Teleflex Incorporated — Q1 2021 Form 10-Q
Reporting period: Three months ended March 28, 2021; comparisons are to the three months ended March 29, 2020. Amounts below are in U.S. dollars unless noted.
Business context
Teleflex develops and sells medical technology products, principally single-use devices used in hospital and healthcare procedures. COVID-19 continued to weigh on demand for products tied to elective procedures, while demand for some respiratory and vascular-access products benefited from COVID-related treatment needs. The company reported that supply chains remained generally functional, though some delivery times lengthened and some products were backordered.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net revenues | $633.9 million | $630.6 million | Up 0.5%; acquired-business revenue and favorable foreign exchange were largely offset by lower existing-product volumes. |
| Gross profit / margin | $344.5 million / 54.3% | $333.6 million / 52.9% | Margin improved 140 basis points, primarily from cost initiatives and product mix. |
| Operating income from continuing operations | $103.4 million | $157.1 million | Down 34.2%; Q1 2020 included a favorable contingent-consideration revaluation, while Q1 2021 SG&A and restructuring charges were higher. |
| Net income | $74.9 million | $131.2 million | Down 42.9%. |
| Diluted EPS | $1.58 | $2.78 | Down 43.2%. |
| Effective tax rate | 14.2% | 7.8% | Both periods benefited significantly from share-based compensation tax benefits; the prior period also reflected a non-taxable contingent-consideration adjustment. |
| Operating cash flow, continuing operations | $110.8 million | $(11.5) million | Improved $122.3 million, primarily from lower contingent-consideration and payroll-related payments and higher receivables collections. |
| Capital expenditures | $19.3 million | $19.7 million | Net cash used in investing activities was $20.9 million. |
| Cash and cash equivalents | $324.6 million | $375.9 million at Dec. 31, 2020 | Down $51.2 million during the quarter. |
| Total borrowings | $2,379.2 million | $2,478.4 million at Dec. 31, 2020 | Includes $83.8 million current and $2,295.4 million long-term borrowings; the company repaid $100 million of debt during the quarter. |
Current assets were $1.379 billion and current liabilities were $508.1 million at March 28, 2021. The company said cash, operating cash flow and revolver availability should fund operating needs, capital spending and debt obligations for the next 12 months and foreseeable future; the filing does not state the amount of available revolver capacity here.
Material changes and segment performance
- Revenue was nearly flat overall, but performance differed by geography: Americas revenue rose 4.9%, EMEA fell 9.5%, Asia rose 19.9%, and OEM fell 15.6%.
- Segment operating profit declined 28.2% to $134.1 million. Americas profit fell 40.7%, chiefly reflecting the prior-year contingent-consideration benefit; EMEA and Asia profit increased, while OEM profit declined.
- By product category, vascular access and anesthesia revenue increased; interventional, interventional urology, OEM and “Other” declined. The filing attributes much of the weakness to pandemic-related procedure and demand impacts.
- SG&A increased to $203.1 million from $147.8 million. The comparison reflects a prior-year benefit from lower estimated contingent consideration and expenses from acquired businesses, principally Z-Medica, partly offset by lower pandemic-related selling costs.
Outlook, risks and unusual items
- Restructuring: The 2021 plan is expected to incur $7–$9 million of restructuring charges plus $3–$4 million of related charges, with substantial completion by year-end 2021. Teleflex expects annual pretax savings of $13–$16 million once fully implemented. Estimates are subject to change.
- COVID-19: Management expected near-term negative effects on revenue and operations to continue, while emphasizing uncertainty about the pandemic’s duration, elective-procedure recovery and possible regional outbreaks or new strains.
- Debt redemption: After quarter-end, Teleflex gave notice to redeem $400 million of 4.875% notes due 2026 on June 1, 2021, at 102.438% of principal plus accrued interest. Redemption is conditional on sufficient revolver borrowing; management anticipated a $13 million second-quarter debt-extinguishment loss.
- Legal and regulatory exposure: Former Essential Medical shareholders seek $66.9 million plus interest in a dispute over milestone payments; Teleflex says it believes the claim lacks merit and intends to defend itself. The DOJ is investigating NeoTract, including under the civil False Claims Act; the company cannot reasonably estimate any potential liability or penalty. Management cautions that an unfavorable outcome could be material.
- Other contingencies: Environmental liabilities accrued were $6.6 million in total. Management notes that actual remediation costs could exceed accruals. Tax examinations in Ireland and Germany could also affect recorded tax liabilities.
- The company reported compliance with debt covenants at quarter-end, effective disclosure controls, and no significant quarterly changes to the risk factors in its 2020 Form 10-K. No specific consolidated revenue or earnings guidance is provided in the filing.
Important facts for investors to verify
- Whether elective-procedure volumes recover and how COVID-related demand shifts affect product categories and regions.
- How much of revenue growth reflects underlying volume and pricing versus acquisitions and foreign-exchange movements.
- Whether the restructuring savings are achieved on schedule and within the stated cost estimates.
- Availability and cost of revolver funding for the planned 2026-note redemption, and the resulting debt and interest profile.
- Developments in the Essential Medical milestone lawsuit and DOJ investigation, including any change in the company’s ability to estimate exposure.