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ICU Medical Inc  (NASDAQ:ICUI)
Q3 2018 Earnings Conference Call
Nov. 08, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

John Mills -- Partner

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 want 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 Events Calendar and it will 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 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 the Vivek.

Vivek Jain -- Chairman and Chief Executive Officer

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 dialogs 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 toward 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 cut over 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 for both an income statement and balance sheet perspective as margins and our cash position continued 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 cut over 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 the balance sheet to finish strong even with a little less revenues.

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 US growth in Q3. This is the segment where we have the most advantage now as a joint entity and we are 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 believe 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 expectation, 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 a quarter of the decline was due to the cut over of roughly $5 million or $6 million. Second, and also equal to about a quarter 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 of 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're 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 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 what 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 that was 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 more competitive supplier over time. We have discussed on the previous calls, the benefits of increased production in a full manufacturing network. So the negative margin effect if there does turn out to be less volume over time has been in our minds.

At the outset of the acquisition of Hospira, we believe that we have lost a substantial amount of contracted business and significant production volume in the fixed cost manufacturing environment. The recent events, combined with 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 invested significant resources which is mandatory to be in the business.

To finish the big three, let's talk about Infusion Systems, which is the business selling pumps dedicated sets and software, which is important because it's a business that brings a lot of recurring revenues. This segment did $81 million in revenue and was down 12% year-over-year and was impacted $1 million or $2 million by the cut over. The international business is holding together reasonably well. And the big question has been has the installed base bottomed out and what is 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 of installed base in the last 10 years, but we feel that given our own refreshed 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, but 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 that 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 reliable for many years. When we started the transaction with our defensive mindset 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, where 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, our commitment into short-term decisions. We will continue investing into R&D, which we will start talking about more in the future, continue investing in appropriate capacity expansion, 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 the 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 stand up of the US order to cash, service, and quality IT systems to move away from Pfizer. We have 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 six-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 in 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 in 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 our 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 we can to minimize any disruption and have 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 cut over 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 cut over, 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 improvement shown over the last two quarters have given us a look as to what that opportunity can be. Now that we are certain will 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've talked about it in multiple calls.

We want to be clear on this, because from a bigger picture perspective until we lapped 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 cut over 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 are 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 3 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 being 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 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 as a useful metric, given all the noise of 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're doing against our own goals, and how we feel about our position in the industry. We feel we have actually now stood up and fully carved out the business from Pfizer. We believe we'll 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 net together a geographically diverse set of product lines into an operating company with experienced people and with the 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 improved 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 we deployed, due to the 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 to circumstance, just to be realistic on what's the 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 efforts of all combined company employees to adapt, move forward and focus on improving 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.

Scott Lamb -- Chief Financial Officer

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 solutions 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 of Infusion Consumables were $118 million versus $93 million last year. IV Solutions sales were $114 million. And 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 US IT system cut over 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 number 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 shutdown for maintenance for all four of our factories in July, which puts slight pressure on 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 3 months ended September 30, and were mostly related to our integration of the Hospira business. Now, that most of our significant system cut overs are complete, we expect this cost to come down beginning early next year.

In addition, there was approximately a $19 million non-cash 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 number 5, you can see by starting by taking Q3 results and adding back what was lost due to the cut over, takes us to $280 million starting -- 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 the Vivek already mentioned, we'll run through next year's EPS on our next call.

Now moving onto 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 non-cash 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 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 expenditures 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.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from Matthew Mishan with KeyBanc. You may proceed.

Matthew Mishan -- KeyBanc -- Analyst

Good afternoon. Thank you for taking the question.

Vivek Jain -- Chairman and Chief Executive Officer

Hey, Matt, how are you? Go ahead.

Matthew Mishan -- KeyBanc -- Analyst

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

Vivek Jain -- Chairman and Chief Executive Officer

I think, Matt, you've seen us, it's -- yes at the midpoint there, it does imply a little bit down, it's bumpy right now. We just want to -- we want to be cautious about it, there's not a lot of more analysis in 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 Inc. has been volatile, it has I don't want to sugar-coat that.

Matthew Mishan -- KeyBanc -- Analyst

Right. And then on 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 display issues last year? And is this -- could this be more of a long-term issue as a result of that?

Vivek Jain -- Chairman and Chief Executive Officer

It's kind of the core -- one of the core question. Our view is, we didn't sell enough, right? And whether that's because of hoarding that one 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 rational act because it's not the world's most margin attractive business. So I don't see that today in the market.

Matthew Mishan -- KeyBanc -- 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 potentially upside to plan next year, back into growth initiatives?

Vivek Jain -- Chairman and Chief Executive Officer

I think today 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 solution 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 2017 and Q1 of 2018, that -- we don't want to not draw attention to that right now. I think once all the separation is on, once all the TSAs on, 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 via a little bit of organic innovation. Our 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 in 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 call is 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.

Matthew Mishan -- KeyBanc -- Analyst

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

Vivek Jain -- Chairman and Chief Executive Officer

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 you 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 higher growth asset, everybody is chasing the same finite number of higher growth assets, and you have to be willing to accept a lower return, and there's not tons of them around candidly.

We have it 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.

Matthew Mishan -- KeyBanc -- Analyst

Thank you very much.

Vivek Jain -- Chairman and Chief Executive Officer

Thanks a lot for this interest. Appreciate it.

Operator

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

Jayson Bedford -- Raymond James -- Analyst

Good afternoon. Thanks for taking the questions. I'll probably jump around a little bit here. So I guess in the third quarter, related to the cut over, the $10 million to $12 million revenue impact. You mentioned that you're still a few days away on fulfillment. Are you expecting a snap back to occur in the fourth quarter from a revenue standpoint? Or should we view this revenue is kind of lost revenue?

Vivek Jain -- Chairman and Chief Executive Officer

I mean, it's a little bit different by different business units and product categories, Jayson. 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 is no other alternative. So it depends on which category. I think what you're seeing in our -- to the previous questions in 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's still makes a difference.

Jayson Bedford -- Raymond James -- Analyst

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

Vivek Jain -- Chairman and Chief Executive Officer

No.

Jayson Bedford -- Raymond James -- Analyst

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

Vivek Jain -- Chairman and Chief Executive Officer

I think you are 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 -- Raymond James -- 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 -- Chairman and Chief Executive Officer

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

Jayson Bedford -- Raymond James -- Analyst

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

Vivek Jain -- Chairman and Chief Executive Officer

No, I think it's pretty, correct.

Jayson Bedford -- Raymond James -- Analyst

Okay. Wanted to ask about gross margin, clearly solutions was depressed 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 shutdown and why was it margins strong given the softer top line?

Vivek Jain -- Chairman and Chief Executive Officer

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 consumable 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 is still risk if you had volume decreases in certain factories that could get worse, but right now we feel kind of OK about where we are there. It wasn't that long ago, we were talking about trying to get to 40%, right?

Jayson Bedford -- Raymond James -- Analyst

No, no, you'd clearly made some big strides. Scott, you mentioned 43% to 44% gross margin for the foreseeable future. Is that the assumption implied in your 2019 EBITDA guidance?

Scott Lamb -- Chief Financial Officer

Yes, that's part of it.

Jayson Bedford -- Raymond James -- Analyst

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

Scott Lamb -- Chief Financial Officer

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

Vivek Jain -- Chairman and Chief Executive Officer

Yeah. But what you saw was the 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 obviously get 10 this year, we got a little in Q2 more in Q3, both those things annualized into the fourth. And then we're still paying Pfizer, a little bit for wind down, in archiving and the like. And so the lights really go dark with them on January 1, that's why that's a incremental number, Scott was talking about.

Jayson Bedford -- Raymond James -- Analyst

All right. Thanks guys.

Vivek Jain -- Chairman and Chief Executive Officer

Thanks, Jayson.

Operator

(Operator Instructions) And our next question comes from Larry Solow with CJS Securities. You may proceed.

Larry Solow -- CJS Securities -- Analyst

Great, thanks. Good afternoon. just a few follow-ups there. Vivek, on the consumables piece, you're still pretty solid 11% growth in the quarter excess (ph) the cut over a little bit down sequentially, but like I said it's still a very good growth. You did mention a little bit of a slowdown domestically, so actually that makes even more surprised that you had a good growth. Anything that caused that? Has that rebounded?

Vivek Jain -- Chairman and Chief Executive Officer

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 US piece was probably down a little bit there.

Larry Solow -- CJS Securities -- Analyst

So do you think going forward, does that -- is there still a little bit of a knock-off effect from those -- from the solutions business, on the consumables --

Vivek Jain -- Chairman and Chief Executive Officer

There are many things, 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 in consumables, is correlated, which is not half the whole consumables segment but somewhere between 0 and 0.5.

Larry Solow -- CJS Securities -- Analyst

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

Vivek Jain -- Chairman and Chief Executive Officer

Again, we are not -- Larry 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.

Larry Solow -- CJS Securities -- Analyst

And just turning back on the solution side, so obviously, the inventory that the shortages in the industry led to big swings inventory, that was fixed. Outside of that and this maybe hard to read, but have there been any protocol changes, different alternatives the ways of delivering stuff, IV push or other methods that can perhaps going forward keep demand lower?

Vivek Jain -- Chairman and Chief Executive Officer

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 -- it's our role to have opinions on those things right? And we had opinions on those things and we still didn't get exactly where we got to.

Larry Solow -- CJS Securities -- Analyst

Okay. Turning to the pump side, it sounds like things are stabilizing, as you look out over the next few years. I think I know you have stated that you think your product is as good as the others. at least technologically speaking and whatnot. Any reason to believe that you can at least grow with the market on that side?

Vivek Jain -- Chairman and Chief Executive Officer

I feel like -- 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 ends up, we're OK on a revenue stability from here. The pumps are the most complex sale that the competitors each fight or where it's got the longest time and into the kind of most perception issues to overcome. So I think we feel very good and you 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 X, Y, Z happens and when given any (ph) you can't change your strategy, that was the point we're 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.

Larry Solow -- CJS Securities -- Analyst

Right, OK. And then just lastly, just a longer-term question. Obviously you've made it clear that you are open to a larger acquisition or a 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 -- and you put out pretty strong balance sheet, are there opportunities smaller, mid where you can -- it still holds or add adjacent stuff products that could help you grow?

Vivek Jain -- Chairman and Chief Executive Officer

Yeah, I do feel like we have a small income statement right, relative to what devices have become (ph). 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 the -- 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 deals, they're coming off a pretty brutal integration. I think if something is sensible out there to do, that positions us and creates a good logical global competitor we're interested of course, right? And that's our job. And it's -- but it comes down to the capital deployment and value creation for our shareholders and all that other stuff. So I don't think that this -- even at our size or a smaller player in the industry, I don't think a smaller player in the industry can say I ignore what's going on out there, that's not realistic.

Larry Solow -- CJS Securities -- Analyst

Right. Great. Okay, great. Thanks.

Vivek Jain -- Chairman and Chief Executive Officer

Okay. Thanks, Larry.

Operator

Thank you. 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 -- Chairman and Chief Executive Officer

Thanks, folks for continued interest in ICU Medical. It was a big quarter for us with these systems conversions. I want to thank all the employees that are working nonstop on this project and to keep fighting and to 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 going to 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 closed, 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 and you may all disconnect. Everyone have a great day.

Duration: 50 minutes

Call participants:

John Mills -- Partner

Vivek Jain -- Chairman and Chief Executive Officer

Scott Lamb -- Chief Financial Officer

Matthew Mishan -- KeyBanc -- Analyst

Jayson Bedford -- Raymond James -- Analyst

Larry Solow -- CJS Securities -- Analyst

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