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ICU Medical, Inc. Announces Fourth Quarter 2018 Results

SAN CLEMENTE, Calif., Feb. 28, 2019 (GLOBE NEWSWIRE) -- ICU Medical, Inc. ( ICUI ), a leader in the development, manufacture and sale of innovative medical devices used in infusion therapy and critical care applications, today announced financial results for the quarter ended December 31, 2018.

Fourth Quarter 2018 Results

Fourth quarter 2018 revenue was $340.4 million, compared to $370.1 million in the same period last year. GAAP gross profit for the fourth quarter of 2018 was $134.6 million, as compared to $137.5 million in the same period last year.  GAAP gross margin for the fourth quarter of 2018 was 40%, as compared to 37% in the same period last year.  GAAP net loss for the fourth quarter of 2018 was $7.4 million, or $0.36 loss per diluted share, as compared to GAAP net income of $49.7 million, or $2.33 per diluted share, for the fourth quarter of 2017.  Adjusted diluted earnings per share for the fourth quarter of 2018 were $2.07 as compared to $2.98 for the fourth quarter of 2017.  Also, adjusted EBITDA was $69.3 million for the fourth quarter of 2018 as compared to $70.1 million for the fourth 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, "Fourth quarter revenues, adjusted EBITDA and adjusted diluted earnings per share were in line with our expectations.”

Revenues by market segment for the three and twelve months ended December 31, 2018 and 2017 were as follows (in millions):

Three months ended
December 31,
Year ended
December 31,
Market Segment 2018 2017 $
Change
%
Change
2018 2017 $
Change
%
Change
Infusion Consumables $ 121.5 $ 119.7 $ 1.8 1.5 % $ 483.0 $ 365.6 $ 117.4 32.1 %
IV Solutions* 113.8 146.5 (32.7 ) (22.3 ) 508.0 522.0 (14.0 ) (2.7 )
Infusion Systems 92.2 87.6 4.6 5.3 355.5 290.2 65.3 22.5
Critical Care 12.8 12.8 % 53.5 50.0 3.5 7.0 %
Other 3.6 (3.6 ) (100.0 )% 64.8 (64.8 ) (100.0 )%
$ 340.3 $ 370.2 $ (29.9 ) (8.1 )% $ 1,400.0 $ 1,292.6 $ 107.4 8.3 %

*IV Solutions includes $18.9 million and $17.0 million of contract manufacturing to Pfizer for the three months ended December 31, 2018 and 2017, respectively.   IV Solutions includes $78.2 million and $68.9 million of contract manufacturing to Pfizer for the twelve months ended December 31, 2018 and 2017, respectively.

Fiscal 2019 Adjusted EPS Guidance

The Company is providing its initial 2019 adjusted diluted EPS in the range of $9.00 to $9.90.

Conference Call

The Company will host a conference call to discuss fourth quarter 2018 financial results today at 4:30 p.m. EST (1:30 p.m. PST).   The call can be accessed at (800) 936-9761, international (408) 774-4587, conference ID 9998959.  The conference call will be simultaneously available by webcast, which can be accessed by going to the Company's website at ir.icumed.com/events and clicking on the Q4 2018 ICU Medical Inc. Earnings Conference box. The webcast will also be available by replay.

About ICU Medical, Inc.

ICU Medical, Inc. ( ICUI ) develops, manufactures and sells innovative medical devices 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, including our full year 2019 guidance. 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 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
CONSOLIDATED BALANCE SHEETS
(In thousands)

December 31,
2018
December 31,
2017
(Unaudited) (1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 344,781 $ 290,072
Short-term investment securities 37,329 10,061
TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENT SECURITIES 382,110 300,133
Accounts receivable, net of allowance for doubtful accounts 176,298 112,696
Inventories 311,163 288,657
Prepaid income taxes 11,348 10,594
Prepaid expenses and other current assets 25,980 41,286
Related-party receivable 20,137 98,807
Assets held-for-sale 12,489
TOTAL CURRENT ASSETS 927,036 864,662
PROPERTY AND EQUIPMENT, net 432,641 398,684
LONG-TERM INVESTMENT SECURITIES 2,025 14,579
GOODWILL 11,195 12,357
INTANGIBLE ASSETS, net 133,421 143,753
DEFERRED INCOME TAXES 38,654 24,775
OTHER ASSETS 40,419 38,141
TOTAL ASSETS $ 1,585,391 $ 1,496,951
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 120,469 $ 78,228
Accrued liabilities 128,820 132,064
TOTAL CURRENT LIABILITIES 249,289 210,292
CONTINGENT EARN-OUT LIABILITY 47,400 27,000
OTHER LONG-TERM LIABILITIES 20,592 55,326
DEFERRED INCOME TAXES 721 1,487
INCOME TAX LIABILITY 3,734 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 20,492 shares at December 31, 2018
and 20,210 at December 31, 2017 and outstanding 20,491 shares at December 31, 2018 and 20,210 shares
at December 31, 2017
2,049 2,021
Additional paid-in capital 657,899 625,568
Treasury stock, at cost (95 )
Retained earnings 620,747 585,624
Accumulated other comprehensive loss (16,945 ) (14,959 )
TOTAL STOCKHOLDERS' EQUITY 1,263,655 1,198,254
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,585,391 $ 1,496,951

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


ICU MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

Year ended
December 31,
2018 2017 2016
REVENUES:
Net sales $ 1,400,040 $ 1,292,166 $ 379,339
Other 447 33
TOTAL REVENUE 1,400,040 1,292,613 379,372
COST OF GOODS SOLD 830,012 866,518 177,974
GROSS PROFIT 570,028 426,095 201,398
OPERATING EXPENSES:
Selling, general and administrative 328,146 303,953 89,426
Research and development 52,867 51,253 12,955
Restructuring, strategic transaction and integration 105,390 77,967 15,348
Contract settlement 41,613
Change in fair value of contingent earn-out 20,400 8,000
Impairment of assets held for sale 728
TOTAL OPERATING EXPENSES 548,416 441,173 118,457
INCOME (LOSS) FROM OPERATIONS 21,612 (15,078 ) 82,941
BARGAIN PURCHASE GAIN 70,890 1,456
INTEREST EXPENSE (709 ) (2,047 ) (118 )
OTHER INCOME (EXPENSE), net 1,471 (2,482 ) 885
INCOME BEFORE INCOME TAXES 22,374 51,283 85,164
BENEFIT (PROVISION) FOR INCOME TAXES 6,419 17,361 (22,080 )
NET INCOME $ 28,793 $ 68,644 $ 63,084
NET INCOME PER SHARE
Basic $ 1.41 $ 3.50 $ 3.90
Diluted $ 1.33 $ 3.29 $ 3.66
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 20,394 19,614 16,168
Diluted 21,601 20,858 17,254

ICU MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

Three months ended
December 31,
2018 2017
REVENUES:
Net sales $ 340,378 $ 370,622
Other (498 )
TOTAL REVENUE 340,378 370,124
COST OF GOODS SOLD 205,738 232,634
GROSS PROFIT 134,640 137,490
OPERATING EXPENSES:
Selling, general and administrative 79,543 77,141
Research and development 13,525 13,876
Restructuring, strategic transaction and integration 41,119 9,934
Change in fair value of contingent earn-out (100 ) (5,000 )
Contract settlement 12,696
TOTAL OPERATING EXPENSES 146,783 95,951
(LOSS) INCOME FROM OPERATIONS (12,143 ) 41,539
BARGAIN PURCHASE GAIN (881 )
INTEREST EXPENSE (161 ) (304 )
OTHER EXPENSE, net (179 ) (452 )
(LOSS) INCOME BEFORE INCOME TAXES (12,483 ) 39,902
BENEFIT FOR INCOME TAXES 5,128 9,803
NET (LOSS) INCOME $ (7,355 ) $ 49,705
NET (LOSS) INCOME PER SHARE
Basic $ (0.36 ) $ 2.47
Diluted $ (0.36 ) $ 2.33
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 20,490 20,152
Diluted 20,490 21,342

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.

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.

Contract settlement : Occasionally, we are involved in contract renegotiations that may result in one-time settlements. We exclude these settlements as they have no direct correlation to the operation of our ongoing business.

Disposition of certain assets :  Occasionally, we may dispose of certain assets if no longer needed for current operations. We exclude any gains or losses recognized on the sale of these assets in determining our non-GAAP financial measures as they may limit the comparability of our ongoing operations with prior and future periods and distort the evaluation of our normal operating performance.

Adjusted Diluted EPS excludes from diluted EPS, net of tax, interest, net, intangible asset amortization expense, stock compensation expense, restructuring, strategic transaction and integration, change in fair value of earn-out, disposition of certain assets, contract settlement and bargain purchase gain, which was tax free and the impact of tax reform.  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)

Adjusted EBITDA
Three months Ended
December 31,
2018 2017
GAAP net income $ (7,355 ) $ 49,705
Non-GAAP adjustments:
Interest, net (2,008 ) (638 )
Stock compensation expense 6,249 5,965
Depreciation and amortization expense 19,667 19,057
Restructuring, strategic transaction and integration 41,119 9,934
Bargain purchase gain 881
Change in fair value of contingent earn-out (100 ) (5,000 )
Contract settlement 12,810
Disposition of certain assets 4,059
Benefit for income taxes (5,128 ) (9,803 )
Total non-GAAP adjustments 76,668 20,396
Adjusted EBITDA $ 69,313 $ 70,101


Adjusted diluted earnings per
share
Three months ended
December 31,
2018 2017
GAAP diluted earnings per share $ (0.36 ) $ 2.33
Non-GAAP adjustments:
Interest, net $ (0.09 ) $ (0.03 )
Stock compensation expense $ 0.29 $ 0.28
Amortization expense $ 0.20 $ 0.19
Restructuring, strategic transaction and integration $ 1.91 $ 0.47
Bargain purchase gain $ $ 0.04
Change in fair value of contingent earn-out $ $ (0.23 )
Contract settlement $ 0.59 $
Disposition of certain assets $ 0.19 $
Estimated income tax impact from adjustments and impact from tax reform (1) $ (0.66 ) $ (0.07 )
Adjusted diluted earnings per share $ 2.07 $ 2.98

_______________________________________________
(1) The three months ended December 31, 2017 includes additional tax expense of $3.1 million related to new U.S. tax legislation.  The additional tax expense includes an estimated one-time transition tax payable of $2.0 million and a tax expense of $1.1 million related to the remeasurement of deferred tax balances due to the lower corporate tax rate at which they are expected to reverse in the future.


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 $ 165 $ 185
Non-GAAP adjustments:
Interest, net $ (4 ) $ (4 )
Stock compensation expense $ 24 $ 24
Depreciation and amortization expense $ 83 $ 83
Restructuring, strategic transaction and integration $ 45 $ 45
Change in fair value of contingent earnout $ (47 ) $ (47 )
Provision for income taxes $ 49 $ 54
$ 150 $ 155
Adjusted EBITDA $ 315 $ 340
Low End of Guidance High End of Guidance
GAAP diluted earnings per share $ 7.59 $ 8.49
Non-GAAP adjustments:
Stock compensation expense $ 1.11 $ 1.11
Amortization expense $ 0.75 $ 0.75
Restructuring, strategic transaction and integration $ 2.06 $ 2.06
Change in fair value of contingent earnout $ (2.17 ) $ (2.17 )
Estimated income tax impact from adjustments $ (0.34 ) $ (0.34 )
Adjusted diluted earnings per share $ 9.00 $ 9.90

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

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