Icu Medical Inc (ICUI) September 2026 Conference Transcript

Okay, welcome back. I'm Larry Beegelson, the medical device analyst at Wells Fargo, and it's my pleasure to host this fireside chat with the management from ICU Medical. With us from the company, we have Vivek Jain, the chairman and CEO. As I said, it's gonna be a fireside chat. So if you have a question, just raise your hand.

Vivek, thanks so much for being here. Thanks for including us in this great event. Once again, we appreciate it.

So let's start with some big picture questions. You always have some helpful commentary on the macro environment on the Q2 call. You reiterated that you saw a continued stable demand and utilization environment and the status quo on capital equipment. So I'd love to get an update from you if anything has changed.

Yeah, obviously a lot of discussion this week on what's happening with underlying volumes. For us, our business is most directly tied to census and admissions. and we haven't seen a lot of change it uh we said in the call script uh demand was in line with our underlying guidance assumptions we continue to feel that way the rate of growth has decelerated versus last year which had a bigger step up or late uh the year before but it's certainly meeting our needs and we don't have a lot of uh negative things to say about uh the demand side of it right now now we we don't see the actual end use whether it's an elective case or a surgery center whatever it may be but regular hospital admissions and level of busyness is pretty good to us good to hear

and you've done a lot of work reshaping the portfolio in recent years talk about your ultimate goal in the portfolio management is it to improve the weighted average growth rate you know and where are you in the process i mean if we reflect on our journey our company's journey the ICU's journey.

For the last seven or eight years, we essentially took a small parts supplier and built an integrated infusion company around it. I don't think the intent of that was to optimize the market growth rate. It was really to build a coherent portfolio with things that made sense together. We had to make our first move into the pump business really defensively because our partner, which was Hospir at the time, wasn't focused on the business. And that led us to other choices of things to add along the way. I think the guiding principles for us, more than chasing growth rate, has been where can we put assets together where we can innovate and bring value to the customer. And that value was really around safety and clinical efficacy. I think that was sort of the main driver. The second driver related to more of our recent portfolio decisions like the joint venture we created with Atsuka on IV solutions is to optimize businesses that had less capital intensity where we thought we could, where we believe we didn't add the same level of innovation. And so our moves to date have been to try to improve capital efficiency and improve ROIC.

So one of the businesses that investors have asked about is Vital Care while we're on the portfolio. I guess the question is, are you leaning towards keeping it and investing to improve its performance?

Yeah, I think that's the last 10% of our portfolio kind of, back to the point on having the most coherent portfolio. There are parts of that that aren't as coherent. At this conference last year, we were starting to say we think there's something to do maybe with some of those assets. We have not been able to get something done at a level we thought made sense. And so for the moment, we run them until we have a better choice. I don't think that we would necessarily increase investment. But even today, you can see there are certain companies that are divestitures may have been expected, and depending on who's on the other side of those conversations, you may not get the value you want. And that is probably a pretty good comp for our situation.

Okay, so let's transition to Ivy Systems. You had really strong growth in Q2, 12% organic, 10% for the first half. You did talk about some pull forward of installations from later in the year, but there was also competitive wins. So what are the sustainable growth drivers into the second half of this year?

I think there's a couple of different ways, and on the earnings calls the last few times towards the end of the call, we've tried to reiterate the ways that we can create value in our pump business. And the three or four ways we create value is really first and foremost competitive wins, because that captures new market share and you get not only the benefit of selling the hardware but you get seven to ten years of disposables utilization of razor razor blades with dedicated sets and some software fees the second way we create values refreshing our own install base and that applies both for our LVP business but also the syringe pump businesses etc things that we came in the last acquisition and the third way we create values by reprophotizing all of that with deeper software costs and more value we can add there most of the 2026 discussion the back half has been the first item which has been winning on the competitive front uh over time the other parts the refresh and the software will come more into the equation and there's some next gen stuff in the home care environment but so far it's really been about just taking advantage of the a flux in this market in the U.S. more than anywhere else.

So how is Plum positioned, the Plum-Pump family positioned competitively? Who are you taking share from? Because none of your competitors are saying they're losing share.

Yeah, and I think we've been very careful, Larry, in our public talks, and not necessarily, we say it'll show up on our income statement, right? And so either it does or it doesn't. and everybody in this line seems to talk their own book for us pumps are lvp pumps syringe pumps and ambulatory pumps not everybody may have the same mix there and we try to talk on a net basis not only what we won but also what may have been lost uh and so it's not clear to me that's an apples to apples but again for us the other thing we said for years in our call script is that in the pump business and certainly prior to our most recent acquisition we're still very small And so, therefore, we don't need a lot to keep us happy. Most of the wins have been competitive. I think it's come from all market participants. And what we hope is that trend continues and that over time, we're able to add the refresh of our own install base in addition to the competitive into the pump numbers. So when does the upgrade cycle really start for your pump business? most of our equipment probably has a six or seven year life right now and the useful life is eight or nine years so it should start next year and last for three or four years beyond that i think it's something you have to be sensitive to you don't want to customers who are happy satisfied to have a working piece of equipment you have to be delicate um can't quite be as heavy-handed as a software vendor saying i don't support this device etc so you need to do it with some heads up and some notification, and that process has started.

And hospital profitability concerns and changes to 340B. Do you think that is going to have an impact on pump replacement schedules?

I mean, as long as I've worked in the industry, there's always been discussion of the financial health of hospitals. Obviously, the recent events add more fuel to that discussion. but no one buys an infusion pump voluntarily. My joke is, it's teaching you to use your mother, it's teaching your mom how to use a new cell phone. It's a lot of work, it's a lot of energy to go through, and you only purchase the system when the current system you have is at end of life or doesn't have the features and capability. You're not doing it because it's a revenue-generating item. And in the case of what's happened in this country, where there's had to be a lot of refresh of various vendors' devices. The capital was available for all of that refresh. And so to me, that shows that the funding is there, because you need this device to deliver medications to deliver care to a hospital.

Okay, so the MedFusion syringe pump, you're expecting to refile the 510 in the second half of the year. Talk about your confidence in that new filing and ability to address FDA's concerns, and what's a realistic timeline for clearance?

I think we feel a little sensitivity. We typically, or historically, didn't talk about even the products that we filed until they were approved, right? When we went through some challenges, you have to provide a little bit more color commentary. And we did that. And for the most part, things were approved on a first pass approval when you submit the first time, you get approval within 180 days. This MedFusion and CAD filing that we made last year is the first time we didn't get a first pass approval. The agency came back and asked for a variety of reasons, came back and asked for some additional testing and one or two features or challenges to be addressed with the product. We've done most of that work already now on MedFusion and will file this year, as you said. I think we would be reticent to commit to saying it absolutely would happen with a review of only the items that were requested or the full 180 days, the answer is somewhere between those two. We don't know, but our focus right now is addressing the questions, getting all the data packs together which is not technically complex it just needs time and getting the submission in and what's the US opportunity for the syringe pump this the largest pump opportunity is really the LVP opportunity syringes are mostly used in a NICU in the United States are mostly used in a NICU environment and they sort of are I would call it like a 10 to 1 ratio for every 10 lvp pumps there's one syringe so if you said there's ballpark uh you know a million and a half lvp pumps in the u.s there's 150 000 syringe pumps uh the company we bought that's a you know smith smith medical the medfusion syringe system is roughly approximately 50 of the u.s market share um and so it's a pretty healthy install base for us to upgrade with new technology and so we're eager to get that product into the market since it's used in NICUs, is there kind of a pricing element here, is there, you know, is it more more value, higher pricing, higher ASPs? I don't know that it's about the NICU, I think it's about the market structure in syringe pumps and the nature of the device. Syringe pumps don't use a dedicated set the way an LVP does, so there's no razor blade, so sort of the value is captured by the manufacturer in the capital sale itself. There's not, outside of software, there's no the continuing disposable immunity that there is in LDS.

And recognize that the MedFusion pumps a priority now. When would you restart development of CAD for pain management?

I don't think it's restart. We haven't stopped. There's a finite amount of testing infrastructure we have. It was heavily tilted towards MedFusion as that work completes. The CAD testing is happening at the same time, so it's not restart. It's happening right now. Now it's just a couple of months off the pace of the MedFusion work.

That's helpful. So switching gears to consumables, it's returned to mid-single-digit organic growth. How sustainable is that?

Consumables, if you look at, we have a one-page supplement in our quarterly release. If you look over the last five or six years, and certainly the last 10 quarters, it's in that release. Consumables has been a very reliable mid-single-digit grower. we believe that trend will continue happy to get into the reasons why but they're a combination of really creating new markets which is the most valuable things the things that we've done in in oncology in dialysis care and now we're trying some biologics delivery pricing globalization and then just regular US wins etc so there's there's a bunch of underlying drivers and we think all of those reasons will continue, plus being aided by winning on the pump side.

That's helpful. So how much do the competitive wins in pumps help drive consumable growth?

Competitive wins in pumps make a difference in consumables because typically when we have the pumps, it's more likely than not that we have the consumables. And so as it relates to most of our install base, we would expect that we have a high share of consumables in that already. So incremental chunks can come when you win pumps. That's a portion of the consumables growth, also alongside all those other drivers I just mentioned. And you mentioned price.

So if we add all this up, could you do better than mid-single digits?

You know, I think we've been a consistent mid-single-digit grower for five or six years. For right now, we'd be happy to stick to that.

And do you guys disclose price? Like how much price contributes to your program?

I think, again, in the difficult moments, we talked about price a little bit, We said price was for the company and this included IB solutions before the Joint venture we said price was equal to 1% for the company with 25 million bucks or something like that You know, I think I think again It's not quite as good as that because we were trying to recoup that and we took a timeout on price this year As we tried to recoup what happened in 22 and 23, but that that will start again for us in 27 and 28 Okay Switching gears to vital care the fundamentals of the business.

It was negative in the first half. You expect the business to be stable in the second half. Does stable mean flat in the second half or similar level of decline as the first half?

I think what we meant, and maybe we didn't analyze it quite as much as you did right there, was just, is it going to be a sequentially flat number? We think, generally speaking, it will be a sequentially flat number. it the reality is not all products are created equal right and not all revenues are worth the same and so as we're working our way through our integrations etc if something helps us accelerate consumables or pumps but might cause a hiccup in vital care we wouldn't make that decision it's just lower down the priority list it's it's it's driven by the returns and And that's where it sits. The other pieces that we've mentioned on, I can't remember if it was the Q2 call or the Q1 call, that we were exiting certain product lines. We sold a little line of business in Japan. And so the numbers will get re-reported on an organic basis, which might help it slightly, et cetera. It's kind of in the rounding, plus or minus 70.

So flat sequentially would still be down year over year?

Flat sequentially would still be down a little bit, I think, year over year. Maybe less because of this organic definition change. But what we care about is it makes more cash this year than it made last year.

So it sounds like it'll still be a drag going forward on overall ICU growth.

Yeah, it's certainly not growing at the rate of the large two businesses. We don't sugarcoat it. We say that.

But we don't think it makes sense to do something value destructive to chase a little bit of growth if the growth is good enough in those segments anyway. back to the point on you know finding a good outcome for the situation and then switching gears to the financials you know your guidance assumes a stable macro environment with inflation at current at the current level and current diesel and oil prices so we haven't seen that was current as of whatever the call was what's three months ago well I mean oil is 20% higher since most companies reported three months ago I mean I think it looks like it's gone from about 80 to 100. How should we think about the cap and roll lag effect and the inventory on balance sheet potentially carrying higher cogs into second half of this year in 2027?

I mean, obviously, higher transportation costs do impact us. We've been able to offset that because relative to our budgeting, at least tariffs came in a little bit lighter. I don't know that we've ran 27 at the prices. We are less correlated to oil prices than we were pre-Ivy Solutions joint venture. So more than half of our freight and logistics costs were related to Ivy Solutions. It's a heavy, bulky business who are moving around. That now sits in the joint venture off of our income statement. What sits on ICU's income statement still does have some exposure, but to a far less degree than than we had historically.

So what are the puts and takes that investors should consider for revenue growth and margin improvements in 27?

If you review our investor deck, we've been very candid. Obviously our journey since the last acquisition and what happened in the world took us two years longer than we would have liked. But we said we believe we still have another 200 basis points of gross margin opportunity under our control from finishing the manufacturing integration logistics integration which are bumpy but we need to get through them and what we believe we have available to us in price and that sits on the back of what our guidance has been the same for three years in a row it'll likely be next year which we believe our two large businesses will grow mid single digits with the goal of doing better than that which we do occasionally quarter to quarter and revenue growth with improved margin keeping our costs flat which we've done a pretty good job at if you look our next G&A over the years getting to and I'm sorry I'm answering this question more than you ask now getting to producing cash over the balance of this actually gets our leverage ratio to two times or less and then being able to give that capital back one way or the other to shareholders being a reliable growers exactly what we talked about on stage here last year the only difference why it hasn't happened yet was not being able to get something done in vital care the organic part of it has gotten us there on the on the cash and debt equation that's helpful so I had a follow-up question on that I've lost my train of thought okay so the guidance has been the same you said for the last two years so you're basically implying don't expect much difference for 27 yep okay okay capital allocation you expect to reach two times leveraged by the end of this year you touched on that so how does your capital allocation strategy change after that does mna or share buyback move up in priority scale um i i think for all the difficulties we went through in 2022 and 23 we didn't skimp on r d and we have a lot of things coming to fruition right now and we have enough to keep us busy for a while so we had to have a while we organically innovated a lot grew the business we did a lot of m&a to create the company we have today i'm not sure we feel that way for the next bit of time uh plus it's been hard to go through what we went through um and so therefore that changes our views on capital allocation and in particular if we're spending less on restructuring and remediation which was necessary but is coming to an end uh that free cash flow should go back to the shareholder And until stock price made a change or rates made a change, we thought that would be through buyback. And there'll be a, I'm sure AI will generate some grid for us and tell us where it's a good decision and not a good decision, and we'll follow whatever that chart says.

You have an authorization in place now?

I think we have an authorization that probably needs to be expanded, but that's more mechanics. Got it.

Tariffs? Any refunds this year? Is that a headwind for you next year or a headwind?

For us, we did get refunds this year, but we did not run, even though they ran through the normal income statement last year, we excluded them this year to have a good comparable. So none of our earnings overachievement relative to guidance here is due to tariff refunds. They're on the side. They obviously help cash, help debt, et cetera.

The refunds were all for tariffs paid in 25? Some companies have actually gotten refunds for tariffs paid in 26.

I don't actually know if we've gotten any tariffs for the little bit of 26 yet. but we've gotten most of the cash back maybe there's a little bit left to come um at the moment uh i don't think we see tariffs next year well until 10 days ago next year any different than we saw this year it is very unclear to us what's happening if anything with 232 which i'm sure has been talked about this week or usmca etc that's not just an icu issue that's an industry-wide uh issue of something we said our guidance was our guidance was presumed the current tariff regime current fuel prices right we obviously probably included a little bit of ability to manage some things in there but if they all went in the wrong direction yeah we'd have to think about things you manufacture a lot in Mexico right we may we are a heavy Mexican manufacturer and heavy Costa Rican manufacturer so USMCA CAFTA which was resigned in the fall of 2024 and USMCA were both very important to us got it so you know we we covered a lot what's what's still underappreciated about the ICU story? I mean, I don't know so much. I mean, I believe, we believe in the market. I think it's more the show-me side of it, that we have to demonstrate the revenue chart, things we're proud of for the difficulty we put people through, the revenue chart, we believe, has looked very attractive for 10 quarters in a row. And then there will be bumps up and down, but the businesses have been bigger every single year, what hasn't shown up is the cash earnings, right? It's shown up on adjusted EBITDA, but that doesn't mean cash. And I think what we need to demonstrate is that the cash that we expect comes out of the business and that that cash as a yield of the valuation of the company can be delivered and returned and used effectively. I think it's obvious what we did with the joint venture that changed the optics of the P&L and the capital intensity of the company. There are other areas to improve our capital efficiency and we'd like to do that and the part we're not talking about is revenue growth because I think everybody I think the market fully appreciates all the shots on goal between the competitive pump wins the refresh of the install base the software opportunities the consistency we've had in consumables it's all the other stuff down the P&L that needs to fall into place and it's our job to show that sooner rather than later do you have free cash flow like targets you know conversion rates and things like that what are you in your guidance in in our in our company-wide bonus plans if you read our proxy free cash flow targets have been part of the company's bonus plans if we went back to a night 2019 2020 2021 free cash flow for us was excess of net income that is unlikely to be the case given the current mix but it should be a lot closer than it is and it's not that we don't have tar we've had free cash flow targets we just want more and so that number needs to get bigger over time okay great look at we covered a lot of ground but we still have time up Chris I think in the pump business normally we should have pretty visibility at least 180 days out and I think we said in the last call it will be a record year for pumps certainly we believe that to be the case it's still not that big a million or two could make a difference whether it's a record quarter or not but it's close the year will be a record year we believe that also about next year I don't think we'd love to say each quarter it's gonna keep going because that doesn't always necessarily happen that way based on the install schedule but for what we can see for the next bit of time things have felt pretty good and we felt like we were saying at the end of last year that's that's happened this year we still need to finish signing up our book for all of next year but we're working our way to next year right now

anything else no you're good uh we've got some times of people in the other fast You were talking fast. Well, look, I always appreciate you coming. So thank you.

Thank you for having us.

Great firm, great opportunity, and great meetings. We appreciate it very much. That's good. Thanks.