Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the first quarter 2020, Teleflex Inc. earnings.
Earnings Conference call.
At this time, all participant lines on who listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you wanting to press star one on your telephone please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I like to have the conference through Speaker today, Jake Louise Treasurer, and Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone and welcome to the Teleflex incorporated first quarter 2020 earnings Conference call. The press released in slides to accompany this call are available on our website at Www Dot Teleflex Dotcom and as a reminder, this call will be available on our website a replay will be available by dialing eight.
By five eight fivenine to 056 or for international calls for 045 37, three 406 pass code seven five or five 905.
Participating on today's call or Liam Kelly, President and Chief Executive Officer in Tom's Powell Executive Vice President and Chief Financial Officer, Lehman, Tom will provide prepared remarks, and then we'll open up the call acuity.
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 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 with that I'd like to now turn the call over to Lam.
Thank you Jake and good morning, everyone. It's a pleasure to speak with you today.
Before I get into the details of our quarterly performance I'd like to offer my condolences to anyone who has been impacted by the grown of ours.
As well as my sincere thanks to all the healthcare workers, including Teleflex workers, who have returned to clinical practice.
Put themselves that risk tobacco cobot 19 everyday.
I'd also like to take a moment to recognize the teleflex employees around the world.
These past few months have been prior from normal and our employees continue to inspire me as they have stepped up an extraordinary ways to ensure that we are able to provide our products to the hospitals clinicians and patients who need demos. So big time Q2, all teleflex employees.
Now onto our core to one results.
The first quarter of 2020 was a solid start to the year for teleflex, particularly when you take into consideration the global escalation of the cobot 19 pandemic.
During quarter, one we generated constant currency revenue growth of 4%, while on a selling day neutral basis, our constant currency revenue growth was approximately 5.5%.
Quarter, one revenue growth was driven by the performance of our Americas, EMEA and OEM segment, but our Asia segment experienced a decline due to covert 19.
From a margin perspective, we generated adjusted gross and operating margins of 57.3% and 25.6% respectively.
This translated into year over year growth of 60 basis points of the gross margin line and 190 basis point that the operating margin line.
But from an adjusted earnings per share standpoint, we achieved a robust year over year increase of 21.4%.
As earnings per share totaled $2.72 during the quarter.
Im extremely pleased and our ability to drive significant leverage throughout the income statement, while navigating through a very difficult operating environment.
It is a testament to the strength of the diversified global portfolio, we have built over the past few years.
Next I thought it would be helpful to provide some context regarding how we sell cobot 19 impact our first quarter results.
As a reminder, our previously provided full year Twentytwenty financial guidance assumed that we would be negatively impacted from cobot 19 by between 5 million and $10 million into revenue and between five and 10 cents of adjusted earnings per share.
This was assumed to all be related to our business within China and it was expected to only be a quarter one event.
It is important to keep in mind that when we provided our guidance on February 20, Cobot 19 was largely only impact in China.
As we progress through the first quarter.
The months of January and February as well as the first two weeks of March were largely in line with our initial expectations.
And we did not see much of the negative impact outside of China.
However, as the virus began to spread further globally.
Coupled with the announcement from the American College of Surgeons, and the surgeon general requiring hospitals to postpone any procedures that are considered three non emergent our elective in nature, we began to see more of a pronounced negative impact during the last few weeks of the quarter.
And while we estimate that only one third of our product portfolio is correlated to non emergent our elective procedures, we still felt an impact to our business.
During the last few weeks of March this additional headwinds largely occurred within the Americas.
And primarily within our interventional urology, interventional access and surgical product lines.
We did see some offset within the Americas from increased sales of certain respiratory products.
However that was not enough to offset the loss revenue and margins from the canceled procedures.
Turning to EMEA.
We saw significant increased demand for certain vascular access respiratory and anesthesia products and we estimate that our results within this part of the world benefited due to increased demand for our products used in the treatment to patients with cobot nine Deane.
Well within Asia. The impact included 19 was inline with our previous assumptions.
In total during the quarter, we experienced a revenue headwinds that was slightly worse than our initial guidance contemplates as.
While at the adjusted earnings line, the headwind was inline with the high end of our original estimates.
This is despite our guidance anticipating an impact in China only as the virus has expanded beyond China to the rest of the world.
Next I'd like to provide you with our results as we look forward to the remainder of the year.
First and foremost I want to share with you the guiding principles, we established as a framework for decision making through the crisis.
Employee and customer safety first.
Communicate with transparency and manage the business to accelerate through the recovery.
On safety first.
Let me just say that the health and safety of our workers is paramount.
As such we have implemented best practices for health and safety guidelines in accordance with the World Health organization, the CDC and local health authorities.
For communicating with transparency, we have formed a global crisis management team to coordinate our actions and engage our employees with regular updates.
And on managing the business to accelerate through the recovery, we remain committed to investing the resources necessary to support increased demand due to covert 19 for certain product lines by maintaining adequate inventory to benefit from a phased recovery.
The second thing two days, we have had minimal disruptions within our global supply chain. However, this is a very fluid situation and things can change quickly as an example, because of certain restrictions placed by the governments of both India and Malaysia. We are not currently operating at 100% capacity.
At certain facilities within those countries.
But this restriction has not impacted any critical respiratory airway, our vascular products required in the eyes of covert 19th.
Indeed for critical respiratory product families. We have been able to achieve significant increases in production over the past four to six weeks.
In fact, only a few days in advance of this earnings call, we learned that the Malaysian government.
It was removing certain restrictions they had placed previously.
Which we expect will enable us to be in a position to increase our production capacity back up to 100% within our Malaysian facility over the next week.
And while we continued to do our best to meet customer demand for most of our products. We are having to play certain risk bursary vascular and anesthesia products on allocation due to elevated order rates.
An increase delivery times associated with those products.
Third based on trends the began in the latter half of March we expect that the deferral of certain non emergent and elective procedures will continue to negatively impact our interventional urology business and certain portions of our surgical and interventional access product line.
As I mentioned earlier, we estimate that only about one third of our product portfolio is used within procedures that are capable of being deferred that is not to say that all of these procedures are being deferred due to the criticality of some patients.
We also believe deferment cannot occur indefinitely as the patients underlying condition are not improving simply because the ways to get a procedure performed.
Conversely.
Once the United States begins to reopen we believe that elements of our portfolio could benefit from recovery in outpatient and vacate elective procedures as states reached a white house phase one status.
While the remainder of our portfolio impacted by covert would recover in phase two.
Further I'd like to invest advise the investment community that our portfolio as very limited capital equipment exposure.
It is our belief.
As you look procedures would be the first to come back in phase one.
Approximately 60% of those procedures are performed in an office our assay setting.
Based on discussions that we have had with several high volume users of euro lift their belief is that they should have the capacity to perform a significant amount of the procedures. They previously had to both postpone.
The remaining 40% that are performed in the hospital do not require an overnight stay under also designated as phase one. It is our belief that wounds consumer confidence is re established we will begin to see a recovery here also.
Following the return of Euro procedures being performed we would envision that our interventional access and surgical business would rebound next.
As a result, we have positioned our business to be able to take advantage of that increased demand when that occurs.
This includes building certain safety stock and making sure that we have the appropriate amount of inventory on hand at.
Additionally, we have not furloughed are laid off employees, rather we want to make sure that we retain our key sales and clinical personnel and keep them motivates us in anticipation of procedures returning.
However to somewhat mitigate the negative financial impact stemming from the reduction of certain procedures, we have taken steps to curtail operating expenses.
This includes the adjustment of certain executive and management compensation as well as the elimination of any discretionary spending that was not critical to the organization.
We've also made the decision to delay our national direct to consumer Euro lift campaign.
With that said given that we cannot accurately predict the scope and timing of the recovery. We are withdrawing our previously provided 2020 financial guidance.
Despite needing to remove our 2020 guidance I remain confident that our long term global opportunity remains significant and our business is well positioned to weather the cobot storm and accelerates in the future.
With that said, let's turn our attention to first quarter financial results.
I will begin with a review of our reportable segment revenues and unless otherwise noted the growth rates I would refer to on a constant currency basis.
The Americas delivered revenues of $358 million in the first quarter, which represents an increase of 4.3% while on a selling day neutral basis. The Americas grew approximately 6%.
Growth within this region was driven by our interventional urology vascular access and respect three product categories and would have been significantly higher had not been for the negative impact of gold 19.
EMEA reported revenues of $156.1 million in the fourth quarter, representing 3.8% growth while on a selling day neutral basis EMEA also grew approximately 6%.
Growth within this region was driven largely by broad strength across our vascular access and referred three portfolios and as I stated earlier, we estimate that M&A benefited from elevated ordering related to covert 19.
Turning to Asia.
Revenues totaled $53.1 million in the first quarter.
Which represents a decline of 9.2%.
There was no impact to this region's growth rate from selling day differences. However, we estimate that we would have had positive constant currency revenue growth how did not being for the impact of coal with 19.
And lastly, our OEM business reported revenues of $63.4 million in the first quarter, which represents an increase of 17.5%.
Like Asia, selling day differences had little impact on our OEM business.
Growth was driven by a mixture of additional revenue coming from the acquisition of HPC, coupled with an increase of sales volumes of existing products.
We do not believe that covert 19 had a material impact on our OEM business. During the first quarter. However that may change as we move throughout the year.
As it relates to the acquisition of HPC. The integration efforts are well underway and I'm very pleased with how the businesses for borrowing under our leadership.
Let's now move to a discussion of our 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.
Starting with vascular access.
Due to growth within both our pick and Iot products quarter, one revenues increased 5.6% to $150.3 million.
We estimate that covert 19 positively impacted the growth rates of our vascular products during the first quarter, while one less selling days negatively impacted growth.
Moving to interventional access first quarter revenue was $99.9 million, which represents a decline of 2.3%.
During the quarter growth in manta uncontrolled and into Arctic balloons was more than offset by declines in complex and drainage catheters as well as one less selling days.
Our interventional business also faced a difficult comparison in Q1 as revenue associated with our divested catheter reprocessing products still occurred during quarter 119.
Additionally, we estimate the covert 19 negatively impacted the growth rates of our interventional access products during the first quarter as certain non emergen procedures were cancelled.
Now to anesthesia.
Quarter, one revenue was $75.7 million, which represent the decline of 3.9%.
The decline in revenue was due to lower sales of laryngeal mask, some certain regional anesthesia products.
As well as the impact of one less selling days.
As it relates to call with 19, we estimate that it had a negligible impact during the first quarter.
Shifting to our surgical business revenue declined by 11.5% to $75.4 million driven largely by the impact of covert 19 and story Genex Atlanta plant shutdown and one less selling days.
Moving to interventional urology.
Quarter, one revenue increased 24.3% to $74.2 million.
Revenue growth rates during the month of January and February as well as the first couple of weeks of March were significantly higher than the quarterly growth rate. We achieved as your lift was off to a fantastic start to the year.
Unfortunately, the cancellation of elective procedures because of covert 19 impact of this product line more than any other within our portfolio.
As I stated earlier, because the Ehrlich procedure is performed in an outpatient lower acuity setting we would envision euronet probably one of the first ties the procedures that will be performed once the United States Reopens.
And finally.
Our other category, which consists of our respiratory and urology care products grew 9.2% totaling $91.7 million.
In large part we estimate the growth during the quarter was due to increased demand for respiratory products, such as filters and humidification, resulting from covert 19.
That completes my comments on quarter, one revenue performance.
I would now like to turn the call over to Tom for a more detailed review of our first quarter financial results Tom.
Thanks, Liam and good morning, everyone.
Given the previous discussion of the company's revenue performance I'll begin at the gross profit line.
For the quarter adjusted gross profit was 361.1 million versus 347.8 million in the prior year quarter or an increase of approximately 4%.
Adjusted gross margin totaled 57.3% during the quarter, which is an increase of 60 basis points versus the prior year period.
The improvement in gross margin was largely due to favorable product mix benefits from cost improvement initiatives and the impact of favorable fluctuations in foreign currency exchange rates.
The mix benefit realized during the quarter was lessened by the impact of Golden 19, as the adverse revenue impact tended to skew toward higher gross margin products, including airlift surgical and interventional access.
In light of the reduced revenue outlook, resulting from cold 19, we have proactively looked and expenses.
Mortgage identify prudent opportunities to offset the cold 19 related earnings impact while at the same time preserving teleflex his ability to rapidly rebalance once elective procedures recover.
The combination of gross margin expansion in Opex expense measures combined for a 190 basis point increase to adjusted operating margin, which came in at 25.6% was the first quarter.
Included in the first quarter operating margin results was a foreign exchange headwind of approximately 50 basis points.
Adjusted operating profit was 161.6 million as compared to 145.6 million in the prior year or an increase of approximately 11%.
Continuing down the income statement.
Net interest expense for the quarter totaled 14.9 million, which is a decrease of approximately 34% versus the prior year quarter.
The decrease in interest expense, primarily reflects reduced interest rates associated with our variable interest rate debt instruments as well as a cross currency swap agreement that we executed in the first quarter of 2019.
Moving to taxes for the first quarter 2020, our adjusted tax rate was 12.5% as compared to 14.8% in the prior year period.
The year over year decline in our adjusted tax rate is primarily due to a more favorable mix of taxable income in the first quarter 2020 versus the prior year period.
Offset in part by a lesser benefit from stock based compensation.
On the bottom line first quarter adjusted earnings per share increased 21.4% to $2.72 included in this result is an adverse foreign exchange impact of 10 cents.
Overall, we're very pleased with the strong bottom line growth despite the headwinds from coated and FX.
Turning now to select balance sheet and cash flow highlights.
The first quarter 2020 cash used from operations totaled 11.5 million as compared to an inflow of 60.2 million in the prior year period.
The decrease is explained by a $53.9 million increase in contingent consideration payments largely related to milestone payments stemming from the acquisition of May attract.
Additionally, a $10 million pension contribution was made in the first quarter of 2020.
Overall, the balance sheet remains in good shape at the end of the first quarter, our cash balance was 406 million and our use cash balance was $182 million.
Net leverage at quarter end was approximately 2.6 times, providing comfortable headroom when compared to our covenant, which requires that we stay below four and a half times.
Lastly, we have no near term debt maturities and material size.
And to pressure test our liquidity outlook in light of fielded 19, we prepared several recovery scenarios with varying recovery timelines on reach scenario teleflex maintain sufficient liquidity to execute our plans and maintain comfortable covenant headroom and additional borrowing capacity remaining in place and available of our already existing.
Credit facility.
And that concludes my prepared remarks, I'd like to now turn the call back to Liam for closing commentary.
Thank you Tom in closing, we delivered solid first quarter results bearing witness to the benefits of our global diversified portfolio.
And while it is difficult to predict whether the path to recovery will be vitiate, you shaped our even w. shaped we as an organization will continue to monitor closely the reopening plan state by state and country by country to ensure we take full advantage as states and countries reopened.
We have introduced digital tools to our business units, where we believe it can be an effective in training conditions on the safe and efficacious use of our products.
We will manage the business prudently by staying focused on capitalizing on the long term potential of our global product portfolio.
I would like to finish by again thanking all of our employees, who continue to manufactured distribute and support products that are required in the fight of covert 19, I'd been humbled by the responsive Teleflex employees as we continued to deliver on our commitments to our customers their patients and our investors that concludes my prepared remarks.
I would like to turn the call back to the operator for Q any.
Thank you as a reminder to ask a question you need to press star one on your telephone.
And the interests of time please.
Limit yourself to one question and one follow up.
To withdraw your question press pankey.
Please standby Lincoln products and a roster.
My first question will come to lineup David Lewis from Morgan Stanley. Please go ahead.
Good morning, Henley and thanks for the detail and congrats on a very durable quarter. Just two questions from me when I start with your a lessening of onto to one of their segments. So you can you discuss your left multiple times your confidence sort of recovery I just wonder if you could talk about.
Business trends here, how much was the business down at trough.
And have you seen that balance off of April lows, and you talked a lot of out.
The access has an advantage, but how are you, saying about the seven year old average patient age and how the referral channel or the patient will react to that at a quick follow up on respiratory.
Okay. Thanks, David.
So I'll talk about the trends that we saw as we went through.
January and February in regards to your left and then what we saw in March and I think that would give a good indications the investment community is to as to water card is procedures were cancelled. So we look at January and February we were actually growing as eurs business at just over 38% and in March the business declined by 3.3%.
In the last two weeks of March if you compare that to the first 11 weeks, we actually saw at 60, 40% decline in the business in those last two weeks as procedures got got canceled.
Now if I look at the other part of your question regarding why we think it's going to recover.
And access in the age the patient first of all the average age of euro to patients not 70. The average age of your lift patients is just over 60. So we don't have for sure.
Then in that 70, plus or in a higher risk category and I think it's all about consumer customer confidence consumer confidence as they go back and be centers, but.
The reason that I'm confident that urology is going to recover quickly is on a number of points first when I'm speaking to urologist. We know that there is capacity in a desire to do you are live procedures. We've actually conducted a survey with 100 over 170, urologist and 60% of Virologists, we're contemplating shed.
Ruling adjustments postcode.
And investors that are familiar with fewer lift will will be aware that 60% of your that procedures are performed outside of the hospital and we believe consumer confidence will return first in the AMC and the office environment.
And your lift will obviously benefits from the states that move to phase one at with CMS and American College of Surgeons and other leading groups in agreements that outpatient procedures will recover faster. So that also leads to our confidence and.
Yes, the procedure can be farm with in one hour in adopts office are in an AMC or even in a hospital and it's the only procedure that will allow that to prevent sexual dysfunction.
Thirdly, there is a strong financial incentive for urologists, and our salesforce to ramp back up as quickly as as possible and if you look at the cadence of states, we spend some time looking at that.
The 18 states and territories at that are about to open our will open in the near future account for about 32%. There are four other states coming quickly behind those and they account for another 27% so roughly 60% of the states where our business is done are going to open up in the near future.
Sure.
And last thing I'd say is in that service that we did David.
It highlighted that BPH is in the top four disease states that are being prioritized by you or less.
Your outages as they get back to work behind things like prostate cancer, and kidney stones, which are obviously emergent and need right.
A boost or an emergent and will develop pain for the patients and I think lastly, the last come to make David is our DTC campaign at when we bring that online could be a catalyst also to encouragement to go to that to these practices sorry for the long answer, but I think there's a lot in that question.
So just ordinary detailed blame exactly what I think investors are looking for sure. Thank you and just I'll do a quick win here to wrap up two businesses that were more durable here in the first quarter respiratory and OEM I'm just kind of curious how you see this business is tracking here on on a go forward basis. Thanks, so much.
So you're correct in on our respiratory business and again I'll give you the similar commentary on respiratory that I gave you an interventional urology.
Recovery in January and February had a small decline about 2.2% and then you'd expect that did.
Distributors tend to destock in the first couple of months of the year in March our respiratory business grew by 44%, culminating in over a 13% growth in the quarter and thats clearly bit because as covert 19 had an impact.
We we so first any EMEA increased orders for surgery products follow quick.
Please bye bye are our American business and then in relation to our OEM business again, it's a great business.
Grew by 17.5% no real day adjustment here about half of the growth came from the acquisition and the other half.
Approximately came from.
The core business. So OEM business has continued to perform excellently as it has done over the past.
Number of years.
As we move forward.
We keep a close eye on the corporate impact on OEM as I said in my prepared remarks, it's difficult to ascertain that as we as as we move forward.
Because we make products for other companies and we don't know.
Yes, what the impact is to those companies the thanks for the questions Dave.
Thank you.
And our next question.
In fact line Larry Keusch from Raymond James You May begin.
Thank you good morning, everyone Im glad to hear everyone is safe.
Just wanted to Liam.
Maybe start with.
As you think about the month of April.
You provided some color on some other parts of business, but what can you tell us about how how April is tracking and specifically how are we thinking about.
At the various regions Americas, EMEA and Asia Pacific.
I'd, Larry I'm going to try and stay away from discussing intra quarter.
Results given that we have withdrawn our guidance I will tell me what I, what what happened as we entered into the covert 19 crisis and I'll tell you what.
Happened in EMEA and then what happens in March in in the Americas.
So the covert panda.
I make.
Spread from Asia to EMEA Forest.
As hospitals realize a lot more patients returning off with referred re conditions. They we got an overwhelming number.
For of orders for our respiratory products.
And and following on from that as patients then migrated through the hospital into the intensive care unit, we got increased orders in our anesthesia portfolio for airway management products.
Circuits each of those types of products and then about it.
The weaker 10 days later as these patients need vascular access we saw ramp up in our vascular portfolio was in EMEA.
The Americas track shortly after that and we saw the almost the exact same trend where you saw an increase in recovery products an increase in every management products and I would expect it to be followed by an increase in vascular products based on the same trend.
That we saw within EMEA.
Okay.
And then.
Maybe just a terrific.
Finished at that that off sort of.
Back faster if you can get it moved into.
Doctors office or ambulatory surgical settings.
Yes, I'll deal with the last part first I mean, the one thing that I'm encouraged by is that we know that there is capacity.
In the ASV and in particular within the office setting.
We know also that is a very effective procedure with great outcomes, and we know that it's a profitable procedure in both of those settings.
And.
Given all that fact based it is very dependent thereafter on practiced by practice. If urologist has an office setting and do some work in a hospital then of course, they have that flexibility to move into an assay or an office environment and if they don't.
Then then they have then it's less likely to move but there is capacity Larry items as capacity our expectation is that the risk flexibility to move from the hospital to the AC or the office.
Regarding the first part of your question on what we saw in China. So what we saw.
In February and March was.
Sieges beginning to come back in particular in March as the ramped up and it's it's very dependent I guess city by city are.
In April they actually allowed the residents who bay to two to move freely throughout the country as they as they start to stop the lock down in that part of the world, but what we see in Shanghai in particular is as we got towards the end of the of of March we started to see procedures getting to some sense of normalcy.
Towards the end of March.
And we expect Beijing to follow suit very very quickly and a lot of our business is done down in the eastern seaboard. Various we expect goes to to get back to some level of normalcy as we go through this quarter quarter to.
Okay terrific. Thanks Liam.
Thanks.
And our next question on come from line JP Morgan from ESB Leerink you may begin.
But.
Much of your standard that year control and maybe if you were just take your base case, you said you're planning on multiple cases in the late October but if you take your base case.
For the long range margin target still achievable, maybe not 2021, but say within a two year timeframe and to give any color there.
Yes, rich thanks for the question. So let me begin by say enrich that we continue to believe that our product portfolio is capable of reaching the 6% to 7% 60, 61% and 30% plus levels that we put out there a few years ago.
Thats it given the fact that we just withdrew our full year 2020 guidance.
Because of this uncertainty surrounding covert it will be very difficult for me to sit here right now and tell you that we can still reach those goals by 2021, we need CEE countries reopen we definitely need.
See the us reopened and procedures return.
And once we see that occur we will have a better I'd acid the timeframe, where we can achieve those goals, but let's see here now is I'm still very confident in achieving those longer term goals. The only uncertainty. This in my mind. My mind is the timing and I want to see the recovery before I give more detail on that.
That's fair got it and maybe just one more M&A obviously has been.
Yes gold to the strategy at Teletext for a number of years now I'm. Just curious you went through your liquidity position, but how if at all.
The BD activity changing.
So in the wake of Cogan. Thanks.
Yeah, well obviously.
I still.
We'll take that our preferred use of cash remains to to conduct the M&A.
Although having said that given the high level of uncertainty regarding how long the call with 19 situation might last we think it's reasonable to assume that M&A will slow down in this environment.
I think you hit a very important point there rich.
Thats the goal and this might actually presents an opportunity for a company like teleflex it with our current liquidity situation.
We are in a little bit on charter water here with covert 19 and as a result.
I would like the investment community to to rest easy we will continue to be as disciplined as we've ever been as we identified the appropriate targets and I don't think that now would be the right time to do a billion dollar transaction in the current environment. So we will continue to be prove prudent and with prior to prioritize the strength of our balance sheet.
Uh huh.
Made this evolving situation.
Thank you.
She has written.
Thank you and our next question will come from the line now Shaygan send from Wells Fargo.
Again.
Thank you so much thing the question.
I would just curious if you think we could be could see a period of above average growth in Q3.
Expositions begin working through the backlog and as patients schedule ceded ahead of the fall, which will be prior to the started to fill season or fulfill roughly secondly, and default and then I have a follow up.
And.
So I think to chagrin that as I look at it right now.
As I said earlier, we see.
At the state's begin to reopen I think we're going to learn a loss in the next month.
And it is very dependent on whether we see a spike in coal with 19 RF, we see those cars continue to flatten in my mind, it's all about consumer confidence.
What I'm actually looking for is when people start to go back to their dentist and I know, we're not in the dentist business, but if people start and I see my friends going to the dentist that will mean that we're very close to people going back to an office in any assay to have you are live procedure done and if that happens in the second quarter and it looked like.
Looks like it's going to begin in the second quarter I'll go back to what I said earlier theres capacity to do the Euro leprosy features which is the one that was mostly impacted by the.
Postponement of some of these procedures. So therefore I would anticipate that in in Q3 and in Q4 that those procedures a lot of them would come back.
This speaks to.
To a urologist.
Recently and that individual.
Reiterated what I expected that that he would that he has not canceled any euros procedures here simply postpones them to a laser days. So those patients are still currently scheduled in his product.
Yes to have that procedure done.
That's really helpful. Thank you so much and just a question and you initiated a full launch in January 1st.
Can you.
Give us any color on the kind of adoption you saw.
We will make Mike.
Any any color you can give in terms of procedures and then what's for sale in Q1. Thank you putting the question.
Yes, absolutely so as as those of you that are familiar with our story will know that that we had converted 4% of the market last year and our goal this year.
As to convert.
8% of the global market.
I can tell you that manta was performing in really really well.
Prior to the impact of cold cold.
As we went through January and February.
We thought we saw significant growth and if I just took January and February and if I took a two month of the global market, we actually had approximately 6% of global market converters on a pro forma basis in just on the revenue generators in January and in February.
Once we got into the last two weeks of margin I'll give you. The same data that I gave for euro that we saw us at 35% decline in the last two weeks of March compared to the first 11 weeks and just as procedures got pushed out but the adoption has gone really well the price point is right in line.
We expect this and again as these procedures come back we believe that this product that will come back and this is one of the products that we are using some of our digital tools Tele health tools that I mentioned in my.
My prepared remarks to train physicians, even if our our salespeople cannot go into the office and lastly, we.
Yes in place the 20, plus associates sales reps that we plan to have to support this product and there.
Okay.
Thanks to the current margin profile of that franchise, just considering that you have you all too.
And you well out there. So I'm just wondering what is the status of the margin profile of Euro left at the moment.
And then maybe an update on the all US expansion plans I think Japan was expected at least the Soffe rollout first half and just wondering what coal.
It does to the OE less expansion plans for.
For Euro left and then we'll have one fall.
Okay. So the margin profile of your lift wouldn't have changed Anthony assume the assume the mid seventies.
Our goal is still to rollout the well too to get that into the high seventys.
Just given covert 19, and the fact that the FDA have been.
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Yes.
Focused on addressing coal with 19 that would that we'll have a slight delay to our five 10-K submission.
So that will probably would be in the June July timeframe, and then we'll have a 60 day 90 day review.
Before we get the product to market.
I tell you that because that will have an impact on the Japan rollout, we expected to be generating revenue in Japan.
Early in 2021.
We will probably now be generating revenue in Q1 are cute pardon me from from Q1 to Q2 or.
The unlikely to go to Q3, but it could go to Q3. It really does depend on the review time, but we will still be generating revenue in 2021, and I would just to remind everybody that in our NRP. There was no revenue for Japan contemplated in our at our piece. So we still envision that we will be generating most likely in the Q2 ish timeframe.
Revenue in Japan, following the reimbursement approval.
And then the follow up would be outside of Corona virus as you do your internal modeling just any thoughts on the economy.
You mentioned that 25% or elective procedures. So it seems it's tough.
Our flex portfolio for recession is relatively durable that but any views just on.
The economy unemployment rates, how that plays in hey, guys thinking about that internally. Thanks.
Yes, so no industry is immune to the impact of recession.
But I'm sure as all the every analyst is aware the.
Industry that is probably more sheltered is medical devices.
People, whether you're in a growing economy are lagging economy or recession economy people still get it under the requirement for our products.
Part of our thinking behind the building of our portfolio and really focusing.
Two thirds of it on non emerge and critical procedures is exactly that to ensure the procedures could not get postponed it its standing is in good stead in the covert 19 crisis that we're seeing right now because so just.
All part of our overall portfolio was impacted by postpone would procedures that same fact pattern would stand to teleflex also in a recession and where procedures that would not be in a position to get postponed and even them are procedure that is probably the most elected the euro lift.
The healthcare economics on that are so strong that is actually even in a recession. It is saving the health systems money.
As as more patients opt for Europe procedure.
Thanks again.
Thanks Anthony.
Thank you and our next question will come from the line of Matt Taylor from me, Yes, you may begin.
Hey, good morning, Thank you for taking the question.
So add to the first one was.
Appreciate that cadence that you talked about with the ordering patterns around respiratory airway management and.
Vascular access I guess I was wondering if you knew from the trends you mentioned, 44% growth I think and in March.
From what you've seen since then do you think there was a lot of stocking. There do you think that is being actually use because of large number of patients in those centers.
That's an excellent question, Matt what we saw at the ended the quarter, we add as as I said in my prepared remarks.
We carried a significant backlog into the quarter. So our normal backlog of orders was in these product categories.
And for our overall business will be about one days sales.
As we went into into April.
That was more than that was almost tripled our normal backlog that we would tend to carry.
We are as we ramped up manufacturing of these respiratory products some of them by 200% in order to try and address the pandemic.
The products will be getting used.
By the hospitals that are treating call that patients.
Every patient the goes on the ventilator will will require to filter bacterial filter.
It protects the patients in the people around them, but it also takes the ventilator. So you don't get cross infections every patient also will.
Felt or it's a heat moisture exchange builder in order to do the work of the Nols.
We believe these products are being consumed no doubt I think post the pandemic I think that hospitals and distributors will actually hold more inventory of these products.
I think people as I said it also my prepared remarks isn't to be recovery is you recovery or is it a double.
Well you hold onto largest stockpiles and we are engaging with government agencies right now because we are prepared to stay building. These products, but we want to understand where government agencies to understand what government agencies want to do with regard to their stockpile actions for key risk surgery anesthesia and vascular products.
Okay. Thanks for that makes sense.
And then you provided a lot of nice details around Europe add one more follow up on actually so you mentioned talking to some customers who hadn't canceled cases I was wondering if you knew just typically if you could characterize for us about how far out those cases are typically booked and then to get patients back in the funnel.
There are a lot of.
Testing or evaluation that has to be done or is it pretty quick and easy.
So I'll deal with the last part of it far so if you are suffering with BP HAGE.
You are BPH condition is not one that.
It's going to get better.
Our digital media and regional DTC campaigns that.
A patient needs to be shared doubled with dean.
Four weeks or so in order for eight a high.
Acceptance rate of doing the procedure.
With that but we know from the DTC and I think it around that for Fourish weeks mass and as I said.
There is capacity in particular within the office and the see too.
Shared will these patients to bring in newer patients obviously, the offices will have to implement some procedures around social distancing around face masks as they see appropriate in order to get up and running but I think it should be at least my perspective is that now the urology practices Norwich States are opening we're.
Actually again, using some of our digital tools to train urologist to revisit some of the training to make sure that they are ready and prepared to to reengage with their patients.
And and obviously as I said in my prepared remarks, we have our our DTC campaigns.
Also ready to to Reengage with those men in order to heighten their awareness of of BPH.
Okay, great. Thanks, Liam I'll leave it there.
Next month.
And our next question comes from the line, Matt O'brien from Piper Sandler you may begin.
Hi, guys. Good morning. This is true on for Matt and thank you for taking the questions.
I wanted to follow up a little bit on matter here I get those things begin to loosen up a little bit in the next couple months.
From a hospital perspective.
Im just wondering if you're kind of gotten a sense and how they will prioritize some things over others and I guess, specifically I'm trying to get out beyond what you've already said is.
Is there any risks that training on new products, such as Mantech could be put off for the time being as hospitals, where Q backlog said and prioritized.
Okay.
Yes, Andrew Thanks for the question I.
Let me give you and little bit of added color on what we saw in the key North American markets from a revenue perspective.
In the first.
Two months of our of our of our full launch.
So we had done a limited launch and as customers were ramping.
In into Q1, 80% of our revenue came from existing customers. So it's all about driving utilization now those customers have already been trained those customers are already up and running.
A large majority in the high Eightys of our revenue came from TAVR procedures. So.
We believe that type of our procedures should come back.
Relatively early on in the cycle, which should help us and as I also said in my prepared remarks true we are using.
Digital tools in the eye interventional access business units to train our customers on Manta and we also have uploaded some training videos to make that available to them.
And as hospitals allows salespeople backend they are allowing the main for critical new product trading procedures.
And we as an organization have.
Organized protective.
Coating materials for our sales organization to allow them to to re enter the hospital system.
Okay. That's good to hear and then I guess my quick follow up here, we've been hearing about a lot of clinical trial delays across med tech over the last couple of weeks obviously.
Junk of your growth has been driven by new products sounds like you're going to continue all your R&D efforts to all this but anything meaningful from a clinical trial perspective that maybe put on hold temporarily. Thank you for taking my question.
Yes. Thank you we had one one massive trial that we weren't sponsoring.
That but it was very near the end of its completions, earning is going to have a big impact we will assess new products as we come out the other side of of covert.
I think drew it's a little bit too early to give any indication as to where we're at with new product, but we didnt. We didnt have we had some clinical trials going on the interventional urology business unit within Manta within the interventional access business unit and obviously, we always have new products in the works in the and the mix.
Ironically, one product that's got to benefit from from the core with 19 was our ISO Gard mask.
Which is a product that we had actually developed to stop conditions ribi re breathing gases.
From a from a from a patient.
And we we.
That product is now we're getting ready submitted for an emergency authorization to combat covert.
The only other product hacker think out the could be impacted.
Would be easy Plaza, where we did submit the data to the FDA.
And we were expecting to meet with the FDA and we're we're supposed to submit in March and meet them in April we actually submitted our data at the back end of February.
But the meeting with them has been pushed back. So we are now trying to rechargeable that or either may or June.
Okay. Thank you.
Thank you and our next question comes from the line of Brian Weinstein from William Blair You may begin.
Hey, good morning, Thanks for taking the questions.
You've talked a lot about the elective procedure side, but we've obviously been hearing a lot on non deferrable procedures things like even appendicitis cases rely patients.
Our down cancer diagnostics are companies are telling us that new patients are obviously impacted there as well fewer cancer diagnosis. So.
Trauma began with fewer people out in about appreciate you don't want to talk too much about April here, but.
Are you seeing impact on the other two thirds of the business right now.
That would kind of Jive with what we're hearing in general about these non deferrable type cases.
So what we're seeing improved from from our perspective is.
The the covert impact.
Other than that.
We have not seen any impact from what you're at what you're describing and and right now given the situations pretty fluid, Brian it would be difficult to Paris out.
What's this impact was that that impact, but from what we're hearing from from our frontline people, who are who are engaging with the customers is it's a tighter covert or noncovered any procedures that are being postponed are more than being offset.
In in that scenario any procedures that are being postponed are being more than offset by patients that are coming in because of the impact of cold.
And the parts of our business that are impacted obviously by procedures is so small but you know.
People are still get a heart attack you still need easy Io.
If you're if you're being brought into following the hard Zach into the emergency room, you're still going to lit ne laryngeal mask, you're still going to end up in intensive care unit, you're still going to have a pacre CVC place and you're still going to have to be put onto ventilator and you're still going have to use one of our ventilation circuits and our humidification system. So thats our topic.
The flow of a patient.
So if an individual has a heart attack I think it's still highly unlikely that they're going they're not going to go to the hospital or call the ambulance and even in this environment.
Okay.
And then just a follow up on an earlier question.
Regarding kind of.
Inventory levels and whatnot, I'm curious, specifically field ordering patterns from distributors.
Change all that much at this point outside of covered 19 products I think down inventory stocking up on the on the call.
The next quarter.
The quarter after that we hear about your child is that we're going on with the way that distribution partners are are managing your products. Thanks.
Yes. Thanks, So what we saw in January.
And and February.
Okay.
Okay Bye.
Okay.
Distributors.
Globally weeks and I'm encouraged by the flattening of the cars and that days, obviously, we can obviously.
For me, it's all about 'cause consumer confidence.
It is all about consumer confidence when will peak.
We'll feel confident to go back to an assay to go back to an officer go back to a hospital.
And as I said in my chair and thank you for all all the nice words about made but I don't have a crystal balls number.
Unlike anybody else.
And I think it's all about consumer confidence now I know that people are are and I know clinicians are eager to get back to work because they think that there's a lot of damage during calls to people who are having miles folds Anat Cohen.
Thanks to the emergency room, and I'm encouraged by the fact state there are a reopening.
As I said it when I was talking about euro there in the coming weeks Stacey.
Present, 60% of our you're live.
Revenue will be reopening.
Now the next part of that is consumer confidence and that to me is critical is concern is the consumer being Thompson.
Now to come back in I have procedures done.
Got it. Thank you for that and I know you mentioned two of the facilities that you have where there were some further sort of a minor impact but can you just remind us.
I know you got to time, but I guess an overview of.
How many you have I imagine there considered a central but but.
Even here in the Americas.
Because our are you.
Manufacturing at capacity that most your other facilities and it has there been any cobot impacted at any of the other one.
So.
Our three strategic locations are going to that by geography, our Mexico's Czech Republic and Malaysia.
Malaysia, We just got word a few days ago that we can ramp up to 100% capacity. We were at 50% we had an off inventory in the channel.
Now to allow us to focus the 50% capacity uncoated related products now as you ramp up to 100%, we will be able to replenish the stocks that we drew down.
We obviously manufacturer in multiple bands in the United States.
The twin cities is an area that we're focused on an all of those facilities. Every facility. We have is in the Americas is up and running.
The two.
Malaysia is of has capacity and our.
Our client in India was was.
Just closed and we anticipate that reopening in the near future.
Thank you.
But we have sufficient inventory to carriers or that Indian facility as well just to be clear.
And our next question comes the line of Matthew emission from Keybanc, Sir you may begin.
Hey, good morning, Thanks for taking the questions.
Hey, Liam I, just want to better understand the OEM.
I'm, sorry, if I missed it but how much of the increases from the HPC acquisition.
And were customers just just stocking inventory.
Please supply chain caution there.
So as I said, a grew 79% is about half and half half comes from SBC in about half of it coming from from our core business.
Yes.
Our OEM business is supplied to other companies. So you don't normally get the stocking up impact from from an OEM business.
It was business as usual another one impact that you see there.
The growth rate is as a result of the sterilization if you recall.
I am was impacted because of getting certain products to that Atlantic Sterilizer. So we did get some of that product flushing through within this this quarter to quarter one.
And that's the only impact I think a color for earlier.
Okay, and then Tom on cash flow I mean, you could see the contingent consideration in the pension payments.
In the quarter.
Are those the primary one offs for 2020.
How are you thinking about like the inventory build that you.
The that you've been doing normalizing to of course here.
So those those are the primary one offs.
And we.
I would say that in terms of inventory, we did build up inventory a little bit in the first quarter. Some last time buys and also stocking to be ready for having sufficient inventory to get through the coldest situation. So as we look to.
Words.
Yep after we get passed the.
Elimination of elective surgeries. If you were so I would say with the exception of that.
We don't anticipate continuing to build.
Inventories now with that being said, we've got to better at better visibility towards.
Where demand is it and make sure that we're meeting up with that until we get that precise visibility, we could see some one offs up or down either way.
Okay. Thank you.
Thank you and our next question comes from the line of Kristen Stewart from Barclays. You may begin.
Good morning, everybody apparel Landsafe wherever you are.
Hi.
Thanks.
I just wanted to go back to your Lscs.
It it at higher spec.
I just wanted to get a better understanding.
Split I know you had said the majority Erika and an office or assay setting can you maybe just help us understand and let the split is any office I was under the impression listed down in Asap.
I know you.
And I said I think that that the average age with kind of around 60 is that fair then tkis in that the majority of from a payer perspective, as well and manage care.
Hey are and what do you estimate kind as the average co pay might be an.
Will there be any concerns there from.
Yes.
Economic basis, if we were to have more of that perception kind of after that.
Great. Thanks.
If I recall correctly is around 30 years person thirtyish percent.
Of the total.
And identifying the procedure requirements, a little bit air there.
As being something that we have been investigate.
Even with some clinical trial.
Regarding.
I think if a risk.
Okay.
Okay.
For sure, but as as we all know that is common across all.
Payment methods today, and it's just I think attractive life that we spend more on healthcare once we get beyond the agent.
55, and action so from the age of 50 to 65.
On a spend about 10% of your total expenditure on health care on your lifetime.
From 65 to 85, you're actually going to spend 60% of your healthcare that phenomenon has been around.
And through multiple recessions.
With or without having that significant an impact and you've got to balance the co pay with the discomfort of.
Of the the patient is feeling from having BPH and if they're in urinary retention I mean, your cap and rising yourself 10 times a day and then the overall healthcare economics for the system.
Having a BPH procedure, the overall cost and creating that patient who was down by taking them off from our not having the to have an acute procedure. So I think the healthcare economics argument for the Euro lip is probably one of the strongest which is why the product has been so successful.
Okay, and then just to clarify you said in the last two weeks as March Euro less sales for tracking down 64% that's on a year over year basis.
No no inquiry from if you take the first 11 weeks.
Patrick and the reason I thought a better metric as for the investment community to understand what we are we doing before coal would had its impact so the business was growing over 38% in that first two months.
Of the quarter, and then I'll start with the investment community would would benefit most from what happened the last two weeks compared to the first 11. So that's why I thought it was appropriate to share that metric with the investment community to give them a flavor of what we saw.
On the ground with viewer procedure, okay, so relative to that rate the rate that change then from that point then declined 64%.
Yes, and let me, let me get I'll give you the growth rates by month curse and if this helps you.
Is.
This is on a year is not a year over year basis. So are you be you. They did that you're you're left grew over 38% said in January and February and then has declined 3.3% in in in March.
Thats helpful that data.
Yes.
Thank you so much Toby guys.
Okay. Thanks area.
Okay.
Thank you and I'm not showing any further questions at this time.
I am I was just turn call back over to Jake algal is for any closing remarks.
Thanks, operator, and thanks to everyone who joined the call today. This concludes the Teleflex incorporated first quarter.
2020 earnings conference call have a nice debt.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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