The following information should be read in conjunction with the condensed consolidated financial statements and accompanying notes in this Form 10-Q, as well as the audited consolidated financial statements and related notes for the fiscal year endedDecember 31, 2019 included in our Annual Report on Form 10-K.
When used in this report, the terms "we," "us," and "our" refer to
Business Overview
We are one of the world's leading pure-play infusion therapy companies with global operations and a wide-ranging product portfolio that includes IV solutions, IV smart pumps with pain management and safety software technology, dedicated and non-dedicated IV sets and needlefree connectors designed to help meet clinical, safety and workflow goals. In addition, we manufacture automated pharmacy IV compounding systems with workflow technology, closed systems transfer devices for preparing and administering hazardous IV drugs, and cardiac monitoring systems for critically ill patients. Our primary customers are acute care hospitals, wholesalers, ambulatory clinics and alternate site facilities, such as clinics, home health care providers and long-term care facilities. We sell our products in more than 90 countries throughout the world. We categorize our products into four main product lines: Infusion Consumables, Infusion Systems, IV Solutions and Critical Care. We have presented our financial results in accordance with these product lines, with our primary products in each line listed below.
Operations Overview
COVID-19 Update
In late 2019, a novel coronavirus ("COVID-19") was first reported inWuhan, China , and onMarch 11, 2020 , theWorld Health Organization characterized COVID-19 as a global pandemic. The outbreak has spread globally and has led governments and other authorities around the world, including federal, state and local authorities inthe United States and elsewhere, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel restrictions, border closings, business closures, quarantines and shelter-in-place orders. Additionally, the COVID-19 pandemic and the measures taken to limit its spread have negatively impacted the economy across many industries. As such, COVID-19 pandemic may pose significant risks to our business. We operate globally and the COVID-19 pandemic and its adverse effects have impacted most of the locations where we, our customers and our suppliers conduct business.
As a result of the COVID-19 pandemic, our non-essential offices and facilities, including our corporate headquarters remain closed to non-essential employees. With a large number of employees now working remotely there is a potential loss of productivity, which could negatively impact our future results.
Our manufacturing, distribution, and pump service facilities are operating under our business continuity plan due to the need for our critical healthcare products, however, we have taken certain precautionary measures including the following to maximize the safety of our employees and to mitigate disruption to our operations:
•implemented physical distancing measures;
27 -------------------------------------------------------------------------------- Table of Contents •enhanced hygiene protocols and increased frequency of cleaning procedures; •acquired additional personal protective equipment; •developed contingency plans and protocols to assess employee illness; •helped employees with childcare issues due to school and daycare closures; •implemented COVID-19 temperature screening for employees entering our manufacturing and distribution facilities; and •initiated a visitor pre-entry questionnaire to limit potential exposure in our facilities. During the first quarter endedMarch 31, 2020 , we saw increased demand for our products as a result of customer stocking, particularly within our IV Solutions and Infusion Systems product lines. We also experienced foreign exchange losses related to the strengthening of theU.S. dollar relative to certain foreign currencies as general economic conditions declined. DuringMarch 2020 , as a precautionary measure in response to market uncertainty driven by COVID-19, we preemptively increased our liquidity by borrowing$150.0 million under our Senior Secured Revolving Credit Facility ("Credit Facility"). During the second quarter endedJune 30, 2020 , the COVID-19 pandemic continued to have an impact on our results of operations. We saw a meaningful decline in demand for our dedicated infusion sets in our Infusion Consumables and IV Solutions product portfolios, although the impact on our results of operations was partially offset by an increase in the demand for our infusion pumps. The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be fully predicted at this time, as such, the impact of the pandemic on our future results of operations and overall financial performance remain uncertain and cannot as yet be quantified. However, our future results could be impacted by the following: •lost revenue or additional costs associated with either disruptions at our production and distribution facilities or interruptions in our supply chain; •fluctuations in demand from customers as a result of an increase in COVID-19 patient admissions in hospitals offset by the decline in non-COVID-19 patient admissions; •healthcare customers that defer the more profitable elective procedures may experience financial difficulties and may be unable to pay within payment terms for the products they purchased; •potential lower demand in future periods due to over-purchasing of our products due to the COVID-19 pandemic; •reduced revenue due to delays in implementation of our infusion systems and oncology products at hospital locations due to restricted access; •higher operating costs related to additional compensation paid to our manufacturing and distribution facility workers; •volatility in revenue and income due to foreign currency fluctuations; •lower travel and entertainment costs due to global travel restrictions; •lower income due to a delay in cost savings projects as a result of the travel and social distancing requirements of COVID-19; and •lower interest income on cash balances due to recent reductions in interest rates along with higher interest expense from borrowing$150.0 million under our Credit Facility.
See Risk Factors for further information regarding the actual and potential future impacts of the COVID-19 pandemic on us, our operations and our business.
Infusion Consumables
Infusion therapy sets, used in hospitals and ambulatory clinics, consist of a tube running from a bottle or plastic bag containing a solution to a catheter inserted in a patient's vein, that may or may not be used with an IV pump. Our primary Infusion Consumable products are: •Clave™ needlefree products, including the MicroClave, MicroClave Clear, and NanoClave™ brand of connectors, accessories, extension and administration sets used for the administration of IV fluids and medications and the Neutron catheter patency device, used to help maintain patency of central venous catheters; 28
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Table of Contents •SwabCap disinfecting cap, used to protect and disinfect any needlefree connector, including competitive brands of connectors;
•TegoTM hemodialysis connector used to cap and protect hemodialysis central venous catheter hubs;
•NovaCath™ and SuperCath™ peripheral IV catheters (PIV); and
•ClearGuard HD antimicrobial barrier caps for hemodialysis catheters.
Closed System Transfer Devices ("CSTD") and hazardous drug compounding systems are used to prepare and deliver hazardous IV medications such as those used in chemotherapy, which, if released, can have harmful effects on the healthcare worker and environment. Our products are:
•ChemoLockTM CSTD which utilizes a proprietary needlefree connection method, is used for the preparation and administration of hazardous drugs. ChemoLock is used to limit the escape of hazardous drug or vapor concentrations, block the transfer of environmental contaminants into the system, and eliminates the risk of needlestick injury; •ChemoClaveTM, an ISO Connection standard and universally compatible CSTD used for the preparation and administration of hazardous drugs. ChemoClave utilizes standard ISO luer locking connections, making it compatible with all brands of needlefree connectors and pump delivery systems. ChemoClave also is used to limit the escape of hazardous drug or vapor concentrations, block the transfer of environmental contaminants into the system, and eliminate the risk of needlestick injury; and •DianaTM hazardous drug compounding system, an automated sterile compounding system that incorporates ChemoClave and ChemoLock CSTD consumables and IV workflow technology for the accurate, safe, and efficient preparation of hazardous drugs. It is a user-controlled automated system that provides repeatable accuracy of drug mixes and minimizes clinician exposure to hazardous drugs while helping to maintain the sterility of the drugs being mixed. The preparation of hazardous drugs typically takes place in a pharmacy where drugs are removed from vials and prepared for delivery to a patient. Those prepared drugs are then transferred to a nursing unit where the chemotherapy is administered via an infusion pump set to a patient. Components of the ChemoClave and ChemoLock product lines are used both in pharmacies and on the nursing floors for the preparation and administration of hazardous drugs.
Infusion Systems
We offer a wide range of infusion pumps, dedicated IV sets and software. Our primary Infusion System products are dedicated IV sets and the following:
Infusion Pump Hardware:
•Plum 360™: The Plum 360™ infusion pump is an ICU Medical MedNet™ ready large volume infusion pump with an extensive drug library and wireless capability. Plum 360 was named the 2018, 2019 and 2020 Best in KLAS winner as top-performing IV smart pump and is the first medical device to be awarded UL Cybersecurity Assurance Program Certification; and
•LifeCare PCA™: The LifeCare PCA infusion pump is an ICU Medical MedNet™ ready patient-controlled analgesia pump ("PCA"), providing complete IV-EHR interoperability since 2016.
•ICU Medical MedNet™: ICU Medical MedNet is an enterprise-class medication management platform for any sized healthcare system that can help reduce medication errors, improve quality of care, streamline workflows and maximize revenue capture. ICU Medical MedNet connects our industry-leading smart pumps to a hospital's Electronic Health Records ("EHR"), asset tracking systems, and alarm notification platforms with the largest array of integration partners. 29
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Professional Services:
•In addition to the products above, our teams of clinical, information technology, and professional services experts work with customers to develop and deliver safe and efficient infusion systems, providing customized and personalized configuration, implementation, and data analytics services to complement our infusion hardware and software.
IV Solutions
We provide a broad portfolio of IV solutions to meet our customers' clinical needs, providing a consistent supply of IV solutions, irrigation, and nutritionals to help provide safe and effective patient care. Our primary IV Solutions products are:
IV Therapy and Diluents:
•Including Sodium Chloride, Dextrose, Balanced Electrolyte Solutions, Lactated Ringer's, Ringer's, Mannitol, Sodium Chloride/Dextrose and Sterile Water.
Irrigation:
•Including Sodium Chloride Irrigation, Sterile Water Irrigation, Physiologic Solutions, Ringer's Irrigation, Ringer's Irrigation, Acetic Acid Irrigation, Glycine Irrigation, Sorbitol-Mannitol Irrigation, Flexible Containers and Pour Bottle Options. Critical Care Our Critical Care products help clinicians get accurate real-time access to patients' hemodynamic and cardiac status with an extensive portfolio of monitoring systems and advanced sensors & catheters. Measurements provided by our systems help clinicians determine how well the heart is pumping blood and how efficiently oxygen from the blood is being used by the tissues. Our primary Critical Care products are: •Cogent™ 2-in-1 hemodynamic monitoring system; •CardioFlo™ hemodynamic monitoring system; •TDQ™ and OptiQ™ cardiac output monitoring catheters; •TriOxTM venous oximetry catheters; •Transpac™ blood pressure transducers; and •SafeSet™ closed blood sampling and conservation system.
The following table summarizes our total worldwide revenue by domestic and international markets by amount and as a percentage of total revenue (in millions, except percentages):
Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 $ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue Domestic$ 208.2 69 %$ 227.7 73 %$ 438.4 69 %$ 474.9 74 % International 95.2 31 % 84.6 27 % 193.6 31 % 168.3 26 % Total Revenue$ 303.4 100 %$ 312.3 100 %$ 632.0 100 %$ 643.2 100 %
The following table sets forth, for the periods indicated, total revenue by product line as a percentage of total revenue:
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Table of Contents Three months ended Six months ended June 30, June 30, Product line 2020 2019 2020 2019 Infusion Consumables 37 % 38 % 37 % 37 % Infusion Systems 30 % 26 % 28 % 26 % IV Solutions 29 % 33 % 31 % 33 % Critical Care 4 % 3 % 4 % 4 % 100 % 100 % 100 % 100 % We manage our product distribution in theU.S. through a network of three owned and one leased distribution facilities, as well as, through direct channels, which include independent distributors and the end users of our products, and as original equipment manufacturer suppliers. Most of our independent distributors handle the full line of our products. Internationally, we manage distribution utilizing international regional hubs and through independent distributors. In theU.S. a substantial amount of our products are sold to group purchasing organization member hospitals. We believe that as healthcare providers continue to either consolidate or join major buying organizations, the success of our products will depend, in part, on our ability, either independently or through strategic relationships to secure long-term contracts with large healthcare providers and major buying organizations. Although we believe that we are not dependent on any single distributor, large healthcare provider or major buying organization for distribution of our products, the loss of a strategic relationship with any one of these organizations or a decline in the demand for our products could have a material adverse effect on our operating results. We believe that achievement of our growth objectives worldwide will require increased efforts by us in sales and marketing and product acquisition and development; however, there is no assurance that we will be successful in implementing our growth strategy. Product development or acquisition efforts may not succeed, and even if we do develop or acquire additional products, there is no assurance that we will achieve profitable sales of such products. 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.
Seasonality/Quarterly Results
There are no significant seasonal aspects to our business. We may experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers, which may be driven more by production scheduling and their inventory levels, rather than by seasonality. Our expenses often do not fluctuate in the same manner as net sales, which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue.
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