Revenue (Notes)

6 Months Ended

Jun. 30, 2024

Revenue from Contract with Customer [Abstract]

Revenue from Contract with Customer [Text Block]

Revenue

Revenue Recognition

    Our business units are Consumables, Infusion Systems and Vital Care. The vast majority of our sales of products within these business units 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. Our software license renewals are considered to be transferred to a customer at a point in time at the start of each renewal period, therefore revenue is recognized at that time.

    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 include variable consideration in net sales only to the extent that a significant reversal in revenue is not probable when the uncertainty is resolved. Our variable consideration includes distributor chargebacks, product returns and end customer rebates with distributor chargebacks representing the majority and subject to the greatest judgment.

Chargebacks are the difference between the prices we charge our distribution customers at the time they purchase our products and the contracted prices we have with the end customer, most often in the U.S. and Canada. When a distributor sells our products to one of our contracted end customers, the distributor typically will claim a refund from us for the chargeback amount which we process as a credit to the distributor.

In estimating the transaction price to present as net revenue for sales to distributors, we must estimate the expected chargeback amount that we will refund to the distributor after they sell our product to a contracted end customer. Determining the appropriate chargeback reserve requires judgment around the following assumptions:

(i) The estimated chargeback amount (the difference between the price we invoice the distributor and the contractually agreed price with specified end customers); and

(ii) The estimated period of time between the sale to the distributor and the receipt of a chargeback claim.

For purposes of estimating the expected chargeback amount, we utilize actual recent historical chargebacks paid to the specific distributor for similar products as determined at either a product or product-family level. While individual chargeback rates can vary significantly depending on the product and contracted prices with distributors and end customers, our chargeback reserve estimate is not overly sensitive to those individual price changes due to the long-term nature of our distributor and end customer contracts as well as consistency in purchasing patterns. Additionally, the use of the actual chargeback history to calculate an average chargeback rate has historically resulted in a reasonable estimation of overall current contract rates.

For purposes of estimating the period of time between the sale to the distributor and the receipt of a chargeback claim, we utilize several sources of information including actual inventory quantities of our products on hand at distributors. This inventory on hand information is received from the distributors or, when specific quantities are not provided, estimated by using the targeted days of inventory on hand for distributors. Historical experience of actual chargebacks paid has indicated that use of this information has reasonable predictive value of outstanding chargebacks and accounts for the variability of purchasing

patterns and expected timing and volume of sales to end customers. The value of the chargeback reserve generally represents approximately two months of obligation due to the timing difference between the initial sale to a distributor and the processing of a chargeback claim after the product is sold to the end customer.

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.

The chargeback reserve reflects a reasonable estimate of the amount of consideration using the expected value method and is recorded as a reduction of accounts receivable, net on the consolidated balance sheets.

    We also offer certain volume-based rebates to both our distribution and end customers, which is recorded 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, including current contractual requirements, our historical experience with each customer and forecasted customer purchasing patterns, to estimate the most likely rebate amount.

We also warrant 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 stand-alone selling price, and recognize revenue over the period the warranty service is provided.

Arrangements with Multiple Performance Obligations

We also enter into arrangements which include multiple performance obligations. The most significant judgments related to these arrangements include:

•Identifying the various performance obligations of these arrangements.

•Estimating the relative standalone selling price of each performance obligation, typically using a directly observable method or calculated on a cost plus margin basis method.

Revenue Disaggregated

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

	Three months ended June 30,				Six months ended June 30,
Product line	2024		2023		2024		2023
Consumables	$	261,816	236,976		505,855		473,098
Infusion Systems	163,638		153,142		320,976		314,855
Vital Care	171,001		159,192		336,279		330,006
Total Revenues	$	596,455	$	549,310	$	1,163,110	$	1,117,959

For the three and six months ended June 30, 2024 and 2023, net sales to Medline made up approximately 17% and 15% of total revenues, respectively.

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

	Three months ended June 30,				Six months ended June 30,
Geography	2024		2023		2024		2023
United States	$	383,140	$	347,866	$	749,295	$	707,053
Europe, the Middle East and Africa	95,310		89,994		193,699		188,980
APAC	61,224		60,031		113,077		118,655
Other Foreign	56,781		51,419		107,039		103,271
Total Revenues	$	596,455	$	549,310	$	1,163,110	$	1,117,959

Contract Balances

    The following table presents the changes in our contract balances for the six months ended June 30, 2024 and 2023 (in thousands):

	Contract Liabilities
Beginning balance, January 1, 2024	$	(42,177)
Equipment revenue recognized	16,951
Equipment revenue deferred due to implementation	(20,593)
Software revenue recognized	10,232
Software revenue deferred due to implementation	(10,427)
Government grant income recognized(1)	1,029
Government grant income deferred	—
Other deferred revenue	(423)
Other deferred revenue recognized	1,602
Ending balance, June 30, 2024	$	(43,806)
Beginning balance, January 1, 2023	$	(45,866)
Equipment revenue recognized	16,793
Equipment revenue deferred due to implementation	(16,625)
Software revenue recognized	9,041
Software revenue deferred due to implementation	(8,875)
Government grant income deferred	(944)
Government grant income recognized(1)	647
Other deferred revenue	(688)
Other deferred revenue recognized	3,514
Ending balance, June 30, 2023	$	(43,003)

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(1) The government grant income deferred is amortized over the life of the related depreciable asset as a reduction to depreciation expense.

Our contract liabilities are included in accrued liabilities or other long-term liabilities in our condensed consolidated balance sheet based on the expected timing of revenue recognition.    

As of June 30, 2024, revenue from remaining performance obligations is as follows:

	Recognition Timing
(in thousands)	< 12 Months		> 12 Months
Equipment deferred revenue	$	(21,226)	$	(937)
Software deferred revenue	(9,783)		(489)
Government grant deferred income(1)	(2,065)		(8,384)
Other deferred revenue(2)	(717)		(205)
Total	$	(33,791)	$	(10,015)

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(1) The government grant deferred income is amortized over the life of the related depreciable asset as a reduction to depreciation expense.

(2) Other deferred revenue includes pump development programs, purchased training and extended warranty.