ICU Medical(ICUI) - 2022 Q1 - Quarterly Report

PART I. Financial Information This section presents the company's financial statements and related disclosures Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for Q1 2022, detailing balance sheets, operations, comprehensive (loss) income, equity, and cash flows Condensed Consolidated Balance Sheets Details the company's financial position at March 31, 2022, and December 31, 2021, covering assets, liabilities, and equity Condensed Consolidated Balance Sheets | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------------- | :----------------------------- | :------------------------------ | | Assets | | | | Total Current Assets | $1,173,995 | $1,029,809 | | Property, Plant and Equipment, net | $674,412 | $468,365 | | Goodwill | $1,526,866 | $43,439 | | Intangible Assets, net | $1,094,710 | $188,311 | | Total Assets | $4,746,732 | $1,880,738 | | Liabilities & Equity | | | | Total Current Liabilities | $494,115 | $200,777 | | Long-Term Debt | $1,642,171 | — | | Total Stockholders' Equity | $2,178,902 | $1,616,031 | - Total assets significantly increased to $4.75 billion at March 31, 2022, from $1.88 billion at December 31, 2021, primarily driven by the acquisition of Smiths Medical, which led to substantial increases in goodwill, intangible assets, and property, plant and equipment[8] - Long-term debt increased from zero to $1.64 billion, reflecting the financing structure for the Smiths Medical acquisition[8] Condensed Consolidated Statements of Operations Presents the company's financial performance for Q1 2022 and Q1 2021, including revenues, gross profit, and net (loss) income Condensed Consolidated Statements of Operations | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | | Total Revenues | $543,122 | $318,046 | | Gross Profit | $168,827 | $112,680 | | (Loss) Income From Operations | $(42,161) | $26,570 | | Net (Loss) Income | $(38,068) | $23,731 | | Basic Net (Loss) Income Per Share | $(1.61) | $1.12 | | Diluted Net (Loss) Income Per Share | $(1.61) | $1.09 | - Total revenues increased by 70.7% to $543.1 million for the three months ended March 31, 2022, compared to $318.0 million in the prior year, largely due to the Smiths Medical acquisition[12] - The company reported a net loss of $38.1 million, or $(1.61) per share, for the three months ended March 31, 2022, a significant decline from a net income of $23.7 million, or $1.12 per share, in the same period last year, primarily due to increased operating expenses (SG&A, R&D, restructuring, strategic transaction and integration) and interest expense related to the acquisition[12] Condensed Consolidated Statements of Comprehensive (Loss) Income Details comprehensive (loss) income for Q1 2022 and Q1 2021, including net (loss) income and other comprehensive income (loss) Condensed Consolidated Statements of Comprehensive (Loss) Income | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :------------------------------------ | :------------------------------------- | :------------------------------------- | | Net (Loss) Income | $(38,068) | $23,731 | | Other comprehensive income (loss), net of tax | $18,641 | $(8,391) | | Comprehensive (Loss) Income | $(19,427) | $15,340 | - Comprehensive loss for the three months ended March 31, 2022, was $(19.4) million, a decrease from comprehensive income of $15.3 million in the prior year, despite a positive other comprehensive income driven by cash flow hedge adjustments[15] Condensed Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity from January 1, 2022, to March 31, 2022, including common stock and retained earnings Condensed Consolidated Statements of Stockholders' Equity | Metric | Balance, January 1, 2022 (in thousands) | Balance, March 31, 2022 (in thousands) | | :------------------------------------ | :------------------------------------ | :----------------------------------- | | Common Stock (Shares) | 21,280 | 23,897 | | Common Stock (Amount) | $2,128 | $2,390 | | Additional Paid-in Capital | $721,412 | $1,306,264 | | Retained Earnings | $911,787 | $873,719 | | Accumulated Other Comprehensive (Loss) Income | $(19,269) | $(628) | | Total Stockholders' Equity | $1,616,031 | $2,178,902 | - Total stockholders' equity increased from $1.62 billion at January 1, 2022, to $2.18 billion at March 31, 2022, primarily due to the issuance of common stock for acquisitions ($576.0 million) and other comprehensive income, partially offset by a net loss[18] Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for Q1 2022 and Q1 2021, showing cash changes Condensed Consolidated Statements of Cash Flows | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :------------------------------------ | :------------------------------------- | :------------------------------------- | | Net cash (used in) provided by operating activities | $(1,342) | $51,320 | | Net cash used in investing activities | $(1,867,750) | $(18,881) | | Net cash provided by (used in) financing activities | $1,648,917 | $(3,000) | | Net (decrease) increase in cash and cash equivalents | $(223,399) | $28,152 | | Cash and cash equivalents, end of period | $329,428 | $424,249 | - Net cash used in operating activities was $(1.3) million for the three months ended March 31, 2022, a significant decrease from $51.3 million provided in the prior year, mainly due to changes in operating assets and liabilities, including increased inventories and decreased accrued liabilities[20][221] - Net cash used in investing activities dramatically increased to $(1.87) billion, primarily due to the $1.84 billion cash payment for the Smiths Medical acquisition[20][224] - Net cash provided by financing activities was $1.65 billion, driven by proceeds from long-term debt issuance to fund the Smiths Medical acquisition[20][227] Notes to Condensed Consolidated Financial Statements Overview of Notes to Condensed Consolidated Financial Statements Note 1: Basis of Presentation Interim financial statements follow U.S. GAAP and SEC rules; Smiths Medical acquisition significantly impacts consolidated results - ICU Medical, Inc. is engaged in the development, manufacturing, and sale of innovative medical products for infusion therapy and critical care applications[26] - On January 6, 2022, ICU Medical acquired Smiths Medical 2020 Limited, and its results are included in the consolidated statements from January 7, 2022, through March 26, 2022[27] Note 2: New Accounting Pronouncements Adopted ASU No. 2020-04 for LIBOR transition to SOFR, amending swaps in early 2022, with no material impact expected - ASU No. 2020-04 provides optional guidance for reference rate reform, specifically addressing the transition from LIBOR to alternative rates[28] - The company amended forward-starting swaps in early 2022 to transition from LIBOR to the Secured Overnight Financing Rate (SOFR)[28] - The impact of ASU No. 2020-04 on the company's contracts has not been and is not expected to be material[28] Note 3: Acquisitions ICU Medical acquired Smiths Medical for $2.55 billion, expanding product offerings and global reach, with significant goodwill and intangibles - On January 6, 2022, ICU Medical acquired 100% of Smiths Medical for a total consideration of $2.55 billion, comprising $1.9 billion cash, 2.5 million common shares ($576.0 million fair value), and a preliminary fair value of $53.5 million for contingent consideration[30][31][33] - The acquisition of Smiths Medical aligns with strategic growth plans, broadening product offerings to include syringe and ambulatory infusion devices, vascular access, and vital care products, and strengthening global market reach[30] Preliminary Purchase Price Allocation (Smiths Medical) | Asset/Liability | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Total identifiable net assets acquired | $1,059,335 | | Goodwill (not tax deductible) | $1,493,115 | | Total Estimated Purchase Consideration | $2,552,450 | | Identifiable Intangible Assets: | | | Customer relationships | $500,000 | | Developed technology | $420,000 | | Trademark | $5,000 | - Smiths Medical contributed $214.9 million in revenues and a net loss of $40.4 million to ICU's consolidated results from January 7, 2022, to March 31, 2022[35] - In November 2021, ICU Medical acquired a small foreign infusion systems supplier for an initial cash payment of $15.4 million, with potential earn-out payments up to $2.5 million contingent on revenue targets and regulatory certifications[37] Note 4: Restructuring, Strategic Transaction and Integration Restructuring, strategic transaction, and integration expenses surged to $33.9 million in Q1 2022, driven by Smiths Medical acquisition costs and severance Expense Type | Expense Type | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | | Restructuring, strategic transaction and integration expenses | $33,905 | $2,883 | | Restructuring charges (severance) | $3,222 | — | | Strategic transaction and integration expenses | $30,683 | $2,883 | - The significant increase in strategic transaction and integration expenses in Q1 2022 was primarily due to the Smiths Medical acquisition, covering legal expenses, bank fees, a United Kingdom stamp tax, and employee costs[41] Note 5: Revenue Post-acquisition, product lines expanded to include Smiths Medical offerings; revenue recognition occurs upon control transfer, significantly increasing total revenues - Post-acquisition, primary product lines include Infusion Consumables, Infusion Systems, IV Solutions, Critical Care, and new Smiths Medical lines: Infusion Systems-Smiths Medical, Vascular Access-Smiths Medical, and Vital Care-Smiths Medical[42][46] - Revenue is typically recognized upon transfer of control of products, with software licenses recognized at the start of the license term[42] Revenues Disaggregated by Product Line | Product Line | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :------------------------------ | :------------------------------------- | :------------------------------------- | | Infusion Consumables | $140,521 | $126,370 | | Infusion Systems | $87,012 | $84,334 | | IV Solutions | $88,480 | $94,176 | | Critical Care | $12,157 | $13,166 | | Infusion Systems-Smiths Medical | $66,290 | — | | Vascular Access-Smiths Medical | $79,008 | — | | Vital Care-Smiths Medical | $69,654 | — | | Total Revenues | $543,122 | $318,046 | Revenues Disaggregated by Geography | Geography | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :-------------------------- | :------------------------------------- | :------------------------------------- | | Europe, the Middle East and Africa | $86,204 | $34,800 | | Other Foreign | $109,127 | $55,895 | | Total Foreign | $195,331 | $90,695 | | United States | $347,791 | $227,351 | | Total Revenues | $543,122 | $318,046 | Note 6: Leases Lease costs increased to $5.38 million in Q1 2022, mainly due to operating leases from the Smiths Medical acquisition, with ROU assets and liabilities recognized - Operating lease cost increased to $5.18 million for the three months ended March 31, 2022, from $2.84 million in the prior year, contributing to a total lease cost of $5.38 million (2022) vs. $3.02 million (2021)[53] Operating Lease Information | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Operating lease right-of-use assets | $92,027 | $39,847 | | Total operating lease liabilities | $94,177 | $42,980 | | Weighted-Average Remaining Lease Term | 6.5 years | 5.9 years | | Weighted-Average Discount Rate | 4.06 % | 4.98 % | - The increase in operating lease ROU assets and liabilities is primarily due to the acquisition of Smiths Medical[55] Note 7: Net Income Per Share Basic and diluted net loss per share were both $(1.61) in Q1 2022 due to a net loss, making all dilutive securities anti-dilutive Net Earnings Per Common Share (EPS) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net (loss) income (in thousands) | $(38,068) | $23,731 | | Weighted-average common shares outstanding (basic) (in thousands) | 23,646 | 21,149 | | Dilutive securities (in thousands) | — | 546 | | Weighted-average common and common equivalent shares outstanding (diluted) (in thousands) | 23,646 | 21,695 | | EPS — basic | $(1.61) | $1.12 | | EPS — diluted | $(1.61) | $1.09 | - Due to the net loss in Q1 2022, no potentially dilutive common shares were included in the diluted EPS calculation as they would have had an anti-dilutive effect[57][58] Note 8: Derivatives and Hedging Activities Uses cash flow hedging for foreign currency and interest rate risks, with $231.8 million in foreign exchange contracts and $1.05 billion in interest rate swaps - ICU Medical uses cash flow hedging programs to manage foreign currency exchange rate risk and floating interest rate risk[59] - As of March 31, 2022, the total notional amount of outstanding foreign exchange forward contracts was $231.8 million, hedging exposures in Mexican Pesos, Euros, Czech Koruna, and Japanese Yen[62] - Two forward-starting interest rate swaps, amended in February 2022 to transition from LIBOR to SOFR, effectively convert portions of variable-rate term loans to fixed rates. The Term Loan A swap has an initial notional amount of $300.0 million (fixed rate 1.32%), and the Term Loan B swap has an initial notional amount of $750.0 million (fixed rate 1.17%)[64] Fair Values of Derivative Instruments (in thousands) | Instrument Type | March 31, 2022 (Assets) | March 31, 2022 (Liabilities) | December 31, 2021 (Assets) | December 31, 2021 (Liabilities) | | :-------------------------- | :------------------------ | :--------------------------- | :------------------------- | :---------------------------- | | Foreign Exchange Contracts | $7,744 | $922 | $1,061 | — | | Interest Rate Swaps | $28,570 | — | — | $1,480 | | Total | $36,314 | $922 | $1,061 | $1,480 | Note 9: Fair Value Measurements Fair value measurements categorize assets and liabilities into Level 1, 2, and 3, with contingent earn-out liabilities as Level 3 and derivatives as Level 2 - Contingent earn-out liabilities are classified as Level 3 fair value measurements, using unobservable inputs like volatility and risk-free rates[69][70][71][72] - The estimated fair value of the contingent earn-out for the Smiths Medical acquisition was $53.5 million as of January 6, 2022, and $57.7 million as of March 31, 2022[69][75] - Fair values of investment securities, foreign exchange contracts, and interest rate swaps are primarily estimated using Level 2 observable market-based inputs[77][78][79] Fair Value Measurements as of March 31, 2022 (in thousands) | Category | Total Carrying Value | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :------------------- | :------ | :------ | :------ | | Assets: | | | | | | Available-for-sale debt securities | $17,403 | — | $17,403 | — | | Foreign exchange contracts | $7,744 | — | $7,744 | — | | Interest rate contracts | $28,570 | — | $28,570 | — | | Total Assets | $53,717 | — | $53,717 | — | | Liabilities: | | | | | | Contingent earn-out liability - LT | $57,701 | — | — | $57,701 | | Foreign exchange contracts | $922 | — | $922 | — | | Total Liabilities | $58,623 | — | $922 | $57,701 | Note 10: Investment Securities Investment securities include short-term and long-term corporate bonds at fair value, plus a 20% non-marketable equity interest in a nonpublic company Available-for-sale Securities (in thousands) | Security Type | March 31, 2022 Fair Value | December 31, 2021 Fair Value | | :-------------------------- | :-------------------------- | :--------------------------- | | Short-term corporate bonds | $14,864 | $14,420 | | Long-term corporate bonds | $2,539 | $4,620 | | Total investment securities | $17,403 | $19,040 | - The company holds a 20% non-marketable equity interest in a nonpublic company, acquired in Q3 2021, with exclusive distribution rights and an option to acquire the remaining interest[84] Non-Marketable Equity Method Investment (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :---------------------- | :------------- | :---------------- | | Equity method investment | $3,209 | $3,238 | Note 11: Prepaid Expenses and Other Current Assets and Other Assets Prepaid expenses and other current assets increased to $80.3 million, and other assets to $104.6 million, driven by prepaid items and derivative contracts Prepaid Expenses and Other Current Assets (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Other prepaid expenses and receivables | $29,647 | $14,763 | | Prepaid insurance and property taxes | $19,716 | $6,310 | | Foreign exchange contracts | $7,629 | $1,061 | | Total Prepaid expenses and other current assets | $80,273 | $46,847 | Other Assets (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Pump lease receivables | $27,336 | $25,941 | | Spare parts | $32,031 | $28,538 | | Deferred debt issuance costs | $6,496 | $2,827 | | Interest rate contracts | $28,570 | — | | Total Other Assets | $104,617 | $63,743 | Note 12: Inventories Total inventories increased to $536.3 million at March 31, 2022, primarily due to the Smiths Medical acquisition, with acquired inventory at fair value Inventories (in thousands) | Inventory Type | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Raw materials | $232,451 | $135,528 | | Work in process | $74,427 | $36,490 | | Finished goods | $229,436 | $118,217 | | Total inventories | $536,314 | $290,235 | - Inventories increased significantly due to the acquisition of Smiths Medical, with all acquired inventory recorded at fair value[91] Note 13: Property, Plant and Equipment Property, plant and equipment, net, increased to $674.4 million at March 31, 2022, primarily due to the Smiths Medical acquisition Property, Plant and Equipment (in thousands) | Asset Type | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Machinery and equipment | $432,649 | $321,078 | | Land, building and building improvements | $289,866 | $243,377 | | Construction in progress | $123,448 | $72,153 | | Total property, plant and equipment, net | $674,412 | $468,365 | - Property, plant and equipment, and related depreciation expense, increased significantly due to the acquisition of Smiths Medical[93] Note 14: Goodwill and Intangible Assets, Net Goodwill surged to $1.53 billion and intangible assets, net, to $1.09 billion, primarily from the Smiths Medical acquisition, with $31.7 million amortization Changes in Goodwill (in thousands) | Metric | Amount | | :-------------------------- | :------- | | Balance as of January 1, 2022 | $43,439 | | Goodwill acquired (Smiths Medical) | $1,493,115 | | Balance as of March 31, 2022 | $1,526,866 | Intangible Assets, Net (in thousands) | Asset Type | March 31, 2022 Net | December 31, 2021 Net | | :------------------------------ | :----------------- | :------------------ | | Non-contractual customer relationships | $510,822 | $24,312 | | Developed technology | $519,695 | $103,487 | | Patents | $10,799 | $10,665 | | Total intangible assets | $1,094,710 | $188,311 | - Intangible asset amortization expense was $31.7 million for the three months ended March 31, 2022, compared to $5.8 million in the prior year, reflecting the significant increase in intangible assets from the Smiths Medical acquisition[98] Note 15: Accrued Liabilities and Other Long-Term Liabilities Accrued liabilities increased to $261.8 million and other long-term liabilities to $134.2 million, mainly due to the Smiths Medical acquisition and FDA remediation Accrued Liabilities (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Salaries and benefits | $47,604 | $27,304 | | Operating lease liability-ST | $20,786 | $9,009 | | Deferred revenue | $40,870 | $12,646 | | Warranties and returns | $31,857 | $532 | | Accrued transaction/integration costs | $8,982 | — | | Defined benefit plan | $2,796 | — | | Other (includes $31.3M FDA remediation) | $15,371 | $8,099 | | Total Accrued Liabilities | $261,820 | $118,195 | Other Long-Term Liabilities (in thousands) | Item | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Operating lease liability-LT | $73,391 | $33,971 | | Deferred revenue | $22,828 | — | | Field service corrective action (FDA remediation) | $23,385 | — | | Total Other Long-Term Liabilities | $134,208 | $41,830 | - Accrued liabilities include $31.3 million for estimated remediation costs related to a 2021 FDA Warning Letter received by Smiths Medical[101] Note 16: Income Taxes The effective tax rate for Q1 2022 was 31%, up from 12% in Q1 2021, influenced by U.S./foreign income mix, state taxes, and tax benefits - The effective tax rate for Q1 2022 was 31%, compared to 12% for Q1 2021[103] - The Q1 2022 effective tax rate differs from the 21% federal statutory rate due to the mix of U.S. and foreign incomes, state income taxes, Section 162(m) excess compensation, FDII, tax credits, and a $2.6 million excess tax benefit from stock option exercises and restricted stock vesting[104][205] Note 17: Long-Term Debt Entered into $2.2 billion Senior Secured Credit Facilities to finance Smiths Medical acquisition, including Term Loan A and Term Loan B, with covenant compliance - On January 6, 2022, ICU Medical entered into a $2.2 billion Senior Secured Credit Facilities agreement, including a $850.0 million Term Loan A, an $850.0 million Term Loan B, and a $500.0 million Revolving Credit Facility[105] - Proceeds from the Term Loans were used to fund a portion of the cash consideration for the Smiths Medical acquisition[105] - The Term Loan A matures in January 2027, and the Term Loan B matures in January 2029. Principal payments on Term Loans are due quarterly starting June 30, 2022[109][118][119] - The company was in compliance with all financial covenants (Senior Secured Leverage Ratio and Interest Coverage Ratio) as of March 31, 2022[128] Long-Term Debt Carrying Values (in thousands) | Debt Type | Effective Interest Rate | March 31, 2022 Principal | | :-------------------------------- | :---------------------- | :----------------------- | | Term Loan A | 4.44 % | $834,000 | | Term Loan B | 5.11 % | $850,000 | | Less unamortized debt issuance costs | | $(28,000) | | Total carrying value of long-term debt | | $1,656,000 | | Less current portion of long-term debt | | $(13,813) | | Long-term debt, net | | $1,642,171 | Note 18: Stockholders' Equity Smiths Group plc owns 10.5% of common stock post-acquisition; $100.0 million share repurchase plan is available but restricted; AOCI improved from hedge adjustments - Smiths Group plc owns approximately 10.5% of ICU Medical's common stock post-acquisition and has the right to designate one director to the Board[133] - The $100.0 million share purchase plan, approved in August 2019, remains fully available as of March 31, 2022, but share purchases are currently limited by the Credit Agreement terms[135] Components of Accumulated Other Comprehensive (Loss) Income (AOCI) (in thousands) | Component | Balance as of January 1, 2022 | Balance as of March 31, 2022 | | :-------------------------------- | :---------------------------- | :--------------------------- | | Foreign Currency Translation Adjustments | $(19,045) | $(23,991) | | (Losses) Gains on Cash Flow Hedges | $(237) | $23,335 | | Other Adjustments | $13 | $28 | | Total AOCI | $(19,269) | $(628) | Note 19: Commitments and Contingencies Involved in routine legal proceedings; contingent earn-out liabilities total $55.1 million; $54.7 million estimated for FDA Warning Letter remediation - The company has a contingent earn-out liability of $53.5 million related to the Smiths Medical acquisition and $1.6 million for a 2021 foreign infusion systems supplier acquisition[142][144] - A provision of $55.1 million was recorded for estimated costs related to a field service corrective action following a 2021 FDA Warning Letter received by Smiths Medical, with the estimated amount at March 31, 2022, being $54.7 million[143] - The estimated remediation costs related to the FDA Warning Letter are split into $31.3 million short-term (accrued liabilities) and $23.4 million long-term (other long-term liabilities)[101][102] Note 20: Collaborative and Other Arrangements Has Manufacturing and Supply Agreements (MSAs) with Pfizer, extended until 2024, with a $29.6 million minimum purchase obligation satisfied by Q1 2022 - ICU Medical has Manufacturing and Supply Agreements (MSAs) with Pfizer for mutual product manufacturing and supply[147] - An amendment in January 2021 extended ICU's supply to Pfizer until December 31, 2024, with a one-year extension option, and included updated terms for supply levels, manufacturing, pricing, and minimum purchase requirements[147] - A Product Addendum in February 2022 added supply of additional products from Pfizer to ICU, with a $29.6 million minimum purchase obligation that was satisfied by March 31, 2022[147][148][218] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses ICU Medical's financial condition and results for Q1 2022, highlighting the significant impact of the Smiths Medical acquisition on business, performance, liquidity, and capital Business Overview Smiths Medical acquisition expanded product portfolio and global presence across 90+ countries, adding facilities and intensifying competition, with ongoing COVID-19 impacts - The acquisition of Smiths Medical on January 6, 2022, broadened ICU Medical's product portfolio to include syringe and ambulatory pumps, peripheral IV catheters, fluid warming, and respiratory devices[151][152] - Post-acquisition, ICU Medical now operates additional manufacturing facilities (5 in U.S., 2 in Mexico, 2 in UK, 1 each in Czech Republic, Italy, China), service centers (U.S., Canada, Europe, Asia), and distribution centers (U.S., Netherlands, EMEA, China, Canada, U.K., Japan, India)[155][156][157] - The company's primary customers are acute care hospitals, wholesalers, ambulatory clinics, and alternate site facilities, with products sold in over 90 countries[154] - The COVID-19 pandemic continues to impact business operations, with its duration and extent of impact remaining uncertain and unquantifiable[181][182] Consolidated Results of Operations Total revenues increased 70.7% to $543.1 million in Q1 2022 due to Smiths Medical acquisition, but gross margins decreased, resulting in a net loss of $38.1 million Consolidated Income Statement Data as % of Total Revenue | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Total revenues | 100 % | 100 % | | Gross profit | 31 % | 35 % | | Selling, general and administrative expenses | 28 % | 23 % | | Research and development expenses | 4 % | 3 % | | Restructuring, strategic transaction and integration expenses | 6 % | 1 % | | Total operating expenses | 38 % | 27 % | | (Loss) income from operations | (7)% | 8 % | | Net (loss) income | (7)% | 7 % | - Total revenues increased by 70.7% to $543.1 million in Q1 2022 from $318.0 million in Q1 2021, primarily driven by the Smiths Medical acquisition[12] - Gross margins decreased to 31.1% in Q1 2022 from 35.4% in Q1 2021, mainly due to the Smiths Medical acquisition's lower margins, quality system spending, supply chain disruptions, and inflation[192] - SG&A expenses increased by 111.6% to $153.2 million, and R&D expenses increased by 123.4% to $23.9 million, both primarily due to the Smiths Medical acquisition[193][194][195] - Interest expense surged to $13.6 million in Q1 2022 from $0.2 million in Q1 2021, reflecting new borrowings for the Smiths Medical acquisition[199][200] Liquidity and Capital Resources Liquidity from cash, investments, operations, and $2.2 billion Senior Secured Credit Facilities used for Smiths Medical acquisition; cash and cash equivalents decreased to $344.3 million - Primary liquidity sources are cash and cash equivalents, short-term investment portfolio, cash flows from operations, and access to borrowing arrangements[207] - Cash and cash equivalents and short-term investment securities decreased by $223.0 million to $344.3 million at March 31, 2022, primarily due to funding the Smiths Medical acquisition[208] - The $2.2 billion Senior Secured Credit Facilities, including Term Loan A ($850.0 million), Term Loan B ($850.0 million), and a Revolving Credit Facility ($500.0 million), were established to finance the Smiths Medical acquisition[209] - Net cash used in operations was $1.3 million for Q1 2022, a decrease from $51.3 million provided in Q1 2021, mainly due to increased inventories and decreased accrued liabilities[221] Aggregate Principal Repayments and Interest Payments on Long-Term Debt (in millions) | Year | Term Loan A Principal | Term Loan A Interest | Term Loan B Principal | Term Loan B Interest | Revolver Commitment Fee | Total | | :---------------- | :-------------------- | :------------------- | :-------------------- | :------------------- | :---------------------- | :------ | | Remainder of 2022 | $— | $25.3 | $6.4 | $32.5 | $0.9 | $65.1 | | 2023 | $21.2 | $39.0 | $8.5 | $44.9 | $1.2 | $114.8 | | 2024 | $42.5 | $34.6 | $8.5 | $43.4 | $1.0 | $130.0 | | 2025 | $42.5 | $29.8 | $8.5 | $40.8 | $0.8 | $122.4 | | 2026 | $63.8 | $26.7 | $8.5 | $39.0 | $0.8 | $138.8 | | 2027 | $664.0 | $0.3 | $8.5 | $38.4 | $0.2 | $711.4 | | Thereafter | $— | $— | $801.1 | $41.1 | $— | $842.2 | | Total | $894.0 | $150.4 | $851.5 | $280.1 | $4.9 | $2,180.9 | Critical Accounting Policies No material changes to critical accounting policies from those disclosed in the 2021 Annual Report on Form 10-K - No material changes to critical accounting policies from those disclosed in the 2021 Annual Report on Form 10-K[228] New Accounting Pronouncements Refer to Note 2 for details on recently issued accounting standards and their impact - Refer to Note 2 for information on new accounting pronouncements[229] Forward-Looking Statements Contains forward-looking statements on future growth and Smiths Medical acquisition impact, involving risks like COVID-19, integration, and economic conditions - Forward-looking statements cover future growth, operating results, sales, expenditures, cash flow, and the impact of the Smiths Medical acquisition[230] - Key risks include the impacts of the COVID-19 pandemic, difficulties in integrating Smiths Medical, general economic conditions, unexpected changes with major customers, litigation outcomes, foreign exchange rate fluctuations, increased competition for skilled workers, raw material availability, and supply chain constraints[231][233] Item 3. Quantitative and Qualitative Disclosures About Market Risk Exposed to interest rate risk from variable-rate debt and foreign exchange risk from global operations, mitigated by swaps and forward contracts - The company is exposed to interest rate risk on its $2.2 billion variable-rate Senior Secured Credit Facilities[234] - A hypothetical 1% increase or decrease in the SOFR rate would result in approximately $17.0 million in additional annual interest expense or savings[235] - Interest rate swaps were entered into to mitigate interest rate risk, converting portions of the Term Loan A ($300.0 million notional) and Term Loan B ($750.0 million notional) to fixed rates[236] - Foreign exchange risk from international revenues and expenses is managed through foreign exchange forward contracts, hedging exposures principally in Mexican Pesos, Euros, Czech Koruna, and Japanese Yen[237][238] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2022; internal control over financial reporting excluded Smiths Medical due to recent acquisition - Disclosure controls and procedures were deemed effective as of March 31, 2022[239] - The evaluation of internal control over financial reporting for Q1 2022 excluded the acquired Smiths Medical operations, as permitted by SEC guidance for recently acquired businesses[240] - No other material changes in internal control over financial reporting occurred during the quarter[241] PART II. Other Information This section covers legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Legal proceedings information is incorporated by reference from Note 19, 'Commitments and Contingencies,' in the financial statements - Legal proceedings information is incorporated by reference from Note 19, 'Commitments and Contingencies'[242] Item 1A. Risk Factors Smiths Medical acquisition introduces significant risks, including integration challenges, managing growth, preserving culture, and maintaining customer relationships - The Smiths Medical acquisition has resulted in significant growth in personnel (adding approximately 6,700 employees, bringing total to 15,300) and operations[245] - Key risks include challenges in preserving strategic customer and third-party relationships, diverting management's attention, maintaining employee morale, retaining key employees, potential incompatibility of corporate cultures, and difficulties in consolidating infrastructures and information systems[246] - Failure to successfully integrate the Smiths Medical business could have a material adverse impact on ICU Medical's business, financial condition, and results of operations[247] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Issued 2.5 million unregistered shares to Smiths Group for the Smiths Medical acquisition; no shares repurchased under the $100.0 million stock purchase plan - On January 6, 2022, 2.5 million unregistered shares of common stock were issued to Smiths Group International Holdings Limited as part of the Smiths Medical acquisition consideration, under private offering exemptions[249][250] - No shares were purchased under the $100.0 million stock repurchase plan during the first quarter of 2022, leaving the full amount available[251] Item 6. Exhibits Refers to the Exhibit Index for a comprehensive list of exhibits filed or furnished with this Quarterly Report on Form 10-Q - The Exhibit Index provides a list of all exhibits filed or furnished with this report[252]