HAEMONETICS CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with both our interim condensed consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q and our annual consolidated financial statements, notes thereto and the MD&A contained in our Annual Report on Form 10-K for the fiscal year ended April 3, 2021. The following discussion may contain forward-looking statements and should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Information” in this discussion. 22 Introduction Haemonetics is a global healthcare company dedicated to providing a suite of innovative medical products and solutions for customers to help them improve patient care and reduce the cost of healthcare. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services. When used in this report, the terms “we,” “us,” “our” and “the Company” mean Haemonetics. We view our operations and manage our business in three principal reporting segments: Plasma, Blood Center and Hospital. For that purpose, “Plasma” includes plasma collection devices and disposables, plasma donor management software, and anticoagulant and saline sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood. “Hospital”, which is comprised of Hemostasis Management, Cell Salvage, Transfusion Management and Vascular Closure products, includes devices and methodologies for measuring coagulation characteristics of blood, surgical blood salvage systems, specialized blood cell processing systems and disposables, blood transfusion management software and vascular closure devices. We believe that Plasma and Hospital have growth potential, while Blood Center competes in challenging markets that require us to manage the business differently, including reducing costs, shrinking the scope of the current product line, and evaluating opportunities to exit unfavorable customer contracts. Recent Developments Operational Excellence Program During the second quarter of fiscal 2022, our Board of Directors approved the revised Operational Excellence Program (the “2020 Program”). The revised program is designed to improve product and service quality, reduce cost principally in our manufacturing and supply chain operations and ensure sustainability while helping to offset impacts from a previously announced customer loss, rising inflationary pressures and effects of the COVID-19 pandemic. We now expect to incur aggregate charges between $95 million and $105 million by the end of fiscal 2025 and to achieve total gross savings of $115 million to $125 million on an annualized basis once the program is completed. The majority of charges will result in cash outlays, including severance and other employee costs, and will be incurred as the specific actions required to execute these initiatives are identified and approved. During the three months ended July 3, 2021 and June 27, 2020, the Company incurred $9.9 million and $3.5 million, respectively, of restructuring and restructuring related costs under this program. Total cumulative charges under this program are $36.9 million as of July 3, 2021. CSL Contract Loss In April 2021, CSL informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits (the “Supply Agreement”) following the expiration of the current term of the Supply Agreement in June 2022. In fiscal year 2021, revenue under this Supply Agreement was $88.6 million, or 10.2% of total revenue. As a result of this anticipated contract loss, we recorded a $20.9 million one-time asset impairment charge relating to disposables manufacturing equipment and $5.0 million of additional expenses in the fourth quarter of fiscal 2021. In the first quarter of fiscal 2022, we incurred an additional $2.8 million of accelerated depreciation expense relating to disposables manufacturing equipment that is no longer in use. COVID-19 We continue to closely manage the impacts of the COVID-19 pandemic on our business results of operations and financial condition. The progression of the COVID-19 pandemic during fiscal 2022 significantly impacted our financial results. While the duration and additional implications remain uncertain, the full extent of the impact will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. Our priorities continue to be the safety of our employees and business continuity while continuing to invest in growth opportunities. Our manufacturing and supply chain remain operational without significant disruptions and we continue to operate in all of our markets. Although the pace and timing of the recovery is uncertain, we remain confident in the long term strength of the end markets that we serve across our three business units. For additional information regarding the expected impacts to our business units and the various risks posed by the COVID-19 pandemic, refer to Results of Operations within Management's Discussion and 23 Analysis contained in this Quarterly Report on Form 10-Q and Risk Factors contained in Item 1A of the Annual Report on Form 10-K for the fiscal year ended April 3, 2021. Financial Summary Three Months Ended (In thousands, except per share data) July 3, 2021 June 27, 2020 % Increase/ (Decrease) Net revenues $ 228,528 $ 195,577 16.8 % Gross profit $ 108,085 $ 90,030 20.1 % % of net revenues 47.3 % 46.0 % Operating expenses $ 106,695 $ 78,315 36.2 % Operating income $ 1,390 $ 11,715 (88.1) % % of net revenues 0.6 % 6.0 % Interest and other expense, net $ (4,398) $ (3,735) 17.8 % (Loss) income before provision (benefit) for income taxes $ (3,008) $ 7,980 n/m Provision (benefit) for income taxes $ 1,446 $ (2,547) n/m % of pre-tax income (48.1) % (31.9) % Net (loss) income $ (4,454) $ 10,527 n/m % of net revenues (1.9) % 5.4 % Net (loss) income per share - basic $ (0.09) $ 0.21 n/m Net (loss) income per share - diluted $ (0.09) $ 0.21 n/m Net revenues increased 16.8% during the three months ended July 3, 2021 as compared with the same periods of fiscal 2021. Without the effect of foreign exchange, net revenues increased 14.0% during the three months ended July 3, 2021 as compared with the same periods of fiscal 2021. Revenue increases in Hospital primarily drove the overall increase in revenue during the three months ended July 3, 2021. Operating income decreased during the three months ended July 3, 2021, as compared with the same period of fiscal 2021, primarily due to increased spend related to the acquisition of Cardiva Medical, Inc. (“Cardiva”), including higher transaction and integration costs driven by an increase in the fair value of contingent consideration and the amortization of the fair value inventory step-up, as well as asset impairments and increased intangible amortization expense. The decrease was partially offset by favorable volumes and product mix, gains on divestitures and productivity savings from the 2020 Program. Management's Use of Non-GAAP Measures Management uses non-GAAP financial measures, in addition to financial measures in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), to monitor the financial performance of the business, make informed business decisions, establish budgets and forecast future results. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with U.S. GAAP. Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency conversion rate. We have provided this non-GAAP financial measure because we believe it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented. 24 RESULTS OF OPERATIONS Net Revenues by Geography Three Months Ended (In thousands) July 3, 2021 June 27, 2020 Reported growth Currency impact Constant currency growth (1) United States $ 141,028 $ 111,009 27.0 % — % 27.0 % International 87,500 84,568 3.5 % 6.1 % (2.6) % Net revenues $ 228,528 $ 195,577 16.8 % 2.8 % 14.0 % (1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See “ Management's Use of Non-GAAP Measures. ” Our principal operations are in the U.S, Europe, Japan and other parts of Asia. Our products are marketed in approximately 90 countries around the world through a combination of our direct sales force, independent distributors and agents. Our revenue generated outside the U.S. was 38.3% of total net revenues during the three months ended July 3, 2021, as compared with 43.2% during the three months ended June 27, 2020. International sales are generally conducted in local currencies, primarily Japanese Yen, Euro, Chinese Yuan and Australian Dollars. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen, Euro and Australian Dollar relative to the U.S. Dollar. We have placed foreign currency hedges to mitigate our exposure to foreign currency fluctuations. Please see the section entitled “Foreign Exchange” in this discussion for a more complete explanation of how foreign currency affects our business and our strategy for managing this exposure. Net Revenues by Business Unit Three Months Ended (In thousands) July 3, 2021 June 27, 2020 Reported growth Currency impact Constant currency growth (1) Plasma $ 71,844 $ 68,211 5.3 % 0.8 % 4.5 % Blood Center 72,945 77,789 (6.2) % 3.4 % (9.6) % Hospital (2) 78,494 44,839 75.1 % 4.8 % 70.3 % Service 5,245 4,738 10.7 % 7.0 % 3.7 % Net revenues $ 228,528 $ 195,577 16.8 % 2.8 % 14.0 % (1) Constant currency growth, a non-GAAP financial measure, measures the change in revenue between the current and prior year periods using a constant currency. See “ Management's Use of Non-GAAP Measures. ” (2) Hospital revenue includes Hemostasis Management revenue of $32.2 million and $24.0 million during the three months ended July 3, 2021 and June 27, 2020, respectively. Hemostasis Management revenue increased 34.3% in the first quarter of fiscal 2022, as compared with the same period of fiscal 2021. Without the effect of foreign exchange, Hemostasis Management revenue increased 31.1% in the first quarter of fiscal 2022, as compared with the same period of fiscal 2021. Plasma Plasma revenue increased 5.3% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effect of foreign exchange, Plasma revenue increased 4.5% during the three months ended July 3, 2021 as compared with the same periods of fiscal 2021. These increases were primarily driven by increase in volume of plasma disposables and increase in software revenue, partially offset by pricing adjustments and declines in plasma liquid solutions as a result of certain strategic exits within our liquid solutions business. We continue experiencing the negative impact of COVID-19 on our business. While the timing of plasma collection recovery remains uncertain, we believe the impacts of the pandemic on plasma collection are temporary and anticipate volumes to recover by the end of fiscal 2022. We remain confident in the strength of the plasma end market growth as the long-term global demand for plasma-derived pharmaceuticals is expected to continue. In early April 2021, CSL informed us of its intent not to renew its supply agreement for the use of PCS2 plasma collection system devices and the purchase of disposable plasmapheresis kits following the expiration of the current term of the Supply Agreement in June 2022. In fiscal 2021, revenue under this Supply Agreement was $88.6 million. 25 Blood Center Blood Center revenue decreased 6.2% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effect of foreign exchange, Blood Center revenue decreased 9.6% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. These decreases were primarily driven by the divestiture of certain blood donor management software solution assets and continued declines in whole blood disposables. We have not yet experienced the reversal of the large stocking orders made by distributors and blood collectors during the first quarter of fiscal 2021 in response to the COVID-19 pandemic, but we may experience a reversal in future periods. Hospital Hospital revenue increased 75.1% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effect of foreign exchange, Hospital revenue increased 70.3% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. These increases were primarily attributable to Vascular Closure revenue resulting from the acquisition of Cardiva and the impact of the COVID-19 pandemic on the prior year period. The increases were partially offset by the divestiture of certain blood bank and hospital software solution assets. We believe that the demand for our hospital products is inherently strong and that procedure volumes will continue to improve with a return to normal levels during fiscal 2022. Gross Profit Three Months Ended (In thousands) July 3, 2021 June 27, 2020 % Increase/ (Decrease) Gross profit $ 108,085 $ 90,030 20.1 % % of net revenues 47.3 % 46.0 % Gross profit increased 20.1% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effect of foreign exchange, gross profit increased 12.5% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. These increases were primarily driven by the addition of Vascular Closure, favorable volumes and product mix, lower expenses related to the COVID-19 pandemic and productivity savings from the 2020 Program. 26 The increase was partially offset by pricing adjustments, the amortization of the fair value inventory step-up related to the acquisition of Cardiva, asset impairments and recent divestitures. Operating Expenses Three Months Ended (In thousands) July 3, 2021 June 27, 2020 % Increase/ (Decrease) Research and development $ 12,701 $ 7,750 63.9 % % of net revenues 5.6 % 4.0 % Selling, general and administrative $ 91,218 $ 62,302 46.4 % % of net revenues 39.9 % 31.9 % Amortization of intangible assets $ 12,379 $ 8,263 49.8 % % of net revenues 5.4 % 4.2 % Gains on divestitures and sale of assets $ (9,603) $ — n/m % of net revenues (4.2) % — % Total operating expenses $ 106,695 $ 78,315 36.2 % % of net revenues 46.7 % 40.0 % Research and Development Research and development expenses increased 63.9% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effect of foreign exchange, research and development expenses increased 61.2% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. These increases were primarily due to increased spend related to investments in our Hospital Business unit, primarily driven by Vascular Closure, as well as costs related to European Medical Device Regulation. These increases were partially offset by cost savings related to the 2020 Program and lower restructuring and restructuring related costs. Selling, General and Administrative Selling, general and administrative expenses increased 46.4% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effect of foreign exchange, selling, general, and administrative expenses increased 44.4% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. These increases were primarily due to increased spend related to the acquisition of Cardiva, including higher transaction and integration costs driven by an increase in the fair value of contingent consideration, and higher share-based and variable compensation expense, partially offset by asset impairments recognized in the prior year period and lower PCS2 related costs. Amortization of Intangible Assets We recognized amortization expense of $12.4 million and $8.3 million during the three months ended July 3, 2021 and June 27, 2020, respectively. The increase was primarily driven by an increase in intangible assets resulting from recent acquisitions. Gains on Divestitures We recognized gains on divestitures of $9.6 million during the three months ended July 3, 2021. Refer to Note 5, Divestitures , to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information pertaining to these divestitures. There were no gains on divestitures during the three months ended June 27, 2020. Interest and Other Expense, Net Interest and other expenses increased 17.8% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. Without the effects of foreign exchange, interest and other expenses increased 16.5% during the three months ended July 3, 2021 as compared with the same period of fiscal 2021. The increase is primarily driven by the amortization of deferred financing fees associated with the 2026 Notes and realized losses on interest rate swaps, partially offset by a reduction in interest expense from borrowings under our $350.0 million term loan and $350.0 million revolving loan due to lower borrowings. The effective interest rate on total debt outstanding as of July 3, 2021 was 1.9%. 27 Income Taxes We conduct business globally and report our results of operations in a number of foreign jurisdictions in addition to the United States. Our reported tax rate is impacted by the jurisdictional mix of earnings in any given period as the foreign jurisdictions in which we operate have tax rates that differ from the U.S. statutory tax rate. For the three months ended July 3, 2021, we reported income tax expense of $1.4 million representing an effective tax rate of (48.1)%. The effective tax rate for the three months ended July 3, 2021 includes $0.8 million discrete tax expense relating to stock compensation shortfalls. For the three months ended June 27, 2020, we reported an income tax benefit of $2.5 million representing an effective tax benefit of 31.9%. The effective tax rate for the three months ended June 27, 2020 includes discrete tax benefits recognized from excess stock compensation deductions of $4.0 million. The effective tax rate was also impacted by the jurisdictional mix of earnings. Liquidity and Capital Resources The following table contains certain key performance indicators we believe depict our liquidity and cash flow position: (Dollars in thousands) July 3, 2021 April 3, 2021 Cash & cash equivalents $ 173,462 $ 192,305 Working capital $ 456,029 $ 440,051 Current ratio 3.0 2.7 Net debt (1) $ (610,908) $ (515,303) Days sales outstanding (DSO) 52 51 Inventory turnover 1.1 1.2 (1) Net debt position is the sum of cash and cash equivalents less total debt. Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, our revolving credit line and proceeds from employee stock option exercises. We believe these sources are sufficient to fund our cash requirements over at least the next twelve months. Our expected cash outlays relate primarily to acquisitions, investments, capital expenditures and the build out of our new manufacturing facility in Clinton, PA, cash payments under the loan agreement and restructuring initiatives. In March 2021, we issued $500.0 million aggregate principal amount of 0% convertible senior notes due 2026, or the 2026 Notes. The 2026 Notes are governed by the terms of the Indenture between the Company and U.S. Bank National Association, as trustee. The total net proceeds from the sale of the 2026 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were approximately $486.7 million. The 2026 Notes will mature on March 1, 2026, unless earlier converted, redeemed or repurchased. The 2026 Notes have an effective interest rate of 2.72% as of July 3, 2021. As of July 3, 2021, we had $173.5 million in cash and cash equivalents, the majority of which is held in the U.S. or in countries from which it can be repatriated to the U.S. On June 15, 2018, we entered into a five-year credit agreement which provided for a $350.0 million term loan and a $350.0 million revolving loan (together with the term loan, as amended from time to time, the “Credit Facilities”). Interest on the term loan and revolving loan is established using LIBOR plus 1.13% - 1.75%, depending on our leverage ratio. Under the Credit Facilities, we are required to maintain certain leverage and interest coverage ratios specified in the credit agreement as well as other customary non-financial affirmative and negative covenants. The Company and its lenders agreed to increase the maximum consolidated leverage ratio the Company is required to maintain for the four consecutive quarters immediately following the closing of the Cardiva acquisition to 4.25:1.0, after which the maximum consolidated leverage ratio the Company is required to maintain will revert to 3.5:1.0. As of July 3, 2021, $297.5 million was outstanding under the term loan with an effective interest rate of 1.9%. There were no borrowings outstanding on the revolving loan. We also had $25.5 million of uncommitted operating lines of credit to fund our global operations under which there were no outstanding borrowings as of July 3, 2021. We have scheduled principal payments of $13.1 million required during the remainder of fiscal 2022. We were in compliance with the leverage and interest coverage ratios specified in the credit agreement as well as all other bank covenants as of July 3, 2021. 28 In August 2021, our Board of Directors approved a revised 2020 Program. We now estimate that we will incur aggregate charges between $95 million and $105 million in connection with the 2020 Program. These charges, the majority of which will result in cash outlays, including severance and other employee costs, will be incurred as the specific actions required to execute these initiatives are identified and approved and are expected to be substantially completed by the end of fiscal 2025. During the three months ended July 3, 2021, we incurred $9.9 million of restructuring and restructuring related costs under this program. Cash Flows Three Months Ended (In thousands) July 3, 2021 June 27, 2020 Net cash provided by (used in): Operating activities $ (1,680) $ 11,812 Investing activities (15,851) (23,896) Financing activities (1,634) 148,951 Effect of exchange rate changes on cash and cash equivalents (1) 322 1,547 Net change in cash and cash equivalents $ (18,843) $ 138,414 (1) The balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. Dollars. In accordance with U.S. GAAP, we have removed the effect of foreign currency throughout our cash flow statement, except for its effect on our cash and cash equivalents. Net cash used in operating activities increased by $13.5 million during the three months ended July 3, 2021, as compared with the three months ended June 27, 2020. The increase in cash used operating activities was primarily the result of an increase in working capital due to lower collections of accounts receivable and higher inventory growth as well as a reduction in net income, as adjusted for depreciation, amortization and other non-cash charges compared with the prior year period. Net cash used in investing activities decreased by $8.0 million during the three months ended July 3, 2021, as compared with the three months ended June 27, 2020. The decrease in cash used in investing activities was primarily the result of higher cash paid for acquisitions during the prior year period, partially offset by an increase in capital expenditures. Net cash used in financing activities increased by $150.6 million during the three months ended July 3, 2021, as compared with the three months ended June 27, 2020, primarily due to a reduction in borrowings on our revolving credit facility, net of payments. Concentration of Credit Risk Concentrations of credit risk with respect to trade accounts receivable are generally limited due to our large number of customers and their diversity across many geographic areas. Certain markets and industries, however, can expose us to concentrations of credit risk. For example, in the Plasma business unit, sales are concentrated with several large customers. As a result, accounts receivable extended to any one of these biopharmaceutical customers can be significant at any point in time. In addition, a portion of our trade accounts receivable outside the U.S. include sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays and local economic conditions. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies. We have not incurred significant losses on receivables. We continually evaluate all receivables for potential collection risks associated with the availability of government funding and reimbursement practices. If the financial condition of customers or the countries' healthcare systems deteriorate such that their ability to make payments is uncertain, allowances may be required in future periods. Inflation We do not believe that inflation had a significant impact on our results of operations for the periods presented. Historically, we believe we have been able to mitigate the effects of inflation by improving our manufacturing and purchasing efficiencies, by increasing employee productivity and by adjusting the selling prices of products. We continue to monitor inflation pressures generally and raw materials indices that may affect our procurement and production costs. Increases in the price of petroleum derivatives could result in corresponding increases in our costs to procure plastic raw materials. 29 Foreign Exchange During the three months ended July 3, 2021, 38.3% of our sales were generated outside the U.S., generally in foreign currencies, yet our reporting currency is the U.S. Dollar. We also incur certain manufacturing, marketing and selling costs in international markets in local currency. Our primary foreign currency exposures relate to sales denominated in Euro, Japanese Yen, Chinese Yuan and Australian Dollars. We also have foreign currency exposure related to manufacturing and other operational costs denominated in Swiss Francs, Canadian Dollars, Mexican Pesos and Malaysian Ringgit. The Yen, Euro, Yuan and Australian Dollar sales exposure is partially mitigated by costs and expenses for foreign operations and sourcing products denominated in foreign currencies. Since our foreign currency denominated Yen, Euro, Yuan and Australian Dollar sales exceed the foreign currency denominated costs, whenever the U.S. Dollar strengthens relative to the Yen, Euro, Yuan or Australian Dollar, there is an adverse effect on our results of operations and, conversely, whenever the U.S. Dollar weakens relative to the Yen, Euro, Yuan or Australian Dollar, there is a positive effect on our results of operations. For Swiss Francs, Canadian Dollars Mexican Pesos and Malaysian Ringgit our primary cash flows relate to product costs or costs and expenses of local operations. Whenever the U.S. Dollar strengthens relative to these foreign currencies, there is a positive effect on our results of operations. Conversely, whenever the U.S. Dollar weakens relative to these currencies, there is an adverse effect on our results of operations. We have a program in place that is designed to mitigate our exposure to changes in foreign currency exchange rates. That program includes the use of derivative financial instruments to minimize, for a period of time, the unforeseen impact on our financial results from changes in foreign exchange rates. We utilize forward foreign currency contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, primarily Japanese Yen and Euro, and to a lesser extent Swiss Francs, Australian Dollars, Canadian Dollars and Mexican Pesos. This does not eliminate the volatility of foreign exchange rates, but because we generally enter into forward contracts one year out, rates are fixed for a one-year period, thereby facilitating financial planning and resource allocation. These contracts are designated as cash flow hedges. The final impact of currency fluctuations on the results of operations is dependent on the local currency amounts hedged and the actual local currency results. Recent Accounting Pronouncements In July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2021-05. Leases (Topic 842). The new guidance requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria ASC 842 and the lessor would have otherwise recognized a day-one loss. ASC Update No. 2021-05 is effective for annual periods beginning after December 15, 2021, and is applicable to us in fiscal 2023. We are in the process of determining the effect that the adoption will have on our financial position and results of operations. Cautionary Statement Regarding Forward-Looking Information Certain statements that we make from time to time, including statements contained in this Annual Report on Form 10-K and incorporated by reference into this report, constitute “forward looking-statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “foresees,” “potential” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; impacts of the COVID-19 pandemic; the Company’s strategy for growth; product development, commercialization and anticipated performance and benefits; regulatory approvals; impacts of acquisitions or dispositions; market position and expenditures. Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of the Company's control. Investors should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, the Company’s actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements. 30 The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements. For further discussion of these and other factors, see Item 1A. Risk Factors in this report. • The effect of the ongoing COVID-19 pandemic, or outbreaks of communicable diseases, on our business, financial conditions and results of operations, including the time it will take for vaccines to be broadly distributed and accepted in the U.S. and the rest of the world, and the effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and mitigating the economic effects of the pandemic; • Failure to achieve our long-term strategic and financial-improvement goals; • Demand for and market acceptance risks for new and existing products, including material reductions in purchasing from or loss of a significant customer; • Product quality or safety concerns, leading to product recalls, withdrawals, regulatory action by the FDA (or similar non-U.S. regulatory agencies), reputational damage, declining sales or litigation; • Security breaches of our information technology systems or our products, which could impair our ability to conduct business or compromise sensitive information of the Company or its customers, suppliers and other business partners, or of customers' patients; • Pricing pressures resulting from trends toward healthcare cost containment, including the continued consolidation among healthcare providers and other market participants; • The continuity, availability and pricing of plastic and other raw materials, finished goods and components used in the manufacturing of our products (including those purchased from sole-source suppliers) and the related continuity of our manufacturing, sterilization, supply and distribution; • Our ability to develop, manufacture and market new products and technologies successfully and in a timely manner and the ability of our competitors and other third parties to develop products or technologies that render our products or technologies noncompetitive or obsolete; • Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, including the Operational Excellence Program; • The potential that the expected strategic benefits and opportunities from our acquisition of Cardiva and any other planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected; • The impact of enhanced requirements to obtain regulatory approval in the U.S. and around the world and the associated timing and cost of product approval; • Our ability to comply with established and developing U.S. and foreign legal and regulatory requirements, including FCPA, MDR and similar laws in other jurisdictions, as well as U.S. and foreign export and import restrictions and tariffs; • Our ability to meet our debt obligations and raise additional capital when desired on terms reasonably acceptable to us; • The potential impact of our convertible senior notes and related capped call transactions; • Our ability to execute and realize anticipated benefits from our investments in emerging economies; • The potential effect of foreign currency fluctuations and interest rate fluctuations on our net sales, expenses, and resulting margins; • The impact of changes in U.S. and international tax laws; • Our ability to protect intellectual property and the outcome of patent litigation; • Costs and risks associated with product liability and other litigation claims; 31 • Our ability to retain and attract key personnel; and • Market conditions impacting our stock price and/or share repurchase programs we may enter into from time to time, and the possibility that such share repurchase programs may be delayed, suspended or discontinued. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above and in Item 1A. Risk Factors to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.