Good day, everyone, and welcome to today's ICU Medical Inc.’s Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Mr. John Mills. Please go ahead, sir.

Thank you. Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the third quarter of 2024. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman, and Brian Bonnell, Chief Financial Officer. We want to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our Investor page and click on the Events Calendar; it will be listed under the third quarter 2024 events. Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call, including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results and are subject to risks and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that could 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 into 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, everyone. I'll quickly walk through our summary Q3 revenue and earnings performance as we believe the results are straightforward and then provide a few highlights on the various earnings and quality improvement efforts. Brian will take it from there for more specifics on the quarter and the balance of the year. Then I'll come back with a discussion on the strategic joint venture we just announced today with Otsuka and the overall situation around IV Solutions and the implications for our customers and ICU Medical from this transaction. Revenue for Q3 was $580 million for total company growth of 7% on a constant currency basis or 6% on a reported basis. Adjusted EBITDA was $95 million and EPS was $1.59. Gross margins were slightly higher than expected due to the capture of supply chain efficiencies, FX, and sales mix. We again had a good quarter of free cash flow generation, which enabled us to reduce some of the AR factoring line as previously discussed, and our cash balance increased to approximately $313 million. The broader demand and utilization environment in Q3 was healthy across all geographies and it's felt that way this year to date, and since we're almost halfway through Q4, we've not really seen any major changes in the environment. The capital environment was status quo, and the investments that customers need to make are getting made. Finally, we had a quarter with a net impact of foreign exchange in our favor. Getting into our business units more specifically, consumables grew 9% on both the constant currency and reported basis. The largest lines in the segment in order infusion consumables, vascular access, and oncology all grew high single digits or better. We continue to advance the points made on previous calls around focusing on clinical outcomes, new market creation, and improving in geographies where we had a low share and now have direct operations, and we're focused on progressing the innovation roadmap as we've mentioned previously. For the balance of 2024, nothing else is new here, and we would expect the full-year results likely to finish above our original mid-single-digit targets with the legacy ICU consumables lines being at record levels. Our IV Systems business unit grew 10% constant currency and 7% on a reported basis. We had more balance across the product lines here as compared to Q2. Sequentially, off the very strong Q2 for ambulatory hardware devices, those levels decreased, and the install calendar for LVPs was stronger than Q2; therefore, we saw sequential growth in the LVP line. Some key highlights here include continued new contract signings for our Plum Duo infusion system, and we're pleased with what we're seeing so far. We continue to advance our 510(k) submissions for our Plum Solo and LifeShield Safety software. We have received FDA feedback on those submissions, and we're working to address the open questions. After these products are cleared, the combination of the dual-channel Plum Duo and the single-channel Plum Solo will provide customers with flexibility across all clinical care areas, and our energy will shift towards the refreshed syringe platform of Medfusion with the goal of filing that 510(k) submission over the next several quarters and having it connect to our LifeShield safety software as well. Our ambition is to have the most modern fleet of infusion devices that can anchor the portfolio for many years to come. Simplistically, we want customers to have the right tools for the right job, all connected with a common user interface and a software solution that minimizes training, improves onboarding, enables interoperability, and drives standardization. For the balance of 2024, nothing else is new here. We would expect results in line with our original targets. Just wrapping up the business segments, our Vital Care segment was flat year over year on a constant currency and reported basis. Obviously, since the first day of Q4, there's been a lot happening in the IV Solutions marketplace and we'll discuss that when we explain the choice to enter this new joint venture. From an operations and quality standpoint, the cutover of our U.S. and Canada order to cash systems was executed in Q3, and many thanks to the numerous folks who went above and beyond to make this as smooth as possible. Now that this work is behind us, we're focused on optimizing our North American physical logistics and then we'll begin these activities internationally. We continue to work on the previously announced factory consolidations with essentially most projects intended to be completed by the end of 2025. The vast majority of our real estate contracts have now been exited or repriced, and savings in this area will come into the P&L over 2025 and beyond. While these may seem like mundane topics, all three items I just mentioned are economically meaningful and contribute to improving our profitability level. From a quality perspective, we believe we've launched the majority of field corrective actions as we needed to stabilize the acquired LSM products. There will be a few more, but we're optimistic that they will be smaller both in terms of absolute number and scope. In Q3, we also had a very detailed FDA follow-up inspection relating to the acquired warning letter at our Minneapolis site. That inspection was completed with no observations and is an important part of our quality improvement journey, and we're awaiting our end of inspection report. That's really the quick update on Q3. And with that, I'll turn it over to Brian, and then I'll come back to talk a bit more about IV Solutions and our newly announced joint ventures.

Thanks, Vivek, and good afternoon, everyone. Since Vivek covered the Q3 revenue for each of the businesses, I'll focus my remarks on recapping the Q3 performance for the remainder of the P&L, as well as the Q3 balance sheet and cash flow, and along the way provide commentary on any implications to our expectations for the full year. As you can see from the GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the second quarter was 37%, which was slightly better than our expectations. Similar to the first half of the year, we experienced favorable product mix with a higher proportion of disposables revenue relative to hardware during the quarter compared to our plan along with the benefits from supply chain synergies as we make progress towards capturing the balance of $50 million of synergies over the next few years. In the third quarter, we also experienced a more favorable foreign currency environment compared to the first half of the year, whereby the U.S. dollar weakened relative to the currencies in our key selling geographies while at the same time strengthening versus the Mexican peso, which is our primary manufacturing foreign currency. For Q4, we expect gross margins to be in the 36% to 37% range, reflecting the additional benefits from continued capture of synergies offset by the impacts of two items. The first of which is the expected higher revenue mix of IV Solutions, which has a lower gross margin profile, and the second being the recent reversal of the favorable foreign currency environment we experienced in Q3 as the U.S. Dollar has now strengthened relative to our selling foreign currencies. Adjusted SG&A expense was $120 million in Q3, and adjusted R&D was $20 million. Total adjusted operating expenses were $140 million and represented 24.2% of revenue. Both the total dollar amount of spend and spend as a percentage of revenue were exactly the same as Q2. On a year-over-year basis, total operating expenses were up 11%, reflecting a combination of increased selling expenses from higher revenues and higher incentive compensation. Restructuring, integration, and strategic transaction expenses were $17 million in the third quarter, related primarily to IT system integration and manufacturing network consolidation. Adjusted diluted earnings per share for the quarter was $1.59 compared to $1.57 last year. The current quarter results reflect net interest expense of $25 million. The third quarter adjusted effective tax rate was 20% and includes a discrete benefit related to U.S. Federal Return to Provision Adjustments, which contributed approximately $0.10 per share. For comparison purposes, the prior year tax rate reflected discrete benefits, which contributed approximately $0.25 per share. Diluted shares outstanding for the quarter were 24.6 million. Finally, adjusted EBITDA for Q3 increased by 6% to $95 million compared to $90 million last year. Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $16 million, which includes the impact of a $26 million outflow related to lower utilization of our accounts receivable purchase program. It was another solid free cash flow quarter when taking into consideration the impact from lower usage of the receivable program. We mentioned during the Q2 call that we expected to reduce our usage of the program during the second half of this year as our liquidity position continues to improve. As of the end of the quarter, we had $27 million outstanding under the program, and we expect this balance to further reduce by year-end. During the quarter, we invested $8 million of cash spend for quality system and product-related remediation activities, $17 million on restructuring and integration, and $20 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. Just to wrap up on the balance sheet, we finished the quarter with $1.6 million of debt and $313 million of cash. As we think about cash flows over the near term, there are a couple of items worth mentioning. First, as discussed on the last call, we believe the current cash balance is adequate to support the day-to-day liquidity needs of the business, and we would anticipate any further increases to the cash balance to be used for either early pay down of term loan principal or reducing usage of the accounts receivable factoring program. Second, year-to-date free cash flow is $109 million which is already ahead of our original full-year guidance. For the fourth quarter, we don't expect the same pace of cash generation as the fourth quarter typically has higher cash outflows for capital expenditures and tax payments. Plus, there is the potential reduction in the utilization of our receivable factoring program given our improved liquidity position. During the second quarter earnings call, we provided updated full-year adjusted EBITDA and EPS guidance. Based on our Q3 results, as well as the latest outlook for Q4, we are narrowing and raising the midpoint of our previously provided adjusted EBITDA guidance range of $3.45 to $3.65 to a range of $355 million to $365 million. For adjusted EPS, we are raising our previously provided guidance range of $4.95 to $5.35 per share to $5.40 to $5.70 per share, reflecting the improved outlook for adjusted EBITDA plus the previously mentioned $0.10 tax benefit recognized in the third quarter. The guidance assumes higher demand for IV Solutions, a commercial environment consistent with the third quarter, including no material impact from the deferral or cancellation of procedures and today's foreign currency rates. For modeling purposes, you can assume Q4 net interest expense of $24.5 million, a Q4 adjusted tax rate of 24%, and Q4 diluted shares outstanding of 24.6 million. To wrap up, we're happy with our performance for the first three quarters of the year, including improvement in our gross margin rate, better than planned free cash flow generation, and an improving balance sheet. We remain focused on the foundational work that will drive earnings improvement in 2025 and beyond. And now I'll hand the call back over to Vivek, who will provide more specifics on today's announced IV Solutions joint venture.

Okay. Thanks, Brian. I'll spend the balance of the time discussing what's happening with our IV Solutions business and our excitement about the joint venture we're announcing. Why Otsuka is the best partner in the world for us? How this will be a great outcome for our customers and the broader North American market? Our strategic thinking on why this structure and some economic implications for ICU Medical. Obviously, the U.S. IV Solutions market has been impacted by the events in North Carolina, and we empathize with the people and customers impacted by the crisis. We had and still have unabsorbed capacity in our Austin location and have been ramping up to ensure our long-term committed customers are well served and to be able to help new systems that are willing to make longer-term commitments, as we learned a few lessons in our experience through Hurricane Maria. Frankly, we've seen the best of customers and human nature in these moments. And we've also seen some of the characteristics that led to the market concentration that the country has faced. On these earnings calls for years, we've talked about the intrinsic value of IV Solutions being out of line with its economic price. Perhaps a simple analogy is it's the $0.10 screw that keeps the wheels on the bus. We spent years pitching geographic diversification. We went as far as asking the GPOs if they wanted to buy into our business over the years. And we’ve read the same articles in these times of crisis arguing that the government should mandate diversification when it practically has very few tools to do so, and the market has chosen not to. Yes, there are certain customers who get it and are willing to do the work to diversify. But our conclusion, which predates the current crisis, is that there has to be better choice in the market as defined by product breadth, supply reliability, innovation, geographic diversity, the ability to invest, and then maybe the market itself will work and balance the risk better across suppliers. That's why we're so excited to announce the creation of a manufacturing and innovation joint venture with Otsuka Pharmaceutical Factory around IV Solutions. They are the single best partner on the planet for us, and I'll go through the reasons why and I'll go through the reasons why that's the case on the attached slides that follow the revenue schedule in our investor presentation. And just to preempt the question, this is not some hastily arranged relationship. I first met with this company over a decade ago on other product categories. We were in some conversations in 2019 pre-COVID, and we've spent the better part of this year exploring this opportunity with hundreds of hours of technical reviews, site visits across continents, and building a relationship and shared vision about something that could last over the next decade. First, just a few facts about Otsuka on slides 5 and 6. They are a Japanese global healthcare company that's been in business for over 100 years and are an active participant in branded pharma in the U.S. market. The stats on the right-hand side of the slide are self-evident, but they have a big pharma-like balance sheet and capitalization, which is different from all the current public company suppliers of IV Solutions, including ourselves. Their IV Solutions portfolio is part of their original business, and they're the largest supplier in Asia, and we believe they have the best innovation of any global supplier. That innovation is everything from packaging, being the world's only producer of a four-chamber TPN bag to very cool admixture and reconstitution formats, to all materials being PVC-free across the entire portfolio to core pharma competency around formulations and stability to fit with the other skills. Slide 6 shows some of this track record of innovation. Slide 7 outlines the core reasons we were attracted to them, if not obvious already. Our main reasons were scale and redundancy, innovation, the cultural mindset, financial strength, and the experience in U.S. partnerships. Key highlights of the transaction are at the bottom of the slide, which is an upfront payment to ICU Medical, a milestone payment potentially after two years, and a put/call option for either party starting in 2030 shared governance, etc. From an ICU perspective versus our other lines of business, it's been hard for us to drive meaningful innovation in the IV Solutions category, and our business generally sat alone as a domestic-only enterprise in Austin, Texas. Slide 8 shows Otsuka's global manufacturing footprint, and Austin will join 16 owned Otsuka sites with a long-term goal of FDA approval at several of these locations to create more redundancy. Just one comment on slide 9. In a long-term partnership, culture and alignment matter. They operate with a long-term mindset backed by financial strength and experience. They operate in geographies faced with natural disaster risk daily, and the commitment to new production technology combined with risk mitigation is ingrained in their culture. I've seen firsthand how they hardened their sites in Japan. From a customer perspective, we want to bring more innovation along with clear supply redundancy to allow the market to fix the concentration problem. We love this structure outlined on slide 10, the key item slide because it creates something that will be seamless to customers. On the front end, it will feel exactly the same to customers with us providing everything as we currently do—sales, logistics, billing, etc.—but with additional resources on the manufacturing side. We've also stated on these calls for years that IV solutions should be priced relative to its own intrinsic value. If the market continues to combine this category with other infusion items, we can stay in this structure, or if the market separates these items in the next GPO cycle or the one after that, we have a put/call structure that allows us to make those decisions after a minimum of 5 years. To conclude this discussion, we are honored that Otsuka chose to work with us and look forward to many years of a fruitful partnership. Now there will be implications for ICU Medical. It was a tough call to make, but it was important for Otsuka to be able to consolidate the revenues of the joint venture. So as a result, ICU will deconsolidate IV Solutions financial results and recognize only our proportional share in the net earnings of the JV. While it's painful to give up so much revenue, we do believe with the upfront payment, the transaction will be EPS breakeven for ICU. Simply stated, the interest expense savings from debt pay down from the upfront $200 million payment equals the current EBIT contribution of the business. We have to work through the financial reconciliations between now and closing, but net-net, our gross margin will change between 300 to 400 basis points initially after close and could reach 500 basis points as the JV stands up its own services, but that will take some time. We would have to subtract around $25 million in annual EBITDA from our roll-up next year. We believe the JV will be able to sustain its own CapEx, and we can make other choices with that capital. In the bigger picture of ICU, on the last few calls, we've talked about revenue stabilization and the ability to grow our differentiated product lines as demonstrated in Q3. While it's nice to have that revenue growth now, it's not lost on us that we're still under-earning as a company relative to the industry as evidenced by the fact we had higher earnings with less revenue historically. This JV does not solve that issue on an absolute basis, even if some of the margin ratios change. We continue to be extremely focused on all the actions to improve profit in the medium term, which are centered on revenue growth, mix and pricing, operational efficiencies, and eventually waiting for the macro items and currency and interest rates to improve. Where this JV does impact us is how long we can bear interest expense to maximize the value of any of our other assets. Net debt at the end of Q3 was about $1.3 billion as Brian referenced; between our mandatory principal payments of around $75 million in 2025 plus $200 million in pay down of the term loans from this situation, it would put us approximately around $1 billion of net debt by the end of 2025. If earnings can continue to improve alongside an improving interest rate environment and lower leverage ratio spread, perhaps we can think about other ways to return capital to shareholders over time. Again, all of this has to happen, but it's certainly not out of the range of potential outcomes. To be direct about our goals for the next year or two, we want our consumables and systems business 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. Ultimately, we want to transfer value from debt to equity, which Brian noted we are finally better prepared to move on. There is no confusion within the company in the pursuit of these goals, and we don't have any frivolous activities here. We produce essential items that require significant 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 over the last few years and the good news of today. Thank you to all our team members and customers as we improve each day. With that, I'll open it up to questions. Thank you.

We'll go first to Brett Fishbin with KeyBanc.

Hey, guys. Thank you so much for taking the questions. Vivek, you definitely gave a lot of detail around why this was the best partner in terms of entering this type of JV arrangement. I was just curious if you could give a little bit more around the strategic thought process of going in this direction with the JV, whether you guys considered a sale, and then why you think sticking around in the solutions business for the foreseeable future is the best decision for the company.

Sure. Hi, Brett. I don't think we ever had any considerations about a sale. It's a core product for our customers that's deeply linked with the other things that we do. I think where we struggled is what I tried to outline in the script: trying to be the best innovator we can be on pumps and software, trying to be the best innovator around consumables and category creation. It was hard for us to do all of it. Our portfolio was a little narrower here than some of the other players. We were looking for a way to stay in the market, still absolutely deliver these items to our customers, but make sure we could bring the innovation that could be more relevant to them and diversify the market a little bit. For us, like the choices in the other countries, it came down to who had market leadership around the world and the other geographies and who had the most innovation.

All right. I appreciate that color. And then just one question on the ERP. You touched on it briefly. I believe that you've now completed the U.S. and North America portion of it and sounds like it was relatively successful. Just curious if there was any disruption intra-quarter from that at all. And what kind of incremental benefits you might be seeing as we progress into the fourth quarter?

I mean, there was certainly disruption to the team members' lives during the quarter. We had to deal with it ourselves included. It's a lot of work. A lot of people sacrificed. I would say during the month of August, yeah, there was a little bit of bumpiness. We had the month of September to clean up some of those items, but it only gets cleaned up because people gave a lot.

Brett, to your point, I would say that although there was some volatility during the quarter, the quarter itself really wasn't impacted at all when you look at it kind of in total. So from my standpoint as CFO, that's the definition of success.

All right. Thanks again. I'll jump back in queue. Appreciate it, guys.

We'll go next to Eric Fleming with Raymond James.

Hey, guys. It's on for Jason tonight. A couple of quick questions. On LVP on Duo, have you been able to hold the pricing levels that you were talking about earlier this year?

I don't know that we've publicly articulated the pricing levels, but I would say we recognize that you don’t have many chances to have new technology reset in the market. We believe in the technology. We want customers who believe in that. We're focused on holding that level. We have not made any changes to where we thought we would start marketing that product.

And how's the market share looking with everyone now back in the market?

I mean, again, I think everybody knows it's obviously it's a very hot topic given all the competitors' comments on it. I think we feel good about the cards we're holding. We feel good about it from a competitive standpoint with Duo in the market and the amount of conversations. We were very transparent on the power of incumbency, etc. It's all relative to the size of our business, which frankly isn't that big in the U.S., and we feel very good if Solo comes and the ability to access our own install base where our equipment is finally aging out and needing a little bit of refresh. So I think we feel good on both of those fronts. And then the CAD product is almost a separate conversation but continues to be the best asset that came with the acquisition.

Sorry. And one other follow-up, I mean, not follow-up, another question. On the Mexican peso, with the recent election results, what's the outlook in terms of any potential tariffs and the impact on the benefit you're getting in the peso right now?

I mean, I think obviously it's unclear. Last time around, it was not particularly meaningful. I would say we are a big player in the amount of stuff coming from Mexico not only in the health care industry but automotive consumer or whatever, and we'll all be treated the same way. Right now we're not sitting around and spending a lot of time planning on that scenario.

Okay. And then just sorry one last one. You mentioned the FDA has inspected that Smiths facility with the warning letter, and you're just awaiting the final report. Is that correct?

We said at the site where the warning letter was issued, we did have a very thorough follow-up inspection. We had no observations. That's one of the components to getting a full clean bill of health. It's the hardest and most strenuous one. And so that box got checked. At the end of that, you're issued an end-of-inspection report. You could receive that any number of months after the inspection, and we don't have that in hand yet.

Okay. Appreciate it. Thanks, guys.

We'll go next to Larry Solow with CJS Securities.

Hi, good afternoon. I guess just going back to the strategy of the deal, I guess you kind of get the best of both worlds in that you can still control the solutions piece and enable it to sell it with the systems and the consumables, while you also have another partner helping take 50% of that investment. Also, you're adding, I assume, some complementary products that they're bringing as well as the manufacturing redundancy, right? So to me, it seems like almost a win-win if I'm looking at that correctly.

I mean, we thought about it a lot. I appreciate the comments. We thought about it a lot. It's a very fluid time in the market. We tried to come up with a structure that protected us in the near term, sort of in the medium term, and maybe hedged a little bit of the risk we have today, but certainly kept us in the business for the long term. If we can do what we think we can do together. So we really think we found a win-win on the structure, and we searched for this for a long time. It's not easy to do. It took a long time.

And the valuation right and the valuation looks like it's 16 times EBITDA. I guess that there must be Otsuka must have, and you as well, think that this number is certainly a depressed number for the last couple of years. So I'm sure there's some low-hanging fruit just on pricing and things, but then the ability to add their products into your distribution network, I guess, brings that up a lot more potentially. But I guess the question I have is there's a decent amount of assets right on your balance sheet tied to solutions that I guess will come off in the deconsolidation. Is there any way to frame that?

Yeah, Larry. Hey, it's Brian. Your question around multiples, which we don't really pay attention to, I think it's probably closer to 13 times or something like that rather than the 16 you mentioned. But we think it's representative of the value of the business, of course, and the value that can be created with our partners. And then, of course, I guess just from an accounting standpoint, we will deconsolidate the financial results as well as kind of the assets and liabilities on the balance sheet.

I think the decision-making structure was one part of it, Larry. The other decision making was fundamentally about whether this is better for customers; is it better for the marketplace to check the boxes that help undo the concentration by bringing innovation and more choice? We looked in the mirror and said every one of those we felt like this will be better for the marketplace, better for the customer. We couldn't get there on our own.

Got you. Great. And if I could just squeeze one more question just on the gross margin. Independent of the lift you expect from the deconsolidation. But just on the core or the entire business, ex the solutions piece. You've captured, it sounds like some supply chain efficiencies or expedited those in the last couple of quarters. Are those kind of just a little bit faster than you assume you get them, but nothing really to perhaps the outlook for next year doesn't really change that much. You've just gotten a little bit better this year faster. I guess question one. And then you still expect consolidation to drive like a 200 basis point improvement in gross margin plus or minus, I'd say ‘26 when you get the full-year benefit? Thanks.

Yeah, Larry. So on the two questions, one, as it relates to the favorability we saw in Q3, yes, we're getting those synergies a little bit sooner than expected. We've talked about $50 million is kind of what we expect as part of Phase 2 in total. Most of that is going to show up in the gross margin line. We still think that the timeline for capturing everything is by the end of next year. So, we're still we just happen to be a little ahead of schedule. So I don't think it really changes the opportunity.

I just want to rephrase. I'm sorry, I felt like the projects will be done by the end of next year, right? It might take a little bit longer for the projects to be finished. I think, Larry, I would focus on the gross margin percentage. We've been very clear, Brian, in every script we had a target of 40 that we wanted to get to, and that 50 was part of filling the gap. So it's all relative to where we're against that target.

Yeah, Vivek did reference as it relates to the joint venture and the margin impact there. The remaining 1 to 2 percentage point change would probably be coming later on than 2026 when the joint venture would potentially be standing a little more on its own as it relates to certain commercial type of activities.

Right, got you. And you're going to get to 40 well, just do the math just with the consolidation alone from where we are today or pretty close, right?

Yes.

Got you. Okay. Great. I appreciate all the color. Thanks.

We'll move next to Kristen Stewart with CL King.

Hi. Thanks for taking the question. I was wondering if you could just share a little bit more details on what you're seeing today with IV Solutions and your ability to ramp up manufacturing, how much you're able to ramp up to really take advantage of the opportunity from your competitor.

I mean, we feel, Kristen, it's Vivek. Thanks for the question. We feel like we're not interested in really playing a short-term game. We got burned on that in Maria and our prize at the end of that was having to restructure our business back then and we don't want to do that again. So for us, the business we're interested in is if truly people want to diversify and take a long-term view on their either dual or sole, whatever it may be, supply. I don't think we're running around trying to be opportunistic, and part of this decision on this partnership was saying we thought just by bringing these set of skills and redundancy and innovation together, we could wind up with higher market share than we have today over time. This is much more about the long term.

We'll move next to Mike Matson with Needham and Company.

Yeah, thanks for taking my questions. I joined the call a little late, so I apologize if he's gone through this. But just so on this deal, it's going to be a JV. So all the— is there any revenue benefit to ICU once the deal is completely set up or is all that revenue going to be flowing through the JV?

So, Mike, just I guess how do the activities of the joint venture show up in our P&L? We will deconsolidate the results. So on the P&L, all we will show is our portion in the net earnings of the joint venture. We will benefit economically from any incremental revenues if they generate incremental profits, but it won't show up on our revenue line.

Okay, got it. And then, does your sales team would be selling the IV solutions or I mean, would those people move over to be part of the JV then or I guess, how would it—

Mike, it's Vivek. Commercially, everything to the customer remains exactly the same. You order it via ICU, ship via ICU, we run the warehouse, etc., we bill. Now those may be services that are provided on behalf of the JV, but the whole experience is seamless to the customer, and the integrated value that's delivered, meaning the commingling of the value prop of some of these products across other infusion items continues because it’s all held together commercially. The revenue benefit is really one of there's two different parts of that question. One part of the revenue benefits is if we believe on our own, we had a better chance of the first two pillars of our company that we described in the call, the infusion consumables and the infusion pumps growing at a superior growth rate to solutions over time; it could be revenue growth accretive.

Yeah. Okay. Yeah, that makes a lot of sense then. So you're kind of potentially removing a slower growth business and, you know, maintaining the benefits of bringing that along with everything else to the table for the customers.

I think just to be super blunt about it, over the... if we've learned, yes, there's some shortage today, but if we've learned what happened last time and we learned what happened through the people who supplied things during COVID, the market has a habit of vaccines, ventilators, testing, etc. The market has a chance of reverting to the mean rather even if there's some uplift and recognition of the value of this market. The only way to make it a faster growth business for us was with more innovation and we needed a partner to help us do that.

Okay. Got it. And then just want to ask one on the pump market and competitive dynamics there. So, I guess, I don't cover... but just looking through their comments, it sounds like they kind of they're saying at least that they're delivering on what they thought they could do in terms of re-entering that market. So, what are you seeing and to what degree have you been able to pick off share from them or other players?

Yes. It's an active market because a lot of people are forced to make a decision right now. I think, again, we've grown up in this business in our comments in the last couple of calls, which is a huge advantage to incumbency to all players. But again, relative to our LVP size, which wasn't that big, there's enough choices out there to have us certainly get a meaningful return on our R&D investments into the Plum Duo and Plum Solo programs and there's more conversations going on than there ever have been. We certainly think a huge majority of people generally stay with the incumbent, but the amount of market that needs to change is plenty for us to grow and feed on at once.

Okay. Yeah, that makes sense. Thank you.

We will go next to Michael Toomey with Jefferies.

Hey, guys. Thanks for taking my question. Most have been answered already, but just on the Otsuka JV, what would the free cash flow accretion look like for the deal? How much funding will that need on a CapEx perspective? I know you said it's neutral on adjusted EPS, but just on the CapEx and free cash flow.

I would say, Mike, in terms of free cash flow, marginally positive—not neutral to marginally positive for us.

I mean, we haven't had hey, Mike, welcome to the call by the way. It's not like we had tons of excess cash lying around in the last year or two. There are some spots we want to invest in. I wouldn't on some of the production assets in other areas, I wouldn't assume that it changes the overall cash flow picture that much. It may just get reinvested in some other areas that we can make more of a difference.

We'll return now to Brett Fishbin with KeyBanc.

Hey, thanks for taking the follow-up. Just wanted to clarify one point. So, yes, totally appreciate the comments around short-term versus long-term and in full agreement. Just wanted to see you did mention that there was some incremental capacity, if there was some additional revenue or EBITDA that you're expecting to realize from that increased demand in the fourth quarter, and what's included in guidance?

We just haven't thought about it that much, Brett. We're going as fast as we can go and we're doing that on the belief that there will be enough volume that's sustainable there. We're really not sitting around looking at it on a short-term basis.

All right. Fair enough. And last question for me. Just can you explain any more you can about the put/call option that's embedded in the JV agreement and what the mechanics look like at a high level? Thank you.

It will all be public in our filings over the next couple of days or weeks whenever they go in. Essentially, it's an option that goes out a decade that can't be exercised until the fifth year, and that option is based on a multiple of revenues. So if the market grows and expands in value, we participate in that, and we receive that multiple of revenues times our ownership percentage. It's an incentive to keep growing the business to make it as large and relevant to customers as possible, and vice versa if companies only wound up supplying, call it wet items; if customers only want to buy fluids or solutions individually, a call option exists if there's no need to have some of these items together. But no one really knows today how the market is going to develop, and I think that's the best of all worlds as we can figure it out as it comes, and to the customer, it just needs to be seamless.

With no other questions holding, I'll now turn the conference back to our presenters for any additional or closing comments.

Thanks, everyone for your interest in ICU Medical. Sorry, the call was so late. We're obviously busy trying to get stuff done. I think this is certainly the latest relative to the quarter and we've done it, and we will make sure it happens faster in the future. Have a good fall, and talk to you soon. Thanks very much.

This does conclude today's call. We thank you for your participation. You may disconnect at any time.