John Mills - Partner, ICR, IR Vivek Jain - Chairman and CEO Scott Lamb - Chief Financial Officer.

Tom Gunderson - Piper Jaffray Larry Solow - CJS Securities Jayson Bedford - Raymond James Chris Lewis - ROTH Capital Partners Mitra Ramgopal - Sidoti.

Good day, ladies and gentlemen. And welcome to the ICU Medical Inc. Q4 2014 Earnings Conference Call. At this time, all 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 is being recorded.

I would now like to introduce your host for today’s conference, Mr. John Mills, Partner at ICR. Sir, you may begin..

Great. Good afternoon, everyone. Thank you for joining us today to the ICU Medical's financial results for the fourth quarter ended December 31, 2014. 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 fourth quarter results and then Scott will discuss fourth quarter financial performance in more detail, and provide financial guidance for the first quarter and full year of 2015. Finally, the company will open the call for your questions.

Before we start, 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 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 have a direct bearing on operating results and financial position. Please note during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis.

We believe these adjusted financial measures can facilitate a more complete analysis, and greater transparency into ICU’s ongoing results of operations, particularly when comparing underlying results from period-to-period.

We have included reconciliations of these non-GAAP measures with today's release, and have provided as much detail as possible on any addendums that are added back. With that said, I'll now turn the call over to Vivek Jain. Please go ahead, Vivek..

Thanks John. Good afternoon, everybody. We are glad to be doing this call today, after the exciting news around our OEM partner last week and with the full year under our belts of improving ICU Medical. We have previously talked about our fourth quarter results resembling our third quarter results, our actuals came in slightly above those expectations.

We generated strong cash flow and adjusted EBITDA, and the basic improvements we have made to our operation in the second and third quarter’s has started to become more visible. We finished the full fiscal year 2014 with $309 million in revenues and $74 million in adjusted EBITDA approximately.

In the fourth quarter, we have roughly $80 million of revenues and $22 million of adjusted EBITDA, driven by the same trends that we had during all of last year. We had consistent performance in all of our direct lines of business and as expected that growth was offset by decline in our OEM results.

Specifically, our direct operations in Q4 had almost 8% growth and the decline of our OEM business was a lowest of any quarter last year at 6%. For the full year, our direct business grew approximately 5% and our OEM business declined 11%.

Those results were in line with previous comments as we expected to show some positive growth as we lapped the transition period from the end of fiscal year ’13. On our previous call, we expect our OEM customer to finish the year at approximately $108 million and they finished roughly at $110 million.

Scott will go through these specifics by market segment momentarily. I’ve said in every call since I have been here that ICU is a company that is big enough to be big and small enough to be small, where the income statement can be influenced quickly.

I think the earnings leverage and cash flow generation power we have with just a little more revenues and being predictable and managing ourselves was illustrated in Q4.

We've already disclosed at a high level how we see 2015 unfolding, but I first wanted to go through an update on where we are in the overall plans and scenarios we have laid on the last few calls, a few comments on the acquisition of our OEM customer by Pfizer and then how those pieces come together to shape growth for the medium-term and then turn to the specifics for the short-term of fiscal year ’15.

We enter 2015 with our three core value drivers intact, our manufacturing scale and the category and ability to improve gross margins even with volatile volume, the sticky nature of our products as shown in the sequential quarters on our direct business and our cash generating abilities.

All last year we were talking about the bookends of two alternative scenarios. They were framed as in the best case, improving execution to affect topline performance, driving operational improvements, responsibly deploying capital and perhaps, returning capital to the extent that make sense.

In the worst case, it meant continuing to fight headwinds on the topline, but still driving operational improvements to create value. The items we most directly control are execution around our commercial operations and operational improvements leading to margin expansion that we have split our energy equally around those two topics.

Improving our direct commercial operation is about two things, better sales and marketing execution and the successful launches of new products. Continuing from the last call, we've been focused on getting the right people in the right seats with clear authority and discipline around targeting.

We have pulled the resources from less value creating markets or products whose channels could be managed more centrally. We've reallocated those resources to filling international roles and candidly trying to upgrade the level of talent across the company.

One quarter does not make a long-term trend but we saw some encouraging signs in the fourth quarter and are deeply focused on continued improvements throughout our company. This work was not finished in the fourth quarter and is not done yet. We probably had more sales and marketing cost favorability than we wanted in the fourth quarter.

While we have removed a lot of expense, we did not get all the reinvestments done as they take longer, particular in international where it just takes more time. We’re probably 75% of the way there across all geographies but we still have a number of positions to fill. So please don’t take the fourth quarter SG&A level as our permanent run rate.

We do need to invest for consistent growth and we will make those investments. The second piece of improving direct commercial execution is new products. We’ve relaunched our products of ChemoLock and Diana Automated compound system.

We’ll only talk about these products in the future when we have a material amount of sales but it is important to note that new products are starting to come into the mix for medium-term growth.

At the same time, we’ve been working hard to retool our core sales and marketing programs, customer targeting, incentive plan which are all part of good sales and marketing execution.

In the short-term, which is fiscal year 2015 to us, as a result of these changes, we expect to see aggregate positive revenue growth based on our assumptions of our OEM business holding intact to our previous guidance. It has to be our revenue growth over the medium and long-term for small companies like us.

The other item, we control is improving our operations for margin expansion. On the last call, we talked about most of this work having been identified and deployed for realization in 2015. This was important to get through to accept reality of what was going on with our OEM partner.

As I reflect in the full year here now, there's no need to run through a lift but I think we made the necessary choices to accept reality and create space to invest for the future. I think basically all the renovation work around legacy items and issues should be cleaned up by the end of the first quarter.

The continuing investments will be around ensuring the best quality and operational infrastructure that can handle growth. The next part of the plan was capital deployment. As you'll see from our Q4 financials, we did have some non-recurring expense related to evaluating a potential transaction.

We had a number of items going away from us in this situation including currency and really our ability to extract value for our shareholders as it was a pretty well-run operation.

We’re being transparent here first to acknowledge what is in our non-recurring charges and secondly to note while nothing is imminent, just to mark that additional SG&A cost could be needed for this type of work in the future. Okay.

It’s good that these items such as improving our cost structure and achieving growth in our direct business are moving in the right direction. But they have to be taken in context with the whole picture of what is going on with our OEM business. We want to congratulate our OEM partner on their announced transactions with Pfizer.

It's great to see that kind of value created where our products could be a small piece of the puzzle. We look forward to serving Pfizer with the best innovation and the best quality products in the category. It's been a terrific 17-year run from Abbott to Hospira and we believe it will continue with Pfizer.

We received a number of calls last week on this and what it means for ICU. I’ll try to go through some of them here in my preempts on the Q&A but we can come back to it if necessary. First, our contract with our OEM partner survives the change like this and passes to the new company.

As you can find in our public filings, our contract continues through the end of 2018 or almost four more years. We are not rushing to judgment on what this means for us. Since our Q3 call, a number of positive development had happened for our OEM partner that allowed them to reenter the U.S.

infusion pump market business and we are downstream of that business. Those facts continue regardless of this transaction. We've been asked on our view of Pfizer’s long-term commitment to the infusion business. We genuinely believe their comments on their commitment to the business shared on their investor call.

And we were delighted to hear their description of the due diligence findings and positive outlook. Going a little deeper when we look at the world of generic injectables, it appears to us that two of the top three players carrying infusion pump offering alongside their drug portfolio.

There are numerous examples of large companies succeeding in both drugs and devices. And I don't think the CEO there make any casual comments. So until we hear otherwise, we believe they're committed and we are happy to be aligned with the world's number one player. We’ll make sure we keep thinking about it from all angles.

We would not expect to see any positive impact from either the market reentry or the transaction until the medium-term for us which is 2016 and 2017.

We think the combination of the known, which for us are the items we just covered are renovated sales force with a full year in seat, the consistent growth of our direct infusion products, 12 months of experience with our newer products into the market, a more appropriate cost structure and another 12 months to accumulate and potentially deploy capital plus the unknown, which is the optionality of soon to be partner and the market reentry of our current OEM partner could set up an attractive medium-term scenario for ICU.

That’s how we’re our thinking about the future. For the short-term of fiscal year ‘15 we've already disclosed in our Q3 call our goal of achieving $85 million of adjusted EBITDA this year. As a reminder, $85 million in adjusted EBITDA is basically equal to the peak levels ever at this company, which was when our OEM partner was $132 million in 2012.

From a revenue perspective, we believe our direct business in 2015 can grow 4% to 8% with the midpoint being just slightly higher than the 5% we achieved in 2014. Scott will go through the breakdown by market segment.

As a reminder, we’ll only give market segment guidance annually and update if there's a material departure as we saw with Oncology last year. As originally mentioned on the Q3 call, we continue to believe that our OEM business would be down potentially at least another 5% to 10% while a number of positive things have happened with our pump business.

We continue to believe there's a lag in feeling the downstream effects. Just like there was a lag a few years ago, if there are positive effects, it will take time to realize them and there's always the potential for a little bit of bumpiness with any large corporate transaction going on. The macro situation around Infusion Therapy in the U.S.

is the best it's been in a while. But we have to be careful around the micro effects to ICU.

So if we add those numbers together at the midpoint of each range 6% in our direct business and down about 7.5% on our OEM business, it would put 2015 revenues roughly at $315 million and adjusted EBITDA goal of $85 million with reduced CapEx deliver solid growth in value creation and it allows the necessary investments to set up the medium-term for 2016 and beyond.

Now with that said right now, we do think our year were build a little differently than last year. Given reentry to the market of our OEM partner, we currently expect the earlier part of this year to have better year-over-year results in the back half of the year for our OEM revenue line as inventory gets built backup in this channel.

As a result, we would expect our quarters to be more balanced throughout this year as compared to last year. From where we sit right now, we would expect Q1 revenues to be closer to Q3 revenues of last year than it was to Q1 revenues of last year. Hopefully, that gives additional color on how the P&L builds for 2015.

As I said from the first call when I got here, the team is deeply focused on true free cash generation coming out of the business and all the other comments made in our Q3 calls worldwide. We have a real value creating scenario with the improving cash flow in 2015 and the medium-term opportunity in 2016 and beyond.

I do think we are an interesting size company that can strategically move in a number of direction and one of the limited number of smaller MedTech companies that compete globally.

The strategic issue of having a single customer exposure of our size, even though there could be at a 10-year low in terms of percentage of overall business is an important issue to address over time, which I consider the medium-term. Things are moving fast.

We're trying to improve the company with urgency but I wanted to remind everyone as I’ve said on previous calls that there are still core areas we need to solidify with investments in one-time costs into qualities, certain technical competencies and a little bit of infrastructure we have to deploy capital.

We need to keep working in those areas and they are not ultimate satisfaction yet. I do feel the company is healthier and hungrier than we’ve been in many years. We are trying to take responsible action to break some of the inertia that many of the companies in our position face.

We may hit some bumps, as we take on some of these actions and we will overcome them and emerge stronger. I really appreciate the effort of all ICU employees to adapt, move forward and focus on improving results and our company appreciates the support we received from both our customers and our shareholders. With that, I will turn it over to Scott..

Thanks, Vivek. Before I begin, I'll remind all of you that the sales numbers we're covering as well as our financial statements and the reconciliation from our GAAP to adjusted EBITDA and adjusted EPS are available on the investor portion of our website for your review.

As we mentioned on our last call, we will continue to report adjusted earnings per share and adjusted EBITDA in order to provide a better and more consistent view of our earnings. We will continue to provide as much detail as possible on any adjustments.

Those key adjustments we're talking about include items, such as stock compensation expense, restructuring and transaction-related costs.

So now onto reporting our Q4 results, as Vivek already mentioned on our fourth quarter results, slightly exceeded our expectations above Q4, resembling Q3 and were driven primarily by performance in our global direct sales. Total revenues increased 3% to $80 million in the fourth quarter, compared to $78 million in the fourth quarter of 2013.

GAAP net income for the fourth quarter was $7 million or $0.46 per diluted share as compared to GAAP net income of $13 million, or $0.86 per diluted share last year. Adjusted diluted earnings per share for the fourth quarter were $0.68, compared to $0.94 last year.

The decrease in adjusted EPS was primarily due to increased R&D expenses and higher tax expenses. Fourth quarter adjusted EBITDA increased 9% to $22 million, compared to $20 million last year. This increase was primarily due to higher revenue and lower sales and marketing expenses. 2014 revenue was $309 million, compared to $314 million last year.

GAAP net income for 2014 was $26 million or $1.68 per diluted share, compared to GAAP net income of $40 million or $2.65 per diluted share for 2013. Adjusted diluted earnings per share for 2014 was $2.38 as compared to $3.06 for 2013.

For the year, adjusted EBITDA was $74 million as compared to $79 million for 2013 and again was due primarily to an increase in R&D costs, as well as lower revenue. Now, let me discuss our fourth quarter revenue performance by market segment and you can also view our detailed market segments in our earnings press release.

For the fourth quarter, sales in Infusion Therapy increased 4% to $56 million and represented 71% of our total sales. Direct infusion therapy sales increased to $32 million or 9%, while global OEM Infusion Therapy sales were down 1%. Sales in Oncology decreased 6% to $9 million and represented 12% of revenue.

An increase in our global direct oncology sales of 17% was offset by a 38% decrease in our OEM oncology sales. Our global direct sales increased all four quarters over last year, which demonstrates the continued growth opportunity in this segment. Our sales in Critical Care increased 4% to $14 million and represented 17% of our sales.

Our fourth quarter sales for domestic and international were as follows. Domestic sales were up 2% to $55 million for the fourth quarter, compared to $54 million for the same period last year, as a 10% increase in direct sales was offset by an 8% decrease in OEM sales.

And international sales were up 4% to $25 million on both stronger direct and OEM infusion sales. Our gross margin for the fourth quarter was 49.7%, compared to 50% last year as improvements in logistic spend were offset by product mix.

SG&A expenses decreased 7%, primarily due to lower sales and marketing costs, partially offset by higher non-cash stock incentive compensation costs. During this quarter, we began to see a reduction in our sales and marketing costs due to the restructuring we implemented in august.

We have some additional restructuring costs, as well as approximately $1.6 million in strategic transaction costs. Those costs were related to the acquisition opportunity Vivek already spoke about.

Our research and development expenses increased 47% year-over-year to $5 million, as we continue to invest in organic growth opportunities in all of our primary markets and in particular, Critical Care. Now, moving to our balance sheet and cash flow, as of the end of December, our balance sheet remained very strong with no debt.

We generated $61 million of operating cash flow during the year and increase our cash, cash equivalents and investment securities to $347 million. This equates to approximately $22 per outstanding share. So for 2015, our annual expectations are as follow. For the year, we expect revenue to be in the range of $312 million to $317 million.

We expect our direct business to increase 4% to 8% and OEM to decrease 5% to 10%. By business segment, we expect Infusion Therapy to increase approximately 1% to 2%, with OEM down again this year as we've already discussed.

Oncology overall to increase at least 10%, as we expect our OEM business to eventually work through increased inventory levels by the second half of this year and Critical Care to grow 0% to 2%.

We expect GAAP diluted earnings to be in the range of $2.15 to $2.25, and our adjusted diluted earnings per share for 2015 to be in the range of $2.70 to $2.80. We expect our adjusted EBITDA for the full year to be in the range of $84 million to $86 million, increasing approximately 15% year-over-year.

And to remind you, you can find a reconciliation of these metrics in our press release and on our website. As Vivek mentioned, we expect first quarter revenues to be similar to our third quarter results.

Our fourth quarter SG&A expenses were missing some costs, as we have a number of unfulfilled -- unfilled positions in our sales force and we need to add a few positions to our corporate structure. We expect our quarters to be more balanced this year as our OEM business may have a little bit of build in the first half of the year for market re-entry.

We expect our full year gross margins to be approximately 49% to 50%. We will update you on our SG&A after Q1 when we have a better view on the costs that are actually added back.

We also expect research and development spend to decrease in the second half as we wind up our increased investments in critical care while continuing to invest in new products for all our market segments. And for modeling purposes, we expect our tax rate to be approximately 34%.

In addition, we expect our CapEx spend to be less than 2014 with free cash flow being greater than $50 million. And while all this helps drive a better 2015, it’s really about setting us up for an even better 2016 and beyond. And so with that, I would like to turn the call over to your questions..

[Operator Instructions] And our first question comes from the line of Tom Gunderson with Piper Jaffray. Your line is open.

Hi. Good afternoon, guys..

Hi, Tom..

So just before I get to the actual questions I just want to make sure I’ve got this right or confirmed. If we take the midpoint, I think you said Vivek $315. You can go from $309 million this year to $315 million in revenue in 2015, despite maybe $10 million, much as a $10 million reduction in OEM.

Is that a way to look at it?.

Yes. What we tried to book in there was at the middle of the range, plus or minus $1 million would be around $315 million. If we were up $6 million in our direct business, they were down $7.5 million. Just like we said in the last call that they were at the higher end of that, we wouldn’t get all the way there unless we outperform our direct business..

Got it. Okay.

And then for a little bit more detail, could you talk a little bit more about the international opportunity and how you continue to see that? If you are going to be investing more, I understand you have open territories in the U.S., but if you are going to be investing more O-U.S., is that something we see in the front half of 2015, back half or steady through the year?.

I think it’s going to be steady through the year. It might be a little light. Even in today they kind of get the right infrastructure in some of these countries and some of the stuff we need to do from a setup perspective, it just takes time. And we’ve got to be committed to doing it, but it’s taking a little bit longer than we would like.

To that extent, it may not come into the fall until Q2, Q3, or something like that. That’s why we are taking so much caution to market. It’s not there yet, but we know it’s the right thing to do and it’s going to be coming..

Got it. And then sort of the corollary on that U.S.

market, you do have you said open territory so you did at the end of quarter, do you expect those to be filled now or within the or in Q1?.

I think from where we sit today, the vast majority are filled today. So there is very little, it’s still a little bit open, but it’s the minority in the U.S. We’ve got through a lot of that and we’ve got through it in late December, mid December, late December, January, but it just wasn’t all in the fourth quarter run rate..

Got it. And then my last quarter is, can you reflect a little bit on the year on the U.S. sales force reorg and how you think that’s settled in? And now that those positions are filled, is it….

I think it’s a long road as we talked about in the previous call. I feel like we’ve got good people. We are investing in training them and making them as effective as they can. I don’t think growth was pretty attractive on a direct basis in the fourth quarter. I don’t think it’s attributable necessarily to some change that we made.

I think it’s helpful that we got deeper and we have more focus on existing customers. I think with that, plus some natural market growth that we saw because we didn’t see big pieces of business shift in the market for the time being. So for me, there is still time to go on showing that that is all working the way we want..

Got it. That’s it. Thank you..

Thanks, Tom..

Thank you. And our next question comes from the line of Larry Solow from CJS Securities. Your line is open..

Great. Thanks. Just couple quickies. Just on the Hospira approval of the pump, it seems like this and the return to market, it seemed like it did occur a little faster than expected and I fully gather the lag impact.

Is it possible that they build inventories a little bit in the first half and then these pumps actually start contributing positively, and perhaps you do a better than the forecasted 5% to 10% decline in overall?.

I think the lag effect is real. I don’t think we are trying to play have a different view around that or something. And so it takes time from the time somebody wins a conversion and gets a product implemented and trained, etcetera into a hospital..

Right..

That process, it can take a long time. And so I think it’s best for us not to presume something is going to happen there. And if that, we are trying to take the additional step, because it’s what we believe right now that there would likely be a little bit of inventory build in the front half of this year.

We want obviously our partners to be fully armed to go get business and we are going to participate in that, but we still need to be cautious about what happens later in the year because of its life time, that’s how we are trying to set it up..

Got it. And then just oncology, just in terms of your -- the forecast for next year I guess 10% or maybe possibly little -- at least 10%, that does include I guess some further inventory draw downs or at least early in the year.

So how do you view sort of long-term growth potential, do you think it’s greater than the 10%?.

I would just say in the fourth quarter, our oncology direct business grew 15%, right. And until this transition period of kind of Doug talking about the company went through in '13, oncology whether it’s direct or OEM was growing at those kind of rates too.

I don’t think we have perfect visibility into whether fully pleads out in Q1 or Q2 of this year. We are saying back half. If we look at what happened in Q4, while we were up 15%, our OEM oncology business was down 37%, that’s a bigger number..

Right..

So when the stuff starts to normalize, I think the trends out there that we see with the positive momentum from guidance and awareness and our own education of the market, I think we feel like it’s a double-digit growth market.

I don’t think we are smart enough to know whether it’s 10, 11, 12, 13, or whatever the number is, I think the right thing to say is that the inventory bleed will come out and it will be double-digits..

And in terms of critical care, somewhat less to discuss often, but obviously you’ve put a lot of money. And I guess these were some finishing up some development in R&D. It seems like you’ve accelerated that a little bit in '14.

Without talking specifically about products I guess until they are launched, when might we start seeing some of these and if you view critical care as a potential positive contributor on the revenue side maybe as akin to '16?.

I think right now job number one over the last four quarters was to try to stabilize what was going on in Critical Care..

Right..

Right. It was a difficult situation from an ICU purchase that business in the plan, I mean, the business is declined 30%, right. That’s a really tough thing for company, small companies to endure.

So job number one is being to try to just stabilize, job number two is try to make it at a profitability level, that’s acceptable to us, that will naturally start to happen as R&D comes out of the business. I’m not sure, we’re going to sit around for the balance of this year and talk about its growth contribution for this year..

Right..

I do think at some point when I use to look in the mirror and say, we’ve contributed a lot of capital to the R&D programs, how we going to recoup that but it’s probably too early for us to make a statement on that, right. I thought like I got here so far down the road of those programs we had to get them finish..

Absolutely. Okay. And then just last, I think on your last call you sort of used the $15 million of an approximate savings in ‘15 over ‘14.

Is that still a good number to use?.

I think we had two different buckets. We had one bucket which was in aggregate, your answer is largely correct. We got a big portion of the sales and marketing savings in ‘14 already, so they're not going to all materialize in ‘15. We only get the residual on that..

Right..

They would call and get roughly half with $10 million sales and marketing in ‘14 and then there will be some R&D reduction towards the back half of this year. The point we're just trying to make on SG&A was if you really look at cash expenses, obviously, SG&A is influenced by the stock-based comp.

Cash expenses were down more than the $10 million we talked about. We need to earmark some of that money for investment and that's why we spend a little bit of time on the script they are going through, the add backs you need to do..

Got you. Okay. Great. Thanks..

Thank you. And our next question comes from the line of Jayson Bedford with Raymond James. Your line is open..

Good afternoon and thanks for taking the questions. Just so I understand the Oncology dynamic and the slowdown in ‘14. It seems to be a little bit more on the OEM side and I think you kind of infer there was some destocking or inventory draw down here in ‘14, which will reverse in the first half of ‘15.

But end market growth rates are still tracking double-digits.

Is it a little straight comment?.

Yeah. Again, I don’t think we know it with total transparency, Jayson. What we do know is that our direct business grew on the order 15% for the year, right. And that our OEM business shrunk by more than 15% for the year. And for our category that’s being created that feels like too big of a disconnect.

I think there was a lot of things going on when their products really started to get launched in a material way and there was probably too much inventory put in the channel.

And the way we valid that is the sales tracing we’re seeing on an OEM basis don't resemble -- meeting what actually sold to an end customer, don't resemble what's going out the door.

But we don't know exactly when that trues up and so we’re trying to be caution say of how we control our direct seems to be working but we just kind of do some back in the envelope math, it looks like another quarter or two, which will be bleeding out. And we’ll see the uptick and throughput.

But again, we don't see it 90 days even a 180 days perfect and disciplined..

Okay.

So you see continued inventory, lower levels of inventory in the first and second quarter from your OEM partner on Oncology?.

Excuse me. I should have been more clear. We may not see it for enough -- for the first or second quarter, our OEM partner will likely continue to grow at a slower growth rate or potentially, even at negative growth rate relative to what we’re seeing in our own business..

Okay. Okay. Fair enough.

And then just in terms of -- just speaking on Oncology and some of the legislative initiatives that are out there, anything that we should look to over ‘15 as a potential accelerator of Oncology?.

Yeah. I’m not sure I’d call them legislative in that sense. I think it is more guidelines and state driven and policymaker driven. USP 800, which is some guidance put out, is out for publication right now and review right now.

It’s an interesting proposal and it is interesting guidance and I think things like that would actually help us over the long-term. And so there is a lot of similarities between to what happened with needlefree technologies earlier to what's going on with Oncology right now.

I think the most pointed one is USP 800, which you look up, hopefully can educate you at your leisure..

Okay.

And then just so I understand the R&D/new product comments, you formally relaunched Diana and ChemoClave?.

Yes. Dave, the sales force was trained on them last month. Again, it's early but when I got here, we sort of took a time out over the med of the market, made sure we had the core value proposition well articulated. We spend six months doing that. We thought the time was right after we made the sales force changes to put it back on their hand.

We’re not going to talk about it. Again, just to let you know what’s happening, when they start to hit a material amount of sales, we will come back and talk more about it..

Okay. You seem to imply that there were still a bit of an elevated period of R&D spending at least in the first and maybe second quarter.

Is the read through to that you still have other new products that you can potentially launch in the back half of ‘15 or early ’16?.

No, no. It’s just finishing the Critical Care work. It will finish, either Q1 or Q2. We don't have the exact date right now..

Right. Okay.

And then lastly for me, are you still on this dynamic where you have excess capacity? And then I guess, my question is just what’s the plan? Are there avenues for you to expand distribution without necessarily deploying capital?.

The plan, right -- the plan is revenue growth, that's what matters over the long-term. That’s why we are talking about trying to get the best quality sales execution we can get. The best commercial execution we can get in every place in the world that has an interest in our products and we got to invest to do that.

So, we need to drive volume that’s what we control and organically, trying to get more volumes so the system can be incredibly powerful. So the plan is not too complicated. The plan is to get more market share anywhere in the world we can get..

Okay. Thank you..

Thank you. And our next question comes from the line of Chris Lewis with ROTH Capital Partners. Your line is open..

Hey, guys. Good afternoon. And thanks for taking the questions. First, I was hoping just to dig in a little bit more on the Hospira acquisition announcement. I appreciate the color there and I understand kind of the long-term outlook you're taking. It is still early.

But, Vivek, can you just elaborate maybe on your expectations around the more near-term impact? What type of integration impact I guess, do you expect from that? And I guess, with that said and potential kind of distractions there, what gives you the confidence that business in that OEM segments still marginally improves from this year?.

I think there’s probably a couple different points if you wanted, Chris. I think the first is, they have a set of new products in their bags for the first time in a while, right and that’s a good thing. There is something new to do and new to talk about that actually is meaningful for customers and is a new story.

So, I think that’s a positive message regardless of the transaction. I think transactions on the other hand sometimes make things a little bit bumpy, right, focus, et cetera.

But it's a pretty big distinct business unit and it’s been really well managed and look at how well they’ve executed over the last year, I think, the fellow they put in charge made a huge difference and the organization structure they put in charge made a huge difference. And I think it’s largely going to be business as usual on that.

And so there is not a lot of overlap with other businesses to the folks who are acquiring them. It’s pretty distinct and I think they are probably more focused today than they were on this business year or two ago. That’s good thing for ICU..

Great.

And then on the direct business, I think, if I am not mistaken, I think, you update kind of the high-end range of that growth outlook from 6% to 8%? What improvements specifically have you seen since kind of the last update was given in the direct business?.

Well, I think, we are more organized on where growth is going to come from. So we talked about targeting for customers, really understanding how to go deep with the customers you have and where the new available opportunities are around the globe.

I think we are much more in tune with being able to build up to the growth than we were historically rather just sort of relying on historical trends.

Q4 we felt was a reasonable indication, re-order rates of existing customers was a reasonable indication and then kind of analysis of other people selling disposals of the market and what they are seeing in the products that our product attached on to, that is some good visibility.

So I think there is three or four different ways we are getting there. We are keeping at a little bit broader for you, because candidly the numbers are just very small or small company still and so one piece of business need a direction to put you up or down on that mid-point, but there were some reasons to widen it a little bit..

And for the revenues trend, I guess, quarterly revenues trend to get to the guidance more front-end loaded and kind of a more consistent quarter-to-quarter outlook? Is it still safe to assume, I guess, positive year-over-year growth in the back half of the year for those quarters?.

If you look at last year there was a run-off roughly 10%, right, what Q1 was versus where Q4 came in and we are trying to say, it’s not going to be that’s steep of curve right now. I think we are going to know a lot more after Q1 as we get a sense. We certainly believe in our direct business there will be year-over-year growth, through the year.

The challenges trying to figure out in land the ship exactly on where the OEM business comes down. That’s why we are saying it could be a little front-end loaded..

Understood. And then, just on M&A front, you continue to kind of build the cash balance and free cash outlook looks good.

So I guess bigger picture question, do you feel you have kind of the necessary key, I mean, I guess, resources in place to fully integrate a larger scale acquisition at this point or would that be continued area of investment for the company going forward?.

I think it’s a continued area of investment. I mean, as we were transparent here, we said, we looked at something in the fourth quarter. I didn’t think we were necessarily totally ready to do it. But we don’t control the timing on everything.

We don’t control the timing on the stuff that comes in-bound and we don’t control the timing on the stuff we are trying to shape sometimes. So I think we had to be reactive to it and I think we are proactively trying to get the right resources in place to be able to do it. As we have said in the previous call, we are on the clock.

So we know -- we don’t enjoy having a drag behind us either, right. But with the 35% customer or 34% customer, it makes sense to focus on diversifying a little bit when the time is right..

Great. Appreciate the time..

Thank you. [Operator Instructions] And our next question comes from the line of Mitra Ramgopal with Sidoti. Your line is open..

Yes. Hi. Good afternoon. I just had a couple of kind of big picture questions, Vivek, just following up on the acquisition question.

As you look at transactions, would you consider deal that might not necessarily be accretive immediately, but would certainly help you in terms of creating value long-term?.

I think we would, we are big believers in ROIC and NPV calculations. So I think that’s really the better way for us at least at this company to look about value creation.

I think accretion and dilution is kind of subject to weird amount of cash we have on our balance sheet and our overall capitalization and therefore, a lot of things can look attractive on accretion dilution basis, but I am not sure, they are really value creating. So I think that would be the answer.

I don’t know that you can get the math to work on a number of things right now, if things are not an expensive out there and making sure we can drive a good calculation is hard right now. And so, I think, we have a little bit a time, I continue to believe that what’s going to operational here.

So we are going to pick and choose our moment when it’s right..

Hey. Thanks. And just quickly coming back on the Pfizer question? This might be a little premature.

But as you look to expand internationally, do you think you probably have a better chance at Pfizer in terms of maybe utilizing their sales force vis-à-vis what you are working with Hospira?.

I think it’s probably too early for us to have an opinion on that. I mean, its not lost on us the global breathe and reach and market power that a company like that has all over the planet. If they are, in fact, committed to this and can globalize in a way that could be awesome.

But we don’t know yet and so I don’t think we are presuming anything positive or negative right now, right..

Okay. Thanks again for taking the question..

Okay. I think that’s it. Everybody thank you for all the support last year. Thanks to folk at ICU. Thanks to our customers. Thanks to our shareholders.

It has been a very active year and the company is hungrier than we have ever been, we are healthier than we have been in a long time and we look forward to working hard and continue to create value through 2015. Thanks everybody. Speak to you soon..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now all disconnect. Everyone have a wonderful day..