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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. (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. (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 securities 36,960     10,061  
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES 355,776     300,133  
Accounts receivable, net of allowance for doubtful accounts of $5,088 at September 30, 2018 and $3,311 at December 31, 2017 144,535     112,696  
Inventories 291,840     288,657  
Prepaid income taxes 24,447     10,594  
Prepaid expenses and other current assets 26,306     41,286  
Related-party receivable 70,408     98,807  
Assets held-for-sale     12,489  
TOTAL CURRENT ASSETS 913,312     864,662  
PROPERTY AND EQUIPMENT, net 424,897     398,684  
LONG-TERM INVESTMENT SECURITIES 2,922     14,579  
GOODWILL 13,199     12,357  
INTANGIBLE ASSETS, net 131,811     143,753  
DEFERRED INCOME TAXES 20,341     24,775  
OTHER ASSETS 38,693     38,141  
TOTAL ASSETS $ 1,545,175     $ 1,496,951  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
CURRENT LIABILITIES:      
Accounts payable $ 70,566     $ 78,228  
Accrued liabilities 131,954     132,064  
TOTAL CURRENT LIABILITIES 202,520     210,292  
CONTINGENT EARN-OUT LIABILITY 47,500     27,000  
OTHER LONG-TERM LIABILITIES 29,057     55,326  
DEFERRED INCOME TAXES 1,193     1,487  
INCOME TAX LIABILITY 4,592     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, 2017 2,049     2,021  
Additional paid-in capital 651,752     625,568  
Treasury stock, at cost (128 )    
Retained earnings 628,101     585,624  
Accumulated other comprehensive loss (21,461 )   (14,959 )
TOTAL STOCKHOLDERS' EQUITY 1,260,313     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 REVENUE 327,169     343,236     1,059,662     922,489  
COST OF GOODS SOLD 192,582     231,638     624,274     633,884  
GROSS PROFIT 134,587     111,598     435,388     288,605  
OPERATING EXPENSES:              
Selling, general and administrative 78,068     76,820     248,603     226,812  
Research and development 13,181     12,769     39,342     37,377  
Restructuring, strategic transaction and integration 24,012     18,711     64,271     68,033  
Change in fair value of contingent earn-out 18,500     7,000     20,500     13,000  
Contract settlement         28,917      
TOTAL OPERATING EXPENSES 133,761     115,300     401,633     345,222  
INCOME (LOSS) FROM OPERATIONS 826     (3,702 )   33,755     (56,617 )
BARGAIN PURCHASE GAIN     8,534         71,771  
INTEREST EXPENSE (283 )   (705 )   (548 )   (1,743 )
OTHER INCOME (EXPENSE) , net 894     583     1,650     (2,030 )
INCOME BEFORE INCOME TAXES 1,437     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              
Basic 20,474     19,984     20,362     19,433  
Diluted 21,633     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 expense 6,232     4,582  
Depreciation and amortization expense 19,161     17,606  
Restructuring, strategic transaction and integration 24,012     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-out 18,500     7,000  
Provision for income taxes 1,218     4,574  
Total non-GAAP adjustments 68,176     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 expense 0.29     0.22  
Amortization expense 0.19     0.17  
Restructuring, strategic transaction and integration 1.11     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-out 0.86     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 expense 24     24  
Depreciation and amortization expense 74     74  
Restructuring, strategic transaction and integration 105     105  
Change in fair value of contingent earn-out 21     21  
Provision for income taxes 3     4  
Total non-GAAP adjustments 224     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 expense 24     24  
Depreciation and amortization expense 85     85  
Restructuring, strategic transaction and integration 45     45  
Provision for income taxes 36     43  
Total non-GAAP adjustments 186     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