Teleflex Incorporated — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 26, 2022. Teleflex is a global medical technology company focused primarily on single-use medical devices sold to hospitals and healthcare providers.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $704.5 million | $713.5 million | $1,346.3 million | $1,347.4 million |
| Gross profit / margin | $388.8 million / 55.2% | $397.6 million / 55.7% | $735.1 million / 54.6% | $742.1 million / 55.1% |
| Operating income | $135.2 million | $128.6 million | $238.7 million | $232.1 million |
| Net income | $105.5 million | $83.2 million | $182.7 million | $158.1 million |
| Diluted EPS | $2.23 | $1.76 | $3.86 | $3.33 |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $101.9 million | $265.1 million |
- Quarterly revenue fell 1.3%; management attributed the decline chiefly to $24.6 million of unfavorable currency movements and lower existing-product volumes, partly offset by $35.4 million of new-product sales growth.
- Quarterly gross margin declined 50 basis points, primarily from inflation in logistics, distribution, raw materials and labor, partly offset by pricing.
- Quarterly operating income increased despite lower revenue, helped by lower SG&A and restructuring costs and reduced interest expense. Prior-year Q2 included a $13.0 million debt-extinguishment loss.
- At June 26, cash was $308.1 million; current borrowings were $110.0 million and long-term borrowings were $1,606.0 million. Total borrowings were approximately $1.716 billion. Total current assets were $1,385.3 million versus current liabilities of $610.4 million.
- Six-month cash from operations decreased $163.2 million year over year, mainly due to higher tax payments and unfavorable working-capital changes, including increased inventory purchases and payroll-related payments. Investing used $44.6 million and financing used $174.8 million; cash declined $137.0 million to $308.1 million.
Business changes and segment trends
- Q2 revenue grew 14.8% in OEM, while Americas declined 0.5%, EMEA declined 7.6%, and Asia declined 5.0%. For the six-month period, OEM grew 11.5%; EMEA fell 5.5%, Americas was nearly flat, and Asia rose 1.0%.
- EMEA operating profit fell 45.4% in Q2 and 52.9% for the first half, reflecting EU Medical Device Regulation costs and unfavorable currency. Americas and OEM operating profit increased in Q2.
- New products added $35.4 million to Q2 sales, while existing-product volumes decreased $21.5 million. Six-month new-product growth was $54.0 million against a $19.0 million decrease in existing-product volumes.
- On June 13, Teleflex acquired a catheter-design business for $22.8 million upfront, with potential additional payments of up to $26.2 million tied to commercial and revenue goals.
- The Respiratory divestiture’s first phase closed in 2021. A second phase involving additional manufacturing assets was expected before the end of 2023; Teleflex continued providing transition services to Medline.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management said operating cash flow, available cash and revolver borrowings should fund operating needs, capital expenditures and debt obligations for the next 12 months and foreseeable future.
- Management reported continuing COVID-related effects, healthcare staffing shortages and lower elective-procedure demand in some product lines, alongside supply constraints, logistics challenges, backorders, inflation and foreign-exchange volatility. It said impacts could worsen if COVID becomes more prevalent or geopolitical conflicts escalate; duration and magnitude were not predictable.
- Ongoing footprint plans carry estimated aggregate pre-tax restructuring and related charges of $54–$60 million for the 2019 plan and $110–$128 million for the 2018 plan. Expected annual pre-tax savings when fully implemented are $20–$22 million and $25–$30 million, respectively.
- A DOJ civil False Claims Act investigation involving NeoTract remains unresolved; Teleflex said it cannot reasonably estimate potential liability or penalties. For a Chinese tariff matter, it had paid requested increased tariffs but had not received confirmation of closure; possible penalties were estimated at $3–$20 million, plus potential interest.
- Environmental liabilities accrued were $6.6 million. Teleflex also disclosed routine litigation and tax examinations; it stated that ordinary legal matters were not expected to be material based on current information, while noting unfavorable developments could have a material effect.
- Teleflex said it was in compliance with the 2027 and 2028 Notes covenants. The filing reported no significant change in risk factors from the 2021 Form 10-K.
Important facts for investors to verify
- Whether new-product sales and pricing can offset foreign-exchange headwinds and lower existing-product volumes.
- Whether gross-margin pressure and working-capital use, especially inventory growth, ease and operating cash flow recovers.
- Whether EMEA profitability improves as EU MDR-related costs and currency pressures evolve.
- Progress, costs and realized savings from restructuring plans, and completion and consideration for the Respiratory divestiture’s second phase.
- Developments in the NeoTract DOJ investigation, Chinese tariff matter, and tax examinations, including any change in potential exposure.
- Debt repayment, liquidity and covenant compliance, particularly as cash balances and operating cash flow change.