Teleflex(TFX) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides Teleflex Incorporated's unaudited condensed consolidated financial information for the quarter ended March 31, 2024 Item 1. Financial Statements (Unaudited) Teleflex Incorporated's unaudited condensed consolidated financial statements for Q1 2024, including income, balance sheets, cash flows, and detailed notes Condensed Consolidated Statements of Income Net income significantly decreased in Q1 2024 due to a pension settlement charge, despite a modest increase in net revenues | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------------- | :------------------------------------------ | :----------- | | Net revenues | $737,849 | $710,932 | +3.8% | | Cost of goods sold | $321,715 | $319,552 | +0.7% | | Gross profit | $416,134 | $391,380 | +6.3% | | Selling, general and administrative expenses | $242,830 | $232,716 | +4.3% | | Research and development expenses | $37,299 | $41,469 | -10.1% | | Pension settlement charge | $138,139 | $— | N/A | | (Loss) income from continuing operations before interest and taxes | $(4,793) | $114,974 | -104.2% | | Net income | $15,289 | $76,748 | -80.1% | | Basic EPS (Net income) | $0.32 | $1.63 | -80.4% | | Diluted EPS (Net income) | $0.32 | $1.62 | -80.2% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income decreased significantly year-over-year, primarily due to a substantial pension and postretirement benefit plans adjustment | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | Change (YoY) | | :------------------------------------------------- | :--------------------------------------------- | :------------------------------------------ | :----------- | | Net income | $15,289 | $76,748 | -80.1% | | Foreign currency translation, net of tax | $(36,669) | $18,570 | N/A | | Pension and other postretirement benefit plans adjustment, net of tax | $89,342 | $1,213 | +7264.5% | | Derivatives qualifying as hedges, net of tax | $678 | $2,408 | -71.8% | | Other comprehensive income, net of tax | $53,351 | $22,191 | +140.4% | | Comprehensive income | $68,640 | $98,939 | -30.6% | Condensed Consolidated Balance Sheets Total assets slightly decreased as of March 31, 2024, while total liabilities decreased and shareholders' equity increased | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (QoQ) | | :--------------------------------- | :------------------------------ | :------------------------------- | :----------- | | Total current assets | $1,433,608 | $1,407,406 | +1.9% | | Property, plant and equipment, net | $485,535 | $479,913 | +1.2% | | Operating lease assets | $112,560 | $123,521 | -8.8% | | Goodwill | $2,898,343 | $2,914,055 | -0.5% | | Intangible assets, net | $2,429,460 | $2,501,960 | -2.9% | | Total assets | $7,477,922 | $7,532,546 | -0.7% | | Total current liabilities | $571,014 | $606,745 | -5.9% | | Long-term borrowings | $1,667,896 | $1,727,572 | -3.5% | | Total liabilities | $2,974,712 | $3,091,558 | -3.8% | | Total shareholders' equity | $4,503,210 | $4,440,988 | +1.4% | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased, while investing and financing cash outflows decreased, leading to a net increase in cash | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | Change (YoY) | | :------------------------------------------------- | :--------------------------------------------- | :------------------------------------------ | :----------- | | Net cash provided by operating activities from continuing operations | $112,844 | $84,349 | +33.8% | | Net cash used in investing activities from continuing operations | $(24,807) | $(21,899) | +13.3% | | Net cash used in financing activities from continuing operations | $(71,448) | $(93,591) | -23.7% | | Net increase (decrease) in cash and cash equivalents | $14,575 | $(27,896) | N/A | | Cash and cash equivalents at the end of the period | $237,423 | $264,138 | -10.2% | Condensed Consolidated Statements of Changes in Equity Total shareholders' equity increased from Q4 2023 to Q1 2024, driven by net income and other comprehensive income | Metric | Balance at March 31, 2024 (in thousands) | Balance at December 31, 2023 (in thousands) | Change (QoQ) | | :--------------------------------- | :--------------------------------------- | :---------------------------------------- | :----------- | | Common Stock (Shares) | 48,081 | 48,046 | +0.07% | | Common Stock (Dollars) | $48,081 | $48,046 | +0.07% | | Additional Paid In Capital | $756,225 | $749,712 | +0.87% | | Retained Earnings | $4,109,024 | $4,109,736 | -0.02% | | Accumulated Other Comprehensive Loss | $(261,054) | $(314,405) | -17.0% | | Treasury Stock (Shares) | 980 | 1,006 | -2.6% | | Treasury Stock (Dollars) | $(149,066) | $(152,101) | -2.0% | | Total Shareholders' Equity | $4,503,210 | $4,440,988 | +1.4% | Notes to Condensed Consolidated Financial Statements These notes provide detailed context for financial statements, covering accounting policies, revenue, acquisitions, restructuring, and other financial details Note 1 — Basis of presentation Unaudited financial statements are prepared under GAAP and SEC Regulation S-X, requiring management estimates and read with the annual 10-K - Financial statements are unaudited and prepared in accordance with GAAP and SEC Regulation S-X, requiring management estimates and assumptions[21] - Quarterly statements should be read with the annual consolidated financial statements in the Form 10-K for December 31, 2023[22] Note 2 — Recently issued accounting standards New FASB guidance on segment and income tax disclosure is being evaluated, while SEC climate rules are stayed pending review - New FASB guidance on segment disclosure (effective after Dec 15, 2023) and income tax disclosure (effective after Dec 15, 2024) is being evaluated for impact[23][24] - SEC's climate-related disclosure rules, requiring information on climate risks and greenhouse gas emissions, have been stayed pending judicial review[25] Note 3 — Net revenues Teleflex primarily generates revenue from medical device sales to hospitals (86%), with revenue recognized upon control transfer or over time - Revenue is primarily generated from the sale of medical devices, with control typically transferring upon shipment[27] End Market Share of Consolidated Net Revenues | End Market | % of Consolidated Net Revenues (3 months ended March 31, 2024) | | :--------------------------------- | :----------------------------------------------------------- | | Hospitals and healthcare providers | 86% | | Other medical device manufacturers | 12% | | Home care providers | 2% | Global Product Category Net Revenues | Global Product Category | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | | :---------------------- | :--------------------------------------------- | :------------------------------------------ | | Vascular access | $181,354 | $177,652 | | Interventional | $134,665 | $116,897 | | Anesthesia | $96,352 | $93,332 | | Surgical | $105,524 | $99,023 | | Interventional urology | $79,742 | $75,378 | | OEM | $87,697 | $76,997 | | Other | $52,515 | $71,653 | | Net revenues | $737,849 | $710,932 | Note 4 — Acquisition Teleflex acquired Palette Life Sciences AB in Q4 2023 for $594.9 million cash, with purchase accounting still incomplete - Acquired Palette Life Sciences AB in Q4 2023 for an initial $594.9 million cash, with potential milestone payments up to $50 million based on net sales growth[31] - Purchase accounting for the Palette acquisition remains incomplete, with adjustments to consideration transferred to be recognized upon settlement[32] Note 5 — Restructuring and impairment charges Teleflex has ongoing restructuring initiatives and recorded $2.7 million in charges for Q1 2024, including an asset impairment, and announced a new 2024 realignment plan - Ongoing restructuring initiatives include the 2023 Restructuring plan (Palette integration, workforce reductions) and the 2023 Footprint realignment plan (relocation to lower-cost locations, outsourcing)[33] Restructuring and Impairment Charges | Charge Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :------------------------------------------ | | Restructuring charges | $549 | $2,221 | | Asset impairment charges | $2,110 | $— | | Total | $2,659 | $2,221 | - An impairment charge of $2.1 million was recorded for Q1 2024 related to operating lease assets due to cessation of occupancy of a facility[39] - A new 2024 Footprint realignment plan was committed in May 2024, involving relocation of manufacturing, product portfolio optimization, and workforce reductions, expected to be substantially completed by end of 2025[40] Note 6 — Inventories Total inventories remained relatively stable from December 31, 2023, to March 31, 2024, with slight shifts in raw materials, work-in-process, and finished goods Inventory Breakdown | Inventory Category | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------- | :---------------------------- | :------------------------------- | | Raw materials | $176,366 | $179,517 | | Work-in-process | $119,960 | $111,132 | | Finished goods | $331,540 | $335,567 | | Total Inventories | $627,866 | $626,216 | Note 7 — Goodwill and other intangible assets Goodwill slightly decreased across most segments due to currency translation, while intangible assets saw a decrease in gross carrying amount Goodwill by Segment | Segment | December 31, 2023 (in thousands) | Currency Translation Adjustment (in thousands) | March 31, 2024 (in thousands) | | :------ | :------------------------------- | :------------------------------------------- | :---------------------------- | | Americas | $2,068,072 | $373 | $2,068,445 | | EMEA | $487,744 | $(9,177) | $478,567 | | Asia | $246,229 | $(6,908) | $239,321 | | OEM | $112,010 | $— | $112,010 | | Total | $2,914,055 | $(15,712) | $2,898,343 | Intangible Assets | Intangible Asset Category | Gross Carrying Amount (March 31, 2024, in thousands) | Gross Carrying Amount (December 31, 2023, in thousands) | Accumulated Amortization (March 31, 2024, in thousands) | Accumulated Amortization (December 31, 2023, in thousands) | | :------------------------ | :--------------------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :--------------------------------------------------------- | | Customer relationships | $1,359,438 | $1,363,839 | $(575,902) | $(561,753) | | Intellectual property | $1,873,927 | $1,890,957 | $(774,353) | $(745,094) | | Distribution rights | $23,190 | $23,301 | $(22,130) | $(22,048) | | Trade names | $606,318 | $610,146 | $(88,504) | $(84,864) | | Non-compete agreements | $21,922 | $21,934 | $(21,922) | $(21,934) | | Total | $3,912,271 | $3,937,653 | $(1,482,811) | $(1,435,693) | Note 8 — Financial instruments Teleflex uses foreign currency forward contracts and cross-currency interest rate swaps for risk management, recognizing a $3.6 million gain in Q1 2024 - Uses derivative instruments (foreign currency forward contracts and cross-currency interest rate swaps) for risk management[44] - Recognized a $3.6 million gain from non-designated foreign currency forward contracts for the three months ended March 31, 2024[44] - Terminated 2019 Cross-currency swaps in February 2024, resulting in $12.1 million cash settlement, and executed new cross-currency swap agreements expiring in 2027 and 2029[46][47] Foreign Exchange and Interest Benefit | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | | :------------------------ | :--------------------------------------------- | :------------------------------------------ | | Foreign exchange gain (loss) | $8,893 | $(10,031) | | Interest benefit | $3,720 | $5,108 | Note 9 — Fair value measurement Financial assets and liabilities measured at fair value include marketable securities, derivatives, and contingent consideration liabilities, which slightly increased Fair Value of Financial Instruments | Financial Instrument | Fair Value (March 31, 2024, in thousands) | Fair Value (December 31, 2023, in thousands) | Level | | :------------------- | :---------------------------------------- | :----------------------------------------- | :---- | | Investments in marketable securities | $5,854 | $5,306 | 1 | | Derivative assets | $22,860 | $19,449 | 2 | | Derivative liabilities | $34,412 | $35,303 | 2 | | Contingent consideration liabilities | $40,279 | $39,486 | 3 | - Contingent consideration liabilities are remeasured to fair value each reporting period using assumptions like revenue growth rates, volatility, discount rates, and probability of payment[60] Contingent Consideration Rollforward | Metric | Contingent Consideration (in thousands) | | :-------------------------- | :------------------------------------ | | Balance – December 31, 2023 | $39,486 | | Payments | $(72) | | Revaluations | $865 | | Balance – March 31, 2024 | $40,279 | Note 10 — Shareholders' equity Diluted weighted average common shares outstanding slightly increased, and accumulated other comprehensive loss decreased due to pension reclassifications Weighted Average Common Shares Outstanding | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended April 2, 2023 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :------------------------------------------ | | Basic weighted average common shares outstanding | 47,068 | 46,949 | | Dilutive effect of share-based awards | 326 | 336 | | Diluted weighted average common shares outstanding | 47,394 | 47,285 | Accumulated Other Comprehensive Loss (AOCI) | AOCI Component | Balance as of December 31, 2023 (in thousands) | Balance as of March 31, 2024 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :------------------------------------------ | | Cash Flow Hedges | $1,396 | $2,074 | | Pension and Other Postretirement Benefit Plans | $(88,049) | $1,293 | | Foreign Currency Translation Adjustment | $(227,752) | $(264,421) | | Total Accumulated Other Comprehensive Loss | $(314,405) | $(261,054) | - Reclassifications from AOCI to income/expense for Q1 2024 included a net gain of $(1.8) million on foreign exchange contracts and a net benefit of $80.6 million from pension and other postretirement benefit items, primarily due to settlements[67] Note 11 — Taxes on income from continuing operations The effective income tax rate for Q1 2024 was 161.0% (tax benefit), significantly higher than Q1 2023, primarily due to a pension charge Effective Income Tax Rate | Metric | Three Months Ended March 31, 2024 | Three Months Ended April 2, 2023 | | :---------------------- | :-------------------------------- | :------------------------------- | | Effective income tax rate | 161.0% (tax benefit) | 20.7% (tax expense) | - The 161.0% effective tax rate in Q1 2024 reflects a tax benefit from a pension charge related to the TRIP defined benefit plan termination[69] - Both periods reflect a tax benefit from research and development tax credits[69] Note 12 — Pension and other postretirement benefits Teleflex is terminating its U.S. defined benefit pension plan (TRIP), recognizing a $138.1 million pre-tax settlement charge in Q1 2024 - The company is terminating the Teleflex Incorporated Retirement Income Plan (TRIP), a U.S. defined benefit pension plan, with the termination date of August 1, 2023[72] - In Q1 2024, a pre-tax settlement charge of $138.1 million was recognized due to the purchase of a group annuity contract for TRIP participants[73] - As of March 31, 2024, surplus plan assets of $37.2 million remain in the TRIP Trust, included in Other Assets[73] Net Benefit Expense (Income) | Component of Net Benefit Expense (Income) | Pension (3 Months Ended March 31, 2024, in thousands) | Pension (3 Months Ended April 2, 2023, in thousands) | Other Benefits (3 Months Ended March 31, 2024, in thousands) | Other Benefits (3 Months Ended April 2, 2023, in thousands) | | :---------------------------------------- | :---------------------------------------------------- | :--------------------------------------------------- | :----------------------------------------------------------- | :---------------------------------------------------------- | | Service cost | $601 | $360 | $— | $— | | Interest cost | $2,118 | $4,350 | $109 | $186 | | Expected return on plan assets | $(2,201) | $(6,310) | $— | $— | | Net amortization and deferral | $1,354 | $2,154 | $(645) | $(339) | | Settlements | $138,139 | $— | $— | $— | | Net benefit expense (income) | $140,011 | $554 | $(536) | $(153) | Note 13 — Commitments and contingent liabilities Teleflex faces environmental, legal, and other contingencies, accruing $3.0 million for environmental and $0.3 million for legal matters - Accrued $3.0 million for environmental liabilities and $2.1 million in other liabilities related to environmental matters as of March 31, 2024[76] - Accrued $0.3 million for legal proceedings as of March 31, 2024, and does not believe current litigation is material, but unexpected developments could be adverse[77][78] - Reserve for the Italian "payback" measure is $15.1 million as of March 31, 2024, with potential additional payments up to $23.3 million if enforced in its existing form[79] - A Mexican subsidiary is undergoing a foreign trade operations audit by SAT, with potential obligations for import duties and taxes; no loss contingency recorded as outcome is uncertain[80][81] - Established a $3.5 million liability for foreign tax liabilities identified during the Palette acquisition, pending reassessment by the relevant tax authority[82] Note 14 — Segment information Teleflex operates across four segments; EMEA and OEM showed strong Q1 2024 growth, while Americas experienced declines in revenue and profit Net Revenues by Segment | Segment | Net Revenues (3 Months Ended March 31, 2024, in thousands) | Net Revenues (3 Months Ended April 2, 2023, in thousands) | % Increase/(Decrease) | | :------ | :------------------------------------------------------- | :------------------------------------------------------ | :-------------------- | | Americas | $406,286 | $411,864 | (1.4)% | | EMEA | $159,656 | $143,340 | 11.4% | | Asia | $84,210 | $78,731 | 7.0% | | OEM | $87,697 | $76,997 | 13.9% | | Total | $737,849 | $710,932 | 3.8% | Operating Profit by Segment | Segment | Operating Profit (3 Months Ended March 31, 2024, in thousands) | Operating Profit (3 Months Ended April 2, 2023, in thousands) | % Increase/(Decrease) | | :------ | :----------------------------------------------------------- | :---------------------------------------------------------- | :-------------------- | | Americas | $87,989 | $98,618 | (10.8)% | | EMEA | $26,102 | $12,771 | 104.4% | | Asia | $17,195 | $21,000 | (18.1)% | | OEM | $23,117 | $20,037 | 15.4% | | Total | $154,403 | $152,426 | 1.3% | Note 15 — Subsequent event In May 2024, Teleflex committed to a new 2024 Footprint realignment plan with estimated charges of $33-$40 million and $7-$9 million annual savings - Committed to a 2024 Footprint realignment plan in May 2024, involving relocation of manufacturing, product portfolio optimization, and workforce reductions, to be substantially completed by end of 2025[86] 2024 Footprint Realignment Plan Expense Estimates | Program Expense Estimates | Total Estimated Amount Expected to be Incurred (in millions) | | :------------------------ | :----------------------------------------------------------- | | Restructuring charges | $13 to $16 | | Restructuring related charges | $20 to $24 | | Total | $33 to $40 | - Expected cash outflows of $26 million to $32 million, mostly between 2025-2026, and capital expenditures of $12 million to $15 million, mostly in 2024-2025[90] - Anticipates annual pre-tax savings of $7 million to $9 million once the plan is fully implemented, starting in 2026[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Teleflex's Q1 2024 financial performance, covering revenue, expenses, pension impacts, segment results, liquidity, and critical accounting estimates Overview Teleflex is a global medical technology provider focused on single-use medical devices, pursuing growth through market share, efficiency, and portfolio optimization - Teleflex is a global provider of medical technology products, primarily single-use medical devices for hospitals and healthcare providers[92] - Focuses on enhancing clinical benefits, improving patient/provider safety, and reducing procedural costs[92] - Pursues growth by increasing market share, improving operating efficiencies, and optimizing its portfolio through divestitures, restructuring, acquisitions, and distributor-to-direct sales conversions[93] Pension termination Teleflex is terminating its U.S. defined benefit pension plan (TRIP), recognizing a $138.1 million non-cash pre-tax settlement charge in Q1 2024 - The company is terminating the Teleflex Incorporated Retirement Income Plan (TRIP), a U.S. defined benefit pension plan, with the termination date of August 1, 2023[94] - A non-cash pre-tax settlement charge of $138.1 million was recognized in Q1 2024 due to the purchase of a group annuity contract for TRIP participants[95] - Surplus plan assets of $37.2 million remain as of March 31, 2024, which may be contributed to a qualified defined contribution plan[95] Results of Operations Net revenues increased by 3.8%, gross margin improved, but net income was significantly impacted by a pension settlement charge in Q1 2024 Net revenues Net revenues for Q1 2024 increased by 3.8% year-over-year, driven by higher sales volumes of existing products, price increases, and new product sales Net Revenues | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :--------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | Net revenues | $737.8 | $710.9 | +3.8% | - Increase primarily due to $10.8 million increase in sales volumes of existing products, price increases, and new product sales[98] Gross profit Gross profit increased by 6.3% and gross margin improved to 56.4% in Q1 2024, driven by acquisitions, price increases, and cost initiatives Gross Profit and Margin | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :--------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | Gross profit | $416.1 | $391.4 | +6.3% | | Percentage of sales | 56.4% | 55.1% | +130 bps | - Improvement driven by favorable impact of acquired/divested businesses, price increases, and cost improvement initiatives, offset by unfavorable foreign currency and cost inflation (labor, raw materials)[99] - A Mexican subsidiary is undergoing a foreign trade operations audit, which could materially impact gross profit if the resolution is unfavorable, though no loss contingency has been recorded[100][101] Selling, general and administrative SG&A expenses increased by $10.1 million in Q1 2024, mainly due to acquired Palette business operations and higher legal and IT costs Selling, General and Administrative Expenses | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :--------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | SG&A | $242.8 | $232.7 | +4.3% | | Percentage of sales | 32.9% | 32.7% | +20 bps | - Increase primarily due to higher operating expenses from acquired Palette business, increased legal expenses (litigation), and higher IT-related costs[102] - Partially offset by lower sales expenses and a decrease in contingent consideration expense[102] Research and development R&D expenses decreased by 10.1% in Q1 2024, primarily due to lower EU Medical Device Regulation costs, partially offset by Palette spending Research and Development Expenses | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :--------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | R&D | $37.3 | $41.5 | -10.1% | | Percentage of sales | 5.1% | 5.8% | -70 bps | - Decrease mainly due to lower EU Medical Device Regulation related costs, partially offset by higher project spend from the acquired Palette business[103] Pension Settlement Charge A $138.1 million settlement charge was recognized in Q1 2024 related to the termination of the TRIP, resulting from a group annuity contract purchase Pension Settlement Charge | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | | :------------------------ | :-------------------------------------------- | :------------------------------------------- | | Pension settlement charge | $138.1 | $— | - Charge resulted from the purchase of a group annuity contract to provide full benefits to participants of the TRIP[104] Restructuring and impairment charges Restructuring and impairment charges increased to $2.7 million in Q1 2024, including an asset impairment, with a new realignment plan announced Restructuring and Impairment Charges | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :-------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | Restructuring and impairment charges | $2.7 | $2.2 | +22.7% | - Q1 2024 charges primarily include a $2.1 million impairment charge on operating lease assets and termination benefits from the 2023 Restructuring and 2023 Footprint realignment plans[105] - Estimated pre-tax charges for the 2023 Restructuring plan are $15-$19 million, and for the 2023 Footprint realignment plan are $11-$15 million, with expected annual savings of $29-$35 million and $2-$4 million, respectively[107] - A new 2024 Footprint realignment plan, committed in May 2024, is expected to incur $33-$40 million in pre-tax charges and generate $7-$9 million in annual pre-tax savings by 2026[108][109][110] Interest expense Interest expense increased by $4.4 million in Q1 2024 due to a higher average interest rate on variable debt and increased average debt outstanding Interest Expense | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :------------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | Interest expense | $22.7 | $18.3 | +24.0% | | Average interest rate on debt | 4.7% | 4.0% | +70 bps | - Increase driven by higher average interest rate on variable debt and increased average debt outstanding[112] Taxes on income from continuing operations The effective income tax rate for Q1 2024 was 161.0% (tax benefit), significantly higher than Q1 2023, primarily due to a pension charge Effective Income Tax Rate | Metric | Three Months Ended March 31, 2024 | Three Months Ended April 2, 2023 | | :---------------------- | :-------------------------------- | :------------------------------- | | Effective income tax rate | 161.0% (tax benefit) | 20.7% (tax expense) | - The 161.0% rate reflects a tax benefit from the pension charge related to the TRIP termination[114] - Both periods benefited from research and development tax credits[114] Segment Financial Information Overall segment net revenues increased by 3.8% and operating profit by 1.3%, with EMEA and OEM showing strong growth, while Americas declined Net Revenues by Segment | Segment | Net Revenues (3 Months Ended March 31, 2024, in millions) | Net Revenues (3 Months Ended April 2, 2023, in millions) | % Change (YoY) | | :------ | :------------------------------------------------------ | :----------------------------------------------------- | :------------- | | Americas | $406.3 | $411.9 | (1.4)% |\ | EMEA | $159.6 | $143.3 | 11.4% |\ | Asia | $84.2 | $78.7 | 7.0% |\ | OEM | $87.7 | $77.0 | 13.9% |\ | Total | $737.8 | $710.9 | 3.8% | Operating Profit by Segment | Segment | Operating Profit (3 Months Ended March 31, 2024, in millions) | Operating Profit (3 Months Ended April 2, 2023, in millions) | % Change (YoY) | | :------ | :---------------------------------------------------------- | :--------------------------------------------------------- | :------------- | | Americas | $88.0 | $98.6 | (10.8)% |\ | EMEA | $26.1 | $12.8 | 104.4% |\ | Asia | $17.2 | $21.0 | (18.1)% |\ | OEM | $23.1 | $20.0 | 15.4% |\ | Total | $154.4 | $152.4 | 1.3% | Americas Americas net revenues decreased by 1.4% due to lower sales volumes and acquired/divested businesses, leading to a 10.8% drop in operating profit - Net revenues decreased by 1.4% due to a $14.5 million decrease in existing product sales volumes and a $5.7 million decrease from acquired/divested businesses, partially offset by price increases and new product sales[117] - Operating profit decreased by 10.8% due to higher operating expenses from the acquired Palette business and lower gross profit from reduced sales and higher manufacturing costs, partially offset by price increases and decreased contingent consideration expense[118] EMEA EMEA net revenues increased by 11.4% due to higher sales volumes, price increases, and favorable currency, with operating profit surging by 104.4% - Net revenues increased by 11.4% due to a $10.0 million increase in existing product sales volumes, price increases, and favorable foreign currency exchange rates[119] - Operating profit increased by 104.4% primarily due to lower EU Medical Device Regulation related R&D expenses and increased gross profit from higher sales and price increases[120] Asia Asia net revenues increased by 7.0% due to sales volumes and the Palette acquisition, but operating profit decreased by 18.1% due to currency and expenses - Net revenues increased by 7.0% due to a $5.9 million increase in existing product sales volumes and revenues from the Palette acquisition, partially offset by $3.0 million of unfavorable foreign currency fluctuations[121] - Operating profit decreased by 18.1% due to unfavorable foreign currency exchange rates and increased sales and marketing expenses, partially offset by higher gross profit from increased sales[122] OEM OEM net revenues increased by 13.9% due to higher sales volumes and price increases, driving a 15.4% increase in operating profit - Net revenues increased by 13.9% due to a $9.4 million increase in existing product sales volumes and price increases[123] - Operating profit increased by 15.4% primarily due to higher gross profit resulting from increased sales and prices[124] Liquidity and Capital Resources Teleflex believes its cash flow, available cash, and credit facility are sufficient to fund operations, capital expenditures, and debt obligations - Believes current liquidity sources (cash flow from operations, available cash, revolving credit facility) are sufficient to fund operating requirements, capital expenditures, and debt obligations for the foreseeable future[125] - Manages worldwide cash requirements by monitoring subsidiary funds and access to those funds[125] - Terminated 2019 Cross-currency swaps in February 2024, receiving $12.1 million, and executed new 2024 Cross-currency swap agreements to hedge against USD to Euro exchange rate variability[126][127] Cash Flows Net cash provided by operating activities from continuing operations increased by $28.5 million in Q1 2024, driven by favorable operating results and reduced inventory outflows. Net cash used in investing activities was $24.8 million, mainly capital expenditures, and net cash used in financing activities was $71.4 million, primarily debt reduction and dividends Cash Flow Activities | Cash Flow Activity | Three Months Ended March 31, 2024 (in millions) | Three Months Ended April 2, 2023 (in millions) | % Change (YoY) | | :------------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------- | | Net cash provided by operating activities from continuing operations | $112.8 | $84.3 | +33.8% | | Net cash used in investing activities from continuing operations | $(24.8) | $(21.9) | +13.2% | | Net cash used in financing activities from continuing operations | $(71.4) | $(93.6) | -23.7% | - Increase in operating cash flow primarily due to favorable operating results and decreased cash outflows from inventories, partially offset by increased accounts receivable and lower accounts payable/accrued expenses[128] - Investing activities included $38.4 million in capital expenditures, partially offset by $13.7 million in net proceeds from swaps[129] - Financing activities included $57.1 million reduction in borrowings and $16.0 million in dividend payments[130] Borrowings Teleflex was in compliance with all debt covenants as of March 31, 2024, with obligations guaranteed and secured by domestic subsidiaries' assets - As of March 31, 2024, the company was in compliance with covenants for its 4.625% Senior Notes due 2027 and 4.25% Senior Notes due 2028[131] - Obligations under the senior credit agreement and Senior Notes are guaranteed by substantially all material domestic subsidiaries and secured by their assets[132] Summarized Financial Information – Obligor Group The Obligor Group reported $439.4 million net revenue and an $88.8 million net loss for Q1 2024, with total assets of $2,475.3 million - The Obligor Group consists of Teleflex Incorporated (Parent Company) and its 100% owned Guarantor Subsidiaries, which jointly and severally guarantee the Senior Notes[133] Obligor Group Income Statement (excluding Intercompany) | Metric | Obligor Group (excluding Intercompany) (3 Months Ended March 31, 2024, in millions) | | :-------------------------- | :------------------------------------------------------------------ | | Net revenue | $439.4 |\n| Cost of goods sold | $240.4 |\n| Gross profit | $199.0 |\n| Income from continuing operations | $(88.3) |\n| Net income | $(88.8) | Obligor Group Balance Sheet (excluding Intercompany) | Metric | Obligor Group (excluding Intercompany) (March 31, 2024, in millions) | Obligor Group (excluding Intercompany) (December 31, 2023, in millions) | | :-------------------------- | :------------------------------------------------------------------- | :---------------------------------------------------------------------- | | Total current assets | $746.9 | $705.9 |\n| Total assets | $2,475.3 | $2,447.7 |\n| Total current liabilities | $254.0 | $260.0 |\n| Total liabilities | $2,434.7 | $2,511.2 | Critical Accounting Estimates Financial statements rely on management estimates and assumptions, which are detailed in the Annual Report on Form 10-K for December 31, 2023 - Financial statements rely on management estimates and assumptions, which could lead to materially different results under different conditions[135] - Critical accounting estimates are detailed in the Annual Report on Form 10-K for December 31, 2023[136] New Accounting Standards Refer to Note 2 of the condensed consolidated financial statements for information on recently issued accounting guidance and its estimated effects - Refer to Note 2 of the condensed consolidated financial statements for information on recently issued accounting guidance[137] Forward-Looking Statements The report contains forward-looking statements subject to various risks and uncertainties, which the company disclaims any obligation to update - All statements not of historical fact are forward-looking, based on current expectations, beliefs, assumptions, estimates, and forecasts[138] - Subject to risks and uncertainties including supply chain disruptions, inflation, inability to integrate acquisitions or execute restructuring, healthcare reform, competitive conditions, global economic factors (currency, interest rates, conflicts), and public health events[138] - The company disclaims any obligation to update forward-looking statements, except as required by law[138] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since the Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes in market risk disclosures since the Annual Report on Form 10-K for December 31, 2023[139] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes Evaluation of Disclosure Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, ensuring timely and accurate financial reporting - Management, CEO, and CFO evaluated disclosure controls and procedures as effective as of March 31, 2024[140] - Controls provide reasonable assurance that information required by SEC rules is timely recorded, processed, summarized, and reported[140] - Acknowledged that no control system can provide absolute assurance against all control issues or fraud[140] Change in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[141] PART II — OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, defaults, mine safety, and executive trading plans Item 1. Legal Proceedings Teleflex is involved in various lawsuits and claims, accruing $0.3 million for contingencies, but does not believe current actions are material - Involved in various lawsuits and claims, including product liability, intellectual property, employment, and environmental matters[142] - Accrued liabilities of $0.3 million as of March 31, 2024, for these contingencies[142] - Does not believe current actions are material, but unexpected unfavorable resolutions could be materially adverse[142] Item 1A. Risk Factors No significant changes in risk factors for Q1 2024 compared to those disclosed in the Annual Report on Form 10-K for December 31, 2023 - No significant changes in risk factors for the quarter ended March 31, 2024, compared to the Annual Report on Form 10-K for December 31, 2023[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not applicable[144] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable[145] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable[146] Item 5. Other Information This section reports on other information, specifically noting that no directors or executive officers entered into, modified, or terminated Rule 10b5-1 trading plans during the quarter Rule 10b5-1 Trading Plans No directors or executive officers entered into, modified, or terminated Rule 10b5-1 trading plans during the quarter ended March 31, 2024 - No directors or executive officers entered into, modified, or terminated Rule 10b5-1 trading plans during Q1 2024[147] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the report, including certifications, subsidiary guarantors, and XBRL formatted financial statements - Lists exhibits filed or incorporated by reference, including certifications (CEO, CFO), subsidiary guarantors, and XBRL formatted financial statements[149][150] SIGNATURES The report is signed by Liam J. Kelly, President and Chief Executive Officer, and Thomas E. Powell, Executive Vice President and Chief Financial Officer, on May 3, 2024 - Report signed by Liam J. Kelly (President and CEO) and Thomas E. Powell (EVP and CFO) on May 3, 2024[153]