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 March 30, 2024. 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. Introduction Haemonetics is a global healthcare company dedicated to providing a suite of innovative medical technology solutions that improve the quality, effectiveness and efficiency of care. We challenge ourselves to think big and make new possibilities a reality, so that our customers can make it matter for patients, every single day. Our technology addresses important medical markets: blood and plasma component collection, the surgical suite and hospital transfusion services. 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, donor management software and supporting software solutions sold to plasma customers. “Blood Center” includes blood collection and processing devices and disposables for red cells, platelets and whole blood. “Hospital” is comprised of Interventional Technologies, which includes Vascular Closure, Sensor Guided Technologies and Esophageal Protection products, and Blood Management Technologies, which includes Hemostasis Management, Cell Salvage and Transfusion Management products. 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 Issuance of Convertible Senior Notes On May 28, 2024, we issued $700.0 million aggregate principal amount of 2.5% convertible senior notes due 2029 (the “2029 Notes”). The 2029 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 2029 Notes, after deducting the initial purchasers’ discounts and debt issuance costs, were $682.8 million, of which $230.0 million was used to repay the entirety of the balance on the revolving credit facility under the Company’s current credit agreement, $185.5 million was used to repurchase a portion of our existing 0% convertible senior notes due 2026 and $88.2 million was used to complete capped call transactions, with the remaining proceeds available for working capital and other general purposes. The 2029 Notes will mature on June 1, 2029, unless earlier converted, redeemed or repurchased. Debt Issuance and Repayment On April 30, 2024, we entered into a second amended and restated credit agreement with certain lenders to refinance our prior credit facilities and extend their maturity date through April 2029. The second amended and restated credit agreement provides for a $250.0 million senior unsecured term loan, the proceeds of which, along with $12.5 million of cash on hand, have been used to retire the balance of the term loan under our prior credit facilities, and a $750.0 million senior unsecured revolving credit facility. Acquisition of Attune Medical On March 5, 2024, the Company entered into a definitive agreement to acquire Advanced Cooling Therapy, Inc., d/b/a Attune Medical (“Attune Medical”), the manufacturer of the ensoETM ® proactive esophageal cooling device, pursuant to which, among other things, the Company agreed to acquire all of the issued and outstanding common shares of Attune Medical. On April 1, 2024, the Company completed its acquisition of Attune Medical for total consideration of $186.2 million, which included an upfront cash payment of $160.7 million, or $149.2 million net of cash acquired, the fair value of contingent consideration of $25.0 million, and $0.5 million of estimated working capital adjustments. The Company’s purchase price is subject to customary working capital and certain other adjustments as of the closing of the transaction and additional contingent consideration based on sales growth over the next three years, which is uncapped, and the achievement of certain other 27 Table of Contents milestones. The Company financed the acquisition through a combination of cash on hand and borrowings under its senior unsecured revolving credit facility. Attune Medical's ensoETM technology is designed for use across a range of medical conditions involving patient cooling or warming, including treatment in electrophysiology, critical care, neurocritical care, trauma, burn surgery, spine surgery, and cancer surgery, among others. The Company’s addition of the Esophageal Protection product line through its acquisition of Attune Medical expands the Hospital business unit’s presence in electrophysiology and complements its Vascular Closure product line within Interventional Technologies, which is included in the Hospital reportable segment. Acquisition of OpSens Inc. On October 10, 2023, the Company entered into an Arrangement Agreement with OpSens Inc. (“OpSens”), a medical device cardiology-focused company delivering solutions based on its proprietary optical technology, pursuant to which, among other things, the Company agreed to acquire all of the issued and outstanding common shares of OpSens. On December 12, 2023, the Company completed its acquisition of OpSens for total consideration of approximately $254.5 million, or $243.9 million, net of cash acquired. The Company financed the acquisition through a combination of cash on hand and borrowings under its senior unsecured revolving credit facility. OpSens offers commercially and clinically validated optical technology for use primarily in interventional cardiology. OpSens’ core products include the SavvyWire ® , a sensor-guided 3-in-1 guidewire for TAVR procedures, advancing the workflow of the procedure and enabling potentially shorter hospital stays for patients; and the OptoWire ® , a pressure guidewire that aims to improve clinical outcomes by accurately and consistently measuring Fractional Flow Reserve (FFR) and diastolic pressure ratio (dPR) to aid clinicians in the diagnosis and treatment of patients with coronary artery disease. OpSens also manufactures a range of fiber optic sensor solutions used in medical devices and other critical industrial applications. The addition of OpSens expands the Hospital business unit portfolio in the interventional cardiology market and is included in the Hospital reportable segment. Financial Summary Three Months Ended (In thousands, except per share data) June 29, 2024 July 1, 2023 % Increase/ (Decrease) Net revenues $ 336,172 $ 311,332 8.0 % Gross profit $ 174,924 $ 167,265 4.6 % % of net revenues 52.0 % 53.7 % Operating expenses $ 135,168 $ 113,606 19.0 % Operating income $ 39,756 $ 53,659 (25.9) % % of net revenues 11.8 % 17.2 % Interest and other income (expense), net $ 6,957 $ (2,069) n/m Income before provision for income taxes $ 46,713 $ 51,590 (9.5) % Provision for income taxes $ 8,340 $ 10,548 (20.9) % % of pre-tax income 17.9 % 20.4 % Net income $ 38,373 $ 41,042 (6.5) % % of net revenues 11.4 % 13.2 % Net income per share - basic $ 0.75 $ 0.81 (7.4) % Net income per share - diluted $ 0.74 $ 0.80 (7.5) % Net revenue s increased 8.0% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, net revenues increased 8.7% during the three months ended June 29, 2024, as compared with the same period of fiscal 2024. Revenue increases in our Hospital businesses, primarily related to recent acquisitions as well as volume and price benefits, drove the overall increase in revenue during the three months ended June 29, 2024. Operating income de creased 25.9% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The decrease during the three months ended June 29, 2024 was primarily due to transaction and integration costs related 28 Table of Contents to recent acquisitions, continuous growth investments, increased amortization of acquired intangible assets and increased freight costs, partially offset by operating leverage. 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. RESULTS OF OPERATIONS Net Revenues by Geography Three Months Ended (In thousands) June 29, 2024 July 1, 2023 Reported growth Currency impact Constant currency growth (1) United States $ 248,902 $ 237,073 5.0 % — % 5.0 % International 87,270 74,259 17.5 % (1.9) % 19.4 % Net revenues $ 336,172 $ 311,332 8.0 % (0.7) % 8.7 % (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 United States, 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 and independent distributors and agents. During the three months ended June 29, 2024 our revenue generated outside the U.S. was 26.0% of total net revenues, as compared with 23.9% during the three months ended July 1, 2023. International sales are generally conducted in local currencies, primarily Japanese Yen, Euro and Chinese Yuan. Our results of operations are impacted by changes in foreign exchange rates, particularly in the value of the Yen and Euro relative to the U.S. Dollar. We have placed foreign currency hedges on certain foreign currencies 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. 29 Table of Contents Net Revenues by Business Unit Three Months Ended (In thousands) June 29, 2024 July 1, 2023 Reported growth Currency impact Constant currency growth (1) Plasma $ 135,910 $ 139,621 (2.7) % (0.1) % (2.6) % Apheresis 49,094 49,166 (0.1) % (3.0) % 2.9 % Whole Blood 17,151 20,040 (14.4) % (0.2) % (14.2) % Blood Center 66,245 69,206 (4.3) % (2.2) % (2.1) % Interventional Technologies (2) 63,044 37,620 67.6 % (0.4) % 68.0 % Blood Management Technologies (3) 70,973 64,885 9.4 % (0.6) % 10.0 % Hospital 134,017 102,505 30.7 % (0.6) % 31.3 % Net revenues (4) $ 336,172 $ 311,332 8.0 % (0.7) % 8.7 % (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) Interventional Technologies includes Vascular Closure, Sensor Guided Technologies and Esophageal Protection product lines of the Hospital business unit. (3) Blood Management Technologies includes Hemostasis Management, Cell Salvage and Transfusion Management product lines of the Hospital business unit. (4) Beginning in fiscal 2025, the Company integrated service revenue within its three business units. Prior periods were conformed to current presentation. Plasma Plasma revenue decreased 2.7% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of fo reign exchange, Plasma revenue decreased 2.6% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The decrease during the three months ended June 29, 2024 was primarily driven by lower sales volumes in North America relating to a previously announced customer transition and a temporary plasma center outage at one of our customers. During the third quarter of fiscal 2022, we amended our supply agreement with CSL, which CSL had previously notified us of its intent not to renew and was initially set to expire in June 2022, to allow CSL to continue to use our PCS2 plasma collection system devices and purchase disposable plasmapheresis kits on a non-exclusive basis through December 2023. During the third quarter of fiscal 2023, we further amended our supply agreement with CSL to extend the term through December 2025. CSL has a minimum purchase commitment under the non-exclusive supply agreement of approximately $85 million in fiscal 2025. Blood Center Blood Center revenue decreased 4.3% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, Blood Center revenue decreased 2.1% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The decrease during the three months ended June 29, 2024 was primarily driven by declines in our Whole Blood business. Hospital Hospital revenue increased 30.7% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, Hospital revenue increased 31.3% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was primarily attributable to the product lines within the Interventional Technologies franchise with benefits from Sensor Guided Technologies and Esophageal Protection that were recently acquired, as well as growth in Vascular Closure. 30 Table of Contents Gross Profit Three Months Ended (In thousands) June 29, 2024 July 1, 2023 % Increase Gross profit $ 174,924 $ 167,265 4.6 % % of net revenues 52.0 % 53.7 % Gross profit increased 4.6% for the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, gross profit increased 5.8% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was driven by increased revenues in the Hospital business and volume and mix, partially offset by amortization of fair value inventory step-up and restructuring costs related to portfolio rationalization initiatives. Operating Expenses Three Months Ended (In thousands) June 29, 2024 July 1, 2023 % Increase Research and development $ 14,449 $ 12,648 14.2 % % of net revenues 4.3 % 4.1 % Selling, general and administrative $ 108,248 $ 93,485 15.8 % % of net revenues 32.2 % 30.0 % Amortization of acquired intangible assets $ 12,471 $ 7,473 66.9 % % of net revenues 3.7 % 2.4 % Total operating expenses $ 135,168 $ 113,606 19.0 % % of net revenues 40.2 % 36.5 % Research and Development Research and development expenses increased 14.2% during the three months ended June 29, 2024, as compared with the same period of fiscal 2024. Without the effects of foreign exchange, research and development expenses increased 14.2% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. The increase during the three months ended June 29, 2024 was due to increased headcount as a result of recent acquisitions. Selling, General and Administrative Selling, general and administrativ e expenses increased 15.8% during the three months ended June 29, 2024 as compared with the same period of fiscal 2024. Without the effects of foreign exchange, selling, general, and administrative expenses increased 15.2% during th e three months ended June 29, 2024 as compared with the same period of fiscal 2024 . The increase during the three months ended June 29, 2024 was primarily driven by transaction, integration and operating costs related to recent acquisitions, as well as increased headcount, partially offset by gains realized on the sale of a manufacturing facility. Amortization of Acquired Intangible Assets We recognized amortization expense related to our acquired intangible assets of $12.5 million during the three months ended June 29, 2024 and $7.5 million during the three months ended July 1, 2023 . The increase was related to the amortization of the intangible assets acquired in conjunction with the recent acquisitions of OpSens and Attune Medical. Interest and Other Income (Expense), Net Interest and other income in creased $9.0 million during the three months ended June 29, 2024, as compared with the same period of fiscal 2024. The increase during three months ended June 29, 2024 was driven by the net gain on the repurchase of convertible notes during the first quarter of fiscal 2025, partially offset by higher interest incurred on our term loan and revolving credit facilities as compared with the same period of fiscal 2024. 31 Table of Contents 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 differs from the statutory tax rate due to 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. Our effective tax rate is adversely impacted by non-deductible expenses including executive compensation and transaction costs. For the three months ended June 29, 2024, the Company reported income tax expense of $8.3 million, representing an effective tax rate of 17.9%. The effective tax rate for the three months ended June 29, 2024 includes $3.6 million of discrete tax benefit, primarily related to stock compensation windfalls. The discrete benefit also includes other items such as provision to return differences. For the three months ended July 1, 2023, the Company reported income tax expense of $10.5 million, representing an effective tax rates of 20.4%. The effective tax rate for the three months ended July 1, 2023 includes $1.2 million of discrete tax benefit primarily related to stock compensation windfalls. The decrease in the reported tax rates for the three months ended June 29, 2024, compared to the same period in fiscal 2024, relates primarily to increased discrete tax benefits year-over-year, partially offset by unfavorable impact of jurisdictional mix of earnings and non-deductible acquisition-related expenses. Liquidity and Capital Resources The following table contains certain key performance indicators we believe depict our liquidity and cash flow position: (Dollars in thousands) June 29, 2024 March 30, 2024 Cash and cash equivalents $ 344,429 $ 178,800 Working capital $ 718,502 $ 468,520 Current ratio 3.8 2.6 Net debt position (1) $ (879,157) $ (628,993) Days sales outstanding (DSO) 54 54 Inventory turnover 1.4 1.7 (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 and our senior unsecured revolving credit facility. We believe these sources are sufficient to fund our cash requirements over at least the next twelve months and to meet our known long-term cash requirements, including our convertible senior notes due March 1, 2026. Our e xpected cash outlays relate primarily to acquisitions, investments, capital expenditures, including enhancements to our North American manufacturing facilities, share repurchases, portfolio rationalization initiatives and cash principal and interest payments under our revised credit agreements. As of June 29, 2024, we had $344.4 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. In the first quarter of fiscal 2025, the Company used a portion of its proceeds from the 2029 Notes to repurchase, for $185.5 million, $200.0 million of the $500.0 million aggregate principal amount of its 0% convertible senior notes due 2026 (the “2026 Notes”), resulting in a gain of $14.5 million related to the discount on repurchase. As the repurchase of the 2026 Notes met the criteria for extinguishment accounting, $1.9 million of unamortized debt issuance costs were allocated to the repurchase, resulting in a net gain of $12.6 million. As of June 29, 2024, the $300.0 million remaining principal balance on the 2026 Notes was netted down by $2.6 million of remaining debt issuance costs, resulting in a net convertible note payable of $297.4 million. Interest expense related to the 2026 Notes was $0.7 million for the three months ended June 29, 2024, which is entirely attributable to the amortization of the debt issuance costs. The remaining debt issuance costs are amortized at an effective interest rate of 0.5%. On July 26, 2022, the Company entered into an amended and restated credit agreement to refinance its credit facilities initially entered into in 2018 and extend their maturity date through June 2025. The amended and restated credit agreement provided for a $280.0 million senior unsecured term loan and a $420.0 million senior unsecured revolving credit facility (together, the “2022 Revised Credit Facilities”) with applicable interest rates during the period established using an annual rate equal to the Adjusted Term SOFR Rate plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio, as specified in the agreement. 32 Table of Contents On April 30, 2024, the Company entered into a second amended and restated credit agreement with certain lenders to refinance the 2022 Revised Credit Facilities and extend their maturity date through April 2029. The second amended and restated credit agreement provides for a $250.0 million senior unsecured term loan, the proceeds of which, along with $12.5 million of cash on hand, were used to retire the balance of the term loan under the 2022 Revised Credit Facilities, and a $750.0 million senior unsecured revolving credit facility (together, the “2024 Revised Credit Facilities”). Loans under the 2024 Revised Credit Facilities will initially bear interest at an annual rate equal to the Adjusted Term SOFR Rate (as specified in the second amended and restated credit agreement), which is subject to a floor of 0.0%, plus an applicable rate ranging from 1.125% to 1.750% based on the Company’s consolidated net leverage ratio (as specified in the second amended and restated credit agreement) at the applicable measurement date. The revolving credit facility carries an unused fee that ranges from 0.125% to 0.250% annually based on the Company’s consolidated net leverage ratio at the applicable measurement date. The 2024 Revised Credit Facilities mature on April 30, 2029. The principal amount of the term loan under the 2024 Revised Credit Facilities amortizes quarterly through the maturity date at a rate of 2.5% for the first three years following the closing date, 5.0% for the fourth year following the closing date and 7.5% for the fifth year following the closing date, with the unpaid balance due at maturity. At June 29, 2024, $248.4 million was outstanding under the term loan with an effective interest rate of 6.8%. There were no outstanding borrowings under the revolving credit facilities at June 29, 2024, as the Company paid all outstanding borrowings during the first quarter of fiscal 2025. The Company also had $17.6 million of uncommitted operating lines of credit to fund its global operations under which there were no outstanding borrowings as of June 29, 2024. The Company has scheduled principal payments of $3.1 million required during the remainder of fiscal 2025 related to its term loan. During fiscal 2022, our Board of Directors approved a revised Operational Excellence Program. We estimate that we will incur aggregate charges between $85 million and $95 million in connection with the Operational Excellence 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 June 29, 2024, we incurred $2.4 million of restructuring and restructuring related costs under this program. Cash Flows Three Months Ended (In thousands) June 29, 2024 July 1, 2023 Net cash provided by (used in): Operating activities $ (27,421) $ 19,086 Investing activities (139,197) (15,261) Financing activities 333,692 (598) Effect of exchange rate changes on cash and cash equivalents (1) (1,445) (1,974) Net change in cash and cash equivalents $ 165,629 $ 1,253 (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 eliminated 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 $46.5 million during the three months ended June 29, 2024, as compared with the three months ended July 1, 2023. The increase in cash used in operating activities was primarily due to the timing of accounts payable payments, decreased net income when considering certain non-cash items, increased inventory balances and a payment in connection with a previously disclosed legal settlement. Net cash used in investing activities increased by $123.9 million during the three months ended June 29, 2024, as compared with the three months ended July 1, 2023. The increase in cash used in investing activities was primarily the result of the acquisition of Attune Medical, partially offset by the proceeds from the sales of property, plant and equipment. Net cash provided by financing activities increased by $334.3 million during the three months ended June 29, 2024, as compared with the three months ended July 1, 2023, primarily due to the issuance the 2029 Notes, partially offset by the repurchase of a portion of the 2026 Notes, capped call transactions, payments on the revolving credit facility and debt issuance costs. 33 Table of Contents 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 trade accounts or other 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. Foreign Exchange During the three months ended June 29, 2024, 26.0% 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 Japanese Yen, Euro and Chinese Yuan. 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 and Yuan 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 and Yuan sales exceed the foreign currency denominated costs, whenever the U.S. Dollar strengthens relative to the Yen, Euro or Yuan, there is an adverse effect on our results of operations and, conversely, whenever the U.S. Dollar weakens relative to the Yen, Euro or Yuan, 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 Franc and Mexican Peso. 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 Refer to Note 2, Recent Accounting Pronouncements , to the Condensed Consolidated Financial Statements for a discussion of recently issued accounting pronouncements. Cautionary Statement Regarding Forward-Looking Information Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q 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; the Company’s strategy for growth; product development, commercialization and anticipated performance and benefits; regulatory approvals; impacts of acquisitions or dispositions; and market position and expenditures. 34 Table of Contents 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. 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 our most recent Annual Report on Form 10-K (as supplemented by Item 1A of Part II of this Quarterly Report on Form 10-Q). • Our ability 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; • 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; • 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; • The potential that the expected strategic benefits and opportunities from completed or planned acquisitions, including the Company’s acquisitions of OpSens Inc. and Attune Medical, divestitures or other strategic investments by the Company may not be realized or may take longer to realize than expected; • Pricing pressures resulting from trends toward healthcare cost containment, including the continued consolidation among healthcare providers and other market participants; • Disruptions to 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 chain and distribution operations, including disruptions caused by natural disasters, extreme weather and other conditions caused by or related to climate change, labor strikes, terrorism acts, cyber incidents or other adverse events; • Our ability to obtain the anticipated benefits of restructuring programs that we have or may undertake, including the Operational Excellence Program and portfolio rationalization initiatives; • 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 the U.S. Foreign Corrupt Practices Act, European Union Medical Device Regulation and In Vitro Diagnostic Regulation and similar laws in other jurisdictions, as well as U.S. and foreign export and import restrictions and tariffs; • The impact of changes in U.S. and international tax laws; • 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; • Geopolitical and economic conditions in China, Taiwan, Russia, Ukraine, the Middle East and other foreign jurisdictions where we do business; 35 Table of Contents • 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; • Our ability to protect intellectual property and the outcome of patent litigation; • Costs and risks associated with product liability and other litigation claims we may be subject to now or in the future; • Our ability to retain and attract key personnel; • Market conditions impacting our stock price and/or our share repurchase program, and the possibility that such share repurchase program may be delayed, suspended or discontinued; • Our ability to achieve against our corporate responsibility initiatives and meet evolving stakeholder expectations concerning corporate responsibility matters; and • The impact of actual or threatened public health crises. 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 in our Annual Report on Form 10-K (as supplemented by Item 1A of Part II of this Quarterly Report on Form 10-Q) 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.