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Teleflex Q4 2021 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Lawrence Keusch
    Vice President of Investor Relations and Strategy Development
  • Liam J. Kelly
    Chairman, President and Chief Executive Officer
  • Thomas Powell
    Executive Vice President and Chief Financial Officer

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Teleflex Fourth Quarter of 2021 Earnings Conference Call. [Operator Instructions]

And now I would like to turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development.

Lawrence Keusch
Vice President of Investor Relations and Strategy Development at Teleflex

Good morning, everyone, and welcome to the Teleflex Incorporated Fourth Quarter 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 1028958. 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&A. 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-K, 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 to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters.

With that said, I will now turn the call over to Liam for his remarks.

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Thank you, Larry, and good morning, everyone. It's a real pleasure to speak with you today. For the fourth quarter, Teleflex 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. Our fourth 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-19 and the divestiture of the respiratory assets. As we had anticipated at the time of our third quarter earnings report, COVID-19 remained a headwind during the fourth quarter, and elective surgical procedures did not return to 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. 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 fourth quarter 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. We responded effectively 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 continue to optimize our portfolio with the integration of HPC and Z-Medica acquisitions, and we divested certain low growth and low margin respiratory assets. And we did not take our eyes of our people as we fortified our culture and advanced our ESG initiatives. From a financial perspective, we delivered on our full year 2021 financial commitments with constant currency sales growth of 8.8%, adjusted operating margin expansion of 310 basis points and adjusted earnings per share of $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 fourth quarter revenue results. I will begin with a review of our reportable segment revenues. All growth rates that I refer to are on a constant currency basis unless otherwise noted.

During the fourth quarter, our Americas, EMEA, Asia and OEM segments demonstrated resilience with all regions showing constant currency 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 $451.7 million in the fourth 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-19. EMEA revenues of $164.5 million increased 4.8% year-over-year with Interventional, Surgical and Vascular Access products leading the growth. EMEA continues to face a headwind from COVID-19. 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%. Turning to Asia.

Revenues were $78.5 million, 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 fourth quarter revenues by global product category. Consistent with my prior comments regarding our reportable segments, commentary on global product category growth will also be on a constant currency basis and ranked by size of our business units. Starting with Vascular Access. Fourth quarter revenue increased 6.4% to $193 million. Our category leadership in central venous catheters and midlines, along with our novel coated PICC portfolio continued to position us for dependable growth. The PICC 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. Intraosseous continues to be a dependable growth driver, with fourth quarter revenues rising approximately 17% year-over-year. Moving to Interventional. Fourth quarter revenue was $114.9 million, up 8.2% year-over-year. We executed well during the quarter and saw a strong demand for our complex catheters and balloon pumps.

We continue to invest behind our interventional portfolio, including complex catheters and MANTA, our large foreclosure device. 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 objective for 8% share in 2021 of the $200 million to $300 million global market opportunity. Turning to Anesthesia and Emergency Medicine. Fourth quarter revenue was $102.8 million, up 20.5% year-over-year. Hemostat products drove the growth in the quarter, offset by tough comparisons in the airway business and lower sales of tracheostomy products. For the full year, Hemostat revenues were approximately $66.5 million and fell squarely into the $60 million to $70 million range that we had established coming into 2021. In our Surgical business, revenue was $106.4 million in the fourth quarter, representing 16.1% growth year-over-year.

Among our largest product categories, we continue to witness robust growth in sales of our instruments and ligation clips as the elective surgical procedure environment was stronger than in the prior year period and hospital capital spending increased. For Interventional Urology, fourth quarter revenue was $92.9 million, representing a decrease of 1% year-over-year and a 12% increase sequentially. This result was above the $85 million to $91 million implied guidance for the quarter. We saw a clear improvement in UroLift procedure trends during October and November when compared to the third quarter. However, December was negatively impacted year-over-year by the surge in COVID-19 with continued staffing shortages and an increase in procedure cancellations. Of note, we did not see any pull forward of UroLift procedures into the fourth quarter of 2021 from 2022, resulting from the announcement of the Medicare physician fee schedule final rule in November.

OEM revenues increased 3.9% year-over-year to $67.2 million in the fourth 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 neurovascular and other applications. And finally, our other category, which incorporates sales of respiratory products not included in the divestiture to Medline, Urology Care and manufacturing and supply transition agreement revenues declined by 12.2% to $84.7 million 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 fourth quarter revenue performance. Turning now to some commercial updates and starting with UroLift. As we reflect on 2021, we continue to see COVID-19 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 charges, which we identified in the second quarter created business disruptions, particularly in our office site of service. Importantly, our analysis continues to confirm that we have not lost share completing device-based treatment for BPH. 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 first quarter, but we anticipate improvement in sales trends throughout the year as elective surgical procedures become less disrupted. UroLift remains differentiated from other outpatient BPH treatments with strong clinical results, studies showing rapid symptom relief and recovery, no new sustained sexual dysfunction and durable results. Investors familiar with Teleflex will 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. We will also fully engage our sales organization to advance the rollout of UroLift two with conversion of the vast majority of the U.S. users anticipated by the end of 2022.

UroLift two remains an important margin driver, and we remain positioned to generate 400 basis points of UroLift gross margin expansion once the U.S. 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. Likewise, UroLift brand awareness increased 60% year-over-year to 16% and has surpassed 14% per TARP, which declined 600 basis points in 2021. Importantly, our DTC programs are extremely focused on driving revenue for 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. 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 one of this year. Japan remains an important long-term opportunity for UroLift with a $2 billion 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 1/3 the size. 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 2022, 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 Sequester Cuts Act on December 10, 2021. Among a number of important items, the law increased conversion factor in the Medicare physician fee schedule by 3% for 2022 versus the final rule issued in November. For UroLift specifically, the change will translate into an incremental $100 to $150 in profitability in the office setting in 2022 as compared to the MPFS final rule. We are encouraged by the improvement in reimbursement, and will continue to work with stakeholders to address the unintended consequence of the changes to physician fee schedule that will limit choice for Medicare recipients and move procedures to higher-cost sites of service. 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(k) clearance to extend the indication for our specialty support catheters, guide extension catheters and specialty guidewires to include cross chronic total occlusion. 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 as 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. Lastly, we continue to innovate around the core MANTA platform, and initiated a limited market release of the 14 French branch depth locator during the quarter.

The depth locator expands the use of the 14 French manteclosure for Impella in emergent cardiogenic shock procedures. Regarding EZPlas, we have not yet received U.S. regulatory clearance following the receipt of a completed response letter. 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 2022 outlook. Teleflex remains well positioned to drive growth in these challenging times. Although the pandemic and its effect on the health care 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 health care systems to adapt to the pandemic environment. With each subsequent surge in COVID infections, hospitals continue to improve their ability to treat COVID-19 patients and perform elective surgical procedures. 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 the top and bottom end of our outlook. In addition, our 2022 guidance assumes a normalization in our operating expense as the impact of the pandemic wanes. We will fund our commercial organization to remain in front of our customers and maintain investment for our growth drivers. It is important that we manage Teleflex for long-term durable growth, and we will continue to fund our investments to keep us well positioned.

That said, to the extent that COVID is more disruptive to revenues than we have assumed, 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 captures 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. We have made substantial 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 3/4 of our business is positioned to grow 4% to 5%. The growth is propelled by a base of medically necessary products and our high-growth portfolio of products, including MANTA, Hemostats, Intraosseous and PICC. 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&A strategy to layer in additional growth drivers. That completes my prepared remarks.

Now I'd like to turn the call over to Tom for a more detailed review of our fourth quarter financial results. Tom?

Thomas Powell
Executive Vice President and Chief Financial Officer at Teleflex

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 fourth quarter and exceeded levels achieved in the 2020 comparable period. Our continued progress in margin expansion in 2021 has allowed us to increase investments toward growth drivers, which is an important component of our long-term strategy to enhance durable growth. For the quarter, adjusted gross margin totaled 58.8%, 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 from pricing, M&A and foreign exchange, partly offset by inflation in freight, raw materials and labor. Fourth quarter adjusted operating margin was 27.6% 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 pandemics.

Net interest expense totaled $11.8 million in the fourth quarter, a decrease from $18.5 million 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 fourth quarter 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 a lower benefit from stock-based compensation as compared to the prior year period. At the bottom line, fourth quarter adjusted earnings per share increased 10.8% to $3.60 and exceeded our internal expectations. Turning to select balance sheet and cash flow highlights. Cash flow from operations for 2021 totaled $652.1 million compared to $437.1 million in 2020.

This represents a year-over-year increase of roughly $215 million. 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. Moving to the balance sheet. Our financial position remains sound. At the end of the fourth quarter 2021, our cash balance was $445.1 million versus $375.9 million at the end of the fourth quarter of 2020. During the fourth quarter, we repaid $200.5 million of revolving credit facility borrowings. And at the end of the fourth quarter, $141 million was outstanding on our revolver. 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 improve over 2021, but reflects COVID disruption in the first quarter.

We also expect inflation to be greater in 2022 than 2021 with a larger impact in the first half of the year as compared to the second half. Our 2022 guidance ranges account for uncertainty on the severity of COVID. The impact of staffing shortage 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&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. We expect constant currency revenue growth of 4% to 5.5% in 2022. Excluding a 1.6% headwind from the sale of the respiratory assets last year, our constant currency revenue growth is expected to be 5.6% and 7.1%, and captures our prior growth algorithm in the 2019 to 2021 LRP.

Our high-growth portfolio, which is spread across several business units and includes UroLift, MANTA, Hemostats, EZ-IO, OnControl and PICCs, represents approximately 25% 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 UroLift growth of approximately 15%. 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 supply transition agreement revenues and Urology Care. It accounted for approximately 12% of total revenues in 2021. For 2022, this 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%.

As a result, we expect our reported revenue growth to be 2.3% to 3.8% year-over-year, implying a dollar range of $2.874 billion to $2.917 billion. Moving to gross margin. We anticipate that adjusted gross margin will be in a range of 59.75% to 60.25%. 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. 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 UroLift, MANTA, intraosseous in the Asia Pacific region. In addition, as we have previously indicated, we continue to expect a normalization of operating expenses as COVID disruptions abate.

Keep in mind that discretionary operating expenses, including T&E and open headcount were significantly curtailed in 2020 due to the impact of the pandemic on revenues and commercial activities. 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 two years, we continue to make considerable progress on our margin expansion initiatives. 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 it 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&L. We expect net interest expense to be approximately $51 million. 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. 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&D expenses beginning 2022 under the 2017 Tax Cuts and Jobs Act. We understand there is bipartisan support for these R&D tax benefits, leading 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%. As a reminder, the low end of our adjusted EPS growth range reflects the change in the R&D expense deductibility for tax purposes. We estimate that weighted average shares outstanding will increase to 47.7 million for the full year 2022. Lastly, I want to provide some additional color on the cadence of our 2022 financial results. Specifically, three items impacting our first quarter results.

First, as I mentioned previously, 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 are experiencing to date. Second, note that the first quarter has one less selling day as compared to the same period of 2021. Third, we expect the headwind from foreign exchange rates to be higher in the first and second quarters before moderating in the second half of 2022. Accordingly, we expect our reported revenue to be approximately flat year-over-year in the first quarter. 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 rest of respiratory divestiture, our days adjusted constant currency growth is expected to be roughly 5.5% to 6% in the first quarter. We also expect our adjusted gross and operating margin to decline year-over-year in the first quarter driven by incremental inflation and a normalization of operating expenses. That concludes my prepared remarks.

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

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Thanks, Tom. In closing, I will highlight our three 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 fourth quarter and 8.8% for 2021 despite the significant disruption from COVID during the year. Second, 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&A.

Third, we remain confident in our growth strategy. We see our core growth platforms driving 4% to 5% growth with the additional growth coming from UroLift as pandemic headwinds subside. We have levers in place to drive further expansion in our margins. And our balance sheet is in a solid position with leverage of 1.7 times, providing ample financial flexibility for our capital allocation priorities. We remain confident in our future and our ability to continue to meet our commitments to patients, clinicians, communities and shareholders. That concludes my prepared remarks.

Now I would like to turn the call back to the operator for Q&A.


Questions and Answers

Operator

[Operator Instructions] And your first question comes from Jayson Bedford with Raymond James.

Jayson Bedford
Analyst at Raymond James

Good morning and thank you for taking my question and the comprehensive review here. So I guess just to start, 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.

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Yes. So right across our business, Jayson, obviously, we have winners and losers every time there's a COVID outbreak. So parts of our business do better, part of the them do worse. Vascular, obviously, in some of our respiratory filters do better. Our elective procedures, UroLift being the first one and then Surgical and Interventional tend to do worse. 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.

We would expect then to see an improvement as hospitals reopen and as people feel more confident in going in and having these procedures done. 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 Omnicron was it was a lot more contagious. So it actually added to the staffing shortage with individuals having to isolate for five days once they were exposed to just because of the infectious nature of it. But yes, an improving environment in -- as we went through February, Jayson, to answer your question directly.

Jayson Bedford
Analyst at Raymond James

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

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Well, the one thing you need to be active, Jayson, is firepower, and we've got lot of firepower. So our leverage levels, as we said in the call, at 1.7 times. 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. We always augment our portfolio. And don't forget in the last 24 months, we have acquired HPC and Z-Medica and we divested of our respiratory assets.

We are active out there purchasing assets. I think valuation expectations have modified as the IPO market is modified. And it's not just us telling the private companies, 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 -- we're having a lot of easier conversations with private companies now, and they see a strategic exit as very, very favorable compared to an IPO at this stage.

Operator

Your next question is from Lawrence Biegelsen with Wells Fargo.

Lawrence Keusch
Vice President of Investor Relations and Strategy Development at Teleflex

Good morning, thank you for taking the question. 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 4% to 5%, your lift bridging to your long-term goal, I think, of 6% to 7%. How much growth -- where do you see that additional growth coming from? How much is from international markets? And what are the other drivers? And I had one follow-up.

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Yes, Larry. So with UroLift, first of all, we're really pleased with the strong finish to the year, $93 million in the fourth 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% versus our original guidance of 8% to 9.5%. And don't forget, the original guide of $28 million to $32 million of respiratory revenue that we divested, delivered gross margins 59.4%, 270 basis points of expansion, up margin 310 basis points of expansion. And earnings per share, 25% growth in earnings per share, while also losing $0.10 to $0.15 in the respiratory divestiture. Looking forward, we've obviously communicated that we expect UroLift to grow 15% this year. We feel that, that's very achievable in the current environment.

We expect it's going to be impacted by COVID in the first quarter as one would anticipate. And then we would anticipate 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. So our constant currency guide is 4% to 5.5%. But there's 1.6% of a headwind from the respiratory divestiture, that's 30 basis points from the loss of a day, which is in Q1, which actually gets you to 5.9% to 7.4%. So if anything, the algorithm has improved because of the base, our core business doing even better through good execution and really solid investment behind some of our good growth assets such as Intraosseous, such as our PICC portfolio, such as MANTA and such as our hemostasis portfolio.

Lawrence Keusch
Vice President of Investor Relations and Strategy Development at Teleflex

That's helpful. And for my follow-up, Liam, just to follow up on Jayson's question earlier on M&A. What are your criteria deal size? How are you thinking about deal size? And any areas of interest you can share?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Absolutely, Larry. So we look at assets that are in that $600 million to -- $60 million to $300 million 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 has -- is clinically better than anything within the marketplace available. And we like products that are sticky. They get used over and over again. 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 op 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 and strategic criteria, Larry, and thanks for the questions.

Operator

Your next question is from Matt Taylor with UBS.

Matt Taylor
Analyst at UBS Group

I just wanted to ask specifically on UroLift, the 15% guidance. Two things. One, could you help us a little bit more with the cadence of UroLift growth that you expect through the year? And how much contribution from Japan are you anticipating?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Yes. Good question, Matt. So as I answered Larry, the first half will grow in the lower single digits due to the impact of COVID-19 through the first quarter and obviously, staffing shortages, while the second half of the year will grow really strong double digits. The contributions will be small from the international markets. You've got Japan, Brazil and France. They'll ramp in the second half of the year, but they won't really become meaningful math until 2023 and beyond.

So for this year, 2022, the main growth driver for UroLift will continue to be the United States. And I'll just add to that, Matt, and I mentioned this in my prepared remarks that we trained through the pandemic. That is the most best tactical way to drive growth in UroLift in 2022 and then bring on the international markets in '23 and beyond. And obviously, you'll see places like China come into being in [Technical Issues] 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 Europe, but as well as that, you've got MANTA and Hemostat, and intraosseous and PICC, all driving that real solid top line growth for Teleflex.

Matt Taylor
Analyst at UBS Group

Great. And just a follow-up on the pipeline. Did you give an update on the RFP? Or could you give us an update on that, where that is?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

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 with clear line of sight on the additional information that the FDA is requesting. We will 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 products such as this. So we're breaking new ground together. And as you're aware, Matt, and as most investors will be aware, the RFP from the military within that $3 million to $4 million, it's a nice market in the future, it's $100 million that we'll grow into. But that $3 million to $4 million is not in our guidance for this year.

Operator

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

Shagun Singh
Analyst at RBC Capital Markets

Great thank you for taking the question. 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 '21 to '22? I'm just trying to understand the puts and takes. So as it relates to, I guess, UroLift 2.0 conversion, we have slightly less than 40 basis points inflation. I think you called out 70 basis points on the call, annual pretax savings. I think you have about $40 million in '22 and '23 in. And then just higher level of investments. If you can just bridge that, that would be helpful.

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Thank you, Shagun. That level of detail requires somebody called Thomas Powell. So Tom?

Thomas Powell
Executive Vice President and Chief Financial Officer at Teleflex

Okay. So I think the first question was just on the impact of inflation or FX in inflation in the fourth quarter. So as we look at the fourth quarter, I'll start with FX first. 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 fourth quarter relative to what we were seeing in the third quarter, and we had estimated the amount to be approximately $3 million. It actually turned out to be higher, close to $4.5 million in the fourth 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 as we go into next year, 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, as mentioned, attributable to mix, mostly UroLift as well as restructuring and operational efficiency programs being partly offset by inflation. And for 2022, our guidance assumes that supply chain inflation is approximately $20 million 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 UroLift becomes a greater percentage of the mix and actually the manufacturing supply agreement becomes a lesser part of the mix. So I would say big picture, gross margin is impacted by inflation and 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 had 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 cost to offset the COVID revenue impacts. Now in 2021, we partially restored activities in 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, etc. And as a result, we'll incur an incremental about $20 million 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 a 140 basis point improvement at the midpoint. Now in addition, in 2022, we plan to continue to invest behind key growth franchises, including UroLift, MANTA and EZ-IO. I'd say that given the successes we've seen in the UroLift DTC as well as sales force additions, we'll continue to invest there as well as behind MANTA. And then again, we will see some op margin improvement as the year progresses for a lot of the same reasons that we're talking about in the gross margin improvement. Hopefully, I answered all your questions.

Shagun Singh
Analyst at RBC Capital Markets

Yes, appreciate it.

Operator

Your next question is from Cecilia Furlong with Morgan Stanley.

Cecilia Furlong
Analyst at Morgan Stanley

Great. Good morning and thank you for taking the question. I wanted to start back on UroLift. Just -- you talked about initiatives to drive UroLift utilization in your existing position base. 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, Japan, China, Brazil, Europe as well, how do you think about just the durable long-term growth profile of UroLift?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

So I think once we get -- what's very clear to me to the latter part of your question, Cecilia, is that UroLift growth is impacted by COVID. We've seen this at every outbreak of COVID. And as I just said a few minutes earlier, we saw UroLift pick up in September through November quite substantially. 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 first two months of the quarter. And the reason, Cecilia, that we're focused on a few pillars of growth for UroLift. The first pillar of growth is going to be around driving utilization in existing docks 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. 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 in to drive that 15% growth is 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. 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 revenues 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. And then lastly is obviously bringing on new docs. 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 of 12,000. And we've only done 300,000 procedures, almost all of them in the United States out of 12 million men in the United States and 100 million globally. So the opportunities for growth over a multiyear period, I feel really encouraged by, and we just want to get COVID in the rearview mirror, and then really show what this product can do from a growth profile.

Lawrence Biegelsen
Analyst at Wells Fargo & Company

And Cecilia, 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 & Company.

Mike Matson
Analyst at Needham & Company LLC

Hi thank you for taking my question. 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 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 factored in, if anything, for that issue?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

So we haven't seen any site of service change, and I don't anticipate seeing any site of service 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 net to the urologist for doing this procedure. We've also implemented our own pricing strategy in the marketplace, and that has been incredibly well received.

Only six 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 the shift inside of service. 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 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 executing, and the 15% growth is predicated on everything that we know today and our knowledge of what's going to happen with COVID we move forward throughout the year.

Mike Matson
Analyst at Needham & Company LLC

Okay. And if I could just slip one in for Tom quickly. Is there any kind of EPS impact from currency? I did hear that called out and 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.

Thomas Powell
Executive Vice President and Chief Financial Officer at Teleflex

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.

Matthew Mishan
Analyst at KeyBanc

Good morning. Can you hear me okay? Just the first question on Vascular Access. That continues to exceed our expectations, and it's about $100 million above where you were at in 2019. It seems like you're pretty confident around PICC and Vidacare 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 versus maybe some of the other areas that may have been COVID-related beneficiaries?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Yes. So for Vascular Access, this year, we expect it to grow in the mid-single digits in its entirety. Obviously, our CVC portfolio benefited from COVID over the last couple of years. But the growth is really coming from our intraosseous portfolio and also from our PICC portfolio as we continue to take share because of our coating technology. This is really a global play for us. We've launched a really nice new CBC kit that is getting excellent traction out there in the market globally, and that's also helping uptrade our customers on our CBCs in our key -- globally, but in our key North American market for sure. So we feel really good. It's our largest franchise, Matt. It continues to execute incredibly well. We have a new -- as well as that new product, we have another new product that's coming around our PICC, positioning in our PICC 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&D dollars spent than others. And keeps that flow and new products come to keep ourselves differentiated, and it's a great franchise.

Matthew Mishan
Analyst at KeyBanc

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

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Yes. We're really happy with where Z-Medica finished. We told the investment community to be somewhere between $60 million to $70 million. We finished squarely in there $66.5 million. Really proud of the achievements, bringing that into Teleflex. And nothing is 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. And that's in the bucket that Tom spoke about, that's driving an average in the mid-teens. And of course, we have a cardiac study that we just completed, we will file with the FDA. And that will expand the $600 million TAM also, Matt. So really excited about it.

Operator

And your last question comes from David Turkaly with JMP Securities.

David Turkaly
Analyst at JMP Securities

Great thanks. Maybe just a couple of quick product one to follow up on that. The PICC side, would you notice anything on the competitive front, there was a bigger player there that grew for years at the rate that you seem to be now. Has anything changed there? Or would you actually point to the differentiated coatings as sort of how you're maintaining that?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

So for us, it's all about the coatings. And what changed, 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 CBC is used to be at 4% before we launched our coated 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 PICC infections, they were around 4%. 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 antithrombogenic and anti-infectious.

David Turkaly
Analyst at JMP Securities

Thank you to that. And maybe just a follow up. 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. I guess 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?

Liam J. Kelly
Chairman, President and Chief Executive Officer at Teleflex

Yes. Also within -- 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 coal ligation clips that should help us continue to augment the growth. Now it's not going to grow at that clip for next year, and I don't want to mislead anybody that is going to do that. It will be in the low single digits as we go through next year. 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 vascular closure. We've really like working on our instruments. And of course, it holds like as we continue to perform exceptionally well globally. And quite frankly, the team in Surgical has done an outstanding job in executing as procedures have returned. And also an area that we take price, I should mention that. It's a nice opportunity for us. And on pricing I think it's important that we did mention, we anticipate having positive pricing this year on that 50 basis points consistent what we drove last year in order to offset some of the inflationary pressures. And it's for a company by Teleflex, I believe that will be successful because we're used to taking prices out of our DNA, and we'll continue to execute on that price, in particular, with Surgical within our Vascular business unit and also overseas in Asia and Europe. So I just want to make a point as well before we close.

Operator

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

Lawrence Biegelsen
Analyst at Wells Fargo & Company

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

Operator

[Operator Closing Remarks]

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