ICU MEDICAL INCDE
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 27, 2025
ICUI$172.11+2.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-27.
0000883984-24-000005
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-27.
0000883984-25-000007
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 145 previous paragraphs and 144 current paragraphs.
91 unchanged; 32 reworded; 17 added; 19 removed; 3 previous and 4 current paragraphs rearranged.
Tables are not compared: 13 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
Global Economic Challenges
Current report
We also continue to expect higher interest rates and volatility in foreign currency rates due to the strengthening of the U.S. dollar against most global currencies. Our 2024, 2023 and 2022 financial results were negatively impacted by foreign exchange losses and our results of operations may continue to be impacted in the future.
Current report
More recently, in January 2025, the current administration issued executive orders imposing tariffs on imported goods from Canada, Mexico, and China. In response, Canada announced similar tariffs on U.S. imports. A meaningful portion of our global revenues are from products manufactured in our Mexico manufacturing facilities and imported into the U.S. In addition, Canada is our second largest country in terms of revenue and the vast majority of products sold in Canada are imported from the U.S. The 25% tariff levied on all goods shipped from Mexico to the U.S., combined with the 25% tariff on products shipped from the U.S. to Canada could potentially have a meaningful impact to our costs and any further trade war escalation could increase that impact.
Current report
Consumables revenue increased in 2024, as compared to 2023, primarily due to new customer installations and increased demand for our Infusion Consumables, Vascular Access and Oncology product lines.
Current report
Infusion Systems revenue increased in 2024, as compared to 2023, primarily due to higher sales of our large volume pump ("LVP") dedicated sets on a larger installed base, as well as growth in our ambulatory hardware and dedicated sets.
Current report
Vital Care revenue increased in 2024, as compared to 2023, due to higher sales volume of IV Solutions primarily driven by a market shortage of these products in the U.S. during the fourth quarter of 2024, as explained below.
Current report
During the third quarter of 2024, a competitor’s U.S. IV solutions manufacturing facility was damaged as a result of Hurricane Helene causing a national shortage of IV solutions. In response, we actively increased production of our IV Solutions product lines in anticipation of increased demand due to the temporary market shortage. We experienced increased demand for our IV Solutions product lines in the fourth quarter of 2024 and may continue to see elevated demand in the near term given the sustained market shortage until conditions normalize.
Current report
The increase in gross margin in 2024, as compared to 2023, was primarily driven by lower supply chain costs due to synergies and freight rates, price increases, reduced spend on quality remediation activities and the impact of foreign exchange rate changes which was partially offset by lower manufacturing absorption and higher inventory write-offs.
Current report
In 2024, we incurred restructuring charges of $19.6 million primarily related to severance costs.
Current report
In 2024, the fair value revaluation of our contingent earn-outs resulted in a decrease in value of $5.4 million. This decrease was related to the fair value revaluation of our Smiths Medical contingent earn-out liability and the fair value revaluation of a contingent earn-out recognized in 2021 upon the acquisition of a small foreign infusion systems supplier. The Smiths Medical contingent earn-out was adjusted to zero during 2024. As of December 31, 2024, Smiths had sold all of its ownership interest in ICU Medical shares. Smiths no longer holds the shares necessary to meet the minimum beneficial ownership percentage required to earn the contingent earn-out.
Current report
Interest expense, net
Current report
Other expense, net
Current report
The effective tax rate in 2024 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign income, foreign-derived intangible income (“FDII”), federal and state valuation allowance, tax reserve releases, and tax credits. The effective tax rate in 2024 included a tax benefit of $10.1 million primarily related to unrecognized tax benefits released as a result of the expiration of the statute of limitations offset by a tax expense of $81.7 million related to a valuation allowance against certain U.S. federal and state deferred tax assets.
Current report
The Company regularly assesses the realizability of deferred tax assets and records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In assessing the realizability of our deferred tax assets, we weigh all available positive and negative evidence. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Due to the weight of objectively verifiable negative evidence, the Company recorded a valuation allowance of $81.7 million tax expense and $3.9 million foreign currency translation and derivative instrument adjustments against certain U.S. federal and state deferred tax assets for the tax years ending December 31, 2024. The significant piece of objectively verifiable negative evidence evaluated was the recent U.S. cumulative losses. Our ability to use our deferred tax assets depends on the amount of taxable income in future periods.
Current report
Contingent Payments
Current report
In 2015, the Italy Medical Device Payback ("IMDP") was enacted in Italy,which requires medical device companies to make payments to the Italian government if Italy's medical device expenditures for certain years exceeded annual regional expenditure ceilings. Since its enactment, the legislation has been subject to appeals in the Italian court system. In the third quarter of 2024, Italy's Constitutional Court issued two judgments, one of which confirmed the legitimacy of the IMDP. However, litigation proceedings are still pending and the ultimate resolution remains unknown. As of December 31, 2024, we have accrued $23.9 million for potential payments related to the IMDP, which is classified within our accrued liabilities. Given the uncertainty regarding this legislation and its enforcement, the timing and amount of payments could ultimately differ from our current expectations.
Current report
Our cash provided by operations was $204.0 million in 2024. The changes in operating assets and liabilities included a $46.8 million increase in accounts receivable, a $23.2 million increase in other assets, and $8.8 million increase in prepaid expenses and other current assets. Offsetting these amounts was a $20.7 million increase in accrued liabilities, a $16.8 million decrease in inventories, a $12.5 million increase in accounts payable and $26.2 million in net changes in income taxes, including excess tax benefits and deferred income taxes. The increase in accounts receivable was primarily due to the amount and timing of revenues and we sold less receivables under our accounts receivable purchase program with BMO as we did not utilize the program during the fourth quarter of 2024 (see Note 18: Accounts Receivable Purchase Program). The increase in other assets was due to the purchase of spare parts. The increase in prepaid expenses and other current assets was primarily attributable to deferred costs related to infusion pumps sold and insurance and property taxes. The net change in income taxes was a result of recording the current deferred provision and the timing of payments. The primary drivers for the net increase in accrued liabilities was primarily due to accrued employee costs, accrued restructuring costs and distributor rebates partially offset by operating lease payments. The decrease in inventory was primarily due to our focus on reducing inventory levels.
Removed paragraphs (19)
Previous report
As part of the integration of our acquisition of Smiths Medical, we have renamed our business units and reorganized the products thereunder and, as of January 1, 2023, our business unit structure is composed of Consumables, Infusion Systems and Vital Care. All prior periods herein have been retrospectively conformed to the current presentation.
Previous report
Supply Constraints, Global Geopolitical Events
Previous report
Consumables revenue increased in 2022, as compared to 2021. The increase in revenue was primarily due to $408.4 million in acquired revenue from our January 2022 acquisition of Smiths Medical. In 2022, our legacy operations revenue increased primarily due to customer demand in our global core Infusion, Global Oncology and Renal products.
Previous report
Infusion Systems revenue increased in 2022, as compared to 2021, primarily due to $266.4 million in acquired revenue from our January 2022 acquisition of Smiths Medical. Offsetting the acquired revenue increase was a slight decrease in our legacy operations revenue due to the impact of foreign currency which offset increased sales of our LVP dedicated sets and software as a result of growth in our installed base of LVPs.
Previous report
Vital Care revenue increased in 2022, as compared to 2021, primarily due to $276.8 million of acquired revenue from our January 2022 acquisition of Smiths Medical. In 2022, our legacy operations revenue increased primarily due to an increase in IV Solutions contract manufacturing sales to Pfizer.
Previous report
The decrease in gross margin in 2022, as compared to 2021, was primarily driven by the acquisition of Smiths Medical, inflationary cost increases in our supply chain, and lower manufacturing absorption due to supply chain disruptions. Smiths Medical gross margins were lower than historical ICU margins primarily due to spending on quality systems and product-related remediation, the cost recognition of the purchase accounting write-up of inventory and lower manufacturing volumes. The inflationary cost increases during 2022 caused by COVID-19 and the war in the Ukraine notably impacted our freight rates, as well as, labor and materials costs.
Previous report
Consolidated SG&A expenses increased in 2022, as compared to 2021. In 2022, SG&A increased $296.6 million due to the impact of the Smiths Medical acquisition, which included $103.8 million of salaries and benefits, $116.8 million of depreciation and amortization expense and $19.7 million of IT and business support services. The remainder of the increase in SG&A was attributable mostly due to higher selling expense due to revenue growth and the impact of inflation.
Previous report
In 2021, we adjusted certain facility restructuring liabilities by $2.0 million to reflect actual amounts owed resulting in annual net restructuring credits of $(1.8) million.
Previous report
In 2021, we incurred $19.8 million in strategic transaction and integration expenses 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 transaction expenses incurred in connection with entering into the definitive agreement to acquire Smiths Medical.
Previous report
Contract Settlement
Previous report
In 2023 and 2022, we did not incur any contract settlement charges. In 2021, we recorded $0.1 million in contract settlement expense.
Previous report
Interest (expense) income, net
Previous report
In January 2022, to partially fund our acquisition of Smiths Medical, we entered into senior secured credit facilities that refinanced our Prior Credit Facility in full, see "Liquidity and Capital Resources" in the remainder of this item for additional information and the estimated impact to future interest expense.
Previous report
In 2021, interest income, net primarily includes the per annum commitment fee charged on the unused portion of the revolver under our then five-year revolving credit facility and the amortization of financing costs that were incurred in 2017 in connection with entering into the then existing credit facility.
Previous report
Other (expense) income, net
Previous report
The effective tax rate in 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, GILTI, FDII and tax credits. The effective tax rate in 2021 included a tax benefit of $4.9 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 2021 also included U.S. federal and state return-to-provision adjustments net of related reserve changes for the year ended December 31, 2020 of $0.9 million tax provision primarily due to changes in estimates for GILTI, FDII, subpart F, and related foreign tax credits along with other prior period adjustments.
Previous report
Our cash provided by operations was $267.5 million in 2021. The changes in operating assets and liabilities included a $20.8 million decrease in inventories, a $13.8 million decrease in accounts receivable, a $6.3 million increase in accrued liabilities, a $2.3 million increase in accounts payable, and $0.9 million in net changes in income taxes, including excess tax benefits and deferred income taxes. Offsetting these amounts was a $21.0 million increase in other assets and a $8.0 million increase in prepaid expenses and other current assets. The decrease in inventory was primarily due to the timing of production and customer purchases. The decrease in accounts receivable is primarily due to collection efforts. The increase in accrued liabilities was primarily due to the accrual of incentive bonuses, deferred revenue collected on certain arrangements and accruals related to the Smiths Medical transaction. The increase in accounts payable was primarily due to the timing of payments. The net changes in income taxes was a result of the timing of payments. The increase in other assets was primarily due to the purchase of spare parts. The net increase in prepaid expenses and other current assets was primarily due to an increase in deferred costs.
Previous report
(2)In 2021, we recorded a $6.6 million intangible asset related to a three-year non-compete agreement with one of our international distributors, of which $2.6 million was non-cash offset with a contingent earn-out.
Previous report
(4)In 2021, we paid $3.3 million to acquire approximately a 20% non-marketable equity interest in a non-public company.
Reworded paragraphs (32)
Previous wording
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A. “Risk Factors” or in other sections of this Annual Report on Form 10-K.
Current wording
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A. “Risk Factors” or in other sections of this Annual Report on Form 10-K as may be further updated from time to time in our other filings with the SEC.
Previous wording
We have experienced significant impacts to our business as a result of global economic challenges, resulting from, among other events, the COVID-19 pandemic and the continuing conflict between Russia and Ukraine. These impacts, which negatively impacted our gross profit margin during 2022 and 2023, include rising inflation, especially with respect to freight costs driven by higher fuel prices, increased cost and shortages of raw materials, and supply chain disruptions. We expect the pressure on the supply chain to continue and freight costs to remain subject to volatility in the market for the foreseeable future. The rising interest rates and foreign currency impact due to the strengthening of the U.S. dollar and Mexican peso and the devaluation of the Argentine Peso have also impacted our results of operations during 2022 and 2023. These challenges arising from global economic conditions could worsen as a result of the current armed conflict in the Middle East, which is highly uncertain at this time.
Current wording
We have experienced and may continue to experience significant impacts to our business as a result of global economic challenges, resulting from, among other events, health pandemics and geopolitical conflicts. These impacts, which negatively impacted our gross profit margin during 2023 and 2022, include the impact of rising inflation, especially with respect to freight costs driven by higher fuel prices, increased cost and shortages of raw materials, and supply chain disruptions. While we expect the pressure on the supply chain to lessen and inflation to continue to subside, freight costs are expected to remain subject to volatility in the market.
Previous wording
While we continually monitor the ongoing and evolving impact of the above events on our operations the overall impact remains uncertain and may not be fully reflected in our results of operations until future periods. The overall impact to our results of operations will depend on a number of factors, many of which are out of our control, such as the duration and extent of the current global economic challenges, including any impact from conflicts in Eastern Europe and the Middle East more generally, and the resurgence of the pandemic or the emergence of a new public health crisis, none of which can be fully predicted at this time. See "Part I. Item 1A. Risk Factors: Heightened inflation, higher interest rates and foreign currency rate fluctuations as a result of global macroeconomic and geopolitical conditions have had and could in the future have a material adverse effect on our operations” for a discussion of risks and uncertainties.
Current wording
While we continually monitor the ongoing and evolving impact of the above events on our operations the overall impact remains uncertain and may not be fully reflected in our results of operations until future periods. The overall impact to our results of operations will depend on a number of factors, many of which are out of our control, none of which can be fully predicted at this time. See "Part I. Item 1A. Risk Factors" for a discussion of risks and uncertainties.
Previous wording
Total revenues were $2.3 billion, $2.3 billion and $1.3 billion for 2023, 2022 and 2021, respectively.
Current wording
Total revenues were $2.4 billion, $2.3 billion and $2.3 billion for 2024, 2023 and 2022, respectively.
Previous wording
Consumables revenue decreased in 2023, as compared to 2022, primarily due to a decrease in our vascular access revenues as a result of lost customers and backorder recovery in the prior year. The revenue decrease was partially offset by an increase in Infusion Therapy and Oncology revenues.
Current wording
Consumables revenue decreased in 2023, as compared to 2022, primarily due to a decrease in our vascular access revenues as a result of lost customers and backorder recovery in 2022. The revenue decrease was partially offset by an increase in Infusion Therapy and Oncology revenues.
Previous wording
Infusion Systems revenue increased in 2023, as compared to 2022, primarily due to higher sales of our syringe pumps and large volume pump ("LVP") dedicated sets.
Current wording
Infusion Systems revenue increased in 2023, as compared to 2022, primarily due to higher sales of our syringe pumps and LVP dedicated sets.
Previous wording
Vital Care revenue decreased in 2023, as compared to 2022, primarily due to lower sales volume of IV Solutions which was impacted by supply disruptions related to finished good products purchased from third party manufacturers and lower sales volume for products acquired from Smiths Group due to backorder recovery in the prior year.
Current wording
Vital Care revenue decreased in 2023, as compared to 2022, primarily due to lower sales volume of IV Solutions which was impacted by supply disruptions related to finished good products purchased from third-party manufacturers and lower sales volume for products acquired from Smiths Group plc ("Smiths") due to backorder recovery in 2022.
Previous wording
Gross margins were 32.8%, 30.6% and 37.3% for 2023, 2022 and 2021, respectively.
Current wording
Gross margins were 34.6%, 32.8% and 30.6% for 2024, 2023 and 2022, respectively.
Previous wording
Consolidated SG&A expenses decreased slightly in 2023, as compared to 2022, primarily due to decreases of $7.5 million in depreciation and amortization, $4.8 million in dealer fees, $3.9 million of office expenses, and $2.6 million of IT expenses. The overall decreases were mostly offset by increases of $7.8 million in compensation costs, $5.2 million in commissions, $3.5 million in stock based compensation, and $1.3 million in sales and marketing expenses. Depreciation and amortization decreased in 2023 as the trademark intangible recognized as part of the January 2022 Smiths Medical acquisition had a useful life of six months and was fully amortized in the prior year. Dealer fees decreased due to a decrease in revenues to distributors. Office and IT expenses decreased based on current operating needs. Compensation costs increased primarily due to an increase in cash incentive compensation and employee benefits. Commissions increased primarily due to sales performance in the current period measured against preset sales targets as compared to sales performance achieved against targets in the comparable prior year period. Stock based compensation increased due to an increase in the fair value of amounts awarded in the current year over the fair value of the awards in the prior year. Sales and marketing expenses increased due to an increase in trade show, conference, and related expenses.
Current wording
Consolidated SG&A expenses decreased slightly in 2023, as compared to 2022, primarily due to decreases of $7.5 million in depreciation and amortization, $4.8 million in dealer fees, $3.9 million of office expenses, and $2.6 million of IT expenses. The overall decreases were mostly offset by increases of $7.8 million in compensation costs, $5.2 million in commissions, $3.5 million in stock based compensation, and $1.3 million in sales and marketing expenses. Depreciation and amortization decreased in 2023 as the trademark intangible recognized as part of the January 2022 Smiths Medical acquisition had a useful life of six months and was fully amortized in 2022. Dealer fees decreased due to a decrease in revenues to distributors. Office and IT expenses decreased based on current operating needs. Compensation costs increased primarily due to an increase in cash incentive compensation and employee benefits. Commissions increased primarily due to sales performance in 2023 measured against preset sales targets as compared to sales performance achieved against targets in the comparable 2022 period. Stock based compensation increased due to an increase in the fair value of amounts awarded in 2023 over the fair value of the awards in 2022. Sales and marketing expenses increased due to an increase in trade show, conference, and related expenses.
Previous wording
Restructuring, strategic transaction and integration expenses were $41.3 million, $71.4 million and $18.0 million in 2023, 2022 and 2021, respectively.
Current wording
Restructuring, strategic transaction and integration expenses were $59.8 million, $41.3 million and $71.4 million in 2024, 2023 and 2022, respectively.
Previous wording
In 2023 and 2022, interest expense primarily includes the contractual interest incurred on borrowings under the Credit Agreement, the per annum commitment fee charged on the available amount of the revolving credit facility contained in the Credit Agreement, the amortization of debt issuance costs incurred in connection with entering into the Credit Agreement (see Note 11: Long-Term Obligations in our accompanying consolidated financial statements) offset by the impact of the interest rate swaps (see Note 7: Derivatives and Hedging in our accompanying consolidated financial statements). The interest expense increased in 2023, as compared to 2022, primarily due to increases in the applicable SOFR reference rate.
Current wording
In 2024, 2023 and 2022, interest expense primarily includes the contractual interest incurred on borrowings under the Credit Agreement, the per annum commitment fee charged on the available amount of the revolving credit facility contained in the Credit Agreement, the amortization of debt issuance costs incurred in connection with entering into the Credit Agreement (see Note 13: Long-Term Obligations in our accompanying consolidated financial statements) offset by the impact of the interest rate swaps (see Note 9: Derivatives and Hedging in our accompanying consolidated financial statements). The interest expense increased in 2024, as compared to 2023, primarily due to amortization of certain swaps. The interest expense increased in 2023, as compared to 2022, primarily due to increases in the applicable SOFR reference rate.
Previous wording
Interest income in all years was related to interest received on our interest-bearing securities.
Current wording
Interest income in all years was related to interest earned on interest-bearing securities and cash holdings.
Previous wording
The foreign exchange losses in 2023 were primarily related to the devaluation of the Argentine peso during the fourth quarter of 2023.
Current wording
The foreign exchange losses in 2024 were primarily related to the strengthening of the U.S. dollar relative to certain foreign currencies, including the Mexican peso and Argentine peso. The foreign exchange losses in 2023 were primarily related to the devaluation of the Argentine peso during the fourth quarter of 2023.
Previous wording
In 2023, other miscellaneous income, net primarily includes $3.7 million in fees related to our accounts receivable purchase program (see Note 17: Accounts Receivable Purchase Program) mostly offset by a business interruption gain recognized upon receipt of insurance proceeds. We received total insurance recoveries for property damage and business interruption of $3.1 million, $2.6 million of which was related to insurance proceeds for business interruption included within other miscellaneous income, net. In 2022, other miscellaneous income, net primarily related to the sale of certain other assets.
Current wording
In 2024, other miscellaneous (expense) income, net primarily includes $2.6 million in fees associated with our accounts receivable purchase program with BMO Bank N.A. ("BMO") (see Note: 18 Accounts Receivable Purchase Program). In 2023, other miscellaneous (expense) income, net primarily includes $3.7 million in fees related to our accounts receivable purchase program (see Note 18: Accounts Receivable Purchase Program) mostly offset by a business interruption gain recognized upon receipt of insurance proceeds. We received total insurance recoveries for property damage and business interruption of $3.1 million, $2.6 million of which was related to insurance proceeds for business interruption included within other miscellaneous (expense) income, net.
Previous wording
Income taxes were accrued at an estimated annual effective tax rate of 62%, 35% and 16% in 2023, 2022 and 2021, respectively.
Current wording
Income taxes were accrued at an estimated annual effective tax rate of (78)%, 62% and 35% in 2024, 2023 and 2022, respectively.
Previous wording
In December 2022, the European Union agreed to implement Pillar Two, the OECD’s global minimum tax rate of 15% for multinationals that meet a global revenue threshold. A number of countries have enacted or have announced plans to enact legislation to adopt Pillar Two. The Pillar Two legislation is effective for our fiscal year beginning January 1, 2024 and for fiscal year 2024 we do not anticipate that it will have a material impact to our tax provision or effective tax rate. However, the Pillar Two rules continue to evolve and their application may alter our tax obligations in certain countries in which we operate for fiscal periods beyond 2024 as we continue to assess the impact of tax legislation in these jurisdictions.
Current wording
In December 2022, the European Union (EU) agreed to implement Pillar Two, the OECD’s global minimum tax rate of 15% for multinationals that meet a global revenue threshold. All of the EU countries and some of the non-EU countries in which we operate have enacted or have announced plans to enact legislation to adopt Pillar Two. The Pillar Two legislation is effective for our fiscal year beginning January 1, 2024 and for fiscal year 2024, Pillar 2 did not have a material impact to our tax provision or effective tax rate. However, the Pillar Two rules continue to evolve and their application may alter our tax obligations in certain countries in which we operate for fiscal periods beyond 2024 as we continue to assess the impact of tax legislation in these jurisdictions.
Previous wording
The effective tax rate in 2023 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign income, state income taxes, section 162(m) excess compensation, foreign-derived intangible income (“FDII”), and tax credits. The effective tax rate in 2023 included a tax benefit of $9.6 million primarily related to unrecognized tax benefits released as a result of the expiration of the statute of limitations. The effective tax rate for 2023 also included a tax benefit of $0.8 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period. Additionally, the effective tax rate for 2023 included a tax benefit of $6.5 million related to U.S. federal return-to-provision adjustments net of related tax reserves. The adjustments related primarily to changes in estimates for the research and development credit and foreign tax credits. Additionally, the effective tax rate 2023 included the nil tax impact of the revaluation of contingent consideration of $16.2 million.
Current wording
The effective tax rate in 2023 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign income, state income taxes, section 162(m) excess compensation, foreign-derived intangible income (“FDII”), and tax credits. The effective tax rate in 2023 included a tax benefit of $9.6 million primarily related to unrecognized tax benefits released as a result of the expiration of the statute of limitations. The effective tax rate for 2023 also included a tax benefit of $0.8 million related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock units during the period. Additionally, the effective tax rate for 2023 included a tax benefit of $6.5 million related to U.S. federal and state return-to-provision adjustments net of related tax reserves. The adjustments related to primarily to changes in estimates for the research and development credit and foreign tax credits. Additionally, the effective tax rate 2023 included the tax impact of the revaluation of contingent consideration of $16.2 million.
Previous wording
Our primary sources of liquidity are cash and cash equivalents, our short-term investment portfolio, cash flows from our operations and access to borrowing arrangements.
Current wording
Our current primary sources of liquidity are cash and cash equivalents and cash flows from our operations including access to borrowing arrangements.
Previous wording
Funds generated from operations are held in cash and cash equivalents and investment securities. During 2023, our cash and cash equivalents and short-term investment securities increased by $41.7 million from $213.0 million at December 31, 2022 to $254.7 million at December 31, 2023. This increase was primarily due to cash generated from operations. Our short-term investment portfolio currently consists of investment-grade corporate bonds and is primarily intended to facilitate capital preservation.
Current wording
Funds generated from operations are held in cash and cash equivalents and investment securities. During 2024, our cash and cash equivalents and short-term investment securities increased by $53.8 million from $254.7 million at December 31, 2023 to $308.6 million at December 31, 2024. This increase was primarily due to cash generated from operations.
Previous wording
The Credit Agreement contains financial covenants that pertain to the Term Loan A and the Revolving Credit Facility. Specifically, we are required to maintain a Senior Secured Leverage Ratio of no more than 4.50 to 1.00 until June 30, 2024, with step-downs to 4.00 to 1.00 thereafter, and an Interest Coverage Ratio of no less than 3.00 to 1.00 (defined and discussed in greater detail in Note 11: Long-Term Obligations to our accompanying consolidated financial statements). We were in compliance with these financial covenants as of December 31, 2023.
Current wording
The Credit Agreement contains financial covenants that pertain to the Term Loan A and the Revolving Credit Facility. Specifically, we were required to maintain a Senior Secured Leverage Ratio of no more than 4.50 to 1.00 until June 30, 2024, with a stepdown to 4.00 to 1.00 thereafter, and an Interest Coverage Ratio of no less than 3.00 to 1.00 (defined and discussed in greater detail in Note 13: Long-Term Obligations to our accompanying consolidated financial statements). We were in compliance with these financial covenants as of December 31, 2024.
Previous wording
In January 2023, we entered into a receivables purchase agreement with Bank of the West, which was subsequently acquired by BMO in February 2023. This agreement provides for an additional source of capital (see Note 17: Accounts Receivable Purchase Program).
Current wording
In January 2023, we entered into a receivables purchase agreement with Bank of the West, which was subsequently acquired by BMO in February 2023. This agreement provides for an additional source of capital; however as of December 31, 2024, we are not currently utilizing this program (see Note 18: Accounts Receivable Purchase Program).
Previous wording
We believe that our existing cash and cash equivalents along with cash flows expected to be generated from future operations, cash received from our uncommitted trade accounts receivable purchase facility and the funds received and accessible under the Senior Secured Credit Facilities will provide us with sufficient liquidity to finance our cash requirements for the next twelve months. 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 economic conditions. See Part I. Item 1A. Risk Factors” for discussion of the risks and uncertainties associated with our debt financing.
Current wording
We believe that our existing cash and cash equivalents along with cash flows expected to be generated from future operations and the funds received and accessible under the Senior Secured Credit Facilities will provide us with sufficient liquidity to finance our cash requirements for the next twelve months and the foreseeable future. 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 economic conditions. See Part I. Item 1A. Risk Factors for discussion of the risks and uncertainties associated with our debt financing.
Previous wording
As discussed above, in January 2022, we incurred borrowings under Senior Secured Credit Facilities. The principal repayment obligations and estimated interest payments on the term loans and estimated commitment fee payments on the revolver are estimated in the table below. Interest payments on the term loans were estimated using an Adjusted Term SOFR rate and an applicable margin on of 2.00% for term loan A and 2.50% for term loan B and the revolver commitment fees were estimated using a rate of 0.30%. The applicable margin rate and commitment fee rate will change from time to time in accordance with a preset pricing grid based on the leverage ratio (see Note 11: Long-Term Obligations in our accompanying consolidated financial statements for pricing grids related to the Senior Secured Credit Facilities). We expect to fund these obligations with our existing cash and cash equivalents and cash generated from our future operations.
Current wording
As discussed above, in January 2022, we incurred borrowings under Senior Secured Credit Facilities. The principal repayment obligations and estimated interest payments on the term loans and estimated commitment fee payments on the revolver are estimated in the table below. Interest payments on the term loans were estimated using an Adjusted Term SOFR rate and an applicable margin on of 2.00% for term loan A and 2.50% for term loan B and the revolver commitment fees were estimated using a rate of 0.30%. The applicable margin rate and commitment fee rate will change from time to time in accordance with a preset pricing grid based on the leverage ratio (see Note 13: Long-Term Obligations in our accompanying consolidated financial statements for pricing grids related to the Senior Secured Credit Facilities).
Previous wording
Our cash provided by operations was $166.2 million in 2023. The changes in operating assets and liabilities included a $48.6 million decrease in accounts receivable and a $11.7 million decrease in prepaid expenses and other current assets. Offsetting these amounts was a $6.1 million increase in inventories, a $68.3 million decrease in accounts payable, a $24.7 million increase in other assets, a $14.5 million decrease in accrued liabilities, and $82.4 million in net changes in income taxes, including excess tax benefits and deferred income taxes . The decrease in accounts receivable was primarily due to the sale of accounts receivable as part of our accounts receivable purchase program with Bank of the West, which was subsequently acquired by BMO in February 2023 (see Note 17: Accounts Receivable Purchase Program). The decrease in prepaid expenses and other current assets was primarily attributable to insurance, property taxes, and prepaid vendor expenses. The increase in inventory was primarily to build inventory safety stock levels. 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 primary drivers for the net decrease in accrued liabilities was primarily due to payments for field corrective actions, operating lease liabilities and distributor rebates as well as a decrease in deferred revenue offset partially by increases in accrued employee costs. The net changes in income taxes was a result of recording the current deferred provision and the timing of payments.
Current wording
Our cash provided by operations was $166.2 million in 2023. The changes in operating assets and liabilities included a $48.6 million decrease in accounts receivable and a $11.7 million decrease in prepaid expenses and other current assets. Offsetting these amounts was a $6.1 million increase in inventories, a $68.3 million decrease in accounts payable, a $24.7 million increase in other assets, a $14.5 million decrease in accrued liabilities, and $82.4 million in net changes in income taxes, including excess tax benefits and deferred income taxes. The decrease in accounts receivable was primarily due to the sale of accounts receivable as part of our accounts receivable purchase program with BMO (see Note 18: Accounts Receivable Purchase Program). The decrease in prepaid expenses and other current assets was primarily attributable to insurance, property taxes, and prepaid vendor expenses. The increase in inventory was primarily to build inventory safety stock levels. 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 primary drivers for the net decrease in accrued liabilities was primarily due to payments for field corrective actions, operating lease liabilities and distributor rebates as well as a decrease in deferred revenue offset partially by increases in accrued employee costs. The net changes in income taxes was a result of recording the current deferred provision and the timing of payments.
Previous wording
Our cash used in operations was $(62.1) million in 2022. The changes in operating assets and liabilities included a $201.1 million increase in inventories, a $21.3 million increase in other assets, a $55.8 million decrease in accrued liabilities, $66.7 million in net changes in income taxes, including excess tax benefits and deferred income taxes, and a $19.2 million increase in accounts receivable. Offsetting these amounts was a $22.9 million decrease in prepaid expenses and other current assets and a $37.5 million increase in accounts payable. The increase in inventory was primarily to build inventory safety stock levels. The increase in other assets was due to the purchase of spare parts. The primary drivers for the net decrease in accrued liabilities was primarily due to the payout of annual bonuses and decrease in deferred revenue. The net changes in income taxes was a result of recording the current deferred provision and the timing of payments. The increase in accounts receivable was primarily due to the net impact of collection efforts and the timing of revenue. The net decrease in prepaid expenses and other current assets was primarily due to a decrease in deferred costs mostly offset by capitalized debt issuance costs allocated to the revolving credit facility. The increase in accounts payable was due to the timing of payments.
Current wording
Our cash used by operations was $(62.1) million in 2022. The changes in operating assets and liabilities included a $201.1 million increase in inventories, a $21.3 million increase in other assets, a $55.8 million decrease in accrued liabilities, $66.7 million in net changes in income taxes, including excess tax benefits and deferred income taxes, and a $19.2 million increase in accounts receivable. Offsetting these amounts was a $22.9 million decrease in prepaid expenses and other current assets and a $37.5 million increase in accounts payable. The increase in inventory was primarily to build inventory safety stock levels. The increase in other assets was due to the purchase of spare parts. The primary drivers for the net decrease in accrued liabilities was primarily due to the payout of annual bonuses and decrease in deferred revenue. The net changes in income taxes was a result of recording the current deferred provision and the timing of payments. The increase in accounts receivable was primarily due to the net impact of collection efforts and the timing of revenue. The net decrease in prepaid expenses and other current assets was primarily due to a decrease in deferred costs mostly offset by capitalized debt issuance costs allocated to the revolving credit facility. The increase in accounts payable was due to the timing of payments.
Previous wording
(3)Our business acquisitions will vary from period to period based upon our current growth strategy and our ability to execute on desirable target companies. In 2022, we acquired Smiths Medical. The cash consideration for the transaction was $1.9 billion, which was financed with existing cash balances and borrowings under the Credit Agreement. Acquired cash was $78.8 million. In 2021, we acquired a small foreign infusion systems supplier for approximately $15.4 million.
Current wording
(2)Our business acquisitions will vary from period to period based upon our current growth strategy and our ability to execute on desirable target companies. In 2022, we acquired Smiths Medical. The cash consideration for the transaction was $1.9 billion, which was financed with existing cash balances and borrowings under the Credit Agreement. Acquired cash was $78.8 million.
Previous wording
(5)Our purchases of investment securities will vary from period to period based on current cash needs, planning for known future transactions and changes in our investment strategy. Our investment policy allows for the purchase of securities with final maturities in excess of one year. If cash is not needed for known future transactions our investment strategy takes advantage of the long-term securities with higher yields. Typically, our longer term securities have maturities up to three years.
Current wording
(3)Our purchases of investment securities will vary from period to period based on current cash needs, planning for known future transactions and changes in our investment strategy. Our investment policy allows for the purchase of securities with final maturities in excess of one year. If cash is not needed for known future transactions our investment strategy takes advantage of the long-term securities with higher yields. Typically, our longer term securities have maturities up to three years.
Previous wording
(6)Proceeds from the sale of our investment securities will vary based on the maturity dates of the investments. In 2022, proceeds from sale of investment securities includes $19.0 million received from a promissory note related to an acquired investment as part of the Smiths Medical acquisition.
Current wording
(4)Proceeds from the sale of our investment securities will vary based on the maturity dates of the investments. In 2022, proceeds from sale of investment securities includes $19.0 million received from a promissory note related to an acquired investment as part of the Smiths Medical acquisition.
Previous wording
(1) During 2022, we borrowed an aggregate of $1.7 billion under the Senior Secured Credit Facilities contained in the Credit Agreement to partially finance our acquisition of Smiths Medical (see Note 11: Long-Term Obligations to our accompanying consolidated financial statements for additional information). The proceeds are net of $37.8 million in payments of lender debt issuance costs.
Current wording
(1)During 2022, we borrowed an aggregate of $1.7 billion under the Senior Secured Credit Facilities contained in the Credit Agreement to partially finance our acquisition of Smiths Medical (see Note 13: Long-Term Obligations to our accompanying consolidated financial statements for additional information). The proceeds are net of $37.8 million in payments of lender debt issuance costs.
Previous wording
(5)During 2021, we paid $26.3 million in cash related to the settlement of the Pursuit contingent earn-out. Of the $26.3 million, the amount recorded as the acquisition date fair value, which is considered financing cash flows, was $17.3 million (see Note 8: Fair Value Measurements).
Current wording
(5) During the first quarter of 2024, we paid $3.4 million in cash related to the settlement of the Mediverse contingent earn-out. Of the $3.4 million, the amount recorded as the acquisition date fair value, which is considered financing cash flows, was $2.6 million (see Note 10: Fair Value Measurements).
Previous wording
(6)In 2023, our employees surrendered 59,377 shares of our common stock from vested restricted stock awards as consideration for approximately $9.4 million in minimum statutory withholding obligations paid on their behalf. In 2022, our employees surrendered 47,664 shares of our common stock from vested restricted stock awards as consideration for approximately $10.9 million in minimum statutory withholding obligations paid on their behalf. In 2021, our employees surrendered 40,350 shares of our common stock from vested restricted stock awards as consideration for approximately $8.3 million in minimum statutory withholding obligations paid on their behalf.
Current wording
(6)In 2024, our employees surrendered 114,787 shares of our common stock from vested restricted stock awards as consideration for approximately $12.0 million in minimum statutory withholding obligations paid on their behalf. In 2023, our employees surrendered 59,377 shares of our common stock from vested restricted stock awards as consideration for approximately $9.4 million in minimum statutory withholding obligations paid on their behalf. In 2022, our employees surrendered 47,664 shares of our common stock from vested restricted stock awards as consideration for approximately $10.9 million in minimum statutory withholding obligations paid on their behalf.
Previous wording
The chargeback reserve estimates change from period-to-period primarily based on changes in revenue from/and the inventory levels of distributors. Our judgments regarding the information used to calculate the chargeback reserve are consistent from period to period; however, on a regular basis, we evaluate the adequacy of the chargeback reserve to reassess and ensure that the variable consideration is appropriately constrained, and the likelihood of future revenue reversal is not probable. We use metrics including chargeback provision as a percentage of gross revenue, movements in inventory on hand at distributors,
Current wording
The chargeback reserve estimates change from period-to-period primarily based on changes in revenue from/and the inventory levels of distributors. Our judgments regarding the information used to calculate the chargeback reserve are consistent from period to period; however, on a regular basis, we evaluate the adequacy of the chargeback reserve to reassess and ensure that the variable consideration is appropriately constrained, and the likelihood of future revenue reversal is not probable. We use metrics including chargeback provision as a percentage of gross revenue, movements in inventory on hand at distributors, trends in accrued versus paid chargebacks and impacts from price changes and similar metrics.
Rearranged current paragraphs (4)
Current report — wording carried from elsewhere
Consolidated SG&A expenses increased in 2024, as compared to 2023, primarily due to increases of $11.3 million in compensation costs, $9.4 million in commissions, $5.6 million in stock based compensation and $5.2 million in dealer fees. The increases were partially offset by decreases of $8.8 million in depreciation and amortization. Compensation costs increased primarily due to an increase in cash incentive compensation and employee benefits. Commissions increased primarily due to increased sales performance in the current period measured against preset sales targets as compared to sales performance achieved against targets in the comparable prior year period. Stock based compensation primarily increased due to a change in the probability of meeting a certain earning potential related to a performance based equity award. Dealer fees increased due to an increase in revenues to distributors. Depreciation and amortization decreased in 2024 due to certain assets reaching the end of their useful lives and certain assets classified as held for sale during the fourth quarter.
Current report — wording carried from elsewhere
R&D expenses increased in 2024, as compared to 2023, primarily due to higher headcount and employment expense in support of ongoing R&D projects. R&D expenses generally include compensation and benefit expenses, consulting fees, production supplies, samples, travel costs, utilities and other miscellaneous administrative costs incurred in our ongoing R&D projects.
Current report — wording carried from elsewhere
In 2024, we incurred $40.2 million in strategic transaction and integration expenses primarily related to consulting expenses and employee costs incurred to integrate our Smiths Medical business acquired in 2022.
Current report — wording carried from elsewhere
We expect to fund these obligations with our existing cash and cash equivalents and cash generated from our future operations.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
R&D expenses increased in 2022, as compared to 2021, due to the acquisition of Smiths Medical.
Previous report — wording carried elsewhere
In 2022, the fair value revaluation of our contingent earn-outs resulted in a decrease in value of $32.1 million. This decrease was primarily related to the fair value revaluation of our Smiths Medical contingent earn-out liability.
Previous report — wording carried elsewhere
trends in accrued versus paid chargebacks and impacts from price changes and similar metrics.