ICU Medical(US:ICUI)2021-11-05 21:01PART I. Financial Information Presents ICU Medical's unaudited condensed consolidated financial statements and related disclosures for Q3 and YTD September 2021 Item 1. Financial Statements (Unaudited) Presents ICU Medical's unaudited condensed consolidated financial statements and related disclosures for Q3 and YTD September 2021 Condensed Consolidated Balance Sheets Provides a snapshot of the company's financial position, including assets, liabilities, and equity as of September 30, 2021 | Balance Sheet Highlights (In thousands) | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,011,237 | $920,777 | | Cash and cash equivalents | $519,485 | $396,097 | | Inventories | $291,601 | $314,928 | | Total Assets | $1,839,351 | $1,763,691 | | Total Current Liabilities | $185,077 | $195,488 | | Total Stockholders' Equity | $1,589,972 | $1,502,265 | | Total Liabilities and Stockholders' Equity | $1,839,351 | $1,763,691 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income for the three and nine months ended September 30, 2021 | Income Statement (In thousands, except per share) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Revenues | $336,060 | $318,567 | | Gross Profit | $127,791 | $113,924 | | Income From Operations | $38,380 | $25,530 | | Net Income | $31,081 | $24,986 | | Diluted EPS | $1.43 | $1.16 | | Income Statement (In thousands, except per share) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Revenues | $975,783 | $950,553 | | Gross Profit | $364,000 | $341,623 | | Income From Operations | $99,420 | $71,143 | | Net Income | $83,210 | $60,728 | | Diluted EPS | $3.83 | $2.82 | Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 | Cash Flow Summary (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $184,917 | $144,226 | | Net cash used in investing activities | ($57,746) | ($57,236) | | Net cash used in financing activities | ($1,591) | ($4,466) | | Net increase in cash and cash equivalents | $123,388 | $82,323 | | Cash and cash equivalents, beginning of period | $396,097 | $268,670 | | Cash and cash equivalents, end of period | $519,485 | $350,993 | Notes to Condensed Consolidated Financial Statements Offers detailed disclosures on accounting policies, revenue breakdown, and significant corporate events including the Smiths Medical acquisition Revenue by Product Line (in thousands) | Product line | Three months ended Sep 30, 2021 | Nine months ended Sep 30, 2021 | | :--- | :--- | :--- | | Infusion Consumables | $144,850 | $407,419 | | Infusion Systems | $90,688 | $259,683 | | IV Solutions | $89,237 | $271,834 | | Critical Care | $11,285 | $36,847 | | Total Revenues | $336,060 | $975,783 | - The earn-out measurement period for the Pursuit acquisition ended as of June 30, 2021, with the final earn-out amount calculated at $26.3 million This amount was paid in October 20216099 - In August 2021, an arbitrator concluded that performance targets for the Hospira Infusion Systems (HIS) earn-out were not met, and therefore Pfizer is not entitled to any payments100 - In September 2021, the company entered into a definitive agreement to acquire Smiths Medical for approximately $1.9 billion in cash, 2.5 million shares of common stock, and a potential $100 million earn-out The transaction is expected to close in early 2022103 - To finance the Smiths acquisition, the company has secured a debt commitment for senior secured credit facilities of up to $2.2 billion, including term loans and a revolving credit facility104165 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, liquidity, and capital resources, with a focus on the Smiths Medical acquisition Consolidated Results of Operations Analyzes the company's revenue growth, gross margin improvements, and changes in operating expenses for the third quarter of 2021 Q3 Revenue by Product Line (in millions) | Product Line | Q3 2021 | Q3 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Infusion Consumables | $144.9 | $116.1 | $28.8 | 24.8% | | Infusion Systems | $90.7 | $88.4 | $2.3 | 2.6% | | IV Solutions | $89.2 | $101.9 | ($12.7) | -12.5% | | Critical Care | $11.3 | $12.2 | ($0.9) | -7.4% | - Gross margin for Q3 2021 increased to 38.0% from 35.8% in Q3 2020, primarily due to product mix and increased plant volumes, which offset higher costs for raw materials, labor, and freight136 - SG&A expenses increased by 5.5% in Q3 2021 compared to the prior year, mainly due to a $3.4 million increase in compensation expense and a $1.4 million increase in commissions, partially offset by a $2.6 million decrease in bad debt expense138 - Strategic transaction and integration expenses in Q3 2021 were $4.3 million, primarily related to costs incurred for the definitive agreement to acquire Smiths Medical143 Liquidity and Capital Resources Assesses the company's cash position, operating cash flow, and financing plans for the pending Smiths Medical acquisition - Cash, cash equivalents, and investments increased by $120.9 million during the first nine months of 2021, reaching $544.7 million at September 30, 2021153 - Net cash provided by operating activities for the nine months ended September 30, 2021, was $184.9 million, compared to $144.2 million for the same period in 2020154155 - The company plans to use cash on hand and new debt facilities of up to $2.2 billion to finance the Smiths acquisition The new facilities will include an $850 million term loan A, an $850 million term loan B, and a $500 million revolving credit facility165174 Item 3. Quantitative and Qualitative Disclosures About Market Risk Identifies the company's exposure to market risks, primarily interest rate fluctuations and foreign currency exchange rates - Upon closing the Smiths acquisition, the company will be exposed to significant interest rate risk from new variable-rate debt facilities totaling approximately $2.2 billion, including $1.7 billion in term loans184 - The company has foreign exchange risk from its international operations As of September 30, 2021, the net Euro asset position was approximately €44.9 million A portion of the manufacturing spend denominated in Mexican Pesos is hedged186187 Item 4. Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures and the absence of material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report188 - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls189 PART II. Other Information Contains additional required disclosures, including legal proceedings, risk factors, and equity security sales Legal Proceedings Describes the company's involvement in various legal proceedings and management's assessment of their financial impact - Management states that ongoing legal proceedings are not expected to have a material adverse impact on the company's financial position or operations96190 Risk Factors Outlines key risks associated with the pending Smiths Medical acquisition, including integration challenges and increased leverage - A primary risk is the potential failure to complete the Smiths transaction, which is subject to shareholder approval and regulatory conditions Failure to close could adversely impact the company's business and stock price192193194 - Successful integration of the Smiths business presents significant challenges, including preserving customer relationships, retaining key employees, consolidating systems, and managing a geographically dispersed organization195196197 - The company plans to incur substantial debt (up to $2.2 billion) and use significant cash to finance the acquisition, which will create a more leveraged financial position and could restrict future business activities and increase vulnerability to economic downturns198199 Unregistered Sales of Equity Securities and Use of Proceeds Reports on the company's common stock repurchase activity and the remaining authorization under its share purchase plan | Stock Repurchase Activity | Q3 2021 | | :--- | :--- | | Total number of shares purchased | 0 | | Average price paid per share | $ - | | Approximate dollar value remaining under program | $100,000,000 | Exhibits Lists all documents filed as exhibits to the Form 10-Q, including key agreements and certifications