Good day, and welcome to the ICU Medical, Inc. 4th Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I'd like to now turn the conference over to John Mills. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the 4th Quarter and full year of 2025. 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. To view the presentation, please go to our investor page and click on Events Calendar, and it will be under the fourth quarter 2025 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 risk 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 risk and uncertainties that have a direct bearing on operation 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, everyone. We are glad the call is earlier after year-end, as the systems and processes have become more integrated within the company. I'll walk through our high-level revenue and earnings performance, provide some important housekeeping and operational updates, and comment a bit on our near-term outlook. Then I'll turn over to Brian to recap the full Q4 results and provide our complete 2026 guidance. After that, I'll offer a few thoughts on our longer-term outlook, capital allocation strategy, and where we are in our mission of creating a comprehensive infusion therapy company. Revenue for Q4 was $536 million for total company growth of 2% on an organic basis, or minus 14% reported, and we finished with 5% organic growth for the company for full year 2025. Gross margins were again 40%, above 40%, and we delivered EBITDA of $98 million and EPS of $1.91. As a reminder, the reported results are impacted by the mid-2025 creation of the Atsuka ICU Medical JV and resulting deconsolidation of IV solutions from our income statement. Both our consumables and systems businesses delivered record revenue orders operationally, and Brian will explain the year-over-year decrease in EBITDA due to the deconsolidation and tariffs. Cash generation was again strong as we repaid additional principal, and net debt is currently just below $1 billion. The broader demand and utilization environment in Q4 continued to be attractive across almost every geography, with the U.S. having a sharper and faster flu spike towards the end of the year, which has normalized now. The capital environment is status quo, and it does appear investments that customers need to get done are getting done. On currency, while the weaker dollar does help revenues in our selling geographies, we are monitoring the Mexican peso, which is at its strongest point. Getting into our businesses more specifically, our consumables business in Q4 grew 6% reported than 5% organic. It was a record quarter operationally, as Q3 had some revenue benefit from the Italian tax settlement. For the year, consumables grew 7% reported and 6% organic. Going into a bit more detail about how the business has performed over the year, three of the product lines, infusion consumables, oncology, and tracheostomy, were all at high single-digit levels, and we believe going forward we have both the operational stability and innovation to improve our performance in vascular access. Reflecting on our performance in consumables over the last few years, we grew organically 7% in 2024, 6% in 2025, and we continue to believe that mid-single digits is a good assumption for the medium term. Our IV systems business grew 3% reported and 1% organic and was again the best quarter in pumps even with some installations being pulled into Q3. As a reminder, Q4 2024 was a very large quarter for pumps, hence why we foreshadowed the growth right here a bit on the prior call. Going into more detail about how the product families performed over the year, LVPs were low double digits for the year, syringe pumps were high single digits, and these were offset by negativity in the ambulatory line, which was 100% due to a single OEM customer that's been decreasing for the last few years and will finally fully exit. Reflecting on our performance in this segment over the last few years, systems grew organically 7% in 2024, 5% in 2025, and we continue to believe that mid-single digits is a good assumption for this segment for the near term, and I'll comment on the product. Just wrapping up the businesses, VitalCare decreased 6% on an organic basis and decreased 35% reported due to the deconsolidation of IV solutions and was essentially flat both sequentially and for the year. As VitalCare now makes an impact on the overall company growth rates, we'll give a little little bit of background on what we'll be doing with these businesses. There are a limited number of low or negative profit SKUs within VitalCare, and we've essentially been harvesting those as they have positive cash flow and a finite life, or even discontinuing the loss-making SKUs in accordance with various customer contractual or regulatory requirements. Most of that work should wrap up over the next few months with the biggest year-over-year impacts to be felt in Q1. Mathematically, we believe the right revenue assumption for the near term for these businesses is flat to slightly down in the face of our decisions to improve profit. We do have some important housekeeping and operational updates that have transpired over the last 90 days, all of which dovetail with our priorities from late 2024 and 2025. First, we've received official closure of the broad FDA warning letter received by Smith's Medical just prior to us closing the acquisition. In addition to validating the work we've done, we believe when combined with the profit and growth improvements within VitalCare, we should have more strategic choices available to us. Second, we continue to make progress in the pursuit of our new 510Ks for MedFusion 5000 syringe pumps and CAD ambulatory pumps and the related LifeShield safety software. This work is important as it underpins the core tenet of our systems business. to have the most modern infusion hardware devices all connected on a single software solution for customers. And this work is important also because we believe it addresses the primary concern of the warning letter we received in early 2020. Third, we've generally finished the manufacturing integration of two large legacy Smith's Medical manufacturing sites and will begin to reap the benefits as bridge inventory is depleted towards the end of this year. And lastly, a bit in real time, We've gone live this quarter with a full order-to-cash conversion for Europe, and it's proceeding smoothly. And the entire company, except for a limited amount of legacy Smith's Medical Asia-Pacific regions, are on a single instance of a modern ERP that will lead to future synergies in logistics and customer service. Over the last six quarters or so, we've been outlining our medium-term goals on these calls, which started with the overall commentary about a belief that we were under-earning and describing the actions we needed to pursue to improve. In our view, the medium-term we were describing has become the near-term of the back half of this 2026 calendar year. I'll try to explain how the list of items I just went through make their way into the financial statements in the back half of this year. The first item for revenues is that we'll lap the creation of the solutions JV in May, which, while just optics, does require significant explanation around the large reported negative revenue growth rates. Second, the vast majority of pump unit growth in the back half will be from Plum Duo and Solo products, which carry higher ASPs that are more meaningful to revenue growth. The gross margin line, which has been steadily improving, should benefit from manufacturing and logistics optimization. Even though the manufacturing integrations are largely completed as of today, it still takes several months to sell out the existing pre-costed inventory. The work around the quality remediations, IT system integrations, plant closures, and logistics consolidations have consumed significant cash, and that should materially change after the second quarter, leading to improved free cash flow in the back half. We know it's taken time to get this work done and appreciate investors' patience, but believe it is now within the near-term horizon. With that, I'll turn it over to Brian.

Thanks, Vivek, and good afternoon, everyone. Since Vivek covered the Q4 revenue for each of the businesses, I'll focus my remarks on recapping the Q4 performance for the remainder of the P&L, along with the Q4 balance sheet and cash flow, and then provide guidance on our expectations for 2026. As you can see from the gap to non-gap reconciliation in the press release, adjusted gross margin for the fourth quarter was 40.5 percent, which was in line with the guidance we provided on the Q3 call of 40 to 41 percent. Unlike the third quarter, there were not any discrete items worth calling out in Q4 other than tariffs, where we recognized $11 million of expense, which represents a sequential increase of $2 million compared to Q3. And the Q4 gross margin rate continued to benefit from the deconsolidation of the Ivy Solutions business and the ongoing capture of integration synergies. Adjusted SG&A expense was $113 million in Q4, and adjusted R&D was $21 million. Total adjusted operating expenses were $134 million and represented 25% of revenue, which is a half percentage point lower than the previously provided guidance of 25.5%, driven mostly by deferred spending and general cost controls. Similar to gross margin, Q4 was mostly a clean quarter for operating expenses, and we didn't have some of the unique items that we called out for Q3. Restructuring integration and strategic transaction expenses were $20 million in the fourth quarter and related primarily to our IT systems integration and manufacturing plant consolidation projects, where both the level of activity and the amount of spend peaked in Q4 as we approach completion of several of these projects in the early part of 2026. Adjusted EBITDA for Q4 was $98 million, a decrease of 7% from $106 million last year. The year-over-year decline of $8 million was driven by two items. The first is the deconsolidation of the IB Solutions business, which contributed higher than normal earnings in Q4 2024 due to additional volumes from the U.S. market shortage. And the second item is the impact from current year tariffs. Combined, these two items had a year-over-year impact on adjusted EBITDA for the fourth quarter of approximately $25 million. And finally, adjusted diluted earnings per share for the quarter was $1.91 compared to $2.11 last year, which is a decline of 9%. The current quarter results reflect adjusted net interest expense of $18 million, an adjusted effective tax rate of 23%, and diluted shares outstanding of $25.2 million. Now, moving on to cash flow and the balance sheet, for the quarter, free cash flow was $44 million, and it was another solid free cash flow quarter, especially when taking into consideration the cash impact from higher tariffs. During the quarter, we invested $17 million of cash spend for quality system and product-related remediation activities, $20 million on restructuring and integration, and $25 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 $1.3 billion of debt and $308 million of cash. During the quarter, we paid down $30 million of principal on our term loan B, bringing total debt principal payments for the full year to $303 million. Moving forward to the 2026 outlook and beginning with adjusted revenue, we expect full year 2026 consolidated organic revenue growth in the low to mid single digit range. And we expect the organic growth rates for each of the underlying business units to generally be in line with the longer-term outlook that we've provided the last several years, which is mid-single digits for both consumables and infusion systems and flat to down slightly for vital care. Consumables growth is expected to be driven mostly by volume increases from continued share gain in our core infusion lines and the benefit of higher growth markets for oncology and other niche categories. Historically, the consumables business has experienced a sequential step-down in absolute revenue dollars from Q4 to Q1 each year, and given the higher demand we experienced in late December from the strong but short-lived flu season, we would not expect this year to be any different. The infusion systems guidance reflects accelerated growth in our LVP line, driven by implementations of Plum Duo and Solo from competitive wins, which will be more weighted towards the back half of the year. This will be somewhat offset by lower volumes in the ambulatory line from the wind-down of an expiring OEM arrangement. Based on current foreign exchange rates, we expect currency to be favorable to reported revenue growth rate in the first quarter of 26 and closer to neutral for the remainder of the year. In terms of calendarization, we would expect the quarterly growth rates at a consolidated level to be higher in the back half of the year due to the IV systems implementation schedule. Moving further down the P&L, we expect adjusted gross margin for the full year to be around 41%. The 41% gross margin reflects the benefit from continued synergy capture being partially offset by higher manufacturing costs from inflation and the recent strengthening of the Mexican peso. It also assumes tariff expense of approximately 2% of revenue based on tariff rates and available exemptions that are in place today. We expect the gross margin rate to improve throughout the year as we complete the manufacturing consolidation and supply chain integration projects and begin to realize the benefits, with the gross margin rate as we exit the year higher than the 41% average. We are planning for adjusted operating expenses as a percentage of revenue to be approximately 25% for 2026, consisting of 21% for SG&A and 4% for R&D. The SG&A rate of 21% is a slight decrease compared to Q4 of 2025 and reflects integration savings, offsetting the negative impacts from inflation and currency. The R&D spend of 4% of revenue represents a modest increase to fund various initiatives expected to drive long-term revenue growth. Net interest expense is expected to be approximately $70 million based on current interest rates, as well as the roll-off of a portion of our interest rate swaps. The adjusted tax rate should be around 25%, and diluted shares outstanding are estimated to average $25.3 million during the year. Bringing these components together results in a 2026 adjusted EBITDA range of $400 to $430 million, and adjusted EPS in the range of $7.75 to $8.45 per share. It's worth noting that the 2026 EBITDA range reflects the impact from the annualization of two items. The first is the full year of tariff impact, and the second is the deconsolidation of the IV solutions business and associated earnings, which combined are worth approximately $25 million. dollars. Now on the cash flow. We ended 2025 with $100 million of free cash flow for the year, which was slightly better than our original 2025 guidance after considering the unplanned cash flow impact from tariffs. For 2026, we expect free cash flow to improve relative to 2025, driven by the combination of higher earnings and reduced spending for restructuring and integration and product-related remediation. In terms of calendarization, we expect free cash flow generation to be weighted towards the back half of the year, consistent with earnings, and also reflecting the reduction in integration spending as we complete a number of the manufacturing and supply chain projects over the course of the year. In terms of capital allocation, after paying down over $300 million of debt over the course of 2025, we ended the year with $1 billion of net debt and a net leverage ratio of just under two and a half times. Any free cash flow generated during 2026 will continue to be prioritized towards debt paydown. And we stated previously that our long-term leverage target is two times. And once we reach that level, any free cash flow will then be available for share repurchases. Our expectation is that we should reach our targeted leverage by the beginning of 2027 based solely on organic cash flows, with the possibility to accelerate this timing from proceeds of any potential transactions. To wrap up, we're pleased with the business performance during 2025. The improvements we've made over the past several years brought us back the more predictable and consistent revenue growth and improved profitability, which are reflected in the 2025 results. For 2026 and beyond, we're focused on continuing to deliver at or above our long-term revenue targets, expanding our margins by capturing some of the remaining two percentage points of opportunity that we've discussed, and improving free cash flow generation. At the time of the Smith's medical acquisition, four years ago, we anticipated the combined organization would generate $500 million in EBITDA after the integration was completed. Certainly, the integration has been bumpier and taken longer than we expected. And while our 2026 EBITDA guidance is still short of the $500 million target, the difference of $70 million when compared to the top end of the 2026 EBITDA guidance range can be attributed to the $25 million of earnings related to the IB Solutions divestiture, along with $40 to $50 million in unanticipated tariffs. So we feel the underlying business performance is now within reach of our original goals at the time of the acquisition, but tariffs do present another hurdle that we are focused on overcoming to achieve those original targets. And with that, I'll hand the call back over to Vivek to discuss some of the initiatives to get us there.

Okay. Thanks, Brian. That was straightforward. And we hope it's obvious that this year's revenue guidance is the same as the last few years with a better track record in our ability to deliver more predictable revenues, and we hope the math on where we are relative to our original transaction targets is clear. While we have achieved healthy revenue growth in our differentiated core product lines for the last few years, sustained revenue growth is about consistent execution combined with consistent innovation to refresh the portfolio. Strategically, our goal has been to build the most comprehensive and innovative infusion. Throughout the last few years, we did not skimp on R&D, nor innovation, nor capital investments into the manufacturing assets of our consumables and systems businesses. And we found a win-win with Otsuka in the JV that will modernize the IV. As a result, we believe in IV systems. We have a complete platform solution that will anchor the segment for the next 10 plus years as the product life cycles are incredibly long. In infusion consumables, we have scale underpinned by leading brands with great critical data that will be supported with more innovation in the core and adjacencies of this business. We believe these investments, alongside good commercial execution, will allow us to continue the revenue trends longer term. Specifically, over the long term, we expect our infusion systems business to have opportunities both in competitive situations and as we begin a long-term refresh of our own pump installed based in earnest in 2027. We expect our offerings at some point this year to include each device, Plum Duo, Plum Solo, MedFusion 5000 Syringe, and CAD Ambulatory, to be the most recently FDA-cleared pumps and the most modernized from a design perspective, each with their own unique clinical advantages and all connected via a single software solution where we're working to add features every day. That portfolio has us on the best footing we've ever had, and we believe it offers incremental value to our existing install-based customers. In our consumables business, we'll continue to create the niche markets that have powered us, along with expanded capacities in our core business, all supplemented by incremental innovation around the core that will be more visible over the next few quarters. And for customers, this will be economically combined, when commercially relevant, with a more reliable and more innovative IV solutions business where our partner brings tremendous value. While it's nice now that we can proform a bridge back clearly to our original transaction estimates, tariffs and higher interest rates are all real, and therefore we are not still quite at the targets we expected in real dollars. We're describing the long-term revenue sustainability to illustrate that there is more than enough opportunity to jump over the tariffs, the tariff headwinds over time. And that will be supplemented by the annualization of the operations and logistics cost savings into 2027 and additional margin opportunities that Brian described and more time to mitigate the tariffs via price. The balance sheet and the overall portfolio construction do play a role in maximizing revenue growth and EPS. As Brian said, our goal has always been to be two times or less levered, which feels appropriate for a mid-single-digit growing manufacturing company. We're now within half a turn of that, and we can get there the old-fashioned way via organic cash flow generation this year or via any strategic moves. It's obvious that vital care is less synergistic to our core lines of business, dilutive to our overall growth rate, and our team has shown the ability to be creative in finding the most logical strategic outcomes. And independent of that, we're working to improve the organic profile of that business with the safest balance sheet we've had in recent history. Since our time here, we've tried to protect the share base with the only meaningful equity dilution resulting from the shares used in the Hospira and Smith transactions. We know returning capital can be attractive on a thin share base, and our external M&A needs are minimal as we have enough organic innovation in-house. So it's pretty obvious to us what we should be doing. Of course, there are wild cards with tariffs and interest rates, but we feel like we've weathered those issues. All in all, it's a good place to be with our best businesses growing. Both will again reach record revenues in 2026, and we can see a vast number of projects nearing completion. We expect our consumables and systems businesses to be reliable growers with an industry-acceptable profit margin, the tightest and most optimized manufacturing network, and each with a multi-year innovation portfolio. and ultimately our goal is 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 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 of the last few years. Thanks to all our team members and customers as we improve each day. And with that, we'll open it up to questions. Thanks, Stephanie.

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. We'll pause for just a moment to allow everyone a chance to join the queue.

And we'll take our first question from Jason Redford with Raymond James.

Your line is now open.

Good afternoon, guys. Maybe a few questions. Just start with systems. Double-digit LVP growth, very strong for the year. Are customers – can you talk about the environment out there today? Are customers – it sounds like it, but are customers actively making decisions today? Is there any pausing in the environment at all?

I think from a capital perspective, Jason, the words have been the exact same. I think the last six quarters, which is the capital environment, has been very stable. Nothing different than deals are getting done. I think the industry challenges historically are well known, and there was some backup in refresh cycles, and I think it's coming to fruition. I'm not sure I'd call it accelerated, but again, we were starting from a place where our share base after Hospira had gone backwards from here was very low, and so these improvements are very meaningful to our P&O.

Okay, and just the comment on second half, can we assume that the vast majority of pump business you're doing today on the LVP side is duo and solo?

Domestically in the United States, for the U.S. portion internationally, the 360 continues to be placed.

Okay. Just on the syringe and ambulatory side, are the pending clearances having an impact on infusion system sales? Meaning, is there a pause there as folks may wait for the newer approved products?

No. I mean, syringe of the four years that we've owned the syringe business last year was pretty close to the top. And any customer who is serious about the platform is very interested in what the future roadmap looks like and wants to engage on it and hasn't been slowing anything down.

Okay. And just timing on the clearances, is it safe to assume a 2Q mid-year?

I mean, I think we would leave it as, one, that we are incredibly pleased that we have seen no change in the regulatory. We received a first-pass review on the Plum Duo. We felt these were high-quality filings. We're doing our part, and I think they're doing.

Okay, maybe just one last one for me, and then I'll let someone else jump in. But just congrats on closing out the warning letter. just along that vein, you mentioned it would open up some strategic choices, I think was the word you used. Can you just comment on the appetite for these type of products out there? Thanks.

We all read the same newspapers and see the same. I think there's capital to be put to work in some situations. For us, some of the assets that we've beaten around the bushes that we'd love to figure out what to do with have been the exact assets that were either covered under the open morning letter or were in the midst of being integrated via their manufacturing sites were moving or their IT systems they ran out were moving. And a lot of that work is behind us now.

Okay.

Thank you.

Thank you. We'll now move on to Brett Fishpin with KeyBank Capital Markets. Your line is now open.

Hey, guys. Thank you very much for taking the questions. Maybe just one on consumables since systems was just touched on. So I think for this year, you know, you're pointing to mid-single-digit growth, which is pretty in line with what you've seen the last couple of years, maybe 100 MIPS or so lower. But I'm just curious kind of like what you're seeing from an underlying volume standpoint across hospitals and your other end markets, you know, six weeks into the year. I think, you know, we've picked up on some signs that maybe, you know, baseline hospital utilization volumes might be decelerating a little bit. So just curious if you've seen anything like that and just like how you're thinking about that, you know as it pertains to the guidance for 26?

I think just our guidance for consumables independent of the results that were in terms of what we are seeing out there I think the comments we made in the back half of the year are the same as today which is in the back half of the year it was a very different it was a lower growth rate than we had seen the year before I think that trends continue for us it still feels like it's positive may not be at the same rates but when we look at our underlying demand, we haven't seen any impact along the line of utilization on anything right now. There's a little bit of the seasonality point Brian was talking about in the script on the flu stuff and just the normal seasonality we've had in the consumer's business, but I don't think there's anything related to underlying demand we were talking about, or I wouldn't have made this normal.

All right, perfect, perfect. And then just, you know, one follow-up, and I think I know we're all kind of ready to move past this tariff topic, but just to start the year, you know, just thinking about the guidance. I think giving the 2% metric as a percent of sales makes a lot of sense. But just wanted to ask if there's any changes in how we should be thinking about exposures geographically and then just what you can tell us about any mitigation efforts that you've undertaken since the last call in November. Thank you very much.

Yeah. I mean, I don't know if there's really much in terms of changes in terms of exposure and things like that. We'll kind of see what happens here uh in the near future if anything and who knows you know what what could result from that but i think we we have done some things um structurally to to try to mitigate tariffs as much as we can we saw a little bit of that favorability brett in in q4 uh coming in a little bit less than our previous guidance around some expense there so i think that that helps and That kind of gets back to the point as to why Vivek was saying, you know, earlier in 2025, don't annualize what we were seeing at that point in time. So, yeah, I think there's still a little bit more work to be done on tariffs, but maybe those benefits won't come until a little bit later in the year, because some of those are, let's say, heavier in terms of lift.

Thank you so much.

Thank you. We'll take our next question from Mike Matson with Needham & Company.

Your line is now open. yeah thanks um you know so when i when i look at your your slide and kind of the bar chart in there uh for the infusion system business it looks like the syringe pumps are you know a pretty pretty small slice of that that business um so is that really just because the overall market is smaller or is is it a sign that your share is maybe lower in that category and does that mean there's maybe more opportunity to take some share when you launch the new syringe higher on syringe, certainly very high in free spending fees.

So I think for us, it goes back to the roots of why we took on the pain of the last transaction was it was a gap that is, even though it's only 10, 15, 20% of the market, it's still important to customers to have that integrated view. It drives more safety to have it in an integrated fashion. And we had to get a foothold there, which is why we did what we did. So, syringe is a small portion of the segment, you're right, but it is important to customers.

Yeah, okay, that makes sense. And then just, you know, vital care, you know, given the commentary around potential sale at some point of that business, and I can't remember if you disclosed this in your filings or not, but can you tell us what maybe the EBIT or EBITDA margins are on that business or kind of the portion of your your corporate earnings that are coming from it just so we can maybe start to do some math around like what you know what the potential you know trade-off would be between you know lots of earnings versus share repurchases and things like that i know it depends on the price but but um and i know it may or may not actually happen but yeah i mean i think we're not quite if it would be done already right assess that like with super precision i think what we

direction of the question you're asking. One, it is likely that most advise margin. And the second one is, I think if you look at most of the situations where we've tried to thread the needle in the right way in the solutions, JV, we've found a way to improve our revenue growth rate, improve our gross margins, and do something that was EPS break-even, so to speak. That would still be the target. I'm not saying that's achievable, but it's easy to give things away, but it's value destructive. So you have to be patient, get them in the right order in the right form to make sure you don't hurt yourself doing it.

Okay. All right, got it. So you'd be aiming ideally for something that's at least kind of neutral to earnings.

I don't think we'd want to be that firm. Again, not every business is created equal necessarily in there, but I think directionally that'd be the goal we'd aspire to, right?

Okay, fair enough. All right, thank you.

Thank you. We'll now move on to Jason Bednar with Piper Sandler. Please go ahead. Your line is open.

Hey, afternoon, everyone. Congrats on the quarter here and on the Smith's warning letter being lifted. I wanted to go back to the systems business where the other Jason started. I'll ask a few here. So you did mid-singles for the full year of 25. You're getting into something similar for 26. I guess I wanted to ask, maybe it's just being prudent to start the year, but you do have a competitor to deal with challenges. With their pump system, you have a new product cycle you can take advantage of, maybe some early contribution from the replacement cycle opportunity with those old Hespera pumps. But I know you're saying that's maybe more of a 27 event. What's the good case scenario here for this year? If 25 was a normal year at mid-singles, couldn't 26 be a bit stronger, just given some of those factors I mentioned? And then maybe just in the response, if you could help us quantify the impact of that OEM wind down that was referenced in the prepared remarks.

Sure. There was a lot in there. I guess I'd start, we feel good about what we think of almost as our contracted for and a large portion of our revenue growth assumptions here is just making sure the installations happen. And so upside to that was if we actually could sign from a place of safety, I think we feel we're starting in a better spot. As it relates to competitive stuff, the second part of your question, as I've said before, we all live in a glass house. I think we'd be cautious on making assumptions about how other people get their house in order. We've all been through it. And then on the OEM piece, that is a piece of business that has been declining for the last two years. So the good growth in LVPs has been jumping over that anyway, right? We never really wanted to speak about it so transparently because we didn't want anybody to feel that bump. I don't think they really felt it in 25, and we think we have the ability to grow through it again in 26. I don't think we want to be precise on exactly how many points of headwind, but it was certainly a headwind to the business the last two years, and the business still did well.

Okay, that's helpful. Appreciate that. And then I know you highlighted the stronger ASPs on solo and duo. I think that's helping the growth rate or should help the growth rate here in systems maybe more in the second half of the year. Or, you know, what kind of ASP contribution or uplift should we be thinking about from those? Is it material?

I mean, I think the challenge and the opportunity for this industry, right, a lot of value is created if you can – there's three components of value. Pump is maybe there's four components. The first is obviously the razor and razor blade, the dedicated sets. The second is – and the fourth is the hardware itself. And we thought we were pretty well positioned on the first, second, and third, certainly the new products, the historical products. But I think the challenge for our pump historically is that we weren't generating enough margin on the hardware. We believe this piece of technology has enough – the new pumps have enough technology embedded in them and enough features that we can begin to have a more interesting positive gross margin on the hardware. It makes a big difference for us. It will make a big difference.

Okay, so safe to assume it's improving gross margin and it's material enough on the revenue line, too. Last one for me, I thought it was pretty clear just from a lot of comments, even how you started the call, that operations for the business are just in a much better state today than where we've been the last few years. A lot of confidence around cash flow, seeing benefits from some of the common systems, facility consolidations, et cetera, that you've been going down. Maybe if you could, or Brian, to jump in, if you can unpack that a bit more. Did that show up? Do we see that across gross margin and SG&A lines? Is that a dynamic that just builds throughout the year? Any more color there would be helpful.

Yeah. I mean, I think we've talked about kind of those areas of improvement, whether it's gross margin or free cash flow, that those were opportunities that would probably take a few years to fully capture the full value of the opportunity. Whether it's gross margin or free cash flow, those benefit from the projects that are underway, whether it's the IT system integration or the manufacturing plant and supply chain network consolidation. A lot of that work is wrapping up this year and projects are being completed and will continue to realize benefit. And I think our goal is to really exit next year, so by the time we get to the end of 27, we're kind of more at a steady run rate where, whether it's gross margin or free cash flow, it's kind of closer to those targets that we've been talking about.

So to be specific, Jason, there was a slide in the IR deck which showed the target gross margin level and then the adjustment for tariff. Basically, what happened, it was healthy as we thought. To get more value, we had to capitalize and consume that things get back to normal.

All right. Very clear. Yeah, congrats again.

Thank you. Once again, if you'd like to ask a question, please press star and one on your keypad now. We'll move now to Larry Tolo with CJS Securities. Your line is now open.

All right. Thank you. So a couple of follow-ups, most of my questions have been answered, actually. So on the margin improvement question, so the consolidation initiatives themselves, which I guess is just part of that 200 bps or so of opportunity, and probably maybe the biggest part by itself, but it sounds like that activity is done and will at least get that benefit, not the full year's worth, but maybe by the end of this year, that run rate will be in the numbers already on the consolidation piece or most of it. Is that fair to say?

I think, Larry, thanks for the question. I think we were trying to say, again, it can drift month to month, but in general, once the inventory that was made at the off leaves, we expect a lot of that to be in the run rate by the end of this year, and then that will annualize into next year, which is another benefit. And the components of the two points of margin, the missing still two points relative to our new targets, are really those activities being fully implemented, the previous question of benefit of better margin on hardware sales, overall pricing, et cetera, those all go into components of margin. And as a consumer business grows...

And when does the cash outlay, right? So you've been... I think it feels like you spent more than $100 million this year, but on the remediation, integration, restructuring combined, it sounds like you spent $37 million this quarter. So I think it was over 100 again for this whole year, and it's averaged over 100 for three years. And you've been averaging, or at least run really close to $100 million free cash flow. So it's fair to say that in 18 months, even if the business just improves a little bit at the core, by just getting rid of all these excess expenses, you should be doing well north of $200 million in free cash flow, right? Unless my math is just...

Thank you for the vivid recollection of our shared experience. Yes, it was painful. That is the exact amounts that we've been putting at it. I think we were trying to say in the call, it's this year. It needs to end, and hopefully by the middle of the year. There will always be some baseline stuff on regular remediations that are happening, et cetera, but a materially different number of cash flow that's around. And then growth long-term on time.

If I could just sneak one more, just more systems, a lot of questions on this one. But there's still, I guess, a lot of business up for grabs, right? You can just kind of characterize where we stand. And I know without mentioning the part of the competitor's name, but I know there was a lot of business up for grabs there. How are you doing in that? And just your comfort level on the refresh cycle, because to me that feels like competitive new business wins are great, but when you have all these in-house install base that can just flip over to the new, you know, new line, that should be a much greater opportunity for you. So, you know, just your confidence level that we could start to see your customers will want to switch, you know, or be anxious to switch as we work out. I know that's still a little bit of ways, but any color on that would be great.

Sure. I mean, first on the competitive piece, again, from a safety perspective, we feel like we've, we have enough contracts in hand. And as long as we can manage the installation schedule, we feel like what we see in the near term is pretty good. And there's plenty of competitive activity, just in normal course. In terms of the refresh of our own install base, I mean, our journey here, we went through some dark days where people had left the Infusion Hardware Academy, right? Abbott, Hotspira, what we became had very different market shares historically. We stabilized that, clawed some back. And truthfully, many of the customers that stayed, stayed because they believed in the core technology. And the pieces of that core technology have been conserved into this modern package of Plum Duo, Plum Solo, and now enhanced with a syringe and a CAD, all in the same software. And so I would argue that these customers went through some tough times, still were committed to the technology, and we believe we have a better offering for them today. and that's independent from the economic wrap solutions and other things that may or may not be part of the nation. So we think we're well positioned.

Excellent. Thank you. I appreciate the call. Thanks, Larry.

Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks.

Thanks again for your interest in ICU medical. We're glad a number of our projects are reaching completion and we look forward to updating everybody on our Q1 call later this year.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.