Teleflex Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 12 speakers on the call.

Operator

morning, ladies and gentlemen, and welcome to the Teleflex First Quarter 2024 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 will turn the call over to Mr.

Operator

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

Speaker 1

Good morning, everyone, and welcome to the Teleflex Incorporated Q1 2024 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, a replay will be available on our website. Those wishing to access the replay can refer to our press release from this morning for detail. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer and Thomas Powell, Executive Vice President and Chief Financial Officer.

Speaker 1

Liam and Tom will provide prepared remarks and then we will open the call to Q and A. Before we begin, I'd 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 the slides posted to the Investor Relations section of the Teleflex website. 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. Now, I'll turn the call over to Liam for his remarks.

Speaker 2

Thank you, Larry, and good morning, everyone. On this morning's call, we will discuss the Q1 results, review some commercial highlights and provide an update on our financial guidance for 2024. We had a solid start to 2024 as momentum seen through last year continued into the Q1. For the quarter, Teleflex revenues were $737,800,000 up 3.8% year over year on both a GAAP and constant currency basis. 1st quarter adjusted earnings per share was $3.21 a 3.9% increase year over year.

Speaker 2

During the quarter, utilization for our products trended positively and tracked to our expectations. While we do not expect a revenue benefit from pent up demand due to the broad exposure of the Teleflex portfolio to critical care procedures, we are seeing utilization back to pre pandemic levels. Turning to raw material inflation. We saw positive trends during the Q1 with year over year disinflation tracking towards our expectations for the year. Nonetheless, we continue to expect total inflation to be somewhat higher in 2024 as compared to 2023 in part due to inventory capitalized in 2023 impacting the income statement this year.

Speaker 2

I would also like to provide an update on our logistics and distribution infrastructure. Our freight expenses continue to show positive trends. Despite the conflict in the Middle East, we continued to maintain customer service levels by successfully diverting shipments to alternative shipping lanes. In addition, I would note that we do not utilize the Port of Baltimore to ship Teleflex products to or from our North American distribution center. Now let's turn to a deeper dive into our Q1 revenue results.

Speaker 2

I will begin with a review of our geographic segment revenues for the Q1. All growth rates that I referred to are on a constant currency basis unless otherwise noted. Americas revenues were $406,300,000 a 1.5% decrease year over year. Investors familiar with Teleflex will be aware that prior year MSA revenues were booked in the Americas. EMEA revenues of 159 $600,000 increased 9.7% year over year.

Speaker 2

Growth was seen across the majority of our product families, including solid double digit growth contributions from interventional and interventional urology. The region also benefited from the ongoing recovery of ET tubes following the recall last year. Now turning to Asia. Revenues were $84,200,000 an 11.2% increase year over year. Revenue growth was broad based across the region with double digit increases in China, India and Southeast Asia.

Speaker 2

Let's now move to a discussion on our Q1 revenues by global product category. Commentary on global product category growth for the Q1 will also be on a year over year constant currency basis. Starting with vascular access. Revenue increased 2% year over year to $181,400,000 The quarter was led by underlying growth in PICS, Central Access and EasyIO, partly impact of the previously announced Endurance catheter recall. We will anniversary the Endurance recall during the Q2 and we continue to see opportunities for share gains in the peripheral access market.

Speaker 2

Moving to Interventional. Revenue was $134,700,000 an increase of 15.4% year over year. We demonstrated growth across our geographic segments as our portfolio of growth drivers continues to perform well. During the quarter, growth was led by balloon pumps, MANTA and complex catheters. Turning to anesthesia.

Speaker 2

Revenue increased 3.2% year over year to $96,400,000 Growth was balanced across the portfolio. Of note, we continue to recover from the ET tube recall initiated during the Q2 of 2023 and will fully anniversary the revenue comparisons at the end of next quarter. In our Surgical business, revenue was $105,500,000 an increase of 7.1% year over year against a tough comparison. Our underlying trends in our core surgical franchise continue to be solid. Among our largest franchises, growth was led by chest drainage instrumentation and our ligation portfolio.

Speaker 2

For Interventional Urology, revenue was $79,700,000 representing an increase of 6.1% year over year. Growth was driven by Baragel revenue following the October 2023 acquisition of Palette Life Sciences. And as anticipated, UroLift growth was impacted by continued challenges in the office side of service and sales force training activities for Baragel during the quarter. Our full year 2024 Interventional Urology total revenue guidance continues to assume approximately 7.5% growth, which continues to incorporate Palette revenues in the range of $68,000,000 for 20.24. OEM had another solid quarter with revenues increasing 13.6 percent year over year to $87,700,000 Our 3 largest product categories recorded double digit growth in the quarter, including continued strength in microcatheters.

Speaker 2

In addition, we saw some modest benefit from order timing shifting from the Q2 into the Q1. 1st quarter other revenue declined 27.1% to $52,400,000 year over year. The decline in revenue on a year over year basis is primarily due to the planned December 2023 exit of the MSA by MEDLI. That completes my comments on the Q1 revenue performance. Turning to some commercial and clinical updates.

Speaker 2

Starting with an update on Pallet Life Sciences, our most recent acquisition. We have now owned Pallet Life Sciences for just over 6 months and I am pleased to report that the integration process is meeting our targeted milestones. Cross functional product sales training continued to progress throughout the Q1 and the first phase of training for our Juul bagged reps will be completed at the end of the second quarter. During the quarter, we were active training and proctoring the legacy UroLift sales force on the use of Baragel, and we remain on track to fully complete the integration of the sales force by the end of 2024. Moving to a couple of product updates.

Speaker 2

In our Interventional Access business, we initiated a limited market release of the Watson temporary pacing guidewire. Watson will complement our expanding structural heart portfolio, which already includes the Manta large bore closure device and the Langston dual lumen for contrast delivery and pressure measurement. In our Surgical business, we are pleased to share that the Titan SGS Stapler is now available with Gore SeamGuard biosorbable staple line reinforcement material. This complementary pairing supports bariatric surgeons by addressing clinical preferences in the sleeve gastrectomy market. As we look further into 2024, we will continue to advance our new product introductions with a number of launches across our business units.

Speaker 2

In our Interventional Access business, there is no change to our expectation for an FDA marketing clearance and a limited market release of the Ringer catheter in the second half of twenty twenty four. Ringer incorporates a unique balloon design that allows blood to flow through a vessel while the balloon is inflated. We expect to initially launch with a PTCA indication, but will evaluate opportunities for label expansion following the completion of our vessel preparation trial. Finally, I will provide a regulatory update. In February, we voluntarily initiated a recall of our QuickFlash radial artery and radial artery arterial line catheterization kits after receiving reports of increased resistance in the guidewire handle and chamber during use.

Speaker 2

The financial impact from this recall was de minimis. In cooperation with the FDA, Teleflex also recently initiated a voluntary field advisory notice for ARO Fiber Optics and UltraFlex intra aortic balloon catheter kits due to reports indicating an infrequent condition, which when not identified and corrected promptly could result in serious health consequences, including a reduction or loss of the hemodynamic support normally provided by intra aortic balloon pump therapy. The FDA has not yet designated a recall classification, but under the field advisory notice customers may continue to use the products in scope per additional instructions, warnings and cautions. We expect the financial impact from the voluntary field action to be immaterial. That completes my prepared remarks.

Speaker 2

Now I'd like to turn the call over to Tom for a more detailed review of our Q1 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. For the quarter, adjusted gross margin was 61.1%, a 170 basis point increase versus the prior year period. The year over year increase was primarily due to the favorable impact of gross margin from the termination of the MSA, the acquisition of Pallet, favorable price, benefits from cost improvement initiatives, partially offset by unfavorable fluctuations in foreign exchange rates and continued cost inflation. Adjusted operating margin was 26.6% in the Q1.

Speaker 1

The 80 basis point year over year increase was primarily driven by the flow through of the year over year increase in gross margin, partially offset by the inclusion of Collette Life Science operating expenses, employee related expenses and investments to grow the business. Net interest expense totaled $21,000,000 in the first quarter, an increase from $17,500,000 in the prior year period. The year over year increase in net interest expense reflects higher interest rates versus the prior year and higher average debt outstanding utilized to fund the acquisition of Pallet, partially offset by increased interest income. Our adjusted tax rate for the Q1 of 2024 was 13.2% compared to 11.8% in the prior year period. The year over year increase in our adjusted tax rate is primarily due to additional costs arising from the enactment of European Pillar 2 tax reform and realization of discrete items in the quarter.

Speaker 1

At the bottom line, 1st quarter adjusted earnings per share was $3.21 an increase of 3.9 percent versus prior year. The year over year increase in EPS reflects dilution from the acquisition of Pallet Life Sciences and the related incremental borrowings. Turning now to select balance sheet and cash flow highlights. Cash flow from operations for the Q1 was $112,800,000 compared to $84,300,000 in the prior year period. The $28,500,000 increase was primarily attributable to favorable operating results and a decrease in cash outflows from inventories as we moderate our inventory levels due to improving supply chain dynamics, partially offset by an increase in accounts receivable resulting from higher sales and lower levels of accounts payable and accrued expenses.

Speaker 1

Moving to the balance sheet. At the end of the Q1, our cash balance was $237,400,000 as compared to $222,800,000 as of year end 2023. The increase in cash on hand is primarily due to operating cash flows. Net leverage at quarter end was approximately 1.7 times. Inclusive of the debt associated with the acquisition of Palette Life Sciences, our financial position remains sound and continues to provide us flexibility to execute on our long term capital allocation strategy.

Speaker 1

Turning to financial guidance. We are pleased with a solid start to the year and are making select updates to the outlook for 2024. We continue to expect 2024 constant currency revenue growth of 3.75 percent to 4.75%. The year over year growth includes the loss of the $75,700,000 in MSA revenues, partly offset by the incremental revenues from Pallet in the range of 66 $1,000,000 to $68,000,000 which Liam mentioned earlier. Turning to foreign exchange.

Speaker 1

We now assume a negative impact from foreign exchange of approximately $12,000,000 representing a 40 basis point headwind to GAAP growth in 2024. This compares to our prior guidance of approximately $5,000,000 or 15 basis point headwind for 2024. The updated guidance of a $12,000,000 foreign exchange headwind assumes approximately a $1.07 average euro exchange rate for 2024 versus the prior guidance, which had assumed approximately $1.08 Considering the foreign exchange outlook, we expect reported revenue growth of 3.35 percent to 4.35 percent in 20 24, 20 4, implying a dollar range of $3,070,000,000 to $3,104,000,000 For your modeling purposes, the 2024 outlook includes an assumption for $760,000,000 to $765,000,000 in revenues for the 2nd quarter, representing growth in the range of 3.1 percent to 3.8 percent year over year, excluding an FX headwind of approximately $6,000,000 We reiterate our expectation for 2024 gross margin to be in the range of 60% to 60.75%. Our gross margin guidance reflects the year over year positive impacts from the termination of the MSA, manufacturing efficiencies, price and the Palette acquisition, partially offset by inflation and the impact of changes in foreign currency exchange rates. We also continue to expect operating margin to be in the range of 26.25 percent to 26.75 percent for 2024.

Speaker 1

Our guidance reflects the flow through of gross margin and the positive impact of restructuring, offset by the inclusion of operating expenses for Pallet Life Sciences and investments to grow the business. Moving to items below the line. Net interest expense is expected to approximate $78,000,000 for 2024. The majority of the year over year increase in our net interest expense outlook reflects the impact of borrowings associated with the Paulette acquisition, higher interest rates, partially offset by planned debt repayments during 2024. Our tax rate is expected to be approximately 12% for 2024, which reflects favorable mix offset by discrete items in 2023 that will not repeat in 2024 and the impact of the Pillar 2 global minimum tax.

Speaker 1

Turning to earnings. We are raising the low end of guidance by $0.05 which reflects the strong results in the Q1 and the updated foreign exchange headwind. In turn, we now expect 2024 adjusted earnings per share to be in a range of $13.60 to $13.95 Finally, our 2024 adjusted EPS outlook reflects $0.87 in year over year headwinds from incremental dilution associated with the acquisition of Pallet, the termination of the MSA, the year over year increase in our tax rate primarily due to the Pillar 2 minuteimum tax and the updated foreign exchange headwind of $0.28 After adjusting for these headwinds, year over year underlying adjusted constant currency EPS growth is approximately 7% on the low end of guidance and 10% on the high end of guidance. That concludes my prepared remarks. I would now like to turn it back to Liam for closing commentary.

Speaker 2

Thanks, Tom. In closing, I will highlight our 3 key takeaways from the Q1 of 2024. First, we started 2024 with a solid performance as momentum continued from the end of last year. Overall, our diversified portfolio and global business units performed well. We managed operating expenses and continued to focus on new product introductions in 2024.

Speaker 2

Netting the loss of MSA revenues, the incremental Palette sales and the revised foreign exchange headwind, we anticipate an approximately 100 basis points year over year headwind to growth in 2024. 2nd, we are well positioned to deliver on our financial guidance for 2024. We remain highly focused on executing on our plan for the year just as we did in 2023. 3rd, we will continue to focus on our strategy to drive durable growth. We will invest in organic growth opportunities and drive innovation over time, expand our margins and execute on our disciplined capital allocation strategy to enhance long term value creation.

Speaker 2

The integration of Palette Life Sciences is progressing well, and we expect the acquisition to be a meaningful contributor to our growth in the coming years. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q and A.

Operator

Thank And your first question will come from the line of Patrick Wood from Morgan Stanley.

Speaker 3

I guess, for the first one, I'm curious about OEM, another very strong quarter. There's kind of a lot of different pieces moving in there. The volume environment is very good, but equally there's a little bit of competitive noise backwards and forwards. I'm just I'm curious how you see that evolving through the year. You've mentioned a little bit of phasing as some stuff was pulled into Q1.

Speaker 3

But should we expect more of a normalization in the second half or similar kinds of growth patterns what you've seen so far?

Speaker 2

Hey, Patrick. Thank you very much for the question. I think that OEM was definitely one of the standouts again within the quarter, but there were many standouts for Teleflex in the quarter in my mind. A really strong quarter, a great start to the year, growing our revenues at 3.8% and growing our earnings faster than revenues at 3.9% and raising the bottom end of our earnings guide and while covering some FX impact. On to OEM, I do anticipate the phasing as we go through the year.

Speaker 2

I think OEM is well capable of doing double digit growth in the entirety of the year. It will probably take a little bit of a step back in Q2 just to the phasing of the orders as you outlined. But the underlying growth is really strong. The order bank is strong, very strong on thin walled microcatheters, following on from the HPC acquisition a number of years ago. Catheter extrusions continues to be strong.

Speaker 2

Demand is robust. And I think the environment continues to be good for the OEM business. And even though OEM is dilutive to our gross margins, I would like to remind everybody it is accretive to our operating margins and therefore a good contributor to Teleflex as it grows.

Speaker 3

Amazing. And then just quickly on the second one, the within the urology side of things, obviously, you pulled a bit of the sales force back to get some of the training going. A, sort of how is that going? How has the response been internally? And B, how disruptive is that?

Speaker 3

How long does that kind of training process take? I know it's kind of an open ended question, but just curious.

Speaker 2

No, that's a fair question, Patrick. I think that the training is going well. So we are proctoring our sales reps. We have about as we ended the Q1, we have roughly around 40% of them trained that need to be trained in this phase. So this will be completed at the end of Q2.

Speaker 2

And then over the remainder of the year, we'll take a systematic approach to onboarding additional reps and full bagging them. We would anticipate that the organization will be fully integrated and all the trainings will be pretty much done by the end of this year and Pallet will be integrated. The good news is that it has had zero impact. While it did have some impact on UroLift, it had zero impact on Pallet. And Pallet, again, 6 months into our ownership is performing very well.

Operator

Your next question comes from the line of Jayson Bedford from Raymond James. Please go ahead.

Speaker 4

Good morning. Thanks for taking the questions. Maybe just to start for Tom, the Q1 gross margin was above your full year guidance. Revenue will increase from Q1 levels. So what pressures gross margin over the next three quarters?

Speaker 1

Well, I wouldn't say there's anything that necessarily is pressuring over the next number of quarters other than what we already saw in the Q1, which we have got inflationary pressures, we have got some FX, although we expect FX to improve as the quarters go on. So obviously, we had a really solid start to the year. We've provided full year guidance and are working towards that. I would say that as a result of the strong start, we feel really good about achieving that guidance and we'll continue to monitor the situation and provide any updates in the future as the situation warrants.

Speaker 4

Okay. Fair enough. And then just maybe as a quick unrelated follow-up. Interventional, very strong off a tough comp. Liam, you alluded to a few drivers, but just a little bit more granularity of this excess share gain.

Speaker 4

Is there a new product in there that's driving this growth?

Speaker 2

So I wouldn't exactly call it a new product, but obviously, MANTA continues to penetrate the large bore market, really solid double digit growth coming from that product, specifically complex catheters, which is the bread and butter of this franchise, which is the Guideline or Trapline or Turnpike, they continue to grow within the market. And obviously, then you have our intra aortic balloon pumps and catheters, really strong performance from them in particular overseas. So across the board, I think it's procedural volumes globally in the cath lab are back to pre pandemic levels. We're getting some benefit from that, but also further penetrating in our accounts, having a suite of products to surround Manta and now having the Watson coming to the market in a limited market launch only helps to compound that growth within the cath lab space.

Operator

Your next question comes from the line of Shagun Singh from RBC Capital Markets. Please go ahead.

Speaker 5

Great. Thank you so much. Liam, your guidance calls for about 4.25% growth in 2024 at the midpoint versus 6.5% last year and your LRP target of the low end of 6% to 7%. I know you called out some year over year factors to consider. But I'm just wondering what accelerates the growth profile for the company from here?

Speaker 5

How are you thinking about M and A boosting your weighted average market growth? And if you could put all this in the context of your utilization commentary, it seems like there isn't a backlog, but there is still healthy demand, that would be really helpful. Thank you for taking the question.

Speaker 2

No, absolutely, Sjoukur and thank you very much for the question. So the midpoint of our guide, you're correct at the midpoint. And now I would remind the investment community as we laid out in as we gave our guide, there is approximately 1% of a headwind from an inorganic with the MSA in Pallet. So if you look at our guide of 3.75 to 4.75, the organic growth underlying that is 4.75% to 5.75%. So your jump off into next year will be at a higher rate from a growth level because the MSA will be anniversaried in the Q4.

Speaker 2

I think the outlook for Teleflex from a growth perspective is solid. I think our 6% long range plan, we can see definitely line of sight to get there. I think that the environment is rich. We have some parts of our business really performing well. We mentioned OEM.

Speaker 2

We mentioned Interventional Access. Surgical had a really good start to the year. Interventional urology at 6.1%. And then geographically, you see EMEA coming in at 9.7% and double digit growth in APAC. So I will say that the underlying growth algorithm for Teleflex is very much intact.

Speaker 2

And as we head into and we're 1 quarter into the 2nd year of our LRP, and we feel pretty bullish about the outlook for our company.

Operator

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Speaker 6

Hi. This is Nathan Trebek on for Larry. Thanks for taking the question. Can you talk about given the constant currency beat in Q1, what were some of the considerations for not raising the full year guide?

Speaker 2

Yes. So obviously the first consideration is it is Q1, and I think you should take that into account. The other consideration is if you we gave our guide in February, we had a really, really nice March. So that was helpful. And we came in above where we thought based on the performance of March and some of the performances that we spoke about earlier on.

Speaker 2

And we did have some OEM orders that pulled in from Q2 into Q1, and we updated for FX. So we'll continue to monitor the situation as we go into Q2, Q3 and Q4. But again, I feel fairly bullish on our performance. This is our 5th quarter in a row where we've actually been in a position to beat our internal revenue forecast and to be able to provide upside. And it's a nice upside of $11,000,000 Again, a few million was pulled in from orders from OEM that shipped in Q1 rather than Q2.

Speaker 2

But other than that, the underlying growth of the business is really solid.

Speaker 6

Okay. And can you talk about like the drivers of growth for Pallet? Is it share gains? Is it market expansion? If you could just give some color there?

Speaker 6

Thanks.

Speaker 2

Yes. The bulk of the growth for Pallet is really market expansion. We have continued to bring this product to our existing customer base and it's being adopted there. I mean there is some share shift, but I would say that we are more focused on the white space than trying to take share from others within the marketplace. The product is performing exceptionally well.

Speaker 2

The sales force is very, very bullish.

Speaker 7

Once we

Speaker 2

have our additional 50 reps trained, they will now be active in the marketplace in Q3, Jewelbag selling that product. So that should also help. And also in order to expand the market even further, we have initiated and agreed and funded an additional study for expanded indications for the Baragel product for Palette. We have identified the sites that will conduct the study and we envision beginning enrollment in the very near future. So not alone, we're not satisfied with the market of $330 odd million We want to expand that market even further so that we can create more white space for us to grow into.

Operator

Your next question comes from the line of Matthew O'Brien from Piper Sandler. Please go ahead.

Speaker 1

Good morning. Thanks for taking the questions. And Tom or Liam, I know you're going to say it's Q1 and everything, but you just beat Q1 by about $0.15 or $0.14 on the bottom line, only taking the low end up by about a nickel. So the midpoint is only going up by about $0.025 Why the conservatism there, especially with inflationary pressures easing? And can we just start looking at kind of the higher end of that range, just based on the trend so far?

Speaker 1

Well, I would just say, first of all, we raised by $0.09 in the lower end, but $0.05 I should say $0.04 of that was offset by an increase in the foreign exchange rates. So again, we feel really good about the results in the Q1. We've provided full year guidance. It gives us improved confidence in our ability to achieve that full year guidance and we'll continue to monitor the situation and update. But again, we are just getting out of the Q1 and give us a chance to see a little bit more how the year is playing out.

Speaker 1

Okay, fair enough. And I wanted to ask about UroLift, but I think the more pertinent questions back on interventional like Jason was talking about, that performance has been very strong for several quarters in a row here. You've got this focus on structural heart. It's one of the fastest growth areas in medtech. You've got Watson coming.

Speaker 1

Is this an area that can deliver, not necessarily this level of growth, but just well above Teleplex levels of growth for the next several years? And is this an area of focus maybe from an M and A perspective as well, just given the strong underlying performance of the market in general? Thank you.

Speaker 2

So I'll start with the last part of your question. It's definitely a focus for M and A, Matt. I've said many times that I like the cath lab as a call point. We now have a global franchise with that call point. And it is one of the key areas of focus for us when we're doing M and A.

Speaker 2

It's not the only area of focus, but it's a key area of focus. With regard to the sustainability of the growth, I think that the interventional portfolio that we have with Manta in there, with Watson coming in there, we got Ringer coming down the road, we got Triumph that's going to be launched sometime in 2025. So we have a whole suite of products coming into this call point and we have invested heavily in the R and D organization there to ensure that we have this suite of products coming through. So I think it's well capable of maintaining well above Teleflex average growth and be a growth driver for Teleflex over a multiyear period just based on that background. But it has come at the back of investment.

Speaker 2

This is one of our areas where we have invested behind and the acquisition of Manta a number of years ago is playing out really well as we penetrate that large foreclosure market.

Operator

Your next question comes from the line of Anthony Petrone from Mizuho Financial Group. Please go ahead.

Speaker 7

Thank you and hope everyone is doing well. Congrats on a strong 1Q here. Maybe a couple of questions. One just actually focused in on the Americas, surprised to see just regionally Americas actually being down a touch here. And then when you sort of bridge that to some of the divisions, vascular was pretty good.

Speaker 7

OEM obviously outperformed even interventional urology was a touch ahead of our numbers. So where specifically in the U. S. Was there slippage? Was it tough comps?

Speaker 7

Or was there other stocking dynamics in the U. S? And I'll have one follow-up. Thanks.

Speaker 2

Yes, Anthony and Dan, thank you. I hope you're keeping well as well. Thanks for the question. With regard to the Americas, the biggest impact there, Anthony, was the MSA. If you'll recall, all of the MSA was booked in the Americas.

Speaker 2

So if you backed out the MSA from that, your growth would have been around 3.5% for the Americas if you took the MSA out. The underlying there's a few underlying things I want to point out in the Americas as you go through the year. The endurance recall mostly impacted and that's in vascular, that mostly impacted the Americas. So as you get through Q2 and into Q3, you will have anniversaried that. And then if you look into the Q4, we will also anniversary the MSA.

Speaker 2

So you will see an improving environment for the Americas as you go through the year. But please do bear in mind that MSA, Anthony, it's all booked in the Americas and it's all coming out of the Americas on a year over year basis. And that's really the drag on that one. And you had a follow-up Anthony. Yes.

Speaker 2

One quick

Speaker 7

follow-up would just be a high level revisit on the M and A strategy here at Teleflex. And the company has been active over the years and it's done a number of different transactions. I remember the years of the distributor tuck ins. There have been some R and D plays, but not as prevalent as the sort of here and now revenue generating growth accretive deals. And of course, the EBITDA level is now higher.

Speaker 7

And so maybe just a revisit on the strategy, what is most prioritized and what are the size of transactions that you're contemplating these days? Thanks a lot.

Speaker 2

So, I think that for Teleflex, we're really focused on tuck ins and scale transactions. We have done some late stage technologies and we've done some investments, early stage investments into companies and we'll continue to do that. We have the most important thing you need Anthony for M and A, which is firepower. So as Tom said in his prepared remarks, we're 1.7 times levered. So we have lots of firepower.

Speaker 2

We are at the moment chasing lots of assets, I will tell you, and they do fit in the range from a tuck in of revenue of call it in the tens of 1,000,000 to scale transactions in the 100 of 1,000,000. We are cognizant of dilution, especially in this year where you have the MSA going away that's dilutive, you have Palette coming in that's dilutive. The underlying earnings growth is in that 8% to 10% as Tom outlined in his remarks. So but I think investors want to see that. So we are keeping that in mind.

Speaker 2

We are disciplined Anthony and we will remain disciplined. I think that finally the multiples seem to have tempered somewhat at least. Some of the high growth assets on the public markets are not carrying the value that they were 12 months ago. And obviously that plays into the psyche of the seller as well. And it's obviously as a buyer, you can point to really great companies on the public market, super companies, but not carrying the value that they held 12 or 18 months ago and that should be reflective in private companies as well.

Speaker 2

So a healthy environment, lots of assets and a very, very disciplined Teleflex.

Operator

Before we continue on to the next question, And your next question comes from the line of Mike Pollock from Wolfe Research. Please go ahead.

Speaker 8

Hey, good morning. Thank you for taking the questions. I'm curious on this CLEAR trial that's reading out at AUA over the weekend, UroLift versus RASUME. What's reasonable to expect there? Is there an impact in the field you anticipate as the data is disclosed?

Speaker 2

Hey, Mike. Look, we have a lot of data coming out at the AUA. We have 5 different papers that are being read out. And there are a number of other studies, one in particular that coming from the European group about early intervention on minimally invasive therapies and how that's much better than having individuals on pharma. With regard to the specific one that you're talking about, it's really focused on more rapid symptom relief and quality of life improvement post treatment comparing UroLift to Rezum and outcomes that can aid healthcare providers and patients in getting a clearer understanding of the postoperative experience that a patient experiences with the product.

Speaker 2

I think there's a study on retreatment rates, which I'm really looking forward to hearing. I'm actually attending the conference myself. And also there's a real world study on complications of all BPH treatments. And I think that's going to be enlightening as well. So I think we've got a full suite of podium presence at the AUA.

Speaker 2

And I think that for sure any of these head to heads either comparing UroLift to Rezum, comparing it to other technologies, comparing it to drugs will be helpful for the sales force.

Speaker 8

Appreciate that Liam. Thank you. If I may follow-up on urology as well on the numbers. I just want to make sure I'm understanding the performance in the quarter, the expectation for the year. So if I'm doing the math correct, I have net of Palat UroLift, maybe down high teens year on year.

Speaker 8

And I think if I do the guidance for the full year, perhaps you're look down 10%. And so I just want to understand, 1, for the Q1, have I done the math correct and you said that aligned with your internal plan and I just want to make sure that that's all fair. And then 2, kind of the path for UroLift to be better over the course of the year. It sounds like the sales force no longer being retrained and out in the field double bag probably is a piece of that. But anything else you might be able to offer as to kind of why we get that product line trending back up the rest of the year would be helpful.

Speaker 8

Thank you.

Speaker 2

Yes, absolutely, Mike. Look at we've discussed this on previous calls. We're not going to we're going to report on total interventional urology consistent with all of our global product categories and businesses. And we're not going to provide product level revenue details for individual business lines or product categories within those. We have 4 affordable segments.

Speaker 2

We've 6 product segments. So there's 10 ways to slice and dice Teleflex. But let me give you a little bit of color having said that. Let me start with the full year and then I'll go back to the quarter. For the full year, we are expecting and nothing has changed in our expectation for interventional urology.

Speaker 2

I am extremely confident we've been able to deliver 7.5% growth in 2024, which was at the midpoint of our guidance. This includes revenue for Palette Life Sciences of $66,000,000 to 68 $1,000,000 offsetting the year over year declines in UroLift. Now in the quarter, interventional urology grew 6.1%. Palette came in, in line with our expectations and continues to perform very well. UroLift performance was also within our expectations.

Speaker 2

And as we expected, UroLift was impacted by the declines in the office side of service, but also from the cross training. And your insights are correct, Mike. As we go through the year, that cross training will be more or less completed for those 50 once you get into Q3 and beyond. So feel good about the 7.5% on a full year basis for the Interventional Urology Business Unit.

Operator

Your next question comes from the line of Craig Bijou from Bank of America. Please go ahead.

Speaker 9

Good morning, guys. Thanks for taking the questions. Liam, I know you're not going to get into the specifics on 25, but Street expectations for margin expansion have come down looking at 25. So maybe if you could just talk about some of the opportunities to expand margins in 2025 and how those might be lining up maybe without actually giving specifics, but just kind of talking about where you could see some improvement?

Speaker 2

Well, I think Craig, it all starts with the gross margin line. And if you look at this year, we're at the midpoint, we're going to expand our gross margins by about 100 basis points. We've had a really good start to the year. Gross margins expanded 170 basis points in the Q1 of the year. So God rest my mother, she used to say a good start is half the battle and we've had a really good start on the gross margin line.

Speaker 2

As you look forward, we have a number of catalysts for the gross margin line to come into being. We continue to have continuous improvement programs within our global supply team. We'll have, Palette, the MSA will be behind us when we get into 2025. Palette will be continuing to ramp when we get into 2025. So those two factors will obviously help our gross margins.

Speaker 2

And I believe we'll continue to have positive pricing in 2020 5. So that mix and positive pricing, continuous improvement programs. And then for Pele specifically, you begin to get leverage to the op margin line where it becomes accretive to the op margin. And we're a very disciplined company on our OpEx. So I do believe that it all begins and ends with the gross margin line and it'll drop through to operating margin into the future.

Speaker 2

And I feel good about our prospects to continue to drive both gross and operating margin leverage on a solid 6% top line growth for Teleflex and underlying 10% EPS growth, which is pretty much what we're delivering this year.

Speaker 9

Got it. Thanks, Liam. And if I could follow-up on maybe some standard bariatrics and Titan. And as you expand the product offering there, just maybe you can just give us a revisit kind of how to think about the contribution from Titan and Standard Bariatrics in 2024 and going forward and maybe what the new commercial updates or the new product expansion can do for growth?

Speaker 2

Yes. Thanks, Craig. So first of all, on the product expansion, having buttress is an important add on to the Titan product. 60% of surgeons who do bariatric gastric sleeves use buttress. Technically, the Titan product doesn't need buttress because of the seal pressure and a very high burst pressure.

Speaker 2

But it's what they want to use. So we have given them what they want to use and it's been very well received by the bariatric community. I will tell you that in Q1 Titan came in, in line with our expectations. So that was good to start the year out in that regard. And I do still believe that it's going to be a contributor to growth this year and in future years.

Speaker 2

Just to give some color on what's happening with gastric sleeves on a macro level, I think investors would be interested in that. So in the second half of the year, we saw gastric sleeve procedures down 10% to 15%. So I think what that means for Teleflex is the market we're growing into is a little bit smaller potentially than the $250,000,000 plus that we outlined it at. But at the end of the day, it's still a big market to grow into with lots of opportunity for us to penetrate the Titan product into that gastric sleeve market.

Operator

Your next question comes from the line.

Speaker 2

Sorry, I just want to add one other thing, Craig. We again in the quarter, we had a robust proctoring and training of surgeons in the quarter. My apologies to cut you across you, operator.

Operator

Not a problem at all. Your next question comes from the line of Richard Newitter from Truist Securities. Please go ahead.

Speaker 10

Hey, guys. Thanks for taking the question. It's actually Sam on for Rich here. Just first one from us on 2Q, I think 760 to 760 5, a touch below Street there. Some of that's from FX, some of that's from the OEM pull forward.

Speaker 10

But just anything else that you call out in 2Q sort of like explaining the delta between Street and guidance?

Speaker 2

No, they're the 2 big buckets, Sam. There's about $6,000,000 of FX in Q2. And also there's a few million of OEM products that were originally planned to be shipped in Q2. Just bear in mind that the MSA was slightly higher in Q2. That's something just to bear in mind.

Speaker 2

Higher in Q2. That's something just to bear in mind. And as we go through the year, you've got that dynamic of the MSA and you also have the dynamic of Pallet ramping as you go through the year. So you've hit on the 2 main impacts on Q2, 760%,765%, 3.7% and we feel good in our ability to deliver that.

Speaker 10

Great. And then just on Pallet, I know try to avoid giving the product specifically given us the 66% to 68%. Just curious what you'd be looking for in the market or end results to take that range up and what could give you confidence there? Thanks for taking the questions.

Speaker 2

Yes, Sam. So it started very well. That's the first thing I would say. The second thing I would say, there's a lot of enthusiasm for the product. The third thing I would say, the expanding of the indications is a key strategy for us not for this year, but in outer years to continue to grow that.

Speaker 2

And that will be a unique indication that no other spacing technology will be able to address. I think that the product the fact that you can actually the product is very visible. The fact that you can mold the product, the fact that you don't have to rush with the product is really landing really well with both the radiation oncology community and the urology community. So we'll get another quarter or 2 tucked under our belt, Sam, and then we'll come back to the investment community with our thoughts on the $66,000,000 to $68,000,000 But as I sit here today, feel really good about the $66,000,000 to $68,000,000

Operator

And your next question comes from the line of Kristen Stewart from CL King. Please go ahead.

Speaker 11

Hi. Thanks for taking my question. I just wanted to touch on the vascular access business that came in a little bit lighter than where I was expecting. Can you maybe just comment on the performance there in the quarter and what we should expect for the balance of the year?

Speaker 2

Yes, Kristen, that's a good observation and a good question. The Endurance recall impacted the vascular business in Q1 and we'll anniversary that as we go through Q2. So when you get into Q3, you'll have a clean look at vascular. So you should see vascular improve as you go through the year. The other thing I would say on the vascular business, the underlying PIK growth was really solid, but that will improve too as we go through the year.

Speaker 2

I would anticipate seeing PIK volumes pick up as we go through the year. The underlying CVC growth is really solid and we're really happy with how that's performing. So all in all, it's really the Endurance anniversarying that and an improved environment for PIKs continuing to grow as you go through the year.

Speaker 11

Okay. Thanks very much.

Speaker 2

Cheers, Kristen.

Operator

And that concludes our Q and A session for today. I would like to hand back over Laurence Kirsch for closing remarks.

Speaker 1

Thank you, Pauli, and thank you to everyone that joined us on the call today. This concludes the Teleflex Incorporated First Quarter 20 24 Earnings Conference Call.

Operator

Thank you for joining us. You may now disconnect your lines.

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Key Takeaways

  • Strong Q1 performance: Revenues were $737.8 million, up 3.8% year-over-year, with adjusted EPS of $3.21 (+3.9%) and gross margin expanding 170 basis points to 61.1%, as utilization returned to pre-pandemic levels.
  • 2024 guidance update: Teleflex reaffirmed 3.75–4.75% constant-currency revenue growth (3.35–4.35% reported) and raised adjusted EPS to $13.60–13.95, reflecting the MSA exit, Palette acquisition and a ~$12 million FX headwind.
  • Geographic and product highlights: EMEA revenues grew 9.7% and Asia 11.2%, while Interventional was up 15.4% (driven by balloon pumps, MANTA and complex catheters) and OEM climbed 13.6%, offsetting Americas pressure from MSA comparables.
  • Palette integration on track: Six months post-acquisition, cross-functional sales training will complete in Q2 2024 with full sales force integration by year-end, supporting Interventional Urology’s ~7.5% growth outlook.
  • Pipeline and risk management: Limited market releases include the Watson temporary pacing guidewire and Titan stapler with Gore SeamGuard, FDA submission for the Ringer catheter is slated for H2 2024, and voluntary recalls had immaterial financial impact.
A.I. generated. May contain errors.
Earnings Conference Call
Teleflex Q1 2024
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