ICUI - NASDAQ

Good day. And welcome to the ICU Medical, Inc. Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, today’s event is being recorded. I’d now like to 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 of 2024. 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 the Events Calendar, and it will be under the Fourth Quarter and Full Year 2024 Events. Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call, including belief 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 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 in the ICU Medical’s ongoing results of operations, particularly when comparing underlying results from period to period. We 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 Q4 revenue and earnings performance, highlight and provide some commentary on our assessment of 2024, and then turn it over to Brian to recap the full Q4 and fiscal 2024 results and provide our 2025 guidance. After that, I’ll come back with some brief comments on our medium-term outlook and on the actions and opportunities that should finally begin to address our under earning. Revenue for Q4 was $622 million for total company growth of 9% on a constant currency basis or 8% reported and was aided by the temporary shortage in IV Solutions. All three reporting segments had good year-over-year growth. Adjusted EBITDA was $106 million and EPS was $211. Gross margins were down slightly sequentially as we had a higher mix of IV Solutions and overall revenues. Cash balances were close to flat sequentially as we used cash to fully pay down our AR factoring program. The broader demand and utilization environment in Q4 continued to be solid across almost every geography. The capital environment is status quo and it does appear investments that customers need to get done do get done. The only other headwind in Q4 was, again, currency, as the dollar was weaker in our selling geographies than earlier in 2024. Getting into our businesses more specifically, our Consumables business in Q4 grew 6%, both constant currency and reported. For the year, the legacy ICU product families of IV therapy and Oncology combined again hit a record level in absolute sales, and Vascular Access had its best growth in years. The sequential growth was driven by new global customer implementations, price improvements, rapid growth in some of our niche markets, and less so by census, as it was solid but stable. Our IV Systems business grew 7% reported and 4% constant currency and was the best absolute quarter in pumps we’ve had. Both the LVP and ambulatory pump families had very strong growth, and Q4 was the best quarter we’ve had in years in LVP pumps, driven by both strong dedicated set utilization and hardware sales. The ambulatory pump platform is running much closer to historical levels versus the difficulties we had in the first six quarters post-acquisition as we continue to expand our install pace. Just wrapping up the business segments, our Vital Care segment grew 16% on a constant currency and reported basis, all due to the national shortage in IV Solutions. We are seeing the shortage environment, as expected, returning to a more normal level midway through Q1. We’ve been busy in the preparation for standing up our recently announced joint venture with Otsuka Pharmaceutical Factory, and we continue to be impressed with their commitment, innovation, and fundamental manufacturing expertise in this arena and believe we have aligned with the right partner. We believe this will be a win-win for each of us, and most importantly, customers in the United States. From an operational perspective towards our customers, Q4 was not an easy quarter, even though in aggregate, the company is running the best it has since the acquisition. The crisis in IV Solutions, as we mentioned on the last call, brought out some of the best and worst behaviors we see in the marketplace. We had to divert a lot of attention to scaling everything up, not only in production, but our warehousing work hours, our logistics networks, customer service, et cetera, all in the midst of trying to stand up our JV. Thanks to the efforts of our team, customer back orders are at the lowest level since the acquisition and fulfillment has been very stable, excluding the limited volatility in IV Solutions. The broader logistics and supply chain are far more predictable and the discussions have shifted more to innovation and the integrated value of what we have amassed. We feel we hit the high-level goals for 2024 that we outlined early last year. We achieved healthy revenue growth in all our differentiated product lines. We progressed our efforts on quality remediation and high compliance as evidenced by a successful FDA inspection, the site that underpins our warning letter and are now awaiting final resolution. We substantially advanced our integration efforts with the successful IT cutover of our North American order-to-cash systems and progressed key, more complex projects in the consolidation of the manufacturing network. Many of these items wrap up by the end of this year, and while we had to be patient, we were able to address our most important portfolio optimization with the creation of the IV Solutions JV with Otsuka, which gives those products the best framework to be successful over the long-term. Obviously, these actions are intended to enhance our profit levels and I’ll come back after Brian speaks to give more specific examples on what each of those allows over time. That’s my brief recap of Q4 and 2024 at a high level. I’ll turn it over to Brian and then come back with a few comments.

Thanks, Vivek, and good afternoon, everyone. Since Vivek covered the Q4 revenue for each of the businesses, I’ll focus my remarks on; first, recapping the 2024 full-year revenue performance compared to our original expectations; second, discussing Q4 performance for the remainder of the P&L, along with the Q4 balance sheet and cash flow; and third, providing guidance on our expectations for 2025. So, to recap our full-year 2024 revenue performance, consolidated adjusted revenue was up 6% on a reported basis and up 7% constant currency. At the business unit level, Consumables revenue for the year was up 7% on both a reported and constant currency basis compared to our original expectations of mid-single-digit growth. Here, all four product categories contributed to the over performance, with each growing at or above the mid-single-digit target for the business unit as a whole. Infusion Systems revenue for the year was up 4% on a reported basis and up 7% constant currency, slightly better than our original guidance of mid-single-digits, driven by a combination of the ambulatory and LVP product lines. And Vital Care was up 5% for the year on both a reported and constant currency basis, which was better than our original guidance of flat. Here, IV Solutions was the largest contributor of the over performance, which included the benefit from higher demand during the fourth quarter. Excluding the IV Solutions benefit in Q4 Vital Care growth for the full year would have been 1% constant currency. Moving on to Q4 results and further down the P&L, as you can see from the GAAP to non-GAAP reconciliation in the press release, gross margin for the fourth quarter was 37%, which was in line with the expectations we laid out in our Q3 call, whereby we experienced the benefits from continued capture of synergies offset by the impact of two items. The first was the higher revenue mix of IV Solutions, which has a lower gross margin profile. And the second was the reversal of the favorable foreign currency environment that we experienced in Q3 of last year, as the U.S. dollar strengthened relative to our selling currencies over the course of the fourth quarter. Adjusted SG&A expense was $116 million in Q4 and adjusted R&D was $22 million. Total adjusted operating expenses were $138 million and represented 22.1% of revenue. The total dollar amount of spend was slightly lower than Q3 due primarily to timing and the spend as a percentage of revenue reflects the incremental benefit from higher IV Solutions revenue during the quarter. On a year-over-year basis, total operating expenses were up 2% in Q4, driven mostly by increased selling expenses from higher revenues. Restructuring, integration and strategic transaction expenses were $10 million in the fourth quarter and related primarily to IT system integration and manufacturing network consolidation. Adjusted diluted earnings per share for the quarter was $2.11, compared to $1.57 last year. The current quarter results reflect net interest expense of $23 million. The fourth quarter adjusted effective tax rate was 14% and includes a discrete benefit from the release of tax contingencies as a result of the expiration of various tax statute of limitation periods, which contributed approximately $0.25 per share. For comparison purposes, the prior year tax rate reflected discrete benefits which contributed approximately $0.35 per share. Diluted shares outstanding for the quarter were $24.7 million. And finally, adjusted EBITDA for Q4 increased by 22% to $106 million, compared to $86 million last year. Of the year-over-year EBITDA improvement of $20 million, we estimate that the higher demand for IV Solutions during the quarter contributed somewhere between $5 million and $10 million. Now, moving on to cash flow and the balance sheet. For the quarter, free cash flow was $16 million, which includes the impact of a $27 million outflow as we reduced the outstanding balance of our accounts receivable purchase program to zero as of the end of the year. It was another solid free cash flow quarter and our liquidity position continues to improve. During the quarter, we invested $15 million of cash spend for quality system and product-related remediation activities, $10 million on restructuring and integration, and $24 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 $1.6 billion of debt and $309 million of cash. Moving forward to the 2025 outlook, it is important to note that our financial results for the year will be impacted by the IV Solutions JV transaction that we signed and announced in November. We currently expect the transaction to close during the second quarter of this year, as we’ve already received regulatory clearance and are making good progress to establish the required IT systems, process flows and governance model to support the new JV entity. From a financial reporting standpoint, we will continue to report the IV Solutions business as we have historically until the closing of the transaction. After transaction closing, the IV Solutions financial results from that point forward will be deconsolidated and we will only include our share of the net income of the JV in our P&L. For simplicity and comparability, our 2025 guidance commentary will focus on our expectations without regard to the impact of the JV transaction. However, for modeling purposes, we have included Slide #4 in the presentation materials that lays out the expected impacts from the JV transaction, assuming a second quarter closing. As a reminder, when we announced the transaction in November, we said that the effect of the deconsolidation of the IV Solutions business would have an annualized impact as follows. Reduction in adjusted revenue of $350 million and adjusted EBITDA of $25 million. No impact to adjusted EPS and immediate expansion of adjusted gross margin of 3 percentage points to 4 percentage points with an additional 1 percentage point to 2 percentage points longer term. The impacts shown on Slide #4 are consistent with these amounts, but adjusted to reflect the partial year effects. With the second quarter closing, Q3 will be the first full quarter of operations, and therefore, financial reporting under the new IV Solutions JV structure. Our guidance also excludes the potential impact of any new tariffs on our business, which could be material as approximately a third of our global revenues are for products that are manufactured in one of our three Mexico plants and then distributed through our U.S. supply chain. The implementation of tariffs remains an evolving and uncertain situation, and we are evaluating options to potentially mitigate the impact, ranging from rerouting our distribution channels for sales outside of the U.S., to manufacturing footprint considerations that could leverage our existing operations in Costa Rica or other locations. However, some of these mitigation options have long lead times and would require meaningful investment and would be difficult to undertake without better clarity on the expected length of time that tariffs would be in place in order to ensure a positive return on any investment. So, starting with revenue guidance, before considering the JV transaction, we expect full year 2025 consolidated adjusted revenue growth on a constant currency basis in the low-to-mid single-digit range and we expect the currency-neutral growth rates for each of the underlying business units to be in line with the longer-term outlook that we’ve discussed before, which is mid-single digits for both Consumables and Infusion Systems and roughly flat for Vital Care. The Consumables growth reflects a combination of volume and some price from the recently completed GPO resign process, with volume increases driven by continued share gain in core infusion, continued recovery in Vascular Access, and the benefit of higher growth markets for both Oncology and Specialty. The Infusion Systems growth reflects normal market growth and a little bit of price, plus the benefit from Plum Duo implementations, particularly towards the back half of the year, offset somewhat by a difficult year-over-year comparison due to a strong 2024 performance for the ambulatory line. We do expect currency to be a headwind to the reported revenue growth rates in 2025 of 100 basis points to 150 basis points as a result of the strengthening U.S. dollar we saw beginning in Q4 of last year. In terms of calendarization, we would expect each quarter’s growth rates to generally be consistent with the annual guidance, meaning the seasonality in 2025 is expected to be similar to 2024. Moving further down the P&L, before considering the JV transaction, we expect adjusted gross margin for the full year to be in the range of 37% to 38%, compared to 36% in 2024. This range includes the benefits from price increases and continued synergy capture, being partially offset by continued labor inflation in our Mexican plants. We anticipate the impact of FX on our gross margin rate to generally be neutral compared to 2024, with the negative effects from the stronger U.S. dollar for our selling currencies being offset by the benefit from the weaker Mexican peso. The range also assumes a relatively stable environment for freight rates and fuel. We are planning for adjusted operating expenses as a percentage of revenue to be approximately 24% for 2025, which represents a 3% expense increase year-over-year. The 3% increase reflects a combination of normal inflation plus some strategic investments in R&D initiatives and commercial resources to drive future revenue growth. Net interest expense is expected to be approximately $95 million based on current market forecasts for interest rates, as well as the roll-off of a portion of our interest rate swaps. The adjusted tax rate should be around 25%, which is approximately 1 percentage point to 2 percentage points higher than our historical normalized tax rate as a result of the Pillar 2 minimum global tax implications on our Costa Rica operations. And finally, diluted shares outstanding are estimated to average $24.7 million during the year. Bringing these components together results in a 2025 adjusted EBITDA in the range of $395 million to $425 million and adjusted EPS in the range of $6.55 per share to $7.25 per share. Now on the cash flow, as we ended 2024, we had $125 million of free cash flow for the year, which was almost $50 million better than our original 2024 guidance. For 2025, we expect free cash flow to be around these same levels, with the cash flow benefit from higher earnings to be somewhat offset by higher payments for accrued incentive compensation, additional investments in CapEx and some potential one-time payments in 2025 for the Italy clawback and other items. Longer term, our goal is to improve free cash flow by completing the quality remediation and integration activities to capture the remaining synergies. In 2025, we expect to invest almost $100 million in quality remediation and integration to finish that work as soon as possible. Timing of free cash flow throughout the year should be consistent with our historical trend, which is lighter in the first quarter as a result of payments for prior year annual incentive compensation, with improvement over the remainder of the year, helped by the benefit of revenue and earnings growth. In terms of capital allocation, we had $1.3 billion of net debt as of the end of 2024. Any free cash flow generated during 2025 will be prioritized towards debt pay down, which includes both scheduled and additional principal payments. When combined with the approximately $200 million of expected proceeds from the IV Solutions JV transaction, total principal payments during 2025 should approximate $300 million and reduce our net debt to around $1 billion by the end of the year. To wrap up, we’re happy with the improvements we’ve made over the past 12 months to 18 months to get back to more predictable and consistent revenue growth and cash flow generation, which we saw reflected in the 2024 results. For 2025 and beyond, we’re focused on improving profitability. And I’ll hand the call back over to Vivek to expand upon some of those initiatives.

Okay. Thanks, Brian. That was a lot. We hope it’s obvious to everyone that this year’s revenue guidance is the same as last year’s, with a better track record over the last five quarters or six quarters in our ability to deliver more predictable revenue growth. While we’re on solid footing now and have improved many of the most valuable acquired product lines to be closer to historical levels, sustained revenue growth is about consistent execution combined with consistent innovation to refresh the portfolio. Our heaviest investments over the last years have gone into our pump business, where in addition to the approval of Plum Duo, we are on the verge of submitting our expected final response to the FDA for the 510(k) review process for our Plum Solo single-channel pump and the related LifeShield Safety software. At our best estimate today, his new 510(k)s will be submitted for our Medfusion and CADD pumps over the next few quarters. All of these products will connect to our LifeShield Safety software and provide us the most modern fleet of infusion devices that can anchor the portfolio for many years to come. Simplistically, we want customers to have the right tools for the right job, all connected with a common user interface and software solution that minimizes training, speeds onboarding, enables interoperability and drives standardization. The Plum Solo will enable a clear upgrade path for our existing install base in addition to participating in the broader competitive opportunities. In Consumables, we’re also on the verge of a number of important filings which will bring innovation, continue to create new markets and sustain our revenue growth. And these are all alongside some of the previously mentioned recent launches in the pharmacy prep and trade family of products. It’s great that we have innovation and more momentum from a revenue perspective, but ultimately this needs to show up in earnings. And what’s not lost on us is the reality of where we should be given stagnant earnings and the fact that until Q4, we had higher earnings at times on less revenues. When we described our under earning on this call last year, we stated most reasonable companies in these types of markets now earn somewhere in the minimum of a low 20s EBITDA margin level. Mathematically, based on our guidance and the financial impact of the deconsolidation of IV Solutions JV fully in Q3 of 2025, we should be in the 20-ish range then. We’re focused on the drivers that sustain and improve this level over time. Revenue growth combined with our ability to raise our gross margins is the biggest driver to improving earnings. Profitability and parts of this industry have been obviously impacted by currency and by the lag between inflation and pricing, and we’ve worked hard since being stable on pricing. Operationally, we’ve been very focused on improvement opportunities in gross margins that are directly under our control. These are the items I described a moment ago as important work in 2024 and there is no magic here. These are the basic blocking and tackling consolidating our production network, physical logistics, real estate and IT systems. Many programs are in flight with the goal of completing the most valuable items by the end of 2025. Simply said, have fewer sites, have them in the right place and have them full. Progressing some of these earlier helped our overachievement relative to our expectations for 2024, will help drive our earnings step up in 2025, and offer sustained value when fully in the run rate on an annual basis. Given what we’ve been through since the acquisition, not willing to commit to a certain number by a certain date, but everything that has a reasonable payback is moving forward. These activities and the work to remediate the products and quality system have consumed cash, and we know we need to improve free cash flow by bringing these levels -- these activities to lower levels. While interest expense is largely out of our control, we do believe interest costs will eventually come down. As Brian mentioned, we expect net debt to be approximately $1 billion at the end of 2025 based on the Otsuka JV proceeds and our expected debt pay down. We continue to have additional optionality on the other pieces of the portfolio if the right valuating -- value-creating situation was to arise and believe our need for M&A capital is limited given organic innovation and investing a bit more in R&D. And ultimately, if earnings can continue to grow with a better interest rate environment and lower leverage ratio, perhaps we can think about other ways to return capital to shareholders over time, which is our ultimate goal. Again, all this has to happen, but it’s certainly not out of the range of potential outcomes. To be direct on our goals for the next year or two, we want our Consumables and Systems business to be reliable growers with an industry acceptable profit margin with the tightest and most optimized manufacturing network in each with a multiyear innovation portfolio. And we want the rest of the portfolio to add up to a level where we deliver an acceptable profit margin that ultimately allows us to transfer value from debt to equity. There’s no confusion 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 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. Thank you to all our team members and our customers as we improve each day. With that, we’ll open it up for questions.

[Operator Instructions] And we’ll take our first question from Jayson Bedford with Raymond James. Your line is open.

Good afternoon, guys. Thanks for all the detail. I think you’ve made my head spin a little faster now. So I guess a few questions, and I apologize if I’m jumping around here, but Consumables stood out as a driver here. Nice comp adjusted reacceleration in Consumables in the fourth quarter. You mentioned legacy IV therapy, faster access, but is there anything else that’s driving that? Was price a major component just because the growth did stand out?

Thanks, Jayson. It’s nice to hear from you. I don’t think there was anything we didn’t mention in the script there. It was a combination of everything. It was new installs. It was global growth. It was price. It’s all the little things in each spot finally and it’s been like that for a number of quarters in a row. So it feels good there and everything’s working production operationally quite well.

Okay. Is it possible to level set us on what your EBITDA margin was ex Solutions in 2024? I’ve got an estimate, but it felt like the contribution -- the EBITDA contribution from IV Solutions is a little higher in the fourth quarter, but I’m just wondering, you talked about that 20%. What was the baseline here that we should work off of in 2024?

Jayson, I don’t think we’ve disclosed, nor actually have we sort of gone back and done a complete carve-out on the IV Solutions for the 2024 period around the EBITDA impact, but I don’t think it would be EBITDA excluding IV Solutions. I don’t -- it wouldn’t be materially different than what we’ve reported in total for the company.

I mean, Jayson, you can do what we announced, $370 million over the revenues of $335 million and use the same assumptions that Brian’s laying out in the chart for IV Solutions. That would give you a proxy.

Right. Okay. Okay. And just on IV Solutions, how much of the $350 million in 2025 are you going to recognize in the first half of the year?

It’s slowing. If the question is, if that question really means, hey, is it still hot in the market? It is cooling off. And so I don’t know that there’s a disproportionate share. I think it’s a very safe assumption, $55 million, $45 million in the front half or something like that would be safe. I’m not sure we even know that level of precision, but it’s much more about what’s the exact closing day in Q2 and then we give the exact answer and how many months it’s in the P&L. The deconsolidation is all those words Brian had to go through. It was saying it’s in the P&L for part of the year.

Right. Okay. Okay. And then just maybe last one and I’ll let others get in queue. Brian, I think when you refer to kind of Plum Duo implementations with respect to the growth and Infusion Systems, I think you referred to second half of the year, products been out there for, I guess, a year now. Why wouldn’t you see some impact in the first half? Thanks.

I think we will see some impact in the first half. It’s just going to be more pronounced in the second half. So, it’s a more material driver to the growth rate in the second half of the year than the first.

Okay.

Just because the product will have been out there longer, obviously, by the time we get to the second half of the year.

Okay. Thank you.

Thanks, Jayson.

We’ll move next to Brett Fishbin with KeyBanc Capital Markets. Your line is open.

Hey, guys. Thank you very much for taking the questions. I’ll just ask a follow-up, actually, on the last question and really wanted just, was wondering if you could talk a little bit more about the capital equipment demand environment that you saw in 4Q and into 2025. I think you used the word normal, but yeah, just wondering like, really like how you’re feeling about also the rate of competitive wins you’re seeing with Plum Duo and then how you’re thinking about potential market share as the year progresses?

Yeah. Hi, Brett. It’s hard to kind of unpack what the truth is because everybody if you look across the pump landscape, everybody’s winning. I think we’re very focused on the net difference in what we want. The only way we believe we create material value and PV is really with competitive wins and we try to focus on what’s the net competitive wins of anything. We hope we don’t, but occasionally you do lose something. We feel like we’ve signed up a real amount of market share over the last year and upcoming, and it’ll take some time to install it. I don’t think our installation was anything above a point last year, right? Probably somewhere between 75 bps and a point. But I think we are holding more stuff we’ve signed and we need to get installed to the point Brian was making. In terms of the environment, I think if people, the same words we’ve used on the script for four quarters, right? Things that need to get done are getting done. People have capital to make the choice in some cases are forced to make the choice. So while it is a, is a real capital outlay, it’s certainly not as big as other equipment purchases or it’s certainly not it purchases people make and so transactions are moving forward.

All right. Super helpful. And then just one other question on Consumables. I think you mentioned kind of like a mid-single-digit baseline growth expectation for next year. So thinking about some of the pricing benefits with the GPO contract, as well as the benefit of placing more of these pumps. Do you think that there could be upside to that number? If some of the that you saw really much of much of 2024 continues?

I think it’s a very fair question, Brett, and obviously, the data speaks for it’s the performance of those product lines around the core Infusion, Consumables and Onco products is self-evident. I think what we put people through, we don’t want to set any irrational expectations and there’s been a number of quarters it’s worked well now. It’s not really, I mean, the pricing is nice and the GPO stuff is relevant. It’s also in every little corner of the planet and it’s all these niche markets we try to create. So it’s making sure all the, to the earlier question, all those things are happening at the same time. It’s not as simple as just saying, saying, price in the -- in under a certain set of contracts.

All right. Thanks again. Appreciate it.

Thanks Brett.

We’ll move next to Larry Solow with CJS Securities. Your line is open.

Hi. It’s actually Charlie Strauzer for Larry. How are you?

Hi, Charlie.

Can we talk a little bit about the balance sheet and performance leverage after the partial sale of Solutions in mid-2025, it’s probably going to be in the low 3s of equity or kind of target optimal level for a ratio there?

Charlie, I’m going to flip that one to Brian.

Yeah. I think we’ve always said kind of for a company of our size and operating in our industry, we would feel comfortable with a leverage ratio on a net leverage ratio somewhere around 2 times. And obviously, since the, since the acquisition, we’ve been well into the 3s. The -- we will see a little bit of deleveraging as we close the JV transaction and use the proceeds to pay it out debt, probably, get at least 0.3 times reduction in leverage as a result of that.

I mean, I think, Charlie, you can do the math, right? If we were saying it’s a $1 billion net at the end of the year, even if you took this year’s guidance and applied it to where that you can impute what next year’s and we would have to -- we have -- the first term loan comes current at some point next year, you can impute what kind of leverage ratio that would apply. And the company should have some debt on it. The way we ran with all cash and no debt for years made no sense. Obviously the cost of capital change dramatically. There should be some, we just don’t think it’s much above 2 times and then we can decide what to do with the rest of the capital if we have that kind of luxury.

Yeah. That makes sense. And looking at the -- is there a ability for maybe additional asset sales potentially?

It takes 2 to tango. I think, again, if it’s pretty, we made a very important portfolio optimization decision on this Solutions JV, it’s going to be great for customers. There are a few things that we either got to figure out how to be more relevant in or do something else. And I think it’s the same story we’ve said in the last couple of calls, just to make sure they’re growing predictably and have a clean quality bill of health before we can explore things. But I -- if the right situation was there, we would do it. That can obviously also change that math of what kind of ratio you get to 1, so it’s not lost on us. It’s a good question too.

Got it. Thank you very much on that. And then, just one last question for me, looking at the consolidation of the facilities process underway, how much of that improvement is incorporated into your outlook and how much incremental benefit in 2026 and beyond could we possibly see?

I mean, I think when we went in the darkest days, like six quarters ago, five quarters ago, when gross margins hit 36%, we said our goal was to be at pre-JV, all this stuff. Our goal was to be a 40% gross margins and the plant consolidations are key. And the logistics consolidations are a key portion of that. With the guidance this year, we’re not exactly halfway there, but we’re pretty close. And then, it depends where we at this year and what, what comes in next year, but all those things are in light. I don’t think anything’s different than the goal we laid out before and then the 5 points ultimately that come from the JV long-term are on top of that.

Great. Thank you very much.

Thanks, Charlie.

We’ll move next to Michael Toomey with Jefferies. Your line is open.

Great. Hey, guys. Congrats on the results and thanks for the color on the JV as well. That’s super useful. Just on the tariff, I know you said that the guidance excludes the tariff impact and you mentioned some mitigating factors. Could you just run us through the reason maybe for excluding the impacts? I guess that’s just because it is changing every week, but on the mitigating factors as well. Could you just dig into the details on some of those, like how much capacity you have at the facility in Costa Rica? What actions can you kind of take immediately in terms of maybe moving inventory north of the border and anything you can do on price or is that going to have a lagged effect there? Just any color that would be super useful?

I mean, I think the nature of our industry is that price is the long pole in the tent item, right? Given contracts, et cetera. So not, not every piece of business is on contracts. So I wouldn’t want to say that universally. I think as it relates to the first part of your question in Costa Rica, Costa Rica is a large site. We bought a hospital site years ago that ran at much, much higher volumes than we run at today. And we’ve synergized that by moving products that pumps and other things from Smith’s that came into that site. We continue to have the ability to do that. It takes time. And is it a worthwhile, we’re burning a lot of calories on these items right now, a lot of calories. And as Brian tried to say before one puts up capital and kind of goes all the way, you’d like to have some certainty of how long this is going to be and is there any payback? And so I, you could hear it in my voice kind of how we all feel about this stuff. We have the -- we have capacity. It would take a while to do it. We could do it. As it relates to moving stuff North of the border. Yes, we do have some flexibility, but that also consumes capital and so capital has been at a premium around here. We’ve been trying to reduce inventory, not increase. And then there’s another question of flows through the U.S. or so U.S. we can set up a logistics network that’s for East. We have a very global business. And in some of these categories, things that go outside the U.S. go straight from where they’re produced, less capital intensive, but still a reasonable amount of work to set that up and so we’ve been going on that. I think those are really the big levers. I’ve certainly listened to what every other industry participant has said, and we’re probably going to play it right down the middle and say, we’ll be more specific when there are more specifics provided to us, but we are inserting energy on this right now.

Okay. That’s great. And then on the post-JV numbers you provided, I know you said that’s kind of a half year impact. So I guess it’s -- you have another leg to that in 2026, right? You talked about the 300 bps, 400 bps on the gross margin. What’s in the presentation to 200 bps this year. So that’s assumed by it’d be another 200 bps the following year and you get those same benefits?

Exactly. Whatever we don’t get this year, we’ll get next year. And it’ll add -- it’ll be something between 3 percentage points to 4 percentage points, again, with an additional 1 percentage point to 2 percentage points to come longer term.

I mean, again, Mike, just to make the math simple, if you hypothetically assumed it closed one-third of the way through this year, you multiply two-thirds times, 3, right or two-thirds times 4.

Okay. And then just excluding the JV, anything on the phasing of the margin expansion throughout 2025?

I would say nothing worth noting probably just excluding -- yeah, excluding the impact of the JV. Any other margin expansion would probably be fairly gradual throughout the year.

Okay. All right. Great. Thanks guys. Congrats again.

Thank you, Mike.

We’ll take our next question from Mike Matson with Needham. Your line is open.

Hey. Thanks for taking our questions. This is Joseph on for Mike. Maybe just looking at the guidance that you guys gave, mid-single digits in Consumables. I was just wondering if you could maybe dissect that a little bit. Oncology, Vascular Access seems to be like some big growers having record quarters, you guys called out. Yeah, I was just wondering if you could dissect some of the components of that.

Vivek?

Yeah. I think, here in Q4, the biggest contributors were, well, we would consider to be probably the legacy ICU product lines of core Infusion and Oncology. And I think as you look to 2025 guidance, we expect all four product lines to contribute certainly to the growth, but perhaps, we feel most confident in those legacy ICU lines as making sure we’re at least mid-single-digit…

The majority of the segment.

Yes. The majority of the Consumable stack.

Okay. Thanks. It’s helpful. And then I guess, Vivek, maybe looking at, you had this $500 million EBITDA goal you guys had talked about. Obviously EBITDA in the margin in the low 20s gets you well on your way there. But I guess just, looking forward, can you maybe talk about the drivers that, that get you there? I know you probably wouldn’t put a timing on it, but if there’s anything rough that you can really talk about 2027, 2028, longer than that, that’d be helpful?

Sure. I mean, that is when we get up and you look in the mirror of the things we said, that is exactly what we said. And so you have a good memory on the transaction, even though you weren’t here then. I think the biggest drivers to make that happen first, you have to have sustained revenue growth, which is why we’re saying that you only have that with innovation. And you can’t -- you have to innovate in these. It’s interesting you look at what’s going on in the industry and all the participants and every rearranging assets and all the other things that are going on. I mean, fundamentally you have to add more value to your product life and customer and we feel like we’re doing that in our core businesses. And then it’s about gross margins where the biggest components are price, which we’ve talked a lot about, and then, synergizing assets that we acquired. And that’s about production, logistics, IT, functional costs, et cetera, to be more competitive. And I think there’s -- it is a lot of value at stake and then you need a little bit of tailwind for some of these items that really gobbled a lot of earnings along the way, like currency, the yen, the euro to break in the right direction. That took a lot of earnings over the last few years. And so I think those are the three, currency doesn’t matter if you don’t have revenue growth and you’re not making your assets as competitive as possible. But if all three broke in the right way, that goes a long way to getting there and to be at the levels we expected to be, right? We lost time.

Sure. Sure. That makes perfect sense. Well, hopefully the wind is at your back moving forward then. Thank you.

The first two pieces were on. So we appreciate it very much.

This does conclude the Q&A portion of the call. I’ll now turn it back to Vivek Jain for any additional or closing remarks.

Thanks everyone. Sorry, the call was late after the quarter and a lot of things going on and standing up to JV, et cetera. We appreciate everybody’s interest in ICU Medical. We feel optimistic about what 2025 will bring for us and we look forward to you very quickly on our Q1 call.