Teleflex Incorporated — Q1 2015 Form 10-Q
Business context and reporting period. Teleflex is a global medical-technology company supplying medical devices used mainly in critical-care and surgical procedures. This unaudited report covers the three months ended March 29, 2015, compared with the three months ended March 30, 2014.
Key financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net revenues | $429.4 million | $438.5 million | Down 2.1% |
| Gross profit / margin | $222.6 million / 51.8% | $221.2 million / 50.4% | Margin up 1.4 percentage points |
| Continuing operations income before interest and taxes | $65.6 million | $59.0 million | Up 11.2% |
| Net income attributable to common shareholders | $38.4 million | $35.0 million | Up 9.7% |
| Diluted EPS | $0.81 | $0.76 | Up $0.05 |
| Operating cash flow, continuing operations | $42.4 million | $41.9 million | Up $0.5 million |
- Foreign-exchange movements reduced revenue by $31.8 million and gross profit by $18.4 million. Revenue growth from volume, new products, pricing and acquisitions partly offset the currency impact.
- SG&A was $139.7 million, or 32.5% of revenue, versus $140.3 million, or 32.0%. R&D was $12.9 million versus $14.1 million. Restructuring charges were $4.4 million versus $7.8 million.
- Cash and cash equivalents were $308.8 million at March 29, 2015. Current assets were $1.071 billion and current liabilities $664.4 million.
- Borrowings totaled $1.135 billion on a principal basis; reported net debt was $825.8 million, up from $801.4 million at year-end. Net debt to total capital rose to 31% from 30%. Interest expense increased to $17.2 million from $15.4 million; the average interest rate on debt was 4.5% versus 3.5%.
- Capital expenditures were $14.4 million. Investing cash outflow from continuing operations was $21.8 million; financing cash inflow was $11.6 million. Cash ended at $308.8 million, after a $25.4 million unfavorable foreign-exchange effect.
Material changes and operating trends
- Reported revenue declined primarily because of currency, especially in EMEA. EMEA revenue fell 14.0% to $129.3 million; Asia revenue fell 2.2% to $48.5 million. U.S. revenue increased to $231.2 million from $216.5 million.
- Segment operating profit improved in Vascular North America, Anesthesia/Respiratory North America, Surgical North America and OEM. Asia operating profit fell 36.5%, while EMEA operating profit declined 2.0%.
- Teleflex acquired Korean distributor Human Medics in January for consideration with a fair value of $8.9 million. Acquisitions made in 2014 and 2015 contributed $3.6 million in incremental Q1 revenue.
- Comprehensive loss attributable to common shareholders was $42.8 million, compared with comprehensive income of $39.7 million a year earlier, largely reflecting an $83.1 million after-tax foreign-currency translation loss.
Outlook, risks and unusual items
- No company-wide revenue or earnings guidance is stated in the supplied filing text. Management said cash from operations, available cash, the revolving credit facility and receivables securitization program should fund operating needs, capital expenditures and debt obligations for the next 12 months and the foreseeable future.
- New 2015 restructuring programs are expected to incur $6–$7 million in pretax charges and generate annual pretax savings of $12–$14 million when fully implemented. The separate 2014 manufacturing-footprint plan is expected to cost $37–$44 million in total and is expected to be substantially completed by the end of 2017.
- After quarter-end, Teleflex announced redemption of its $250 million 6.875% notes due 2019 on June 1, 2015, at 103.438% of principal plus accrued interest. The redemption is conditional on sufficient revolving-credit borrowing being available.
- The $399.8 million principal amount of 3.875% convertible notes due 2017 was classified as current because the stock-price conversion condition was met. Management said it believed it could fund principal repayment with cash and credit-facility access, but doing so could adversely affect liquidity and results.
- Credit risk remains elevated for publicly funded hospitals in Greece, Italy, Spain and Portugal: net receivables were $47.1 million, with average days outstanding of 230. Management warned that deterioration could lead to further delays, lower purchases or credit losses.
- Environmental liabilities accrued were $7.6 million. Litigation accruals were $5.0 million. A discontinued-business product-liability case included a $23.0 million punitive-damages verdict; post-trial motions were pending, and the company said amounts above $10.0 million were expected to be covered by insurance.
- Teleflex retained $41.0 million of in-process R&D assets associated with Semprus technology; the filing notes commercialization challenges and the possibility of future material impairment. Following an April 1 segment realignment, the company planned a second-quarter goodwill impairment analysis for affected reporting units.
Most important facts for investors to verify
- How much of subsequent revenue and margin performance reflects currency, underlying volume, pricing and acquired businesses.
- Whether the announced note redemption was completed as planned, its financing source and resulting interest and liquidity effects.
- Progress, cash costs and realized savings from restructuring programs, including whether estimated savings are achieved.
- Collection trends and allowance adequacy for European public-healthcare receivables, plus developments in the Louisiana litigation and other contingencies.
- Results of the planned goodwill impairment analysis and the commercial and regulatory outlook for Semprus-related assets.