ICU Medical Inc 2026 Q2 Earnings Call

Please go ahead. Good afternoon, everyone.

Thank you for joining us to discuss ICU Medical financial results for the second 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 second quarter 2026 events. Before we start our prepared remarks, we 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 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. With that, it is my pleasure to turn the call over to Vivek.

Thanks, John, good afternoon, everyone. We know it's again a busy earnings day, so I'll try to be brief. I'll walk through our Q2 revenue and earnings performance and provide some color on the businesses and then turn it over to Brian, who will recap the full Q2 results and detail our revised guidance for the year. After that, I'll come back with a few comments on our assessment of progress against our near and midterm financial goals that we've outlined for a while now, our mission of creating a comprehensive infusion therapy company, and our capital allocation strategy. Revenue for Q2 was $548 million for total company growth of 6% on an organic basis or 1% reported.

As a reminder, the reported results for the last time are impacted by the mid-2025 creation of the Otsuka ICU Medical LLC and the resulting deconsolidation of IV Solutions from our income statement. Adjusted gross margins were 41%. Adjusted EBITDA improved to $110 million, and adjusted EPS was $2.37. Organic free cash flow was strong, and when combined with tariff refunds, which are excluded from our P&L commentary today, we were able to repay $50 million of debt in the quarter and believe we're on track to hit our target of approximately 2 times leverage by the end of the year. The broader demand and utilization environment in Q2 continued to be stable, with volume in line with our guidance assumptions for the year.

The capital environment is status quo. It does appear investments that customers need to get done do get done. Certain currencies for us continue to be painful, particularly the Costa Rican colón and Mexican peso, where we have large production environments, as is the Japanese yen, where we still have a meaningful commercial business selling products made in North America. In terms of geographic mix in Q2, North America drove the growth as the previously mentioned OEM wind down was recognized in international geographies. Getting into our businesses more specifically, our consumables business grew 6% in Q1 reported and 5% organic and was a record in absolute sales. Growth was balanced across all four product families and consumables, and all improved year-over-year. For the remainder of the year, we continue to believe the business will attain mid-single-digit growth.

Please remember, Q3 of 2025 was a healthy growth quarter for consumables last year. Our IV systems business grew 13% reported and 12% organic, and it was again a record quarter in pumps. Dedicated sets generally followed the same trend as consumables and capital sales and were strong through the quarter, offset by declines in the OEM revenues that will continue to impact growth rates for the remainder of the year. We did have some earlier than expected installations, which will come out later in the year. For Q3 in the near term, we would hold to our comments from the last call and expect organic growth to continue at or above the 6% rate. Just wrapping up the businesses, Vital Care decreased 4% on an organic basis and decreased 32% reported due to the deconsolidation of IV Solutions.

As expected, we did have sequential improvement. We expect stability for the balance of the year with the business down slightly for the year, given the Q1 results. We wanted to jump right into the financials today. I'll turn it over to Brian and then come back with some commentary to assess our financial performance and how it aligns with our strategic goals.

Brian, over to you. 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 updates to our full year guidance. As you can see from the GAAP to non-GAAP reconciliation in the press release, adjusted gross margin for the second quarter was 41%, which was in line with our expectations. Relative to the assumptions underlying our original full year guidance, we did experience higher logistics expense from elevated diesel costs Which was offset by lower tariff expense as the Section 122 tariffs in effect during the second quarter carried a lower average rate compared to the IEEPA tariffs incorporated into our original guidance.

During the quarter, we recognized $8 million of tariff expense, which represents approximately 1.5% of adjusted revenue. We also received $20 million of tariff refunds. We have excluded the full amount of the tariff refunds from our non-GAAP income statement, and they therefore had no impact on the 41% adjusted gross margin rate. The tariff refunds are, however, included in our free cash flow results for the quarter. Adjusted SG&A expense was $112 million in Q2, and adjusted R&D was $22 million, representing 20.4% and 4.0% of adjusted revenue respectively. The adjusted SG&A rate of 20.4% declined by one percentage point compared to both the second quarter of last year as well as Q1 of this year.

The improvement was driven by operational efficiencies from our IT systems integration, along with favorable expense timing in the quarter. Restructuring integration and strategic transaction expenses were $21 million in the second quarter, which was higher than previous quarters as a result of $10 million of non-cash asset write-offs and other charges related to the exit of several manufacturing and distribution center facilities as we near completion of the consolidation of those facilities. The remaining $11 million of spend related primarily to manufacturing transfer activities and IT systems integration. Actual cash spend in Q2 was down sequentially compared to Q1, and we continue to anticipate reductions in both the level of activity and the amount of spend in the second half of this year as we close out several of these longer-term projects.

Adjusted EBITDA for Q2 was $110 million, reflecting a 20% margin rate and 10% growth compared to last year. However, similar to the past several quarters, the year-over-year comparability is impacted by two discrete items. The first is the deconsolidation of the IV Solutions business, which contributed $2 million of earnings in Q2 2025 when it was included in our consolidated results for one month. The second item is the increase in tariff expense of approximately $6 million year-over-year. The combined $8 million year-over-year drag from these two items was essentially offset by higher earnings from the core business of $19 million. We have now lapped the impact of the JV deconsolidation and tariffs, and going forward, these items are expected to have little or no impact on year-over-year earnings growth.