Good afternoon, ladies and gentlemen and welcome to the Fourth Quarter 2020 ICU Medical, Incorporated 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 call is being recorded. I would now like to turn the conference over to your host Mr. John Mills of ICR, Managing Partner. Thank you. Please go ahead.

Thank you for joining us today to discuss the ICU Medical financial -- for the fourth quarter of 2020. 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 2020 Events. Before we start our prepared remarks, 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 full representation of future results and are subject to risks and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risks and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call, we will also discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU Medical's ongoing results of operations, particularly when comparing underlying results from period to period. We've also included a reconciliation of these non-GAAP measures in today's release and 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. Good afternoon, everybody, and we hope you and your families are well. We are happy 2020 is over and we look forward to our hospital customers stabilizing after much volatility and our company continues to adapt well in a challenging environment. Like everyone in our industry, we want to start first by thanking all of our customers and their frontline workers for trusting us to serve them during these times. And we would like to thank our employees a number of whom had to again deal with weather-related challenges as our largest domestic employee bases are in Texas around our production and distribution sites. On today's call, we wanted to comment on our Q4 results; explain our view on the full year fiscal 2020 and what drove revenues and impacted earnings and assess our performance in a volatile market; provide our opinions on 2021, the transition to reopening our build and timing for a return to a more normal environment; update on the new effects of the pandemic to ICU Medical; the recent weather disturbances and our normal housekeeping items; outline our near-term 2021 financial expectations; and lastly, articulate how we feel about our positioning in this environment any strategic implications and reflect on the criteria by which we are judging ourselves and our belief that each of our business can continue growing into 2021 and beyond. The short story on Q4 is as follows; we did see revenue growth in all of our lines of business, which supported 4% total company reported growth year-over-year for the quarter and we again did have variance across the regions, albeit, a bit more muted than Q3. Specifically in the US market, we had 8% year-over-year growth, which was the net effect of utilization still being down from our view of…

Thanks Vivek and good afternoon everyone. To begin I'll first walk down the P&L and discuss our results for the fourth quarter including a recap on full year performance for the businesses. I'll then move on to cash flow and the balance sheet before wrapping up the discussion with our guidance for 2021. So starting with the revenue line. Our fourth quarter 2020 GAAP revenue was $320 million compared to $316 million last year which is up 2% or 1% on a constant currency basis. For your reference, the 2019 and 2020 adjusted revenue figures which exclude contract manufacturing sales to Pfizer can be found on Slide number 3 of the presentation. Our adjusted revenue for the quarter was $309 million compared to $297 million last year which is up 4% or 3% on a constant currency basis. Infusion Consumables was up 3% or 2% on a constant currency basis. Infusion Systems was up 8% on both a reported and constant currency basis. IV Solutions which we sell primarily in the U.S. was up 1% on both a reported and constant currency basis. And Critical Care was up 6% or 5% on a constant currency basis. When looking at full year 2020 adjusted revenue on a constant currency basis, the business in total was up 3% compared to 2019 and we grew total adjusted revenue in every quarter during the year. Infusion Consumables which was the business most impacted by lower hospital census, finished the year down only 1% while Infusion Systems was up 10% due to competitive wins in COVID-related expansion. IV Solutions was flat and Critical Care grew 7% for the year. Overall we were pleased with this level of performance given the volatility and other challenges presented by COVID. As you can see from Slide number 4…

[Operator Instructions] Your first question comes from the line of Matthew Mishan with KeyBanc. You may ask your question.

Hey. Good afternoon Vivek, Brian. How you’re doing?

Hey, Matt.

Hey, Matt.

Hey. So, I think, these two questions actually are -- actually kind of come together. First, can you give us a sense of the backlog of installations you have in systems heading into 2021? And then, secondly, every piece of your guidance makes a lot of sense, but the gross margin. You're coming off a quarter in which Infusion Systems was elevated, coming off a year where Infusion System was elevated. Next year Consumables are going to be a higher mix of the volume. And I'm assuming there's going to be some kind of margin benefit from moving the manufacturing from Rocky Mount to Austin. So what am I missing as far as the gross margin guidance being flat year-over-year?

Why don't I do the first one and Brian will do the second one, right? On the systems, I don't think we are in a place where we would quote a backlog number, something like that, I think, we tried to say in the script now, which is we have more competitive wins that we haven't installed yet than we've ever had before. And I think a year ago, January, we said we thought we had gained a point from our pretty low place we were on LVP and I think we thought we're in a better place than that today, competitively. So that's probably all I want to say on the backlog. And I'll let Brian comment on the margin.

Matt, your question on the margin, it's a good one and it relates actually back to your first question around Infusion Systems hardware and backlog. And really, what we're expecting for 2021 is, margins to be a little bit negatively impacted, as a result of a higher mix of Infusion Systems hardware installations related to competitive captures. Those tend to be much lower margin initially at the time of the implementation and revenue recognition on the pumps, followed by improving margins from the dedicated disposables that follow afterwards. But there is a timing difference between that initial installation and the subsequent dedicated disposables.

Okay. And then, sort of, last question for me, because I think you explained everything very well. Can you talk through some of the new products that you'll be focusing your attention on in 2021?

Sure. I mean, I think, we have a number of things getting on the filing docket in 2021, as I said, that's why spend is going up. As you would expect, I mean, the majority of dollars that we've been putting in over a three-year period have been, certainly, since we have the full freedom to do so on the systems side. And that, obviously, means finishing the software products that we've been talking about and getting those out of kind of the LMR phase and really into the market and then some different ideas on the hardware side that we've been working on. So as usual, we want to talk about those more when they happen, but I think we've been pretty transparent and it's easy to figure out. Historically, our spend on the consumables-related business is very much what ICU used to spend and the rest has been on the systems side, since we did the acquisition.

All right. Thank you very much.

Your next question comes from the line of Larry Solow with CJS Securities. Your line is open. You may ask your question.

Hello.

Yes. Hi. It's Pete Lukas for Larry. So just to clarify, sorry on the margin side, in terms of margins for Solutions, do you see increased volume as being able to help you out with that? Should we think about that as a positive given, Austin and the new distribution plant?

I think, I would say, it's been a bit of a wash there Pete. We can't -- obviously margins were higher for the company when we were selling more solutions two years ago 2.5 years ago. The distribution center has added some efficiencies, but we've also extended a number of the contracts et cetera and a lot of activity happened around that in late 2019 and through most of 2020 and it gobbled some of that back up. So I think for us, it's much safer to say solutions is what it is right now, and it's not going to be driving a lot more incremental margin. It's not going to be getting worse it just kind of exists.

Perfect. And you guys covered a lot most of what I had here, just one more just a general question in terms of M&A. Can you discuss just broadly what you're seeing in terms of -- from the sellers in this environment? And they're willingness to engage given all the impacts of COVID?

Yeah. I mean, I think, it's a balancing act, depending on, where you -- where -- what part of the market you're playing in there. Certainly, folks who have had COVID make an impact on their business or say of operations there is a constructive dialogue. Otherwise, I mean, I think the market is challenging as everybody's seen on that front. So I'm not sure that I would say COVID has made the M&A environment easier, if that's where you're going.

Yeah, very helpful. Thanks. I'll jump back in queue.

Thank you, Pete.

[Operator Instructions] Your next question comes from the line of Jayson Bedford with Raymond James. You may now ask a question.

Good afternoon. Thanks guys. I wanted to get back to the gross margin pump dynamic question. And I appreciate there's a lot of moving parts here. But just I guess simply are you expecting to sell more pumps in 2021, than you did in 2020?

I think, Jayson it's not only the absolute number of pumps. It's what class of trade are they going into right? Whether it was maybe pandemic surge in some of the international markets versus some of the competitive situations that's, probably a bigger factor than the absolute number of pumps. In terms of the absolute number, I think we're saying, pumps could be down a little which means we wouldn't sell as many pieces of hardware as we did last year. That there is an outcome where that happens if we can't get all the installations on it and when, still some things we want to win and get in this year.

Okay. And just, I guess, just to follow on the pump side, you mentioned the government orders in the spring and summer kind of inferred that you didn't see any kind of government orders in the fourth quarter. One, is that correct? And was there anything exceptional on the pump side here in the fourth quarter?

That is correct. There was real no material government business really from August, September onward, nothing very unusual in Q4 in the pump business. Uptick probably a bit due to acuity on some of the dedicated sets hard to triangulate exactly and a little bit of maybe accelerated add on expansion at a few customers, but nothing out of the ordinary.

Okay. Gross margin in the quarter the 39%, was that negatively impacted by the plant shutdown? I'm just wondering the impact of that.

Yeah. Jayson, that's right. It was negative impact for Q4. And if you compare it to prior years in prior years we -- the shutdown was typically in the summer months.

We usually did it in June. And it rolled in over the next two or three months of the summer quarter, if you went back on the scripts and with the pandemic kind of in full flight last year we made a call to keep producing and just delayed it until October.

Okay. And I don't want to be greedy with the question, but is there a basis point impact to that? Or is there a way quantify it, on the 39%?

Probably around a percentage point, somewhere in that neighborhood.

Okay. And then, just a clarification on the commentary around 1Q, I think you mentioned quarter-on-quarter growth in Consumables -- pumps may be slightly down. I was a little unclear whether that's quarter-over-quarter, year-over-year?

Sequentially, quarter-over-quarter.

Okay. Okay. Okay sequentially. And then similar, the other comment I think with respect to 1Q was a 10% increase in R&D. I assume that's, quarter-over-quarter sequential?

No, I don't actually think -- I don't know if I have the right number -- I don't think it's...

I don't think -- know if there's even a difference.

Over the balance of the year -- over the balance of the year, most things probably be back half weighted on the spend side this year.

Okay. So that was an annual. Okay. Okay. That's it for me. Thank you.

Okay. Thanks, Jayson.

[Operator Instructions] I am showing no further question at this time. I would now like to turn the conference back to Vivek Jain, for any closing remarks.

Great. Thanks everybody. I appreciate the time you made for us today. We at the company are pulling for all of our employees that had deal with a lot of things in the last couple of weeks. And for everybody on the phone and to the company, we hope you have a great 2021. And we look forward to speaking to you later in the year. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. And have a wonderful day. You may all disconnect.