What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-07 · 92 added, 69 removed, 340 unchanged (32% of the section changed)

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Three months ended

$ % of Revenue $ % of Revenue

June 30, Six months ended

2021 2020 2021 2020

$ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue

Domestic $ 224.7 70 % $ 208.2 69 % $ 452.0 71 % $ 438.4 69 %

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June 30, Six months ended

Product line 2021 2020 2021 2020

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Critical Care 4 % 4 % 4 % 4 %

100 % 100 % 100 % 100 %

We manage our product distribution in the U.S.

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Increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected, or at all.

While we have taken steps to control these risks, there are certain risks that may be outside of our control, and there is no assurance that steps we have taken will succeed.

While we have

taken steps to control these risks, there are certain risks that may be outside of our control, and there is no assurance that steps we have taken will succeed.

Seasonality/Quarterly Results

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We present income statement data in Part I, Item 1 - Financial Statements.

The following table shows, for the three and nine months ended March 31, 2021 and 2020, the percentages of each income statement caption in relation to total revenue:

The following table shows, for the three and six months ended June 30, 2021 and 2020, the percentages of each income statement caption in relation to total revenue:

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June 30, Six months ended

2021 2020 2021 2020

Total revenue 100 % 100 % 100 % 100 %

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2021 2020 $ Change % Change

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2021 2020 $ Change % Change 2021 2020 $ Change % Change

Infusion Consumables $ 136.2 $ 111.0 $ 25.2 22.7 % $ 262.6 $ 234.5 $ 28.1 12.0 %

Infusion Consumables revenue increased for the three months ended March 31, 2021, as compared to the same period in the prior year due to higher demand for our oncology and renal products and foreign exchange gains.

These increases were somewhat offset by a decrease in IV therapy sales due to increased distributor orders in the prior year due to the global COVID-19 pandemic.

On a constant currency basis, Infusion Consumables revenue would have been $123.1 million for the three months ended March 31, 2021, a decrease of $0.4 million or 0.3%, as compared to the same period in the prior year.

Infusion Consumables revenue increased for the three and six months ended June 30, 2021, as compared to the same periods in the prior year due to lower hospital census in the second quarter of 2020 driven by the onset of the COVID-19 pandemic, growth in our oncology and renal products, and the impact of foreign exchange.

For the three and six months ended June 30, 2021, on a constant currency basis, Infusion Consumables revenue would have been $131.4 million and $254.5 million, respectively, an increase of $20.4 million or 18.4% and $20.0 million or 8.5%, respectively, as compared to the same periods in the prior year.

Infusion Systems

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2021 2020 $ Change % Change

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2021 2020 $ Change % Change 2021 2020 $ Change % Change

Infusion Systems $ 84.7 $ 91.1 $ (6.4) (7.0) % $ 169.0 $ 179.5 $ (10.5) (5.8) %

Infusion Systems revenue decreased for the three months ended March 31, 2021, as compared to the same period in the prior year due to a decline in our non-large volume pump business as well as lower IV set revenues due to higher COVID-19-related purchases during the first quarter of 2020.

On a constant currency basis Infusion Systems revenue would have been $83.3 million for the three months ended March 31, 2021, a decrease of $5.1 million or 5.8%, as compared to the same period in the prior year.

Infusion Systems revenue decreased for the three and six months ended June 30, 2021, as compared to the same periods in the prior year due to large volume pumps sales driven by higher COVID-19-related purchases during the second quarter of 2020 and a decline in our non-large volume pump business.

For the three and six months ended June 30, 2021, on a constant currency basis Infusion Systems revenue would have been $83.2 million and $166.5 million, respectively, a decrease of $7.9 million or 8.7% and $13.0 million or 7.2%, respectively, as compared to the same periods in the prior year.

The following table summarizes our total IV Solutions revenue (in millions):

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2021 2020 $ Change % Change

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2021 2020 $ Change % Change 2021 2020 $ Change % Change

IV Solutions $ 88.4 $ 89.2 $ (0.8) (0.9) % $ 182.6 $ 193.5 $ (10.9) (5.6) %

IV Solutions sales decreased for the three months ended March 31, 2021, as compared to the same period in the prior year, primarily due to customer stocking in the prior year driven by the onset of the COVID-19 pandemic.

IV Solutions sales was essentially flat for the three months ended June 30, 2021, as compared to the same period in the prior year as growth due to lower hospital census in the second quarter of 2020 driven by the onset of the COVID-19 pandemic, offset by lower contract manufacturing sales to Pfizer in the second quarter of 2021.

For the six months ended June 30, 2021, IV Solutions revenue decreased primarily due to lower contract manufacturing sales to Pfizer and customer stocking in the first quarter of the prior year driven by the COVID-19 pandemic.

Critical Care

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2021 2020 $ Change % Change

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Critical Care $ 12.4 $ 12.1 $ 0.3 2.5 % $ 25.5 $ 24.5 $ 1.0 4.1 %

Critical Care revenue increased for the three months ended March 31, 2021, as compared to the same period in the prior year, primarily as a result of increased sales of our Cogent 2-in-1 hemodynamic monitoring system.

Critical Care revenue increased for the three and six months ended June 30, 2021, as compared to the same period in the prior year, primarily as a result of the impact of foreign exchange.

Gross Margins

For the three months ended March 31, 2021 and 2020, gross margins were 35.4% and 36.9%, respectively.

The decrease in gross margin for the three months ended March 31, 2021, as compared to the same period in the prior year was primarily due to capitalized manufacturing variances from the shutdown of our Austin plant in the fourth quarter of 2020 and additional weather-related costs at our Austin plant during the first quarter of 2021.

For the three and six months ended June 30, 2021, gross margins were 38.4% and 36.9%, respectively, as compared to 35.0% and 36.0%, respectively, for the three and six months ended June 30, 2020.

The increase in gross margin for the three months ended June 30, 2021, as compared to the same period in the prior year was primarily due to product mix and increased

plant volumes, offset by increased costs for raw materials, direct labor and freight.

The increase in gross margin for the six months ended June 30, 2021, as compared to the same period in the prior year was primarily due to product mix and increased plant volumes, offset by capitalized manufacturing variances from the shutdown of our Austin plant in the fourth quarter of 2020, additional weather-related costs at our Austin plant during the first quarter of 2021 and increased costs for raw materials, direct labor and freight..

Selling, General and Administrative (“SG&A”) Expenses

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2021 2020 $ Change % Change

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2021 2020 $ Change % Change 2021 2020 $ Change % Change

SG&A $ 73.9 $ 67.2 $ 6.7 10.0 % $ 146.3 $ 139.5 $ 6.8 4.9 %

SG&A expenses were essentially flat for the three months ended March 31, 2021, as compared to the same period in the prior year.

For the three months ended March 31, 2021 as compared to the same period in the prior year, legal fees increased $1.4 million and dealer fees increased $1.3 million.

These increases were mostly offset by a decrease of $1.2 million in travel expenses and a decrease of $1.0 million in stock based compensation expenses.

SG&A expenses increased for the three and six months ended June 30, 2021, as compared to the same periods in the prior year.

For the three months ended June 30, 2021 as compared to the same period in the prior year, compensation expense increased $2.1 million, dealer fees increased $1.6 million and stock compensation increased $1.2 million.

Compensation expense increased primarily due to increased headcount and annual compensation merit increases.

Dealer fees increased due to an increase in revenue from distributors in the current year.

Stock compensation increased in the current period due to a current quarter change in the number of performance shares estimated to vest.

For the six months ended June 30, 2021, as compared to the same period in the prior year, dealer fees increased $3.0 million, compensation increased $2.9 million, and legal expenses increased $1.5 million.

Dealer fees increased due to an increase in revenue from distributors in the current year.

Compensation expense increased primarily due to increased headcount and annual compensation merit increases.

Legal fees increased due to additional services performed in the current year related to various legal matters.

Dealer fees increased due to an increase in revenue from distributors.

Travel expenses decreased due to travel restrictions in response to COVID-19.

Stock compensation decreased in the current period due to a prior year change in the number of performance shares estimated to vest on one of our executive performance awards, which increased the expense in that period.

Research and Development (“R&D”) Expenses

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2021 2020 $ Change % Change

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2021 2020 $ Change % Change 2021 2020 $ Change % Change

R&D $ 11.4 $ 10.3 $ 1.1 10.7 % $ 22.1 $ 21.0 $ 1.1 5.2 %

R&D expenses were flat for the three months ended March 31, 2021, as compared to the same period in the prior year.

R&D expense primarily relates to compensation and related benefit expenses on current R&D projects.

R&D expenses slightly increased for the three and six months ended June 30, 2021, as compared to the same periods in the prior year, due to timing and nature of various R&D projects.

R&D expense during both periods primarily relates to compensation and related benefit expenses on current R&D projects.

Restructuring and Strategic Transaction and Integration Expenses

Restructuring and strategic transaction and integration expenses were $2.9 million and $12.3 million for the three months ended March 31, 2021 and 2020, respectively.

Restructuring and strategic transaction and integration expenses were $3.8 million and $6.6 million for the three and six months ended June 30, 2021, respectively, as compared to $6.5 million and $18.8 million for the three and six months ended June 30, 2021 and 2020, respectively.

Restructuring charges

Restructuring charges were $0.0 million and $7.2 million for the three months ended March 31, 2021 and 2020, respectively.

Restructuring charges for the three months ended March 31, 2020 were primarily related to severance and costs related to office and facility closures.

We expect to pay our unpaid restructuring charges as of March 31, 2021 by the end of the year.

Restructuring charges were $0.1 million and $0.1 million for the three and six months ended June 30, 2021, respectively, as compared to $0.9 million and $8.1 million for the three and six months ended June 30, 2020, respectively.

Restructuring charges for the three and six months ended June 30, 2021 were primarily related to severance costs.

Restructuring charges for the three and six months ended June 30, 2020 were primarily related to severance charges and costs related to office and facility closures.

We expect to pay our unpaid restructuring charges as of June 30, 2021 by the end of the year.

Strategic transaction and integration expenses

Strategic transaction and integration expenses were $2.9 million and $5.1 million for the three months ended March 31, 2021 and 2020, respectively.

The strategic transaction and integration expenses during the three months ended March 31, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer and one-time costs incurred to comply with regulatory initiatives.

The strategic transaction and integration expenses during the three months ended March 31, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.

Strategic transaction and integration expenses were $3.7 million and $6.5 million for the three and six months ended June 30, 2021, respectively, as compared to $5.6 million and $10.7 million for the three and six months ended June 30, 2020, respectively.

The strategic transaction and integration expenses during the three and six months ended June 30, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer and one-time costs incurred to comply with regulatory initiatives.

The strategic transaction and integration expenses during the three and six months ended June 30, 2020 were primarily related to the integration of the HIS business acquired in 2017 from Pfizer, which included the migration of IT systems at our Austin facility.

Change in Fair Value of Contingent Earn-out

For the three months ended March 31, 2021 and 2020, there was no change in fair value of the Pursuit earn-out liability for each period, respectively, as the underlying forecasts during those periods did not materially change.

For the three and six months ended June 30, 2021 there was no change in fair value of the Pursuit earn-out liability for each period, as the underlying forecasts and actual results for those periods did not materially change.

For the three and six months ended June 30, 2020, the fair value revaluation of our Pursuit earn-out liability resulted in an increase in value of $2.7 million.

Contract Settlement

For the three months ended March 31, 2021, we recorded $0.1 million in contract settlement expense.

For the six months ended June 30, 2021, we recorded $0.1 million in contract settlement expense.

Interest Expense

Interest expense was $0.2 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.

The interest expense for both periods includes the per annum commitment fee charged on the unused portion of the revolver under our Credit Facility and the amortization of financing costs that were incurred in 2017 in connection with entering into the Credit Facility.

During March 2020, we borrowed $150.0 million under our Credit Facility and, accordingly the interest expense for the three months ended March 31, 2020 also includes interest incurred on borrowings under the Credit Facility (see Note 16:

Interest expense was $0.2 million and $0.3 million for the three and six months ended June 30, 2021, respectively, as compared to $0.8 million and $1.0 million for the three and six months ended June 30, 2020, respectively.

The three and six months ended June 30, 2021 primarily includes interest expense related to the per annum commitment fee charged on the unused portion of the revolver under our Credit Facility and the amortization of financing costs that were incurred in 2017 in connection with entering into the Credit Facility.

During March 2020, we borrowed $150.0 million under our Credit Facility and, accordingly the interest expense for the three and six months ended June 30, 2020 also includes interest incurred on borrowings under the Credit Facility (see Note 16:

Long-Term Obligations in our accompanying condensed consolidated financial statements for additional information).

Other Income (Expense), net

Other income (expense) netted to $0.7 million and ($5.5) million for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021, the other income, net was related to $0.7 million of interest

income, $0.5 million in foreign exchange gains and $0.2 million of miscellaneous income partially offset by $0.7 million of loss from disposed assets.

For the three months ended March 31, 2020, the other expense, net was primarily related to $6.1 million in foreign exchange losses as a result of the strengthening of the U.S.

dollar from the impact of COVID-19, partially offset by interest income.

For the three months ended March 31, 2021 and 2020, income taxes were accrued at an estimated effective tax rate of 12% and 17% , respectively.

The effective tax rate for the three months ended March 31, 2021 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

Other income (expense) netted to $0.5 million and $1.2 million for the three and six months ended June 30, 2021, respectively, as compared to $2.1 million and ($3.4) million for the three and six months ended June 30, 2020.

For the three months ended June 30, 2021, the other income, net was related to $0.7 million of interest income and $0.2 million of miscellaneous income, partially offset by $0.2 million in foreign exchange losses and $0.2 million of loss from disposed assets.

For the six months ended June 30, 2021, the other income, net was related to $1.4 million of interest income, $0.4 million of miscellaneous income and $0.3 million in foreign exchange gains, partially offset by $0.8 million of loss from disposed assets.

For the three months ended June 30, 2020, the other income, net was primarily related to $1.5 million in foreign exchange gains.

For the six months ended June 30, 2020, the other expense, net was primarily related to $4.7 million in foreign exchange losses as a result of the strengthening of the U.S.

dollar from the impact of COVID-19 during the first quarter, partially offset by interest income.

For the three and six months ended June 30, 2021, income taxes were accrued at an estimated effective tax rate of 18% and 16%, respectively, as compared to 9% and 13%, for the three and six months ended June 30, 2020, respectively.

The effective tax rate for the three and six months ended June 30, 2021 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII") and tax credits.

The effective tax rate during the three months ended March 31, 2021 included a tax benefit of $1.8 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

The effective tax rate for the three months ended March 31, 2020 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

The effective tax rate during the three and six months ended June 30, 2021 included a tax benefit of $0.4 million and $2.2 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

The effective tax rate for the three and six months ended June 30, 2020 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S.

and foreign incomes, state income taxes, GILTI, FDII and tax credits.

The effective tax rate during the three and six months ended June 30, 2020 included a tax benefit of $3.0 million and $3.5 million,

respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period.

Liquidity and Capital Resources

During the first three months of 2021, our cash, cash equivalents and short and long-term investments increased by $31.0 million from $423.8 million at December 31, 2020 to $454.8 million at March 31, 2021.

During the first six months of 2021, our cash, cash equivalents and short and long-term investments increased by $68.6 million from $423.8 million at December 31, 2020 to $492.4 million at June 30, 2021.

Cash Flows from Operating Activities

Our net cash provided by operations for the three months ended March 31, 2021 was $51.3 million.

Our net cash provided by operations for the six months ended June 30, 2021 was $106.1 million.

Net income plus adjustments for non-cash net expenses contributed $122.2 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $16.1 million.

The changes in operating assets and liabilities included a $20.0 million decrease in accrued liabilities, a $3.5 million increase in other assets and a $0.7 million increase in prepaid expenses and other assets.

Offsetting these amounts was a $13.2 million decrease in inventories, a $2.4 million increase in accounts payable, a $1.5 million decrease in accounts receivables and $1.4 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

The changes in operating assets and liabilities included a $17.1 million decrease in accrued liabilities, a $7.6 million increase in other assets, $6.0 million in net changes in income taxes, including excess tax benefits and deferred income taxes and a $1.6 million decrease in accounts payable.

Offsetting these amounts was a $13.4 million decrease in inventories, a $2.1 million decrease in accounts receivables, and a $0.8 million decrease in prepaid expenses and other assets.

The decrease in accrued liabilities was primarily due to the payment of annual bonuses.

The net increase in prepaid expenses and other current assets was primarily due to the payment of annual software renewals, offset by the amortization of prepaid insurance and property taxes.

The net changes in income taxes was a result of the timing of payments.

The increase in other assets was due to the purchase of spare parts.

The decrease in accounts payable was due to the timing of payments.

The decrease in inventory was primarily due to the timing of production and customer purchases combined with the reduction in capitalized manufacturing variances.

The increase in accounts payable was due to the timing of payments.

The decrease in accounts receivable is primarily due to collection efforts.

The net changes in income taxes was a result of the timing of payments.

Our net cash provided by operations for the three months ended March 31, 2020 was $39.5 million.

The net decrease in prepaid expenses and other current assets was primarily due to a decrease in prepaid insurance, property taxes and deferred costs, offset by an increase in annual software renewals.

Our net cash provided by operations for the six months ended June 30, 2020 was $68.7 million.

Net income plus adjustments for non-cash net expenses contributed $107.4 million.

Net cash used in operations as a result of changes in operating assets and liabilities was $38.7 million.

The changes in operating assets and liabilities included a $35.1 million decrease in accounts payable, and a $6.4 million increase in other assets.

Offsetting these amounts was a $19.4 million decrease in inventories, a $2.6 million decrease in prepaid expenses and other current assets, $2.3 million in net changes in income taxes,

including excess tax benefits and deferred income taxes, a $0.9 million decrease in accounts receivables, and a $0.5 million increase in accrued liabilities.

The changes in operating assets and liabilities included a $23.3 million decrease in accounts payable, a $15.3 million decrease in accrued liabilities, a $9.3 million increase in prepaid expenses and other current assets and a $7.2 million increase in other assets.

Offsetting these amounts was a $8.5 million decrease in inventories, a $5.3 million decrease in accounts receivables, and a $2.7 million in net changes in income taxes, including excess tax benefits and deferred income taxes.

The decrease in accounts payable was due to the timing of payments.

The increase in other assets was due to the purchase of spare parts.

The decrease in inventory was primarily due to improved inventory management and increased demand for certain products driven by the global COVID-19 pandemic.

The decrease in accrued liabilities was due to the payment of accrued supply chain reorganization costs.

The increase in prepaid expenses and other current assets was primarily due to an increase in deferred costs.

The increase in other assets was due to the purchase of spare parts.

The decrease in inventory was primarily due to improved inventory management.

The decrease in accounts receivable is due to lower sales and collections partially due to decreased demand from hospital customers due to COVID-19.

The net changes in income taxes was a result of the timing of payments.

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The following table summarizes the changes in our investing cash flows (in thousands):

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While we can provide no assurances, we estimate that our capital expenditures in 2021 will be approximately $70.0 million to $80.0 million.

We anticipate making additional investments in machinery and equipment in our manufacturing operations in Costa Rica, the U.S.

and Mexico to support new and existing products and in infusion pumps that are placed with customers outside the U.S.

We anticipate making additional investments in machinery and equipment in our manufacturing operations in the U.S., Costa Rica, and Mexico to support new and existing products and in infusion pumps that are placed with customers outside the U.S.

We expect to use our cash and cash equivalents to fund our capital purchases.

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The following table summarizes the changes in our financing cash flows (in thousands):

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2021 2020 Change

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(2) Proceeds from the exercise of stock options will vary from period to period based on the volume of options exercised and the exercise price of the specific options exercised.

(3) During the three months ended March 31, 2021, our employees surrendered 37,423 shares of our common stock from vested restricted stock awards as consideration for approximately $7.7 million in minimum statutory withholding obligations paid on their behalf.

During the three months ended March 31, 2020, our employees surrendered 63,511 shares of our common stock from vested restricted stock awards as consideration for approximately $12.2 million in minimum statutory withholding obligations paid on their behalf.

(3) During the six months ended June 30, 2021, our employees surrendered 37,882 shares of our common stock from vested restricted stock awards as consideration for approximately $7.8 million in minimum statutory withholding obligations paid on their behalf.

During the six months ended June 30, 2020, our employees surrendered 65,392 shares of our common stock from vested restricted stock awards as consideration for approximately $12.6 million in minimum statutory withholding obligations paid on their behalf.

In August 2019, our Board of Directors approved a share purchase plan to purchase up to $100.0 million of our common stock.

This plan replaced our existing plan and has no expiration date.

As of March 31, 2021, all of the $100 million available for purchase was remaining under the plan.

As of June 30, 2021, all of the $100 million available for purchase was remaining under the plan.

We have a substantial cash and investment security position generated from operations.

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In the event that we experience downturns, cyclical fluctuations in our business that are more severe or longer than anticipated, fail to achieve anticipated revenue and expense levels, or have significant unplanned cash expenditures, we may need to obtain or seek alternative sources of capital or financing, and we can provide no assurances that the terms of such capital or financing will be available to us on favorable terms, if at all.

Our ability to generate cash flows from operations, issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in conditions.

products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in conditions.

Credit Facility

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The minimum Consolidated Fixed Charge Coverage Ratio is 2.00 to 1.00.

We were in compliance with all financial covenants as of March 31, 2021.

We were in compliance with all financial covenants as of June 30, 2021.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis