Good day ladies and gentlemen, and welcome to the ICU Medical Incorporated Q3 2015 Earnings Conference call. At this time automatic participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. John Mills for ICR. Sir, you may begin.

Great thank you. Good afternoon everyone. Thank you for joining us today for the ICU Medical financial results for the third quarter ended September 30th, 2015. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman, and Scott Lamb, Chief Financial Officer. Vivek will start the call with a brief overview of our third quarter results, and then Scott will discuss third quarter financial performance in more detail. Finally the company will open up the call to your questions. Before we start 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 will refer all of you to the Company's SEC filings for more detailed information on the risks and uncertainties that could have a direct bearing on operating results and financial position. Please note that during today's call we will be discussing 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 have included a reconciliation of these non-GAAP measures for today's release, and provided as much detail as possible on any addendums that are added back. In addition the sales numbers that Scott will be covering, as well as the Company's financial statements, the reconciliation from GAAP to adjusted EBITDA and adjusted EPS, are available on the Investor portion of the website for you to review. Now with that, I will turn the call over to Vivek. Please go ahead, Vivek.

Thanks John. Good afternoon everybody. The call is probably going to be a few minutes longer today. Our third quarter was a very active quarter that continued to build on the momentum of the last few quarters, and we're working hard to continue to drive operating performance, value and long-term sustainable growth. We had previously talked about Q3 resembling an average of the first two quarters of this year from a revenue perspective. Our actuals came in above those expectations, as we generated stronger cash flow and adjusted EBITDA than was expected, as both revenue growth and the operational improvements we have been making to ICU Medical are becoming more visible. As previewed on the last call Q3 did have some adjustments with unusual net positive items which Scott will describe in his remarks. Today we will continue to provide more tangible examples versus previous calls, about what has been driving our recent performance and summarize the drivers for growth in the medium and the long term. Specifically, we will discuss the fiscal year 2015 revenue status with our direct business and our current OEM partner, provide context around our recent capital deployment in buying the swap cap product line from Excelsior Medical, discuss new customer developments and their impact on our long-term OEM business, and comment on our current margin levels and their sustainability. From a financial perspective, we will provide an update to our guidance for fiscal year 2015, and lastly like we did on our third quarter call last year, we would like to provide early soft guidance on how we are thinking about our OEM business for 2016. We finished the third quarter of 2015 with approximately $86 million in revenues, and $30 million in adjusted EBITDA. Reported revenue growth was a little over 11%, and…

Thanks, Vivek. As Vivek already mentioned, our third quarter were above our expectations. As we achieved gains in both our direct and OEM sales channels for both our infusion and oncology market segments. Total revenues increased 11% as reported, or 14% on a constant currency basis, to $86 million in the third quarter, compared to $77 million in the third quarter of 2014. GAAP net income for the third quarter was $16 million, or $0.98 per diluted share, as compared to GAAP net income of $6 million, or $0.42 per diluted share last year. An increase of 153%. Adjusted diluted EPS for the third quarter were $1.00, compared to $0.66 last year, an increase of 51%. The increase in adjusted EPS was primarily due to positive top-line growth, improved gross margin, and decreased SG&A expenses. Third quarter adjusted EBITDA increased 57% to $30 million, compared to just $19 million last year. This increase was due to the same growth drivers. Now, let me discuss our third quarter revenue performance by market segment, and you can also view our detailed market segments in our earnings press release. For the third quarter sales in Infusion Therapy were $62 million, an increase of 13% as reported, and 15% on a constant currency basis, and represented 72% of our total sales. Direct infusion therapy sales were $34 million, an increase of 19% as reported, and 23% on a constant currency basis. Global OEM Infusion Therapy sales were $28 million, an increase of 6% as reported, and 7% on a constant currency basis. Sales in oncology were $11 million, an increase of 20% as reported, and 27% on a constant currency basis. And represented 13% of revenue. Sales in our critical care were $13 million, which is a decrease of 2% as reported, and primarily…

Thank you. [Operator Instructions]. And our first question comes from Thomas Gunderson from Piper Jaffray. Your line is now open.

Hi, good evening. This is actually Kyle on for Tom. So perhaps I will start with a more general question, and ask a couple of specific business line questions. So starting on the recent letter that several Senators sent to the FTC, urging a look into the alleged saline solution price increases following the shortage, in particular it looks like they're focusing on practices that award customers for buying bundles of products, as opposed to just saline solution alone. Can you give us your thoughts on this, and how ICU might be affected by any potential actions taken by FTC?

Yes. I'm glad you saw it. It's a complex issue and I'll try to answer it shortly. It's something we've thought about a lot for a long time. I'm glad you saw it. I have watched the IV solutions market for a while, and even the generic drug markets, and both have obviously suffered from various shortages at different times. And I think we have thought to be clear, that this IV solutions market has really been a mispriced product over years, where it was subsidized through co-mingling with other categories. We have no problems with a manufacturer seeking to get value in line with price, as these products have major regulatory and manufacturing versants that need to get justified, and we think that producers should make a fair margin. But what we do have a problem with, and what we are paying attention to, is kind of using pricing or through tying that was designed to eliminate product choice, and that affects patient safety or affects overall costs. And we think that our products, the ICU products are as close to an industry standard as you can have, and as a result of some of these behaviors that are referenced in those letters, customers haven't been able to get offered the lowest cost product, the most clinically relevant product, and more importantly, they had their ability to make the choices in the name of patient safety kind of curtailed by those tactics. So for us without trying to overly analyze it, what we care about is we care about choice and driving standards across the industry. We want to make so sure that providers care, have access to the best technology at the lowest price. We care less about whether we supply our product directly or on an OEM basis, but we do care a lot about whether a customer can really evaluate our products on their own merit, and if that choice prevails. I think these letters began to ask some really important questions about whether lower cost newer technology is being blocked, by those of an interest in preserving an old system. So all-in-all we don't know how it's going to go, but we think it's good for ICU Medical that these questions are being asked.

Okay. Thanks. And then I appreciate the additional color and expectations on Hospira. Now that it's been acquired, can you tell us how that transition has gone, any sort of change in the business or preliminary discussions on potentially extending the contract down the road?

Yes. I mean I think all we know right now is what the other, what we see in their orders, and what we see in the sales tracings that they provide to us of end-user demand, and we said we think they're holding serve, meaning their revenues to the end customers seem like they're holding steady. But as we think about the long-term, the other two players in the pump market, which affects a portion of our sales are both, very successful publicly reporting companies, and they both recently reported very strong growth in their infusion pump segments. And I think, if we add up the pieces we just can't see the industry growing at the rate that the two folks said they were growing at so, it's got to be coming from somewhere, and that's why we're being more cautious on it. That's really the dynamic that's going on, meaning the sales we had to our OEM partner, doesn't necessarily match up with what we think customers are using out there.

Okay. And then an exciting new agreement with Terumo. How long will that agreement be for, and can you talk a bit more about how long you think it will take for sales it to become material?

Sure. We're not going to disclose the length of the contract, but I mean if you have done business with companies like that, they don't sign up for quick flips. I think it's a serious long term commitment. I think it will take three or four quarters at least to get up and running with them, and that's okay, right? Because it's here for a long time. And it is nowhere near the size of our current OEM partner. Please do not take it in a wrong way. Scott can talk to you about that more. But it's a really good thing, and we're very proud of it, this company, and we're really honored to have them, we're really honored.

All right. Great. That's it for me. Thanks.

Thank you.

Thank you. Our next question comes from Larry Solow from CJS Securities. Your line is now open.

Great. Thanks. Good afternoon. Just to piggyback on the Terumo question, are they selling other products, other connected products today, competing products in oncology, or what is this replacing something, or this will be a new market for them, or any color on that would be great?

I think you can look up what they sell in their own catalogs. They're all public, Larry. I mean they sell a hybrid of their own self manufactured price. They source things from multiple people. I think it's more of a call of what they're trying to standardize around, than anything else.

Okay. So this will back more of their, this will be the predominant connector that they sell, and other of your products or will it be part of a bundle?

I think they will have some things they do on their own and some things that come from us.

Okay.

For a while some things that come from other people, right, until we transition it.

Right, and the three to four quarters ramp starts in mid-2016, or not to put on an exact timeline on it, or is that going to actually start ramping in Q4?

I think we won't see any impact of this on our income statement until the middle of next year at the earliest.

Got it. Okay. Got you. Okay. Obviously, the direct sales are 17% FX are fabulous, and you spoke of utilization of IV therapy, and obviously hospital utilizations are much improved, patient volumes much improved, how much of the macro environment, is it all macro, mostly predominately macro, or is it some of your improved execution, finding new channels, any way to sort of bucket that? It a 50/50 type thing? I realize it's a hard question to answer exactly, but just trying to gauge what's the primary driver, or are they both sort of equal drivers?

I think I probably three equal drivers. One is utilization, right?

Right.

And you can look at our products view on to other people's catheters, and you can look at the people that produce those, and what they reported as results.

Right.

The second is focus. We have been talking about for a couple of quarters, right. Every channel we can sell our products into we have been working hard to sell into, and I would say some of that stuff was more one time in it, there was some low hanging fruit on the revenue side, too, where we just weren't focused. We got focused on it, and that's why the step-up this year might seem so large. I don't think we'll be at that flip, those opportunities aren't open space next year. And the third is, I think we got back to doing what we're really good at, unique items, really meeting customer needs. We don't talk with customization anymore, but we deliver products to the customer in a way is that really responsive, and I think we have an advantage in doing that. We started to really focus on that again. And I think that space continues to be open for us, even with the pressures from the big companies, and some of the stuff that the previous question was addressing.

And when you look at Hospira keeping up with the market, not taking share maybe losing share, but if the utilization and all these positive, stable, macros are still growing, don't they actually still grow a little bit, or is it sort of the market growth offset by some share?

Yes. That's it. The latter. I think we're planning on the latter, what you just said.

Okay.

It might be the former of what you said, but we're certainly planning on the latter.

Got it. Got you. And just on the direct piece, and I realize it's, as you look out long-term and not asking for a specific guidance, and I don't think maybe the numbers are not quite sustainable, but is there something that you think you can still grow in the mid-to-high single digits on the IV therapy side, just on your direct business?

I think, let us talk in February.

Yes. That's fine.

That's what we want to do ,and I think we'll be just like we're cautious on the OEM side, and we're trying to talk early about it, which I hope people appreciate, and there are different point of view here whether it's the right thing to do or not, but that's what I really believe.

Right.

We're doing our work and talk about it when we feel like we have solid footing with the numbers.

Got it. Okay. Just switching real quickly to oncology, it sounds like things you have sort of flushed out the inventory on the OEM side, and I think going forward it seems like you're pretty confident this business will return to its, double-digit growth is a loose term, but hopefully that's a sustainable number, whether it's 10 or 30 I'm not asking, but is that fair to say that it sustain onto grow to double-digits?

I think it's fair to say it can sustain ably grow in the double-digits, but there's a real big difference between 10 and 30.

Absolutely. Right.

We believe that. We believe that's in oncology.

Right. Okay. Great.

Thanks.

Thank you. [Operator Instructions]. Our next question comes from Jayson Bedford from Raymond James. Your line is now open.

Good afternoon. Thanks for taking the questions, guys. Congratulations on the Terumo agreement. Just wondering how much revenue do you do in Japan right now?

I'm looking at Scott, Jayson. I think when we recast the numbers we'll put out there then. We just don't want to call it out right now. It's not humongous.

Yes. You will see that when we recast the numbers as Vivek mentioned.

Okay. But I'm guessing it's small?

It's -- well you will see it when we.

Not enough would be the answer.

Yes. Never enough.

Okay. I guess in terms of your OEM comments for next year, are you still expecting an $18 million to $20 million from swab cap next year?

We still are, yes. That's what we said when we did the deal a couple of weeks ago, but some of that will be direct, and some of that will be OEM, right? And we're kind of working through that right now, as we figure out the distribution channels.

Okay. Okay. Because I was just thinking in terms of not all of that goes into the OEM buckets?

No, no. The minority goes into the OEM bucket.

Okay.

Just to Medline.

The minority goes.

Yes.

Okay. And in oncology you mentioned kind of the beginning of the commercial execution, I think it was the language you used with respect to McKesson. What inning are we in terms of adoption, and when will they be fully up to speed from a conversion standpoint?

I think on the last call we said we got a dual source award, and I think the thing that's changed is now we've been able to talk to those customers. That's just starting, I don't know if we were in an inning yet. We're at an anthem. We're still at the anthem, but they are just one customer, even if we got all of them, that's still not our ambition, we still have to fight and compete to get that business in the market. They're only one of piece of what can be a really interesting market.

Understood. So it's fair to assume they didn't have a material contribution in the quarter, though?

Yes. I think that's an okay assumption.

Actually, we didn't record it. The transaction finalized in October.

No, no. He is talking about…

McKesson.

Nothing material.

No.

Okay. And then just on ChemoLock just it sounds like I think you used the words full launch now. I imagine the process is you convert the current ChemoClave customers hopefully at a bit higher price point, but do you view it more as a driver of new customer growth, this product?

Yes. I mean, and I don't think it's exactly the ChemoClave situation that you described there. So what's happened is we had a product out in the market to make sure the design and specs were what we should they should be, we iterated, it's been a long iteration since I got here, but I think we have locked down a design, and now we're moving it into production. That will take some more time, but we're talking about it with more confidence than we used to talk about it, I mean we think it will make some impact at some point in next year. The goal of that product is not to cannibalize our existing business, or anybody else's existing business. The goal of that product is to convert unconverted market into using a closed system. Independent of where price would be, the bigger opportunity is getting people who aren't using these important technologies today to adopt them. That's more valuable to us.

Right. Okay. And then just lastly from me, you mentioned a couple times kind of cleaning up the legacy channels internationally. Did that have a negative impact in the third quarter at all?

Not really. It might in the next quarter or two, as we transition some of the stuff in Asia.

Okay. Fair enough. Thank you.

Thanks Jayson.

Thank you. I'm showing no further questions from our phone lines. I would now like to turn the conference call back over to John Mills for any closing remarks.

Great. Thank you everyone for your time today, and we look forward to updating everyone on our business when we report our fourth quarter results, which will be in February of 2016. Thank you again, and have a great day.