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ICU Medical, Inc. Announces Third Quarter 2018 Results

Company Modifies FY 2018 Guidance and Provides Initial FY 2019 Adjusted EBITDA Guidance

SAN CLEMENTE, Calif., Nov. 08, 2018 (GLOBE NEWSWIRE) -- ICU Medical, Inc. (Nasdaq:ICUI), a leader in the development, manufacture and sale of innovative medical products used in infusion therapy and critical care applications, today announced financial results for the quarter ended September 30, 2018.

Third Quarter 2018 Results

Third quarter 2018 revenue was $327.2 million, compared to $343.2 million in the same period last year. GAAP gross profit for the third quarter of 2018 was $134.6 million, as compared to $111.6 million in the same period last year.  GAAP gross margin for the third quarter of 2018 was 41%, as compared to 33% in the same period last year.  GAAP net income for the third quarter of 2018 was $0.2 million, or $0.01 per diluted share, as compared to GAAP net income of $0.1 million, or $0.01 per diluted share, for the third quarter of 2017.  Adjusted diluted earnings per share for the third quarter of 2018 were $1.85 as compared to $1.12 for the third quarter of 2017.  Also, adjusted EBITDA was $68.4 million for the third quarter of 2018 as compared to $55.4 million for the third quarter of 2017.

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

Vivek Jain, ICU Medical's Chief Executive Officer, said, "Third quarter revenues for Infusion Consumables and Infusion Systems were in line with our expectations and IV Solutions was below our expectations. Adjusted EBITDA and adjusted diluted earnings per share were slightly above our expectations.”

Revenues by product line for the three and nine months ended September 30, 2018 and 2017 were as follows (in millions):

  Three months ended
September 30,
     Nine months ended
September 30,
  
Product Line 2018 2017 $
Change
 %
Change
 2018 2017 $
Change
 %
Change
Infusion Consumables $117.8  $92.7  $25.1  27.1% $361.5  $245.9  115.6  47.0%
IV Solutions 114.4  143.7  (29.3) (20.4)% 394.2  375.5  18.7  5.0%
Infusion Systems 81.5  82.8  (1.3) (1.6)% 263.3  202.6  60.7  30.0%
Critical Care 13.5  12.9  0.6  4.7% 40.7  37.2  3.5  9.4%
Other   11.1  (11.1) (100.0)%   61.3  (61.3) (100.0)%
  $327.2  $343.2  $(16.0) (4.7)% $1,059.7  $922.5  $137.2  14.9%
                               

The Company ended the third quarter of 2018 with a strong balance sheet.  During the third quarter of 2018, cash, cash equivalents and short and long-term investment securities increased by $25.6 million to $358.7 million at September 30, 2018 and working capital was $710.8 million.

Fiscal Year 2018 Guidance Update and Initial Fiscal 2019 Guidance

The Company is modifying its full year 2018 guidance of adjusted EBITDA from a range of $270 million to $280 million to a range of $280 million to $290 million and adjusted earnings per share from a range of $8.30 to $8.70 to a range of $8.45 to $8.85.  The Company is also providing initial 2019 adjusted EBITDA guidance in the range of $315 million to $340 million.

Conference Call

The Company will host a conference call to discuss third quarter 2018 financial results today at 4:30 p.m. ET (1:30 p.m. PT).   The call can be accessed at (800) 936-9761, international (408) 774-4587, conference ID 7968668.  The conference call will be simultaneously available by webcast, which can be accessed by going to the Company's website at www.icumed.com, clicking on the Investors tab, clicking on the Webcast icon and following the prompts. The webcast will also be available by replay.

About ICU Medical, Inc.

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

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements contain words such as ''will,'' ''expect,'' ''believe,'' ''could,'' ''would,'' ''estimate,'' ''continue,'' ''build,'' ''expand'' or the negative thereof or comparable terminology, and may include (without limitation) information regarding the Company's expectations, goals or intentions regarding the future. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about the Company and assumptions management believes are reasonable, all of which are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements. These risks and uncertainties include, but are not limited to, decreased demand for the Company's products, decreased free cash flow, the inability to recapture conversion delays or part/resource shortages on anticipated timing, or at all, changes in product mix, increased competition from competitors, lack of continued growth or improving efficiencies, unexpected changes in the Company's arrangements with its largest customers and the Company’s ability to meet expectations regarding the integration of the Hospira infusion systems business. Future results are subject to risks and uncertainties, including the risk factors, and other risks and uncertainties, described in the Company's filings with the Securities and Exchange Commission, which include those in the Annual Report on Form 10-K for the year ended December 31, 2017 and our subsequent filings. Forward-looking statements contained in this press release are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

 
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
    
 September 30,
 2018
 December 31,
 2017
 (Unaudited) (1)
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$318,816  $290,072 
Short-term investment securities36,960  10,061 
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES355,776  300,133 
Accounts receivable, net of allowance for doubtful accounts of $5,088 at September 30, 2018 and $3,311 at December 31, 2017144,535  112,696 
Inventories291,840  288,657 
Prepaid income taxes24,447  10,594 
Prepaid expenses and other current assets26,306  41,286 
Related-party receivable70,408  98,807 
Assets held-for-sale  12,489 
TOTAL CURRENT ASSETS913,312  864,662 
PROPERTY AND EQUIPMENT, net424,897  398,684 
LONG-TERM INVESTMENT SECURITIES2,922  14,579 
GOODWILL13,199  12,357 
INTANGIBLE ASSETS, net131,811  143,753 
DEFERRED INCOME TAXES20,341  24,775 
OTHER ASSETS38,693  38,141 
TOTAL ASSETS$1,545,175  $1,496,951 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
CURRENT LIABILITIES:   
Accounts payable$70,566  $78,228 
Accrued liabilities131,954  132,064 
TOTAL CURRENT LIABILITIES202,520  210,292 
CONTINGENT EARN-OUT LIABILITY47,500  27,000 
OTHER LONG-TERM LIABILITIES29,057  55,326 
DEFERRED INCOME TAXES1,193  1,487 
INCOME TAX LIABILITY4,592  4,592 
COMMITMENTS AND CONTINGENCIES   
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 and outstanding, 20,489 shares at September 30, 2018 and 20,210 shares at December 31, 20172,049  2,021 
Additional paid-in capital651,752  625,568 
Treasury stock, at cost(128)  
Retained earnings628,101  585,624 
Accumulated other comprehensive loss(21,461) (14,959)
TOTAL STOCKHOLDERS' EQUITY1,260,313  1,198,254 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$1,545,175  $1,496,951 
        

______________________________________________________
(1) December 31, 2017 balances were derived from audited consolidated financial statements.

 
ICU MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
    
 Three months ended
September 30,
 Nine months ended
September 30,
 2018 2017 2018 2017
REVENUES:       
Net sales$327,169  $343,084  $1,059,662  $921,544 
Other  152    945 
TOTAL REVENUE327,169  343,236  1,059,662  922,489 
COST OF GOODS SOLD192,582  231,638  624,274  633,884 
GROSS PROFIT134,587  111,598  435,388  288,605 
OPERATING EXPENSES:       
Selling, general and administrative78,068  76,820  248,603  226,812 
Research and development13,181  12,769  39,342  37,377 
Restructuring, strategic transaction and integration24,012  18,711  64,271  68,033 
Change in fair value of contingent earn-out18,500  7,000  20,500  13,000 
Contract settlement    28,917   
TOTAL OPERATING EXPENSES133,761  115,300  401,633  345,222 
INCOME (LOSS) FROM OPERATIONS826  (3,702) 33,755  (56,617)
BARGAIN PURCHASE GAIN  8,534    71,771 
INTEREST EXPENSE(283) (705) (548) (1,743)
OTHER INCOME (EXPENSE) , net894  583  1,650  (2,030)
INCOME BEFORE INCOME TAXES1,437  4,710  34,857  11,381 
(PROVISION) BENEFIT FOR INCOME TAXES(1,218) (4,574) 1,291  7,558 
NET INCOME$219  $136  $36,148  $18,939 
NET INCOME PER SHARE       
Basic$0.01  $0.01  $1.78  $0.97 
Diluted$0.01  $0.01  $1.67  $0.92 
WEIGHTED AVERAGE NUMBER OF SHARES       
Basic20,474  19,984  20,362  19,433 
Diluted21,633  21,106  21,588  20,603 
            

Use of Non-GAAP Financial Information

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

Adjusted EBITDA excludes the following items from net income:

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

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

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

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

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

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

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

Change in fair value of contingent earn-out: We exclude the impact of certain amounts recorded in connection with business combinations. We exclude items that are either non-cash or not normal, recurring operating expenses due to their nature, variability of amounts, and lack of predictability as to occurrence and/or timing.

Adjusted Diluted EPS excludes from diluted EPS, tax, interest, net, stock compensation expense, intangible asset amortization expense,  restructuring, strategic transaction and integration, adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value, bargain purchase gain, which was tax free, and change in fair value of contingent earn-out. We apply our GAAP consolidated effective tax rate to our non-GAAP financial measures, other than when the underlying item has a materially different tax treatment.

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

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

 
ICU MEDICAL, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)
(In thousands, except per share data)
  
  Adjusted EBITDA
 Three months ended
September 30,
 2018 2017
GAAP net income$219  $136 
    
Non-GAAP adjustments:   
Interest, net(947) 123 
Stock compensation expense6,232  4,582 
Depreciation and amortization expense19,161  17,606 
Restructuring, strategic transaction and integration24,012  18,711 
Adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value  11,180 
Bargain purchase gain  (8,534)
Change in fair value of contingent earn-out18,500  7,000 
Provision for income taxes1,218  4,574 
Total non-GAAP adjustments68,176  55,242 
    
Adjusted EBITDA$68,395  $55,378 
    
  Adjusted diluted earnings per share
 Three months ended
September 30,
 2018 2017
GAAP diluted earnings per share$0.01  $0.01 
    
Non-GAAP adjustments:   
Interest, net(0.04) 0.01 
Stock compensation expense0.29  0.22 
Amortization expense0.19  0.17 
Restructuring, strategic transaction and integration1.11  0.89 
Adjustment to reverse the cost recognition related to the purchase accounting write-up of inventory to fair market value  0.53 
Bargain purchase gain  (0.40)
Change in fair value of contingent earn-out0.86  0.33 
Estimated income tax impact from adjustments(0.57) (0.64)
Adjusted diluted earnings per share$1.85  $1.12 
        


 
ICU Medical, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures - Fiscal Year 2018 Outlook (Unaudited)
(In millions, except per share data)
    
 Low End of Guidance High End of Guidance
GAAP net income$56  $65 
    
Non-GAAP adjustments:   
Interest, net(3) (3)
Stock compensation expense24  24 
Depreciation and amortization expense74  74 
Restructuring, strategic transaction and integration105  105 
Change in fair value of contingent earn-out21  21 
Provision for income taxes3  4 
Total non-GAAP adjustments224  225 
    
Adjusted EBITDA$280  $290 
    
    
    
    
GAAP diluted earnings per share$2.59  $2.99 
    
Non-GAAP adjustments:   
Interest, net$(0.12) $(0.12)
Stock compensation expense$1.13  $1.13 
Amortization expense$0.75  $0.75 
Restructuring, strategic transaction and integration$4.88  $4.88 
Change in fair value of contingent earn-out$0.95  $0.95 
Estimated income tax impact from adjustments$(1.73) $(1.73)
Adjusted diluted earnings per share$8.45  $8.85 
        


 
ICU Medical, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures - Fiscal Year 2019 Outlook (Unaudited)
(In millions, except per share data)
    
 Low End of Guidance High End of Guidance
GAAP net income$129  $147 
    
Non-GAAP adjustments:   
Interest, Net(4) (4)
Stock compensation expense24  24 
Depreciation and amortization expense85  85 
Restructuring, strategic transaction and integration45  45 
Provision for income taxes36  43 
Total non-GAAP adjustments186  193 
    
Adjusted EBITDA$315  $340 
        

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

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

Thursday, November 8, 2018 - 16:05