icui-202106300000883984ICU MEDICAL INC/DEFALSEDecember 312021Q100008839842021-01-012021-06-30xbrli:shares00008839842021-07-31iso4217:USD00008839842021-06-3000008839842020-12-31iso4217:USDxbrli:shares00008839842021-04-012021-06-3000008839842020-04-012020-06-3000008839842020-01-012020-06-300000883984icui:CommonStockSharesMember2020-12-310000883984us-gaap:CommonStockMember2020-12-310000883984us-gaap:AdditionalPaidInCapitalMember2020-12-310000883984us-gaap:TreasuryStockMember2020-12-310000883984us-gaap:RetainedEarningsMember2020-12-310000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310000883984icui:CommonStockSharesMember2021-01-012021-03-310000883984us-gaap:CommonStockMember2021-01-012021-03-310000883984us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310000883984us-gaap:TreasuryStockMember2021-01-012021-03-3100008839842021-01-012021-03-310000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310000883984us-gaap:RetainedEarningsMember2021-01-012021-03-310000883984icui:CommonStockSharesMember2021-03-310000883984us-gaap:CommonStockMember2021-03-310000883984us-gaap:AdditionalPaidInCapitalMember2021-03-310000883984us-gaap:TreasuryStockMember2021-03-310000883984us-gaap:RetainedEarningsMember2021-03-310000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100008839842021-03-310000883984icui:CommonStockSharesMember2021-04-012021-06-300000883984us-gaap:CommonStockMember2021-04-012021-06-300000883984us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-300000883984us-gaap:TreasuryStockMember2021-04-012021-06-300000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300000883984us-gaap:RetainedEarningsMember2021-04-012021-06-300000883984icui:CommonStockSharesMember2021-06-300000883984us-gaap:CommonStockMember2021-06-300000883984us-gaap:AdditionalPaidInCapitalMember2021-06-300000883984us-gaap:TreasuryStockMember2021-06-300000883984us-gaap:RetainedEarningsMember2021-06-300000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300000883984icui:CommonStockSharesMember2019-12-310000883984us-gaap:CommonStockMember2019-12-310000883984us-gaap:AdditionalPaidInCapitalMember2019-12-310000883984us-gaap:TreasuryStockMember2019-12-310000883984us-gaap:RetainedEarningsMember2019-12-310000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-3100008839842019-12-310000883984icui:CommonStockSharesMember2020-01-012020-03-310000883984us-gaap:CommonStockMember2020-01-012020-03-310000883984us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310000883984us-gaap:TreasuryStockMember2020-01-012020-03-3100008839842020-01-012020-03-310000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310000883984us-gaap:RetainedEarningsMember2020-01-012020-03-310000883984icui:CommonStockSharesMember2020-03-310000883984us-gaap:CommonStockMember2020-03-310000883984us-gaap:AdditionalPaidInCapitalMember2020-03-310000883984us-gaap:TreasuryStockMember2020-03-310000883984us-gaap:RetainedEarningsMember2020-03-310000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100008839842020-03-310000883984icui:CommonStockSharesMember2020-04-012020-06-300000883984us-gaap:CommonStockMember2020-04-012020-06-300000883984us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300000883984us-gaap:TreasuryStockMember2020-04-012020-06-300000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300000883984us-gaap:RetainedEarningsMember2020-04-012020-06-300000883984icui:CommonStockSharesMember2020-06-300000883984us-gaap:CommonStockMember2020-06-300000883984us-gaap:AdditionalPaidInCapitalMember2020-06-300000883984us-gaap:TreasuryStockMember2020-06-300000883984us-gaap:RetainedEarningsMember2020-06-300000883984us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-3000008839842020-06-300000883984us-gaap:EmployeeSeveranceMember2020-12-310000883984us-gaap:EmployeeSeveranceMember2021-01-012021-06-300000883984us-gaap:EmployeeSeveranceMember2021-06-300000883984us-gaap:FacilityClosingMember2020-12-310000883984us-gaap:FacilityClosingMember2021-01-012021-06-300000883984us-gaap:FacilityClosingMember2021-06-300000883984us-gaap:EMEAMember2021-04-012021-06-300000883984us-gaap:EMEAMember2020-04-012020-06-300000883984us-gaap:EMEAMember2021-01-012021-06-300000883984us-gaap:EMEAMember2020-01-012020-06-300000883984icui:OtherforeigncountriesMember2021-04-012021-06-300000883984icui:OtherforeigncountriesMember2020-04-012020-06-300000883984icui:OtherforeigncountriesMember2021-01-012021-06-300000883984icui:OtherforeigncountriesMember2020-01-012020-06-300000883984icui:ForeignMember2021-04-012021-06-300000883984icui:ForeignMember2020-04-012020-06-300000883984icui:ForeignMember2021-01-012021-06-300000883984icui:ForeignMember2020-01-012020-06-300000883984country:US2021-04-012021-06-300000883984country:US2020-04-012020-06-300000883984country:US2021-01-012021-06-300000883984country:US2020-01-012020-06-300000883984icui:InfusionConsumablesMember2021-04-012021-06-300000883984icui:InfusionConsumablesMember2020-04-012020-06-300000883984icui:InfusionConsumablesMember2021-01-012021-06-300000883984icui:InfusionConsumablesMember2020-01-012020-06-300000883984icui:InfusionSystemsMember2021-04-012021-06-300000883984icui:InfusionSystemsMember2020-04-012020-06-300000883984icui:InfusionSystemsMember2021-01-012021-06-300000883984icui:InfusionSystemsMember2020-01-012020-06-300000883984icui:IVSolutionsMember2021-04-012021-06-300000883984icui:IVSolutionsMember2020-04-012020-06-300000883984icui:IVSolutionsMember2021-01-012021-06-300000883984icui:IVSolutionsMember2020-01-012020-06-300000883984icui:CriticalCareMember2021-04-012021-06-300000883984icui:CriticalCareMember2020-04-012020-06-300000883984icui:CriticalCareMember2021-01-012021-06-300000883984icui:CriticalCareMember2020-01-012020-06-300000883984icui:EquipmentrevenueMember2021-01-012021-06-300000883984icui:SoftwarerevenueMember2021-01-012021-06-300000883984icui:EquipmentrevenueMember2020-01-012020-06-300000883984icui:SoftwarerevenueMember2020-01-012020-06-300000883984icui:EquipmentrevenueMember2021-06-300000883984icui:SoftwarerevenueMember2021-06-300000883984srt:MaximumMember2021-06-30xbrli:pureiso4217:MXN0000883984icui:Hedge2Member2021-06-300000883984icui:Hedge3MemberMember2021-06-300000883984us-gaap:ForeignExchangeForwardMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-06-300000883984us-gaap:ForeignExchangeForwardMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310000883984us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2021-06-300000883984us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:ForeignExchangeForwardMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-310000883984us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:CostOfSalesMember2021-04-012021-06-300000883984us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:CostOfSalesMember2020-04-012020-06-300000883984us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:CostOfSalesMember2021-01-012021-06-300000883984us-gaap:ForeignExchangeForwardMemberus-gaap:CashFlowHedgingMemberus-gaap:CostOfSalesMember2020-01-012020-06-300000883984icui:HospiraMembersrt:MinimumMember2021-01-012021-06-300000883984icui:HospiraMembersrt:MaximumMember2021-01-012021-06-300000883984icui:PursuitVascularInc.Member2021-01-012021-06-300000883984icui:PursuitVascularInc.Member2021-06-300000883984icui:PursuitVascularInc.Member2020-12-310000883984icui:PursuitVascularInc.Member2021-01-012021-03-310000883984icui:PursuitVascularInc.Member2021-03-310000883984icui:PursuitVascularInc.Member2021-04-012021-06-300000883984icui:PursuitVascularInc.Member2019-12-310000883984icui:PursuitVascularInc.Member2020-01-012020-03-310000883984icui:PursuitVascularInc.Member2020-03-310000883984icui:HospiraMember2020-04-012020-06-300000883984icui:HospiraMember2020-06-300000883984icui:MeasurementinputadjustedEBITDAvolatilityDomainicui:PursuitVascularInc.Member2020-12-310000883984icui:MeasurementinputadjustedEBITDAvolatilityDomainicui:PursuitVascularInc.Member2020-06-300000883984us-gaap:MeasurementInputDiscountRateMembericui:PursuitVascularInc.Member2020-12-310000883984us-gaap:MeasurementInputDiscountRateMembericui:PursuitVascularInc.Member2020-06-300000883984us-gaap:MeasurementInputRiskFreeInterestRateMembericui:PursuitVascularInc.Member2020-12-310000883984us-gaap:MeasurementInputRiskFreeInterestRateMembericui:PursuitVascularInc.Member2020-06-300000883984icui:MeasurementInputMarketPriceofRiskDomainicui:PursuitVascularInc.Member2020-12-310000883984icui:MeasurementInputMarketPriceofRiskDomainicui:PursuitVascularInc.Member2020-06-300000883984us-gaap:FairValueInputsLevel1Member2021-06-300000883984us-gaap:FairValueInputsLevel2Member2021-06-300000883984us-gaap:FairValueInputsLevel3Member2021-06-300000883984us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2021-06-300000883984us-gaap:FairValueInputsLevel1Memberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2021-06-300000883984us-gaap:FairValueInputsLevel2Memberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2021-06-300000883984us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:FairValueInputsLevel3Member2021-06-300000883984icui:EarnoutliabilityMember2021-06-300000883984icui:EarnoutliabilityMemberus-gaap:FairValueInputsLevel1Member2021-06-300000883984icui:EarnoutliabilityMemberus-gaap:FairValueInputsLevel2Member2021-06-300000883984icui:EarnoutliabilityMemberus-gaap:FairValueInputsLevel3Member2021-06-300000883984us-gaap:LiabilitiesTotalMember2021-06-300000883984us-gaap:FairValueInputsLevel1Memberus-gaap:LiabilitiesTotalMember2021-06-300000883984us-gaap:FairValueInputsLevel2Memberus-gaap:LiabilitiesTotalMember2021-06-300000883984us-gaap:FairValueInputsLevel3Memberus-gaap:LiabilitiesTotalMember2021-06-300000883984us-gaap:FairValueInputsLevel1Member2020-12-310000883984us-gaap:FairValueInputsLevel2Member2020-12-310000883984us-gaap:FairValueInputsLevel3Member2020-12-310000883984us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2020-12-310000883984us-gaap:FairValueInputsLevel1Memberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2020-12-310000883984us-gaap:FairValueInputsLevel2Memberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2020-12-310000883984us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberus-gaap:FairValueInputsLevel3Member2020-12-310000883984icui:EarnoutliabilityMember2020-12-310000883984icui:EarnoutliabilityMemberus-gaap:FairValueInputsLevel1Member2020-12-310000883984icui:EarnoutliabilityMemberus-gaap:FairValueInputsLevel2Member2020-12-310000883984icui:EarnoutliabilityMemberus-gaap:FairValueInputsLevel3Member2020-12-310000883984us-gaap:LiabilitiesTotalMember2020-12-310000883984us-gaap:FairValueInputsLevel1Memberus-gaap:LiabilitiesTotalMember2020-12-310000883984us-gaap:FairValueInputsLevel2Memberus-gaap:LiabilitiesTotalMember2020-12-310000883984us-gaap:FairValueInputsLevel3Memberus-gaap:LiabilitiesTotalMember2020-12-310000883984icui:AvailableforsaleDebtSecurityCurrentMember2021-01-012021-06-300000883984icui:LongtermInvestmentsDomain2021-06-300000883984icui:AvailableforsaleDebtSecurityCurrentMember2020-01-012020-12-310000883984icui:LongtermInvestmentsDomain2020-12-310000883984us-gaap:LandBuildingsAndImprovementsMember2021-06-300000883984us-gaap:LandBuildingsAndImprovementsMember2020-12-310000883984icui:MoldsMember2021-06-300000883984icui:MoldsMember2020-12-310000883984icui:ComputerEquipmentAndSoftwareMember2021-06-300000883984icui:ComputerEquipmentAndSoftwareMember2020-12-310000883984icui:InstrumentsPlacedwithCustomersMember2021-06-300000883984icui:InstrumentsPlacedwithCustomersMember2020-12-310000883984us-gaap:PatentsMember2021-01-012021-06-300000883984us-gaap:PatentsMember2021-06-300000883984us-gaap:CustomerContractsMember2021-01-012021-06-300000883984us-gaap:CustomerContractsMember2021-06-300000883984us-gaap:CustomerRelatedIntangibleAssetsMember2021-01-012021-06-300000883984us-gaap:CustomerRelatedIntangibleAssetsMember2021-06-300000883984us-gaap:TrademarksMember2021-01-012021-06-300000883984us-gaap:TrademarksMember2021-06-300000883984us-gaap:TradeNamesMember2021-01-012021-06-300000883984us-gaap:TradeNamesMember2021-06-300000883984us-gaap:DevelopedTechnologyRightsMember2021-01-012021-06-300000883984us-gaap:DevelopedTechnologyRightsMember2021-06-300000883984us-gaap:NoncompeteAgreementsMember2021-01-012021-06-300000883984us-gaap:NoncompeteAgreementsMember2021-06-300000883984us-gaap:PatentsMember2021-01-012021-03-310000883984us-gaap:PatentsMember2020-12-310000883984us-gaap:CustomerContractsMember2021-01-012021-03-310000883984us-gaap:CustomerContractsMember2020-12-310000883984us-gaap:CustomerRelatedIntangibleAssetsMember2021-01-012021-03-310000883984us-gaap:CustomerRelatedIntangibleAssetsMember2020-12-310000883984us-gaap:TrademarksMember2021-01-012021-03-310000883984us-gaap:TrademarksMember2020-12-310000883984us-gaap:TradeNamesMember2021-01-012021-03-310000883984us-gaap:TradeNamesMember2020-12-310000883984us-gaap:DevelopedTechnologyRightsMember2021-01-012021-03-310000883984us-gaap:DevelopedTechnologyRightsMember2020-12-310000883984us-gaap:NoncompeteAgreementsMember2021-01-012021-03-310000883984us-gaap:NoncompeteAgreementsMember2020-12-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2020-12-310000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-12-310000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-03-310000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2021-01-012021-03-310000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-03-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2021-03-310000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2021-03-310000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-03-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2021-04-012021-06-300000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2021-04-012021-06-300000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-04-012021-06-300000883984us-gaap:AccumulatedTranslationAdjustmentMember2021-06-300000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2021-06-300000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-06-300000883984us-gaap:AccumulatedTranslationAdjustmentMember2019-12-310000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2019-12-310000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2019-12-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2020-01-012020-03-310000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-01-012020-03-310000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-01-012020-03-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2020-03-310000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-03-310000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-03-310000883984us-gaap:AccumulatedTranslationAdjustmentMember2020-04-012020-06-300000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-04-012020-06-300000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-04-012020-06-300000883984us-gaap:AccumulatedTranslationAdjustmentMember2020-06-300000883984us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-06-300000883984us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2021
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
Commission File No.: 001-34634
ICU MEDICAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 33-0022692 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
| | | | | | | | | | | | | | | | | | | | |
951 Calle Amanecer | , | San Clemente | , | California | | 92673 |
(Address of principal executive offices) | | (Zip Code) |
(949) 366-2183
(Registrant’s telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | x | | Accelerated filer o |
| | | | |
Non-accelerated filer o | | Smaller reporting company | ☐ |
| | | | |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No x
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common stock, par value $0.10 per share | ICUI | The Nasdaq Stock Market LLC |
(Global Select Market) |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| | | | | | | | |
Class | | Outstanding at July 31, 2021 |
Common | | 21,207,648 |
ICU MEDICAL, INC. AND SUBSIDIARIES
Form 10-Q
June 30, 2021
Table of Contents
| | | | | | | | | | | |
PART I. | Financial Information | | Page Number |
| | | |
Item 1. | Financial Statements (Unaudited) | | |
| | | |
| Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020 | | |
| | | |
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 | | |
| | | |
| Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020 | | |
| | | |
| Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2021 and 2020 | | |
| | | |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 | | |
| | | |
| | | |
| | | |
Item 2. | | | |
| | | |
Item 3. | | | |
| | | |
Item 4. | | | |
| | | |
PART II. | | | |
Item 1. | | | |
| | | |
Item1A. | | | |
| | | |
Item 2. | | | |
| | | |
Item 6. | | | |
| | | |
| | | |
PART I - FINANCIAL INFORMATION
Item1.Financial Statements (Unaudited)
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (Unaudited) | | (1) |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 462,037 | | | $ | 396,097 | |
Short-term investment securities | 14,661 | | | 14,687 | |
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES | 476,698 | | | 410,784 | |
Accounts receivable, net of allowance for doubtful accounts of $14,590 at June 30, 2021 and $21,490 at December 31, 2020 | 120,782 | | | 124,093 | |
Inventories | 299,610 | | | 314,928 | |
Prepaid income tax | 38,285 | | | 29,480 | |
Prepaid expenses and other current assets | 37,979 | | | 41,492 | |
| | | |
| | | |
TOTAL CURRENT ASSETS | 973,354 | | | 920,777 | |
| | | |
PROPERTY AND EQUIPMENT, net | 458,785 | | | 466,628 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | 43,315 | | | 46,571 | |
| | | |
LONG-TERM INVESTMENT SECURITIES | 15,670 | | | 12,974 | |
GOODWILL | 32,927 | | | 33,001 | |
INTANGIBLE ASSETS, net | 189,620 | | | 197,231 | |
DEFERRED INCOME TAXES | 31,120 | | | 31,034 | |
OTHER ASSETS | 58,051 | | | 55,475 | |
TOTAL ASSETS | $ | 1,802,842 | | | $ | 1,763,691 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable | $ | 69,782 | | | $ | 71,864 | |
Accrued liabilities | 85,283 | | | 97,021 | |
| | | |
Income tax liability | 2,299 | | | 303 | |
Contingent earn-out liability | 26,300 | | | 26,300 | |
TOTAL CURRENT LIABILITIES | 183,664 | | | 195,488 | |
| | | |
| | | |
| | | |
OTHER LONG-TERM LIABILITIES | 42,951 | | | 47,835 | |
DEFERRED INCOME TAXES | 1,663 | | | 1,663 | |
INCOME TAX LIABILITY | 17,299 | | | 16,440 | |
COMMITMENTS AND CONTINGENCIES (Note 18) | — | | | — | |
STOCKHOLDERS’ EQUITY: | | | |
Convertible preferred stock, $1.00 par value Authorized—500 shares; Issued and outstanding — none | — | | | — | |
Common stock, $0.10 par value — Authorized, 80,000 shares; Issued — 21,219 shares at June 30, 2021 and 21,058 shares at December 31, 2020 and outstanding — 21,208 shares at June 30, 2021 and 21,058 shares at December 31, 2020 | 2,122 | | | 2,106 | |
Additional paid-in capital | 705,582 | | | 693,068 | |
Treasury stock, at cost (11,223 and 209 shares, respectively) | (2,269) | | | (39) | |
Retained earnings | 860,781 | | | 808,652 | |
Accumulated other comprehensive loss | (8,951) | | | (1,522) | |
TOTAL STOCKHOLDERS' EQUITY | 1,557,265 | | | 1,502,265 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,802,842 | | | $ | 1,763,691 | |
______________________________________________________
(1) December 31, 2020 balances were derived from audited consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
TOTAL REVENUES | $ | 321,677 | | | $ | 303,379 | | | $ | 639,723 | | | $ | 631,986 | |
COST OF GOODS SOLD | 198,148 | | | 197,095 | | | 403,514 | | | 404,287 | |
GROSS PROFIT | 123,529 | | | 106,284 | | | 236,209 | | | 227,699 | |
OPERATING EXPENSES: | | | | | | | |
Selling, general and administrative | 73,921 | | | 67,242 | | | 146,312 | | | 139,547 | |
Research and development | 11,385 | | | 10,279 | | | 22,094 | | | 21,025 | |
Restructuring, strategic transaction and integration | 3,753 | | | 6,482 | | | 6,636 | | | 18,789 | |
Change in fair value of contingent earn-out | — | | | 2,700 | | | — | | | 2,700 | |
Contract settlement | — | | | 25 | | | 127 | | | 25 | |
TOTAL OPERATING EXPENSES | 89,059 | | | 86,728 | | | 175,169 | | | 182,086 | |
INCOME FROM OPERATIONS | 34,470 | | | 19,556 | | | 61,040 | | | 45,613 | |
| | | | | | | |
INTEREST EXPENSE | (163) | | | (771) | | | (324) | | | (967) | |
OTHER INCOME (EXPENSE), net | 525 | | | 2,053 | | | 1,208 | | | (3,427) | |
INCOME BEFORE INCOME TAXES | 34,832 | | | 20,838 | | | 61,924 | | | 41,219 | |
PROVISION FOR INCOME TAXES | (6,434) | | | (1,930) | | | (9,795) | | | (5,477) | |
NET INCOME | $ | 28,398 | | | $ | 18,908 | | | $ | 52,129 | | | $ | 35,742 | |
NET INCOME PER SHARE | | | | | | | |
Basic | $ | 1.34 | | | $ | 0.91 | | | $ | 2.46 | | | $ | 1.72 | |
Diluted | $ | 1.31 | | | $ | 0.88 | | | $ | 2.40 | | | $ | 1.66 | |
WEIGHTED AVERAGE NUMBER OF SHARES | | | | | | | |
Basic | 21,200 | | | 20,880 | | | 21,176 | | | 20,831 | |
Diluted | 21,703 | | | 21,506 | | | 21,718 | | | 21,545 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
NET INCOME | $ | 28,398 | | | $ | 18,908 | | | $ | 52,129 | | | $ | 35,742 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Cash flow hedge adjustments, net of taxes of $(111) and $356 for the three months ended June 30, 2021 and 2020, respectively, and $(409) and $(577) for the six months ended June 30, 2021 and 2020, respectively | (352) | | | 1,126 | | | (1,296) | | | (1,826) | |
Foreign currency translation adjustment, net of taxes of $— for all periods | 1,302 | | | 4,604 | | | (6,156) | | | (5,872) | |
Other adjustments, net of taxes of $— for all periods | 12 | | | 4 | | | 23 | | | (78) | |
Other comprehensive income (loss), net of taxes | 962 | | | 5,734 | | | (7,429) | | | (7,776) | |
TOTAL COMPREHENSIVE INCOME | $ | 29,360 | | | $ | 24,642 | | | $ | 44,700 | | | $ | 27,966 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | | |
| | Shares | | Amount | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
Balance, January 1, 2021 | | 21,058 | | | $ | 2,106 | | | $ | 693,068 | | | $ | (39) | | | $ | 808,652 | | | $ | (1,522) | | | $ | 1,502,265 | |
Issuance of restricted stock and exercise of stock options | | 198 | | | 16 | | | 2,496 | | | 2,352 | | | — | | | — | | | 4,864 | |
Tax withholding payments related to net share settlement of equity awards | | (37) | | | — | | | — | | | (7,723) | | | — | | | — | | | (7,723) | |
Stock compensation | | — | | | — | | | 6,022 | | | — | | | — | | | — | | | 6,022 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (8,391) | | | (8,391) | |
Net income | | — | | | — | | | — | | | — | | | 23,731 | | | — | | | 23,731 | |
Balance, March 31, 2021 | | 21,219 | | | $ | 2,122 | | | $ | 701,586 | | | $ | (5,410) | | | $ | 832,383 | | | $ | (9,913) | | | $ | 1,520,768 | |
Issuance of restricted stock and exercise of stock options | | — | | | — | | | (2,685) | | | 3,237 | | | — | | | — | | | 552 | |
Tax withholding payments related to net share settlement of equity awards | | — | | | — | | | — | | | (96) | | | — | | | — | | | (96) | |
Stock compensation | | — | | | — | | | 6,681 | | | — | | | — | | | — | | | 6,681 | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | 962 | | | 962 | |
Net income | | — | | | — | | | — | | | — | | | 28,398 | | | — | | | 28,398 | |
Balance, June 30, 2021 | | 21,219 | | | $ | 2,122 | | | $ | 705,582 | | | $ | (2,269) | | | $ | 860,781 | | | $ | (8,951) | | | $ | 1,557,265 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | | |
| | Shares | | Amount | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total |
Balance, January 1, 2020 | | 20,742 | | | $ | 2,074 | | | $ | 668,947 | | | $ | (157) | | | $ | 721,782 | | | $ | (15,402) | | | $ | 1,377,244 | |
Issuance of restricted stock and exercise of stock options | | 155 | | | 9 | | | (10,207) | | | 10,758 | | | — | | | — | | | 560 | |
Tax withholding payments related to net share settlement of equity awards | | (64) | | | — | | | — | | | (12,174) | | | — | | | — | | | (12,174) | |
Stock compensation | | — | | | — | | | 6,939 | | | — | | | — | | | — | | | 6,939 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (13,510) | | | (13,510) | |
Net income | | — | | | — | | | — | | | — | | | 16,834 | | | — | | | 16,834 | |
Balance, March 31, 2020 | | 20,833 | | | $ | 2,083 | | | $ | 665,679 | | | $ | (1,573) | | | $ | 738,616 | | | $ | (28,912) | | | $ | 1,375,893 | |
Issuance of restricted stock and exercise of stock options | | 106 | | | 11 | | | 4,408 | | | 1,820 | | | — | | | — | | | 6,239 | |
Tax withholding payments related to net share settlement of equity awards | | (2) | | | — | | | — | | | (387) | | | — | | | — | | | (387) | |
Stock compensation | | — | | | — | | | 5,410 | | | — | | | — | | | — | | | 5,410 | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | 5,734 | | | 5,734 | |
Net income | | — | | | — | | | — | | | — | | | 18,908 | | | — | | | 18,908 | |
Balance, June 30, 2020 | | 20,937 | | | $ | 2,094 | | | $ | 675,497 | | | $ | (140) | | | $ | 757,524 | | | $ | (23,178) | | | $ | 1,411,797 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 52,129 | | | $ | 35,742 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 44,319 | | | 42,575 | |
Amortization of right-of-use assets | 4,780 | | | 4,527 | |
Provision for doubtful accounts | 342 | | | 162 | |
Provision for warranty and returns | (345) | | | (1,221) | |
Stock compensation | 12,703 | | | 12,349 | |
Loss on disposal of property and equipment and other assets | 829 | | | 1,078 | |
Bond premium amortization | 364 | | | 85 | |
Debt issuance costs amortization | 144 | | | 144 | |
Change in fair value of contingent earn-out | — | | | 2,700 | |
Product-related charges | — | | | 2,626 | |
Usage of spare parts | 5,356 | | | 5,045 | |
Other | 1,574 | | | 1,615 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 2,078 | | | 5,293 | |
Inventories | 13,368 | | | 8,481 | |
Prepaid expenses and other assets | 759 | | | (9,333) | |
Other assets | (7,632) | | | (7,223) | |
Accounts payable | (1,648) | | | (23,305) | |
Accrued liabilities | (17,068) | | | (15,257) | |
Income taxes, including excess tax benefits and deferred income taxes | (5,970) | | | 2,657 | |
Net cash provided by operating activities | 106,082 | | | 68,740 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of property and equipment | (29,693) | | | (38,517) | |
Proceeds from sale of asset | 203 | | | 147 | |
| | | |
Intangible asset additions | (4,136) | | | (4,104) | |
Purchases of investment securities | (10,034) | | | (7,082) | |
Proceeds from sale of investment securities | 7,000 | | | 16,400 | |
Net cash used in investing activities | (36,660) | | | (33,156) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from short-term debt | — | | | 150,000 | |
| | | |
Proceeds from exercise of stock options | 5,416 | | | 6,799 | |
Payments on finance leases | (296) | | | (116) | |
Tax withholding payments related to net share settlement of equity awards | (7,819) | | | (12,561) | |
Net cash (used in) provided by financing activities | (2,699) | | | 144,122 | |
Effect of exchange rate changes on cash | (783) | | | (2,242) | |
NET INCREASE CASH AND CASH EQUIVALENTS | 65,940 | | | 177,464 | |
CASH AND CASH EQUIVALENTS, beginning of period | 396,097 | | | 268,670 | |
CASH AND CASH EQUIVALENTS, end of period | $ | 462,037 | | | $ | 446,134 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED
(In thousands)
| | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: | | | |
Accounts payable for property and equipment | $ | 1,857 | | | $ | 9,775 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1:Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.") and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the consolidated results for the interim periods presented. Results for the interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of ICU Medical, Inc., ("ICU") a Delaware corporation, filed with the SEC for the year ended December 31, 2020.
We are engaged in the development, manufacturing and sale of innovative medical products used in vascular therapy and critical care applications. We sell the majority of our products through our direct sales force and through independent distributors throughout the U.S. and internationally. Additionally, we sell our products on an original equipment manufacturer basis to other medical device manufacturers. All subsidiaries are wholly owned and are included in the condensed consolidated financial statements. All intercompany balances and transactions have been eliminated.
Note 2: New Accounting Pronouncements
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden for reference rate reform on financial reporting. Due to concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. Optional expedients may be applied to contracts that are modified as a result of the reference rate reform. Modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. Modifications of contracts within the scope of ASC 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (incremental borrowing rate). Exceptions to Topic 815, Derivatives and Hedging, results in not having a dedesignation of a hedging relationship if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The impact of this ASU on our contracts has not been material.
Note 3: Restructuring, Strategic Transaction and Integration
Restructuring, strategic transaction and integration expenses were $3.8 million and $6.6 million for the three and six months ended June 30, 2021 respectively, as compared to $6.5 million and $18.8 million for the three and six months ended June 30, 2020 respectively.
Restructuring
During the three and six months ended June 30, 2021 restructuring charges were $0.1 million and $0.1 million, respectively. During the three and six months ended June 30, 2020 restructuring charges were $0.9 million and $8.1 million, respectively. Restructuring charges for the three and six months ended June 30, 2021 were primarily related to severance charges. Restructuring charges for the three and six months ended June 30, 2020 were primarily related to severance charges and costs related to office and other facility closures. Restructuring charges are included in the above restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations.
The following table summarizes the details of changes in our restructuring-related accrual for the period ended June 30, 2021 (in thousands):
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accrued Balance January 1, 2021 | | Charges Incurred | | Payments | | Currency Translation | | | Accrued Balance June 30, 2021 |
Severance pay and benefits | $ | 1,858 | | | $ | 143 | | | $ | (695) | | | $ | 28 | | | | $ | 1,334 | |
| | | | | | | | | | |
Facility closure expenses | 1,563 | | | — | | | — | | | 39 | | | | 1,602 | |
| $ | 3,421 | | | $ | 143 | | | $ | (695) | | | $ | 67 | | | | $ | 2,936 | |
Strategic transaction and integration expenses
We incurred and expensed $3.7 million and $6.5 million in strategic transaction and integration expenses during the three and six months ended June 30, 2021, as compared to $5.6 million and $10.7 million during the three and six months ended June 30, 2020, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations. The strategic transaction and integration expenses during the three and six months ended June 30, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer and one-time costs incurred to comply with regulatory initiatives. The strategic transaction and integration expenses during the three and six months ended June 30, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.
Note 4: Revenue
Our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions and Critical Care. The vast majority of our sales of these products are made on a stand-alone basis to hospitals and distributors. Revenue is typically recognized upon transfer of control of the products, which we deem to be at point of shipment. However, for purposes of revenue recognition for our software licenses and renewals, we consider the control of these products to be transferred to a customer at a certain point in time; therefore, we recognize revenue at the start of the applicable license term.
Payment is typically due in full within 30 days of delivery or the start of the contract term. Revenue is recorded in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We offer certain volume-based rebates to our distribution customers, which we record as variable consideration when calculating the transaction price. Rebates are offered on both a fixed and tiered/variable basis. In both cases, we use information available at the time and our historical experience with each customer to estimate the most likely rebate amount. We also provide chargebacks to distributors that sell to end-customers at prices determined under a contract between us and the end-customer. Chargebacks are the difference between the prices we charge our distribution customers and the contracted prices we have with the end customer which are processed as credits to our distribution customers. In estimating the expected value of chargeback amounts in order to determine the transaction price, we use information available at the time, including our historical experience.
We also warranty products against defects and have a policy permitting the return of defective products, for which we accrue and expense at the time of sale using information available at that time and our historical experience. We also provide for extended service-type warranties, which we consider to be separate performance obligations. We allocate a portion of the transaction price to the extended service-type warranty based on its estimated relative selling price, and recognize revenue over the period the warranty service is provided. Our revenues are recorded at the net sales price, which includes an estimate for variable consideration related to rebates, chargebacks and product returns.
Revenue disaggregated
The following table represents our revenues disaggregated by geography (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
Geography | 2021 | | 2020 | | 2021 | | 2020 |
Europe, the Middle East and Africa | $ | 37,761 | | | $ | 28,583 | | | $ | 72,560 | | | $ | 66,511 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other Foreign | 59,249 | | | 66,572 | | | 115,145 | | | 127,093 | |
Total Foreign | 97,010 | | | 95,155 | | | 187,705 | | | 193,604 | |
United States | 224,667 | | | 208,224 | | | 452,018 | | | 438,382 | |
Total Revenues | $ | 321,677 | | | $ | 303,379 | | | $ | 639,723 | | | $ | 631,986 | |
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table represents our revenues disaggregated by product (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30, | | For the six months ended June 30, |
Product line | 2021 | | 2020 | | 2021 | | 2020 |
Infusion Consumables | $ | 136,200 | | | $ | 110,993 | | | $ | 262,569 | | | $ | 234,500 | |
Infusion Systems | 84,661 | | | 91,088 | | | 168,995 | | | 179,468 | |
IV Solutions | 88,421 | | | 89,178 | | | 182,597 | | | 193,469 | |
Critical Care | 12,395 | | | 12,120 | | | 25,562 | | | 24,549 | |
| | | | | | | |
Total Revenues | $ | 321,677 | | | $ | 303,379 | | | $ | 639,723 | | | $ | 631,986 | |
Contract balances
The following table presents our changes in the contract balances for the six months ended June 30, 2021 and 2020 (in thousands):
| | | | | |
| Contract Liabilities |
Beginning balance, January 1, 2021 | $ | (6,430) | |
Equipment revenue recognized | 4,754 | |
Equipment revenue deferred due to implementation | (5,435) | |
Software revenue recognized | 4,355 | |
Software revenue deferred due to implementation | (2,212) | |
Ending balance, June 30, 2021 | $ | (4,968) | |
| |
Beginning balance, January 1, 2020 | $ | (4,855) | |
Equipment revenue recognized | 3,263 | |
Equipment revenue deferred due to implementation | (10,347) | |
Software revenue recognized | 3,340 | |
Software revenue deferred due to implementation | (3,643) | |
Ending balance, June 30, 2020 | $ | (12,242) | |
As of June 30, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $3.7 million. We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restrictions due to the novel coronavirus and its variants ("COVID-19"). Revenue from remaining performance obligations related to annual software licenses is $1.3 million. We expect to recognize substantially all of this revenue over the next twelve months.
Note 5: Leases
Leases
We determine if an arrangement is a lease at inception. Our operating lease assets are separately stated in operating lease right-of-use ("ROU") assets and our financing lease assets are included in other assets on our condensed consolidated balance sheets. Our lease liabilities are included in accrued liabilities, and other long-term liabilities on our condensed consolidated balance sheets. We have elected not to recognize an ROU asset and lease liability for leases with terms of twelve months or less.
Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Most of our leases do not provide an implicit rate, therefore we use our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term based on the information available at commencement date. Our lease ROU assets exclude lease incentives and initial direct costs incurred. Our lease terms include options to extend when it is reasonably certain that we will exercise that option. All of our leases have
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
stated lease payments, which may include fixed rental increases. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Our leases are for corporate, research and development and sales and support offices, a distribution facility, device service centers and certain equipment. Our leases have original lease terms of one year to fifteen years, some of which include options to extend the leases for up to an additional five years. For all of our leases, we do not include optional periods of extension in our current lease terms for the exercise of options to extend is not reasonably certain.
The following table presents the components of our lease cost (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended June 30 | | For the six months ended June 30 |
| 2021 | | 2020 | | 2021 | | 2020 |
Operating lease cost | $ | 2,822 | | | $ | 2,776 | | | $ | 5,657 | | | $ | 5,567 | |
| | | | | | | |
Finance lease cost - interest | 32 | | | 26 | | | 63 | | | 32 | |
| | | | | | | |
Finance lease cost - amortization of ROU asset | 166 | | | 102 | | | 317 | | | 126 | |
| | | | | | | |
Short-term lease cost | 6 | | | 73 | | | 9 | | | 128 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total lease cost | $ | 3,026 | | | $ | 2,977 | | | $ | 6,046 | | | $ | 5,853 | |
Interest expense on our finance leases is included in other income (expense), net in our condensed consolidated statement of operations. The amortization of the operating and finance ROU asset is included in selling, general and administrative expenses in our condensed consolidated statement of operations.
The following table presents the supplemental cash flow information related to our leases (in thousands):
| | | | | | | | | | | |
| For the six months ended June 30, |
| 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 5,657 | | | $ | 4,706 | |
Operating cash flows from finance leases | $ | 63 | | | $ | 32 | |
| | | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 1,282 | | | $ | 20,175 | |
Finance leases | $ | 332 | | | $ | 2,815 | |
The following table presents the supplemental balance sheet information related to our operating leases (in thousands, except lease term and discount rate):
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | |
| As of June 30, 2021 | | As of December 31, 2020 |
Operating leases | | | |
Operating lease right-of-use assets | $ | 43,315 | | | $ | 46,571 | |
| | | |
Accrued liabilities | $ | 8,846 | | | $ | 8,740 | |
Other long-term liabilities | 37,636 | | | 41,019 | |
Total operating lease liabilities | $ | 46,482 | | | $ | 49,759 | |
| | | |
Weighted Average Remaining Lease Term | | | |
Operating leases | 6.3 years | | 6.7 years |
| | | |
Weighted Average Discount Rate | | | |
Operating leases | 4.99 | % | | 5.02 | % |
The following table presents the supplemental balance sheet information related to our finance leases (in thousands, except lease term and discount rate):
| | | | | | | | | | | |
| As of June 30, 2021 | | As of December 31, 2020 |
Financing leases | | | |
Financing lease right-of-use assets | $ | 2,861 | | | $ | 2,915 | |
| | | |
Accrued liabilities | $ | 624 | | | $ | 554 | |
Other long-term liabilities | 2,284 | | | 2,388 | |
Total financing lease liabilities | $ | 2,908 | | | $ | 2,942 | |
| | | |
Weighted Average Remaining Lease Term | | | |
Financing leases | 5.9 years | | 6.4 years |
| | | |
Weighted Average Discount Rate | | | |
Financing leases | 4.28 | % | | 4.27 | % |
As of June 30, 2021, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
Remainder of 2021 | $ | 5,568 | | | $ | 367 | |
2022 | 10,395 | | | 733 | |
2023 | 9,192 | | | 733 | |
2024 | 8,348 | | | 419 | |
2025 | 5,023 | | | 219 | |
2026 | 4,747 | | | 189 | |
Thereafter | 10,649 | | | 615 | |
Total Lease Payments | 53,922 | | | 3,275 | |
Less imputed interest | (7,440) | | | (367) | |
Total | $ | 46,482 | | | $ | 2,908 | |
Note 6: Net Income Per Share
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period plus dilutive securities. Dilutive securities include outstanding common stock options and unvested restricted stock units, less the number of shares that could have been purchased with the proceeds from the exercise of the options, using the treasury stock method. Options and restricted stock units that are anti-dilutive are not included in the treasury stock method calculation. There were 12,107 and 57,091 anti-dilutive securities for the three months ended June 30, 2021 and 2020, respectively. There were 12,080 and 15,045 anti-dilutive securities for the six months ended June 30, 2021 and 2020, respectively.
The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income | $ | 28,398 | | | $ | 18,908 | | | $ | 52,129 | | | $ | 35,742 | |
Weighted-average number of common shares outstanding (for basic calculation) | 21,200 | | | 20,880 | | | 21,176 | | | 20,831 | |
Dilutive securities | 503 | | | 626 | | | 542 | | | 714 | |
Weighted-average common and common equivalent shares outstanding (for diluted calculation) | 21,703 | | | 21,506 | | | 21,718 | | | 21,545 | |
EPS — basic | $ | 1.34 | | | $ | 0.91 | | | $ | 2.46 | | | $ | 1.72 | |
EPS — diluted | $ | 1.31 | | | $ | 0.88 | | | $ | 2.40 | | | $ | 1.66 | |
Note 7: Derivatives and Hedging Activities
Hedge Accounting and Hedging Program
The purpose of our hedging program is to manage the foreign currency exchange rate risk on forecasted expenses denominated in currencies other than the functional currency of the operating unit. We do not issue derivatives for trading or speculative purposes.
To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The par forward contract is designated and qualifies as a cash flow hedge. Our derivative instruments are recorded at fair value on the condensed consolidated balance sheets and are classified based on the instrument's maturity date. We record changes in the intrinsic value of the effective portion of the gain or loss on the derivative instrument as a component of Other Comprehensive Income and we reclassify that gain or loss into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.
In March 2020, we entered into a one-year cross-currency par forward contract that extends our current hedge of a portion of our Mexico forecasted expenses denominated in Pesos ("MXN"). The total notional amount of this outstanding derivative as of June 30, 2021 was approximately 218.4 million MXN. The term of the one-year contract is November 3, 2020 to December 1, 2021. The derivative instrument matures in equal monthly amounts at a fixed forward rate of 24.26 MXN/USD.
In November 2018, we entered into a one-year cross-currency par forward contract that hedges of a portion of our Mexico forecasted expenses denominated in MXN. The term of the one-year hedge was November 1, 2019 to November 3, 2020. The derivative instrument matured in equal monthly amounts at a fixed forward rate of 22.109 MXN/USD.
The following table presents the fair values of our derivative instruments included within the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (in thousands):
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Derivatives |
| Condensed Consolidated Balance Sheet Location | | June 30, 2021 | | December 31, 2020 |
Derivatives designated as cash flow hedging instruments | | | | | |
Foreign exchange forward contract: | | | | | |
| Prepaid expenses and other current assets | | $ | 1,849 | | | $ | 3,555 | |
| | | | | |
| | | | | |
| | | | | |
Total derivatives designated as cash flow hedging instruments | | | $ | 1,849 | | | $ | 3,555 | |
The following table presents the amounts affecting the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Line Item in the Condensed Consolidated Statements of Operations | | Three months ended June 30, | | Six months ended June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 |
Derivatives designated as cash flow hedging instruments | | | | | | | | | | |
Foreign exchange forward contracts | | Cost of goods sold | | $ | 903 | | | $ | (219) | | | $ | 1,744 | | | $ | 473 | |
We recognized the following gains (losses) on our foreign exchange contracts designated as a cash flow hedge (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain Recognized in Other Comprehensive Income on Derivatives | | Amount of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income |
| | Three months ended June 30, | | | | Three months ended June 30, |
| | | | |
| | 2021 | | 2020 | | Location of Gain (Loss) Reclassified From Accumulated Other Comprehensive Income into Income | | 2021 | | 2020 |
Derivatives designated as cash flow hedges: | | | | | | | | | | |
Foreign exchange forward contract | | $ | 441 | | | $ | 1,262 | | | Cost of goods sold | | $ | 903 | | | $ | (219) | |
Total derivatives designated as cash flow hedging instruments | | $ | 441 | | | $ | 1,262 | | | | | $ | 903 | | | $ | (219) | |
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives | | Amount of Gain Reclassified From Accumulated Other Comprehensive Income into Income |
| | Six months ended June 30, | | | | Six months ended June 30, |
| | | | |
| | 2021 | | 2020 | | Location of Gain Reclassified From Accumulated Other Comprehensive Income into Income | | 2021 | | 2020 |
Derivatives designated as cash flow hedges: | | | | | | | | | | |
Foreign exchange forward contract | | $ | 39 | | | $ | (1,930) | | | Cost of goods sold | | $ | 1,744 | | | $ | 473 | |
Total derivatives designated as cash flow hedging instruments | | $ | 39 | | | $ | (1,930) | | | | | $ | 1,744 | | | $ | 473 | |
As of June 30, 2021, we expect approximately $1.8 million of the deferred gains on the outstanding derivatives in accumulated other comprehensive income to be reclassified to net income during the next six months concurrent with the underlying hedged transactions also being reported in net income.
Note 8: Fair Value Measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value:
•Level 1: quoted prices in active markets for identical assets or liabilities;
•Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
•Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.
Earn-out Liability
In 2017, we recognized an earn-out liability upon the acquisition of HIS from Pfizer. Pfizer was entitled to receive between $191.3 million and $225.0 million in additional cash consideration based on the achievement of certain performance targets for the combined company for the three years ending December 31, 2019. The initial fair value of the earn-out was determined by employing a Monte Carlo simulation in a risk neutral framework. The underlying simulated variable was adjusted EBITDA. The adjusted EBITDA volatility estimate was based on a study of historical asset volatility for a set of comparable public companies. The model included other assumptions including the market price of risk, which was calculated as the weighted average cost of capital ("WACC") less the long term risk free rate. The initial value assigned to the contingent consideration was a result of forecasted product demand of our HIS business. At each reporting date subsequent to the acquisition we remeasured the earn-out using the same methodology above and recognized any changes in value. As of December 31, 2019, we determined that we did not meet the necessary performance targets that would require payout of any of the HIS earn-out liability. Pfizer disputed our determination that the performance targets requiring payout of the HIS earn-out liability were not met, therefore the dispute is being resolved by binding arbitration. As of this filing, we expect the arbitrator to render a decision on this matter in August 2021. Given the uncertainty of any arbitration, it may be possible that we will incur a loss with regards to this matter. If we are unsuccessful in arbitration such that it is determined that we met the necessary performance targets for any of the HIS earn-out liability, we will be obligated to pay Pfizer between $191.3 million and $225.0 million in additional cash consideration.
In the fourth quarter of 2019, we recognized an earn-out liability related to the acquisition of Pursuit Vascular, Inc. ("Pursuit"). Pursuit's former equity holders are entitled up to $50.0 million in additional cash consideration contingent upon the achievement of certain sales and gross profit targets for specific customers. The earn-out is calculated as a percentage of gross profit achieved during the earn-out period against a pre-determined target gross profit, not to exceed $50.0 million. During the earn-out period, we used a Monte Carlo simulation model to determine the fair value of the earn-out liability. The Monte Carlo
ICU MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
simulation model utilizes multiple input variables to determine the value of the earn-out liability including historical volatility, a risk free interest rate, counter party credit risk and projected future gross profit (see the simulation input table below related to Pursuit). The historical volatility is based on the median of ICU and a certain peer group. The risk-free interest rate is equal to the yield, as of the valuation date, of the zero-coupon U.S. Treasury bill that is commensurate with the term of the earn-out. The counter party credit risk is based on a synthetic credit rating of B1. As of June 30, 2021, the earn-out measurement period had ended. Based on the actual sales and gross profit achieved during the measurement period, we calculated the actual earn-out amount to be $26.3 million. Pursuit's former equity holders are entitled to an earn-out review period during which they may dispute the final earn-out amount. Assuming Pursuit's former equity holders accept out calculation, we expect to pay the $26.3 million earn-out during the third quarter of 2021. Our contingent earn-out liability is separately stated in our condensed consolidated balance sheets.
The following tables provide a reconciliation of the Level 3 earn-out liabilities measured at estimated fair value (in thousands):
| | | | | | | | |
| | Pursuit |
| | Earn-out Liability |
Accrued balance, January 1, 2021 | | $ | 26,300 | |
| | |
Change in fair value of earn-out (included in income from operations as a separate line item) | | — | |
Accrued balance, March 31, 2021 | | $ | 26,300 | |
Change in fair value of earn-out (included in income from operations as a separate line item) | | — | |
Accrued balance, June 30, 2021 | | |