Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Q3 2016 ICU Medical, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will host a question-and-answer session and our instructions will follow at that time. [Operator Instructions]. As a reminder to our audience, this conference is being recorded for replay purposes. Now it is my pleasure to hand the conference over to Mr. John Mills, partner at ICU. Sir?

Good afternoon, everyone. Thank you for joining us today for the ICU Medical financial results for the third quarter ended September 30, 2016. On the call today representing ICU Medical is Vivek Jain, Chief Executive Officer and Chairman; Scott Lamb, Chief Financial Officer; and Christian Voigtlander, Vice President of Business Development. Before we begin, I want to touch upon any forward-looking statements made during the call, including beliefs and expectations about the Company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results, and are subject to risks and uncertainties. These results may differ materially from management's current expectations, and we refer all of you to the Company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period. We've included a reconciliation of these non-GAAP measures for today's release, and provided as much detail as possible on any addendum's that are added back. In addition, the sales numbers that Scott will be covering, as well as the Company's financial statements, the reconciliation from GAAP to adjusted EBITDA, and adjusted EPS, are available on the Investor portion of the website for your review. Now with that, I will turn the call over to the Vivek.

Thanks, John. Good afternoon, everybody. Our third quarter was a very productive quarter, as we continue to drive revenue growth and increased EBITDA, which resulted in strong free cash flow and improved net income. It has been a very busy last 12 months operationally, as we have executed well to a large volume of activity, and have emerged stronger with positive financial and operational results that have us positioned very well for the opportunity to acquire Hospira Infusion Systems. We did have some bumps, backlog, and challenges over the last few quarters, but as of today, we have resolved most of them, and stand stronger to begin executing on the next evolution for ICU Medical. In addition to the recent quarterly financial results and a recap of the operational progress year-to-date, we wanted to continue the discussion from the last call on how our direct channel was executing well, and how we see that progressing into the medium-term and the actions we have taken, which will be beneficial to our margins in the future. Lastly, it has been roughly four weeks since we announced the Hospira acquisition, and we wanted to provide some initial color and thoughts. In Q3 of 2016, we generated revenue, adjusted EBITDA, and adjusted EPS slightly above our initial expectations. We finished the quarter with approximately $97 million in revenue, resulting in reported revenue growth of just over 13% with negligible currency effects. Please note that some of this revenue growth was due to catching up from certain temporary production constraints mentioned on the last few calls, and some initial orders that came in a bit earlier than expected. Adjusted EBITDA came in just over $34 million, which was growth of 15% year-over-year, and adjusted EPS came in at $1.35, which was growth of 35% over…

Thank you, Vivek. And as Vivek already mentioned, we are pleased with our revenue, adjusted EBITDA, and net income results in the third quarter. Our third quarter 2016 revenue increased 13% to $97 million compared to $86 million in the same period last year. GAAP net income for the third quarter of 2016 was $18.8 million or $1.09 per diluted share compared to GAAP net income of $16.3 million or $0.98 per diluted share for the third quarter of 2015. Adjusted diluted earnings per share for the third quarter of 2016 were $1.35 as compared to $1.00 for the third quarter of 2015. I will describe it shortly, but at the option of ASU 2016-09 did add some benefit to EPS. Adjusted EBITDA was $34 million for the third quarter of 2016 compared to $30 million for the third quarter of 2015. Now let me discuss our third quarter revenue by market segment, and then more specifically by direct and OEM. Direct sales totaled $70 million or 72% of total revenue, while OEM totaled $27 million. For the third quarter, sales in infusion therapy were $68 million, an increase of 9% from the same period last year, and represented 70% of our total sales. Direct infusion therapy sales were $45 million, an increase of 35% from the same period last year, and were primarily due to sales of our needle-free products and our SwabCap product line, which was acquired through the Excelsior acquisition in October of last year. Sales in oncology were $15 million, an increase of 38% from the same period last year and represented 16% of our total sales. Direct oncology sales were $11 million, an increase of 42% from the same period last year, which was due to an increase in both existing and new customer sales.…

Thank you. [Operator Instructions]. Our first question comes from the line of Brooks West with Piper Jaffray. Please proceed.

Hi, good afternoon. This is Tom Bacchus on for Brooks. Thanks for taking my questions. I wanted to start with gross margin. And I appreciate the comments from the prepared remarks, but could you just talk some specifics, and just may be give some granularity around what exactly it's going to take to drive expansion, and what you can leverage from ICUI to bring to the Hospira's business in the new co?

Hey, Tom, it's Vivek. Okay. So you're talking about gross margins, pro forma combined, after the transaction, not before?

Yes. Clearly -- I mean the deal was definitely dilutive to the new co gross margin, and Hospira was running I think it was high 20s. So just may be if you can talk about that business specifically, I guess.

Yes. I mean, I don't think we know all the pieces just yet, right? We are only a couple of weeks into this thing. There is a number of overlapping things in the raw materials we buy, the processes that are used, the locations of manufacturing. I think there's a couple of opportunities to get after there. I really don't want to comment on the specific actions, other than I think we all know that for a healthy medical device business and disposable business, blended rate in the high 20s doesn't really hit the mark. Right? So we know there's opportunity there and there are actions we will take. I'd prefer not to discuss all of them right now.

Okay, that's fair. Next, I just wanted to ask about the strategy with the new co distribution channel. Just clearly a lot more scale. Just hoping you can give some color on revenue synergies, both from an account overlap standpoint, and then just kind of from a cross-selling perspective. And just with that, is there a single touch point at each account that you can leverage with the full product breadth now?

Sure. It's a really important question. Let me answer it kind of globally and then U.S. specific, right? Globally, it brings a lot more market reach into the full product line in lots of different geographies we don't participate in. As Scott was answering on the -- some of the revenue budgeting we've done for next year, there may be markets that we want to approach globally in a different way where we are not necessarily absolutely positively direct in a given market. We have to make those decisions. And so, how we approach every global market, as we said in the Investor Presentation, will be whatever the best local strategy is. In the U.S. market, I think it's -- it was hard for us even though we are doing well and you saw good direct growth, it's hard to be a smaller supplier in a consolidating hospital market. And we think by being bigger and having more value at stake, and more things that are clinically relevant hanging together, it's a bigger opportunity set to call on, we have to work through the tactics of what's the most efficient way to call on the customers, we don't have a firm point of view on that yet. But we will have one over the next couple of months. But it's a different answer for global than it is for the U.S. For the U.S., it's much more about being at scale with all pieces, which we were not as a smaller standalone company.

Thank you. Our next question comes from the line of Jayson Bedford with Raymond James. Please proceed.

Good afternoon. Can you hear me okay?

Yes, hi, Jay.

Hey, sorry for the background noise. Just to be clear, the base business seems stronger than we expected, but there's no change to your thoughts around $75 million in standalone Hospira EBITDA next year and a combined $300 million in 2018, right?

Now I hear the train, Jason. To be clear, the $300 million was at some point during 2018, right? We're not -- we don't know whether that is Q1, Q2, Q3, when we hit that run rate. We don't have a different point of view on the $75 million contribution from Hospira next year. It could be a little bit less; it could be a little bit more. It's a business where things happen in flux. What we do feel good about is, yes, our base business continues to execute well. You picked up on that right away, right. And so it was a good quarter for us that way. And I think it gives us a good footing to get where we want to get into 2018.

Okay. And then I'll ask one more and then I'll drop here. The growth in oncology continues better direct than OEM. Can you just comment on the geographic contribution of that growth? And are you seeing any more strength or any more distinct volumes or special legislation?

Okay, Jayson, you are fading a little bit, so I'll just repeat the question. I think the question was -- oncology growth looked good, how does it compare for different parts of the world? And how much is being driven by legislative or regulatory changes? So I think the growth for us in oncology was stronger in the United States than it was outside the United States. We think a lot of those technologies were adopted earlier; outside the U.S., they are still growing nicely, but the adoption for us right now is being driven more in the U.S. than outside. And that we believe a large portion of that is to some of the smart regulatory guidance that's being adopted out there that adds more safety to the delivery of a lot of these hazardous drugs. So it's absolutely guideline based. We think it's a long-term trend and it's more U.S. than OUS for us right now.

Thank you. [Operator Instructions]. Our next question comes from the line of Mitra Ramgopal with Sidoti, your questions please.

Hi, a couple of questions. Scott, you had laid out four different lines you plan on reporting next year, and clearly the critical care business will be really small relative to the other three. Based on launch of the hemodynamic monitor, et cetera, you are still committed to this. But as you look at the new revenue base post-HIS, do you see critical care really being sort of strategic going forward?

Yes, absolutely. I mean, it's very important to us. We've invested a lot of money into developing and expanding this product portfolio, and we are very serious about it.

Thanks. And I was wondering if you could give us an update regarding now, with the focus increasing on Hospira, if the business, as you are focused with Terumo and Medline, how is that progressing?

It's Vivek. I'll pick that one up, Mitra. I think things with both of those organizations is going very well. We've cleared -- the things were a little bit sluggish with Terumo getting through all the various regulatory documentation we had to get through. We're through a large portion of it now, and that business is starting to transact as we speak. And I think on SwabFlush, the portion of Excelsior that went to Medline, we think they are executing really well. And we are serving them any way we possibly can and hoping to see them continue to grow. So both of those we feel pretty good about.

And I know it's very early, but as you look in terms of Japan and elsewhere in Asia, et cetera, does the acquisition help you as you look to leverage the sales force that you will be acquiring?

I think -- again, it's a very country-specific discussion, and so, there are places where we think our existing relationship with Terumo is the right way to go to market, and there are places that are just going to make sense for us to participate in the market. And so there's not a one answer for all of Asia. It's really going to be a country-by-country discussion. And we need to get into the opportunity set and the available book of business in each country before we make those decisions.

Thank you. There are no further questions in queue. So at this time, I would like to hand the conference back over to Mr. Vivek Jain for closing comments or remarks.

Thanks, everybody, for making the time to listen to our Q3 call. We've obviously got a lot of work ahead of us, and it's an exciting period for the company. We appreciate everybody's support, and we look forward to a live update with as many of you as we can at the next Healthcare Conference in January. Thanks very much, everyone.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may all disconnect. Everybody have a wonderful day.