ICU Medical Inc

NASDAQ:ICUI

Earnings Call Transcript 2018-Q3

[John Mills, executive]

Thank you, everyone, for joining us for ICU Medical's Third Quarter Conference Call. On today's call, representing ICU Medical, is Vivek Jain, Chief Executive Officer and Chairman; and Scott Lamb, Chief Financial Officer. We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To read the presentation, please go to our investor page and click on Events Calendar and it'll be under the Third Quarter 2018 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 representation of future results and are subject to risk 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 risk and uncertainties that have a direct bearing on operating results and financial position.

Please note that during today's call, we will also be discussing 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 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.

[Vivek Jain, executive]

Thanks, John. Good afternoon, everybody. The third quarter of 2018 marked the second complete year-over-year quarterly comparison period of owning Hospira Infusion Systems, and we continue to balance our time between active customer dialogues to improve our commercial execution and being deeply in the midst of integration to create a single unified company. We continue to execute well through a large volume of activity and made substantial steps towards the full integration of Hospira Infusion systems.

On today's call, we wanted to first, comment on Q3 results and discuss our current view of the business and recent performance trends; two, provide the latest status on our integration work and cutover and highlight some of the successes and the remaining near-term challenges; three, provide our latest view on financial expectations for the balance of 2018; and a preliminary look at 2019 as we've done on our Q3 calls over the last few years; and lastly, reiterate some thoughts on the longer-term value creation at a high level from both an income statement and balance sheet perspective as margins and our cash position continue to improve.

The short story on Q3 was it was a clean quarter as it relates to any lingering transactional noise, but it was a choppy quarter due to our systems cutover and sluggish sales in certain of our business lines. The income statement was straightforward with revenues that were generally in line with our expectation for Infusion Consumables and Infusion Systems, but lower in infusion solutions and with margins and a balance sheet that finished strong even with a little less revenue. We finished the quarter with approximately $305 million in adjusted revenue. Adjusted EBITDA came in a little over $68 million, and adjusted EPS came in at $1.85 and we added approximately $26 million of cash to finish the quarter with net cash of $359 million on our balance sheet. Pro forma revenue was down 10% quarter-over-quarter due to weaker-than-expected sales in IV Solutions and due to about two to three days of order and shipping blackout, roughly $10 million to $12 million, related to our systems conversions.

Turning to the individual segments, and please use Slide 3 in the posted deck for a base comparison. So let's start with Infusion Consumables, which is our largest business. Infusion Consumables had revenues of $118 million in Q3, which implied 7% growth year-over-year. Both core IV therapy and oncology grew nicely and with more OUS than U.S. growth in Q3. This is the segment where we are the most advantaged now as a joint entity and we're hard at work on rationalizing the product portfolio and bringing together the operational efficiencies of the combination.

Commercially, we have all the pieces, all the technology and all the scale to compete globally and should be able to offer more value to the customer. On the last call, we stated we believed this segment could grow high-single digits in full year 2018, and we continue to have that view. We continue to feel positive about this segment into 2019.

The second segment to discuss is Infusion Solutions. This segment reported approximately $93 million in revenues, equaling a 26% decline year-over-year, which was below our expectations as the unique temporary industry issues have largely been resolved. In Q3, revenues were down sequentially $23 million and we wanted to highlight the three primary reasons for the sequential decline in revenues: First, we believe 1/4 of the decline was due to the cutover, or roughly $5 million or $6 million; second, and also equal to about 1/4 of decline, we saw volume decreases with our acute committed customers that was really most pronounced in August; and third, while we've always expected some of the trading uncommitted business to leave our book, we did not offset that with enough new unit sales.

We said on the previous calls that investors should not assume that historical results should be annualized in this segment. We've been very focused on the longer term, but we want to be clear, verbatim from the first presentation on the transaction: we are going to make economically rational decisions and not sell products at a loss. We budgeted our earnings cautiously to anticipate bumps and just because of variances, we are not going to reshape our value proposition to the customer.

We've said for the medium term that the run rate of this business was more in line somewhere between Q2 and Q3 2017 levels, i.e., before the market shortage occurred and appropriately corrected for us getting more contracted volume at less trading-oriented prices.

We generally still have that view over time, but it's better to be cautious and modify our assumption to a lower level than that going forward in the near term. Given the increased sales due to the industry shortage from Q3 2017 through Q2 of 2018, we expect this segment to have negative year-over-year results through Q2 of 2019 even if the sequential run rate improves over Q3 2018. We feel like we've been clear about this on previous calls but wanted to reiterate that as it will impact total company growth rates for the first half of 2019.

We've been trying to operate with transparency to customers by illustrating the generic drug-like regulatory framework, high capital expenditures and value in a healthy supply side situation to a business with a historical pricing anomaly. From a value perspective, we've sacrificed short-term revenues and profits for longer-term supply contracts, which we believe offers us more NPV and makes us a more competitive supplier over time. We have discussed on the previous calls the benefits of increased production and a full manufacturing network. So the negative margin effect, if there does turn out to be less volume over time, has been on our minds.

At the outset of the acquisition of Hospira, we believed that we had lost a substantial amount of contracted business and significant production volume in a fixed cost manufacturing environment. The recent events, combined with the logical integrated value proposition, even with the Q3 decline, have enabled us to improve the amount of business we have under long-term contract and better allows us to fill up the factory we acquired in Austin with more volume.

We've been heavily investing, as reflected in our CapEx, to increase our own Austin capacity, which can give us the option to further increase output when combined with our production option through 2024 with Pfizer Rocky Mount or to move away from Pfizer Rocky Mount if market conditions change. We believe that was one of the attractive aspects of the structure we laid out originally with Pfizer and allows us to keep maximum flexibility.

In the event that volume does not materially come back, we have the flexibility to move more into Austin and move away from Rocky Mount, which would help offset the negative margin impacts of lower volume.

However, that would consume up a major item we had thought about for 2020 margin improvement, but we have to plan for all scenarios even if unknown today.

Lastly, we continue to be vigilant here on quality as Hospira and Pfizer invest in significant resources, which is mandatory to be in the business. To finish the Big 3, let's talk about Infusion Systems, which is the business selling pumps, dedicated sets in software, which is important because it's a business that brings a lot of recurring revenue. This segment did $81 million in revenue and was down 12% year-over-year and was impacted $1 million to $2 million by the cutover. The International business is holding together reasonably well and the big question has been, has the installed base bottomed out and what does the revenue stability look like going forward? Our view is generally unchanged from the previous call with the belief that the segment is very close to bottoming out with the lowest level installed base in the last 10 years, but we feel that given our own refresh schedule on order book that revenues have stabilized at this level for the near future. Just to be clear, we measure bottoming out by the installed base of devices, not quarterly revenues as we care about the actual devices installed and running in the marketplace, as this drives the recurring revenues of the business.

To finish the discussion on the segment, since we acquired Hospira, we've been actively calling on customers and trying to illustrate the value we can add to the system and the value to the system in having us as a healthy participant. While it's a long journey, we do believe that this message is resonating. Feedback on the products continue to be solid. The products are necessary for the system and are reliable for many years. When we started the transaction with our defensive mind-set for doing it, we looked at the business and saw roughly 50% of the total business, Infusion Consumables and the international portion of Infusion Systems, where we had a good offering and right to win.

Today, with more than 18 months of ownership under our belt, even with some bumpiness, we see a somewhat better picture where we believe we have a right to win in most of the portfolio, with really the domestic portion of our Infusion Systems segment as a key challenged area, and we're working hard to address that business. We never assumed it was always a straight line up and even a little volatility doesn't turn our focus or commitment into short-term decisions. We will continue investing into R&D, which we'll start talk about more in the future, continue investing in appropriate capacity expansion in our production network and into commercial resources to serve our customers where it makes sense.

The attractiveness of the industry structure and commitment required to break through a lot of the inertia merits that point of view.

On integration. Q3 and early Q4 has been the most complex period to date. We have done what we were calling the main event, the full standup of the U.S. order-to-cash service and quality IT systems to move away from Pfizer. We've also stood up our Costa Rican manufacturing plant and the only remaining item is our Austin factory, which runs on its own older, but functional separate system from Pfizer. We now run a single instance, globally, of an ERP and quality and service platform. I can't really understate how much work this was. It was really the true integration of the business from Pfizer, Hospira and even legacy Abbott systems.

The 6-week delay we outlined in the last call turned out to be necessary and these projects, often for the right reasons, fill up the total time allotted. But like all conversions and similar to what we have experienced in the warm-up act of the international markets, there are bumps and bruises that come along the way. We still have a handful of technical issues to mitigate and a series of what I would call synchronization issues across ordering, production, shipping, et cetera. We're a few days behind in fulfillments, but catching up rapidly, and we don't really know right now what the impact of this is on Q4.

As we've said before, our customers don't care about any of this unless it affects them negatively. So we're working flat-out to clean up the open issues. But we care about it because it first offers deep value in the form of operational improvements realized over time and starts to show in 2019; and two, it sort of supersizes us for the ability to handle more on these platforms when we are through this integration. While we have never targeted a specific EBITDA margin, these integration activities, at a minimum, help us hold margin and in a better case, help us improve margins.

Okay. Onto other housekeeping items. First, it was a quiet quarter from a quality or audit perspective with no scheduled inspections. Second, nothing is new on the strategic commentary from the last call. Lastly, we did want to remind everyone that we've now passed the Pfizer lockup expiry. They have been great supporters and we view them as sophisticated investors and bound as any VC would be, but we will support them in any way can to minimize any disruption. I've been thinking about that for a while. To bring all of this back to the topic of earnings results and how we think about the balance of 2018 and into the future, it's hard to say right now, through the cutover with the choppy revenues, exactly where Q4 will land, but we believe we will deliver adjusted EBITDA and adjusted EPS that puts us above our previous guidance. So we would modify our 2018 EBITDA range up $10 million, and Scott will go through it -- through EPS.

We would expect consumables to get back to sequential revenue growth in Q4. We commented on more stable pump revenues, and IV Solutions are bouncing around more than we would like right now. And when combined with still a little cleanup from the cutover, it's prudent to be cautious on our range modification.

Moving to the medium term of 2019. As we've said for a number of quarters, we continue to have a view that we can improve our profitability regardless of the revenue environment. We believe that the improvements shown over the last two quarters have given us a look as to what that opportunity can be. Now that we are certain we'll be off all Pfizer systems this year, we can start adding our TSA savings to some of the deeper synergies available to us from being on a single platform and add those to the base improvements we've already done. That allows us to see a case for margin improvement without significant revenue growth assumptions, as we have talked about on multiple calls. We want to be clear on this because from a bigger picture perspective, until we lap the IV Solutions sales from the shortage quarters, it will be difficult to deliver aggregate company revenue growth even if the other business segments are doing fine.

This will likely go through Q2 of 2019. Even though we are not totally through the cutover stabilization and have some revenue volatility, we did want to try to frame up 2019 with an early view as we have on our Q3 calls over the last few years. We did want to give a slightly wider range than we have historically, as we're bigger now and given recent results. We will tighten it up as we normally do on the subsequent calls.

For 2019, we believe EBITDA can be in the range of $315 million to $340 million based on a few assumptions. We started with our Q3 profitability and added back profits we think we lost due to the blackout. We annualized that and to that added three buckets: first, the TSA savings, which we believe are worth $20 million to $30 million incremental in 2019; second, the series of deeper operational synergies worth between $7.5 million to $15 million; and third, contribution from increased revenues, also $7.5 million to $15 million.

We did want to note that we have not fully yet modeled through adjusted EPS, but it's unlikely to be in the exact drop through as we have a bit more depreciation from all the integration activities. We had some tax favorability this year that is better -- at the moment better to assume that it won't repeat, and we have increasing interest income as our cash balance grows and rates improve. Also to note at some point, we will need to begin adjusting for currency, as we haven't done that before and the spread between USD and certain local currencies and geographies has moved a lot recently.

As always, what really matters to us for value creation in the longer term, outside of servicing our customers, is real free cash generation. While adjusted EBITDA is a useful metric given all the noise of the transaction, it's important to get these real cash expenses of integration behind us and focus on the real free cash generation for the longer-term value creation. If we can have the strongest balance sheet possible in 2019, which we believe will be around $500 million of cash on hand at some point in 2019 with no debt, and have an infrastructure as a company that can handle more and have continued margin improvement opportunities in our base business with minimal revenue growth assumptions, we think we have a case for continued value creation and the ability to protect our long-term shareholders.

It's been just over 18 months since we purchased Hospira Infusion Systems, and we continue to evaluate how we are doing against our own goals to how we feel about our position and the industry. We feel we have actually now stood up and fully carved out the business from Pfizer. We believe we will be in a financial position to get fully back to our pre-deal cash levels in the first half of next year. We know we have knit together a geographically diverse set of product lines into an operating company with experienced people and with a margin profile that starts to look more like a traditional device company. And we feel lucky that the confluence of these actions has allowed us time to keep working on the stability in all the different lines of business. And all of this is in a consolidated industry structure with a number of intrinsic value drivers, including high-quality or hard to reproduce production assets, sticky product categories and the opportunities for more cash generation.

Our goals are just like our previous experiences, to first enhance margins and then improve overall growth. In the best case, we'll have better execution to improve our top line performance over time, drive operational improvements and improve cash conversions and returns. In the worst case, we continue to fight headwinds on the top line, but we can still drive operational improvements and generate solid cash returns over time, relative to capital redeployed due to levers I just mentioned. We feel that we've been very transparent with investors on our plans over the last few years and cautious with our own expectations, and we want and need that mentality to continue. Not to talk down or talk up the circumstance, just to be realistic on what's ahead of us.

As always, I'd like to close with things are moving fast. We're trying to improve the company with urgency, and we're trying to take responsible actions and break some of the inertia that many companies in our position face. We have hit some bumps, and we'll take some of these actions and we'll overcome them and emerge stronger. I really appreciate the effort of all combined company employees to adapt, move forward and focus on improving results. And our company appreciates the support we've received from both our customers and our shareholders.

And with that, I'll turn it over to Scott.

[Scott E. Lamb, executive]

Thanks, Vivek, and good afternoon, everyone. First, I'll walk down the income statement, highlight key items impacting operating performance, finish with some added detail to our upgraded guidance for the year and speak briefly about next year's initial look at adjusted EBITDA.

So to begin, our third quarter 2018 GAAP revenue was $327 million compared to $343 million in the same period last year. Also please remember the $327 million and $343 million includes $21 million and $19 million, respectively, of contracted solution sales to Pfizer, which we sell to them at cost. As already described by Vivek, on a pro forma basis, revenue decreased 10% year-over-year driven by solutions, down 26% and systems down 12%, offset by a 7% increase in consumables.

Adjusted diluted earnings per share for the third quarter of 2018 were $1.85 as compared to $1.12 for the third quarter of 2017, and adjusted EBITDA was $68 million for the third quarter of this year compared to $55 million last year.

Now let's discuss our third quarter GAAP revenue by product line. And as a reminder, the 2017 revenue related to delayed closing entities was not available by product line and was recorded as Other revenue. However, by the end of December, all delayed-close entities were closed. So for your reference, the 2017 and 2018 pro forma unaudited revenue numbers can be seen on Slide 3 of the presentation.

So GAAP sales in Infusion Consumables were $118 million versus $93 million last year. IV Solutions sales were $114 million. Excluding the previously mentioned contract sales to Pfizer, IV Solutions sales were $93 million versus $125 million last year. And just to repeat what Vivek already mentioned, this quarter, we saw some temporary impact from the U.S. IC system cutover and a decrease in demand.

Sales of Infusion Systems were $82 million compared to $83 million last year and Q3 sales of critical care were relatively flat year-over-year at $13 million.

For the third quarter, our GAAP gross margin was 41.1% compared to 32.5% last year. And as you can see from Slide #4, backing out the contract manufacturing sales to Pfizer, our adjusted gross margin was 44.1% versus an adjusted gross margin of 36.7% last year. This year-over-year increase was helped, primarily through the operational efficiencies in our plants and product mix, driven primarily by consumables. And to note, we had our routine factory shut-down for maintenance for all four of our factories in July which put slight pressure in our gross margins in the third quarter when compared to the second quarter of this year. We continue to believe adjusted gross margins should remain between 43% and 44% for the foreseeable future.

And as expected, year-over-year SG&A increased $1 million and went from 22% to 24% of revenues. Sequentially, spend was down, primarily due to some TSA savings from Pfizer and favorable timing on various operating expenses. And R&D expenses were basically flat year-over-year.

Restructuring, integration and strategic transaction expenses were $24 million for the three months ended September 30 and were mostly related to our integration of the Hospira business. Now that most of our significant system cutovers are complete, we expect this cost to come down beginning early next year.

In addition, there was approximately a $19 million noncash adjustment this quarter to the carrying value of our contingent consideration payable to Pfizer. This is based on reaching a certain cumulative earnings target by the end of 2019. These changes impact our GAAP earnings but are excluded from our adjusted earnings since this has nothing to do with the operational performance of the business.

For modeling purposes, we believe our tax rate for the fourth quarter should be approximately 23% to 24% and our full year average fully diluted share count to be approximately 21.5 million shares.

As Vivek already mentioned, based on what we are seeing for the remainder of this year, we are raising our 2018 guidance for adjusted EBITDA from a range of $270 million to $280 million to a range of $280 million to $290 million, and adjusted EPS from a range of $8.30 to $8.70 to a range of $8.45 to $8.85.

Now looking forward to 2019. We should continue to see growth in earnings and believe our adjusted EBITDA should be in the range of $315 million to $340 million. And when turning to Slide #5, you can see by starting -- by taking Q3 results and adding back what was lost due to the cutover, takes us to $280 million start rate.

Next, we expect to see net cost savings next year of $20 million to $30 million related to coming off the Pfizer TSAs and running the business on our own. We believe there are additional $7.5 million to $15 million of operational synergy savings available throughout the company and another net $7.5 million to $15 million coming through regular earnings growth in the business. And as Vivek already mentioned, we'll run through next year's EPS on our next call.

Now moving on to our balance sheet and cash. In this quarter, we generated $51 million of operating cash and $24 million of free cash flow and ended with $359 million in cash and investments. This was largely driven by cash earnings and a small decrease in noncash working capital. And by the end of the year, we still expect to have between $375 million and $400 million in cash.

In the third quarter, we spent $27 million on CapEx for general maintenance, system integration and capacity expansion. And as we've said on our last call, we expect to spend up to $100 million for this year and estimate we'll spend approximately the same for next year. But over time, we still expect expense shares to come down to approximately 3% to 5% of revenue. And finally, I'd like to say that now that we have most of the integration behind us, we are looking forward to the benefits of beginning on one integrated system and being able to spend even more time focused on continuing to run and grow our business. And with that, I'd like to turn the call over for any questions.

[Operator]

[Operator Instructions] And our first question comes from Matthew Mishan with KeyBanc.

[Matt Mishan, analyst]

Good afternoon. I'll start with the 2018 EBITDA guidance. It implies a fourth quarter EBITDA that's flat to slightly down from where you were at in the third quarter. Why is that not taking a step up post, call it, a transitional third quarter? And why the wide range?

[Vivek Jain, executive]

I think, Matt, you've seen us. Yes, the midpoint there, it does imply a little bit down. It's bumpy right now. We just want to be cautious about it. There's not a lot more analysis than that. We see consumables acting normal. We kind of think we know where we are, at least, for the next number of quarters on pumps, but the solutions, things have been volatile. It has, I don't want to sugarcoat that.

[Matt Mishan, analyst]

All right. And then on solutions, or IV Solutions, there has been a lot of industry supply that's been coming back on the market. Do you think the industry may have overcorrected for the supply issues last year? And is it -- could this be more of a long-term issue as a result of that?

[Vivek Jain, executive]

I guess it's kind of one of the core questions. Our view is we didn't sell enough, right? And whether that's because of hoarding that went on or whatever, we had our own expectation of how that overage was bleeding out, and we saw it bleeding out for two months. It just kept bleeding. I do believe markets are efficient, and capacity and supply equals demand over the long term. I don't really feel like that's massively out of balance today. And I think everybody's a pretty a rational actor because it's not world's most margin-attractive business. So I don't see that today in the market.

[Matt Mishan, analyst]

Okay. And as we think about the 2019 guidance, should we be thinking about ICU transitioning from integration work to more of a growth story in 2019? And how are you thinking about balancing kind of reinvesting some of, potentially, upside to plan next year back into growth initiatives?

[Vivek Jain, executive]

I think the day is absolutely going to come where we have to talk more vocally about new products and how we want to build value around our current offerings. I do feel like for the first half of next year as we lap the solutions shortage issues, it's really hard to talk about growth in the whole company sense because the solution sales were so high in Q1 -- or Q4 of '17 to Q1 of '18. We don't want to not draw attention to that right now. I think once all the separation's done, once all the TSA is done, once we lap all those issues and if consumables keeps doing what we think it can do and if the pump business stabilizes and does what we think we can do over time, and either it be a little bit of organic innovation or M&A, we ought to be able to supplement it. That is our formula, but I don't think that's what it's going to look like, at least in the first quarter and likely into the second quarter of next year with the headwinds. That's why we sort of knew this has been coming for a while. Why we kept saying on the calls that in a low revenue growth environment, we can still drive earnings value because that's what it's going to be for the next bit. So we're not quite at that growth phase yet.

[Matt Mishan, analyst]

And then last one. I guess just putting Smith aside, what does the pipeline look like for M&A? And what kind of criteria would you need to hurdle to do a deal?

[Vivek Jain, executive]

A very broad question. I mean, our balance sheet isn't lost on us, right? So I think I'd start with that. Two, I believe our shareholders gave us tremendous trust even pre-Hospira with the cash that we held onto till the right moment presented itself and it might be one of those moments where we have to hold, still, for a while. And, obviously, we've seen other people in the industry say, common sense, things like that right now. I think it's different for different deals, right? If it is a home renovation, you have to think about returns at a different rate than if it's a higher growth asset. Everybody's chasing the same finite number of higher growth assets, and you have to be willing to accept the lower return. I mean, there's not tons of them around, candidly. We haven't spent a lot of time looking. As we've gotten through this systems conversion that does free up some more time. We put some people into jobs to start working on those things again, but it hasn't been a focus for the last three months. The last -- what we've done over the last four weeks here has been half of our focus.

[Operator]

And our next question comes from Jayson Bedford with Raymond James.

[Jayson Bedford, analyst]

I'll probably jump around a little bit here. So I guess in the third quarter, related to the cutover, the $10 million to $12 million revenue impact, you mentioned that you're still a few days away on fulfillments. Are you expecting a snap back to occur in the fourth quarter from a revenue standpoint? Or should we view this revenue as kind of lost revenue?

[Vivek Jain, executive]

It's a little bit different by bit different business units and product categories, Jason. That's why we don't exactly know. In the Solutions business, if someone needed something that day and we were a little behind, it would be gone. If it was a dedicated pump set, that eventually would come back because there are no other alternatives. So it depends on which category. I think what you're seeing in our -- to the previous questions and our guidance view, our view, it's better to say today that it's not going to snap right back. These things are bumpy. And by and large, we're amazed how much of it is actually working, but it's that last 3%, 4%, 5% that still makes a difference.

[Jayson Bedford, analyst]

Okay. On solutions. Can you talk about pricing, not so much from your exact pricing? I'm just wondering if there was a trend in the quarter.

[Scott E. Lamb, executive]

No.

[Jayson Bedford, analyst]

Meaning it was flattish versus similar quarters outside of maybe the trading business?

[Vivek Jain, executive]

I think you're hearing us -- one, we don't really want to talk about pricing by individual products or -- I think you're hearing us say we had no material change in price in any of our lines of business.

[Jayson Bedford, analyst]

Okay. And I think you guys were having some issue on supply in the small volume. Does that come back in the fourth quarter assuming the demand is there?

[Vivek Jain, executive]

It should, assuming the demand is there. We have improved from a manufacturing perspective, mostly better. But again, every quarter, there are a few items here and there. We still have a few little outstanding things, but by and large, we're better.

[Jayson Bedford, analyst]

Okay. And maybe just the last top line question I had. If my math is correct, consumables, the business had about a $4 million impact from the cutover, which, if I add that, it looks like you're closer to about 11% growth. Am I off in that math?

[Vivek Jain, executive]

No, I think it's pretty correct.

[Jayson Bedford, analyst]

Okay. I want to ask about gross margin. Clearly, solutions was depressed. The gross margins at 44% on adjusted basis. That was pretty good. So I guess, the two questions I have are: one, what was the impact on a basis point basis of the plant shut down? And why was margin strong given the softer top line?

[Vivek Jain, executive]

I think a couple of things, Jayson. We don't have the basis point impact of the plant shutdown. We really don't. We don't worry about it at that level. The higher mix of consumables as a proportion of our business, if you go back to old ICU margins, the better that makes margins. As long as you have a minimum volume of business running through your solutions factories, right? If you had a material decrease in that, it would go in the other direction, right? So it's really mix and the efficiencies we've worked on since we bought the business. There's still risk if you had volume decreases in certain factories that could get worse. But right now, we've feel kind of okay about where we are there. And it wasn't that long ago we were talking about trying to get to 40%, right?

[Jayson Bedford, analyst]

No. You've clearly, made some big strides. Scott, you mentioned 43%, 44% gross margin for the foreseeable future. Is that the assumption implied in your '19 EBITDA guidance?

[Scott E. Lamb, executive]

Yes, that's part of it.

[Jayson Bedford, analyst]

Okay. And just out of curiosity, most of the TSA savings, are they all recorded in the OpEx line?

[Scott E. Lamb, executive]

Most are in OpEx, but they are throughout the P&L.

[Vivek Jain, executive]

But what you saw was a big decrease, right, in SG&A in Q3. A chunk of that was stuff started to roll off and that's why we said we felt like we always could get 10 this year. We've got a little in Q2, more in Q3, both those things annualizing in the fourth. And then we're still paying Pfizer a little bit for wind-down, archiving and the like and so the lights really go dark with them on January 1. That's why that's that incremental number Scott was talking about.

[Operator]

[Operator Instructions] And our next question comes from Larry Solow with CJS Securities.

[Lawrence Solow, analyst]

Great. So a few follow-ups there. Vivek, on the consumables piece, you're still pretty solid about 11% growth in the quarter, excess the cutover, a little bit down sequentially, but like I said, it's still very good growth. You did mention a little bit of a slowdown domestically. So actually that makes it even more surprising that you haven't had good growth. Anything that caused that? Has that rebounded?

[Vivek Jain, executive]

No. We said August was sloppy for our committed -- or sluggish for our committed acute business. That impacted solutions as well as consumables. Some of that stuff goes hand in hand and that's why the U.S. piece is probably down a little bit there.

[Lawrence Solow, analyst]

So do you think going forward, they're still a little bit of a knockoff effect from the Solutions business on the consumables?

[Vivek Jain, executive]

Yes. There is a portion of that stuff that, obviously, the old ICU stuff is uncorrelated. The international is uncorrelated. Oncology is uncorrelated. But the stuff we got from Hospira that goes into consumables is correlated, which is not half the whole consumables segment, but somewhere between zero and half.

[Lawrence Solow, analyst]

I know you're not providing revenue growth -- guidance next year, at least not yet. But the consumables business, obviously you expect it to still grow perhaps, a little bit slower next year is that a fair assumption?

[Vivek Jain, executive]

Again, we're not -- we've never provided revenue guidance. I think we feel good about our consumables business, right? We have a right to win. We have a clear value prop there.

[Lawrence Solow, analyst]

And then turn back on the solution side. So, obviously, the inventory that -- excuse me, the shortages in the industry led to big swings in inventory. That was fixed. Outside of that and this may be hard to read, but have there been any protocol changes? Do you have alternative ways delivering stuff, IV push or other methods that can perhaps, going forward, keep demand lower?

[Vivek Jain, executive]

I think everybody can point to their own. We didn't sell enough. So I don't want to -- we had a view and we didn't get all the way there. So I don't -- I think it's our role to have opinions on these things, right, and we had opinions on those things, and we still didn't get exactly where we've -- got to.

[Lawrence Solow, analyst]

And turning to the pump side, it sounds like things are stabilizing as you look out over the next few years. I know you have stated, I think, that your product is as good as others, at least technologically speaking and whatnot. Any reason to believe that you can't at least grow with the market on that side?

[Vivek Jain, executive]

I feel like -- and again, we've tried to say we haven't said the words: we think we're at the bottom of the installed base yet, right? We'd like to say that. We said -- we think because of the way the refresh cycle lines up we're okay on revenue stability from here. The pumps are the most complex sale that the competitors each fight over. It's got the longest time and kind of the most perception issues to overcome. So I think we feel very good and don't look at us, look at kind of independent stuff out there. We feel very good about our products, but the sales cycle is long, right? And we got to stay committed to that -- just because XYZ happens in one day, you can't your strategy. That was the point we were trying to make to ourselves, to our people, to our customers. We're not going to do anything differently and so we have to keep competing.

[Lawrence Solow, analyst]

All right. Okay. And then just last, just a longer-term question. Obviously, you made it clear that you are open to a large acquisition, or larger, if something's there, opportunity presents itself. If it doesn't present itself, are there -- as you look out over the next few years, are there -- with a pretty strong balance sheet, are there opportunities, small to mid where you can fill holes or add adjacent stuff, products that could help your growth?

[Vivek Jain, executive]

Yes. I do feel like we have a small income statement, right, relative to what devices have become, and that income statement can be influenced pretty dramatically if you can make good choices on the acquisition front. I mean, we felt that way about some of the international deals we did. We felt that way about Excelsior, we felt that way about Hospira. But we've been so busy we, frankly, haven't been looking a lot. And so we need to start looking again. I don't think we said we have some big appetite for a big deal. We're coming off a pretty brutal integration. I think if something sensible out there to do that positions us and creates a good logical global competitor, we're interested, of course, right? I mean, that's our job. But it comes down to like capital deployment, and value creation for shareholders and all that other stuff. So I don't think even at our size we're a smaller player in the industry. I don't think a smaller player in the industry can ignore what's going on out there. That's not realistic.

[Operator]

Ladies and gentlemen, this concludes our Q&A portion of today's conference. I would now like to turn the call back over to Vivek Jain for closing remarks.

[Vivek Jain, executive]

Thanks, folks, for your continued interest in ICU Medical. It was a big quarter for us with the systems conversion. I want to thank all the employees that were working nonstop on this project and to keep fighting and get the final act done here. And we look forward to -- one of the advantages of being on a single system is we'll be able to close faster. So I hope at some point in 2019, we can start having our calls a little bit sooner after the quarter close, which would be nice also. And we look forward to updating everybody early next year. Have a great holiday season. Thanks.

[Operator]

Ladies and gentlemen, this now concludes the conference call. You may all disconnect. Everyone, have a great day.