ICU Medical, Inc. Aktie

Good afternoon, everyone, and welcome to today's ICU Medical, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Also, please note that today's event is being recorded.

I would now like to turn the conference over to Deirdre Thomson with ICR. Please go ahead.

Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the first quarter of 2026. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our Investor page and click on Events Calendar, and it will be under the First Quarter 2026 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 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 press release and provide as much detail as possible on any addendums that are added back.

And with that, it's my pleasure to turn the call over to Vivek.

Thanks, Deirdre. Good afternoon, everyone, and we know it's a busy earnings day, so we'll try to be as brief as possible. I'll walk through our Q1 revenue and earnings performance and provide some commentary on the businesses and then turn it over to Brian, who will recap the full Q1 results and explain our current view of how we can manage this year's new macro events. After that, I'll come back with a few comments on where we are on our near-term goals, our mission of creating a comprehensive infusion therapy company and our capital allocation strategy.

Revenue for Q1 was $526 million for total company growth of 1% on an organic basis or minus 12% reported. And as a reminder, the reported results are impacted by the mid-2025 creation of the Otsuka ICU Medical joint venture and resulting deconsolidation of IV Solutions from our income statement. Gross margins increased sequentially and were above 41%, driven by overall mix in our infusion businesses.

Adjusted EBITDA was $99 million and adjusted EPS was $1.97. Free cash flow was strong, and there was no real change in net leverage. The broader demand and utilization environment in Q1 was previewed on the last call. The sharp flu spike in late 2025 did soften January, but volumes returned to expected levels from February onwards and feels fine through today. The capital environment is status quo, and it does appear investments that customers need to get done are getting done.

Currency continues to move around a bit with the Mexican peso at elevated levels this year. Getting to our businesses more specifically. Our consumables business grew 5% in Q1 reported and 2% organic. As previewed on the February call, like prior years, Q1 revenues were down sequentially and in line with our expectations as we knew the changing environment from December to January.

For Q2, we would expect growth rates to return to our historical levels. Our IV Systems business grew 8% reported and 6% organic, and it was again a record quarter in pumps. Dedicated sets generally follow the same trend as consumables and capital sales were strong through the quarter. For Q2 and the near term, we would expect organic growth to continue at this rate or above while absorbing the previously mentioned OEM wind down.

Just wrapping up the businesses, Vital Care decreased 14% on an organic basis and decreased 59% reported due to the deconsolidation of IV Solutions. We've mostly wrapped up the work described on the last call of discontinuing certain SKUs as we had more contractual or operational flexibility with the largest impact of this felt now in Q1. I'll come back with an example of this shortly.

We believe we should see sequential stability to improvement organically here and continue to believe the right revenue assumption for the near term is flat to slightly down in the face of our decisions to improve profitability. I wanted to close the business unit commentary with some updates on the different product development initiatives within the company.

As we've mentioned more recently, we've been increasing the volume of new 510(k) submissions for our consumables offerings where the innovation is more incremental and intended to create new adjacent niches. Last year, we received a new 510(k) for our core microclve and Neutron needle-free connectors, which updated our label with recent favorable published evidence in infection control.

In Q1, we received 2 additional 510(k) clearances, which were some of the images that have been highlighted in our investor deck. First, we received approval for an adjacent product in our oncology line that bonds our market-leading Clave needle-free connectors to access ports and empty non-PVC, non-DEHP IV bags.

The second is a 510(k) for a revised disinfection cap, which complements our existing SwabCap portfolio and provides customers with another product to assist in infection control and accessing needle-free connectors. Both thematically aligned with our effort to add safety to each step in the infusion delivery workflow and are examples of the singles and doubles we need to consistently hit for continued long-term growth in consumables.

On Infusion Systems, in Q1, we received FDA approval on the latest version of our LifeShield safety software. This version includes new enhancements for improved analytics and reporting plus features to improve the experience for our large enterprise customers and to add safety in each step in the infusion delivery workflow. However, it's going to take a little bit more time to get the clearances on the new hardware platforms as the FDA is appropriately elevating testing requirements for new infusion pump submissions.

Specifically, regarding the new Medfusion and CADD hardware submissions, the FDA is seeking additional testing data, which in plain English for us means a larger sample size across a larger number of set configurations. We believe the increased testing is a result of the FDA continuing to raise the bar to ensure improved safety in the infusion pump landscape. Nothing about the additional testing relates to the core product technology around its mechanism, usability, human factors, et cetera.

The testing the FDA is asking us to do is standard. It's just a larger volume that takes some time to complete. Our current strategy is to prioritize finishing the testing first on Medfusion and then on to CADD. As context over the last 2.5 years in the pump business, we have successfully received 6 510(k) clearances with a first pass clearance each time, so we have the expertise to deliver on this. All in all, a lot of right things are happening in the product development process.

I'll come back after Brian with how these items align with our progress against our near-term goals and to help us -- that help us create a comprehensive infusion therapy company. So with that, over to you, Brian.

Thanks, Vivek, and good afternoon, everyone. Since Vivek covered the Q1 revenue for each of the businesses, I'll focus my remarks on recapping the Q1 performance for the remainder of the P&L, along with the Q1 balance sheet and cash flow and then provide commentary on a few puts and takes for the remainder of the year relative to the full year guidance we provided on our last call.

As you can see from the GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the first quarter was 41%, which was slightly ahead of our expectations due primarily to favorable product mix with our 2 higher-margin core business units of consumables and Infusion Systems growing faster than Vital Care. And the Q1 gross margin rate continued to benefit from the deconsolidation of the IV Solutions business, along with the ongoing capture of integration synergies.

In the first quarter, we recognized $10 million of tariff expense, which represents approximately 2% of adjusted revenue. The impact from higher oil and diesel prices was not meaningful on the Q1 gross margin rate as we only experienced those increases in the last month of the quarter.

Adjusted SG&A expense was $112 million in Q1 and adjusted R&D was $21 million, representing approximately 21% and 4% of adjusted revenue, respectively, which is consistent with our previously provided full year guidance for each of these areas of spend.

Restructuring, integration and strategic transaction expenses were $17 million in the first quarter and related primarily to our IT systems integration and manufacturing plant consolidation projects. This represents a sequential decline relative to the fourth quarter, and we anticipate continued reductions in both the level of activity and the amount of spend in the second half of this year as we move towards completion of several of these longer-term projects.

Adjusted EBITDA for Q1 was $99 million, which is the same as last year. However, similar to the past several quarters, the year-over-year comparability is impacted by 2 discrete items. The first is the deconsolidation of the IV Solutions business, which contributed $6 million of earnings in Q1 2025 when it was included in our consolidated results.

And the second item is the increase in tariff expense of approximately $8 million year-over-year. The impact of these 2 items was essentially offset by higher earnings from the core business of $14 million. And finally, adjusted diluted earnings per share for the quarter was $1.97 compared to $1.72 last year, an increase of 15%. The current quarter results reflect net interest expense of $16 million and an adjusted effective tax rate of 24%. Diluted shares outstanding for the quarter were 25.2 million.

Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $28 million, and it was another solid free cash flow quarter, which reflects strong quality of earnings and our typical lower CapEx spending in the first quarter of the year. During the quarter, we invested $9 million of cash spend for quality system and product-related remediation activities, $17 million on restructuring and integration and $11 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 $288 million of cash. Overall, the first quarter results were very much in line with our expectations. And based on our outlook for the remainder of the year, we believe our previously provided full year guidance is still applicable. But there are a few risks and opportunities that have emerged since our last call that could impact our full year results.

Based on current projections, we believe the financial impacts for these risks and opportunities largely offset. But because they relate mostly to macroeconomic factors and trade policies that are still evolving, the eventual impact will depend on their ultimate degree and duration.

In terms of risks, the most relevant is the price of oil and the resulting impacts on diesel costs that get passed along by our freight carriers. We estimate that a $10 increase in the price of a barrel of oil results in a total of $3 million of annualized incremental expense on our P&L, of which $2 million is related to our core operations and $1 million of which relates to our 40% ownership in the joint venture.

Applying this math to the latest market forecast for oil and diesel results in approximately $10 million of additional logistics expense in 2026. On the opportunity side, we do expect tariffs to be slightly lower than our initial estimates for the second and third quarters of this year as the current Section 122 tariff rate of 10% is less than the average rate we paid under IEEPA. And it was the IEEPA tariffs that served as the basis for our original full year guidance range of $40 million to $50 million of tariff expense.

However, given the current Section 122 tariffs are temporary by nature, and it is not yet known what new framework may ultimately replace them, we are not assuming this benefit will continue beyond the expiration of the 122 tariffs. The benefit from the lower Section 122 tariffs, when combined with a little earnings upside from accelerated operational efficiencies that we now expect to realize this year should together largely offset the impact of higher diesel costs.

And just to be clear, the upside from lower tariff expense that I just mentioned is before consideration of any potential IEEPA refunds that could be received this year. We are not considering potential IEEPA refunds in any of our guidance commentary.

To wrap up, we're pleased with the business performance for the first quarter, including the highest ever revenue quarter for Infusion Systems and the continued gross margin expansion as the benefits from some of the long-term integration projects are realized. The goals we've set out for 2026 have not changed, deliver at or above our long-term revenue targets for our core businesses, expand our margins by capturing some of the remaining 2 percentage points of opportunity and improve free cash flow generation.

Although recent events have created some macroeconomic headwinds, we believe the momentum we have in the business should allow us to still deliver on our original goals for this year.

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. And we hope it's clear that at this moment, we believe we can handle the new volatility alongside tariffs and rates, and we continue to believe on building off the last 2 years of more predictable revenues with attractive growth in our core. All of this is obviously part of our near-term goals or part of our near-term goals in addition to showing that we're improving our earnings power.

To provide an update to some of our near-term goals from the previous call, we had stated that most of our IV systems growth this year will be back half weighted. We've been working hard to increase our ability to install customers early in the year and now believe growth in IV systems will be more balanced throughout the year, which helps manage the near-term volatility.

Another key near-term objective of ours was to lower cash consumed in integration and remediation activities. And as Brian also mentioned, that will materially decrease later in the year, but will again be down sequentially in Q2. Previous calls have discussed all the various projects, so we won't go through them again, but investors can assume that peak spending is behind us.

Strategically, our goal has been to build the most comprehensive and innovative infusion therapy focused company. Throughout the last few years, we've not skimped on R&D and 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 Solutions business.

As a result, we believe in IV systems. We have a complete platform solution that will anchor this 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 clinical data that will be supported with more innovation in the core and in the adjacencies of this business.

Financially, we believe these investments alongside good commercial execution will allow us to continue the attractive revenue trends in our core businesses longer term. And when combined with the annualization of operations and logistics cost savings previously described into 2027 and more time to mitigate tariffs via pricing and operational decisions, we can get the company's earnings power closer to where we think it should be.

The ideal portfolio also matters in creating the most comprehensive infusion therapy company and in optimizing margin and EPS. We have been pursuing both operational and strategic choices in Vital Care. And as I mentioned in the introductory remarks, we've tried to exit certain SKUs or lines that have not made sense.

One smaller example of note, in our 10-Q, we will disclose that we're exiting certain Japanese surgical commodities, a product line that was more than $20 million in revenues a few years ago, but down over 50% cumulatively, including currency and has nothing to do with our core infusion business. Given the removal of the broad 2021 warning letter earlier in the year, we've been spending more time exploring different outcomes for the pieces of the Vital Care portfolio with several different work streams.

While nothing is certain, our team has shown the ability to be creative in finding the most logical strategic outcomes. Even independent of the portfolio discussion, our goal has always been to be 2x or less leverage, which felt appropriate for a mid-single-digit growing manufacturing company. We're now within the half turn of that and we can get there the old-fashioned way via organic cash flow generation over this year or via any of the moves just discussed.

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 Smiths 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 what we should be doing. In summary, 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 multiyear innovation portfolio. And ultimately, we want to transfer value from debt to equity. There's no confusion about that within the company in the pursuit of these goals. 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 being an innovative, reliable supplier and our company is stronger from all the events of the last few years.

Thanks to all of our team members and customers as we improve each day. And with that, we'll open it up to questions.

[Operator Instructions] We'll take our first question from Jayson Bedford with Raymond James.

Maybe just a few questions. First, on Infusion Systems, the growth kind of stood out off a tough comp. Wondering if you can -- and I apologize if I missed it, but LVP growth, did you comment on LVP growth in the quarter? And if not, can you do so now?

Jayson, I think we prefer towards the end of the year to kind of reflect on each business line rather than do it each quarter. But I would say, given the results that were pretty transparent towards the end of last year, the strongest growth driver was LVP by far and away in the segment.

Okay. Okay. Fair enough. In terms of the timing on the new hardware, how long -- I guess, is there a way to kind of frame the push out, if you will? I realize you don't have full control of this, but what is the extension here?

It wasn't that long ago, Jason, where we used to say in these scripts, we would only talk about new products when we had the approvals in hand, right? And when things got harder, we had to -- in the warning letter, we had to give more color on the resolution. We certainly would like to get back to that. I think we would say the part we control a couple of months to get the testing done, a little bit of time to get the analysis together.

And then it's about how long the dialogue takes. So certainly, our goal is as fast as possible. We didn't really plan for anything meaningful from a financial perspective for a while anyway. I mean it took us 18 months even with Duo and solo to really get going. So we -- things go slow in infusion, as we've said over and over again, and we take our time on the releases, et cetera. So a little bit of time, still trying to move as fast as we can.

Is the expectation that you get Medfusion cleared first?

I think we would say right now, that's where we're going to do our testing first, which tells you where we think the priority is. Again, both parties would have to agree on everything there, but that's certainly our prioritization.

Okay. Fair enough. On Vital Care, I think it was down about $10 million year-over-year apples-to-apples. How much of this is related to the exit of the Japanese product line here?

Some of the -- we haven't -- we've announced the exit. We've made a very small transaction to do that, but it's still on the income statement today. A little bit of the $10 million is related to that product line continuing to shrink. It's literally nickels and dimes in the other areas. It's $1 million here, $2 million. There's not one spot you can point to across any of the 4 or 5 businesses there.

Okay. Okay. And then maybe I'll ask one last one, a quick one, and then I'll get back in queue. Brian, $28 million in free cash flow, remind me what is the expectation for the full year?

Our full year guidance for that was to do improve upon last year and be close to $150 million.

Our next question will come from Brett Fishbin with KeyBanc Capital Markets.

I'm going to ask just a follow-up on the systems business. And I think you mentioned previously that you were gearing up for more of a back half weighted dynamic this year. And today, you changed the message a little bit. So I was curious what changed and what's allowing you to see more balanced performance through the year rather than kind of the inflection into 2H?

I think it -- as you roll out new products, it's important to be cautious of what can get installed when. And over the last 6 months to a year, we've been trying to make sure we have the available installation resources on hand and that those the scheduling of the installs meets the customers' needs and aligns with their own schedules. And I think we just got better at synchronizing that and had a little bit of caution in there for ourselves because it's always a little choppy when you put new products into the market.

All right. Great. And just one more from me. I think this would be more on the consumables business. Just wanted to parse out some of the commentary on hospital volume trends. It seems kind of obvious that January was softer and you saw a pickup into February and March and indicated that things are fine. Maybe if you could just comment on how material you think the January weakness is to the quarter, thinking about like the normal 5%, 6% consumables growth as a baseline. How much of the delta do you think was driven by January?

Thanks, Brett. I think I don't know that we actually have that exact level of precision, Brett. I think if you just looked at kind of the previous years and said, okay, the business has been down sequentially Q1 over Q4 of the last couple of years, average it out, this was more the difference is probably that number. I don't think we have a more high-tech answer than that. And we tried to make sure everybody is aware of that when we were talking in February.

We'll take our next question from Mike Matson with Needham.

It's Joseph on for Mike today. Maybe just a broader question on the quarter. I was curious if the Smiths warning letter resolving that, did that have any effect on -- in the quarter just in terms of -- was this an overhang with any hospital administrators and now that's passed, it's not affecting the company anymore. I imagine it's maybe not that short term, but just curious how you guys are thinking about that.

Nice to meet you, Joe. Thank you for the question. I would say the original warning letter that was received by the business we bought between signing and closing is resolved. That's the 2021 warning letter. We still have a subset of products that are covered under a warning letter that came in 2025. I think I would say, I don't believe that's necessarily an overhang or correlated to commercial activities of the company.

And if you kind of dig what's going on there, it's been a very hot topic for many, many manufacturers certainly over the last 18 months. So I think our answer would be not correlated to commercial activities. And of course, the agency is doing what they should do and try to ensure safety and quality, and we need to be the most compliant company we can be.

Okay. Yes, makes sense. And then just one more. Just on Plum Duo and Solo. In terms of active conversations with health systems or valuations on contracts, I'm just wondering if you could maybe quantify or give some more color on the customer pipeline here in 2026 or over the next 12 months? And then maybe just to nail down on one of your prior comments for Infusion Systems rather than as maybe you talked about in the past of being a second half acceleration. Just trying to understand this a little bit more. Is the framing now more of a steady acceleration or more of stable to lower growing over the year, if that makes sense?

I'll let Brian do the second half of that. On the first half, I think we went into a lot of detail on the last call or the call prior, I can't remember about the 2 different ways we create value in the infusion pump business. We create value either by winning competitive share or by rolling our own and reprofitizing our own installed base. And on the last call, we said we felt pretty good about what we were holding for signed competitive situations.

Most of this year's business is still that. We haven't really focused on the rollover situations very much. And the pipeline for the competitors is still active and robust as all vendors are saying, and we're out there competing. After we feel like that has reached its point and the aging of devices, and we'll shift our energy to our own installed base. But I don't think anything is different than our previous comments on the competitive opportunity for pumps.

Yes. And I think the question on just kind of the calendarization of the installs and what does that mean? I think it's -- I think we're saying that the full year for Infusion Systems looks the same as it did when we gave our original guidance. We just think that it's going to be a little less back-end weighted because we have been able to accelerate a few of those installations. So the growth rate, I think, would be a little bit more steady across the Qs 2 through 3 or 2 through 4 as opposed to just being in the back half.

We'll take our next question from Jason Bednar with Piper Sandler.

On the guidance commentary, Brian, I appreciate all the moving parts you highlighted from the prior update to today. Just so we have those dialed in, I heard the assumption of the higher $10 million in logistics costs that you're baking in. I maybe confirm that you're assuming oil is where it is for the rest of the year, if that's the assumption. But then -- sorry, if I missed it, what were the numbers on the lower tariff assumptions? And then how much are you pulling forward on efficiencies to net against that $10 million?

Yes. I think just on the forecast for oil prices, I do think if you look at kind of the '26 forecast, it does have some reduction in oil prices kind of as we continue throughout the year. So I wouldn't say it's necessarily exactly at today's spot price. But nonetheless, if you look at the offsets, I would say of the $10 million that we need to offset, roughly 2/3 of that is probably to come from lower tariffs, the remaining 1/3 from accelerating some of our operational efficiencies.

Okay. All right. Helpful. One on price points here. I know part of the conversation with the new pump cycle is that we are going to have higher -- are going to be selling at higher price points with better margins. Given where we are in the cycle, you booked a lot of orders, you're out there developing the funnel further. Are you seeing those price points stick? Are you having pushback on those higher price points? Anything there would be helpful.

Sure. Jason, it's Vivek. I would say we believe that technology offering is in line with its value. And so I would also say when we took over and got into the pump business 7 or 8 years ago, in the dark days when we had acquired Hospira had come off of just a decade of share losses. There were moments we discounted heavily and it didn't change anything. And so I think our experience in the pump business is to ensure that the technology in the device is commensurate with its value.

We believe that to be the case. These devices have more and more technology in them, and it's important that, that value is recognized. So we're certainly trying to hold firm on that. And the answer to your question will ultimately flow through the P&L or not. And you can see the strength we've had in the systems business.

Okay. Perfect. One more quick one just from a modeling standpoint. I think and I'm not always quick on math on the uptake, but I think you were implying that this Japanese product line, maybe roughly $10 million or maybe sub-$10 million today in annual revenue. So are you counseling us to be taking out $2 million to $2.5 million per quarter out of Vital Care or -- and starting that in beginning in 2Q? Or help me out.

Yes. I think you're overthinking that so that wasn't the intent. I would just say we had examples of dumb things we were doing in there, and we were trying to clean them up. And it's not that there was some catastrophic issue with some of the product lines. There are some unique circumstances that we've been trying to take action on those when we have the contractual flexibility. That's still in our P&L. It's drifted down $10 million.

That's been part of the things going on over the years in Vital Care, there's a couple of items like that. So I don't know, Brian, please add to that, if I to provide any deep guidance on that. It's just -- it's hard to explain what's been going on. I felt like since it's going to be in the Q, we should give an example of it.

Okay. We can follow up offline. I got a couple of other follow-ups related to that, but I won't bog things down here.

We'll take our next question from Larry Solow with CJS Securities.

It's Pete Lucas for Larry. In your prepared remarks, you mentioned gross margin of 41% ahead of estimates due to favorable mix. Do you see this as sustainable? And can you kind of give us an idea of cadence through the year and the overall OpEx on this and the overall OpEx, I should say?

Pete, nice to meet you. Good question. I think Brian said in his script that we believe we still had 2 points of opportunity to hit our target gross margins even from where we are today. We haven't been very specific other than saying we thought we would be exiting around that rate at the end of next year. We don't really provide quarterly gross margin guidance. So I think we're happy with where we are.

We think we continue to have areas to improve it. I don't think we necessarily give out gross margin by quarter guidance. But if you look at the chart in our investor deck, you've seen the last 7 or 8 quarters, we've continued to improve pretty consistent there. So it's obviously a very hot topic for it. And with all the capital we've been pouring into manufacturing and logistics consolidation is to improve that line, very important. disappeared from the screen.

We'll take our next question from Michael Toomey with Jefferies.

I just want to check on the messaging to be clear. Are you reiterating the EBITDA and EPS guide or stepping away because of visibility on the cost? I just want to be clear on that.

No, I think we're still -- we still have a high degree of confidence in our original guidance there. And we just wanted to make sure folks understood kind of the puts and takes that we could potentially have given some of these emerging items. That's all.

Sorry, Mike. We took a lot of work. Let's be clear.

I saw the 1Q guide as the previous guide, sorry, you're just highlighting a lot of moving parts.

No change. No change.

Sorry. We're just trying to explain the real things that we're dealing with. No change.

No, that's helpful. And then on the replacement cycle we've talked about. I appreciate you said that's more of a 2027 opportunity. Just wondering if you've seen any earlier evidence coming through in the orders or pipeline of that replacement cycle?

Yes. Great question. Yes, you need to line those things up. They don't happen overnight. So we're starting those conversations today, right? But the real energy, I think, again, will be towards the end of this year. But the same inertia or incumbent benefit that accrues in the infusion industry also accrues to us where we have a full-line customer, a lot of experience with the device. And so we think we're well positioned there.

The devices operate well for a long time, and so you don't like to force those changes on people until really the life cycle is used up with the device. The timing sort of lines up more with next year and the competitive opportunities are what we should spend our time on if they're here. And we think the results will show our success in that over the balance of the year. So opportunity there, starting cautiously, important part of next year's story.

Okay. Yes, that's great. Just one more as well. Becton this morning talked about 50 bps share gain in the quarter. Do you have any commentary on the share trends for ICU?

Not really. I mean everybody -- it's not necessarily everybody compares these things apples-to-apples. We've always tried to stay away from that, as you know, like the results in the P&L should speak for themselves because I'm not sure everybody counts exactly the same tongue in cheek, everybody has been taking share and the market is kind of what it is. So I think we would prefer not to comment other than say we're materially off the lows in this business where we were a few years ago.

And at this time, this concludes our question-and-answer session. I will now turn the meeting back to Vivek for closing remarks.

Thanks, everyone. I know it's been a very hectic earnings calendar the last day or 2. So we will end quickly here and say thank you very much. Look forward to discussing our results with you on our Q2 call, and have a good start to the summer, everyone. Thanks.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.

Good day, and welcome to the ICU Medical, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 fourth quarter and full year of 2025. 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 event calendar and 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 risks and uncertainties. The Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position.

Please note that during today's call, we will also discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate our 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 under the 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 it 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 Otsuka 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 and continue to be attractive across almost every geography would 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 in the last year. Getting into our businesses more specifically, our consumables business in Q4 grew 6% reported and 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 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 rate 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 in 2026.

Reflecting on our performance in this segment over the last few years, systems grew organically 7% in 2024, 5% in 2025 and 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 road map shortly. Just wrapping up the businesses, Vital Care 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 vital care now makes an impact on the overall company growth rates, we'll give a 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 Vital Care and we've essentially been harvesting those as they have positive cash flow in a finite life or we've been 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 impact 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 profitability. We do have some important housekeeping and operational updates that have transpired over the last 90 days. all of which dovetailed with our priorities from late 2024 and 2025. First, we've received official closure of the broad FDA warning letter received by Smiths 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 Vital Care, we should have more strategic choices available to us. Second, we continue to make progress in the pursuit of our new 510(k) for Medfusion 5,000 syringe pumps and CADD ambulatory pumps and the related LifeShield safety software. This work is important as it underpins the core tenant 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 2025. Third, we've generally finished the manufacturing integration of 2 large legacy Smiths 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 Smiths 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 6 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 GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the fourth quarter was 40.5% and which was in line with the guidance we provided on the Q3 call of 40% to 41%. 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 IV 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 0.5 percentage point lower than the previously provided guidance of 25.5% and 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 were 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 2 items, the first is the deconsolidation of the IV 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 2 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% and the current quarter results reflect adjusted net interest expense of $18 million and 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 generated -- 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 vinyl 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 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 million 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 2 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. Now on to 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 completed 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 2.5x. And 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 2x 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 to 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 2 percentage points of opportunity that we've discussed and improving free cash flow generation at the same -- at the time of the Smiths Medical acquisition 4 years ago, we anticipated the combined organization would generate $500 million in EBITDA and 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 IV Solutions divestiture and along with $40 million 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 therapy-focused company. 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 solutions business. 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 clinical 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 base 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 CADD 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 installed base 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 pro forma 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 pricing and operational decisions.

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 2x 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 Smiths 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 wildcards 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 multiyear 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 -- are 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. thanks to all our team members and customers as we improve each day. And with that, we'll open it up to questions.

[Operator Instructions] And we'll take our first question from Jayson Bedford with Raymond James.

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? Or 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 6 quarters, which is the capital environment has been very stable, nothing different than historical behavior. 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 a mere was very low. And so these improvements are very meaningful to our P&L.

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 of our business, absolutely. Internationally, the 60 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 range of the 4 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 interesting in what the future road map looks like and want to engage on it, and it hasn't been slung anything down.

Okay. and just timing on the clearances. Is it safe to assume a 2Q midyear?

I mean I think I would -- we would leave it as, one, we are incredibly pleased that we have seen no change in the regulatory response in this time. Responses are just as prompt as ever. And the quality of the dialogue is just as good as ever. We received a first pass review on the plum Duo, we felt these were high-quality filings. It's never over until it's over, and there's the normal back and forth going on. So we're doing our part, and I think they're doing their part the best they can.

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 the word you used. Can you just comment on the appetite for these type of products out there?

I mean I think we all read the same newspapers. I didn't see the same things happening from a transactional perspective I think there's capital we 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 warning letter or we're in the midst of being integrated via their manufacturing sites were moving or their IT systems that ran were moving in. And a lot of that work is behind us now. So we just feel like we're in a better place to explore some of those opportunities.

We'll now move on to Brett Fishbin with KeyBanc Capital Markets.

Maybe just one on consumables since systems was just touched on. So I think for this year, you're pointing to mid-single-digit growth, which is pretty in line with what you've seen in the last couple of years, maybe 100 bps 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 6 weeks into the year. I think we've picked up on some signs that maybe 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 as it pertains to the guidance for '26.

It's a good question, Brett. I think just as the first point of clarification, our guidance for consumables, independent of the results that were put up is exactly the same as the last 2 years, right? So our mid-single-digit sentences the party line and what we certainly have been sticking to. 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 rate. 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 a seasonality point, Brian was talking about in the script on the flu stuff and just the normal seasonality we've had in the consumables business, but I don't think there's anything related to our buying demand. We were talking about or I wouldn't have made the normal comments in the third para.

All right. Perfect. Perfect. And then just 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, 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.

Brian, do you want to that one?

Yes. 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 in the near future, if anything, and who knows what could result from that. But I think we have done some things structurally to try to mitigate the tariffs as much as we can. We saw a little bit of that favorability Brett, in Q4 coming in a little bit less than our previous guidance around some expense there. So I think that helps, and that kind of gets back to the point as to why Vivek was saying earlier earlier in '25 don't annualize what we were seeing at that point in time. So yes, 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.

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

Yes. So when I look at your slide and kind of the bar chart in there, for the Infusion Systems business. It looks like the syringe pumps are a pretty small slice of that business. So is that really just because the overall market is smaller or is it a sign that your shares may be lower in that category? And does that mean there's maybe more opportunity to take some share when you launch the new syringe pump?

Yes. Mike, we'll start with the market sizing. It's a much, much smaller market than the LVP in terms of actually units pumping maybe 10% to 15% of the size of the overall LVP market. Max 20, if we had a debate about it, depending on who system you're using. So first, the market size is much on. And it's the inverse of where we are in LVPs, our share is actually higher on syringe, certainly very high freestanding syringe. -- than we have in LVP. 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 to drive 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 there's -- syringe is a small portion of the segment, you're right, but it is important to customers.

Yes. Okay. That makes sense. And then just Vital Care, 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 in that business or kind of the portion of your corporate earnings that are coming from it, just so we can maybe start to do some math around like what the potential trade-off would be between lots of earnings versus share repurchases and things like that. I know it depends on the price, but -- and I know it may or may not actually happen.

Yes. I mean I think we're not quite -- if it was easy to do, all of this will be done are, right? We haven't -- that the infrastructure is deeply commingled in spots, which is why this is tricky to work your way through. And until you really get it on its own organized IT, its own organized manufacturing. It's been hard to assess that with super precision. I think what we would say as it relates to the general direction of the question you're asking, one, it is likely that most of vital care is probably below the corporate gross margin. I think that's a safe assumption.

And the second 1 is, I think if you look on our track record, of most of the situations, right, we've tried to thread the needle in the right way and the solutions, J.B., we found a way to improve our revenue growth rate, improve our gross margins and do something that was EPS breakeven, so to speak, right? 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 the right quarter and the right forum to make sure I've heard 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 want to be that firm that again, there's 1 not every business has created equal necessarily in there, but I think directionally, that would be the goal we'd aspire to, right?

We'll now move on to Jason Bednar with Piper Sandler.

Congrats on the quarter here and in the Smiths warning letter being lifted. Vivek, 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 guiding to 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 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 Hospira pumps. But I know you're saying that's maybe more of a 2017 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 by saying right now, starting this year, we feel good about what we think of almost as our backlog of our transactions that we've 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 more and install more in the same year. So I think 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. This whole industry has been right for challenges. We've essentially worked at 23 players.

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 2 years. So the good growth of 7 and 5 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 2016. I don't think we want to be precise in exactly how many points of headwind, but it was certainly a headwind to the business for the last 2 years, and the business still did well.

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

I think the challenge and the opportunity for this industry, and a lot of value is created if you can -- there's 3 components of value in the pump business, maybe there's 4 components of value, right? The first is obviously that the razor and razor blade the dedicated sets. The second is software and service. The third is if you can drag adjacencies like we do with regular consumables and the fourth is the hardware itself. And we thought we were pretty well positioned on the first, second and third, certainly, new products position us better in software than the historical products. But I think the challenge for our pump is historically is that we weren't generating enough margin on the hardware. We believe this piece of technology has enough the new pubs have enough technology embedded in enough features that we can begin to have a more interesting positive gross margin on the part makes a big difference for us. It will make a big difference for us over time.

Okay. So it's safe to assume that it's improving gross margin, then it's material enough on the revenue line, too.

Correct.

Okay. Perfect. Last one for me. Just I thought it was pretty clear just from a lot of comments even how you started the call that operations are for the business are just in a much better state today than where we've been in the last few years. 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? And does that show up? Do we see that across gross margin and SG&A lines -- is that a dynamic that just builds throughout the year? Just any more color there would be helpful.

Yes. I mean I think I think we 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 where -- 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 we'll continue to realize benefits. And I think we're our goal is to really exit next year. So by the time we get to the end of 2017, we're kind of more at a steady run rate 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 tariffs, right? That's what we're talking about to where we get to. And this basically what happened, it was a spiral downwards in the first year or 2 as results were coming through and the business wasn't as healthy as we thought. We just get more value. We have to consolidate more integrate harder that consumed capital. And those projects became big projects. We're finally coming out of them, therefore, capitalize and consume that things get back to. It's kind of a spill down and the spiral back up and we're at least on the better side of it now.

Right. Very clear. Congrats again.

Once again, to Larry Solow with CJS Securities.

Great. So a couple of follow-ups, most of my question has 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 for most of it. Is that fair to say?

I think -- Larry, thanks for the question. I think what you're trying to say, again, it can drift month-to-month. But in general, once the inventory that was made at the old factory, leaves, we get the benefit of the manufacturing synergization. And we have a number of logistics, consolidation is also rolling in. 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 2 points of margin, the missing still 2 points relative to our new targets, are really those activities being fully implemented, the previous question, the benefit of better margin on hardware sales overall pricing, et cetera, those all go into components of margin. And as the consumer business grows, that helps margin stutters a lot of things in the mix for both this year and next year, they're all good.

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 and integration restructuring combined, it sounds like you spent 37 this quarter. So I think it was over 100 again for the full year, and it's averaged over 100 to 3 years. So -- and you've been averaging or at least run rate close to $100 million free cash flow. So Fair to say that in 18 months, 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.

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 this year. There will always be some tough on regular remediations that are happening, et cetera, but a materially different number in the back half. So that's the way free cash flow is around and then growth long term on top of that.

Got it. And if I could just sneak 1 more, just more just systems, a lot of questions on this one. But there's still, I guess, a lot of business up for grabs, right? I don't know if you can just kind of characterize where we stand and without mention the competitors may 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 line, that should be a much greater opportunity for you. So just your confidence level that we could start seeing your customers will want to switch or would be anxious to switch as we look 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 have enough contracts in hand. 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 competitive activity that can keep us busy. In terms of the refresh of our installed base, I mean, our journey here we went through some dark days where people had left the infusion hardware category, Abbott Hospira what we became a very different market shares historically. -- we stabilized that classic. And truthfully, that many of the customers that 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 the syringe in CADD, all in the same software. And so I would argue that these customers went through some tough times, still we're committed to the technology, and we believe we have a better offering for them today, and that's independent from the economic wrapper around the other accessories and solutions and other things that may or may not be part of any given conversation. So we think we're well positioned for that conversation, too.

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.

Good afternoon, everyone. We're excited to continue our 44th Annual JPMorgan Healthcare Conference.

My name is Rohin Patel. I'm associate on the healthcare team here at JPMorgan. And today, it's my pleasure to introduce ICU Bio -- ICU Medical, excuse me. And its CEO, Vivek Jain. We'll have time for Q&A at the end, where we'll be joined by Brian Bonnell, CFO.

And with that, we'll hand it over to Vivek.

Thanks, Rohin. And thanks to JPMorgan for having us at this great event. I think we know a number of folks in the room, so we'll try to be informal as usual. And in the next 20 minutes or so, I think we can give you a good feel for the investment rationale into ICU Medical, our team, a number of pharma colleagues are here in the front row, has been together a long time. And our investment into the company and our time at the company speaks to our commitment to get this right.

And I think we're excited today to be talking for the first time in the last number of years with many of the situational challenges that we went through with our last transaction behind us and a lot, not all, but a lot of the macro items that we face too in the market. We simplified our investor presentation. For those of you who are familiar with us, we did simplify our presentation a little bit. Hopefully, it cuts to the chase of the opportunity and illustrates our potential.

We would, of course, encourage you to read our safe harbor language at your leisure, which is available on our website. And so first, let me just do a quick snapshot on ICU Medical. We are a focused player primarily in IV therapy. We report in 3 segments, which are consumables, systems and Vital Care. Consumables and systems are our core businesses. 2/3 of our revenues come from North America. I would say more than 2/3 of our profits come from North America. And almost 90% of what we do are single-use disposables that are $10 or less.

So 90% -- 87% of our items are single-use disposables, the balance is capital equipment sales. In terms of financial metrics, we at the stock price a couple of days ago, we're about $3.8 billion of equity value, and there's about $1 billion of net debt, which implies trailing just over 2.5x levered. We'll talk a little bit at the end of the presentation what our goals are there and where we want to get to.

For those of you who've seen us before, this chart last year would have had $300 million more in revenues on it. We consummated a joint venture for our IV Solutions business last year. We still have commercial responsibility for that business, but it's no longer included in our publicly reported results.

Let me give a minute on the IV therapy industry. It's a structurally attractive industry with a lot of very, what we call, sticky demand drivers. And first and foremost, these are essential products, 90% of the folks who walk into a hospital today receive some sort of infusion therapy. There's a high -- if we spoke like consultants, we'd say there's a high incumbency or familiarity advantage where people don't want to switch products. And the products themselves have very long both life cycles in terms of the technology of the products but also have long contractual cycles where if you get a piece of business, it stays for many years in a row.

The underlying market structure is attractive, and that's a very consolidated industry. There's a limited number of players that do this around the world. The regulatory barriers are very high. And sometimes people's impression of that is you can only participate at a census level, but like many markets, there's lots and lots of niches and hidden spots in this market where growth is faster than census, and that's what we look to optimize and participate in.

I mean, ultimately, our role in this industry is to address the meaningful areas in infusion therapy, which are really at the confluence of safety patient -- or at the confluence of patient safety, clinical efficiency and workflow. And where those things don't go right, there's often bad outcomes for hospitals. And so if patients are safe. If care is delivered efficiently, good outcomes are happening, hospitals don't have problems. If those things aren't happening right, there's usually negative reimbursement effects, et cetera, for hospitals. We benefit -- we add value by making sure those things happen the right way for our customers.

How did we get here? So 9 years ago, 8 years ago, we were a $200 million direct sales company. And our team showed up and we got to work really focused on innovation around our original core consumables business. And that set us on our journey to grow that business, and we supplemented it over the next number of years with a variety of M&A activities.

We did some defensive M&A with Hospira, acquiring Hospira Infusion Systems, which was a very good transaction. We did some offensive M&A with Smiths Medical which was a strategically logical transaction, but a harder transaction execute. And we did some creative M&A in the creation of our joint venture with Otsuka Pharmaceuticals.

Those deals, while all strategically logical, we had to believe we could add value through innovation. And so lots of folks have rolled up industries consolidated things, but if you're not adding value with new products, new features, making things better, making things safer, it doesn't matter what you bought. And through all the difficulties you went through the last couple of years, we remain committed to innovation throughout that journey.

Okay. So kind of getting into our businesses a little bit now and then into the financials. We think each of the businesses and particularly consumables and systems are well positioned with a right to win. And so if you look at our results on our earnings calls, we published a slide that has the last 6, 7 quarters of revenue growth. Those numbers have averaged 5%, 6%, 7% in the big businesses. There's a handful of key products that you can look at under leisure in each of those sectors but we are 1 or 2 in the U.S. market.

And we win because there's some synergy between the businesses of consumables and systems. We win because we innovate, we win because we have global manufacturing scale and cost positions, we win because of brand and we win because we innovate consistently. I'll get into the more specific innovation in the systems business, but if you add up these players -- these various verticals, each one of them is one of the largest suppliers in the world in these categories.

To make it really simple about the company, what are our priorities, right? How should investors judge what we're spending our time on. There's 3 things we're trying to do. We're trying to make sure that we deliver consistent core revenue growth, right, keep our commercial momentum going. We're trying to ensure that we continue to deliver innovation. And for us, that innovation has been both incremental, which is sometimes [ pod ], but has really been what's been driving our consumables business for years, and we want to deliver step change innovation, which we're doing in our Infusion Systems business. And ultimately, at the end of the day, that needs to show up on our P&L, right? And we want to show that we have financial results that provide evidence that those things are happening.

So on the first one, what are we trying to do to deliver mid-single-digit growth? And how have we done that in these businesses? And first and foremost, for both consumables and systems about competitive share gains. And so I'll talk a little about in each vertical why we're getting competitive share gains. It's about creating the faster growth markets, and it is -- has been about pricing and some of the things coming over the last few years. So in consumables, we've won for really 4 or 5 clear reasons, brand, the way we deliver the product to the patient and the hospital the way we organize the product from a training perspective, by creating faster growth markets -- faster growth markets in biologics, in home infusion, et cetera, those niches are growing at attractive growth rates faster than the hospital markets.

And we took a lot of pain and price and inflation here over the last number of years, and we've been very focused on getting pricing back in line to recruit that inflation. So on consumables, we've won for all of those reasons. And then if we win in systems, and I'll talk about in a second, more often than not, we win in consumables, too. And so the pumps drag some of the plastic consumables that go behind it.

In the pump business in systems, we have a couple of unique things going on in the LVP pumps, which are the workhorse pumps that came from Hospira. If we win in those systems area. It helps also not only pull the consumables, the other types of pumps, which are the specialty pumps that came from Smiths, the CADD pump and the Medfusuion pump.

The CADD pump and the Medfusuion pump participate in some of those faster-growing markets in home care, offsite, et cetera. So it's not only having the right product, having it in the right place where they can participate. And an advantage we finally created for ourselves is on the hardware side of the pump business. We finally have some products that are capable of driving an attractive gross margin.

And so pricing matters there because we get -- we realize the value for the technology we're now offering, which wasn't necessarily the case with the historical pump platform. And so I think it's pretty clear there's a lot of drivers of our commercial momentum across our most important businesses in each of the subproduct families in those groups that were referenced on the previous page.

In terms of innovation, most of our innovation dollars for the last 5 years have been in the pump business. And so we did these -- we innovated on consumables. We did these transactions. We built a full line of infusion pump devices. But until very recently, they were all running on their own IT network under their own drug libraries with their own limited connectivity.

Over the last 2 or 3 years, we've got approval for a new LVP system and a new software system called LifeShield and LVP is called Plum Duo and Plum Solo, and we're currently pursuing approval for a new syringe pump and ambulatory pump that would connect to the same IT and same system. And so we've tried to deliver a simpler, more modernized format for customers, where each of these devices is the most accurate and most precise tool but try to conserve the things that make them really standard -- making them able easy to be standardized in terms of user interface, workflow, connectivity, et cetera, with a common look and feel.

And so that speeds up education, training, service, et cetera, and it's the first time we get to go to market with all of this in an integrated fashion. This investment cost more than $100 million over the last couple of years. And if we talk about why it was so important and to understand why we made it, in the pump business, you really create value in 2 ways.

You create value by refreshing our own installed base of existing pumps either with more valuable technology or with new software tools and other things that revalue the installed base itself or we take competitive share gains. Having the full line portfolio gives us the best opportunity to compete in the very situational things that have gone on in the pump business today with a bunch of decisions that finally were sort of in the fourth quarter of the game where customers have to make a decision on what they're going to do with infusion pumps.

Longer term and the bottom point, and I'll take one little slide on futures. This business is still kind of a razor and razor blade model, and we want to migrate that more to analytics and software and very few medical device companies have been able to make transition. But as we think about it, and this is future, this isn't here today, the infusion pump is the most prevalent wireless device in the hospital probably besides the mobile devices of the staff for the hospital themselves. And these pumps are delivering critical medication every day, and that real estate is important. And over time, we see an opportunity to deepen the clinical workload. So this will be a stepped approach. These pumps today do what used to be kind of higher end stuff is now table stakes basic bidirectional connectivity with data, populating an EMR, EHR, et cetera.

Over time, we want to add that more connectivity to home care with the CADD pumps at home. Over time, we want to see is there more decision support that can be offered with ventilators, anesthesia equipment, et cetera. How do we get more into the clinical workflows around that. And then the holy grail is these closed loops that people talk about that take a long time to materialize, but there will be a time and place for that. And so I think we have some very clear opportunities there. And fundamentally, they're back to the same drivers we've talked about on that slide, which is how do we add more safety to the system, right? These are all just different words for safety.

In the consumables area, we hint around on our earnings call, we have innovation going on there. We were trying to figure out how to just make it really clear what our consumables innovation is. And our consumables innovation is predicated on 2 things. And this business, again, has grown 5%, 6%, 7% a year for more than half a decade. Our innovation here is centered on improving patient or clinician safety and it's making clinical efficacy or workflows easier.

And so that's -- on the safety side, that's using up your medication. It's minimizing hazardous drug exposure, it's reducing infection risks, reducing ripping out catheters, et cetera. On the clinical side, it's driving standardization. And really, it's about closing the open holes in the infusion system.

And so it's taking the legacy parts and pieces of ICU Medical and attaching them everywhere it makes sense to system or make management of adverse events easier within that system. And that can be a dedicated pump set cartridge. That's the original genesis of the Abbott ICU Medical historical relationship 30 years ago, that bottom left picture to taking those parts and pieces and putting them on what was a Smiths ambulatory dedicated set, Hospira infusion bag, a closed system catheter everywhere we can add the value and drive standardization we're trying to do in infusion consumables, and this now is over a $1 billion business for us.

Okay. A little bit on financials, and then I'll wrap it up. In the darkest day -- so all these things need to make their way on to the P&L. In the darkest days post last acquisition, I think we hit 34% or 35% gross margins. We said we were underearning at that time probably 500 basis points, and we should be a 40% gross margin company.

We then created the joint venture with Otsuka Pharma that raised that 40% target to 45% in our mind. So that was a 500 basis point improvement with the solutions JV. With tariffs, there's a 200 basis point hit to that target, so that's kind of adjusted for tariffs to be at the 43% range. At our most recent quarter, it was 41%. And so we still think we have 200 basis or so to go of gross margin improvements.

The second point is we need to get back to our historical expectations of free cash flow versus net income. And there's lots of areas of improvement for free cash flow. Tariffs are a huge area of cash consumption at the moment. We have spent a lot of money on restructuring costs that should be decreasing. We have spent a lot of money on quality remediation. It should be decreasing. And all of that leads to gross margin expansion.

The bottom part of this middle slide basically is saying if we've made all of that innovation, we may have some assets we are interested in divesting. We didn't skimp on innovation or CapEx. We don't need to do a lot of external M&A we're close to achieving our target leverage, which is on the right-hand side of the slide. And if we achieve our target leverage, which is about half a turn away from where we are right now, the goal on a thinly traded security, where we protected the share base is to return to shareholders after the work of putting all of these assets together.

And so I think we have a very clear view in our mind what the capital allocation plan for the company should be. And I think we're very close to achieving it. And it's admittedly, it took us longer than we expected and wanted to get here, but we're here now with the products about to turn the corner on some of these items.

So in summary, why invest in ICU Medical. I think we're at an inflection point of new product cycles on the pump side, consistent innovation on consumables. Improving financials and then a couple of wildcards that may or may not happen, specifically the product cycles that I talked about really Plum Duo Plum Solo, the Medfusuion 5000 syringe loss launch software opportunity, consistent consumables growth. We're exiting this period of difficult merger integrations. We've improving gross and operating margins.

The synergies are being realized. And so that it's -- sometimes it's a scary word, but we absolutely are seeing situations where we walked into a customer that we picked up from the last acquisition, selling them ambulatory pumps or syringe pumps and then be able to convert that customer into an LVP full-line account and vice versa. That's very valuable. We're bringing those quality issues to resolution. Cash flow has been improving. If you've been seeing our results, EPS has been growing. Our costs don't really change that much. And so there's a lot of leverage on revenue growth. Debt levels are getting where they need to be, lower cash consumed below the line. I know a lot of people don't pay -- we pay a lot of attention to what gets thrown below the line because it's real cash, it can pay off real debt.

And then there's some optionality on what do we do on capital allocation and/or capital return if something is to be monetized. We're close on target leverage and tariffs, obviously, are a wild card with what's going on out there. So it's an interesting time for the company. We think we're at a very, very close moment to realize the potential of all the things we put together and happy to answer any questions, and thanks for your interest in ICU Medical.

Maybe I can start off with the first question. So big picture wise, do you feel the company is out of the woods with -- on the challenges, so to speak, from the Smiths Medical acquisition? And if so, what would be the proof of that?

I mean I think we've just spent the last 20 minutes trying to make a case for we're getting out of the woods. We're almost out the woods. It's not fully there. I think there are -- in terms of the things that are still behind us, while we believe we have satisfied all the requirements for the warning letters that were received by Smiths and then us subsequent to the acquisition. We don't have them lifted yet.

So that needs to get done. It's not a commercial impediment nor is it so much of an economic impediment anymore, but it is a bit of a black cloud we would like removed and maybe affect some things on the strategic side. I think that's one remaining item and we need to sort of fully finish the IT integrations for the rest of the world. That hasn't been done yet. But operationally, I think most items are out. And then I don't know what you call tariffs, tariffs are more macro item from this year, but that's something that's consuming us too, but it wasn't necessarily related to the transaction. The transaction-related things outside of what I mentioned, I think we're mostly clear.

Maybe I'll ask another one. What does ICU Medical believe it can grow market growth rates?

Yes. I think ICU Medical has demonstrated for at least the last 7 or 8 quarters that we've been growing above whatever people call normal hospital census. And in the presentation, we were trying to say in all markets, there's growth. You may have to create them, you have to find them, right, but there are pockets of every market that are moving faster. And to make sure our portfolio is adding value in those areas.

And so if we pick some spots in the consumables business, there are spots with dialysis or home care or oncology that are growing faster, and we have healthy portions of our portfolio there. In the pump business, there are ambulatory infusion in other areas of software that's going faster. We're either there or trying to get our portfolio [ there ]. And then we have some very -- that's what we're supposed to do every day.

And then our situation is unique because a lot of weird stuff happened the IV solutions and IV consumables business that has led to some changes, and there's a lot of things going on in the pump business on top of that. And so yes, there's baseline growth. We should do better because we're taking share. We should do better because we are trying to tilt our portfolio growth areas. And then there's these kind of unique macro things that happen in each one of those segments.

Okay. If we don't have any more questions from the audience, I think we can wrap up the session. Thank you very much for...

Thanks, Rohin for having us. I appreciate it. We'll hanging around. We've got time. Obviously, We'll hang around if anybody has anything you want ask privately, feel free to grab us. Thanks very much for the interest, folks.

Thank you.

Good afternoon, everyone, and welcome to ICU Medical's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded.

I would now like to turn the conference over to Deirdre Thomson of ICR. Please go ahead.

Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the third quarter of 2025. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our Investor page and click on Events Calendar, and it will be under the Third Quarter 2025 event.

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 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 provide as much detail as possible on any addendums that are added back.

And with that, it's my pleasure to turn the call over to Vivek.

Thanks, Deirdre, and good afternoon, everyone. I'll walk through our Q3 revenue and earnings performance and provide some commentary on the businesses and then turn it over to Brian to recap the full Q3 results and balance sheet and provide an update to our latest outlook. After that, I'll come back with a few comments on how we evaluate our performance year-to-date, where we are in our mission of creating a comprehensive infusion therapy company, our goals around the balance sheet and optimizing our portfolio; and lastly, a couple of thoughts on the medium-term priorities of the company.

The short story for Q3 is revenue was $533 million for a total company growth of 5% on an organic basis or minus 8% reported year-over-year. Gross margins increased, operating expenses declined, leading to more EBITDA and EPS. As a reminder, the reported results are impacted by the midyear creation of the Otsuka ICU Medical JV and resulting deconsolidation of IV Solutions from our income statement.

Consumables and IV Systems had good year-over-year growth. Both revenues and gross margins were slightly positively impacted from a settlement of a portion of the Italian payback liability, which was an expense we absorbed towards the end of 2022, and Brian will provide more detail.

Adjusted EBITDA was $106 million and EPS was $2.03. Free cash flow generation improved. And as of today, we've repaid $273 million in principal year-to-date. The broader demand and utilization environment in Q3 continued to be attractive across almost every geography with the growth rates positive, but not at the levels we saw last year. The capital environment is status quo, that it does appear investments that customers need to get done are getting done.

Getting into our businesses more specifically, our Consumables business in Q3 grew 8% reported and 7% organic. It was a record quarter in absolute sales levels with growth driven by new customer -- new global customer implementations, rapid growth in some of our niche markets and solid census. We had the best sequential increase in absolute dollars since Q2 of 2024. For the balance of the year, we're very comfortable with our comments on mid-single-digit growth for the year, but don't expect Q4 to have the same growth rates as this quarter.

On the last few calls, we've made some high-level comments around new product filings and innovation in our Consumables business with a number of line extensions or adjacencies that are rapidly pushing the development process and/or have already submitted 510(k)s to further strengthen our market positions. These products at their core are around enhancing patient safety and workflow efficiencies in the infusion drug delivery process. A number of these programs combine the parts and pieces of legacy ICU and what we acquired from Smiths.

We believe these developments alongside our existing commercial opportunity can keep this segment growing at historical rates into the medium term. Our IV Systems business grew 9% reported and 8% organic. Unlike Q2, this was driven by all 3 main product families as we lapped the difficult comparison in the CADD ambulatory product line.

LVP pumps and dedicated sets were again the largest contributors with double-digit growth driven by new installations and strong census for dedicated set utilization. We continue to be engaged in many new RFP processes and are beginning customer discussions around the multiyear refresh of our Plum 360 installed base with Plum Solo, now that it's been cleared. As we've discussed, since the new Plum Duo Solo products have been approved, the installation schedule is not predictable enough to be perfectly smooth just yet. Hence, we knew Q3 would be a record quarter as some installs from Q2 pushed into Q3 and even a few Q4 installs came forward.

For the balance of the year, we're very comfortable with the previous comments on mid-single-digit growth for the year. We don't expect Q4 to have the same growth rates as this quarter given the comments we just made on installs and the very large sequential step-up in Q4 over Q3 in 2024. Since the last call, we've been in dialogue with FDA about the submitted 510(k)s for both the Medfusion 5000 syringe pump and the CADD ambulatory pumps and related LifeShield safety software.

These submissions are working their way through the process, and we would call the process fair and like prior experiences with no real change in responsiveness from the agency even with all the challenges they're dealing with. As a reminder, we characterized the Medfusion 5000 as a groundbreaking new innovative product. But like what we did with Plum Duo and Plum Solo, we conserve the guts of the product that made Medfusion a market leader based on accuracy and workflow.

We would describe the CADD submission as more like a catch-up 510(k), bringing a variety of product iterations up to date in [indiscernible] filing. When these products get cleared, all of our pump modalities will connect to a single software solution, bringing ease of use and tighter control of all types of infusions to a hospital customer.

This was the core tenet of the acquisition to have a single software solution across hospital LVP, syringe and ambulatory pumps. We want customers to have the right tool for the right job, all connected with a common user interface and software solution that minimizes training, speeds onboarding, supports interoperability and enables standardization for our enterprise customers.

We believe we're seeing the benefits of this vision in the marketplace today with 3 distinct value drivers, which can be summarized as: first, the opportunity to win competitive market share with a full suite of the newest and best-in-class products; second, the opportunity to refresh our installed base of not only the LVP pumps, but also the installed base of the syringe and ambulatory pumps as that is a very significant installed base. And lastly, to create new revenue streams via software and home care connectivity, which are still in the very early days.

We believe these drivers, again, which are frankly the main reasons for the acquisition, position us for sustained growth in the medium term. Just wrapping up the business segments, our Vital Care segment was down 52% reported and down 4% organically as IV Solutions revenues were deconsolidated from our income statement. Critical Care and Respiratory were slightly up year-over-year. That's a quick summary for me on the businesses. I'll come back shortly with a few more comments. And so with that, over to you, Brian.

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, along with the Q3 balance sheet and cash flow and then provide commentary on the implications for our latest outlook.

As you can see from the GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the third quarter was 41%, which was slightly better than our expectations. Here, we saw a meaningful improvement on both a year-over-year and sequential basis. There were 3 discrete items that impacted our gross margin rate for the quarter that are worth calling out.

The first was the onetime benefit associated with settling the Italy medical device payback liability related to the years 2015 through 2018, whereby we paid $2.5 million to resolve those historical periods at less than assessed values and therefore reversed the excess accruals, which resulted in a onetime increase to both revenue and gross profit of approximately $4 million, improving the gross margin rate by just under 0.5 percentage point.

The second item was that consistent with our previous guidance, we saw the full benefit from deconsolidation of the IV Solutions business, which improved our gross margin rate in the third quarter by almost 5 percentage points, whereas in comparison, the second quarter of this year, we experienced approximately half of the same benefit given the timing of the joint venture transaction.

And the third item was the impact of tariffs. Here, we incurred and paid $11 million of tariffs during the quarter and recognized expense of $9 million in the P&L after capitalizing an incremental $2 million into inventory. The $9 million of expense in Q3, which reduced our gross margin rate by approximately 2 percentage points was a meaningful step-up relative to Q2 expense of $3 million, but a bit less than our prior guidance had assumed. Also contributing to the year-over-year improvement were continued benefits from integration synergies and favorable foreign exchange.

With the third quarter results, we continue to progress towards our previously stated gross margin goals. In prior years, when our gross margin rate was in the mid-30s, we established a target of 40% gross margins to be achieved from a combination of manufacturing and supply chain synergies, price increases and improved manufacturing absorption from volume growth. Then last year, we increased the target to 45% to reflect the expected benefit from the deconsolidation of the IV Solutions business.

This target of 45% was prior to the imposition of tariffs beginning in early 2025. And therefore, if you exclude the 2 percentage point impact of tariffs from our Q3 results for comparison purposes, our gross margin would have been 43%, which is within 2 percentage points of our goal and we continue to believe sufficient operational improvement opportunities exist to allow us to close this remaining 2 percentage point gap over time.

Adjusted SG&A expense was $109 million in Q3 and adjusted R&D was $21 million. Total adjusted operating expenses were $130 million and represented 24.3% of revenue. The total dollar amount of spend was less than the past 2 quarters as a result of lower incentive compensation expense and the timing benefit from the deferral of discretionary spending as we've implemented cost controls across the company due to the uncertain and changing environment.

Restructuring, integration and strategic transaction expenses were $13 million in the third quarter and related primarily to continued efforts to integrate our IT systems and consolidate our manufacturing network. Adjusted diluted earnings per share for the quarter increased by 28% to $2.03 compared to $1.59 last year.

The current quarter results reflect net interest expense of $20 million, an adjusted effective tax rate of 27% and diluted shares outstanding of 24.8 million. And finally, adjusted EBITDA for Q3 increased by 12% to $106 million compared to $95 million last year.

Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was $28 million and includes the impact of a $10 million outflow related to reducing our utilization of our accounts receivable purchase program to 0. It was another solid free cash flow quarter when taking into consideration the impact from lower usage of the receivable program, along with the cash flow impact from higher tariffs.

During the quarter, we invested $12 million of cash spend for quality system and product-related remediation activities, $13 million on restructuring and integration and $29 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 the balance sheet, we finished the quarter with $1.3 billion of debt and $300 million of cash. During the quarter, we paid down $25 million of principal on our Term Loan B, bringing total debt principal payments during 2025 to $273 million. Subsequent to quarter end, on October 31, we completed the refinancing of the pro rata portion of our credit facility that reset the 5-year term of the revolver and Term Loan A, which were scheduled to become current in January 2026.

As part of the refinancing, we increased the size of the Term Loan A by $190 million and used these additional proceeds to pay down our higher rate Term Loan B by $190 million. We expect the refinancing to save approximately $2 million annually in interest expense as a result of this reallocation of principal, along with other more favorable pricing terms.

Moving forward to the outlook for the remainder of the year. Given the strong performance in Q3, we are increasing our previously provided full year EBITDA guidance range of $380 million to $390 million to a range of $395 million to $405 million. And for the full year adjusted EPS, we are updating our previous guidance range of $6.85 to $7.15 per share to $7.35 to $7.65 per share. This guidance assumes fourth quarter revenues and underlying profitability are generally consistent with the third quarter plus the impact of 3 specific items.

The first is the absence of the discrete $4 million benefit from the Italy payback settlement that we experienced in Q3.

The second is higher tariff expense in the fourth quarter as we will incur a full quarter impact of the Costa Rica tariff rate that increased from 10% to 15% effective August 7. We expect fourth quarter tariff expense to be in the range of $12 million to $14 million, which would bring the full year tariff expense to around $25 million.

And the third item is sequentially higher operating expenses as the third quarter benefit from the lower incentive compensation and deferral of discretionary spend is not expected to be experienced to the same degree in Q4. As a result, for the fourth quarter, we're assuming operating expenses to be approximately 25.5% of revenue, which despite being higher than Q3, is lower than our previously provided guidance of 26% for the back half of this year.

After considering these items, Q4 gross margin should be in the range of 40% to 41%, consistent with our previous guidance and assumes the current tariff environment and foreign exchange rates remain in place through the end of this year. Net interest expense should be approximately $19 million in Q4. And for modeling purposes, you can assume fourth quarter adjusted tax rate of 25% and fourth quarter diluted shares outstanding of 25 million.

To wrap up, we're happy with the solid performance of the business during the third quarter as our Consumables and Infusion Systems businesses are as large as they've ever been. We continue to progress towards our gross margin goals, and we saw sequential EBITDA improvements despite the increasing headwinds from the tariffs and the deconsolidation of IV Solutions.

Now I'll hand the call back over to Vivek to close out with a few additional thoughts.

Thanks, Brian. I'll make a few remarks on how we're evaluating our performance, both financially and strategically, our goals around the balance sheet and optimizing our portfolio, and lastly, a couple of thoughts on the medium-term priorities of the company.

In terms of assessing our financial performance on the income statement, I'll use some of the numbers Brian just ran through. If we assume the full 2025 tariff impact is approximately $25 million and added that back to the midpoint of our current view of $400 million of EBITDA, we would be pleased with the result of $425 million as compared to the $370 million in EBITDA last year, and that doesn't even correct for the $15 million or $20 million of EBITDA that was deconsolidated with the JV creation.

Since early 2024, we've been talking about underearning, and these pro forma results show that we're closing the gap. But we fully understand we don't live in a pro forma universe and tariffs are actual costs. So as previously discussed, we continue to do everything possible to mitigate. Strategically, our goal has been to build the most comprehensive and innovative infusion-focused company. This shows first in our recent historical revenue. And the data on Slide 3 lays out our revenue growth for the last 6 quarters.

Throughout the difficulties of the last few years, we did not skimp on R&D and innovation nor capital investments into the manufacturing assets of our Consumables and Systems segment, and we found a win-win with Otsuka in the JV. As a result, we believe in IV Systems, we have a complete and clinically differentiated platform solution that will anchor the segment for the next 10-plus years as the product life cycles are incredibly long.

And in Infusion Consumables, we have the scale underpinned by leading brands with great clinical data that will be supported with more innovation in the core and adjacencies of this segment to support growth. We believe these investments alongside good commercial execution can continue the revenue trends seen on the chart I just referenced.

The balance sheet and overall portfolio also play a role in maximizing revenue growth and EPS. We assume over time, we'll have less leverage and be in a lower rate environment. So we would expect EPS would increase faster than EBITDA. At the end of 2025, we would expect to be 2.5x levered net debt to EBITDA, and our previous comments still apply. Our ideal place is to be around 2x levered and given the innovation we believe we have in-house to return any additional capital to shareholders in the most efficient fashion.

The most obvious and fully under our control way of getting there is organically by improving free cash flow. It's why in addition to offsets tariffs, we're focused on reductions to below-the-line cash outlays and restructuring, integration and quality as they've been material. The less in our control means is via any available portfolio optimizing like we did with IV Solutions. And if that is available to us, it would be a positive for the overall company revenue growth rate and likely gross margins. But with the balance sheet in the safe position is now and an improving interest rate environment, we're on better footing to evaluate and optimize each piece of the portfolio if the opportunity was to arise.

In terms of our medium-term execution priorities, they can be summarized at a high level as the following: First, to continue to commercially execute to sustain and supplement the revenue growth shown on Slide 3. Second, to work with our partners at FDA to gain approval for the new infusion systems hardware and software and bring resolution of the warning letters. Third, to complete the integration activities in the areas of consolidations in our production, logistics and real estate network that are important contributors to the 2 points of gross margin Brian just referenced. And lastly, make progress on the leverage ratio either way to allow for capital return.

All in all, it's a good place to be with our best businesses growing, reaching record sizes and 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 multiyear innovation portfolio and ultimately, to transfer value from debt to equity for the company.

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, are 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 the team members and customers as we improve each day. And with that, we'll open it up to questions.

[Operator Instructions] And we will go first to Jayson Bedford with Raymond James.

Congratulations on the progress here. I guess I wanted to start with Consumables. Last quarter, you talked about the expanded label for Clave. If you can just maybe talk to the sources of the strength here. I have a tough time believing that it's all the expanded label nor is this business really a lumpy business. So I'm just -- if you can go into a bit more detail on the source of the strength here.

Sure. Thank you for the question, Jayson, and thanks for the kind words. I think there's probably 2, 3, 4 drivers of this. I think the marketing points we made on the last call are certainly helpful. I think the drivers could be -- and it's not necessarily in the order of priority, but where we have one more often than not, we'd win the consumables. And so I think that's been in the background.

I think some of the market share gains late in the year last year and early this year around customer wins that had really IV Solutions and Consumables have come to fruition and are getting installed. That's probably the second reason. And the third is the niche markets. Embedded in there is still oncology, dialysis, some of the specialty markets that we've done a nice job of developing. I think those are going well. I don't know, Brian, if you'd add anything else. I think those are the top 3 reasons. And then maybe fourth, just to talk more is a little bit of the international markets, particularly Western Europe has been pretty good.

Nothing else to add.

Okay. And just on the growth, I appreciate the comment that it won't see the same -- Consumables won't see the same sequential lift as it did 2Q to 3Q. But can we assume the expectation is it -- Consumables grow sequentially?

I mean, I think, Jayson, I don't know that we'd want to be so precise in everything. We hit a really good plateau here. You can look at the track record and that slide lays out exactly what's happening in Consumables. We're standing by our mid-single digits comments for the year. We feel very good about it for the balance of the year. We feel very good about next year. I don't want to be in a place where we say something we're not 100% able to commit to. So I don't want to be so precise.

Okay. Okay. That's fair. Maybe just one more for me, and I'll let some others jump in. On Infusion Systems, can you comment on Duo and the traction you're seeing in the market, if there's any metrics you can provide in terms of percent of installs, orders, anything like that, that would be great. And then just are you taking orders for Solo now?

We are taking orders for Solo now. And so we are signing contracts, which is great. I think the installs are still in the relative early days. I'm not sure we'd say a lot more than that other than there's a lot of dialogue going on in the pump market in the U.S.

And we can move next to Brett Fishbin with KeyBanc Capital Markets.

I'm just going to stick to one and then I'll jump back in the queue. I wanted to just ask about 2026. I think you gave some maybe directional commentary on like tariffs. Just curious how you're thinking about maybe the full year picture for 2026 in regards to tariff exposure, given you've had some additional updates in the last few months and maybe a little more time to work on potential mitigation. I know in the past, you've said not to necessarily annualize the 2H impact, but just sounds like kind of a high 4Q exit rate.

Sure. Obviously, an important topic, Brett, and we don't want to make it all about that. Thank you for the question. I think we would stand by exactly the same things we've said when we've been out on the road in the fall, which was -- it is the actual number that we said here. This year, please don't annualize it. We're working on all the things that one does in terms of supply chain, manufacturing, et cetera, to do our best to offset as much as possible. A lot of that work is in flight. I would prefer to leave it at that right now and not make this whole conversation about tariffs.

And we will move next to Mike Matson with Needham.

You talked about the 45% gross margin target. And I understand the tariffs have affected that. But let's just say you get to that 45% on a tariff-adjusted basis. What happens then? I mean, is there still room to go higher? Will you be able to get leveraged earnings growth? Or are you going to be sort of more reliant on financial leverage where, as you said, with the leverage ratio coming down, you'll return maybe do buybacks and things like that to drive more earnings growth?

I mean Mike, we appreciate the question. We're chuckling here talking to people who are at 36, not that long ago. So it was very -- we're happy with what we've done. We still need to close the gap to get there. I appreciate you asking beyond that. It's two things. It's about the value of the technology and the hardware and how -- what's our ability to sustain and improve that over time? What's our ability to change the mix, add more software products to the market to grow Consumables, the overall mix of the company.

Consumables, obviously, when we were -- before we did all the things over the last few years, you can look at the 10-K and see the margins of Consumables are very attractive, but they have to have the right mix to make a difference on the whole, and we continue to work that to get there. And we do have some businesses that are obviously below the corporate margin average, right? In the right circumstance, we would probably figure out if we can do something with those. And so I think there's a couple of shots on goal. There's value of the technology, there's mix of the overall portfolio, there's pieces of the portfolio and then the financial run rate you talked about, too. Those are all arrows in the quiver about how we have to drive earnings.

I mean I listened to the industry calls over the last week, everybody is talking about returning capital and doing the things you're supposed to do with what the industry has gone through. And so we're no different.

Yes. Not taking anything away from the tremendous gross margin improvement we've already seen, which is great. And then I guess my other question would just be around pricing. What are you seeing? I know you had talked in the past about some of these contract renewals and things like that. And are you getting improved pricing anywhere?

I mean I think you're asking the question that's the heart -- that's been at the heart of part of this industry's challenge, right, that the industry is sold under fixed price contracts for a number of these categories for a long period of time and absorbing inflation was hard. So all of us, I think, have been very focused on making sure we're getting fair value for our products. We try it every opportunity. It doesn't mean it's an easy conversation.

The system is under pressure in a few spots. But where the market structure is right and where the clinical value is right and where our competitiveness is right, yes, we think we have [indiscernible] out and Brian can go through kind of the macro numbers each year. It's a bit of a high-level number we give and saying what's the annual impact of price, right? Do you want to make a few comments on that?

Yes. I mean I think earlier in the year, we said we were expecting to get around 1% overall price increase. And I think we're very much on track to see that in the P&L this year.

[Operator Instructions] We will go next to Larry Solow with CJS Securities.

Just a couple of follow-ups on the Systems in particular. Could you maybe just characterize your discussions on the replacement side, the opportunity there? I think you've mentioned that I think a large part of your base is actually eligible or that has come up on the time line where it's up for a refresh. So could you just maybe discuss sort of that opportunity over the next few years? And anything a little bit more? I know you mentioned a refresh cycle for ambulatory and syringe. I imagine assuming those are all -- you get those newer 510(k) approvals, could that be something that also begins next year?

Sure. Yes, Larry, I think we tried to articulate in the pump business, there are -- I think there's 3 ways to create value, right? Ultimately, for us for the last couple of years because post Hospira, the Plum 360 was a relatively new entrant into the U.S. pump market, new device into the pump market, we didn't have a lot of opportunity for refresh or replacement of our own installed base, and we really had to focus on competitive share gains.

We are still absolutely the #1 way to create value is to focus on competitive share gains. But if we can offer more tech in the current device of the Duo and Solo to our existing installed base and that existing installed base buys multiple of these products from us across each of our pillars, that's an opportunity to create value and kind of -- and add more value to that existing customer base. That process is in the very early days.

Most of those devices entered the U.S. market when Hospira brought the 360 back in the market in 2016, 2017. So that will start in earnest, I think, the middle of next year, end of next year from a contract perspective. If we see any benefit from it, it won't be really until the end of next year. It's just starting.

Got you. And just a question on free cash flow.

Sorry, let me answer the CADD and Medfusion are the same. Those are very large installed bases, too. We've been so focused on the LVP discussion. There's some opportunities there, too, that we're focused on. And that's why Medfusion 5000 is really important.

Right. And then on the free cash flow in the quarter, pretty solid and especially if we back out the AR impact and then the remediation and restructuring, you would actually have done $60 million. I know the remediation and restructuring probably are not stopping anytime soon, but maybe you can't just say you're going to do $250 million next year multiply by 4. But does this demonstrate the sort of ability for your business to generate significant free cash flow and as remediation and restructuring expenses start to hopefully wane over the next coming quarters, should we see a nice jump in free cash flow?

Yes, Larry, good question. I mean it's hard to take any individual quarter for free cash flow and annualize it just because you do tend to have a lot of things that show up in one quarter and not another. But I do -- we do absolutely believe that free cash flow is really an opportunity for us to drive value, especially as some of the improvements in gross margin begin to get to our goals on that.

So yes, I think that's -- I think you've identified kind of the next value driver for us. And you're right, it's not going to be seen in the very short term in terms of some of the spend coming down, but that's the opportunity that we have in front of us.

It's about time -- we've been pumping capital in, right, get the consolidation done, logistics done, et cetera.

Those remediation restructuring expenses have averaged close to $100 million a year, right, I think since you acquired Smiths, is that number directionally going to start dropping materially as you look out over the next few years?

Yes. I mean I hate to be a little bit of a downer on this one, Larry. Yes, that number is going to go down, but the tariffs do consume some cash on the front end, too. So we're trying to balance that.

[indiscernible] on your net income. You're already taken that on your operating above that. But yes, that's fair.

And we will move next to Jason Bednar with Piper Sandler.

Congrats on a really good quarter here, guys. Sorry, I've been bounce around a couple of calls, so apologies if these have been asked. But I would assume if there was an update to be shared on the FDA and the warning letters, we would have heard it today, you'd have proactively addressed that. But just checking in on that topic, is there anything new to share on those warning letters? Any updated dialogue or scheduled interactions with the agency?

We tried to -- thanks for the question, Jason. It's good we didn't talk about it in the Q&A. I think our -- there is some attempts by us to bring them to resolution. I think they really center around getting the new product approvals done. We're very focused on that. I tried to give an update in the script on -- the dialogue has been normal, even though with all the stuff the government has gone on, they're being responsive, and it feels like the other things we went through on the Duo Solo. So there's been good dialogue. We're focused on getting the products approved, first and foremost. No change in the feel of that with what's going on there.

Okay. Perfect. Status quo. Maybe just for a follow-up question, I got a similar thing here, but I'll ask it. Something that's come up in past calls, Vivek, you've been a little more open to the idea of some more portfolio management within that Vital Care segment. Obviously, nothing to announce here today. But maybe give us kind of your feelings or kind of a status update on where discussions are as far as like evaluating strategically what fits, what doesn't fit? Are there interested parties out there? Are those discussions happening? Just anything there that can help with kind of where -- thinking about what that segment looks like going forward?

Yes. I mean it's dangerous to commit when people say we're adamantly going down this path and then that doesn't happen. I think we've been trying to be transparent. If you look at the company, we were a $300 million parts supplier 7 years ago. And so we've had the ability to get things done with large multinationals across the globe. That is kind of one of the team's competencies over the years. And so we continue to explore all available avenues.

If there was something to get done, it would have got done already, right? And so I think we were trying to be a little bit introspective about it and saying we don't want to do things that are value destructive. The balance sheet and Brian did an amazing job, got the financing done, we got a little time to be patient, and we continue to explore what's available. I'm not sure I'd want to give more color than that or certainty because it's not 100% in our control. right?

And I think we're pretty transparent in the script and the slide speaks for itself. It shows a very -- a varying difference in growth rates across the businesses. And we are very transparent like in the case of IV Solutions, we didn't feel we had all the tech that you need to be competitive in hand. We went out and found a partner. The same logic could apply to some of the smaller businesses, too.

And this does conclude the Q&A session. I'd like to turn the program back over to Vivek Jain for any closing remarks.

Thanks, everyone, for the interest. We got more Q&A on the call, more people covering us. It's great. We appreciate everybody's time and attention. And we wish everyone a good end to the year, and we look forward to talking to you in early 2026. Thanks very much.

Thank you for your participation. This does conclude today's program. You may disconnect at any time.

Did you give me the disclosure? Did you say anything more? No. Okay. Perfect. Great.

[indiscernible] disclosure right away. Peter Harrison from Morgan Stanley. I want to welcome Vivek Jain from ICU with us today. While we'll just get started right now, Vivek, as I look at the story, it's been evolving over time and it's hard not to notice that you bought stock personally for the first time in a long while recently. What was the impetus for buying stock, which shows some enthusiasm and momentum for the story more so than as you have restructured and integrated Smiths?

Sure. Thanks, Peter, and thank you to Morgan Stanley for once again including us in this great event. We have a terrific schedule upstairs. I appreciate it. I don't think -- just to be very direct on that, I don't think it was the first time in a long while. The year before, I've put up a lot of capital, exercising some options for cash effectively. It looks like a sale reported-wise. So there was some stuff in '23 and '24, too. So it wasn't quite so sporadic. I think it was just -- we have a sense of what the company is capable of earning and it's the thing we understand the best and it imputes a rate of return that I didn't think was achievable anywhere else. And there are moments where I did -- I held virtually every piece of equity I've received in my entire time here. All I've done over the years is exercise options when available and we did those at very different prices and we know to buy today. So it's all logical.

Great. Why don't we start with some of your business segments. Let's talk about consumables. It grew 4% in the second quarter and you expect sequential sales growth to average mid-single digits for the year. What is driving that business? And how durable do you see that mid-single-digit growth?

Yes. I think if you study our investor materials, you'd see that our consumables segment has compounded at 5% or 6% a year for more than half a decade. And there's a couple of different reasons. The first has not so much maybe a bit being luckier than smart. Our end market demand at our customers is pretty good. Volumes are still high, at least in the key geographies of hospital admissions. Demographics are in our favor. And independent of anything we've done, the rising tide has helped. I think that's sort of the first point.

And then there's some specific things around the business, the quality brand, value prop of the products themselves, but even more specifically, there was a national shortage in IV solutions in this country last fall. We were able to obtain some business there that we'll have for the next few years. That's additive to that. There's some specialty markets within that IV in the consumables buckets, niche markets that we create out of whole cloth that are growing faster than the core. That's probably the second specific driver.

Third one is to the extent we win pumps in the middle segment, which I'm sure we're going to talk about, sometimes when we win the pump, it pulls the consumables. So that's sort of the third lever. And the fourth has -- yes, we have achieved a little bit of price, probably more impact this year than next year. But as the GPO contracts reset over the last couple of years, we still haven't recouped all the inflation that we had over the period from '21 to '22, '23, but we started to get some back and that's helpful. Those are probably the 4 or 5 drivers.

Okay. You also highlighted some clearances with the FDA 510(k)s. Do those give you a competitive advantage? And how are those going to drive your consumables segment?

Yes. I mean, I think the discussion in our earnings script around new products, in general, we haven't talked about them unless they've actually been approved. But a lot of our energy in the last few years has been in the money we've allocated towards the new products in the infusion pump business. And we felt like we haven't allocated enough for our own taste to the core consumables business. And the innovation there isn't necessarily sort of breakthrough. It's the little things we do every day, the incremental things. But we did have an important approval on the core Clave family earlier this year. And that did 2 things: one, at least from an FDA perspective, the thing that's gotten all these infusion companies, including us into trouble from a regulatory perspective is that the product iterations over the years really meant that the product that one was selling didn't necessarily reflect what the original approval is about.

And so this brought everything up to standard of our most important core franchise we make our money around. But it also referenced the study that showed the product, as we know and people know that's why we have the brand we have, significant clinical improvements and the ability now to say that and point to something in addition to being probably the most cost competitive, the best outcomes, best brand, et cetera, we think is additive to solidify it. And we were trying to say, money has been going down and consumables stuff will start to happen there, too, over the next year or 2, in addition to what has been pretty good growth over the last half of the decade.

Very exciting times for the business. Moving on to IV Systems, look, that's a business you've spoken about double-digit growth in your LVP revenue. What's driving that growth? And how do you think that compares to the overall market in that space?

I mean the brain damage that we've put our shareholders through and ourselves through since the last transaction we did was to really try to create the world's best infusion hardware platforms. And we felt like the core rationale for undertaking the Smiths transaction, the #1 reason was to get the best pump in every single pumping modality. And so we wanted the best LVP pump, which we had developed on our own, the pump family. And the acquisition brought the #1 syringe pump and the #1 ambulatory infusion pump.

Our goal long term was to have all of those products modernized, meaning -- and by best, or most accurate, easiest to use, easiest to repair, best software, best cybersecurity and have all of them connected with a single instance of IT. Anybody who implicitly was using a legacy ICU Hospira pump or the other players' pump, not the market share leader, had to run 2 separate drug libraries, 2 separate software systems, et cetera. They now have a chance to get all of that integrated into a single solution, and that's a very different competitive footing for us to be on.

LVP -- to answer the second part of your question, market share, market growth and our growth rate, it's really hard. Obviously, most of these markets in a normal census environment are 3% to 4%, and we'd be happy with 4% underlying growth markets. I'm not sure they've quite been there yet. We've been growing faster because the infusion pump market, particularly the LVP market, has had a lot of kind of self-inflicted harm that's led to a faster refresh of the market over the last 2 years as vendors have had to remediate their own devices and that's creating an acceleration for us.

So when you think about Plum Duo, then what is replacement upgrade cycle kick in versus competitive share gain right now for you, given the backdrop of recalls, et cetera?

Most of our efforts to date have been on the competitive front, right? In the infusion pump industry, on a quarter-to-quarter basis, most vendors or certainly the other 2 large vendors, when they report results are getting the benefit of devices they sold to existing customers, right, because that counts in period-to-period revenues, I think we would argue that it doesn't necessarily create NPV because you're already getting the consumables, the dedicated sets to flow that. But obviously, it helps, right? And it's margin and cash in a given quarter.

Our results for the last few years haven't had the opportunity for that because we stepped into this business in 2017, 2018, as Hospira was just launching the Plum 360. And so we've never really had refresh in our pump numbers. Our devices finally become 9 years old next year with sort of a useful life cycle. Unfortunately, we built some of them like tanks of 9 to 10 years. And the efforts to date and for the -- I think, the early part of next year are 100% focused on the competitive opportunities. We benefit from that same incumbent inertia we talked about in our earnings calls in the infusion industry for our own installed base. And as the year progresses next year, the replacement cycle will start more earnest.

How would you classify the kind of regulatory landscape for pumps right now? It's a challenge. Do you think it gets harder from here, easier? Any sense where the FDA is?

I mean, I think everybody is, to some degree, learning on the job and trying to do the right thing. And we appreciate the high regulatory barriers to entry because it keeps the refresh out, right? And it requires that manufacturers are committed and serious. And it's fair because that pump, that pipe is the last mile of delivering a drug to a patient, right? If that little event doesn't go right, bad things happen. And so I think the regulatory scrutiny is fair. I don't think anybody has been spared. I think we all live in a glass house. And so we're very sensitive to making sure we are leading in that area.

Okay. As I think about innovation, we talked about in the consumable space, I think innovation is driving in the IV systems business. You filed a 510(k) for Medfusion syringe pump, an update for the CADD ambulatory pump and some software updates. How important are each of those filings as growth drivers? And what's your expectation on approval timing for the products?

Yes. I mean back to the regulatory question, it is real-time dialogue, right? And things evolve there as new information on these devices comes out. On the LVP, the large-volume pumps, the Plum Duo and Solo, Dan, who's sitting here in the front row, ran the business for years. We received first pass approval, which means from the original submission date, everything happened on the exact time line 9 months. Now it took us 1.5 years longer to file because we wanted to do more testing for the submission, but that turned out to be a good use of time.

We filed these other devices, the Medfusion 5000 syringe pump and the CADD ambulatory pump on July 1. Best case that we could stick to that same first pass in 9 months, but it's subject to the give and take of the process. Strategically, we think it's incredibly important because the -- again, in the difficulties over the last few years, there were moments we looked at ourselves as we undertook this huge project bringing these pumps together, are we seeing the benefits from a customer perspective? And I think now for the last year, we've really seen the benefits. And particularly at this moment with what's going on LVP, it brings together a much more holistic discussion that all of your infusion can be solved with one IT system, one set of user interfaces, a common user interface across devices and ultimately, a vision around that even 1 day that stuff will connect to patient home and home care, right, in the same connected fashion.

So you have been -- you purposely built everything and it takes some time on a single platform. Like how big a competitive advantage? You talked a little bit about it, but how big a competitive advantage is that? And where are your competitors on that spectrum also?

I think, again, it's different for each of the other competitors, right? I think the market share leader has offered an all-in-one system with enterprise-wide software with different pumping modalities integrated into a single software package. At a minimum, we're now on parity, and we can debate the merits of our software package or our devices. And it's a little bit of a different setup where the competitors have an all-in-one system, and we're saying we're a little bit -- we have the right tool for the right job, right, and deliver precision and accuracy for the specific clinical use case that's needed. And ultimately, the -- it's like phones, right, the pumps, while accurate, inherently, the pumps will be dumb and the smart set of and the software layer above it, right? And our job is to make sure that, that's very effective in helping people run a better enterprise.

Great. The CADD Connect and Home Care is an interesting business you're developing. It's a differentiated offering from your competitors. Who are -- talk a little bit about the business and then maybe frame who the competitors are in that space?

We thought the crown jewel of the acquisition was the CADD infusion system. And there's 2 parts to the CADD infusion system. Part of it is about the hospital that we just talked about, which is really for postoperative pain management, right? We got a hip or knee replacement or something, right? You're on one of our ambulatory pumps, you can move around with it or the time you're in the hospital and you can leave the hospital with it.

The other part of that business is the delivery of the majority of anti-infectives or biologics in the U.S. Home Care environment. And we are the market share leader there. And even we don't know exactly what that means, right? Today, we provide a device, a tool and a pipe to deliver that medication. That pump operates today in someone's home without a radio, without connectivity. And there's obviously competition for that real estate, right, and the right way to grab that real estate. But could the pump be the backbone whether wireless or Bluetooth-enabled ever? Could that pump also gather patient-specific data vitals, other monitoring during the infusion event? Would a payer care to know that the drug was taken? Would a hospital system like to know what happened to the patient during that, right?

And so I'm not sure we know it completely yet. We have high market share. We're sitting in the middle of very expensive drugs and a very fragmented end customer. We're kind of focused on, first, how do we get the IP to connect that and say, what other revenue streams can we build and create out of that.

Is growing more in the home one of your strategic imperatives in the next half of years? Or how do you think of that versus the acute space?

I mean, I think the opportunity that you talked about, just in consumables and pumps is in front of us today and is in front of us for the next 2 or 3 years. And we have to execute to create value. We have to execute on that. We're very focused on it. I just think in other countries around the world, we've seen home care grow faster than the core hospitals, and we can't ignore it. And we think in our core infusion business, it's the next natural adjacency for us where we're already holding the real estate market share.

Yes. Makes sense. So pivoting to the final business, Vital Care, maybe give a little bit of flavor how that business is performing and how you're thinking about the second half of this year with the backdrop of organic growth of about 4% in Q2 and flattish in 2025?

With Vital Care for us was about a $600 million division until we announced the joint venture with our Japanese pharmaceutical company called Otsuka last fall, which we closed this year. And our priority was really to figure out what to do with IV solutions because it was -- it just didn't look like the rest, right? At some level, not only was it a pharmaceutical business, it was more capital intensive and sort of in need of more technology and maintenance, and we thought we could feasibly deliver, right? And I guess we felt very lucky that we were capable of finding a really good partner who brought more technology and more innovation and hopefully more capital to the party than we could think on our own, i.e., the kind of the classic better owner discussion. That left the remainder of Vital Care is about a $300 million segment, obviously, very different than the other 2 big segments. And I don't think it was positive for -- I think it was minus 4%.

I think that's the issue. It was minus 4% in Q2. I think even in our guidance that the business would be flattish, I just think if you look at our track record and our history, I mean, for all these things we've done, it's clear to me that in those businesses, either we need to have more scale and more innovation and more differentiated or maybe we shouldn't be participating, right, which is easier said than done, but nothing was more important than figuring out IV solutions first. And we did that, and now we have a little bit of mental capacity to exert on figuring out what to do with those pieces.

And look, you've throughout your career, have been good stewards of the portfolio, obviously looking at all time. Can you talk a little bit about your perception of the buyers' appetite for Vital Care and how they think about those businesses? Do they all fit in one package? Or are they different buyers to different businesses? What do you think about the landscape there?

I think first and foremost, the reason it hasn't had -- something hasn't happened because it takes 2 to tango, right? And there hasn't been the right situation to make happen yet. So that tells you something yourself, plus the fact we haven't had that much time. I think it's a bit situational, right, in -- if you are a purist, I think one would say, I feel the team feels very proud about what we were able to achieve with the Japanese on the IV Solutions joint venture, where we were able to thread a very narrow needle of something that we did a transaction that was accretive to revenue growth, accretive to gross margins, accretive to EBITDA margin and EPS breakeven, whatever that means going forward, right?

I think if you're unable to monetize something on a breakeven basis, you spend the next portion of your life talking about stranded costs, et cetera, unless it materially changes your growth rate or materially changes your gross margins. There has to be some compelling reason to do it. We obviously haven't found that reason yet at a place where value and strategy kind of intersect. And so we'll keep looking until we find it. In terms of appetite, it hasn't been a particularly robust thing, but it feels like it's changing, the rest of it matters.

So some of your competitors do have IV solutions in-house. And I think historically, there might have been a perspective as a competitive advantage to have it in-house. Why is it not a competitive disadvantage to have [ Jenison ] in a smart deal with Otsuka?

Again, to the customer in the United States, we are still the business. We are the distributor. We're the contractor. We contract for it, we fulfill it, we bill it, we distribute it, right? It comes on the same trucks that our other products come with for direct customers. And so to them, it really feels seamless. We're just not necessarily the 100% manufacturer. We're a partial manufacturer. And for me, it's just about other -- allowing other people who have other products and a vision of what they could bring to the party into the manufacturing network, which accelerates their own strategic demands is a good thing. It doesn't mean from a customer's perspective, we're not in the business. We're still the owner. And we can be owner for the next 10 or 15 years.

Got you. Do you see other competitors potentially in this space following suit?

I'm not sure we really have thought about it, right? For us, it's just -- it's hard. Part of this conversation is around home care, cybersecurity, software, pump hardware, electronic components, consumables, new category and consumable innovation. It's really hard for us to do all of that and deliver the resources and innovation to drug manufacturing, packaging, nutrition, all these other markets where just sometimes you have to admit what you're not.

All right. So moving on to the financials, starting with 2025, you updated your guidance with the Q2 report. Obviously, a lot of moving parts with the JV, tariffs, et cetera. Can you highlight the key changes to the guidance and what you said about high versus low end of the guidance ranges?

Yes. And obviously, whatever we did, didn't go over it particularly well. But we didn't actually -- people called and said, you overthought that. Actually, we didn't think about it that much. We've really had 2 changes that happened from when we laid out our original guidance in February. One was we closed our divestiture, and there was an adjustment to -- we gave up $17-ish million of EBITDA this year for the 7/12 of the year that we don't have the business. And so that was kind of a factual adjustment.

And the other adjustment was we had $30 million of tariffs in the back half of this year. We get some FX benefit. It doesn't cover all of it. We have some cost savings on activity, but it left a little bit of a gap. And we felt like we were updating our range to say, on the Q1 call, we said the impact of all those items will put us towards the bottom end of our range. On the call, we said actually, we can be a little bit better than that. And oh, by the way, we had a bunch more headwind come towards us with Costa Rica, where we have the biggest tariff exposure, had a 50% increase in their tariff rate on August 1. But we can absorb all of that and still do a little bit better.

I think however it was interpreted, it was a change, an officializing of the change or whatever the word is the hind of the range. We didn't dwell that much. We're very much like we know what we should earn. We know how much cash we should generate. We're focused on those items.

And tariffs longer term, how do you think about the -- you've updated your guidance at $10 million given some offsets. So like how do you think about that moving into '26, if you could predict it, if at all?

We said, please don't annualize the $30 million. And like all companies, we've been trying to just figure out what's permanent and what's temporary, et cetera. And there are some offsets to what we've been dealing with today. The examples are where things -- certain products aren't qualifying for USMCA because we buy some componentry overseas. Of course, we could make those parts ourselves. But there's a reason we're buying it from somebody over because they make it well, cost competitive, high quality, whatever it may be. And you can't ask that person to cut their price in half, so you qualify, right? So you have to bring the work inside and bringing the work inside takes quarters.

And I think until a couple of months ago, we weren't ready to make those moves. Some of them now were investing capital to make those. And it makes sense. If you can invest $200,000 to save $1 million in tariffs, you'd do it. I don't really necessarily think it's productive work because it's not necessarily adding a lot of people in manufacturing, it's buying a machine, which probably doesn't even originate here. But we'll do it economically. And so that's why we're saying, please don't take the $30 million and annualize it because there are offsets and then there's a whole other situation on the pumps where pump pricing has been adjusted, but it will not be reflected in our P&L until we start implementing the pumps we're selling today, and those pumps are something they won't be implemented until the back half of next year.

Okay. Helpful. So look, I think it ties nicely into thinking about 2026. Can you think of -- talk a little bit about the key tailwinds, headwinds heading into 2026, both sales and gross margins?

I think for us, I think we have the opportunity to grow, serve customers well, innovate almost independent of what's going on in the census side of the market, right? Even if there's a little bit of employment compression or unemployment increases, which obviously pressures the bigger system, it's been pretty good out there demand-wise. And we think we have innovation in consumables for the 4 or 5 reasons I went through first that will carry on into next year.

And then the pump business has some very specific issues with the remediations and replacement cycles happening. And our new technology, we believe, will carry a higher ASP than the historical technology. And so the combination of market share gains and then ultimately supplanted or supplemented with a replacement cycle of a device that should be carrying a higher ASP can power that business and then it's sorting out that Vital Care piece, you have been done.

But the goal -- I mean, I know it's a medical conference, but I think we don't have a lot of shame in saying we'd be very happy -- dovetails with the conversation happen before we started. We'd be very happy being a reliable mid-single-digit grower, generating real cash and returning that to shareholders, right, for the next number of years. We don't -- for all the pain we put people through the last 2 years, we didn't skimp on CapEx in the factories, and we didn't skimp on R&D. And we have enough new stuff to keep us busy for a number of years. We don't have to take on risky M&A, right? We've done that. We took a part supplier and turned into this multibillion-dollar infusion company, and we have enough to power us for a while if we can be a reliable grower and make sure we generate the free cash flow we're supposed to generate.

It does feel like you're at the start of an innovation cycle and consumables and IV systems. Any reason -- or anything keeps you up at night that why those businesses can't continue to grow mid-single digits?

I mean, I think, again, back to the regulatory comment you made, right? We live in a glass house, and you'd like to make sure that we are the best we can be from a regulatory compliance perspective. I mean if you just reflect on the infusion industry, that is the area that set people back. So we'd like to make sure there's no surprises there. And then I think anything else in the macro, right, if there were other changes or tariffs or something like that, that could change our very competitive cost position, and we would be sensitive to that. I think as the things are under our control, what can we innovate, sell, make, commercialize, we feel pretty good.

How do you see pricing in the rest of 2025 and 2026?

In '25, we're getting -- we were able to amend some of the GPO contracts to try to recoup some of the inflation at all that we took in the previous periods. Some of that accrued to the benefit of our IV Solutions business, that we only own a portion of that. I think there's probably less price candidly in '26 than there is in '25 and then it picks up again in '27. That was the way the contracts were structured. But again, our job is to grow enough that, that's a non-discussion.

Okay. Your gross margins have been improving. Can you continue to get the 100 basis points plus of underlying gross margin expansion into next year?

Certainly, the actions that underpin that are all in flight, and that's really about finishing our plant consolidation and our logistics consolidation, which together probably power a point. I don't think we see the benefit of that, particularly from a plant perspective, you finished selling out all the inventory you've made at the old factories. And so it'll take probably 2 quarters for that to kick in.

But I think we said our goal pre-tariffs was to look like closer, not even closer to a normal medical device company, right, in the mid 40s. Part of that is aided by the JV, but there was a bunch of operations actually make cash that still need to happen. And we think those will still happen. Tariffs obviously claw some of that back. There's a -- if you look at our investor deck that was posted for last week's conference, in addition to our gross margin side, there's a dotted line on that say there's the impact of tariffs.

You've always, in my mind, run a pretty tight ship and manage OpEx well. Any reason that won't continue to get leverage on the OpEx side of the ledger as we move into '26?

I mean, again, I think we're asking questions like a lot of these R&D programs are reaching fruition. Can we actually reallocate the spend into other areas? Meaning can you move things from systems into pumps fast enough to make a difference? Or can you put some of that back in the pot to offset tariffs, et cetera? And so those are the things we're working through. I think it's more a question of, we found a lot of commercial and other synergies in the early days of the transaction, who cares if you're not earning what you're supposed to earn. But there were more coming in other areas, and we're finally at a point where things are integrated now, we can try to deliver those. So hopefully, those are all helpful to offset. Some IT vendors still extract a lot of value from us. They still have price increases, right? Mexican labor is still going to, obviously, the COGS item. But so there are other offsets we have to keep fighting.

Okay. As we think about where consensus is for 2026, are those numbers you're kind of comfortable with today? I know it's early days, but is there anything in your mind that The Street is missing as you continue to execute?

I don't think we've studied them that carefully, but I don't think there's anything at first pass that concerns us. I think the challenge for us is going to be really understanding the tariff number. Operationally, the revenue line, I think we get the pieces we get, it's the tariff impacts on earnings and what's the best we can do to mitigate that.

And if I think about the -- obviously, you talked a little bit about M&A. You've been -- you've acquired a handful of companies. How do you think about -- and you mentioned it, but how do you think about the priorities for capital in 2026? Is it continue to delever? Is it returning capital to shareholders? Is it M&A? How do you think about where you want to allocate capital in 2026 and onwards?

I mean it's a much more fun discussion than when you're feeling over-levered. So hopefully, you have that opportunity. I meant what I said before, I think we have no shame in saying it doesn't sound very aspirational, but to be a reliable mid-single-digit grower with improving gross margins, generating more cash and returning that to shareholders, we have enough -- we didn't skimp on our own R&D. We had enough innovation to keep ourselves busy. Unless it's something super compelling, I don't necessarily see us stepping into a new opportunity.

When do you think about getting to sub-2x leverage or it's about 2x leverage? What is the trajectory of that? And how important is that to you?

I think it's important. And again, you can debate this and obviously, rates and the cost of funding matters in this somewhat. It's an industry where people have been penalized on the regulatory front and not that we see anything brewing or concern there, but it maybe requires a little bit of extra caution. And so that might be the difference why we keep saying 2 versus other people's opinion on this situation.

I think if we believe our own cash flow forecast, right, we have a view of getting -- certainly, you look at it, as you know, better than I do, you look at leverage on a historical basis, right? In the positive talk track, we'd say, okay, but some quarter next year, we assume we'd earn enough to imply that, but it wouldn't add that way on the back 4 quarters.

Let's close. Any questions from the room? With that, any closing remarks? I do think it's an exciting time for ICU and at the cusp of innovation that you've been invested in the business. So any closing marks you'll make?

Yes. I'd say, one, it's early in the morning. Thank you for making it out on the last day of conference. We appreciate it. Thanks, Morgan Stanley, for having us. And we're happy and available here all day or online to answer any questions you may have. Thanks very much for the interest.

Thank you.

Good afternoon, everyone, and welcome to today's ICU Medical Second Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Also, please note that today's event is being recorded. I would now like to turn the conference over to Mr. John Mills, Managing Partner at ICR. Please go ahead, sir.

Thank you, and thank you for joining us to discuss ICU Medical's financial results for the second quarter of 2025. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; and Brian Bonnell, Chief Financial Officer.

We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our Investor page and click on Events Calendar and is under the second 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 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 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 walk through our Q2 revenue and earnings performance and provide some commentary on the businesses and then turn it over to Brian to recap the full Q2 results and the more positive gross margin implications of our IV Solutions joint venture now that it's operational and our current view on the impact of tariffs at the moment as there was an increase levied on our core production environment of Costa Rica.

After that, I'll come back with some color on where we are in creating a comprehensive infusion therapy company and optimizing our portfolio and a bit of qualitative discussion on the evolving tariffs and just make a few comments about the medium-term activities of the company.

Revenue for Q2 was in line with our expectations at $544 million for total company growth of 2% on an organic basis or minus 6% reported, which is driven by the impact of the JV being consummated.

Consumables and IV Systems had good year-over-year growth. Adjusted EBITDA was $100 million and EPS was $2.10. Gross margins were ahead of our expectations due to the JV and cash generation was neutral as some cash was tied up in the JV creation itself, tax payment and tariffs.

As a reminder, between excess cash generated in Q1 and the net proceeds from the creation of the JV, we have repaid $250 million in principal year-to-date and expect the only variance to our cash flow planning for the year to be tariff payments. The broader demand and utilization environment in Q2 continued to be attractive across almost every geography with the growth rate positive, but not at the levels we saw last year.

The capital environment is status quo, and it does appear investments that customers need to get done are getting done. Currency at the moment is not quite as good as it was earlier in the quarter, but is obviously a benefit in the key selling geographies.

Getting into our businesses more specifically, our consumables business grew 4% organic and 3% reported. It was a record quarter in absolute sales levels with good sequential growth driven by new global customer implementations, price improvements, rapid growth in some of our niche markets and solid census.

We had mentioned on the previous call that last year, we had major sequential increases in Q2 over Q1 of 2024, so we didn't expect Q2 growth now to be at the same rates as Q1.

For the near term of Q3, we again see sequential growth and are very comfortable with our comments of mid-single-digit growth for the year. On the last few calls, we've made some high-level comments around new product filings and innovation in our consumables business.

One example of this in Q2 was we received an additional 510(k) clearance for our Clave neutral displacement connectors, which are the anchor product of the segment. Inside this updated 510(k) is a published study, which correlates the usage of Clave connectors with lower patient infection rates.

Specifically, the study shows that hospitals with standardized on Clave needle-free connector technology report significantly lower patient infection rates versus hospitals not using Clave technology.

We're excited about this new clearance, both in that it provides more evidence around our largest, most differentiated business that we will market on for years to come, and it updates the regulatory approval to 2025 standards. We have a number of other new consumable line extensions and adjacencies that we're rapidly pushing in the development process and/or have already submitted 510(k)s to further strengthen our market positions.

These products at their core are around enhancing patient safety and workflow efficiencies in the infusion drug delivery process. A number of these programs are combining the parts and pieces of legacy ICU and what we acquired from Smiths. Our IV Systems business grew 2% organic and reported.

This was entirely driven by LVP growth, which was double digits even with some of the installs that came in a little ahead of schedule in Q1. LVP growth was from new installations and strong census for dedicated set utilization.

We continue to be engaged in many new RFP processes and are beginning customer discussions around the multiyear refresh of our Plum 360 installed base with Plum Solo, now that it's cleared. As we described in the last call, we had an excellent 2024 in selling our CADD ambulatory pumps and would have a tougher set of comps on this line, particularly in Q2, which muted the overall segment growth.

For the near term of Q3, we again see sequential growth here, frankly, expect a record quarter in aggregate for the IV Systems segment and are comfortable with the previous comments on mid-single-digit growth for the year.

On the last call, we provided a lot of detail on the actions related to the FDA warning letter, efforts to remediate products in the field and filings over this year to ensure all pump products had the most up-to-date 510(k)s and modern architecture. So I won't go into that detail again. What we are pleased to announce is that in early July, we did submit 510(k)s for both the Medfusion 5000 syringe pump, the CADD ambulatory pumps and all related LifeShield safety software.

These submissions have crossed the first acceptance stage of the review process and dialogue has started around the filings themselves. I would characterize the Medfusion 5000 as a groundbreaking new innovative product, but like what we did with Plum Duo and Plum Solo, we conserved the core of the product that made it a market leader based on accuracy and workflow.

We would describe the CADD submission as more of a catch-up filing, bringing a variety of product iterations up to date in a current filing. But the most important aspect of this and what really is a milestone when these products get cleared is that all of our pumps will now connect on a single software solution across all pump modalities, bringing the ease of use and tighter control of all types of infusions to a hospital customer.

This was a core tenet of the acquisition to have a single software solution across hospital LVPs, syringe and ambulatory pumps. We want customers to have the right tool for the right job, all connected with a common user interface and software solution that minimizes training, speeds onboarding, supports interoperability and enables standardization for our enterprise customers.

The last development item that will take longer to finish is what we call CADD Connect and is really final frontier, connecting the home care CADD environment back into the same common software framework. We believe we're seeing the benefits of this vision in the marketplace today. And in addition to continuing to focus on competitive opportunities, we are just in the very early stages of refreshing our own installed base with opportunities to create more value from the hardware and software offerings here.

Just wrapping up the business segments, our Vital Care segment was down 4% and 34% reported as IV Solutions revenues were deconsolidated from our income statement. The non-IV Solutions product lines in the segment were basically down $4 million sequentially. For the year, we continue to believe these products to be flattish, either up or down marginally.

I'll come back after Brian with some comments on the joint venture, how we're thinking about the overall portfolio within Vital Care and tariffs. And so with that, over to you, Brian.

Thanks, Vivek, and good afternoon, everyone. Since Vivek covered the Q2 revenue for each of the businesses, I'll focus my remarks on recapping the Q2 performance for the remainder of the P&L, along with the Q2 balance sheet and cash flow and then provide commentary on the rest of the year given the closing of the JV transaction and ongoing developments in the tariff environment.

As you can see from the GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the second quarter was 40%, which was in line with our expectations. Here, we saw meaningful improvement with a 3 percentage point expansion on both a year-over-year as well as a sequential basis.

The biggest driver of this improvement was the deconsolidation of the IV Solutions business, which contributed approximately 2.5 percentage points of gross margin expansion for the quarter. Continued integration synergies and favorable foreign exchange also contributed to the improvement.

For the second quarter, the P&L impact from tariffs was not significant, reducing gross margins by only 50 basis points. That is because while we incurred and paid a little over $10 million in new tariffs, the majority of this was capitalized in inventory as of the end of the quarter, and therefore, only $3 million of expense was recognized in the P&L.

Adjusted SG&A expense was $116 million in Q2, and adjusted R&D was $21 million. Total adjusted operating expenses were $138 million and represented 25.3% of revenue. The total dollar amount of spend was the same as the past 2 quarters and a bit below our original full year guidance as we have been measured in making some of the strategic R&D and commercial investments that we mentioned earlier this year as well as exercising general cost controls across the company given the uncertain and changing environment.

Restructuring, integration and strategic transaction expenses were $16 million in the second quarter and related primarily to continued efforts to integrate our IT systems and consolidate our manufacturing network, along with transaction expenses associated with the IV Solutions joint venture.

Adjusted diluted earnings per share for the quarter was $2.10 compared to $1.56 last year. The current quarter results reflect net interest expense of $21 million. The second quarter adjusted effective tax rate was 16% and includes a discrete benefit from the release of tax contingencies as a result of the expiration of various tax statutes of limitation periods, which contributed approximately $0.20 per share.

For comparison purposes, the prior year tax rate reflected discrete benefits, which contributed approximately $0.15 per share. Diluted shares outstanding for the quarter were 24.7 million. And finally, adjusted EBITDA for Q2 increased by 10% to $100 million compared to $91 million last year.

And it's worth noting that the second quarter EBITDA results positively benefited from $3 million of income related to our remaining 40% equity investment in the IV Solutions joint venture, which is now reported as a separate line item in our P&L. The earnings contribution from the joint venture was higher than planned and is not expected to continue at the same level.

Now moving on to cash flow and the balance sheet. For the quarter, free cash flow was a net outflow of $8 million, which largely reflects the offsetting impact associated with the positive timing benefits from working capital that we experienced during the first quarter and mentioned on our last earnings call, in particular, for accounts receivable and accounts payable.

It also reflects the timing impact of higher tax payments in Q2, which will not recur this year, along with higher tariff payments, which will continue. During the quarter, we invested $13 million of cash spend for quality system and product-related remediation activities, $16 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.

And just to wrap up on the balance sheet, we finished the quarter with $1.35 billion of debt and $300 million of cash. During the second quarter, upon closing the JV transaction on May 1, we used all of the $200 million of net proceeds to pay down the Term Loan A, bringing total principal payments year-to-date to approximately $250 million.

Moving forward to the 2025 outlook. Recall that during our last earnings call, we quantified the expected full year financial impacts of the JV transaction, which are included as referenced on Slide #4 of the presentation. And we are confirming that the previously provided impacts for revenue, adjusted EBITDA and adjusted EPS have not changed.

We also provided updates on the expected impacts of the evolving situation around tariffs and foreign exchange. Specifically, we said that we anticipated the direct expense from tariffs in FY '25 to be in the range of $25 million to $30 million, the vast majority of which would be recognized in the back half of the year given the cap and roll accounting process.

At that time, we also expected the weaker U.S. dollar to offset almost half of the direct tariff expense and said that we would offset a portion of the remaining net exposure through various measures, including lower incentive compensation expense and general cost controls, but expected $5 million to $10 million of unmitigated residual impact from tariffs that would cause us to be at the low end of our annual guidance range for adjusted EBITDA, adjusted EPS and adjusted gross margin.

Now that we've reached the midpoint of the fiscal year when we typically update our outlook, in consideration of these items, we are updating our full year guidance for adjusted EBITDA and adjusted EPS.

For full year adjusted EBITDA, we are narrowing our previous guidance range of $380 million to $405 million to a range of $380 million to $390 million for the full year. And for adjusted EPS, we are narrowing our previous guidance range of $6.55 to $7.25 per share to $6.85 to $7.15 per share.

Our updated guidance for adjusted EBITDA includes the expected impact from last week's executive order, which established new reciprocal tariffs that became effective today, and we estimate will cause our 2025 tariff expense to increase by an additional $5 million. The majority of this $5 million is driven by the tariff rate for Costa Rica, increasing from 10% to 15% as Costa Rica represented our largest tariff exposure country even prior to this latest increase.

As a result, we now expect to be at the high end of the $25 million to $30 million range for FY '25 tariff expense. The updated EPS guidance includes the same impacts as adjusted EBITDA plus lower net interest expense and the previously mentioned $0.20 tax benefit recognized in the second quarter.

On the revenue line, as Vivek alluded to, there are no changes from our original expectations for the full year. For gross margin, despite the $30 million impact from tariffs, we continue to expect full year adjusted gross margin in the range of 39% to 40%, consistent with our original pre-tariff guidance at the beginning of the year. The impact from tariffs is being largely offset by realization of the full gross margin expansion from the IV Solutions deconsolidation sooner than previously modeled.

This implies a back half average gross margin rate of just above 40%, inclusive of the tariff headwind of between 2 to 3 percentage points. As we said before, the gross margin expansion resulting from the JV deconsolidation doesn't actually generate higher EBITDA, but it does highlight and make more obvious the actual gross margin contribution of the rest of the ICU portfolio, and Vivek will provide some further thoughts on that topic.

Adjusted operating expenses should be approximately 26% of revenue for the back half of the year. Net interest expense should be approximately $83 million for the full year. And for modeling purposes, you can assume a back half adjusted tax rate of 25% and back half diluted shares outstanding of 24.9 million.

Note that our updated guidance reflects tariff policies that are in place today and assumes foreign exchange rates as of August 3. It does not consider potential future impacts such as additional retaliatory tariffs or the broader effects from higher inflation.

We are also assuming the income from our equity interest of the joint venture is minimal in the back half of the year, given the additional costs related to the scheduled annual maintenance shutdown of the JV's Austin plant.

To wrap up, we're happy with the performance of the business for the first half of this year. And although it is difficult to see given all the moving pieces, we expect both Q3 and Q4 to continue to show underlying sequential improvement for revenue and adjusted EBITDA when you exclude the quarterly phasing from the JV transaction, tariffs and foreign exchange. These improvements are driven by growth within the consumables business and LVP pump line, along with continued synergy capture and cost management.

And just to help quantify the underlying performance improvements in the business that we expect this year, if you were to exclude the $30 million impact of tariffs, the midpoint of our updated EBITDA guidance range would be $10 million above the top end of our original post-JV guidance.

But we understand tariffs aren't something that can be ignored as they reduce our profitability and it's real cash out the door. So while others can speculate on the permanence of the current tariffs or future trading deals for individual countries, our goal is to minimize and offset the impact anywhere we can, including implementation of price increases where possible, realization of cost savings and carefully managing cash spend for integration and remediation activities.

And that's what we're focused on as we begin to approach 2026. Now I'll hand the call back over to Vivek to expand upon some of the initiatives we're currently focused on.

Thanks, Brian. Let me try to go back to the strategy of what we've been building here and how that ultimately gets profitized given some of the new challenges in this environment and why shareholders should care.

First and foremost, our goal since having to go from a needle-free component supplier to an integrated vendor was to build the most comprehensive and innovative infusion-focused company.

We believe our track record in infusion consumables speaks for itself as we have great brands supported by great clinical data and manufacturing scale that is and will continue to be globally competitive regardless of tariffs. And we will have more innovation in the core and adjacencies of this segment to supplement growth.

In our IV Systems business, we believe we're very close to delivering a complete platform solution with the most modern clinically relevant devices and enterprise cloud-based software for customers. This platform solution will anchor the segment for the next 10-plus years as the product life cycles are incredibly long with a great opportunity for new customers, but also to offer more value to our existing installed base.

The IV Systems business in the short term bears the highest tariff burden as we went all in on Costa Rica. But we believe as we work off the backlog signed to date that we will overcome these burdens due to the technology value offered and as contracts again come up for renewal.

These product developments have been substantial R&D investments that we did not skimp on even with the difficulties we faced following the acquisition, but many investments are reaching fruition. We also believe that IV Solutions are relevant to the total offering for customers. But in that product category, there are others who could innovate better than us, and we were able to make a unique relationship with Otsuka. While early, Otsuka's commitment to date has been great, and they have a road map in all the right areas, PVC-free delivery technology, ready-to-use premixes and nutrition, reconstitution formats, et cetera, and the significant capital required and time horizon to invest in these markets, and we will bring all of this with our consumables and systems offerings together to customers over time.

So that all sounds logical and nice, but of course, it needs to be profitized to the right levels. We clearly stated last year, we believe that we were under-earning and have made progress on the gross margin line due to the synergies being realized and accounting impacts of the JV.

Our primary focus for the last 18 months after we stabilized the business has been to improve our gross margins after finally recovering some of the historical inflation and stabilizing the inconsistent volume we faced. The tariffs in 2025 now eat into some of the real cash from those improvements and burden the gross margin line even if it's showing major improvement.

While mitigation was the topic on the last call and well described, we continue -- and we continue to do everything possible to mitigate. Our mindset is shifting to offsetting as much of the tariff burden on the assumption that these are now permanent, and that will be our work over the balance of the year, and we'll have more comments on this later in the year.

It's a good place to be with our best businesses growing with sustained revenue growth reaching record sizes and projects nearing completion to objectively assess what level of infrastructure we should be carrying.

We continue to be on track with the consolidation of our production network, rest of world order to cash conversions, logistics and real estate consolidations. These were important items to drive our step-up in profitability in 2025 and beyond. And even if tariffs consume some of the benefit, nothing changes with all the work, and I feel we've described these items many times on previous calls.

It all needs to happen in concert with increasing revenues. In terms of where the balance sheet, income statement, portfolio optimization and capital deployment intersect, we would offer a few comments.

First, our #1 priority last year and to date has been to stand up the IV Solutions JV. This helped the income statement and balance sheet and will continue to help the balance sheet as we may realize an earn-out payment and we will definitely receive a back-end payment.

When looking at the remainder of the Vital Care portfolio versus the innovation in the Consumables and Systems segment, it's pretty obvious Vital Care is dilutive to the overall company growth rate, and it's a safe assumption that it's also dilutive to the overall corporate gross margin.

But these are businesses that still generate good positive cash flow with very low capital investments, and we're not interested in making value-destructive decisions in the name of margin or growth rate. But we can now spend a little time thinking how to optimize each piece of the portfolio if the opportunity was to arise.

Our previous comments still apply. Our ideal place is to be around 2x levered. And given the innovation we believe we have in-house to return any additional capital to shareholders in the most efficient fashion. It's also why in addition to offsets to tariffs, we have to focus on reductions to below-the-line capital outlays in restructuring, integration and quality.

To be direct on our goals for the next year or 2, we want 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 multiyear innovation portfolio, so we can ultimately 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 in general and in general, items customers do not want to switch unless they must.

The market needs ICU Medical being an innovative, reliable supplier, and our company is stronger from all the events of the last few years. Thank you to all our team members and customers as we improve each day. And with that, we'll open it up to Q&A.

[Operator Instructions]

And we'll go first this afternoon to Jayson Bedford of Raymond James.

Can you hear me okay?

Perfectly Jayson.

Okay. So a few questions, and I hate to start on tariffs, but I'm going to. I appreciate the increase in the tariff rate in Costa Rica. But what have you assumed for China? I'm a little surprised that, that level or exposure didn't come down.

The current guidance assumes China at the current rates in effect today. And we did receive a little bit -- we did get a little bit of benefit because of the pause, which is part of the reason why we're sort of just at the high end of our previous range as opposed to sort of being above it. Plus we -- as we've been working through it, we are seeing some additional tariff exposure on some raw materials and other areas that maybe hadn't been fully quantified previously. So there's always a lot of puts and takes when it comes to these sorts of exercises.

And I guess the other -- and I don't mean to be a bad guy with this question, but I think last quarter, you kind of steered folks towards the low end of the range, but you thought the EBITDA range was appropriate. But you're kind of lowering the top end of the range now. Outside of tariffs, is there anything else that's impacting your view?

No, not at all. It essentially comes down to just tariffs. And obviously, if we didn't have to deal with that situation, we'd be in a much different position as it relates to our outlook for the year, but this is the reality that we find ourselves in.

Given what we've put people through, we don't want a number out there that is not realistic, right? And so I think we said we'd be at the low end. I think we're narrowing what we have out there and Brian tried to be as precise in a world that's not the one we live in, if these things didn't exist, what performance would have been.

Fair enough. Maybe just on revenue. I thought you spoke encouragingly about the expected sequential growth in 3Q. Can you just talk about the demand profile, specifically for Duo and where you are with the implementation and just the Infusion Systems segment in general?

Sure. I mean I think in both big pillars in consumables and pumps, we feel really good about the revenue side. So it's obviously -- if you go back 5 or 6 quarters, it's been consistent. This was a little bit lighter than the others, but it was obviously a very steep ramp last year. So on consumables, this was a record. We think we'll have sequential growth off of this one, as I said.

And then specifically on systems, we have installed some Duos now. They're up and running at customer sites. The real interoperable sites are just coming out of LMR. The interoperable runs are coming out of LMR.

As soon as we're able to move on that, I think the pace of installations will increase. And there's -- as we said in the script, there's a lot of dialogue out there. Obviously, a lot of [Technical Difficulty] in the infusion pump market. We all live in glass houses. We have to be very mindful of ensuring caution on these [Technical Difficulty], but it feels pretty good.

And it's safe to say that just on LVPs, the landscape is more opportunistic today than it's been in quite some time.

I just think it's the confluence of events that we've talked about for the last 2 years have been building up and the window that people want to make decisions on the aging of the technology itself is all kind of at a good place for the next couple of quarters. And it's -- I'm glad our innovation is in hand to get that done, and we're excited about the new stuff we filed, right?

All the headache of the transaction we did was to bring these different platforms together. And I think it's months away from that coming together if we can work our way through these approvals.

We'll go next now to Mike Matson of Needham & Company.

I guess just a few things I wanted to clarify. So on the tariff impact, the incremental $5 million that you're expecting, that would essentially put that kind of net impact that you guys do the $5 million to $10 million basically at $10 million for this year. So in other words, like the part that's actually flowing through the P&L, the headwind would be about $10 million. Is that -- am I hearing that correctly or...

Rough math, Mike, that's correct.

All right. And then the commentary around sequential growth, so you expect sequential growth in Consumables and Infusion Systems, I think. So I know -- I don't remember what you said on Vital Care, but do you expect overall to see sequential growth for the total revenue in Q3 and Q4.

It does come down a little bit to what happens in Vital Care. I think we'd rather talk about it at the individual segment levels, right? What we measure, Mike, Consumables is the business bigger than ever. The Consumables quarter was the largest quarter we ever had in the history of the company in Consumables. We said we think the Systems business could be a record level in Q3, the largest in the history of the company. Those are the things with the profits and cash flow through. So I think we're probably more focused on those. I don't have such a precise answer on Vital Care for Q3 right now.

And then just this news around Baxter suspending sales of their Novum pump. I know it's probably only temporary, maybe until the end of the year or something. But do you think that helps you guys at all over the next couple of quarters?

Again, I think we all live in a glass house, right? And so we're very kind of respectful of the things people have to go through to get these products approved and stabilized. We believe customers make a technology choice. These products have a 10-year life cycle. And we have to believe everybody, and the same is with the other market participant, everybody is back on the market.

We have to believe our technology is evaluated over a 10-year run. And so it still has to -- and everybody will get their technologies up and running. And so maybe a little bit, at least forces people to look at things a little closer. But I think if you take a long-term view, you have to assume everybody is going to be in the market. And we still feel good about where we are.

We'll go next now to Will Korner of KeyBanc Capital Markets.

I just want to ask about tariffs. I know that the landscape there seems to be kind of constantly evolving. But last quarter, you were saying that we shouldn't be thinking about the tariff number given on an annualized basis for 2026. I was just wondering if you have any updated thoughts on that.

I think the same language would apply, Will, which is please don't take what this year is and annualize it. We tried to somewhat in the script, say what we thought there, which is at least on some of the pump items, we're installing pumps that we contracted before the tariffs kicked in as time goes by and those installations stop, you should make an assumption on items we're selling today where we have the ability to correct price. We have, but those implementations are still a ways out. So it will burden our P&L certainly for a bit.

But that's why we said in the last call, please don't annualize. And then we continue to -- some of the mitigations take time and logistics efforts, et cetera, and we continue to work on those. So I'm not sure we would have a precise number for you today. I think we just stay with the same high level, please don't annualize what's there.

That's helpful. And then switching over to Plum, I just would like to hear if there's been any customer feedback that is maybe surprising you just by the amount that's getting brought up or potentially like what customers are finding to be incremental?

I don't think there's anything that -- the question was, is there anything that's surprising us. I don't think that there's anything that's surprising us so much. Our goal in all the products is to make sure customers are delighted. And I think the experience we're having is that is it a smooth installation? Is the user experience good? Is the training good? Is the onboarding good, et cetera?

I mean I think we're trying to check all of those boxes. And we believe the device itself has sort of solved the technology gaps in terms of multiplexing and cybersecurity and visualization, except the user interface that weren't present in the previous device.

And we think the curve appeal of all that together gets people's attention. So I don't know if there's one item we point to. Even if the device is great, we like any vendor have to ensure that the implementation and the experience for people coming on board is strong and where these things fall down is getting anyone to change is really hard. And if that effort to change falls down in the early days, it sometimes backfires. And so we just need to make sure that the whole install process is very seamless from our end.

[Operator Instructions]

We'll go next now to Larry Solow of CJS.

It's actually Charlie Strauzer for Larry. On the ongoing plant consolidation, how much of the heavy lifting have you already completed? And when you look at how much of that benefit is already incorporated into your '25 outlook versus future benefits?

I mean the best fit that sort of evaporated, the one that is 100% done was the move of all infusion pumps from Minnesota into Costa Rica. And so that did have benefit associated with it until Costa Rica had incremental tariffs. And so that one, great, is fully completed. The other 2 important ones, one North American, one European are very close to completion, probably both done certainly within the next 9 months, hopefully done within the next 6 months. So not a lot is built in this year from those 2 items. They are intended to be helpful next year. And there's really not any beyond that. So that's the last of it.

And then just going back to the commentary on Plum, how do you view the opportunity for sales via upgrades from existing customers versus market share gains?

I think they're both very valuable. And normally, you don't think about -- if you were being objective refresh of your existing customer installed base, the way the business model has operated historically, really getting these dedicated sets. It didn't create a lot of NPV if you're essentially getting the same set you had. I think what's different about the opportunity with Plum Solo is not only does maybe the capital have enough technology that deserves to be valued differently, but if you can enhance the software offering and capture more value there, that does have real NPV associated with it.

And so creation of kind of new value streams from existing installed base is really, really important beyond just the revenue goodness of refreshing the hardware. So I think we're excited about that. And then obviously, the juicy stuff is competitive, and we remain focused on that. So both are good opportunity. We continue to have very, very minimal rollover in our entire book of business on pumps today.

We go next now to Michael Toomey of Jefferies.

Most of my questions have been answered, just to double-click on one of them. Do you think you're already seeing like the replacement cycle come through? Did that contribute in the second quarter? Or any signs that that's starting to come through already, the replacement cycle of your existing fleet?

Nothing's come through so far of consequence on replacement cycle, Michael.

When do you think you'd start to see that come through? Is that this year or kind of into next year?

I think the discussion is starting right now. I think realistically, it's more of a next year event. The devices really hit kind of 9 years at the end of this year that have been out there, and they're built like tanks. So I think it's probably more of a next year event. And so that should give you some color with our comments around how we felt about LVP anyway, right, heading into next quarter segment without the replacement cycle or so.

[Operator Instructions]

And gentlemen, it appears we have no further questions today. Mr. Jain, I'd like to turn things back to you, sir, for any closing comments.

Thanks, folks, for your interest in ICU Medical. A lot to do here still over the next number of days and months, and we look forward to updating everybody on our Q3 call. Thanks very much.

Thank you, gentlemen. And again, ladies and gentlemen, that will conclude the ICU Medical Second Quarter 2025 Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great remainder of your day. Goodbye.