ICU Medical, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. ICU Medical develops, manufactures and sells medical products for infusion therapy and critical care, including infusion consumables, infusion systems, IV solutions and critical-care products.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $336.1 million | $318.6 million | $975.8 million | $950.6 million |
| Gross profit | $127.8 million | $113.9 million | $364.0 million | $341.6 million |
| Gross margin | 38.0% | 35.8% | 37.3% | 35.9% |
| Operating income | $38.4 million | $25.5 million | $99.4 million | $71.1 million |
| Net income | $31.1 million | $25.0 million | $83.2 million | $60.7 million |
| Diluted EPS | $1.43 | $1.16 | $3.83 | $2.82 |
| Cash from operations | — | $184.9 million | $144.2 million |
Q3 revenue rose 5.5% year over year and nine-month revenue rose 2.7%. Gross margin improvement reflected product mix and higher plant volumes, partly offset by higher raw-material, labor and freight costs; nine-month results also included manufacturing impacts from the Austin plant shutdown and weather-related costs. Operating income increased as revenue and gross profit grew and restructuring and transaction-related expenses declined year over year.
By product line, Q3 Infusion Consumables revenue increased 24.8%, while Infusion Systems increased 2.6%; IV Solutions declined 12.5%, primarily due to lower contract-manufacturing sales to Pfizer. For the first nine months, Infusion Consumables increased 16.2%, Infusion Systems declined 3.1%, IV Solutions declined 8.0%, and Critical Care was essentially flat.
Liquidity, balance sheet and cash flow
- At September 30, cash and cash equivalents were $519.5 million; short- and long-term investment securities totaled $25.2 million. Combined cash and investments were $544.7 million, up $120.9 million from year-end 2020.
- Current assets were $1.01 billion and current liabilities were $185.1 million. ICU Medical had no borrowings on its $150 million revolving credit facility and reported $150 million available; it was in compliance with its financial covenants.
- Nine-month operating cash flow was $184.9 million. Investing activities used $57.7 million, including $46.5 million for property and equipment; financing activities used $1.6 million. The company estimated 2021 capital expenditures of $70 million to $75 million.
- The balance sheet included a $26.3 million current Pursuit acquisition earn-out liability at quarter-end. The amount was finalized and paid in October 2021. Lease liabilities are also reported; the filing reports no outstanding borrowings under the credit facility.
Material developments, outlook and risks
- Pending Smiths Medical acquisition: In September, ICU Medical agreed to acquire Smiths Medical for approximately $1.9 billion in cash, 2.5 million shares and a potential $100 million contingent payment. Closing was anticipated in early 2022, subject to shareholder, antitrust, foreign-investment and other conditions. Financing commitments were increased to up to approximately $2.2 billion, including $850 million each for term loan A and term loan B and a $500 million revolving facility. This would materially increase debt and reduce cash on hand. The company cautioned that completion, integration and expected benefits are uncertain; failure to close could trigger a termination fee under specified circumstances.
- COVID-19 and operations: The pandemic and variants continued to affect operations, and the overall future financial impact remained uncertain and not quantifiable. Management cited lower 2020 hospital census as a factor in subsequent consumables growth, while prior-year COVID-related pump purchases affected comparisons.
- Costs and demand: Higher raw-material, direct-labor and freight costs pressured margins. Management also identified risks from customer ordering patterns, competition, foreign-exchange movements, labor and material availability, and dependence on strategic customer and distributor relationships.
- Other unusual items: A third-quarter adjustment to prior facility-closure liabilities produced net restructuring credits. In August, ICU Medical settled a Pfizer dispute through binding arbitration; the arbitrator determined no HIS earn-out payment was due. The company also recorded a $3.1 million estimated contingent earn-out liability tied to a distributor non-compete agreement.
- Guidance: The filing provides estimated 2021 capital expenditures of $70 million to $75 million, but no specific revenue or earnings guidance. Management stated existing resources and anticipated operating cash flows were expected to fund operations for the next 12 months, including in the context of the planned acquisition financing.
Important facts for investors to verify
- Smiths acquisition closing conditions, final financing terms, any termination exposure, and expected post-close leverage and integration costs.
- Whether Infusion Consumables growth can continue and whether declines in IV Solutions and Infusion Systems stabilize, especially given Pfizer-related sales.
- Whether higher input, labor and freight costs continue to offset volume and product-mix benefits to gross margin.
- Actual capital expenditures versus the $70 million–$75 million estimate, and cash-flow effects of the acquisition and the October Pursuit earn-out payment.
- Developments in COVID-19 impacts, foreign-exchange exposure, customer and distributor relationships, and other risks identified in the filing.