Thank you everyone for joining us for ICU Medical's Third Quarter Conference Call. On today's call representing ICU Medical, is Vivek Jain, Chief Executive Officer and Chairman; and Scott Lamb, 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 Events Calendar and it will be under the third quarter 2018 events. Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results and are subject to risk and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risk and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call we will also 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'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 the Vivek.

Thanks, John. Good afternoon, everybody. The third quarter of 2018 marked the second complete year-over-year quarterly comparison period of owning Hospira infusion systems and we continue to balance our time between active customer dialogs to improve our commercial execution and being deeply in the midst of integration to create a single unified company. We continue to execute well through a large volume of activity and made substantial steps toward the full integration of Hospira infusion systems. On today's call, we wanted to, first, comment on Q3 results and discuss our current view of the business and recent performance trends. Two, provide the latest status on our integration work and cut over and highlight some of the successes and the remaining near-term challenges. Three, provide our latest view on financial expectations for the balance of 2018 and a preliminary look at 2019 as we've done on our Q3 calls over the last few years. And lastly, reiterate some thoughts on the longer-term value creation at a high level for both an income statement and balance sheet perspective as margins and our cash position continued to improve. The short story on Q3 was it was a clean quarter as it relates to any lingering transactional noise, but it was a choppy quarter due to our systems cut over and sluggish sales in certain of our business lines. The income statement was straightforward with revenues that were generally in line with our expectation for Infusion Consumables and Infusion Systems, but lower in Infusion Solutions and with margins and the balance sheet to finish strong even with a little less revenues. We finished the quarter with approximately $305 million in adjusted revenue, adjusted EBITDA came in a little over $68 million and adjusted EPS came in at $1.85, and we added approximately $26 million…

Thanks, Vivek, and good afternoon, everyone. First, I'll walk down the income statement, highlight key items impacting operating performance. Finish with some added detail to our upgraded guidance for the year and speak briefly about next year's initial look at adjusted EBITDA. So to begin, our third quarter 2018 GAAP revenue was $327 million, compared to $343 million in the same period last year. Also, please remember the $327 million and $343 million includes $21 million and $19 million, respectively of contracted solutions sales to Pfizer, which we sell to them at cost. As already described by Vivek, on a pro forma basis, revenue decreased 10% year-over-year, driven by solutions, down 26% and systems down 12%, offset by a 7% increase in consumables. Adjusted diluted earnings per share for the third quarter of 2018 were $1.85 as compared to $1.12 for the third quarter of 2017 and adjusted EBITDA was $68 million for the third quarter of this year compared to $55 million last year. Now let's discuss our third quarter GAAP revenue by product line, and as a reminder, the 2017 revenue related to delayed closing entities was not available by product line and was recorded as other revenue. However, by the end of December, all delayed close entities were closed. So for your reference, the 2017 and 2018 pro forma unaudited revenue numbers can be seen on Slide 3 of the presentation. So GAAP sales of Infusion Consumables were $118 million versus $93 million last year. IV Solutions sales were $114 million. And excluding the previously mentioned contract sales to Pfizer, IV Solutions sales were $93 million versus $125 million last year. And just to repeat what Vivek already mentioned, this quarter we saw some temporary impact from the US IT system cut over and a decrease in…

Thank you. [Operator Instructions] And our first question comes from Matthew Mishan with KeyBanc. You may proceed.

Good afternoon. Thank you for taking the question.

Hey, Matt, how are you? Go ahead.

Good. I'll start with the 2018 EBITDA guidance. It implies the fourth quarter EBITDA that's flat to slightly down from where you are at in the third quarter. Why is that not taking the step up post, let's call it a transitional third quarter and why the wide range?

I think, Matt, you've seen us, it's -- yes at the midpoint there, it does imply a little bit down, it's bumpy right now. We just want to -- we want to be cautious about it, there's not a lot of more analysis in that, we see consumables acting normal, we kind of think we know where we are at least for the next number of quarters on pumps. But the Solutions Inc. has been volatile, it has I don't want to sugar-coat that.

Right. And then on IV Solutions, there has been a lot of industry supply that's been coming back on the market. Do you think the industry may have overcorrected for display issues last year? And is this -- could this be more of a long-term issue as a result of that?

It's kind of the core -- one of the core question. Our view is, we didn't sell enough, right? And whether that's because of hoarding that one on or whatever, we had our own expectation of how that overage was bleeding out, and we saw it bleeding out for two months, it just kept bleeding. I do believe markets are efficient and capacity and supply, equals demand over the long-term, I don't really feel like that's massively out of balance. Today, and I think everybody's a pretty rational act because it's not the world's most margin attractive business. So I don't see that today in the market.

Okay. And as we think about the 2019 guidance, should we be thinking about ICU transitioning from integration work to more of a growth story in 2019? And how are you thinking about balancing kind of reinvesting some potentially upside to plan next year, back into growth initiatives?

I think today is absolutely going to come, where we have to talk more vocally about new products and how we want to build value around our current offerings. I do feel like for the first half of next year, as we lap the solution shortage issues, it's really hard to talk about growth in the whole company sense because the solution sales were so high in Q1 or Q4 of 2017 and Q1 of 2018, that -- we don't want to not draw attention to that right now. I think once all the separation is on, once all the TSAs on, once we lap all those issues and if consumables keeps doing what we think it can do and if the pump business stabilizes, and does what we think we can do over time, and either via a little bit of organic innovation. Our M&A, we ought to be able to supplement it, that is our formula. But I don't think that's what it's going to look like in at least in the first quarter and likely into the second quarter of next year with the headwinds. That's why we sort of knew, this has been coming for a while, why we kept saying on the call is that in a low revenue growth environment, we can still drive earnings value because that's what it's going to be for the next bit. So we're not quite at that growth phase yet.

And then last one, I guess just putting Smith aside, what is the pipeline look like for M&A? And what kind of criteria which you need to hurdle to do a deal?

Very broad question. I mean, our balance sheet isn't lost on us, right? So I think I'd start with that. Two, I believe our shareholders gave us tremendous trust, even pre Hospira with the cash that we held onto, till the right moment presented itself, and it might be one of those moments where you have to hold still for a while. And obviously we've seen other people in the industry say common sense, things like that, right now. I think it's different for different deals, right? If it is a home renovation, you have to think about returns at a different rate than if it's higher growth asset, everybody is chasing the same finite number of higher growth assets, and you have to be willing to accept a lower return, and there's not tons of them around candidly. We have it spent a lot of time looking as we've gotten through this systems conversion that does free up some more time, we put some people into jobs to start working on those things again, but it hasn't been a focus for the last three months, the last -- what we've done over the last four weeks here has been half of our focus.

Thank you very much.

Thanks a lot for this interest. Appreciate it.

And our next question comes from Jayson Bedford with Raymond James. You may proceed.

Good afternoon. Thanks for taking the questions. I'll probably jump around a little bit here. So I guess in the third quarter, related to the cut over, the $10 million to $12 million revenue impact. You mentioned that you're still a few days away on fulfillment. Are you expecting a snap back to occur in the fourth quarter from a revenue standpoint? Or should we view this revenue is kind of lost revenue?

I mean, it's a little bit different by different business units and product categories, Jayson. That's why we don't exactly know. In the Solutions business, if someone needed something that day, and we were a little behind, it would be gone. If it was a dedicated pump set, that eventually would come back because there is no other alternative. So it depends on which category. I think what you're seeing in our -- to the previous questions in our guidance view, our view it's better to say today that it's not going to snap right back, these things are bumpy. And by and large, we're amazed how much of it is actually working. But it's that last 3%, 4%, 5% that's still makes a difference.

Okay. On Solutions, can you talk about pricing, not so much from your exact pricing, I'm just wondering if there was any trend in the quarter?

No.

Meaning it was flattish versus similar quarters outside of maybe the trading business?

I think you are hearing us. One, we don't really want to talk about pricing by individual products or -- I think you're hearing us say, we had no material change in price in any of our lines of business.

Okay. And I think you guys were having some issue on supply in the small volume, does that come back in the fourth quarter assuming the demand is there?

It should, assuming the demand is there, we have improved from a manufacturing perspective, mostly better but again, every quarter, there is a few items here and there, we still have a few little outstanding things but by and large, we're better.

Okay. And maybe just a last top line question I had. If my math is correct, consumables, the business had about a $4 million impact from the cut over which if I add that it looks like you're closer to about 11% growth, am I off in that math?

No, I think it's pretty, correct.

Okay. Wanted to ask about gross margin, clearly solutions was depressed margins at 44% on adjusted basis, that was pretty good. So I guess the two questions I have are, one, what was the impact on a basis point basis of the plant shutdown and why was it margins strong given the softer top line?

I think a couple of things, Jayson, we don't have the basis point impact of the plant shutdown we really don't, we don't worry about it at that level. The higher mix of consumable as a proportion of our business if you go back to old ICU margins, the better that makes margins as long as you have a minimum volume of business running through your solutions, factories, right? If you had a material decrease in that it would go in the other direction, right? So it's really mix and the efficiencies we've worked on since we bought the business. There is still risk if you had volume decreases in certain factories that could get worse, but right now we feel kind of okay about where we are there. It wasn't that long ago, we were talking about trying to get to 40%, right?

No, no, you'd clearly made some big strides. Scott, you mentioned 43% to 44% gross margin for the foreseeable future. Is that the assumption implied in your 2019 EBITDA guidance?

Yes, that's part of it.

Okay. And just a curiosity, most of the TSA savings, are they all recorded in the OpEx line?

Most are in OpEx, but they're throughout the P&L.

Yes. But what you saw was the big decrease right in SG&A in Q3 a chunk of that was stuff started to roll off, and that's why we said we felt like we obviously get 10 this year, we got a little in Q2 more in Q3, both those things annualized into the fourth. And then we're still paying Pfizer, a little bit for wind down, in archiving and the like. And so the lights really go dark with them on January 1, that's why that's a incremental number, Scott was talking about.

All right. Thanks guys.

Thanks, Jayson.

[Operator Instructions] And our next question comes from Larry Solow with CJS Securities. You may proceed.

Great, thanks. Good afternoon. just a few follow-ups there. Vivek, on the consumables piece, you're still pretty solid 11% growth in the quarter excess the cutover a little bit down sequentially, but like I said it's still a very good growth. You did mention a little bit of a slowdown domestically, so actually that makes even more surprised that you had a good growth. Anything that caused that? Has that rebounded?

We said August was sloppy for our committed or sluggish for our committed acute business. That impacted solutions as well as consumables, some of that stuff goes hand in hand and that's why the US piece was probably down a little bit there.

So do you think going forward, does that -- is there still a little bit of a knock-off effect from those -- from the solutions business, on the consumables --

There are many things, there is a portion of that stuff that obviously the old ICU stuff is uncorrelated, the international is uncorrelated, oncology is uncorrelated. But the stuff we got from Hospira that goes in consumables, is correlated, which is not half the whole consumables segment but somewhere between 0 and 0.5.

I know you're not providing revenue guidance for next year, at least not yet, but the consumables business, obviously, you expect it to still grow, perhaps a little bit slower in the next year. Is that a fair assumption?

Again, we are not -- Larry we've never provided revenue guidance. I think we feel good about our consumables business right? We have a right to win. We have a clear value prop there.

And just turning back on the solution side, so obviously, the inventory that the shortages in the industry led to big swings inventory, that was fixed. Outside of that and this may be hard to read, but have there been any protocol changes, different alternatives the ways of delivering stuff, IV push or other methods that can perhaps going forward keep demand lower?

I think everybody can point to their own, we didn't sell enough. So I don't want to -- we had a view and we didn't get all the way there. So I don't -- I think it's our -- it's our role to have opinions on those things right? And we had opinions on those things and we still didn't get exactly where we got to.

Okay. Turning to the pump side, it sounds like things are stabilizing, as you look out over the next few years. I think I know you have stated that you think your product is as good as the others. at least technologically speaking and whatnot. Any reason to believe that you can at least grow with the market on that side?

I feel like -- again, we've tried to say we haven't said the words, we think we're at the bottom of the installed base yet, right? We'd like to say that. We said -- we think because of the way the refresh cycle ends up, we're okay on a revenue stability from here. The pumps are the most complex sale that the competitors each fight or where it's got the longest time and into the kind of most perception issues to overcome. So I think we feel very good and you don't look at us, look at kind of independent stuff out there, we feel very good about our products but the sales cycle is long, right? And we got to stay committed to that, just because XYZ happens in one day and you can't change your strategy, that was the point we're trying to make to ourselves, to our people, to our customers, we're not going to do anything differently. And so we have to keep competing.

Right, okay. And then just lastly, just a longer-term question. Obviously you've made it clear that you are open to a larger acquisition or a larger -- if something's there, opportunity presents itself. If it doesn't present itself, are there -- as you look out over the next few years, are there -- and you put out pretty strong balance sheet, are there opportunities smaller, mid where you can -- it still holds or add adjacent stuff products that could help you grow?

Yes, I do feel like we have a small income statement right, relative to what devices have become -- and that income statement can be influenced pretty dramatically if you can make good choices on the acquisition front, I mean we felt that way about the -- some of the international deals we did. We felt that way about Excelsior. We felt that way about Hospira. But we've been so busy. We frankly haven't been looking a lot. And so we need to start looking again. I don't think we said, we have some big appetite for a big deals, they're coming off a pretty brutal integration. I think if something is sensible out there to do, that positions us and creates a good logical global competitor we're interested of course, right? And that's our job. And it's -- but it comes down to the capital deployment and value creation for our shareholders and all that other stuff. So I don't think that this -- even at our size or a smaller player in the industry, I don't think a smaller player in the industry can say I ignore what's going on out there, that's not realistic.

Right. Great. Okay, great. Thanks.

Okay. Thanks, Larry.

Thank you. Ladies and gentlemen, this concludes our Q&A portion of today's conference. I would now like to turn the call back over to Vivek Jain for closing remarks.

Thanks, folks for continued interest in ICU Medical. It was a big quarter for us with these systems conversions. I want to thank all the employees that are working nonstop on this project and to keep fighting and to get the final act done here. And we look forward to one of the advantages of being on a single system is we'll be going to able to close faster. So I hope at some point in 2019, we can start having our calls a little bit sooner after the quarter closed, which would be nice also. And we look forward to updating everybody early next year. Have a great holiday season. Thanks.

Ladies and gentlemen, this now concludes the conference call and you may all disconnect. Everyone have a great day.