ICU Medical Inc Morgan Stanley 24th Annual Global Healthcare Conference

Great. Good morning. This is Peter Harrison with Morgan Stanley's Investment Banking division. Today with me, I would like to introduce Vivek Jain from ICU Medical, Chairman and CEO. Welcome, Vivek, and thanks for joining us.

Thanks, Peter, for having us at this great event and appreciate people showing up at 7:00 A.M., New York time.

Perfect. Let's get started. Maybe let's start with the macro environment. On your Q2 call, you reiterated continued stable demand and utilization environment and status quo capital equipment market. It is different from some people we heard about ACA subsidy expirations affecting surgical volumes. That does not seem to have an effect on you guys. Do you agree that consensus continues to be healthy?

Sure. There was obviously some news last week with some of the large companies having their own specific commentary around procedure volumes. For us, our business is tied to hospital admissions, and from what we have seen, our customers are busy. Census appears pretty good. We have not seen any slowdown. To use the words we say on our call script, it is in line with the assumptions underlying our guidance, which was okay growth underlying, not spectacular in terms of market, but still positive.

The rest of this year feels better or worse, the same?

The rest of the year feels very consistent with those comments. We haven't seen any big swings in either direction.

Okay. You've obviously spent a lot of work reshaping the portfolio in recent years. You did the IV solution JV with Otsuka, SKU rationalization in Vital Care. Obviously, you did the Smiths acquisition. What is your ultimate goal in portfolio management transition? Is it to improve the WAMGR, drive faster sales growth and/or better profitability? If you had to say what inning you are in in this transformation, what inning do you feel you're in?

I don't know that it was so much transformation. I mean, for all the challenges, we look back on the last seven or eight years and said we took a $200 million direct sales parts supplier and turned it into a comprehensive integrated infusion company that's the largest set producer in the world. Our goal wasn't necessarily about improving the underlying growth rates. The first big transaction had to happen out of defense. It's been really about trying to build a coherent portfolio, things that make sense together, and trying to have the best pumps, the best consumables, the best IV solutions we can have, products that make sense together to the customer in the way the customer buys them.

Great. Maybe dive a little bit into the businesses. Let's start with IV systems. That business grew a robust 12% organic in Q2, nearly +10% in the first half. Some of that was due to installations being pulled forward from later in the year, and some was from competitive wins. What are the sustainable growth drivers into the second half of this year?

I think on our calls, we've been trying to be very transparent about the value, the drivers in the IV systems business, and there's really three and a half of them. The biggest two opportunities are on our LVP pumps, where we create value by either winning competitively or rolling over, upgrading our existing install base. Most of the growth to date over the last four quarters, five quarters, and the business has grown nicely for two and a half years in a row has been from competitive wins. Next year, it'll be a mix of both competitive and rollovers. The third way we grow value in the pump business is by refreshing our own syringe pumps. Those are the pumps that came in the last acquisition.

We have a strong market share position there, and maybe the half or half plus is how do we go deeper with the install base, re-profitize it by adding value around software or services, et cetera.

All right. Obviously, the competitive environment for LVPs has been changing of late with Alaris remediation essentially completed, Novum IQ still off the market. How is the Plum family positioned competitively, and who do you think you're taking share from?

Yeah. The math doesn't make sense, obviously. Everybody says they're winning and taking share. We have stayed away from those comments, and we have simply said it'll show up on our P&L, which we believe it's starting to. If you read our scripts prior to the latest acquisition, we said our pump business is not that big. Our LVP business reported independently, and so you could make a judgment of the size of it. Small wins make a huge difference on our income statement. I think the competitive environment is active as ever. There's plenty of opportunities out there, and there's a reasonable amount. Our install base included of old equipment in America that needs refresh and old equipment globally, and that's a good opportunity.

All right. In thinking about your pump business a little bit more granularly, when do you expect the upgrade cycle to really start? What is that opportunity for investors, units, timeline?