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…

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…

[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.