Q3 2020 Teleflex Inc Earnings Call
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He called <unk> Treasurer, and VP of Investor Relations. Thank you. Please go ahead Sir.
Good morning, everyone and welcome to the Teleflex incorporated third quarter earnings Conference call.
The press release and slides to accompany this call are available on our website at www Dot Teleflex Dot com.
As a reminder, this call will be available on our website and a replay will be available by dialing 85559 2056 or for international calls 4045373, 406, Passcode 498 76 five.
Participating on today's call or Liam Kelly, Chairman, President and Chief Executive Officer, and Thomas Powell Executive Vice President and Chief Financial Officer Lehman.
Liam and Tom will provide prepared remarks, and then we'll open up the call to queue in AG.
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.
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. Additionally.
Additionally, during this conference call you will hear management make references to the estimated positive or negative impacts as a result of COVID-19. During the third quarter of 2020. You also if your management may make statements regarding intra quarter business performance. During the month of October 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 I'd like to now turn the call over to Liam.
Thank you Jake and good morning, everyone. It's a pleasure to speak with you today and I hope, you're all keeping safe and well.
Overall, considering the environment. We're operating in we are pleased with our third quarter performance as it reflected the expected improvement in trends across many of our global product categories led by a faster than expected recovery within our interventional urology business and continued strength within.
Our vascular access products sales.
While from a regional perspective, we saw particular strength within the Americas as the pace of recovery in the United States during the third quarter was encouraging.
Quarter, Sthree revenues was $628.3 million, which was down 4.1% as compared to the prior year period on a constant currency basis, but far better than the 12% decline we experienced during the second quarter of the year.
The decline in year over year revenue is due to the impact of COVID-19, which we estimate caused a net negative impact of approximately $78 million or approximately 12% if.
If we were to normalize for the negative cobot impact we estimate that our underlying business grew by approximately 8% on a constant currency basis, consistent with our Florida to revenue performance.
We also saw a significant sequential improvement within our adjusted gross and operating margins from the levels achieved during the second quarter.
With our adjusted earnings per share up $2.77 in the quarter meaningfully exceeded our internal expectations.
This reflects the continued recovery we saw as we moved through the quarter, coupled with prudent operating expense management.
Before I go into more detail on our quarterly financial performance I'm happy to announce that during the month of October we just signed a definitive agreement to acquire Zee Medical American leader in Hemostatic products. We are pleased to be able to deploy capital for a differentiated product portfolio that leverages existing teleflex call. It.
Points and is immediately accretive to our revenue growth rate adjusted gross and operating margin profile and to our adjusted earnings per share.
Turning to a more detailed review of our third quarter results.
As I, just mentioned quarter three revenue declined 4.1% on a constant currency basis, and 3.1% on an as reported basis.
The decline in revenue was due to COVID-19, which we estimate had a negative impact of approximately $81 million across several global product categories.
This was somewhat offset by approximately $3 million of additional revenue within our vascular access and other product categories, which experienced modestly higher than expected demand as a result of cobot 90.
From a margin perspective, we generated adjusted gross and operating margins of 57.2% and 25.1% respectively.
This translated into a year over year decline of 140 basis points at the gross margin line and 190 basis points at the operating margin line.
That said, we saw a sequential improvement of 330 basis points on both the adjusted gross and operating margin line as compared to the levels, we achieved in the second quarter.
On a year over year basis reduced sales volumes due to cold weather was a headwind. However, it was partially offset by our cost containment efforts as we continue to tighten our belts, where we deem appropriate in the current environment balanced against continued investment sustain our long term growth aspirations.
Adjusted earnings per share was $2.77 down 6.7% year over year, but ahead of our internal expectations as the business continued to recover during the quarter.
When excluding the negative impact of COVID-19 had on our third quarter results. We estimate that our adjusted earnings per share would have grown approximately 13% as compared to the prior year period.
Overall, I am very pleased with our financial performance as it demonstrates the resiliency of our diversified global product portfolio.
Let's turn to a discussion on our quarterly revenue trends, which will be on a constant currency basis.
The Americas delivered revenues of $375 million in the third quarter, which represents an increase of 0.4% growth within the Americas was driven by vascular access and respiratory products, which both saw elevated demand driven by coal but.
In addition, interventional neurology was a strong contributor as Europe continues to be one of the fastest recovering procedures.
However, there were offsets with declines in other product categories, we estimate that the Americas would have grown approximately 9% excluding the impact the COVID-19 had on the region.
EMEA reported revenues of $135.7 million in the third quarter, representing a decline of 7%.
During the quarter declines occurred across most product categories as increasing cobot infection rates negatively impacted procedures and results.
Adjusting for coal would we estimated approximately 3% underlying decline for the region.
Turning to Asia revenues totaled $68.2 million in the third quarter, which represents a decline of 14.2%.
However, we estimate that we would have had positive constant currency revenue growth in the high single digits, if not for the impact of COVID-19. Additionally, during the third quarter, we began transitioning a distributor in Japan when normalizing for both Covidien the distributor change growth in the region would have been closer to the low.
Double digit range consistent with our long longer term outlook.
And lastly, our OEM business reported revenues of $49.4 million in the third quarter, which was down 11.8% on a constant currency basis.
As we anticipated during the third quarter, our OEM business, so I lied to impact related to covert relative to our other businesses.
Investors familiar with Tel effects will be aware that our OEM business supplies medical companies with complex catheters in surgical sutures.
And the quarter three impact reflects reduced orders from these customers, whose business is tied to non emergent procedures. It.
Excluding the estimated COVID-19 impact the business grew roughly 28%, which includes the benefit of approximately 11% from the acquisition of HPC.
As it relates to HPC I am pleased to report that we remain on track with our integration efforts.
Let's now move to a discussion of our revenue by global product category.
Starting with vascular access.
Due to growth within both our pick an easy I O products third quarter revenue increased 6.8% to $160 million.
We estimate the COVID-19 positively impacted the growth rates of our basket of products during the third quarter by approximately 1%.
Moving to interventional access third.
Third quarter revenue was $93.2 million are down 13.5% as compared to the prior year period.
The decrease was largely due to the delay in the recovery of certain non emerging procedures because of COVID-19, along with the negative impact stemming from a catheter recall that occurred during the quarter, we estimate that the recall impacted our business negatively by approximately $4 million the.
The impact and the recall will continue to linger for the next several quarters as we do not expect to be back on the market for this product onto in September of 2021 when.
When normalizing for the impact that cobot had on these product lines, we estimate that our underlying growth was in the low single digits.
Turning to anesthesia revenue was $75.7 million, which is lower than the prior year by 14.4%.
The revenue decline was the result of lower sales of laryngeal masks regional anesthesia and airway management products.
We estimate that covert had an approximately 10% negative impact in the quarter, implying mid single digit declines for the business on an underlying basis.
Shifting to surgical.
Revenue declined by 12.3% to $82.2 million driven by lower sales of our ligation at instrument product lines, we estimate a 13% headwind from covance during quarter, three indicating recovery as compared to the estimated 30% cobot headwind in quarter two.
Moving to interventional neurology Coordthree revenue increased by 11% to $81.8 million, we estimate an approximate 29% COVID-19 related headwind during quarter three notwithstanding the significant headwind on our growth in quarter. Three we are pleased.
With the path of recovery for this business unit and are also happy with the early impact of our National DTC campaign, which is exceeding our expectations.
Additionally, we are encouraged that we trained 120, new urologist in quarter three moving to a cadence that is consistent with our expectations prior to cold.
And finally, our other category, which consist of our respiratory on urology care products grew 0.5% totaling $86 million in large part we estimate the growth during the quarter was due to increased demand for certain humidification and breathing products, resulting from COVID-19.
From a monthly perspective, we note that September outperformed July and August when normalizing for the distributor termination and the product recall within our interventional business.
Furthermore, as we have progressed through the first few weeks of October we continued to see additional modest improvements as an as compared to last October.
That said due to the significant resurgence of covert cases globally and when normalizing for selling selling days, we expect to see a modest improvement in the constant currency revenue performance during quarter four as compared to the decline of 4% we achieved in quarter three Tom will provide more details later.
That completes my comments on quarter three revenue performance turning to some recent clinical and commercial updates.
Starting with your lift.
The response to our National DTC campaign is exceeding our expectations.
The strategic role of DTC is important as about half of the 12 million men being treated for BPH belief prescription medications are there only solution.
Thus far we are tracking well against the target to generate six ex the number of impressions from the regional campaigns in the year ago period.
Web traffic has increased over 150% since the launch and another encouraging metric is that multiple urologists are now motivators to get trained on euro lift as a result of patient request due to the campaign.
In addition.
While there was likely a nominal impact on quarter three results. We expect the momentum for the campaign to continue building into quarter four and early next year as we turn down the advertising full strength starting in early September.
Turning to your lips to since.
Since the FDA clearance on July 31, we have begun to market acceptance tests and received positive preliminary feedback, including the streamlining of the delivery device triggering mechanism and the reduction of waste.
We are also increasing manufacturing levels further product ahead of the full commercial launch slated for early in 2021.
Lastly regarding the your lift AGTC, we note that the market acceptance test is well underway and we have received very positive feedback which indicates that the device is delivering on the intended benefit of enhance tissue control when treating challenging anatomies such as obstructive medium lope taken together.
Further we see these efforts as helping to build momentum as we seek to further expand our leadership position in BPH.
Turning to the next slide on key commercial updates.
We recently received an expanded indication for easy yield as the device can now be used for up to 48 hours when alternatives intravenous access is not available in both adult and pediatric patients 12 years and older.
While we do not expect a material sales uplift from this label expansion, we're always looking to improve our portfolio based on clinician feedback and this is a prime example of those efforts.
Lastly, I'd like to provide the investment community with a few more details of the Zee Medical acquisition, we announced last night.
In mid October we entered into a definitive agreement to acquire Zee medical and industry, leading manufacturer of hemostatic products under the terms of the agreement Teleflex will acquire zimeta for an upfront premium payments totaling $500 million and up to an additional 25 million upon the achievement.
Certain commercial milestones as part of the transaction Teleflex will also be acquiring certain tax attributes that are expected to result in future tax benefits, we value. These tax attributes at approximately $40 million.
Which we considered when arriving at our purchase price.
The Amedicas Hemostatic technologies are helping reinvent hemorrhagic control with cost effective efficient bleeding control solutions being adopted by markets worldwide. The company offers three main brands quick class combat goals and quick class control plus would utilize a proprietary.
Gee, consisting of goal as impregnated with kalen technology activates and accelerates the bodys natural reclassing ability.
The medical products currently focused on the trauma surgery, MMS military emergency departments, and interventional segments with opportunities to expand into additional indications overtime.
Teleflex. This strategy is to invest in innovative products and technologies that can meaningfully enhance clinical efficacy patient safety and comfort reduce complications and lower the overall cost of care. The acquisition of Zee medical enables teleflex to leverage strength in the hospital SMS and military call points with.
Differentiated products that complement our easy Io and easy class product portfolio.
We are excited to announce this acquisition given its above company average revenue growth capabilities as well as its above company average gross and operating margin profile.
Pending the receipt of certain regulatory approvals the transaction is expected to be completed during the fourth quarter of this year.
As we look forward the transaction is expected to contribute between 60 million and $70 million of revenue and between seven and 15 cents of adjusted earnings per share in fiscal year 2021.
Beyond 2021, we expect the acquisition to deliver a high single digit revenue growth profile and further accretion to adjusted earnings per share.
On easy Plaza after our recent meeting with the FDA. We determined to proceed with the BLE submission rather than an E. U eight we continue to work closely with the agency in determining the timing of that submission over.
Overall, we continue to invest organically in clinical and commercial catalyst that will help to sustain our revenue growth aspirations in a normalized environment. We will also look to augment those internal efforts through the deployment of capital for inorganic growth opportunities such as the Amedica second.
That completes my prepared remarks, now I would like to turn the call over to Tom for a more detailed review of our third quarter financial results Tom.
Thanks, Liam and good morning, everyone.
Given the previous discussion of the company's revenue performance ill begin at the gross profit line.
For the quarter adjusted gross profit was $359.6 million.
Versus $380 million in the prior year quarter for a decrease of approximately 5%.
Adjusted gross margin totaled 57.2% during the quarter, which is a decrease of 140 basis points versus the prior year period.
The decline in gross margin was primarily due to COVID-19 related impacts, including lower sales volumes and higher manufacturing costs, along with a foreign exchange headwind.
The volume impact was significant for the quarter as the adverse revenue impact from COVID-19 tended to skew toward higher gross margin products, including interventional urology interventional access and surgical.
In total we estimate that October 19 negatively impacted our adjusted gross profit by approximately $59 million in the quarter.
We continue to tightly manage discretionary spending as a means to partially offset the reduced revenue and gross profit resulting from COVID-19.
And as a result of the efforts we estimate that operating expenses were reduced in the third quarter by approximately $22 million.
While we expect the actions taken to continue to deliver opex savings through the remainder of the year by far the largest quarterly opex reduction was realized in the second quarter.
Adjusted operating profit during the third quarter of 2020 was $157.6 million.
And this compares to $175.3 million in the prior year or a decrease of approximately 10%.
Third quarter operating margin was 25.1% were down 190 basis points year over year, driven primarily by the gross margin decline.
And while our adjusted margins were down in the third quarter as compared to the year ago period. We are pleased to see the sequential improvement in both gross and operating margins from the lows we experienced during the second quarter.
Looking forward, we expect sequential margin improvement to continue during the fourth quarter.
Net interest expense totaled $16.4 million, which is a decrease of approximately 14% versus the prior year.
The decrease in interest expense, primarily reflects reduced average interest rates associated with our variable rate debt, partially offset by higher average debt balances versus the prior year period.
Moving to taxes for the third quarter of 2020, our adjusted tax rate was 7% as compared to 10.3% in the prior year period.
The year over year decrease in our third quarter adjusted tax rate is primarily due to a favorable mix of taxable income versus the prior year period.
As well as a higher benefit from stock based compensation as compared to the prior year period.
At the bottom line third quarter adjusted earnings per share decreased 6.7% to $2.77.
Included in this result is an estimated adverse impact from pivot 19 of approximately 60 cents as.
As well as a foreign exchange headwind of approximately nine cents.
Turning to select balance sheet and cash flow highlights.
For the first nine months of 2020 cash flow from operations totaled $241.5 million.
As compared to $289.2 million in the prior year period.
The decrease is attributed to larger contingent consideration payments, partially offset by favorable changes in other working capital driven by higher accounts receivable collections.
Overall, the balance sheet remains in good shape.
At the end of the third quarter, our cash balance was $347.5 million versus.
Versus $553.5 million at the end of the second quarter.
During the third quarter, we repaid nearly $285 million of rhubarb revolver borrowings.
And restored revolver availability to the full $1 billion.
Net leverage at quarter end was approximately 2.6 times the acquisition of Zimeta is projected to increase net leverage by less than three quarters of one turn and net leverage pro forma the acquisition remains comfortably below our four and a half times covenant.
Our intention is to finance the purchase of the Amedica to revolver availability. However, we may choose to permanently finance the acquisition through a future notes issuance.
Lastly, we have no near term debt maturities of material size.
Given the continued uncertainty surrounding the impact of COVID-19 pandemic on business operations, we are not reinstating financial guidance at this time however.
However, we will provide the following directional expectations for the fourth quarter.
Looking ahead, we continue to expect further sequential improvement in our constant currency revenue performance as compared to what we achieved in the third quarter.
However, due to the resurgence in global COVID-19 cases over the past seven to eight weeks, we expect our constant currency revenue growth to be only modestly better than what we achieved during the third quarter.
This expectation of a modest fourth quarter improvement excludes the benefit of two additional selling days that occur in the fourth quarter of 2020.
Which we estimate would add approximately 3% of additional revenue growth during the fourth quarter.
And this expectation also excludes any benefit from the acquisition of Zimeta as a closing date is not yet determined.
And that concludes my prepared remarks, I would now like to turn the call back to Lee in for closing commentary. Thanks, Tom in closing, we delivered solid third quarter results as our diversified portfolio should showed continued expected improvements relative to our quarter two results on both the top and bottom line.
Excluding the impact of could we see our underlying business performance is encouraging and very much in line with our initial expectations. We continue to view the resurgence of covert globally combined with the willingness of the more vulnerable population to get procedures done as the primary wild cards impacting recovery.
While the next several quarters do have elements of uncertainty.
We remain confident in our ability to execute as we head into 2021 and are optimistic in our long term prospects.
We as an organization, we will continue to focus on serving our hospital customers on working with our key stakeholders, we will manage the business prudently, while staying focused to capitalize on the long term potential of our global product portfolio.
In closing I want to thank all of our employees, who continue to manufacture distribute and support products that are required in the fight over 19.
Focusing on meeting our commitments to patients the nations communities and shareholders that concludes my prepared remarks, now I would like to turn the call back to the operator for Q and eight.
Thank you, ladies and gentlemen, as a reminder to ask a question you will depress star one on your telephone keypad. During your question press, the pound or hash pool.
To maximize the formal portion includes limit yourselves to one question and one follow up thank you.
We have our first question from David Lewis with Morgan Stanley. Please go ahead.
Well good morning, and thanks for taking the question Liam it's pretty clear that the business visibility has declined a bit since sort of our conference in September and I wondered if you can isolate what you think those factors are because it sounds like this happen several weeks ago not just the last 48 hours. So would you say this is just the lack of improvement in hospital census in the U.S.
Yes is it international markets specific international markets that are weaker or the OEM business that perhaps had an early benefit that that didnt have fall through but I think.
These issues probably have gone on for several weeks for several days I want to sort of isolate what.
Hey, what particularly you think is the is the business weakness and then Tom I just to be clear on the guidance, we should be thinking sort of a low single digit organic declines in the fourth quarter and then I had just one quick follow up.
Okay. David So first of all I think that our underlying business is actually performing very well. If you look at the third quarter, we grew by 8%.
With a couple of headwinds in there beyond coal, but and that 8% excludes coal, but so if you were to look at our underlying business performance were closer to the 9%, excluding the langston recall and excluding.
The go direct in Japan, which will have longer term benefits for us.
My thinking over the last number of months hasn't changed to be totally Frank with you.
Although I am seeing coal, but getting worse when I attended your conference I think that I was pretty clear that although some of our peer companies. We are expecting a recovery in quarter four that we did not expect that recovery until early in 2021 and nothing has changed in my thinking around that.
Before Tom actually comments on encore for I think it's important that I share with you in the investment community our thinking for revenue growth in the fourth quarter.
Many of you familiar with Tel effects will know that we've been saying that for the past couple of months that we expect the recovery to be early 2021, rather than the fourth quarter and we continue to believe that to be the case and have said David nothing has changed in my thinking, but however, because of the significant rise in infection rates globally, we're more cautious now on the page.
The recovery as even compared to a few months ago.
In formulating what we believe would happen in the fourth quarter, we projected forward the modest year over year constant currency revenue growth improvements we saw in October for the entire quarter.
While we did not factor in was an increase in elective procedures increased volumes of patients as a result of DTC nor did we factor in the second shutdown in relation to coal with which we think is highly unlikely.
We did take into consideration.
Difficult comparables against quarter, four last year, where we had a pretty good quarter and we believe this to be a balanced position and therefore concluded that we would see modest improvements in Q4 constant currency revenue growth as compared to Q3, excluding the billing days and of course, then the billing days will add approximately 3%.
So it's really David I think.
What we're seeing in the end markets globally, the uptick in cold weather that we're seeing in places like France, Spain, Italy, Australia.
Australia as.
Southeast Asia and in the key market of the United States.
And I have to say I was really encouraged by the performance of our us business in the third quarter were.
Turns in North America to a positive growth.
Of 0.4% and that would have been even better if you were to exclude those that onetime langston recall so.
But I'll, let Tom comment on the fourth quarter.
Yes, I think we and you touched on the key points in the third quarter, we are constant currency growth was down 4.1%.
As mentioned if you were to exclude the benefit of the extra shipping days and Xenetic acquisition, we expect the fourth quarter constant currency growth to be only modestly better.
Better than that so not to cite a specific number but no. We're not thinking there is going to be a significant improvement on the constant currency growth from Q4 or excuse me from Q3 to Q4.
Okay, Thats very very helpful and just two quick ones from me and I'll jump back in queue, just Liam year lift that business continues to improve can you have the high slate the impact of DTC is having on the underlying business just because given the cobot headwinds, it's kind of hard to see but do you feel like we're getting to see momentum from third to fourth and then just see medical look interesting market very profitable.
Said help us understand how you are thinking about valuation and returns. Thanks, so much.
Absolutely so on on Euro left to start with obviously, great to see it returned to growth.
It grew it grew by 11% in quarter three.
As I said earlier, we have not in our quarter four thinking built in a an uplift from DTC are we happy with the way the DTC is going absolutely. It's.
That's a 600 million dollar market globally with an opportunity to expand overseas.
With regard to the valuation.
The few the key metrics that we looked at obviously the multiple on revenues in the mid seventies.
Based on forward revenues, but if you exclude the tax attribute is just around seven times and then more importantly from an EBITDA perspective in the in the high teens of 21, EBITDA and in the lower teens. If you go into 2022.
We would consider this a scale acquisition similar to buy the care, we really liked the accretion in this it's accretive tour top line growth, it's accretive to our gross margins and immediately and creative to our longer turn on the op margin goals and it exceeds our internal cost of capital by year for.
By the end of the year for and again, a good benchmark for US as you know that's that's what we try and set ourselves up to us to get to that above our internal cost of capital by year for in our internal cost of capitalism very high singles just to be clear.
Okay. Thanks, so much.
Your next question comes from location for some reason.
HM.
Thanks, Good morning, everyone.
Okay I'm I'm wondering if you can just coming back to your list I guess two questions on this.
How are the trends in procedures progressing when you think about.
Those that are done outside of the hospital versus inside of the hospital I'm curious if that's continuing to.
Creep upwards.
And then how are you thinking about the fourth quarter in terms of the underlying growth for for your left when you're sort of exclude the two selling days are you thinking that you will still continue to get sequential.
Improvement in your growth, particularly the DTC kicks in.
And then I got a couple of quick questions on Z Medica.
Okay Alrighty so in regarding your list in your first question about the service we have continued to see a shift from the hospital.
Outside of the hospital in particular to the office setting.
That has moved by around four percentage.
Points that have moved from the office.
Pardon me from the hospital to the office in relation to the recovery. There's also a striking difference the recovery within the office setting and in the hospital setting we see the office setting being quite positive in the third quarter.
Compared to pre Covid levels and the hospital setting is still.
Under under the free Covid levels from of your procedure. So.
That's obviously been compounded by the fact that procedures are being moved to the office environment regarding moving to the fourth quarter and looking at your list in the fourth quarter as you would be aware Larry your lift has got a significant.
Had a significant achievement last year. It grew 54, 4% last year, so they've got a really tough comp as the head into the fourth quarter notwithstanding that if I look at it sequentially from an absolute dollar perspective as we go from Q3 to queue for we would definitely our expectation would be to see an inquiry.
Dollar value of going from Q3, Q4, and as I said in my earlier comments, Larry it's very hard to forecast the absolute impact of DTC in the Covid environment. So we haven't really built in.
And expected impact of DDC into the fourth quarter, just given the uncertainty around Covid now having said that the DTC campaign is going exceptionally well, we will definitely on track to get fixed.
Multiple of six the impression that we got.
Last year, when we did our Azine regional Gtc's as I said, our web traffic is up 150%. The number of patients that are actually going to a doc binder and coming to our call Center I'm not going to tell you the number Larry for competitive reasons, but I can tell you, it's very encouraging what we're seeing happening out there with the deep.
<unk>.
Okay terrific and then.
Onto the Imedica.
I mean, obviously.
The valuation is is what it was.
And probably commensurate for accompany with that sort of high single digit growth, but what.
How are you thinking about the durability at that growth and sort of why is it durable I assume up in that high single digit range and then the other component of the question is just.
How are you thinking about sales and cost synergies for the asset and what's built into the deal model. Thanks.
Yes, so great question. So from a growth perspective first of all these and market for growing in the four ish percent range, 4% to 5%. So just turning up you are actually getting some nice growth.
Which also have the size of the Americans are also encouraging the overall market is about 600 million dollar market.
Globally 150 in the emas over $300 million.
And 125, and the intervention or we also have an opportunity and built into our model to do some further clinical work to expand it into cardiac in the future would you like to expand that market even more also.
Right now the revenue is predominantly generators within North America in that 80% to 85% of the revenues in North America. So.
We believe that expansion overseas as a significant opportunity for us and utilizing our channel, which is you know that the key part of our strategy. The active will do about 50 or $60 million last year to do $60 million to $70 million. This year and I think a point that shouldn't get lost on the investment community is that the gross margins this acid or in the low.
<unk>, so it's a nice opportunity for us to continue our margin expansion and also it shouldn't be lost at the margins without synergies are accretive to our longer range goes for profit margins and we should be able to generate about approximately $10 million synergy by year three with this asked.
Which will also help to expand the margin and that combined with the growth makes it's a very exciting.
Acquisition for Us and I would really look at this Larry as as another body care.
Foster growth great margins, and also be being able to take synergies and continued to expanded overseas and into different areas.
Okay, and just to be clear that $50 million to $60 million in revenues that you reference in the 60 to 70, that's 2019 and 2020 at or is that.
What's the right way to think about that that's 2000 22020.
The numbers that Liam referenced are 2019 numbers for the 50 to 60 and 60 to 70 is what our expectations are for 2021.
Got it thank you for the clarification.
Thanks.
Your next question comes from Richard.
Either.
Yeah.
Hi, Thanks for taking my question, maybe just to start off by looking ahead into next year.
The catalyst that you have you mentioned one easy Plaid BLA.
Pathway now can you just need to give us a sense of what you anticipate the timing is.
With that regulatory pathway and then also if you could just touch on timing for Urolith, Japan, and and just just what's going on with manta underlying trends and specifically.
Specifically.
The fact that maybe.
Procedures that that are getting done and a mortgage and cash in.
Can you give us any stances how <unk>, how do you think that trajectory might play out into the fourth quarter and it's 2021 relative to some of the other.
Parts of your business that you've seen a little more cautious on.
So I think that's with regard to Urolith, Japan, nothing has changed since our last update we believe that.
We will we will get the reimbursement in Q2 and will be generating revenue in Q2 Q3 of 2021. So nothing has changed there in regard to your lift in Japan.
Regarding the BLA, we've made really good progress rich with the SDA at one stage, we were considering an emergency use authorization I think the the military involvement in this was very helpful to us and now we believe we will have a BLA submission.
We feel more confident now that we will generate some revenue in 2021, yes, we do the timing of the BLA, it's still to be ironed out with the FDA and once we get the BLA then.
We are on a fast track.
And it is very dependent on when they will approve that but I feel quite encouraged that we will have the.
The easy Plaza on the market at some stage in 2021.
With regard to your question on the minds of the Manta performed really well in North America.
In the in the in the third quarter return to growth.
In around that 20% Mark in the third quarter in North America.
And we're very encouraged by that.
It is a product that gets us access into the hospitals and clinicians are very.
Are very keen to use the product because it reduces the time to hemostasis and in today's environment, when you're trying to get more fabricated through the Cath lab that is that is very very helpful. So we see manta being one of our key drivers as we go into 2021, one of many I'd like to point out rich. So we've got the your lift got man.
We got your like Japan.
We now have the Medicare.
We have easy pass coming on stream. So we have a lot of catalyst for growth as we go into 2021, and it's very encouraging we just want to get out the other side of this covid.
And I am just on your comments that were more cautious than we were I would say, which we're not we're equally cautious as we were a couple of months ago. We just don't expect to see the recovery that the recovery from cold, but in queue for we expect it to be nearly 21 and nothing has changed in our thinking around that but thank you for the.
Got it and diplomat last one if I could follow up daily and then the last part on four Q.
I guess, what I'm hearing is.
You you got some some things that could be incrementally positive relative to what's in your internal outlook like UTC benefit.
But you are also be cognizant that surges are occurring.
And then more more more formidably internationally. So maybe we should just do that.
You haven't necessarily in that impact on electric procedure or hospital, Yeah October October was tending better than the third quarter Trent.
You are going to lead you are going to leave that.
Any incremental benefit.
Beyond October or actually you're dialing and the potential that things take us.
And that's why.
The improvement as in bigger and <unk>.
So I think it's a great question, which I think the way we are looking at it look September adjusted was minus 2% roughly and we saw a sequential improvement in the first few weeks of October and actually the first few weeks in October we're pretty much flat year over year, but despite this positive trend in October and given the rising cases and covid.
The tougher comps, we still expect modest improvement in Q4 versus Q3, we haven't built in as you said the DTC, maybe we're being overly conservative but this is as clear to picture as we have right now and if the recovery continues in queue for US we haven't built in teleflex is going to benefit from.
And we will accelerate if we go into a second lockdown, which I don't expect it'll be worse than we expect I think we're trying to enrich take a balanced imprudent approach to the fourth quarter and what we see in front of US right now as I said, a few times my Crystal ball is cloudier than it's ever been.
With two months left to go and a quarter, but I'm encouraged by what I saw in October rich to be to be Kansas.
We're up against a really tough comp in the last two months and we have not built in and then I continued improvement in recovery, we basically taken what we've seen in October and prorated that.
Last two months.
Of the quarter now if it continues to recover it would be better if there's no doubt about it.
Got it and just just to be clear the porch you guidance that you provided that was all excluding any contribution Z Medicare correct.
Yeah, I mean, there are things that will help us rich so Z medic of being one that you point out FX should work in our favor that will help us.
Seizures start to come back a little bit better that will help us so.
So you are correct and we did not include the Medicare and also we've got two additional billing days in the fourth quarter, which should at about 3%. So there are there are green shoots out there and opportunities, but we don't want as we sit here right now we wanted to be absolutely as candid as we can with the investment community.
<unk>.
Next question in terms shopping thing is wells Fargo place their home. Thank.
Thank you so much for taking the question, Sir just a point of clarification there on queue for so.
So it should be expected to be positive in queue for the.
The addition of the two extra selling days and then a couple of questions and you are left I believe you should start seeing the first.
Patients come in in September and October are you willing to share with us what kind of volume left you think from from this initiative and then as we think about Q4 and thank you for all the color there.
Do have a full quarter of National DPC initiative. Thank you said you haven't dial then six times the AD impressions year over year and on an underlying basis year to date, you have been delivering about 40% year.
The date. So is that is that a reasonable store to expect for Q4 alright. Thank you.
So I think should go you are correct. We're very encouraged by the underlying performance of all of our businesses and I'm on your list is no exception.
Underlying performance has been fairly consistent that at 40%.
We have not built in the DTC into the fourth quarter quite simply should going because it's very hard versus determined where to patient came from when they go to the urology practice them because of the uncertainty in relation to two.
The cold, but increase in Corbett cases around the United States.
With regard to.
Sharing under DTC initiative for competitive reasons should go and I don't think it would be wise for us to share many of the specifics, but I can tell you that the number of patients that are actually clicking on calling our call center is very encouraging if every one of them and it is not going to happen, but if every one of them turned into a procedure.
That would that would be quite encouraging for us as an organization.
And as we go into the fourth quarter as we said earlier, we declined by 4% in the third but we expect a modest improvement over that and then we expect to pick up another 3% from billing days.
<unk>.
Should work in our favor if it stays where it is.
Where it is today and that's where we see the fourth quarter landing.
I got it that's helpful. And then if I could just ask a question on 2021 I think you just mentioned that you expect several quarters of uncertainty related to Covid, what does that mean for 2021.
Consensus is looking for about double digit growth in 2021 versus 2019, I believe it's still below P covid levels.
What is your reaction to that and then on the margin side, how should we think about it and when do you expect to get deal LLP goes. Thank you for taking the question.
Thanks, you Goin', well, we would have to to answer the most prior to that question, we would have to get out the other side of Covid.
So much uncertainty out there with Covid are we encouraged by the underlying performance of our business absolutely we are.
By the underlying performance of our business.
Do we think we have a number of catalyst for growth, yes have we just add another one today, yes, we've added the Medicare.
Do we do we believe that once we get back out the other side of Covid Teleflex will be in a strong position yes.
Regard to our longer term goals are the right goals for teleflex, absolutely. They are and nothing has changed in my thinking on that either they're the right goals for teleflex and it's not a question of if we get to them. It's a question of plan, but in order to give the investment community clarity on that we need to come out the other side of Covid, we need to have a vaccine or.
A fall off in the level of the of the condition too is such a level that consumer confidence is high in the hospitals are able to get a higher throughput of patients even though.
Everyone was expecting at the beginning of this covid crisis that there would be almost like a super boom in queue for where hospitals will put on extra capacity. We haven't seen that in October and I don't think we're going to see it in November and December.
And I don't want to predicate.
The fourth quarter on a super boom procedures coming back into Hopkins, because quite frankly, I can't see it happening.
Thank you so much.
Next question is from Anthony Petronas deference. Please go ahead.
Good morning, everyone I hope everyone's doing well staying healthy two questions few Liam and then I have a follow up or Tom.
The first two questions are in euro less than I am wondering if you could just give us an update on total urologist trained.
To date by our math, it's about 2800, or so maybe a touch higher than that and then ultimately when you look at the pool of 12000 urologists in the U S. You, maybe just the refresh on with the peak target penetration and there is a quick one also on on Urolith would be.
Anything on the Doj in Boston Nation, and then I'll ask the follow ups. Thanks, Alright, Anthony So on Doj absolutely no update on that.
I would advice investment community not to expect an update for.
A number of quarters.
As they are still focused on the on that single practice.
With regard to the number of urologist Anthony we've changed your math is pretty good. We're in around 2900 of the 12000 trained I am not very encouraging for me is that we trained 120 urologist in the third quarter, which is right back to are normalized run raised pre covid of training urologist and I genuinely although I know that the.
<unk>, helping with that because we know urologists are coming to us because their patients have come into their office asking them about euro lift.
The other part of your question regarding the 12000 urologist, how many do we need to train Must've magic number in our in our research as we broke broke down our champions what we've discovered is a champion.
The average urologist C 75, BPH patients what we've discovered is what do you see 50 unique BPA H patient the month or did you see 150 unique BPH patient of the month you have the same opportunity to become a champion and a champion to zero six procedures or more of a month.
So we have to train all of the pretty much all of the 12000 urologist to get this 100% penetration and that's what makes it so exciting anthonys because it's such a big opportunity as we trained more urologist and we make this the standard of care for BPH. It is a massive markets for us to grow into.
Great and then that's helpful to follow ups real quick here, we noticed that just the APEC trends TQ that <unk> actually decelerated.
In the view is that there are a little bit ahead of the curve with with Covid. So maybe just to touch on what actually happened in APEC and <unk> and then Tom just in terms of the last slide on the deck or the margin outlook.
The total pretax savings 85 to 98 is the overall target.
I think you exiting 2019, there was $26 million and that was realized.
Then maybe just an update on where you guys sit on realizing the expected savings from restructuring. Thanks again.
Yeah, I'll take the APAC, one obviously APEC was impacted by the art.
Decision to take business direct so if you normalize for that it was about 11% of funeral most for Covid. It was in those look very low double digits, but about 11% slight degradation and that was true that was really driven by an increase in Colby cases in India, and southeast Asia and a research.
<unk> in.
Australia.
We're a little bit unique I guess in so far as that we are more exposed to Australia. It's a bigger part of our APAC business and it would be for other companies and similar to India. So those are the key drivers for APEC and I'll, let comments at the other part of the question.
Sure on the restructuring programs I first like to say that despite.
Sylvia outbreak the program still continue to track towards plan and schedule. So we feel very good about that in fact, one of the initiatives to step and we're gonna be able to realize savings earlier.
Over the next couple of years that was previously expected.
In total the savings or $85 million to $98 million as you mentioned.
About 25% of those were realized.
By the end of 2019, and then we expect.
To realize a fairly significant amount of 2000 22021, less 2022, and then a fairly substantial amount in 2023, so as far as the cadence we're going to.
What's remaining you're going to see about half of that realized 20, excuse me 2000, 22021 and the rest.
And the next three years.
Thank you.
Yes. Thank you.
We have our next question from that nation S T ball.
Sterling.
Well.
It was the medical can you take a step back and explain why the technology is differentiated versus competitor products.
And the clinical evidence that's driving the growth.
Yeah, absolutely math and there are multiple clinical papers written down at the 75 peer reviews and really it comes down to some of the key factors.
If you look at some of the human data 88, 3% successful hemorrhagic control success rates are right up there and if you look at the military did one that combat goes higher success rate of achieving hemostat is that 89% for the.
100% for the second application compared to standard goes. So you are looking at 89, and 100% hemostasis compared to standard go that zero percent and 13%.
And again in.
The area of blood loss and trauma significantly less blood loss. After packing was seen and this is this is.
Plus plus where you can actually put it internally and obviously reduction in blood loss and there is also an external you study and radial access that shows.
Shortening the hemostasis by 94 minutes to tier compared to TR bands. So it's really hemostasis and time that is the focus of the of the clinical.
Ed.
Peer reviews, and the product outperforms.
The standard of care that is used today in the market.
Is being adopted rapidly in <unk> in trauma centers.
The United States in particular, and we want to expand that overseas.
Okay excellent.
And then this is the last one how are you how are you accurately measuring the covid impact on your on your business.
So I'm actually going to as Tom If you don't mind time to answer that because.
Tom has been working with the finance team in the business units to work through that.
Okay, well, let me, let me walk you through it and we will it made it's not a perfect.
Estimated but we as a business wanted to understand the impact so that we could understand our trends spent quite a bit of time for.
Focusing on that and so I'll share with you our approach. So essentially we began with the budget and then we made adjustments for known deviations from the budget plus or minus trends versus the budget prior to covid to see how different businesses were performing changes in competitive dynamics.
Cancel programs and events.
CMA programs, we also looked at backwater status and any changes that could impact the results we looked at distributor ordering patterns.
As well as even customer communications regarding order push outs and so we used to all of this data to come up with kind of a number of adjustments that we attributed to Covid and then the difference.
Is a sexually from budget was attributed to just the Covid impact here net of all of these adjustments.
And we used some other approaches to triangulate around it just validate that.
As for margins once we had established the revenue impact we could then apply are variable manufacturing costs.
We included Covid related manufacturing increases whether it was social distancing PP&E.
<unk> tendons et cetera et cetera.
And we made adjustments for such factors such a sales commissions.
As well as the Opex cost savings initiatives, so that was our approach.
We've taken a really hard look at it.
But recognize that it isn't a perfect science, but rather our best estimation of the impact and I Hope you find it's helped.
Understood and thank you for the detailed.
Yeah.
Thanks, Matt.
Next question is from that arena.
Hi, Sandra please stay at home.
Hi, Good morning, guys. This is drawn for Matt. Thank you for taking the questions.
I wanted to follow up a little bit on the medical transaction, obviously, congrats on getting your hands on a pretty some pretty interesting products there.
Maybe you can speak to a little bit on the potential salesforce efficiencies.
It seems like they can be pretty meaningful and then.
How long will be the process of training or Salesforce before you can roll it out to the vast majority.
Yeah, So we actually see the salesforce synergies as the synergies teleflex brain because of our channel into the EMS space. So.
If we look at that we have.
Very strong sales organization, so the <unk> sales laryngeal mask as a whole plethora of products into that the military call point, and we very strong relationships with the military.
Which is as you can see from there co sponsor of easy classes, a product to get it into the marketplace. So we see that really is an opportunity for us to accelerate the growth into that key call point and then thereafter to expand within.
The other areas of trauma.
As I said in earlier in the call.
Total synergies by year, three we expect in the region of of $10 million that comes from a variety a variety of areas.
An opportunity for us but.
But we want this as a growth assets.
Thinking here is that we will continue to invest behind this.
In the channel into the future.
In order to ensure that we will have more salespeople underground and the combined organization. Then we did a Z medic as a stand alone and we will also look to expand into our channel overseas. We also have a direct call point into some of these key areas overseas.
And opportunities there to expand this portfolio so.
It's a very nice acquisition high single digit growth great margins, both on the growth and operating margin raked, a clinical data and very long IP, So, it's well protected and growing into a 600 million dollar market.
Okay that that's very helpful and then my fault.
And the performance and your other category I think that includes your respiratory business, which.
Benefited some covid or early on.
I mean, it looks like you're kind of returned to flat this quarter.
Is the right way to think about that that some of the tailwind from Covid early on are starting to die down.
Or is there the potential for that to pick up a little bit again.
That's the current Covid all correct. Thank you.
Yeah. So what you would expect that would happen is as you as you get over the increase in the curves of Covid as we did in Q3 exactly.
As you as you pointed out drew you would anticipate that those businesses will get back to more normalised levels as you head into queue for as you see covid beginning to increase again, you would expect the bullets yours or respiratory in our vascular businesses would benefit from that increase normally we would anticipate that <unk>, who would benefit from a straw.
Long flu season, my own view is that the flu season. This year is irrelevant because of Covid and hospitals will protect themselves to have supply of these products.
In the fourth quarter in case, the resurgence continues and in case, we go into a second locked up and I don't think we're going to go into a second lockdown drew I think of hospitals have really learned how to treat patients with cold, but and they're also segregating areas in the hospital, if not entire hospitals to move Covid patient.
To them. So they can continue to conduct procedures, even in the midst of a second corbett outbreak.
Thank you.
The next question is from Martinez.
Oh.
Hi, guys. This young for Matt.
Just ask one question in the interest of time.
Kind of a high level, one, but I'm just wondering.
When to expect.
The operating environment can get back to normal on the other side of Covid.
For example, after a vaccine.
Distributed.
And I realized.
Pathway, there's pretty lumpy tough question, just kind of curious about your thoughts there.
If we can achieve 75% hurting year to date, where the vaccine.
10 business trends return to pretty cool the level potentially even before that or one or two quarters after that.
Just want to see your high level thoughts on that.
Well, if you look at quarter three what we saw was things begin to turn back to normal.
Until we saw the upswing in Covid cases, starting in Europe, and then spread to North America. So we were in quarter three that we went through it.
Getting too.
Especially the first couple of months a quarter to three and then you get into the third month of Florida, three and we sell Covid cases begin to rise again I think that the answer to the question is first of all get out beyond pool, but in Q1 Q2 next year, then get a vaccine and I think it's also a little bit psychological that people see that.
The vaccine out there. So therefore, they will feel more comfortable going back and getting procedures done and they won't be as concerned about the second.
A third wave as it would be properly at that stage. So I think the vaccine.
Is key I think that the virus itself weakening in managing it better is also key as as we go into the first half of 2021 and I would be very hopeful that if they get through the first half of 2021.
Early in 2021 will begin to start come out the other side of this covid.
Pandemic and have a vaccine available and begin to return to some sense of normalcy, but again my Crystal ball is devoted clears yours is right now everyone's crystal ball is a little bit Murphy.
Okay. Thank you very helpful.
Next question Sandy call again please.
Please girl.
Great. Thanks.
Trying to beat a dead horse here, but you mentioned, France, Spain, Italy, Australia, and the US the case increase I'm just curious if anecdotally you've seen any.
Evidence of elective deferrals happening in any of those areas currently.
I know what happened in the past, but I.
I know, there's more cases, but I'm just curious if you are you seeing that.
Currently today.
So I mean, the key American here.
States and if you look at the United States and if you look at pre Covid, an optical but in our best benchmark really is is the the your business.
The states that are.
I'm looking at the bigger states now where you carry a lot of your volume.
The little prequel that levels.
Massachusetts, New Jersey, South Carolina, those that are rebounding back very strongly in their above that are North Carolina in New York and Illinois three examples so.
Once you've got is a mixed bag.
So in the United States, we haven't seen the deferral of those procedures, but what we have seen is in places like India and indeed in in Australia.
Third quarter, we so the deferral of some procedures in hospitals pushing them back. So yeah, we did see it and some of the geography it'll be interesting to see you know what we will see in places like France, and Spain, I think what they're going to try and do is keep patients flowing through the hospitals, because the bigger human tragedy here could be people not getting procedures and therefore.
Having a very bad outcome in the future because they didn't get get that critical procedures that were needed because they were afraid of covid. So I think that the bigger human tragedy in the making if we don't keep our hospitals open and keep patients flowing through them and I think the other thing that you're seeing as I said earlier is that patients feel.
Feel more confident going too.
The office in the AFC them to do in the hospital and we're seeing especially with your lift the office setting doing quite well compared to the hospital setting getting back to above prequel, but levels in the office.
Entirely within the United States I hope that answers your question Zachary.
Accurately as I can.
Great. Thank you and that's it for me. Thank you. Thank.
Thank you.
Next question is from Michael.
Please go ahead.
Thanks, So just on your list to can you give us your latest thinking on the impact too margins.
Growth if any of the product and then the timing to when you're fully converted to your life too.
Yeah. So the margin when it's it's still the same it'll move the year left margin from the mid seventies. The high seventies, you should think about it.
Getting about.
Four full percentage points on that business and last year that business did about $300 million.
We'll begin the rollout early in 2021 I think that's it.
It's easy for the urologist to adopters. The early indications that we have from a pre market work has been really really positive.
The Doc really liked the way the product work, it's easier to use same grace outcomes same easier to use and same visibility same everything I'm really glad we took our time to change the visibility factor on this because it's coming back to the real positive feedback from the urologist.
As we begin to roll it out in 2021.
As we get into 2022, we should be able to have a large portion of the north American market converted.
Okay. Thanks, and then just on the OEM business.
Mentioned this lagged impact because of the.
Customer current destocking or whatever that's occurring but.
Is that largely overdue. Thank her with that continue to the fourth quarter.
So I think we will definitely see an improvement in the OEM business in the fourth quarter what happens there Mike is obviously, we make products for other companies.
Branded companies all of which you will know and you'll probably covered a large proportion of them.
And what we've seen is as elective procedures falloff in there was a lag to them.
Placing orders in early in business and we expected. This to happen. This is not unexpected we knew OEM was going to be impacted by call, but a quarter later than the rest of our businesses.
We've also seen as some of these key companies destock as they are as they are showing up their capital and making sure that they are managing their free cash flow. So we've seen some of them destock you can only do that for a certain period of time. So I would expect to see our OEM business begin to path to recovery in queue for.
Great. Thank you.
Next question.
<unk> Street home.
Good morning, and thank you for taking the question I'll just ask one at this point, but Liam or Tom I would appreciate if you could provide some additional color on the fourth quarter.
Not so much in terms of what you excluded legacy medica extra selling days.
But what you contemplated and that guy from the perspective of a hospital can.
Most notably the US hospital I'm curious if you're assuming heavier.
<unk> carries through calendar year and improvements in throughput in terms of procedure growth to the extent that it's there.
Just just kind of some of those sojourn this variables would like to get your perspectives on thank you so much.
Thank you for the question what we did was we looked at what we saw in October and we pretty much projected that into the remainder of the year.
And we did not assume an uptick in procedures, we did not assume a procedure recovery.
We may be too conservative here, but we do not anticipate getting back to pre covid levels in queue for we think that's going to be in early 2021 now October for the first four weeks of October look look pretty reasonable I mean, we were pretty much flat in the first few weeks of October.
We do come up against the tougher comp when we get into November and December Chris You'll know that for example, you're live grew by 54%.
Last year.
Overall business performed very well in the fourth quarter of last year. So we took that into consideration. We did not anticipate a further lockdown, we anticipated that we would see covid being well managed we had seen.
In the month of October the upswing in the cold, but cases, so that initial upswing was in our thinking when we laid out what we expect to happen for the fourth quarter. So those are the things. We included in those will be excluded and of course, we excluded DTC we included.
We exclude the billing days and they'll at about 3% we excluded FX.
That should help us we excluded I'm, sorry, I'm going back to the exclusions, rather the inclusions, Chris but we did also excuse the medical hopefully with those in the fourth quarter.
Thank you and congratulations.
Thanks, Chris.
There are no further questions at this time I will now turn to call over to hold for any closing remarks.
Thanks, operator, and thank you to everyone that joined US on the call. Today. This concludes the tall flex incorporated third quarter of 2020 earnings Conference call.
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