Teleflex Q4 2021 Earnings Call Transcript

Key Takeaways

  • Q4 Results: Teleflex delivered 7.9% constant currency revenue growth and 10.8% adjusted EPS increase year-over-year, driven by its diversified product portfolio and operational execution.
  • FY21 Performance: Full-year constant currency sales rose 8.8%, adjusted operating margin expanded by 310 basis points, and adjusted EPS jumped 24.9% to $13.33, meeting all financial commitments despite pandemic challenges.
  • UroLift Update: While UroLift procedures dipped 1% in Q4 due to COVID-19, full-year revenues grew 18% and management targets ~15% growth in 2022 supported by direct-to-consumer marketing and international launches.
  • 2022 Guidance: Teleflex forecasts 4.0%–5.5% constant currency revenue growth (5.6%–7.1% ex-respiratory assets) and adjusted EPS of $13.70–$14.30, balancing margin expansion initiatives with pandemic and inflation headwinds.
  • Balance Sheet Strength: The company generated $652 million in operating cash flow in 2021, ended Q4 with $445 million in cash, and maintains net leverage of 1.7× with no significant debt maturities through 2023.
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Earnings Conference Call
Teleflex Q4 2021
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Teleflex Fourth Quarter of 2021 Earnings Conference Call. At this time, all participants have been placed in a listen only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And now, I would like to turn the call over to Mr.

Operator

Lawrence Kirsch, Vice President of Investor Relations and Strategy Development.

Speaker 1

Good morning, everyone, and welcome to the Teleflex Incorporated Q4 2021 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex .com. As a reminder, this call will be available on our website and a replay will be available by dialing 800 585-8367 or for international calls 416 621-4642 using passcode 1028,958. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer and Thomas Powell, Executive Vice President and Chief Financial Officer. Liam and Tom will provide prepared remarks and then we will open the call to Q and A.

Speaker 1

Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides. We wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results May differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, Factors referenced in our press release today as well as our filings with the SEC, including our Form 10 ks, which can be accessed on our website. During this conference call, you will hear management make statements regarding intra quarter business performance. Management is providing this commentary With that said, I will now turn the call over to Liam for his remarks.

Speaker 2

Thank you, Larry, and good morning, everyone. It's a real pleasure to speak with you today. For the Q4, Catiflex generated 7.9% constant currency revenue growth year over year and increased 10.4% over the comparable period in 2019. In the quarter, there was one extra shipping day, which added approximately 1% to the year over year growth rate. Adjusted earnings per share rose 10.8% year over year.

Speaker 2

Our 4th quarter performance was driven by the company's balance of growth drivers, broad portfolio of medically necessary products and categories leadership, offset by the impact of COVID-nineteen and the divestiture of the respiratory assets. As we had anticipated at the time of our Q3 earnings Comparable 2019 levels. Specifically, COVID cases increased significantly during December In geographies with large populations, including the Northeast, Florida, Texas and California, as COVID spread quickly through these regions. We also saw increased staffing charges as COVID infections Accelerated quickly in the latter portion of the quarter. Teleflex executed well in the quarter With dependable service levels to our customers, while managing supply chain challenges, freight logistic delays and responding when COVID infection rates began to accelerate.

Speaker 2

Of note, when excluding UroLift, which is the product That was most impacted by the pandemic, revenues from the remaining business grew over 9% on a constant currency basis in the Q4 year over year. Turning to our performance in 2021. Although the year presented challenges, I am proud to say that Teleflex executed very well. We confronted the unprecedented market disruption head on as the pandemic continued to ebb and flow. We remain diligent and flexible in order to support our customer needs and keep our workforce safe.

Speaker 2

We responded As freight and raw material supply challenges escalated through the year. Throughout the year, We stayed true to our objectives by advancing our strategy of driving durable growth, expanding margins and remaining good stewards of our balance sheet. During the year, we invested in our growth drivers, executed on our overseas strategy and rolled out new products. Our customers remained our focus and Teleflex team members enabled us to supply customers with products necessary to care for their patients. We continued to optimize our portfolio with the integration of HPC and ZMedica And we did not take our eyes off our people as we fortified our culture and advanced our ESG initiatives.

Speaker 2

From a financial perspective, we delivered on our full year 2021 financial commitments with constant currency sales growth of 8.8 percent, adjusted operating margin expansion of 3 10 basis points and adjusted earnings per share $13.33 a 24.9% increase year over year. None of this would be possible if it were not for the tireless efforts of the global Teleflex team. I would like to thank our employees for their hard work and dedication during 2021 and throughout the pandemic. Turning now to a deeper look at our 4th quarter revenue results. I will begin with a review of our reportable segment revenues.

Speaker 2

All growth rates that I referred to are on a constant currency basis unless otherwise noted. During the Q4, Our Americas, EMEA, Asia and OEM segments demonstrated resilience with all regions showing constant revenue growth over 2020 when excluding the impact of the extra shipping day, despite the continued headwinds from COVID. As I mentioned earlier, this underscores the benefits of our diversified product portfolio. Americas revenue was $451,700,000 in the 4th quarter, which represents 7.6% year over year growth. Contributors to the year over year growth were surgical, vascular and interventional, partially offset by the impact of COVID-nineteen.

Speaker 2

EMEA revenues of $164,500,000 increased 4.8% year over year. With interventional, surgical and vascular access products leading the growth. EMEA continues to face a headwind from COVID-nineteen. Although procedure volumes improved year over year as countries across the region continued to open up. Excluding the impact of the respiratory divestiture, revenues rose 8.7%.

Speaker 2

Turning to Asia, revenues were $78,500,000 increasing 0.5% year over year. Excluding the impact of the respiratory divestiture, revenues rose 6.7%. Let's now move to a discussion of our 4th quarter revenues by global product category. Consistent with my prior comments regarding our reportable segment, commentary on global product category growth will also be on a constant currency basis and ranked by size of our business units. Starting with Atheraxis.

Speaker 2

4th quarter revenue increased 6.4% to $193,000,000 Our Category leadership in central venous catheters and midlines, along with our novel coated PIK portfolio, continue to position us for dependable The PIG portfolio continues to perform well with 11% growth year over year As we continue to invest behind our differentiated portfolio and are gaining market share. Intra Osseus Continues to be a dependable growth driver with 4th quarter revenues rising approximately 17% year over year. Moving to interventional. 4th quarter revenue was $114,900,000 Up 8.2%, strong demand for our complex catheters and balloon pumps. We continue to invest behind our interventional portfolio, including complex catheters and MANTA device.

Speaker 2

MANTA momentum remains strong both in the U. S. And in international markets with growth of approximately 45% year over year. Of note, we exceeded our Turning to anesthesia and emergency medicine. 4th quarter revenue was $102,800,000 up 20.5 And our guidance drove the growth in the quarter, offset by tough comparisons in the Airway business and lower sales of Haemostat revenues were approximately 66,500,000 into the $60,000,000 to $70,000,000 range that we had established coming into 2021.

Speaker 2

In our Surgical business, revenue was $106,400,000 in the 4th quarter, representing 16.1% growth year over year. Among our largest product categories, we stronger than in the prior year period as hospital capital spending increased. For Interventional Urology, 4th quarter revenue was $92,900,000 representing a decrease of 1% year over year and a 12% We saw a clear improvement in UroLift procedure trends during October November when compared to the Q3. However, December was negatively impacted year over year by the surge in COVID-nineteen With continued staffing shortages and an increase in procedure cancellations. Of note, We did not see any pull forward of UroLift procedures into the Q4 of 2021 from 2022, resulting from the announcement of the Medicare physician fee schedule final rule in November.

Speaker 2

OEM revenues increased 30.9% year over year to $67,200,000 in the 4th quarter As customer demand remains strong across our portfolio, we remain well positioned with broad capabilities in our markets, including faster growth opportunities in thin walls advanced interventional microcatheters used in to $84,700,000 year over year. The decline reflects the loss of revenues due to the divestiture of the respiratory products, partially offset by manufacturing and supply transition agreement revenues and growth in urology care. We continue to expect manufacturing and supply transition agreement revenues to phase out at the end of 2023. That completes my comments on 4th quarter revenue performance. Turning now To some commercial updates and starting with UroLift.

Speaker 2

As we reflect on 2021, We continue to see COVID-nineteen as being the most disruptive force on the interventional urology business. Given the deferrable nature of BPH treatments, patient willingness can modulate depending on the severity of the pandemic. Our experience has shown that when COVID infections pick up, UroLift procedures are negatively impacted and then recover when COVID case counts drop. In addition, staffing shortages, which we identified in the 2nd quarter, created business disruptions, particularly in our office site of service. Importantly, our analysis continues to confirm We have not last shared completing device based treatments for BPH.

Speaker 2

For 2021, UroLift revenues increased 18% year over year despite the broader category for urology procedures remaining below pre pandemic levels. We continue to see UroLift positioned for accelerating growth as pandemic headwinds abate. COVID has remained a headwind early in the Q1, but we anticipate improvement in sales trends throughout the year as elective surgical procedures become less disrupted. UroLift remains differentiators from other outpatient BPH treatments With strong clinical results, studies showing rapid symptom relief and recovery, no new sustained sexual dysfunction and We'll be aware that UroLift is being positioned for patients that are suffering with BPH and have failed or are not satisfied with drug therapy. In 2022, we will be intentionally laser focused on improving utilization of existing UroLift users and driving increased productivity of surgeons that were trained in the midst of the pandemic.

Speaker 2

We will also fully engage our sales organization to advance the rollout of UroLift 2 With conversion of the vast majority of the U. S. Users anticipated by the end of 2022. UroLift 2 remains an important margin driver and we remain positioned to generate 400 basis points of Euralift gross margin expansion once the U. S.

Speaker 2

User base is fully converted. We believe that a tactical approach to moving our existing UroLift users back towards pre pandemic Procedure levels is the most efficient way to improve growth in 2022. As for our consumer marketing efforts, we continue to view direct to consumer as a multiyear catalyst for UroLift In the U. S, for 2021, we exceeded all of our internal targets for the DTC campaign, And I would like to share a couple of highlights. Impressions increased nearly 200% year over year and exceeded our 150% objective.

Speaker 2

Likewise, UroLift brand awareness increased 60% year over year to 16% and has surpassed 14% for TARP, Which declined 600 basis points in 2021. Importantly, our DTC programs are extremely focused on driving revenue Teleflex, since the vast majority of our customers only offer UroLift for minimally invasive treatment of BPH. We will continue to fund our DTC campaign in 2022 and retain our flexibility to flex up and down depending on the macro environment. Additionally, our international market expansion remains active With several milestones expected for 2022. In Japan, we continue to make progress towards an upcoming commercial launch for UroLift.

Speaker 2

We secured reimbursement for UroLift last December and have a team in place to initiate our rollout launch once the reimbursement is implemented on April 1 this year. Japan remains an important long term opportunity for UroLift with a $2,000,000,000 TAM And we are excited for the upcoming launch. We continue to expect our sales in the region to ramp in a similar fashion to the U. S. In a market that is 1 third the size.

Speaker 2

Now turning to Brazil. We are encouraged by our initial commercial activity with a focus on training surgeons and securing reimbursement in the coming years. Additional UroLift launches Could come in the second half of twenty twenty two, including France and initial activities in Italy and Spain. Finally, we remain on track for a regulatory clearance in China in 2023. To round out the update on UroLift, President Biden signed into law the Protecting Medicare and American Farmers from Sequestra Cuts Act On December 10, 2021, among a number of important items, the law increased convergent factor in the Medicare physician fee schedule by 3% for 2022 versus the final rule issued in November.

Speaker 2

For Eurus specifically, the change will translate into an incremental $100 to $150 We are encouraged by the improvement in reimbursement and will continue to work with stakeholders to address the unintended consequence of Moving to some updates in our interventional business unit. We have completed the sales force expansion, which is intended to provide additional resources for MANTA training and increase our market penetration. On the clinical front, we recently received 510 clearance to extend the indication for our specialty support catheters, Our FDA filing was based on successful results from a peer reviewed perspective, single arm IDE study That enrolled 150 patients across 13 investigational centers in the United States. The study met the protocol's primary endpoint of procedural success and achieved technical success, which is defined A successful Guidewire recanalization in more than 93% of these very complicated CTO cases. We view complex PCI and especially CTO PCI As high growth spaces within interventional cardiology and our new labeled indication keeps us competitively positioned.

Speaker 2

Lastly, we continue to innovate around the core MANTA platform and initiated A limited market release of the 14 French depth locator during the quarter. The depth locator expands the use The 14 French mounted closure for Impella in emergent cardiogenic shock procedures. Regarding EZYPlas, We have not yet received U. S. Regulatory clearance following the receipt of a completed response letter.

Speaker 2

Importantly, we do not have to collect additional clinical data and we have clear line of sight on the additional information that FDA is requesting. We remain committed to gaining FDA clearance for this novel and innovative product and will work collaboratively with the agency. We will update the investment community when we have additional information to share. Now turning to our 20 and its effect on the healthcare providers are still with us, We expect the impact to be lower in 2022 versus 2021. We believe that elective surgical procedures should improve in 2022 over 2021, we are seeing excellent progress in the ability of the global healthcare systems To adapt to the pandemic environment, with each subsequent surge in COVID infections, hospitals continue to improve their ability to Treat COVID-nineteen patients and perform elective surgical procedures.

Speaker 2

We also expect more people to become fully vaccinated And increasing availability of therapies to treat the virus after infection. Our range of guidance contemplates Varying scenarios for the impact of COVID, which depending on the level of disruption, inform our view on Top and bottom end of our outlook. In addition, our 2022 guidance assumes a normalization in our operating We will be in a position to modulate our spending, while still funding projects for long term growth. Taking these elements together, we would expect to deliver underlying constant currency growth in 2022 that Sure. Our prior 2019 to 2021 LRP growth algorithm of 6% to 7% when adjusting for the 1.6% headwind from the divestiture of the respiratory assets.

Speaker 2

We have made progress over the past several years in reshaping the Teleflex portfolio by investing behind growth drivers and divesting slower growth respiratory assets. As we look forward, when excluding UroLift and our other business, the remaining 3 quarters of our business And our high growth portfolio of products, including MANTA, Hemostats, Intra Osseus and PIGS. On top of these revenues, UroLift remains a significant opportunity as pandemic related Disruptions recede in the United States and we execute on our multiyear, multi geography overseas expansion. We will also continue to execute on our M and A strategy to layer in additional growth drivers. That completes my prepared remarks.

Speaker 2

Now I would like to turn the call over to Tom for a more detailed review of our Q4 financial results. Tom?

Speaker 1

Thanks, Liam, and good morning. Given the previous discussion of the company's revenue performance, I'll begin with margins. Gross and operating margins remained strong in the 4th quarter and exceeded levels achieved in the 2020 comparable period. Our continued progress and margin expansion in 2021 has allowed us to increase investments For the quarter, adjusted gross margin totaled 58.8 percent, an 80 basis point increase versus the prior year period. The year over year increase in gross margin was driven by product and regional mix, restructuring benefits, operational efficiency programs, Favorable impacts on pricing, M and A and foreign exchange, partly offset by inflation in freight, raw materials and labor.

Speaker 1

4th quarter adjusted operating margin was 27.6 percent or a 100 basis point year over year increase, Driven by the gross margin improvement as well as disciplined expense management and partially offset by planned investment in the business And a partial normalization of expenses following deep reductions in discretionary spending during the prior year as a result of the COVID pandemic. Net interest expense totaled $11,800,000 in the 4th quarter, a decrease From $18,500,000 in the prior year period, the year over year decrease in net interest reflects savings From the early redemption of the 2026 senior notes and the impact of reductions of outstanding debt using the proceeds of the respiratory divestiture and operating cash flows. Our adjusted tax rate for the Q4 of 2021 was 13.8% Compared to 10.1% in the prior year period, the year over year increase in our adjusted tax rate is primarily due to

Speaker 2

a lower benefit from stock based

Speaker 1

as compared to the prior year period. At the bottom line, 4th quarter adjusted earnings per share increased 10.8 percent to $3.60 and exceeded our internal expectations. Turning to select balance sheet and cash flow highlights. Cash flow from operations for 2021 totaled $652,100,000 compared to $437,100,000 in 2020. This represents a year over year increase of roughly $215,000,000 The increase was primarily attributable to favorable operating results, Lower contingent consideration payments and proceeds received from the respiratory business divestiture that were attributed to performance obligations under the manufacturing and supply transition agreement.

Speaker 1

Moving to the balance sheet. Our financial position remains sound. At the end of the Q4 2021, our cash balance was $445,100,000 versus $375,900,000 at the end of the Q4 of 2020. During the Q4, we repaid $200,500,000 of revolving credit facility borrowings. And at the end of the Q4, $141,000,000 was outstanding on our revolver.

Speaker 1

Net leverage at quarter end was approximately 1.7 times, which remains well below our 4.5 times covenant. Lastly, we have no debt maturities of material size in 2022 or 2023. Now moving on to our 2022 guidance. To begin, I'll provide a framework of key planning assumptions underpinning our financial guidance. Although hard to predict in the current environment, our outlook for 2022 assumes that elective surgical procedures greater in 2022 and 2021 with a larger impact in the first half of the year as compared to the second half.

Speaker 1

Our 2022 guidance ranges Account for uncertainty on the severity of COVID, the impact of staffing shortages and inflationary pressures. The high end of the range assumes Less impact from these factors, but not a totally normal environment. In addition, our planning assumptions exclude any material Regulatory or healthcare reforms as well as any future M and A that has not been disclosed. Now for the key elements of our 2022 guidance, Starting with revenue, we remain confident in our portfolio of high growth drivers and the durable growth core. We are taking a metered approach to begin the year given expected near term pressure from the recent COVID surge.

Speaker 1

We expect constant currency revenue growth of 4% to 5.5% in 2022. Excluding the 1.6 percent headwind from the sale of the respiratory assets last year. Our constant currency revenue growth is expected to be 5.6% 7.1% and captures our prior growth algorithm from the 2019 to 2021 LRP. Our high growth portfolio, which is spread across several business units and includes Gear Lift, MANTA, Hemostats, EasyIO, OnControl and PIX, Represents approximately 25 percent of total revenues in 2021. As implied by our 2022 constant currency revenue guidance, Our high growth portfolio is expected to increase in the mid teens with UroLiftCo of approximately 15%.

Speaker 1

Our durable core platforms, which account for over 60% of revenues, are estimated to increase approximately 4%. Our other category includes sales of respiratory products not included in the divestiture to Medline, manufacturing and supply transition agreement revenues And Urology Care and accounted for approximately 12% of total revenues in 2021. For 2022, the segment is anticipated to decline in the low to mid teens year over year, largely due to the respiratory divestiture. Now turning to currency. We expect foreign exchange rates will be a headwind to revenue growth of approximately 1.7%.

Speaker 1

As a result, We expect our reported revenue growth to be 2.3% to 3.8% year over year, implying a dollar range of 2,870,000,000 To $2,917,000,000 Moving to gross margin. We anticipate that adjusted gross margin will be in the range of 59.75 percent to 60.25 percent. We continue to benefit from mix shift towards higher margin products, Restructuring and operational efficiencies, partly offset by incremental inflation. The incremental inflation is estimated to be a headwind of approximately 70 basis points in 2022 due primarily to elevated freight costs, raw materials and direct labor. Our guidance assumes that the elevated freight costs will show improvement in the second half of the year.

Speaker 1

Regarding operating margin, we expect adjusted operating margin to be in the range of 27.75% to 28.25%. Our 2022 guidance assumes incremental investments to support our key growth drivers, including Vuralift, Nanta, Entreopsis and the Asia Pacific region. In addition, as we have previously indicated, we continue to Discretionary operating expenses, including T and E and open headcount, were significantly curtailed in 2020 due to the impact of the pandemic on revenues and commercial Although operating expenses increased in 2021, they were not yet fully restored to pre COVID levels. As we plan for an improving environment in 2022, we are assuming a normalization of our operating expenses as well as investments For our growth drivers. Despite the disruptions over the past 2 years, we continue to make considerable progress on our margin expansion initiatives.

Speaker 1

Of note, a comparison of the midpoint of the 2022 guidance versus the 2019 pre pandemic levels reveals a healthy 190 basis point increase in gross margin and a 220 basis point increase in operating margin. We believe our incremental investment is prudent to fuel our long term durable growth initiatives, especially as we see the disruption from the current COVID surge improving over time. In turn, we view 2022 as a transition year for margins As there remain multiple levers to drive profitability higher over the coming years, including product mix shift, Manufacturing efficiencies and announced restructurings, partially offset by continued investments in the business to sustain our durable growth profile. Moving down the P and L. We expect net interest expense to be approximately $51,000,000 The year over year decrease in interest expense Largely reflects reductions in debt funded by proceeds from the respiratory divestiture and strong cash flow generation.

Speaker 1

Turning to taxes, we project that our adjusted tax rate will be in the range of 10.5% to 12.5% for 2022. Of note, the high end of the range reflects the change to the tax deductibility of certain R and D expenses beginning in 2022 Under the 2017 Tax Cuts and Jobs Act, we understand there is bipartisan support for these R and D tax benefits,

Speaker 2

leading

Speaker 1

to the potential that the provisions that became law for 2022 could be reversed at some point during the year. If the law is repealed, we would anticipate that our tax rate to be towards the lower end of the guidance range. Considering these elements, our adjusted earnings per share guidance for 2022 is $13.70 to $14.30 A 2.8% to 7.3% year over year increase. Inclusive in the guidance is an approximately $0.17 headwind associated with the divested respiratory business and approximately $0.33 for incremental inflation. Earnings per share growth, Excluding the respiratory divestiture and incremental inflation is expected to be approximately 7% to 11%.

Speaker 1

As a reminder, the low end of our adjusted EPS growth range reflects the change in the R and D expense deductibility for tax purposes. We estimate that weighted average shares outstanding will increase to 47,700,000 for the full year 2022. Lastly, I want to provide some additional color on the cadence of our 2022 financial results. Specifically, 3 items impacting our Our first quarter results are expected to be impacted by continued COVID related headwinds on elective surgical procedures, similar to what many medical device companies 2nd, note that the Q1 has one less selling day as compared to the same period of 2021. 3rd, we expect the headwind from foreign exchange rates to be higher in the first and second quarters before moderating in the second half of twenty twenty two.

Speaker 1

Accordingly, we expect our reported revenue to be approximately flat year over year in the Q1. On a days adjusted constant currency basis, Our first quarter growth is expected to be approximately 3% to 3.5%. And when excluding the impact of the respiratory divestiture, Our days adjusted constant currency growth is expected to be roughly 5.5% to 6% in the Q1. We also expect our adjusted gross and operating margin to decline year over year in the Q1, driven by incremental inflation and a normalization of operating expenses. That concludes my prepared remarks.

Speaker 1

I would now like to turn it back to Liam for closing Terry. Leo?

Speaker 2

Thanks, Tom. In closing, I will highlight our 3 key takeaways from the quarter and our 2022 outlook. First, Our diversified product portfolio enables Teleflex to deliver constant currency growth of 7.9% in the 4th quarter and 8 point 8% for 2021 despite the significant disruption from COVID during the year. 2nd, We continue to execute on our strategy to drive durable growth across our diversified portfolio with investment in organic growth opportunities, margin expansion and deployment of capital for M and A. 3rd, we remain confident in our growth strategy.

Speaker 2

We see our core growth platforms driving 4% to 5% growth with the additional growth coming from UroLift And our balance sheet is in a solid position with leverage of 1.7 times, providing ample financial flexibility Turn the call back to the operator for Q and A.

Operator

Thank And your first question comes from Jayson Bedford with Raymond James.

Speaker 3

Good morning and thanks for taking the questions and the comprehensive review here. So, I guess just to Sorry, and I hate to be too granular here, but maybe can you comment on what you're seeing in the environment today versus, let's Call it a month ago. And I just want to feel a little comforted that you are seeing a little bit of a pickup as COVID wanes.

Speaker 2

Yes. So right across our business, Jason, obviously, we have winners and losers every time there's a COVID outbreak. So parts of our business do better, parts of it do worse. Vascular, obviously, and some of our respiratory filters do better. Our elective procedures, UroLift being the first one and then surgical and interventional, What we saw as we came through the end of August and the last outbreak, we saw in particular UroLift Procedures pick up September, October, November and then we saw them being impacted in December and that continued into January.

Speaker 2

We would expect then to see an improvement as hospitals reopen and as people feel more confident in going in and So we would anticipate the environment improving in the month of February and in the month of March. And again, I've got to commend Hospitals and docs offices and ASCs, they are managing the additional outbreaks much better. The issue with Omicron was it was a lot more contagious. So But yes, an improving environment in as we went through February, Jason, to answer your question directly.

Speaker 3

Okay. And just as a quick big picture follow-up. Liam, you made the comment in the release around optimizing portfolio for growth, which is consistent with past commentary. But I guess the question is, is the current environment more or less conducive For your strategy, meaning, asked another way, can you be more active in this environment?

Speaker 2

Well, the one thing you need to be active, Jason, is firepower, and we've lots firepower. So our leverage levels, as we said in the call, are 1.7x. So we have firepower. Let me answer it this way. I feel a lot better today than I did a year ago with regards to valuations.

Speaker 2

We always augment our portfolio. And don't forget, in the last 24 months, we have acquired HPC and ZMedica and we divested of our respiratory assets. We are active out there. We're chasing assets. I think valuation expectations have modified as the IPO market has modified.

Speaker 2

And it's not just us telling The private companies are that it's also the banking community communicating that to them. So yes, I'm glad that we maintained our financial discipline over the last 12 months when it was pretty heavy out there. And I think it's a we're having a lot easier conversations with private companies now, and they see a strategic exit as very, very favorable compared

Operator

Your next question is from Lawrence Biegelsen with Wells Fargo.

Speaker 3

Good morning. Thanks for taking the question and congrats on a nice end to the year here. Liam, Starting with UroLift, what are you seeing from the recent reimbursement change? And big picture, the contribution to growth there, you talked about, I think, from How much is from international markets? And what are the other drivers?

Speaker 3

And I had one follow-up.

Speaker 2

Yes, Larry. So with UroLift, first of all, we're really pleased with the strong finish to the year, dollars 93,000,000 in the 4th quarter. And indeed, our overall performance in the year, and thank you for acknowledging it, I think we're really proud of what we did. We delivered revenue growth of 8.8 percent versus our original guide of 8% to 9.5%. And don't forget, the original guide of $28,000,000 to $32,000,000 of Revenues that we divested delivered gross margins 59.4%, 2 70 basis points of expansion, up margin, 3 10 basis points of expansion.

Speaker 2

And earnings per share, 25% growth in earnings per share, while also losing $0.10 to $0.15 in the respiratory Looking forward, we've obviously communicated that we expect UroLift to grow 15% lower single digits in the first half of the year and then picking up strongly in the back half of the year, obviously, an easier comp in Q3. And then going into Q4, as people work through their deductibles, you'd expect it to continue along that vein. We're really confident on our core business being well capable of 4% to 5%, Larry. And with good execution, I think we should be at the upper end of that range. So our growth algorithm of 6% to 7% is very, very much intact as demonstrated in our guide today.

Speaker 2

So our constant currency guide is 4% to 5.5%, but there's 1.6% of a headwind from the respiratory divestiture. There's 30 basis points from the loss of a which is in Q1, which actually gets you to 5.9% to 7.4%. So if anything, the algorithm has improved because of the Our core business doing even better through good execution and real solid investment behind some of our good growth assets Such as IntraRiseus, such as our PIC portfolio, such as MANTA and such as our hemostatic portfolio.

Speaker 3

That's helpful. And for my follow-up, Liam, just to follow-up on Jason's question earlier on M and A, what are your criteria, deal size, How are you thinking about deal size and any areas of interest you can share? Thanks for taking the questions.

Speaker 2

Absolutely, Larry. So we look at assets that are in that $60,000,000 to $300,000,000 in revenue. Our strategic criteria is that it fits within one of our pillars or in an adjacent space. It's got a really strong IP, has a great value proposition within the hospital, also It's clinically better than anything within the marketplace available. And we like products that are sticky that get used over and over again.

Speaker 2

We obviously look for assets that are Accretive to our gross margin, and we look for assets that are will become accretive to our op margin in time. We'll accept some shorter term, up margin dilution like we did, for example, with NeoTract, as long as we can see leverage into the future. So those are really our financial

Operator

Your next question is from Matt Taylor with UBS.

Speaker 3

Hey, thank you for taking the question and good morning.

Speaker 1

Good morning, Matt. Good morning.

Speaker 3

Good morning. So I just wanted to ask specifically on UroLift, the 15% guidance, 2 things. 1, could you help us a little bit more with the cadence of UroLift growth that you expect through the year? And how much

Speaker 2

contribution from Japan are you anticipating? Yes, Yes. Good question, Matt. So as it's Larry, the first half will grow in the lower single digits Due to the impact of COVID-nineteen through the Q1 and obviously staffing shortages, while the second half of the year will grow really strong double digits. The The contributions will be small from the international markets.

Speaker 2

You got Japan, Brazil and France. They'll ramp in the second half of the year, But they won't really become meaningful, Matt, until 2023 beyond. So for this year, 2022, the main growth driver for And I'll just add to that, Matt, and I mentioned this in my prepared remarks. Best tactical way to drive growth in UroLift in 2022 and then bring on the international markets in 'twenty three and beyond. And obviously, you'll see this like China come into a being in And as Tom outlined In his prepared remarks, we've got 25% of our total revenue that is in that mid teens growth, which includes UroLift.

Speaker 2

But as well as that, You got MANTA, hemostats, intraosseous and PIKS, all driving that real solid

Speaker 3

Did you give an update on replan's EZPLAZ? Or could you give us an update on that, where that is?

Speaker 2

Yes, I did in the prepared remarks, Matt. So as I said in the prepared remarks, we've received the CRL and we are working on the information requested. The good news is The request from the FDA is not focused on clinical data and we've clear line of sight on the additional information that the FDA is We'll continue to interface with the FDA and it is very collaborative. But it's clear to us, Matt, This is also the first time the FDA has approved a biologic product such as this, so we're breaking new ground together. And as you're aware, Matt, and as most investors will be The RFP from the military within that $3,000,000 to $4,000,000 Now it's a nice market in the future.

Speaker 2

It's $100,000,000 that we'll grow into, but That $3,000,000 to $4,000,000 is not in our guidance for this year. Okay. Thanks Liam. Cheers.

Operator

Your next question is from Shagun Singh with RBC Capital Markets.

Speaker 4

Great. Thank you for taking the question. I I was just wondering if you could just let us know what the impact is of inflation and FX on margins and EPS in Q4? And then what have you assumed in 2022? And then just with respect to margins, can you bridge us from 2021 to 2022?

Speaker 4

I'm just trying to understand the puts and takes. So as it relates to, I guess, EuroLift 2.0 conversion, we have slightly less than 40 basis points Inflation, I think you called out 70 basis points on the call. Annual pre tax savings, I think You have about $40,000,000 in 2022 and 2023 and then just higher level of investments. If you can just bridge that, that would be helpful.

Speaker 1

Thank you, Shagun. That level of detail requires somebody called Thomas Powell. So Tom, okay. So I think the first question was Just on the impact of inflation or FX and inflation in the 4th quarter. So as we look at the 4th quarter, I'll start with FX first.

Speaker 1

What we saw was a bit of a move in the exchange rates And some of the tailwind that we had been experiencing through the earlier part of the year lessened quite a bit. So it was An adverse impact on our margins relative to the prior year, but still slightly positive on a year over year basis. As far as inflation, we had talked about inflation ticking up in the 4th quarter relative to what we are seeing In the Q3 and we had estimated the amount to be approximately $3,000,000 It actually turned out to be higher, close to $4,500,000 in the 4th quarter. And we've obviously assumed that that's going to continue to be some of the case going into next year. As we think about just margins, we go into next year.

Speaker 1

There are a number of puts and takes. First of all, I'd say that the gross margin, I'd like to remind everyone that it had increased 270 basis points in 2021 versus 2020. So really strong expansion in 2021 despite a higher inflationary environment. As we look to 2022, our guidance is 59.75 to 60.25, Representing an increase of 60 basis points at the midpoint. The gross margin increase is, as mentioned, attributable to mix, mostly UroLift, As well as restructuring and operational efficiency programs being partly offset by inflation.

Speaker 1

And for 2022, our guidance assumes that supply chain inflation is approximately $20,000,000 higher than The 2021 inflation level and that equates to an incremental inflation impact of about 70 basis points. So if you were to look at Our guide on gross margin, excluding the impact of that incremental inflation, we're up about 130 basis points at the midpoint. And as we think about the cadence of gross margin, we do expect to see a strengthening Gross margin as we go throughout 2022. Right now, our guidance assumes or Included in our guidance is an assumption that we will see some improvement in raw material and logistics inflation in the second half of the year versus the levels we're currently expecting. And we also expect to get a mix benefit as we go throughout the year as year lift becomes a greater percentage of the mix And actually the manufacturing supply agreement becomes a lesser part of the mix.

Speaker 1

So I would say big picture gross margin is impacted by In the cadence of quarterly margin expansion impacted by Both inflation levels as well as mix. Now as we look at the operating margin, we are guiding to 27.75% to 30.25%, Which is flat to 2021 at the midpoint. A couple of things again to highlight. First of all is that increase in the supply chain inflation Has an adverse impact to gross margin and that drops down to the operating margin. And then secondly, I do want to highlight that in 2020, We have significantly reduced OpEx spending as a result of the COVID pandemic, in part because The pandemic caused limitations on our commercial activities, but also in part because we wanted to reduce costs to offset the COVID revenue impacts.

Speaker 1

Now in 2021, we partially restored activities and spending, but we weren't back to pre pandemic levels of activity or spend. In 2022, our guidance assumes that we will largely resume normal commercial activities, including hiring, sales, training, meetings, etcetera. And as a result, we'll incur an incremental about $20,000,000 or 70 basis points of OpEx in the year. So if you look at the op margin, excluding the impacts of the supply chain inflation and normalization of expenses, We'd see about 140 basis point improvement at the midpoint. Now in addition, in 2022, we plan to continue to invest behind Key growth franchises, including UroLift, Banta and EZIO.

Speaker 1

I'd say that given the successes we've seen in the UroLift DTC and As well as Salesforce additions, we'll continue to invest there as well as behind Nanta. And then again, we will see some op margin improvement

Speaker 4

So I hope that

Speaker 1

answers your questions.

Speaker 4

Yes. I appreciate it.

Speaker 2

Thanks, Shagun.

Operator

Your next question is from Cecilia Furlong with Morgan Stanley.

Speaker 5

Great. Good morning and thank you for taking the questions. Liam, As well as drive adoption in newly trained positions. Can you walk through some of the Kind of key points that you're focused on this year and then kind of a bigger longer term picture. But as you get out of COVID, as you think about all of the international markets coming online, And China, Brazil, Europe as well, how do you think about just the durable long term growth profile of your left?

Speaker 2

So I think once we get at what's very clear to me to the latter part of your question, Cecilia, is that UroLift Growth And then obviously in December, we saw it take a step back because of The outbreak of COVID notwithstanding that, we still exceeded our internal expectations because of the robustness of the growth in the 1st 2 months of the quarter. And the reason, Cecilia, that we're focused on a few pillars of growth for Euryliff. The first pillar of growth is going to be around driving utilization over the next number of years. What we've seen during COVID is our champions and our interventionists. And remember, these are people that almost Predominantly, to a very, very high percent, only offer UroLift.

Speaker 2

And because of reluctance in patients, because of staffing shortages, We've seen their utilization drop a little bit through the COVID environment. So the easiest way to get UroLift back into drive that 15% growth drive utilization there. The second point is for the future is to continue to do that but also to expand overseas. And you'll see Japan coming in beginning in April 1. You'll see France in the back half of the year.

Speaker 2

You'll see Brazil continue to move as we go through the year. You'll see China come in next year, maybe then somewhere like Taiwan. You'll see, pardon me, Italy and Spain come along. So most companies would expect the revenue they do in the U. S, if you execute well overseas, you should do almost the same amount of revenue overseas over a multiyear period.

Speaker 2

And Then lastly is obviously bringing on new docs. And we continue to train new docs as we go through the year. And I think that It's important for everybody to realize we haven't penetrated this market by any stretch of the imagination. We've only trained about 3,400 docs out 12,000. And we've only done 300,000 procedures almost all in the United States out of 12,000,000 men in the United States And 100,000,000 globally.

Speaker 2

So the opportunities for growth over a multiyear period, I feel really encouraged by We just want to get COVID in the rearview mirror and then really show what this product can do from a growth profile.

Speaker 1

And Celia, it's Larry. I would just mention that We will obviously provide a longer term view of our outlook for UroLift at our May Analyst Meeting.

Operator

Your next question is from Mike Matson with Needham and Company.

Speaker 6

I wanted to ask about The UroLift reimbursement changes that happened, I think that went into effect at the beginning of the year. So can you maybe talk about And what you're seeing there, have you seen maybe the physicians changing site of care or anything else? And with the 15% guidance, how much have you

Speaker 2

change in the coming year. The law that was signed in by President Biden actually improved The reimbursement for the UroLift in the office procedure by changing the conversion factor by about 3%, that actually added another $100 to $150 next to the urologists for doing this procedure. We've also implemented our own pricing strategy in the marketplace and that has been incredibly well received. Only 6 weeks into it, a very high Percentage of our customers have signed up to our plan. So I would envision a very I wouldn't envision much of a shift inside the service.

Speaker 2

And Mike, Don't forget as well, 70% of our UroLift cases are done outside of the office. And the CMS ruling only impacted Medicare and Medicaid patients in the office, which if you do the math, is about 20% of the total. So we have strategies in place. The team is And the 15% growth is predicated on everything that we know today and our knowledge of what's going to happen with COVID as we move forward throughout the year.

Speaker 6

Okay, thanks. And if I could just slip one in for Tom quickly. Is there any kind of EPS impact From currency, I didn't hear that called out when you kind of walked through the headwinds, but just given that it is meaningful to the top line, I wanted to see if it was getting kind of offset on the bottom line. Thanks.

Speaker 1

So the currency impact that we've assumed in our guidance is about $0.20

Operator

Your next question is from Matthew Mishan with KeyBanc.

Speaker 1

Okay, excellent.

Speaker 3

Kathleen, just the first question on vascular access. That continues to exceed our expectations, And it's about $100,000,000 above where you were at in 2019. It seems like you're pretty confident around PIX And Vitacare, as you're kind of moving those into the high growth category, I'm just curious, how should we think about the durability of the improvement in vascular access

Speaker 2

This year, we expect it to grow in the mid single digits in its entirety. Obviously, our CBC portfolio Benefited from COVID over the last couple of years, but the growth is really coming from our intraosseous portfolio And also from our PIC portfolio, we continue to take share because of our coating technology. This is really Global play for us. We've launched a really nice new CBC kit that is getting excellent traction out there in the market globally, So we feel really good. It's our largest franchise, Matt.

Speaker 2

It continues to execute incredibly well. We have a new some as well as that new product, we have another new product that's coming around our tip positioning and our picks that we're very excited about. And so this is one of the we've often said not all growth is equal. This is one of the businesses that gets more R and D dollars spent on it than others and keeps that flow when new And it's a great franchise.

Speaker 3

Okay. Excellent. And then just an update, And I'm sorry if I missed it, where Zmedica ended for 2021? And thoughts on growth drivers for that product into next year?

Speaker 2

Yes. We're really happy with where Zmedica finished. We told the investment community it'd be somewhere between $60,000,000 to $70,000,000 We finished squarely in there $66,500,000 Really proud of the achievements bringing that into Teleflex. And nothing hasn't changed in our outlook That's well capable of high single, good execution, low double digit growth and really accretive to our margins. Again, another growth driver.

Speaker 2

And That's in the bucket that Tom spoke about. That's driving on average in the mid teens. And of course, We have a cardiac study that we just completed and we will file with the FDA, and that will expand the $600,000,000 TAM also, Matt, so really excited about it.

Operator

And your last question comes from David Turkaly with JMP

Speaker 7

Great. Thanks. Maybe just a couple of quick product ones to follow-up on that. The PIC side, Would you note anything on the competitive front? There was a bigger player there that grew for years at the rate that you seem to be now.

Speaker 7

Has change there? Or would you actually point to the differentiated coatings as sort of how you're maintaining that?

Speaker 2

So for us, it's all about the coatings. And what Change, Dave, was in the past hospitals didn't have to report infections on PICCs. And the assumption was when they weren't Measuring it, the assumption was that the PICC infections were lower. PICC infections on CBCs used to be at 4% Before we launched our COVID technology on the CBCs and with many studies have shown we've been able to bring it down to practically 0. And of course, once they started measuring PIC infections, but where they they were around 4%.

Speaker 2

So now hospitals don't Get reimbursed for those infections and that's why we're being so successful with our PICC technologies. It's really around our coatings that are both Thrombogenic and anti infective.

Speaker 7

Thank you for that. And maybe just a follow-up on an area we don't talk about a lot, but on surgical, you mentioned Instruments and ligation clips, but 16%, even if there's procedure bounce back seems high. What is happening there? What is differentiated there? Or how are you able to put up numbers like that in an area that I would think would be A much lower growth opportunity.

Speaker 2

Yes. It was also within and this is also a global play for our surgical business. So We have a really strong surgical business in the Americas and in APAC. And as procedures bounced, so did our surgical portfolio. But we're also working on expanded indications for our co ligation clips that should help us continue to augment the growth.

Speaker 2

Now it's not going to grow at for next year, and I don't want to mislead anybody that it is going to do that. It will be in the low single digits as we go through next year. And but we are we have some new products coming down the this year, sorry, I said next year. This year, 2022, It will grow in the low single digits. But we have some nice pipeline of products coming through there, and we've expanded our Bassiote closure.

Speaker 2

And also an area that we take price, as you mentioned, that is a nice opportunity for us. A quote on pricing, I think it's important that we didn't mention. We anticipate having positive pricing this year on that 50 basis points consistent with what we drove last year In order to offset some of the inflationary pressures and it's a company like Teleflex, I believe that will be successful because we're used to taking price as part of our DNA And we'll continue to execute on that project, in particular with Surgical, within our vascular business unit and also overseas in Asia and Europe. So I just wanted to make our point as well before we close. Thank you.

Operator

That is currently all the time we have for questions this morning. I will now turn the call back to Mr. Kirsch for closing remarks.

Speaker 1

Thank you, April, and thank you to everyone that joined us on the call today. This concludes the Teleflex Incorporated 4th Quarter 2021 Earnings Conference Call.

Operator

This does conclude our conference for today. Thank you for your participation. You may now disconnect.