John Mills - Partner, ICR Vivek Jain - Chief Executive Officer and Chairman Scott Lamb - Chief Financial Officer

Chris Lewis - ROTH Capital Partners Mitra Ramgopal - Sidoti Brooks West - Piper Jaffray Lee Jagoda - CJS Securities Jayson Bedford - Raymond James

Good afternoon, everyone. Thank you for joining us today for the ICU Medical financial results for the first quarter ended March 31, 2016.

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 an overview of our first quarter results, and operational improvements.

And then Scott will discuss first quarter financial performance in more detail. Finally, the company will open up the call to take your questions.

Before we start, 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 representation of future results and are subject to risk 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 risk and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call, we'll 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 provide as much detail as possible on any addendums 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 Investors portion of the website for your review. Now, with that, I will turn the call over to Vivek.

Please go ahead.

Thanks, John. Good afternoon, everybody.

Thanks for making the time to get update on a nice view today. Q1 of 2016 was the most active quarter operationally since I've been here.

It was a great test of our much improved infrastructure and the strengthening of our overall business. We had a number of challenges and bumps through on our way; we got through most of them, emerged stronger and build on the positive financial and operational trajectory of the last few quarters.

Most importantly, we continue to drive performance through revenue growth, gross and EBITDA margin expansion in following up on our acquisition of Excelsior in Q4, we continue to cautiously use our balance sheet for the long-term value creation in Q1 in the form of a stock buyback. On today's call, in addition to the financial results, and the usual direct and OEM performance discussion, I wanted to provide an update on the operational execution going on at ICU and how our activities along with fundamentals of the company, positioned us well for value creation in the medium-term and long-term.

In Q1 of 2016, we generated revenue, adjusted EBITDA and adjusted EPS slightly above our initial expectations. We finished the quarter with approximately $90 million in revenue, resulting in reported revenue growth of just over 10%.

The effect of currency on our revenue had substantially reduced for us. So, we'll just speak to the actual reported numbers, as constant currency would have improved results less than a 100 basis points.

Adjusted EBITDA came in at $33 million which was growth of 26% year-over-year and adjusted EPS came in at $1.14 which is growth of 12% over the last year. Please remember in Q1 of 2015 we had an usually low effective tax rate and that is why adjusted EBITDA growth is ahead of adjusted EPS growth when comparing rates.

We continue to have solid performance in our direct lines of infusion and oncology which were slightly offset by critical care. In Q1 our direct operations continue to generate positive momentum with 12% growth, specifically our direct infusion and oncology segments performed well with 14% and 40% growth respectively and critical case as expected offset to slightly by being down 5%.

In our infusion segment for the moment, we continue to see positive utilization trends in our customer base. Our more focus selling efforts over the last 12 months have shown good results in getting back to the core value drivers of ICU for an unique products, competitive value and customer service.

SwabCap, the key product from our Excelsior acquisition has fully met our initial direct sales goals and we believe is on track to deliver our revenue commitments for the acquisition. In our oncology business, we have very strong growth.

On prior calls, we've stated that we believe we're in the early stages of a long-term opportunity in our oncology business and have the leading products to enable hospitals to address the increased regulatory guidelines being adopted. This growth is largely driven by our historical product lines, as our new ChemoLock product is still in early stages of production and we don't expect it to be material until the end of this year and into next year.

Turning to our critical care segment, we reported Q1 declines of approximately 5%. The important piece of news here is that as we had committed, we kept working with the FDA and recently received 510(k) approval for our new hemodynamic monitoring system Cogent.

While we do have an approval in hand, we're not a 100% satisfied with the current format, so it is going to take some time on more application development and investment to get it in a format that best utilizes its technology for the customer and patient, so we will keep working on it. We anticipated this process in our revenue guidance for the business and we've profitized the business to its best levels since ICU entered the segment.

Our OEM business grew approximately 8% in Q1. Our principal OEM customer grew 3% in Q1 year-over-year and was down sequentially from Q4 of 2015.

Obviously we benefited from new OEM customers coming into the book during the first quarter as our principal OEM customer continued to decrease as a percent of overall revenue. On new customers, this was the busiest quarter so far a regulatory perspective with our team working to support our new relationship with the Terumo Corporation of Japan.

We've been actively pursuing the necessary regulatory approvals in Japan, as well as pushing a number of other projects forward including a busy period on Cogent, as I just described. Our new relationship with Medline to supply SwabCap on an OEM basis were dwell in the quarter and lastly, we announced in March an expansion to the SwabCap distribution agreement with a company B.

Braun. Just like last year, we've started the year out with our principal OEM customer reporting results slightly different than our previous view.

I want to be extremely clear that we continue to believe that we will see declines in business from them as previously guided over the balance of this year. And just like last year, we will be able to come back in Q2 with clear review of what the full year will look like from a guidance perspective.

We believe at this moment there is a lot of customer movement amongst the big players, we believe we have good insight into the landscape, and we absolutely believe in being cautious and holding to our previous view. I'll make a few comment shortly about how we think about this in 2017 and beyond.

Now let's get into more of the operational aspects of our business, and move to gross margins. We continue to make good progress with gross margins, approaching 55% in Q1 versus 52% in Q1 of 2015.

We are getting some currency benefits here, but the combination of productivity gains product mix are of equal impact. I believe everyone saw the results of the first wave of operational improvements in 2015 that we said we're deployed by the end of 2014 and started selling last year.

Late in 2015, we mentioned a series of high hanging fruit for the next wave of improvement and we've been hard at work on those. Those initiatives are comprised of, first the completion of the closing of our Slovakian manufacturing facility, and integration into our Mexican operations, that work continues to be on track.

Second, the integration of our SwabCap production into our Salt Lake City operations, that work is vital, because it provide a large chunk of the value of the acquisition and is the primary reason we don't have a material earnings contribution from the acquisition in 2016. Lastly, the normal issues on productivity gains and scaling up new products to ensure competitive positioning are always on the agenda of the operations team.

These items are extremely important, because they offer real value creation in 2017 and beyond and are primarily linked to our direct operations to keep improving our direct business. And they provide cover as an offset of currency was to go away from us and the effect of potential volume declines from our principal OEM customer.

The operations teams have been working very hard on these value drivers to ensure their timely completion, while running a business that has had good growth for a number of quarters now. But we did have some challenges in the midst of all this in the midst of all this in Q1.

We had a few self-inflicted production issues on a limited number of products that caused us to get a bit behind in our service level to customers. The team is in working relentlessly and we're getting closer to normal levels.

I am going into this detail, because first, I'm very pleased with the way the company responded, but also bringing it to everyone's attention because it'll have some slight impacts on Q2. Gross margins will be a little lower than Q1, as we've been spending on freight, logistics, et cetera, at premium levels to make sure our service levels are as high as possible.

These are the normal bumps that I've always said we'll hit one day, but because of solid improvements we made to our infrastructure, we're performing well through them and delivering great margins through it as well. Over 2014 and 2015, you often heard me talk about the investments are needed to be made into quality, and we said in the last call that virtually all those investments are in.

Well, in addition to all the regulatory integration and production work just mentioned that was going on in Q1, we also had two full FDA inspections at both of our manufacturing plants. These were the normal inspections that you get several weeks advance notice for it.

I am very pleased to announce that we passed both inspections with a number of 43's less than you could count on a single hand. The Salt Lake inspection was officially closed out in March and all responsive have been submitted for Ensenada and we're awaiting final confirmation.

It is extremely positive for the company and for the pursuit of new customers to get through these inspections, they're big undertakings for a small company and our team performed extremely well. And just because we wanted to make it extra fund for ourselves, we had a long standing upgrade to our ERP system scheduled for early February.

And I would call this close to almost a new implementation and an upgrade, as we're several years out of date. We pushed it off a few weeks to allow the inspections to complete and the operations, IT and finance teams worked hard to complete the upgrade in March with minimal disruption and it is working smoothly.

This was extremely important because this is part of the core infrastructure that hast to be solid, if we pursue more capital deployment and acquisitions in the future. We talked about the people that handle capital deployment historically, but it is also mandatory, that the infrastructure can handle it.

I wanted to go through all of that because, I think, it's important to consider in the overall context of value creation at ICU Medical. For two years, we've been talking about our fundamentals of ICU encompassing first, the sticky nature of our products.

Two, our manufacturing processes and significant historical capital expenditures and three, our cash generating abilities to the small company, but I think it’s equally important to focus on our operational value drivers. I believe that main two operational value drivers at ICU Medical going forward are first the intersection of revenue growth and gross margin, and second, the ability to handle deployment of the balance sheet.

The operating expenses of the company are at a level where any changes will be minor to the value creation. These improvements in the gross margin and the potential improvements for the next year with even modest revenue growth are very important for the next wave of earnings growth.

If I was to compare Q1 2016 with Q1 2015, you would see that our principle OEM customer is up $1 million in revenue, but our overall adjusted EBITDA is up $7 million. If you would compare Q1 of this year, to Q2 of 2014, you'd see our principle OEM customer was up $2 million in revenues in Q1 2016 and our adjusted EBITDA over that same period is up $16 million.

The improvements in gross margin in the expense phase have deeply profitized our own business. And going forward, we expect gross margins and revenue growth to be a more powerful drivers than expense reduction.

On the balance sheet, it's like getting through our FDA audits and proving our IT systems and infrastructure getting experience with the SwabCap integration are the foundational items to show we can handle deployment of the balance sheet over time. As it relates to our primary OEM customer, there is not much new information.

We believe it is their intent to fully owner the almost three years remaining on the contract and that's certainly is our intent as well. As we previously described, the contract survives any change of control as it did in 2015.

We continue to be optimist and believe that logic will prevail and to the customers' interest will drive decision. Most importantly, we believe customers are being well served with excellent products and unique value propositions that we both offer to different customer segments.

The only party that really wins at any sort of customer disruption is competitors. I think it's important to understand all these variables to make the case for long-term value creation at ICU Medical.

Our enhanced profitability leading to significant cash generation over the next few years combined with new products coming into the mix, improved infrastructure and a diversity of customers creates many shots on goal for us. Very practically, we expect declines with our primary OEM customer coming later this year and our early view is a higher chance of stabilization at a lower plateau when comparing 2017 to 2016.

And if that turns out to be the case, if we continue to drive good direct revenue growth with improved margins, we'll be operationally very well positioned. And we have protected ourselves the best we can by driving returns on our own business, controlling what we can control on our own direct business, getting our foundation right and improving the team to create optionality for capital deployment in the future.

Okay. That brings me to our balance sheet.

Q1 is the quarter we usually make a meaningful payments against some of our accruals, however we still had strong - we saw the very strong cash generation quarter. We finished the quarter with approximately $383 million in cash on the balance sheet after we bought back approximately 1% of the company at an average price of $88.

We had an open authorization and while we've been waiting to do deploy the capital, we felt the market volatility earlier this year [Technical Difficulty] pushed the logic of absolute valuation for any range of expected outcomes in ICU, so we took advantage of it. If we added the cash deployed in the Excelsior acquisition and this recent buyback, it's close to deployment of all of 2015's free cash generation.

We continue to see very strong cash generation in the balance of 2016, expected cash position at the end of Q2 to be over $400 million, and approaching $450 million towards year-end. After the last call we did have some question on our balance sheet regarding inventory levels, and AR, et cetera, to be very clear at the movement, we have a series of different things going on including the closing and moving of two factories Slovakia and SwabCap from New Jersey, new global customers being on boarded.

A volatile U.S. market where we need to be able to serve these opportunities to present and for our OEM to be partners to be ready to enter markets.

And as a result of all this, it makes sense to carry a little more inventory to ensure smooth transactions. We're very focused on revenue growth, gross margins and customer satisfaction, so it's a prudent decision to increase our inventory levels to ensure all of these areas.

That said, our AR did improve and Scott will go through it a bit more and the improvements will happen over the balance of the year that will help us approach the $450 million in cash assuming no additional capital deployment. On our view for the year, we want to basically follow the same roadmap as last year and we'll update our guidance on our Q2 call.

It is too early and please recognize there is volatility out there with our OEM business, we continue to believe a goal of $125 million of adjusted EBITDA and free cash flow of $70 million deliver a solid adjusted EBITDA and cash growth while allowing a necessary investments to continue to perform our direct business - to perform in our direct business over the medium term. There are some investments we want to make in commercial infrastructure in new and continue areas of R&D investment and if we have the ability to deliver our commitments through 2016 and additionally invest for future growth we will do that.

As we have said before, we're not chasing any given margin level. Our margin improvements, operational execution, increase in OEM partners and increasing cash balance illustrates how we can grow up this space in the 2017.

And if our principle OEM customer does in fact find a plateau in 2017 the results could be even better. We will absolutely provide clarity on our Q2 call and what the year will look like and there is no reason to get ahead of that given the current market uncertainties and we are comfortable with our pervious stated guidance.

We have real value-creating scenario with improvements across the company for 2016 and beyond. I do think we're an interesting size company that can strategically move in a number of directions and one of an increasingly limited number of smaller medtech companies that can compete globally.

Things are moving fast, we're trying to improve the company with urgency. But I wanted to remind everyone as I said in previous calls, there will be normal bumps in the road as we are still a small company but we will overcome them and emerge stronger.

We have solidified the company in certain technical competencies as evidenced by our recent execution. I really appreciate the efforts of all ICU employees to adapt, move forward and focus on improving our results and our company appreciates the support we've received both from our customers and our shareholders.

With that, I'll turn it over to Scott.

Thanks, Vivek. As Vivek mentioned, we are pleased with our revenue gross margins, adjusted EBITDA and net income results in the first quarter as we achieved growth in both our direct and OEM channel.

Our first quarter 2016 revenue increased 10% to $90 million, compared to $82 million in the same period last year. GAAP net income for the first quarter of 2016 was $15.9 million or $0.96 per diluted share as compared to GAAP net income of $9.7 million or $0.60 per diluted share for the first quarter of 2015.

As a reminder, Q1, 2015 results included both a one-time $7.1 million charge related to a legal settlement and an unusually low 16% of tax rate that included discrete tax items. Adjusted diluted earnings per share for the first quarter of 2016 were $1.14 as compared to $1.02 for the first quarter of 2015.

Adjusted EBITDA was $32.7 million for the first quarter of 2016, compared to $26 million for the first quarter of 2015. The increase in adjusted EPS and adjusted EBITDA was primarily attributable to continued top line growth, improved gross margins and improved leverage in our operating expenses.

Now, let me discuss our first quarter revenue by market segment and then more specifically by direct and OEM. We provided full year guidance on our direct business by specific market segment as that is what we control the most, and guidance for our OEM business on an aggregate basis, and as always, we also have these results posted on our website.

As we mentioned on our fourth quarter conference call, for these comparisons beginning in 2016, we will report our revenue for the Terumo related geographies in Asia and SwabCap sales to Medline in our OEM business and no longer indirect as it is an apples for apples comparison to 2015. This is a relatively minor adjustment, but from modeling purposes we will be positing a revenue table on our website under Investor Relations that includes the past three years of revenue, recast in the new format.

Direct sales totaled $57 million or 64% of total revenue while OEM totaled $33 million. Our principal OEM partner share of overall revenue decreased to 34% compared to 36% for the same period last year and we continue to expect them to be in the 30% range for the full year.

For the first quarter, sales in infusion therapy were $65 million, an increase of 11% from the same period last year and represented 72% of our total sales. Direct infusion therapy sales were $36 million, an increase of 14% from the same period last year and were primarily due to strong international sales.

Increase in customer sales and through the addition of our SwabCap product line, which was acquired through acquisition in October 2015. Sales in oncology were $12 million, an increase of 34% from the same period last year and represented 13% of revenue.

Direct oncology sales were $8.4 million, an increase of 40% and were due to increases in both existing and new customer sales. Sales in clinical care which are essentially all direct were $13 million which is a decrease of 5% for the same period last year and represented 15% of our sales.

Our first quarter sales for domestic and international were as follows. Domestic sales were $62 million, an increase of 7% from the same period last year.

International sales were $28 million, an increase of 18% from the same period last year and were driven by sales in infusion therapy. Gross margin increased to 54.8% as compared to 52.2% over the same period last year.

This increase continues to be driven by improvements in mix and the good currency tailwinds we have right now due to a stronger dollar and weak peso. Vivek referenced a number of good operational initiatives that are improving our gross margin line, but we do want to be clear that some of this effect is currency.

SG&A expenses increased $1.8 million in absolute terms, but decreased 30 basis points to 24.5% of revenue as compared to 24.8% in the prior year. The $1.8 million increase was in part due to selling positions that were open during 2015.

Additional employees retained as part of the acquired SwabCap product line. The general hiring and recruitment of new employees and cost incurred in the first quarter of 2016 related to a transitional services agreement associated with the October 2015 acquisition of Excelsior Holding Port.

As we mentioned on our last call, these piece will began to paper off in the second quarter. R&D expenses decreased 23% to $3.3 million, this decrease was primarily due to lower R&D project expenses related to our Cogent hemodynamic monitoring system, which now received U.S.

FDA 510(k) clearance. We continue to be cautious on spending on these program as we still need to do more work to get the final product right.

Our tax rate was approximately 34% in the first quarter of 2016 and 16% in the first quarter of 2015. Our 2016 Q1 tax rate benefited from the three tax items related to the conclusion of federal tax examinations and changes in estimates of tax reserve.

We continue to expect our tax rate to be between 32% and 33% for the full year of 2016 with the first half of the year at a higher tax rate than the back half of the year. Now moving onto our balance sheet and cash flow.

As of the end of the March, our balance sheet remains very strong and with no debt. We generated $14.8 million of operating and $10.8 million of free cash flow during the quarter and ended the quarter with cash, cash equivalents and investment maturities of $383.7 million.

This equates to approximately $24 for outstanding common share. And as Vivek already mentioned, during the first quarter we purchased 174,885 shares of our common stock were $15.4 million at an average price of $87.76.

As of March 31, 2016, we had $7.2 million remaining under our current authorization. Accounts receivable decreased $2.2 million from the end of the year and DSO decreased to 56.5 as of March 31, 2016, compared to 59.2 as of December 31, 2015.

As of March 31, 2016, accounts receivable from Pfizer decreased as a percent of consolidated accounts receivable to 34% from 40% as of December 31, 2015. And as expected inventories as of March 31, 2016 increased primarily due to building finished goods safety stock to support better customer service level, raw materials related to our Slovakia plant closure and the related transfer to our Mexico plant, as well as the inventory associated with the acquired ROTH Cap product line.

Now turning to the remainder of 2016, we obviously had a solid first quarter, but we continue to be cautious and believe we will have declines with our primary OEM customer over the balance of the year. We still believe OEM will be flat for the full fiscal year and we will have greater clarity on the Q2 call around our OEM business.

So currently we see no changes to our overall expectations for 2016. Additionally as Vivek said there are some minor additional investments we may want to make for future growth if we have the flexibility this year, but it's difficult to predict exactly when the right people become available or how fast we can increase R&D investment.

We continue to expect our direct revenue to increase 6% to 11% and total revenue to be in the range of $355 million to $365 million. We expect adjusted diluted earnings per share to be in the range of $4.34 to $4.46 and adjusted EBITDA to be in the range of $123 million to $127 million.

Please allow us the time to get a full handle on the OEM business for the year, get completely caught up on some of our production and investments and it's just like last year, we will provide the most accurate picture on our Q2 call. We continue to expect to stand approximately $20 million on CapEx, which includes expansion of our manufacturing facility at Mexico.

We expect to generate $70 million of free cash flow, which includes the portion of the tax benefits from the purchase of Excelsior last year. We hope everyone sees our commitment to improving operations and the responsible way we're trying to diversify and manage the company.

Now, thanks for listening in today. And we look forward to updating everyone on our next call.

And with that I would like to open the call to take your questions. Operator?

Hey, guys. Thanks for taking the questions.

Hi, Chris.

Hey, Chris.

I guess, first is, Vivek, on the production as you just kind of mentioned maybe just elaborate on what those were, what type of impact it had on the first quarter, it sounds like it's going to have a little carryover effect perhaps on margins in 2Q. So maybe just talk about where that is today if those have been resolved and expectations as going forward?

Thanks.

Yeah. Sure.

I would say those are just in the normal bumps that happen in running a manufacturing company. We had some tool sort of not running enough capacity or as the tool go down for a couple of weeks early in the quarter, we caught up largely and all these issues toward the end of the quarter.

We were just spending a little bit of money to make sure our products got where they needed to be and it happens. And you don't feel that pain in the same quarter necessarily, right?

So our catch-up will affect us this quarter. We're largely through it, it went on I would say maybe into two weeks into April or so when we've been pretty healthy since then.

And moving to direct, you continue to show a strong growth there. I guess specifically in infusion growth of 14%, oncology growth of 40% year-over-year.

Can you just elaborate on kind of what you're seeing in the direct infusion segment and what continues to kind of drive that sustained momentum in that business.

Sure. On direct infusion, we did get the benefit of SwabCap, which is not a huge number, but some of that is SwabCap in there.

So we want to be transparent about that that wasn't pure 14% organic. We are seeing good organic growth and I think that by focusing on the customers we have, I think we can go with them in getting back to the roots of what makes the ICU product offering unique right where can we play different than some of the bigger people and we've been spending a lot of energy on that for the last five quarters or six quarters.

And what types of customers and what cost of the trading centers, I think we've just tried to revamp what we're doing on the direct side for 1.5 years now.

Okay. And just one more from me and then I'll hop back in the queue a bit, the B.

Braun's distribution agreement, maybe just kind of give us an overview of what we should expect for this year and perhaps maybe medium-term to longer-term with that - are there other products that you think could be potential candidates for similar types of distribution agreements in the international territories going forward? Thanks.

Sure. The expansion around SwabCap was B Braun, it was a legacy agreement we picked up from Excelsior and we certainly assume that they may not want to continue with us and it frankly turned out to be the opposite.

And they did want to continue with our product and we're very happy to serve them. And we're actually going to get to access more markets with them with that product which is great.

I don't think it changes our SwabCap's forecast that we put out for the deal for this year, but as we get closer to the end of this year, we'll see if there's any impact in the future. With that as it relates to international, we're always searching for the right partners, geography-by-geography, whether that's a local distributor or a multi-national like Terumo.

I've said before, our international growth has been very strong and continued to be this quarter. But, it's where we lack scale in lot of places.

And so, we need to keep figuring out how to maximize the value of our product. So, we're always looking for new partners in the different geographies.

Yes. Hi, good afternoon.

First, Vivek, on the clinical care side, I know you're going to hold off in terms of the launch of the hemodynamic system. I was wondering, what's your strength when you think you'll have that segment growing again?

Yeah. I mean, I don't think it's an easy - I don't think it's been easy situation there as we've said for long time.

It is a herculean effort for a small company to get a new piece of capital hardware approved. I mean we had double-digit millions into that program over the last number of years, and it's a big victory to get it through the FDA.

I think there is a difference between launch in the sense of limited market release and talking to customer about it, letting the world know that there is innovation coming versus having it absolutely ready from a software bugs, standup service perspective, that's going to take a little bit longer. I'm not comfortable saying there is going to be growth in that business, certainly not for this year, right our guidance been reflect that and again that's one of those we'd come back later in the year when we see where we are with getting a product range final version to make it comment about the future.

But, I don't want to give a specific date for returning growth in clinical care.

Yeah, that's fair. And I know there is only so much you can say about your OEM relationship.

But, have you noticed any change in [indiscernible] that for example Pfizer has focused more on Hospira again?

No. I think things for us are pretty much status quo.

I don't think there's anything very, very different.

Okay. That's it from me.

Thanks again.

Hi. Can you hear me?

Yeah.

Perfect.

Hey, Brooks. How are you?

Great, doing well. Thanks for taking the question.

Vivek, I wanted to start from the higher level of more coming into the tail on burning, we've seen maybe some of the best Q1 growth out of medtech at least that I can remember and particular strength in the hospital's supply segment. I wonder what it just gets to the speculate on, what do you think is going on?

And do you feel like we're actually seeing true volume growth return in this fields sustainable just at a macro level?

We study a lot of different things, we study like many businesses, it's sometimes easier to go deeper with the customers you have sometimes and get new ones and certainly it's our product offering broad-ends. We're able to go deeper with our existing customers across different categories, but it's all necessarily volume increases, categories like Oncology are being created, categories like SwabCap are being created.

So, we get to participate in the creation of certain new markets. On the regular day-to-day infusion therapy products, we see differences regionally, we see differences what states that took funding, that didn't take funding from the government.

I know it's difficult to pinpoint that there's a very black and white national answer, we do see the bigger systems winning and we're growing faster with those customers that are growing, but I'm not sure we have a smarter point of view, they're one of the big multivolume suppliers.

Okay. Thanks for that.

And then maybe just follow up question on infusion, again kind of a market question. Are you seeing actual share shifts within the big pump players and I'm just coming off the Baxter Investor Day, they're launching a new line of pumps.

I'm just wondering what you're seeing in terms of no share shifts within the hospital and how that might be impacting your business both near term and longer term. Thanks.

Yeah. We have a - there is a direct, I mean kind of goes back to the first comment when I got here two years ago.

We feel direct pain if an OEM customer of ours is unable to gain infusion pump market share, right. And if they have less pumps, they have less sets that our parts are on.

And we've felt that pain is if you look at our OEM infusion therapy results over the last couple of years, that's exactly what we have experienced, there was a lot of shift in our mind. We are being cautious and are kind of saying both through what we feel in the market and know about the market and what we saw last year in orders to us versus what we believe underlying demand is, that doesn't match up and either share is going to continue to shift or there is a just a mismatch between products that's been ordered and how long it's going to take its way to make it out into the system.

But I think there's a number of globally focused competitors in the space now and the market dynamics have changed.

Right. That's very helpful.

Thanks, Vivek.

Hi. Good afternoon.

This is actually Lee Jagoda for Larry.

Hey, Lee.

Hey.

So, just one quick one from me. Now that you've done a smaller size acquisition and bought some stock back opportunistically.

How should we think about your desire to deploy more meaningful capital ahead of any decision by your key customer?

It's a great question, Lee. It's one we rest every day.

And it's not just a key customer, it's kind of where are we in the grand scheme of evaluations and available assets and other things we deal every day. I think to start with the first one on buyback versus M&A, I think it's intensive small companies to grow and our needs are little bit even more acute than that because we've had historical customer concentration, now we think we'll get down to 30% here or in the high 20s, when this contract ends and as we talked about it before, right, which is - and our profits have changed so much when we make on our own, but the money is still on our minds is better spent in the name of growth and add-on acquisitions and diversification, right.

And our needs are different than others in that. Buyback to us was, you've said the right word, it was much more opportunistic and it look like there was a lot of fear out there in February and we should take advantage of that.

We do the same thing again. And then in terms of anything with our customer, I think we have to be optimistic and plan for the best with them.

So, we don't necessarily believe or read in newspaper. We have to spend our capital wisely, and we are accumulating it at a very nice rate, right now and we know that that's not going to be able to be hold onto forever, right.

But we think we've got enough growth certainly for the balance of this year, and we are staying with margin, et cetera, for next year we have some time to do the right thing.

Okay. And just want to make sure I heard it right earlier.

In terms of hospital, you were saying this year, you would expect them to stabilize. And next year, we should expect some growth but then stabilize at a higher level is that had a thing...

No, I'm sorry, if I wasn't - I'm sorry Lee, I wasn't clear. We are confirming what we said in our previous two calls, which is we expect them to be down roughly 10% or $10 million, 2016 over 2015.

What we believe to the previous question and what's going on in the broader market. We do see a lot of share in customer activity happening, but we see kind of bullets of that going on, right now.

And we think that will settle I think at next year, and we believe to be more of a plateau next year. Look, and we may be wrong in that, we've been - for two years, we've been fairly medicine to have a long-term view on that, but I think we've just seen enough shares that we think, we're going to bounce of the bottom here somewhere, and we kind of feel that could be next year.

Okay. Very helpful.

Thank you.

Good afternoon. Thanks for squeezing me in here.

I guess, I just want to revisit the production issue, you mentioned in the first quarter was little unclear. Was there an impact on first quarter sales or gross margin in the quarter?

No. There wasn't really an impact in sales in the quarter, Jason.

But there - the remediation of that which was playing catch up a little bit in March and into early April will affect Q2.

On the sales or gross margin line of that?

On the gross margin line in Q2.

Okay. And I also wanted to ask you about the strength and gross margin, you mentioned a few factors.

I think the shutdown of Slovakia, the integration of SwabCap and it sounds like steady. I was talked there were more kind of back half 2016 kind of 2017 drivers, but your gross margin clearly in the first quarter was probably the highlight of the quarter.

So I'm just wondering outside of - I'm guessing some contribution from FX, what were the other sources of the gross margin strength in the first quarter?

Well, I was hoping the $7 million of EBITDA growth. I'll let Scott by law, I mean I would think about it as gross margins with half currency, half production gains on the floor.

I think we'll have a little bit of the number, we're talking about the numbers are small movement here. But downward pressure in Q2 as they catch up and then get back to these kind of levels later in the year and the points I was trying to make around Slovakia and SwabCap the high hanging fruit, those are tough choices and we should be getting the benefit of that next year, that could be taken from its of currency went away from us or we're buying the clients that are different from our current OEM and expectations [indiscernible].

But we're trying to say there has been a multi-year journey here on gross margins. Scott?

No, I wouldn't add anything to that.

Okay. I think that's all.

Okay. And I realize you don't want to get into somewhat detail on 2017 here, but as I look to the level here in the first quarter and we look at 2017, you're adding on benefits from the SwabCap integration as well as the full flow back you shutdown.

There's no reason to believe that it's going to call back from these levels, outside of the blip next quarter?

Correct, but if currency changed on us, it will fall from back on that, right, or production volumes changed drastically that will also cause.

Right. Okay.

And then, just curious as to the impact of SwabCap, is it having any impact either reinvigorating your sales force or helping pull through additional connector revenues somewhere?

I think it's just two things on that. It's actually work for the sales force and it's - the company is very lean, right.

As we've said in a good way and that's why margins have gone up, but it's a lot of work to manage the conversion to - remember, Covidien was a legacy distribution partner, there we're doing that all ourselves, getting that cut over and then, some of the new implementation. It's asking a lot of our folks and obviously, they're rewarded for that and excited about that, but it's making us to reflect a little bit on the overall resourcing level and that's why we're making comments should we be making other investments.

I mean that's a good problem, I mean there's revenue out there to get. And on the pull through, I think there's a series of customers we never got access to and it's a new product, it gives us a right to be it, account said we didn't have relationship with historically, right.

They weren't interested in [indiscernible] or whatever it maybe and I think that's a good thing.

All right. A follow-up...

Go in.

Lastly and I apologize if I miss this, but Cogent when will you actually launched the device?

I think right now Jayson we'll be out there and talking to customers about it in a limited market release in a soft launch. But in terms of actually booking a dollar of revenue, so I can see the real launch, that's not going to happen till some point later this year until we get this software, if that not could even drift into late this year, right.

And don't get me wrong we're super happy we got the 510(k) in hand, but it take time to go from a 510(k) to a commercialization. But I view it's another operational commitment we made and we got it done.

All right. Thank you.

Thanks, Jayson.

Thanks, everybody. We appreciate it.

We hope you feel great about Q1. And if you think just like last year Q2 is going to be a really informative call, and we appreciate everybody's support and interest in ICU, and feel free to contact staff, if any other questions.

Thanks very much.