlook for 2020 for embedded in your forecast for that product line.

Speaker Change: I think.

Speaker Change: The words, Brian used I'm doing it from memory here I'm flipping the script I think you said modest growth.

Vivek Jain: Okay, perfect. Thank you for that. And then last question, vascular access, that seems to be stabilizing. What's the outlook for 2024 embedded in your forecast for that product line? I think the words Brian used, I'm doing it from memory here, I'm flipping the script back, I think he said modest growth.

Speaker Change: So I would consider it just sort of in line with the.

Speaker Change: Mid singles that we talked about for the segment.

Speaker Change: Okay perfect. Thanks, so much for the question.

Speaker Change: Nice to hear you welcome to the call. Thank you. Thanks for the interesting. Thank you very much.

Vivek Jain: So I would consider it just sort of in line with the mid-singles that we talked about for the segment. Okay, perfect. Thanks so much for the question. It's nice to hear you.

Speaker Change: Thank you and the next question comes from Robert Fishman with Keybanc.

Robert Fishman: Hey, guys. Good afternoon. Thanks, so much for taking the questions just wanted to start off with a quick follow up to Christian's question I wanted to ask about a couple of the product lines that had been no more headwinds to growth in 2023. So maybe following on the vascular access question you could just touch on ambulatory pumps as a category.

Kristen: Welcome to the call. Thank you. Thanks for the interest. Thanks, and that's. Hey guys, good afternoon.

Brett: Thanks so much for taking the questions. I just wanted to start off with a quick follow-up to Kristen's question because I wanted to ask about a couple of the product lines that have been, you know, more headwinds to growth in 2023. So maybe following on the vascular access question, you could just touch on ambulatory pumps as a category, understanding that was a headwind the past two quarters, and if you're seeing any visibility toward improvement into 2024. Yeah. Also, welcome, Brett. It's nice to hear from you.

Robert Fishman: We're standing that was a headwind in the past few quarters, if youre seeing any visibility toward improvement into <unk> into 'twenty four.

Speaker Change: Also welcome Brett it's nice to hear you.

Speaker Change: I think it is an incredibly important line you referenced there is really one of the key value.

Speaker Change: Category that underpins the acquisition.

Speaker Change: It's until maybe Q4 of this year has been pretty bumpy because of the.

Vivek Jain: I think it's an incredibly important line you referenced there. It was really one of the key value categories that underpinned the acquisition. And it's until maybe Q4 of this year has been pretty bumpy because of the operational challenges we've had in those operational challenges, meaning not being able to necessarily supply all the dedicated sets in the first couple of months of the transaction led to lower utilization of those pumps, and or potentially a little bit of customers looking for alternatives that has finally been very stable over the last two quarters, three quarters or so, and that product still continues to hold a global leadership position in medication delivery, certainly in the home care environment, and many other spots. It feels better today.

Speaker Change: Operational challenges, we've had in those operational challenges meeting not being able to necessarily supply all the dedicated sets in the first couple of months of the transaction led to lower utilization of those pumps and are potentially a little bit of.

Speaker Change: Customers are looking for alternatives that has finally been very stable over the last.

Speaker Change:

Speaker Change: Two quarters, three quarters, or so and that products still continues to hold a global leadership position in medication delivery.

Speaker Change: Certainly in the home care environment.

Speaker Change: Yes.

Speaker Change: And many other spots it feels better today, it's still selling.

Speaker Change: Reasonably below historical levels with an aging fleet and so we have multiple opportunities there in our minds. One is the normal capital refresh that happens in the pump business.

Vivek Jain: It's still selling, reasonably below historical levels with an aging fleet. And so we have multiple opportunities in our minds. One is the normal capital refresh that happens in the pump business. As the world has opened up, and is starting to open up more, there's an opportunity for more of that as the fleet has aged. And two, is just driving utilization of the pumps, the pumps that are out there, making sure they're all pumping. And so, I think there's been three or four reasons why ambulatory has been challenging.

Speaker Change:

Speaker Change: As the World has opened up is starting to open up more there's an opportunity for more of that as the fleet has aged and two is just driving.

Speaker Change: Utilization of the pumps the pumps that are out there, making sure they're all pumping and so I think theres been three or four reasons ambulatory has been chat.

Speaker Change: Challenging that is all of the operational challenges are gone and there's real opportunities to improve there really importantly.

Vivek Jain: That is, all of the operational challenges are gone, and there's real opportunity, really. All right, super helpful. And then maybe a follow-up kind of on a similar topic around pumps. Definitely understand you're still pretty early in the cycle of plum and talking to customers, but just curious how the initial customer reception has been in the early conversations.

Speaker Change: Alright Super helpful. And then maybe a follow up kind of on a similar topic around pumps definitely understand youre still pretty early in the cycle of plum and talking to customers, but just curious how the initial customer reception has been in the early conversations and then maybe it took a little bit of a broader question around.

Speaker Change: The competitive opportunity in pumps, and how you see demand coming off of several years of the <unk> recall and a couple of years of limited capacity to implement upgrades and just how you see that progressing through the year.

Vivek Jain: And then maybe just a little bit of a broader question around the competitive opportunity in pumps and how you see demand coming off of, you know, several years of the Becton recall and a couple years of limited capacities to implement upgrades and just how you see that progressing through the year. Yeah, that's right. It's also a really insightful question in terms of the value picture. But there is more. There are more pumps in the United States right now that need to be addressed either through the age of the devices or the virus recalls than there have been in many years.

Speaker Change: Yep Yep, that's the right. So it's also really insightful question in terms of the value picture.

Speaker Change: There is more.

Speaker Change: Pumps in United States, right now that need to be addressed.

Speaker Change: <unk> either through the age of the devices or the virus recalls than there has been in many years.

Vivek Jain: And my comment in my opening remarks saying choices or investments that do need to get done do get done. Customers actually have the capacity to buy and implement, as it relates to, and are almost, you know, forced to on a reasonable timeline. As Brian tried to reference, we didn't put a lot in for the duo in 2024 because things, even though it's a period of activity, installs, and contract signings do go slowly, and we just want to make sure we're doing that properly, and we're just getting into the general release phase. I think, in the big picture, the tone of the pump market is good. All players are sort of armed, and it's competitive.

Speaker Change: And my comment in.

Speaker Change: In my opening remarks, saying choices that are investments that do need to get done do get done custom.

Speaker Change: Customers are actually have the capacity to buy and implement.

Speaker Change: As it relates to and are almost forced to on a on a reasonable timeline.

As Brian tried to reference we didn't put a lot in for the duo in 2024, because things even though it's a.

Speaker Change: Period of activity installs.

Contract signings do go slowly and we just want to make sure we're doing that properly and we're just getting into the general release phase I.

Speaker Change: I think big picture the tone of the pump market is is good all players are sort of armed and.

Speaker Change: It's competitive which is we take that right now people have to make choices.

Vivek Jain: We'd take that right now. People have to make sure. All right, great. And then last question from me. I think you guys gave a bunch of really good figures.

Speaker Change: Alright, Great and then last question from me I.

Speaker Change: I think you guys gave a bunch of really good figures should just think about the inventory drawdown and absorption topic for 2024.

Brett: Just think about the inventory drawdown and absorption topic for 2024. Just think, you know, you were able to wind down about 60 million units in this past quarter, and you put that in context of a 100 million total opportunity or goal. So, is it fair to think that most of the remainder of that takes place in one cue based off of, you know, the piece you're on, and then how do we think about the tail understanding? Like, the 4th, you draw down impact.

Speaker Change: Just thinking.

Speaker Change: You were able to wind down about $60 million in this past quarter and you put that in context of about a $100 million total opportunity. Our goal. So is it fair to think that most of the remainder of that takes place Q1based off of kind of the piece you're on and then how do we think about the Tao understanding like the <unk>.

Brett: Once you've got margins, just how to think about, like, once that drawdown is completed, how long the tail is where that's impacting gross margins. Thanks so much for taking the question. Yeah, Brett, I guess, thinking about kind of the pace of further inventory reductions. The work that we have to do around that, you do tend to be able to capture the easiest stuff first, and I think we saw that phenomenon happen in Q4, and why it was such a big number. But I think what happens is that each incremental reduction becomes more difficult.

Speaker Change: You drawdown impacts once your margins just how to think about like once that drawdown is completed how long the Italians, where that's impacted margins gross margins. Thanks, so much for taking the questions.

Speaker Change: Yes, Brett I guess thinking about kind of the pace of further inventory reductions.

Speaker Change: The work that we have to do around that you do tend to be able to capture the easiest stuff first and I think we saw that phenomenon happen in Q4, why and why it was such a big number.

Speaker Change:

Speaker Change: But I think what happens is sort of each incremental reduction becomes more difficult and so.

Brian Bunnell: And so the remaining 40 million is probably going to be spread out over the first two or three quarters of 24, as opposed to kind of coming all in Q1, just because it does get a little bit harder the further you get into it. All right, I got it. Hey, I'll just clarify the last point. So assuming, you know, more of like a mid-year 2Q to 3Q timeline, just how to think about the tail where that inventory drawdown is impacting the gross margin of future quarters.

Speaker Change: The remaining $40 million is probably going to be spread out over the first two or three quarters of 2004 as opposed to kind of coming all all in Q1, just because it does get a little bit harder the further.

Speaker Change: Further as you get into it.

Speaker Change: Alright got it hey, just.

Speaker Change: I'll just clarify I think the last point, so assuming more of like a mid year <unk>.

Speaker Change: Timeline, just how to think about like the Tau where that inventory drawdown is impacting the gross margin in future quarters.

Brian Bunnell: Yeah, the just that delayed impact showing up on the P&L is probably, you know, kind of a one to one and a half quarter lag, generally speaking. So, there will be some ongoing impact. No, that's super helpful.

Speaker Change: Yes, just that delayed.

Speaker Change: Impact showing up on the P&L is probably kind of a one to one five quarter lag generally speaking.

Speaker Change: So.

Speaker Change: There will be some ongoing impact.

Speaker Change: No that's super helpful. Alright, Thanks, so much for taking the questions guys appreciate it.

Brett: All right, thanks so much for taking the questions, guys. I appreciate it. The next question is a follow-up from Larry Solow with CGA.

Speaker Change: Thank you Brad.

Speaker Change: Thank you next question is a follow up from Larry Solow with CJS Securities.

Larry Solow: Just a quick follow-up, thanks. Just on the free cash flow, you gave, Brian, you gave some pretty good guidance this year. Essentially, it's not even close to last year. What about, you know, just long term?

Larry Solow: Just a quick follow up thanks.

Larry Solow: The free cash flow you gave Brian you gave some.

Larry Solow: Pretty good guidance this year, essentially even with last year.

Larry Solow: Just longer term I would think.

Vivek Jain: I think, you know, is it just remediation of the expenses that are holding you back from at least getting free cash flow somewhat near net income? Um, you know, and in the future, is that something that you guys hope to or target getting to over the next couple of years, with remediation expenses ease off? Yeah, the two items are spending on remediation work that's the largest, a bucket, and then followed by the spend on integration. That's why, and it was inventory, right?

Larry Solow: Is it just a remediation.

Larry Solow: Is that are holding you back from always getting free cash flow.

Larry Solow: But near net income.

Larry Solow: And in the future is that something that you guys hope to.

Larry Solow: Target getting to a couple of years as remediation expenses ease off.

Larry Solow: Yes.

Larry Solow: Two items are spending on the remediation work that's the largest.

Larry Solow: Bucket and then followed by the spend on integration.

Larry Solow: That's why and it was inventory right. So we've got we've got that one done now we have to get the remediation finish.

Vivek Jain: So we got that one done, now we have to get the remediation finished, and we gotta get the integration done and the remediation finished. This is exactly what I meant, because now inventory becomes a good guy, at least in the short run.

Larry Solow: We got to get the integration done intermediation finished is exactly that.

Larry Solow: Got it because that inventory becomes a good guy at least in the short run Okay. No that was just launched.

Larry Solow: Okay, no, that's it. That was just my follow-up. I appreciate it. Thanks. Thanks. The next question is a follow-up from Jayson. Yes, sorry for the additional questions. Just on the gross margin, Brian, did I hear you right that the exiting 24 gross margin will be slightly above 35? I thought it would be a little higher, but it kind of depends on the first half. So, is that correct? Slightly higher than 35? Yeah, I think that's our assumption at this point.

Speaker Change: I appreciate it thanks guys.

Speaker Change: Thanks, Matt Thanks, Larry.

The next question is a follow up from Jason Bedford with Raymond James.

Jason Bedford: Yes, sorry for the additional question just on the on the gross margin Brian did I hear you right that exiting.

Jason Bedford: 24, gross margin will be slightly above 35, I thought it would be a little higher but it kind of depends on the first half so is that correct slightly higher than 35.

Speaker Change: Yes, I think thats our assumption at this point.

Jayson Bedford: Okay, and then just on the whole, EBITDA, Margin, X, XIV Solutions. Where are we today? I was kind of doing it back of the envelope at about 19 percent, but that seems a little high, so I'm just kind of wondering. That's high, Jayson. That's high. I mean, I think it's... Again, we don't segment report the individual business units at the EBITDA level, but ballpark, I think I'd say somewhere in the 17% range, 16 and a half, somewhere like that on Yvette Da Margins, ex-IV. That's low. That's why I said we're under earning. Okay, yeah, for some reason, I thought IV solutions were lower than that in terms of... MedicalCityHospital.com, contribution. So again, approximating we don't go all the way down.

Speaker Change: Okay, and then just just on the whole.

Jason Bedford: EBIT.

Jason Bedford: Margins X.

Speaker Change: Thanks IV solutions.

Speaker Change: Where are we today I was kind of doing back of the envelope at about 19%, but that seems a little high. So I'm just kind of anything that's high adjacent that's high I think.

Speaker Change: Okay.

Speaker Change: Again, we don't segment report the individual business units on EBITDA level.

Speaker Change: <unk> Park, I think I'd say somewhere in the 17% range 16, five somewhere like that on.

Speaker Change: EBITDA margins ex IV solutions.

Speaker Change: Okay.

Speaker Change: So that's why I said, we're under earning.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Reason I thought IV solutions was lower than that in terms of.

Speaker Change: Contribution of.

Speaker Change: Im approximating we don't.

Speaker Change: Okay, all right around that level.

Speaker Change: Thank you.

Speaker Change: Okay. Thanks, guys.

Speaker Change: Thank you and this concludes our question and answer session I would like to turn the floor back to over to Vivek Jain for any closing comments.

Vivek Jain: Thanks, everyone for your interest in ICU medical we look forward to speaking to you again, which will just be in a matter of weeks on our Q1 call and I appreciate everybody's efforts to keep improving the company and your interest in the company. Thanks very much.

Vivek Jain: Thank you. Thank you, and this concludes our question and answer session. I would like to turn the floor back over to Vivek Jain for any closing comments. Thank you everyone for your interest in ICU Medical. We look forward to speaking to you again, which will just be in a matter of weeks on our Q1 call. And I appreciate everybody's efforts to keep improving the company and your interest in the company. Thanks very much. Thank you. The conference is now concluded; those attending today's presentation may not. The End,

Speaker Change: Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: [music].