ICU MEDICAL INC/DE [ICUI] Filings

10-Q 1 icui-20210930.htm 10-Q icui-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

Commission File No.: 001-34634

ICU MEDICAL, INC.

(Exact name of registrant as specified in its charter)


Delaware						33-0022692
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

951 Calle Amanecer

San Clemente

California

92673

(Address of principal executive offices)

(Zip Code)

(949) 366-2183

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer o

Non-accelerated filer o

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No x

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.10 per share	ICUI	The Nasdaq Stock Market LLC
		(Global Select Market)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class						Outstanding at October 31, 2021
Common						21,239,119

ICU MEDICAL, INC. AND SUBSIDIARIES

Form 10-Q

September 30, 2021

Table of Contents


PART I.	Financial Information	Page Number

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	4

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020	5

	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2021 and 2020	6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

PART II.	Other Information
Item 1.	Legal Proceedings	43

Item1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 6.	Exhibits	46

	Signature	47

PART I - FINANCIAL INFORMATION

Item1.Financial Statements (Unaudited)

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)


	September 30, 2021		December 31, 2020
	(Unaudited)		(1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	519,485	$	396,097
Short-term investment securities	18,009		14,687
TOTAL CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES	537,494		410,784
Accounts receivable, net of allowance for doubtful accounts of $7,126 at September 30, 2021 and $21,490 at December 31, 2020	116,043		124,093
Inventories	291,601		314,928
Prepaid income tax	31,381		29,480
Prepaid expenses and other current assets	34,718		41,492


TOTAL CURRENT ASSETS	1,011,237		920,777

PROPERTY AND EQUIPMENT, net	458,041		466,628
OPERATING LEASE RIGHT-OF-USE ASSETS	40,979		46,571

LONG-TERM INVESTMENT SECURITIES	7,172		12,974
GOODWILL	32,760		33,001
INTANGIBLE ASSETS, net	192,778		197,231
DEFERRED INCOME TAXES	35,585		31,034
OTHER ASSETS	60,799		55,475
TOTAL ASSETS	$	1,839,351	$	1,763,691

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	62,008	$	71,864
Accrued liabilities	94,133		97,021

Income tax liability	2,636		303
Contingent earn-out liability	26,300		26,300
TOTAL CURRENT LIABILITIES	185,077		195,488

CONTINGENT EARN-OUT LIABILITY	3,100		—

OTHER LONG-TERM LIABILITIES	40,853		47,835
DEFERRED INCOME TAXES	1,663		1,663
INCOME TAX LIABILITY	18,686		16,440
COMMITMENTS AND CONTINGENCIES (Note 18)	—		—
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 — 21,238 shares at September 30, 2021 and 21,058 shares at December 31, 2020 and outstanding — 21,238 shares at September 30, 2021 and 21,058 shares at December 31, 2020	2,124		2,106
Additional paid-in capital	711,152		693,068
Treasury stock, at cost (237 and 209 shares, respectively)	(48)		(39)
Retained earnings	891,862		808,652
Accumulated other comprehensive loss	(15,118)		(1,522)
TOTAL STOCKHOLDERS' EQUITY	1,589,972		1,502,265
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,839,351	$	1,763,691

______________________________________________________

(1) December 31, 2020 balances were derived from audited consolidated financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

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,
	2021		2020		2021		2020
TOTAL REVENUES	$	336,060	$	318,567	$	975,783	$	950,553
COST OF GOODS SOLD	208,269		204,643		611,783		608,930
GROSS PROFIT	127,791		113,924		364,000		341,623
OPERATING EXPENSES:
Selling, general and administrative	74,815		70,854		221,127		210,401
Research and development	12,238		10,126		34,332		31,151
Restructuring, strategic transaction and integration	2,358		4,114		8,994		22,903
Change in fair value of contingent earn-out	—		4,300		—		7,000
Contract settlement	—		(1,000)		127		(975)
TOTAL OPERATING EXPENSES	89,411		88,394		264,580		270,480
INCOME FROM OPERATIONS	38,380		25,530		99,420		71,143

INTEREST EXPENSE	(168)		(616)		(492)		(1,583)
OTHER (EXPENSE) INCOME, net	(287)		1,252		921		(2,175)
INCOME BEFORE INCOME TAXES	37,925		26,166		99,849		67,385
PROVISION FOR INCOME TAXES	(6,844)		(1,180)		(16,639)		(6,657)
NET INCOME	$	31,081	$	24,986	$	83,210	$	60,728
NET INCOME PER SHARE
Basic	$	1.47	$	1.19	$	3.93	$	2.91
Diluted	$	1.43	$	1.16	$	3.83	$	2.82
WEIGHTED AVERAGE NUMBER OF SHARES
Basic	21,214		20,948		21,189		20,870
Diluted	21,730		21,556		21,735		21,561

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
NET INCOME	$	31,081	$	24,986	$	83,210	$	60,728
Other comprehensive (loss) income, net of tax:
Cash flow hedge adjustments, net of taxes of $259 and $(321) for the three months ended September 30, 2021 and 2020, respectively, and $668 and $256 for the nine months ended September 30, 2021 and 2020, respectively	(819)		1,016		(2,116)		(810)
Foreign currency translation adjustment, net of taxes of $0 for all periods	(5,360)		6,626		(11,516)		754
Other adjustments, net of taxes of $0 for all periods	12		3		36		(75)
Other comprehensive (loss) income, net of taxes	(6,167)		7,645		(13,596)		(131)
TOTAL COMPREHENSIVE INCOME	$	24,914	$	32,631	$	69,614	$	60,597

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(Amounts in thousands)


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance, January 1, 2021	21,058	$	2,106	$	693,068	$	(39)	$	808,652	$	(1,522)	$	1,502,265
Issuance of restricted stock and exercise of stock options	198	16		2,496		2,352		—		—		4,864
Tax withholding payments related to net share settlement of equity awards	(37)	—		—		(7,723)		—		—		(7,723)
Stock compensation	—	—		6,022		—		—		—		6,022
Other comprehensive loss, net of tax	—	—		—		—		—		(8,391)		(8,391)
Net income	—	—		—		—		23,731		—		23,731
Balance, March 31, 2021	21,219	$	2,122	$	701,586	$	(5,410)	$	832,383	$	(9,913)	$	1,520,768
Issuance of restricted stock and exercise of stock options	—	—		(2,685)		3,237		—		—		552
Tax withholding payments related to net share settlement of equity awards	—	—		—		(96)		—		—		(96)
Stock compensation	—	—		6,681		—		—		—		6,681
Other comprehensive income, net of tax	—	—		—		—		—		962		962
Net income	—	—		—		—		28,398		—		28,398
Balance, June 30, 2021	21,219	$	2,122	$	705,582	$	(2,269)	$	860,781	$	(8,951)	$	1,557,265
Issuance of restricted stock and exercise of stock options	20	2		(963)		2,511		—		—		1,550
Tax withholding payments related to net share settlement of equity awards	(1)	—		—		(290)		—		—		(290)
Stock compensation	—	—		6,533		—		—		—		6,533
Other comprehensive loss, net of tax	—	—		—		—		—		(6,167)		(6,167)
Net income	—	—		—		—		31,081		—		31,081
Balance, September 30, 2021	21,238	$	2,124	$	711,152	$	(48)	$	891,862	$	(15,118)	$	1,589,972

Table of Contents


	Common Stock
	Shares	Amount		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance, January 1, 2020	20,742	$	2,074	$	668,947	$	(157)	$	721,782	$	(15,402)	$	1,377,244
Issuance of restricted stock and exercise of stock options	155	9		(10,207)		10,758		—		—		560
Tax withholding payments related to net share settlement of equity awards	(64)	—		—		(12,174)		—		—		(12,174)
Stock compensation	—	—		6,939		—		—		—		6,939
Other comprehensive loss, net of tax	—	—		—		—		—		(13,510)		(13,510)
Net income	—	—		—		—		16,834		—		16,834
Balance, March 31, 2020	20,833	$	2,083	$	665,679	$	(1,573)	$	738,616	$	(28,912)	$	1,375,893
Issuance of restricted stock and exercise of stock options	106	11		4,408		1,820		—		—		6,239
Tax withholding payments related to net share settlement of equity awards	(2)	—		—		(387)		—		—		(387)
Stock compensation	—	—		5,410		—		—		—		5,410
Other comprehensive income, net of tax	—	—		—		—		—		5,734		5,734
Net income	—	—		—		—		18,908		—		18,908
Balance, June 30, 2020	20,937	$	2,094	$	675,497	$	(140)	$	757,524	$	(23,178)	$	1,411,797
Issuance of restricted stock and exercise of stock options	33	3		1,564		220		—		—		1,787
Tax withholding payments related to net share settlement of equity awards	(1)	—		—		(260)		—		—		(260)
Stock compensation	—	—		6,265		—		—		—		6,265
Other comprehensive income, net of tax	—	—		—		—		—		7,645		7,645
Net income	—	—		—		—		24,986		—		24,986
Balance, September 30, 2020	20,969	$	2,097	$	683,326	$	(180)	$	782,510	$	(15,533)	$	1,452,220

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Nine months ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	83,210	$	60,728
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	66,564		64,037
Noncash lease expense	7,165		6,859
Provision for doubtful accounts	342		2,785
Provision for warranty and returns	752		(1,296)
Stock compensation	19,236		18,614
Loss on disposal of property and equipment and other assets	1,083		1,673
Bond premium amortization	514		126
Debt issuance costs amortization	216		216
Change in fair value of contingent earn-out	—		7,000
Product-related charges	3,380		2,626
Usage of spare parts	9,831		8,391
Other	2,908		2,523
Changes in operating assets and liabilities:
Accounts receivable	3,807		38,933
Inventories	16,510		8,859
Prepaid expenses and other assets	3,557		(6,535)
Other assets	(13,593)		(12,121)
Accounts payable	(10,374)		(38,032)
Accrued liabilities	(8,317)		(20,417)
Income taxes, including excess tax benefits and deferred income taxes	(1,874)		(743)
Net cash provided by operating activities	184,917		144,226
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(46,464)		(62,362)
Proceeds from sale of asset	218		154

Intangible asset additions	(10,216)		(6,325)
Investments in non-marketable equity investments	(3,250)		—
Purchases of investment securities	(10,034)		(9,603)
Proceeds from sale of investment securities	12,000		20,900
Net cash used in investing activities	(57,746)		(57,236)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt	—		150,000
Repayment of short-term debt	—		(150,000)
Proceeds from exercise of stock options	6,966		8,586
Payments on finance leases	(448)		(231)
Tax withholding payments related to net share settlement of equity awards	(8,109)		(12,821)
Net cash used in financing activities	(1,591)		(4,466)
Effect of exchange rate changes on cash	(2,192)		(201)
NET INCREASE CASH AND CASH EQUIVALENTS	123,388		82,323
CASH AND CASH EQUIVALENTS, beginning of period	396,097		268,670
CASH AND CASH EQUIVALENTS, end of period	$	519,485	$	350,993

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

ICU MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - CONTINUED

(In thousands)


	Nine months ended September 30,
	2021		2020
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Accounts payable for property and equipment	$	2,897	$	3,633
Non-compete agreement with associated contingent earn-out liability	$	3,100	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1:Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.") and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the consolidated results for the interim periods presented. Results for the interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K of ICU Medical, Inc., ("ICU") a Delaware corporation, filed with the SEC for the year ended December 31, 2020.

We are engaged in the development, manufacturing and sale of innovative medical products used in vascular therapy and critical care applications. We sell the majority of our products through our direct sales force and through independent distributors throughout the U.S. and internationally. Additionally, we sell our products on an original equipment manufacturer basis to other medical device manufacturers. All subsidiaries are wholly owned and are included in the condensed consolidated financial statements. All intercompany balances and transactions have been eliminated.

Note 2: New Accounting Pronouncements

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden for reference rate reform on financial reporting. Due to concerns about structural risks of interbank offered rates and, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"), regulators around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued as a result of reference rate reform. Optional expedients may be applied to contracts that are modified as a result of the reference rate reform. Modifications of contracts within the scope of Topic 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. Modifications of contracts within the scope of ASC 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate (incremental borrowing rate). Exceptions to Topic 815, Derivatives and Hedging, results in not having a dedesignation of a hedging relationship if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The impact of this ASU on our contracts has not been material.

Note 3: Restructuring, Strategic Transaction and Integration

Restructuring, strategic transaction and integration expenses were $2.4 million and $9.0 million for the three and nine months ended September 30, 2021 respectively, as compared to $4.1 million and $22.9 million for the three and nine months ended September 30, 2020 respectively.

Restructuring

During the third quarter we adjusted certain facility restructuring liabilities by $2.0 million, shown in the table below under "other adjustments", to reflect actual amounts owed which resulted in net restructuring credits of $(1.9) million and $(1.8) million, for the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020 restructuring charges were $0.0 million and $8.1 million, respectively. Restructuring charges for the three and nine months ended September 30, 2020 were primarily related to severance charges and costs related to office and other facility closures. Restructuring charges are included in the above restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations.

The following table summarizes the details of changes in our restructuring-related accrual for the period ended September 30, 2021 (in thousands):

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Accrued Balance January 1, 2021		Charges Incurred		Payments		Currency Translation		Other Adjustments(1)		Accrued Balance September 30, 2021
Severance pay and benefits	$	1,858	$	143	$	(872)	$	(3)	$	(528)	$	598

Facility closure expenses	1,563		—		—		31		(1,429)		165
	$	3,421	$	143	$	(872)	$	28	$	(1,957)	$	763

_______________________________

(1) The estimated liabilities related to a prior year's facility closure restructuring were adjusted to actual amounts owed during the third quarter ended September 30, 2021.

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

Strategic transaction and integration expenses

We incurred and expensed $4.3 million and $10.8 million in strategic transaction and integration expenses during the three and nine months ended September 30, 2021, as compared to $4.1 million and $14.8 million during the three and nine months ended September 30, 2020, respectively, which are included in restructuring, strategic transaction and integration expenses in our condensed consolidated statement of operations. The strategic transaction and integration expenses during the three months ended September 30, 2021 were primarily related to transaction expenses incurred related to entering into a definitive agreement to acquire Smiths Medical 2020 Limited ("Smiths") (see Note 20: Acquisitions). The strategic transaction and integration expenses for the nine months ended September 30, 2021 were primarily related to integration costs associated with acquisitions, the Hospira Infusion Systems ("HIS") earn-out dispute with Pfizer, one-time costs incurred to comply with regulatory initiatives and the transaction costs related to the Smiths transaction. The strategic transaction and integration expenses during the three and nine months ended September 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.

Note 4: Revenue

Our primary product lines are Infusion Consumables, Infusion Systems, IV Solutions and Critical Care. The vast majority of our sales of these products are made on a stand-alone basis to hospitals and distributors. Revenue is typically recognized upon transfer of control of the products, which we deem to be at point of shipment. However, for purposes of revenue recognition for our software licenses and renewals, we consider the control of these products to be transferred to a customer at a certain point in time; therefore, we recognize revenue at the start of the applicable license term.

Payment is typically due in full within 30 days of delivery or the start of the contract term. Revenue is recorded in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We offer certain volume-based rebates to our distribution customers, which we record as variable consideration when calculating the transaction price. Rebates are offered on both a fixed and tiered/variable basis. In both cases, we use information available at the time and our historical experience with each customer to estimate the most likely rebate amount. We also provide chargebacks to distributors that sell to end-customers at prices determined under a contract between us and the end-customer. Chargebacks are the difference between the prices we charge our distribution customers and the contracted prices we have with the end customer which are processed as credits to our distribution customers. In estimating the expected value of chargeback amounts in order to determine the transaction price, we use information available at the time, including our historical experience.

We also warranty products against defects and have a policy permitting the return of defective products, for which we accrue and expense at the time of sale using information available at that time and our historical experience. We also provide for extended service-type warranties, which we consider to be separate performance obligations. We allocate a portion of the transaction price to the extended service-type warranty based on its estimated relative selling price, and recognize revenue over the period the warranty service is provided. Our revenues are recorded at the net sales price, which includes an estimate for variable consideration related to rebates, chargebacks and product returns.

Revenue disaggregated

The following table represents our revenues disaggregated by geography (in thousands):

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Three months ended September 30,				Nine months ended September 30,
Geography	2021		2020		2021		2020
Europe, the Middle East and Africa	$	36,239	$	32,596	$	108,800	$	99,107



Other Foreign	54,523		48,525		169,667		175,618
Total Foreign	90,762		81,121		278,467		274,725
United States	245,298		237,446		697,316		675,828
Total Revenues	$	336,060	$	318,567	$	975,783	$	950,553

The following table represents our revenues disaggregated by product line (in thousands):


	Three months ended September 30,				Nine months ended September 30,
Product line	2021		2020		2021		2020
Infusion Consumables	$	144,850	$	116,054	$	407,419	$	350,554
Infusion Systems	90,688		88,388		259,683		267,856
IV Solutions	89,237		101,900		271,834		295,369
Critical Care	11,285		12,225		36,847		36,774

Total Revenues	$	336,060	$	318,567	$	975,783	$	950,553

Contract balances

The following table presents our changes in the contract balances for the nine months ended September 30, 2021 and 2020 (in thousands):


	Contract Liabilities
Beginning balance, January 1, 2021	$	(6,430)
Equipment revenue recognized	7,193
Equipment revenue deferred due to implementation	(8,652)
Software revenue recognized	6,194
Software revenue deferred due to implementation	(2,967)
Ending balance, September 30, 2021	$	(4,662)

Beginning balance, January 1, 2020	$	(4,855)
Equipment revenue recognized	9,920
Equipment revenue deferred due to implementation	(13,679)
Software revenue recognized	4,715
Software revenue deferred due to implementation	(5,033)
Ending balance, September 30, 2020	$	(8,932)

As of September 30, 2021, revenue from remaining performance obligations related to implementation of software and equipment is $3.3 million. We expect to recognize substantially all of this revenue within the next three to six months dependent on implementation restrictions due to the novel coronavirus and its variants ("COVID-19"). Revenue from remaining performance obligations related to annual software licenses is $1.3 million. We expect to recognize substantially all of this revenue over the next twelve months.

Note 5: Leases

Leases

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We determine if an arrangement is a lease at inception. Our operating lease assets are separately stated in operating lease right-of-use ("ROU") assets and our financing lease assets are included in other assets on our condensed consolidated balance sheets. Our lease liabilities are included in accrued liabilities, and other long-term liabilities on our condensed consolidated balance sheets. We have elected not to recognize an ROU asset and lease liability for leases with terms of twelve months or less.

Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Most of our leases do not provide an implicit rate, therefore we use our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term based on the information available at commencement date. Our lease ROU assets exclude lease incentives and initial direct costs incurred. Our lease terms include options to extend when it is reasonably certain that we will exercise that option. All of our leases have stated lease payments, which may include fixed rental increases. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Our leases are for corporate, research and development and sales and support offices, a distribution facility, device service centers and certain equipment. Our leases have original lease terms of one year to fifteen years, some of which include options to extend the leases for up to an additional five years. For all of our leases, we do not include optional periods of extension in our current lease terms for the exercise of options to extend is not reasonably certain.

The following table presents the components of our lease cost (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Operating lease cost	$	2,798	$	2,861	$	8,455	$	8,428

Finance lease cost - interest	29		29		92		62

Finance lease cost - reduction of ROU asset	166		125		478		252

Short-term lease cost	4		74		14		200



Total lease cost	$	2,997	$	3,089	$	9,039	$	8,942

Interest expense on our finance leases is included in other income (expense), net in our condensed consolidated statement of operations. The reduction of the operating and finance ROU assets is included as noncash lease expense in selling, general and administrative expenses in our condensed consolidated statement of operations.

The following table presents the supplemental cash flow information related to our leases (in thousands):


	Nine months ended September 30,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8,461	$	7,303
Operating cash flows from finance leases	$	29	$	62

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	1,394	$	20,264
Finance leases	$	373	$	2,870

The following table presents the supplemental balance sheet information related to our operating leases (in thousands, except lease term and discount rate):

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	As of September 30, 2021			As of December 31, 2020
Operating leases
Operating lease right-of-use assets	$	40,979		$	46,571

Accrued liabilities	$	8,669		$	8,740
Other long-term liabilities	35,478			41,019
Total operating lease liabilities	$	44,147		$	49,759

Weighted Average Remaining Lease Term
Operating leases	6.2 years			6.7 years

Weighted Average Discount Rate
Operating leases	4.98		%	5.02		%

The following table presents the supplemental balance sheet information related to our finance leases (in thousands, except lease term and discount rate):


	As of September 30, 2021			As of December 31, 2020
Financing leases
Financing lease right-of-use assets	$	2,690		$	2,915

Accrued liabilities	$	624		$	554
Other long-term liabilities	2,122			2,388
Total financing lease liabilities	$	2,746		$	2,942

Weighted Average Remaining Lease Term
Financing leases	5.8 years			6.4 years

Weighted Average Discount Rate
Financing leases	4.27		%	4.27		%

As of September 30, 2021, the maturities of our operating and financing lease liabilities for each of the next five years is approximately (in thousands):


	Operating Leases		Finance Leases
Remainder of 2021	$	2,783	$	182
2022	10,370		726
2023	9,194		726
2024	8,347		421
2025	4,999		225
2026	4,725		189
Thereafter	10,574		615
Total Lease Payments	50,992		3,084
Less imputed interest	(6,845)		(338)
Total	$	44,147	$	2,746

Note 6: Net Income Per Share

ICU MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period plus dilutive securities. Dilutive securities include outstanding common stock options and unvested restricted stock units, less the number of shares that could have been purchased with the proceeds from the exercise of the options, using the treasury stock method. Options and restricted stock units that are anti-dilutive are not included in the treasury stock method calculation. There were 12,235 and 14,017 anti-dilutive securities for the three months ended September 30, 2021 and 2020, respectively. There were 12,132 and 12,182 anti-dilutive securities for the nine months ended September 30, 2021 and 2020, respectively.

The following table presents the calculation of net earnings per common share (“EPS”) — basic and diluted (in thousands, except per share data):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income	$	31,081	$	24,986	$	83,210	$	60,728