Teleflex Incorporated — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 26, 2021; comparisons are with the quarter ended September 27, 2020. Year-to-date figures cover nine months. Teleflex is a global medical technology company focused primarily on single-use medical devices used in critical care and surgical procedures.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenues | $700.3 | $628.3 | $2,047.6 | $1,826.0 |
| Gross profit / margin | $387.8 / 55.4% | $329.3 / 52.4% | $1,129.9 / 55.2% | $941.3 / 51.6% |
| Income from continuing operations | $199.5 | $116.6 | $357.7 | $259.2 |
| Net income | $199.2 | $116.6 | $357.3 | $259.2 |
| Diluted EPS | $4.20 | $2.46 | $7.53 | $5.48 |
| Operating cash flow, continuing operations | Not stated for quarter | Not stated for quarter | $450.5 | $241.5 |
- Q3 revenue increased 11.5%; nine-month revenue increased 12.1%. Management attributed growth to recovery in existing-product volumes versus pandemic-affected prior-year periods, acquisitions—primarily Z-Medica—new products, and favorable currency effects.
- Q3 gross margin expanded 300 basis points; nine-month margin expanded 360 basis points. Management cited cost-improvement initiatives, favorable product mix and higher volumes; increased logistics and distribution costs partly offset Q3 gains.
- Q3 SG&A was $205.2 million, or 29.3% of revenue, versus $171.7 million, or 27.3%. Nine-month SG&A was $632.5 million, or 30.9%, versus $510.7 million, or 28.0%. R&D was $31.8 million for Q3 and $95.0 million year to date.
- Reported earnings included a $91.2 million gain on the respiratory-business sale in Q3 and year to date. The filing does not provide a directly comparable adjusted earnings figure excluding this gain.
- Q3 segment revenue rose across all reported segments: Americas 11.3%, EMEA 6.1%, Asia 9.9%, and OEM 29.7%. Americas segment operating profit declined 7.6% to $112.5 million; Asia profit increased 172.7% to $27.5 million. Segment profit comparisons were affected by prior-year contingent-consideration benefits and, in Asia, the reversal of a China tariff-related liability.
Cash, debt and liquidity
- At September 26, 2021, cash and cash equivalents were $481.2 million, current assets $1,541.8 million and current liabilities $562.2 million.
- Borrowings totaled $2.064 billion before unamortized issuance costs, including $101.3 million current and $1,948.7 million long-term on the balance sheet. Cash was therefore below gross borrowings; the filing does not state a net-debt measure.
- Nine-month operating cash flow from continuing operations was $450.5 million, up $209.0 million. Capital expenditures were $52.1 million; operating cash flow less those expenditures was approximately $398.4 million.
- Investing activities provided $167.7 million, including $225.9 million of proceeds from sale of business and assets. Financing activities used $500.4 million, including a $434.0 million net reduction in borrowings, $47.7 million in dividends and $31.4 million in contingent-consideration payments.
- Teleflex redeemed $400 million of 4.875% notes due 2026 in June and recorded a $13.0 million extinguishment loss. It repaid $259 million on its revolving facility during Q3, primarily using respiratory-sale proceeds. Management said available cash, operating cash flows and revolving-credit availability should fund requirements and debt obligations for the next 12 months and foreseeable future. The company reported compliance with applicable note covenants.
Material changes, outlook and risks
- Teleflex completed the initial phase of its sale of certain respiratory product lines to Medline on June 28, receiving $259 million. The transaction generated the $91.2 million reported gain; $33.8 million of proceeds was attributed to services under the manufacturing and supply transition agreement and will be recognized as revenue as services are performed. A further $15 million is contingent on transferring additional manufacturing assets, expected before the end of 2023.
- The respiratory divestiture restructuring is expected to incur $24 million to $30 million of charges and $22 million to $28 million of capital expenditures, mainly in 2022–2023. Separately, the 2021 restructuring plan is expected to incur $7 million to $9 million in restructuring charges and $3 million to $4 million in related charges; management expects annual pretax savings of $13 million to $16 million when fully implemented.
- No explicit full-year revenue or EPS guidance is stated in the filing. Management described COVID-19 impacts as difficult to predict, citing potential procedure-volume changes, supply-chain constraints, manufacturing inefficiencies and delivery delays. Logistics and distribution costs had also increased.
- CMS proposed 2022 UroLift reimbursement rates 19%–21% below 2021 for physician-office procedures and 3% higher for hospital outpatient or ambulatory surgical center procedures. Teleflex was advocating for higher office-setting reimbursement; management warned adoption of the proposed office rates could adversely affect UroLift sales to office-based urologists.
- Notable contingencies include a DOJ civil False Claims Act investigation involving NeoTract, for which the company said it could not estimate potential liability or predict the outcome; environmental remediation liabilities; and possible future Chinese tariff penalties or interest despite payment of the increased tariffs. Management stated ordinary-course litigation was not expected to be material, while noting an unfavorable outcome in certain matters could be adverse.
- The filing identifies pandemic-related uncertainty, supply and customer risks, acquisition integration, restructuring execution, reimbursement changes, competition, pricing and raw-material costs among forward-looking risks. It reports no significant changes in risk factors for the quarter.
Important facts for investors to verify
- How much of reported earnings growth reflects the respiratory-sale gain versus recurring operations; no adjusted comparison is supplied here.
- Whether the $15 million contingent sale proceeds are received and whether the manufacturing-asset transfer and related restructuring stay on schedule and within estimated costs.
- Whether COVID-related procedure recovery, supply constraints, freight costs and currency effects persist or reverse.
- The final 2022 UroLift reimbursement rules and any resulting effect on physician-office demand.
- Developments in the DOJ investigation, China tariff matter and environmental contingencies, including any change in estimated exposure.