ICU Medical, Inc. Announces First Quarter 2017 Results


May 10, 2017

SAN CLEMENTE, Calif., May 10, 2017 (GLOBE NEWSWIRE) -- ICU Medical, Inc. (Nasdaq:ICUI), a leader in the development, manufacture and sale of innovative medical devices used in infusion therapy and critical care applications, today announced financial results for the quarter ended March 31, 2017.

First Quarter 2017 Results

First quarter 2017 revenue was $247.7 million, compared to $89.9 million in the same period last year. GAAP gross profit for the first quarter of 2017 was $88.9 million, as compared to $49.2 million in the same period last year.  GAAP gross margin for the first quarter of 2017 was 36%, as compared to 55% in the same period last year.  GAAP net income for the first quarter of 2017 was $55.9 million, or $2.86 per diluted share, as compared to GAAP net income of $18.2 million, or $1.08 per diluted share, for the first quarter of 2016, which were both adjusted from the previously announced adoption of  FASB ASU 2016-09, Improvements to Employee Share-based Payment Accounting, effective January 1, 2016.

Adjusted net sales for the first quarter of 2017 was $248.1 million. Adjusted gross profit for the first quarter of 2017 was $111.0 million.  Adjusted gross margin for the first quarter of 2017 was 45%.  Adjusted diluted earnings per share for the first quarter of 2017 were $1.68 as compared to $1.26 for the first quarter of 2016. Also, adjusted EBITDA was $50.1 million for the first quarter of 2017 as compared to $32.7 million for the first quarter of 2016.

Adjusted net sales, adjusted gross profit, adjusted gross margin, adjusted diluted earnings per share and adjusted EBITDA are measures calculated and presented on the basis of methodologies other than in accordance with GAAP.  Please refer to the Use of Non-GAAP Financial Information following the financial statements herein for further discussion and reconciliations of these measures to GAAP measures.

Vivek Jain, ICU Medical's Chief Executive Officer, said, "Revenues were in-line with our expectations and our adjusted EBITDA and adjusted earnings per share were slightly ahead of our expectations due to minor discrete accounting and tax benefits. Integration activities are progressing as planned."

Revenues by market segment for the three months ended March 31, 2017 and 2016 were as follows (in millions):

The following market segment results for the first quarter of 2017 includes our legacy business and our Hospira Infusion Systems business from the point of closing of the acquisition, which was February 3, 2017, through the end of the first quarter of 2017.

  Three months ended
March 31,
    
Market Segment 2017 2016 $
Change
 %
Change
Infusion Systems $46.7  $  $46.7  100.0%
Infusion Consumables 75.7  76.7  (1.0) (1.3)%
IV Solutions 97.4    97.4  100.0%
Critical Care 12.4  13.0  (0.6) (4.6)%
Other 15.5  0.2  15.3  7,650.0%
  $247.7  $89.9  $157.8  175.5%
                

The Company ended the first quarter of 2017 with a strong balance sheet. As of March 31, 2017, cash and cash equivalents totaled $201.9 million, working capital was $725.9 million and long-term debt obligations of $75 million.

Conference Call

The Company will host a conference call to discuss first quarter 2017 financial results today at 4:30 p.m. EDT (1:30 p.m. PDT).   The call can be accessed at (800) 936-9761, international (408) 774-4587, conference ID 13657052. The conference call will be simultaneously available by webcast, which can be accessed by going to the Company's website at www.icumed.com, clicking on the Investors tab, clicking on the Webcast icon and following the prompts. The webcast will also be available by replay.

About ICU Medical, Inc.

ICU Medical, Inc. (Nasdaq:ICUI) develops, manufactures and sells innovative medical devices used in vascular therapy, and critical care applications. ICU Medical's product portfolio includes IV smart pumps, sets, connectors, closed transfer devices for hazardous drugs, cardiac monitoring systems, along with pain management and safety software technology designed to help meet clinical, safety and workflow goals. ICU Medical is headquartered in San Clemente, California. More information about ICU Medical, Inc. can be found at www.icumed.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements contain words such as ''will,'' ''expect,'' ''believe,'' ''could,'' ''would,'' ''estimate,'' ''continue,'' ''build,'' ''expand'' or the negative thereof or comparable terminology, and may include (without limitation) information regarding the Company's expectations, goals or intentions regarding the future, and our recently completed acquisition of the Hospira infusion systems business. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about the Company and assumptions management believes are reasonable, all of which are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements. These risks and uncertainties include, but are not limited to, decreased demand for the Company's products, decreased free cash flow, the inability to recapture conversion delays or part/resource shortages on anticipated timing, or at all, changes in product mix, increased competition from competitors, lack of continued growth or improving efficiencies, unexpected changes in the Company's arrangements with its largest customers and the Company's ability to meet expectations regarding the integration of the Hospira infusion systems business. Future results are subject to risks and uncertainties, including the risk factors, and other risks and uncertainties, described in the Company's filings with the Securities and Exchange Commission, which include those in the Annual Report on Form 10-K for the year ended December 31, 2016 and our subsequent filings. Forward-looking statements contained in this press release are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

 
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 March 31,
2017
 December 31,
2016
 (unaudited) (1)
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$201,862  $445,082 
Accounts receivable, net137,699  56,161 
Inventories445,684  49,264 
Prepaid income taxes12,196  11,235 
Prepaid expenses and other current assets86,594  7,355 
Assets held for sale2,508   
TOTAL CURRENT ASSETS886,543  569,097 
    
PROPERTY AND EQUIPMENT, net377,756  85,696 
OTHER ASSETS31,823   
GOODWILL6,583  5,577 
INTANGIBLE ASSETS, net159,135  22,383 
DEFERRED INCOME TAXES11,196  21,935 
TOTAL ASSETS$1,473,036  $704,688 
LIABILITIES AND STOCKHOLDERS' EQUITY   
CURRENT LIABILITIES:   
Accounts payable$37,427  $14,641 
Accrued liabilities121,638  25,896 
Income tax liability1,614   
TOTAL CURRENT LIABILITIES160,679  40,537 
    
EARN-OUT LIABILITY19,000   
LONG-TERM OBLIGATIONS75,000   
OTHER LONG-TERM LIABILITIES68,832  1,107 
DEFERRED INCOME TAXES6,214  1,370 
INCOME TAX LIABILITY1,519  1,519 
COMMITMENTS AND CONTINGENCIES   
STOCKHOLDERS' EQUITY:   
Convertible preferred stock   
Common stock1,980  1,633 
Additional paid-in capital586,212  162,828 
Treasury stock  (14)
Retained earnings572,843  516,980 
Accumulated other comprehensive loss(19,243) (21,272)
TOTAL STOCKHOLDERS' EQUITY1,141,792  660,155 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,473,036  $704,688 
        

______________________________________________________
(1) December 31, 2016 balances were derived from audited consolidated financial statements.


ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)
 
 Three months ended
March 31,
 2017 2016
REVENUES:   
Net sales$231,788  $89,849 
Other15,951  6 
TOTAL REVENUE247,739  89,855 
COST OF GOODS SOLD158,794  40,622 
GROSS PROFIT88,945  49,233 
OPERATING EXPENSES:   
Selling, general and administrative64,886  21,975 
Research and development11,641  3,313 
Restructuring and strategic transaction29,401   
TOTAL OPERATING EXPENSES105,928  25,288 
INCOME FROM OPERATIONS(16,983) 23,945 
BARGAIN PURCHASE GAIN63,237   
OTHER (EXPENSE) INCOME, net(406) 147 
INCOME BEFORE INCOME TAXES45,848  24,092 
BENEFIT (PROVISION) FOR INCOME TAXES10,015  (5,932)
NET INCOME$55,863  $18,160 
NET INCOME PER SHARE   
Basic$3.03  $1.13 
Diluted$2.86  $1.08 
WEIGHTED AVERAGE NUMBER OF SHARES   
Basic18,439  16,042 
Diluted19,549  16,870 


ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
  
 Three months ended
March 31,
 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$55,863  $18,160 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization11,594  4,801 
Provision for doubtful accounts13   
Provision for warranty and returns1,286  39 
Stock compensation4,006  3,808 
Loss (gain) on disposal of property and equipment18  (1)
Bargain purchase gain(63,237)  
Bond premium amortization  528 
Changes in operating assets and liabilities:   
Accounts receivable(82,266) 2,552 
Inventories22,233  (4,866)
Prepaid expenses and other assets(66,573) (3,474)
Accounts payable11,456  (1,383)
Accrued liabilities39,907  (8,014)
Income taxes, including excess tax benefits and deferred income taxes(10,909) 5,145 
Net cash (used in) provided by operating activities(76,609) 17,295 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of property and equipment(16,396) (3,963)
Proceeds from sale of assets  1 
Business acquisitions, net of cash acquired(157,097)  
Intangible asset additions(410) (219)
Purchases of investment securities  (7,061)
Proceeds from sale of investment securities  11,802 
Net cash (used in) provided by investing activities(173,903) 560 
CASH FLOWS FROM FINANCING ACTIVITIES:   
Proceeds from exercise of stock options8,992  5,421 
Proceeds from employee stock purchase plan1,326  1,197 
Purchase of treasury stock(3,718) (16,897)
Net cash provided by (used in) financing activities6,600  (10,279)
Effect of exchange rate changes on cash692  3,630 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(243,220) 11,206 
CASH AND CASH EQUIVALENTS, beginning of period445,082  336,164 
CASH AND CASH EQUIVALENTS, end of period$201,862  $347,370 
        

Use of Non-GAAP Financial Information

This press release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP").  The non-GAAP financial measures should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.  There are material limitations in using these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled non-GAAP financial measures used by other companies, including peer companies.  Our management believes that the non-GAAP data provides useful supplemental information to management and investors regarding our performance and facilitates a more meaningful comparison of results of operations between current and prior periods.  We use non-GAAP financial measures in addition to and in conjunction with GAAP financial measures to analyze and assess the overall performance of our business, in making financial, operating and planning decisions, and in determining executive incentive compensation.  The non-GAAP financial measures included in this press release are adjusted net sales, adjusted gross profit, adjusted gross profit margin, adjusted EBITDA and adjusted diluted earnings per share ("Adjusted Diluted EPS").

Adjusted net sales includes/excludes the following items from net sales:

Excludes contract manufacturing revenue:  We manufacture certain products for Pfizer at cost in accordance with a manufacturing services agreement.  We do not include the contract manufacturing revenue in our adjusted net sales as the revenue under this agreement was negotiated contemporaneously with our acquisition of Hospira from Pfizer and is not indicative of a normal market transaction.

Includes ICU intercompany sales to Hospira: We include intercompany sales to Hospira for inventory that we previously sold to Hospira, which remained on the opening balance sheet of Hospira after its acquisition by ICU.

Adjusted gross profit excludes the following from gross profit:

Adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value: The inventory step-up represents the expense recognition of fair value adjustments in excess of the historical cost basis of inventory obtained through acquisition, these charges are outside of our normal operations and are excluded.

Adjusted gross profit margin is calculated using the adjusted gross profit as a percentage of the adjusted net sales as determined above.

Adjusted EBITDA excludes the following items from net income:

Interest, net:  We exclude interest in deriving adjusted EBITDA as interest can vary significantly among companies depending on a company's level of income generating instruments and/or level of debt.

Intangible asset amortization expense:  We do not acquire businesses or capitalize certain patent costs on a predictable cycle.  The amount of purchase price allocated to intangible assets and the term of amortization can vary significantly and are unique to each acquisition.  Capitalized patent costs can vary significantly based on our current level of development activities.  We believe that excluding amortization of intangible assets provides the users of our financial statements with a consistent basis for comparison across accounting periods.

Depreciation expense:  We exclude depreciation expense in deriving adjusted EBITDA because companies utilize productive assets of different ages and the depreciable lives can vary significantly resulting in considerable variability in depreciation  expense among companies.

Stock compensation expense:  Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years.  The value of stock options is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control.  The value of our restricted stock awards is determined using the grant date stock price, which may not be indicative of our operational performance over the expense period.  Additionally, in order to establish the fair value of performance-based stock awards, which are currently an element of our ongoing stock-based compensation, we are required to apply judgment to estimate the probability of the extent to which performance objectives will be achieved.  Based on the above factors, we believe it is useful to exclude stock-based compensation in order to better understand our operating performance.

Restructuring and strategic transaction:  We incur restructuring and strategic transaction charges that result from events, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our ongoing business.  Although these events are reflected in our GAAP financial statements, these unique transactions may limit the comparability of our ongoing operations with prior and future periods.

Bargain purchase gain:  We may incur a bargain purchase gain on certain acquisitions if the fair market value of the identifiable assets acquired and liabilities assumed, net of deferred taxes exceeds the total consideration paid.  We exclude such gains as they are related to acquisitions and have no direct correlation to the operation of our ongoing business.

 Adjusted Diluted EPS excludes from diluted EPS, net of tax, interest, net, intangible asset amortization expense, stock compensation expense, restructuring and strategic transaction, and bargain purchase gain, which was tax free.  We apply our GAAP consolidated effective tax rate to our non-GAAP financial measures, other than when the underlying item has a materially different tax treatment.

From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.

The following tables reconcile our GAAP and non-GAAP financial measures:


ICU MEDICAL, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)
(In thousands)
 
  Adjusted net sales
 Three months ended
March 31, 2017
 Infusion
Systems
 Infusion
 Consumables
 IV
Solutions
 Critical
Care
 Other Total
GAAP net sales$46,670  $75,712  $97,370  $12,397  $15,590  $247,739 
            
Non-GAAP adjustments:           
Contract manufacturing    (14,656)     (14,656)
ICU intercompany sales to Hospira  14,968        14,968 
Non-GAAP net sales$46,670  $90,680  $82,714  $12,397  $15,590  $248,051 
            
  Adjusted net sales
 Three months ended
March 31, 2016
 Infusion
Systems
 Infusion
 Consumables
 IV
Solutions
 Critical
Care
 Other Total
GAAP net sales$  $76,641  $  $13,016  $198  $89,855 
            
Non-GAAP adjustments:           
Contract manufacturing           
ICU intercompany sales to Hospira           
Non-GAAP net sales$  $76,641  $  $13,016  $198  $89,855 
            
 Adjusted gross profit        
 Three months ended
March 31,
      
 2017 2016        
GAAP gross profit$88,945  $49,233         
            
Non-GAAP adjustments:           
Adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value22,053           
Non-GAAP gross profit$110,998  $49,233         
GAAP gross profit % GAAP net sales36% 55%        
Non-GAAP gross profit % Non-GAAP net sales45% 55%        


ICU MEDICAL, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited) (Continued)
(In thousands, except per share data)
 
  Adjusted EBITDA
 Three months ended
March 31,
 2017 2016
GAAP net income$55,863  $18,160 
    
Non-GAAP adjustments:   
Interest, net409   
Stock compensation expense4,006  3,808 
Depreciation and amortization expense11,594  4,801 
Restructuring and strategic transaction29,401   
Adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value22,053   
Bargain purchase gain(63,237)  
Provision for income taxes(10,015) 5,932 
Total non-GAAP adjustments(5,789) 14,541 
    
Adjusted EBITDA$50,074  $32,701 
    
  Adjusted diluted earnings per
share
 Three months ended
March 31,
 2017 2016
GAAP diluted earnings per share$2.86  $1.08 
    
Non-GAAP adjustments:   
Interest, net0.02   
Stock compensation expense0.20  0.23 
Amortization expense0.17  0.04 
Restructuring and strategic transaction1.50   
Adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value1.13   
Bargain purchase gain(3.23)  
Estimated income tax impact from adjustments(0.97) (0.09)
Adjusted diluted earnings per share$1.68  $1.26 
        


CONTACT:
ICU Medical, Inc.
Scott Lamb, Chief Financial Officer
(949) 366-2183

ICR, Inc.
John Mills, Partner
(646) 277-1254