Q1 2021 Teleflex Inc Earnings Call
[music].
Good day, and thank you for standing by.
I would like to welcome you to the Teleflex incorporated 2021 conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone keypad.
If you require any further assistance please press star zero.
I would now like the hand, the conference over to your Speaker today, Jake <unk>, Treasurer, and VP and Vice President of Investor Relations. Please go ahead Sir.
Good morning, everyone and welcome to the Teleflex incorporated first quarter 2021 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 of this call will be available on our website and a replay will be available by dialing 800, 580, 580 367 or for international calls for 166 to 146 for two pass code 609 470 E.
Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer, and Thomas Powell, Executive Vice President and Chief Financial Officer.
Liam and Tom will provide prepared remarks, and then we will open up the call to Q&A.
Before we begin I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides.
We wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.
The factors that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well as our filings with the SEC, including our form 10-K, which can be access on our website.
During this conference call you will hear management make statements regarding intra quarter business performance.
Management is providing the commentary to provide the investment community with additional insights concerning trends in 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.
Pleasure to speak with you today.
We are delighted with our first quarter performance, which exceeded the expectations, we provided to the investment community on our Q4 call in February.
The reflected improvements in underlying revenue trend for the product categories. Most impacted by the postponement of the FERC book procedures, most notably interventional urology interventional access and surgical.
Quarter, one revenue was $633 9 million.
Which was down two 6% as compared to the prior year period on a constant currency basis, driven by continued COVID-19 headwinds.
Adjusting for the two less selling days, we had during the first quarter of 2021 as compared to the first quarter of 2020 quarter. One constant currency growth was modestly positive at approximately 0.1%, which marks the third consecutive quarter of improving growth rates and a return to day.
<unk> adjusted constant currency growth for the first time since the beginning of the COVID-19 pandemic in the second quarter of 2020.
From an earnings per share perspective, our adjusted earnings per share of $2 87.
Also significantly exceeded the expectations, we provided to the street.
This reflects the recovery we saw in monthly procedures as we moved throughout the quarter, coupled with prudent operating expense management.
Lastly, during the first quarter of 2021, we committed to a new restructuring plan designed to streamline various business functions.
At Teleflex, we value continuous improvement and continue to execute on new opportunities to improve the efficiency and cost effectiveness of our business.
Turning now to a more detailed review of our first quarter results.
As I mentioned.
Quarter, one revenue declined two 6% on the constant currency basis.
The decline in revenue was primarily due to lingering COVID-19 headwinds coupled with the impact of two fewer selling days in the quarter compared to the prior year period.
When adjusting for selling days, we have experienced positive day sales adjusted contribution from vascular anesthesia surgical and interventional urology offset by declines in interventional OEM and our other segment.
From a margin perspective, we generated adjusted gross and operating margins of 59, 4% and 27, 5% respectively. The.
This translated into a year over year increase of 210 basis points of the gross margin line and of 190 basis points at the operating margin line.
We were encouraged by our growth and operating margin performance, which demonstrates the ability of our business to generate significant leverage despite the impacts of Lincoln lingering COVID-19 headwind on our revenue line in.
In fact, we continue to show significant leverage across the P&L as we generated the highest adjusted gross and operating margins since becoming a pure play of medical device company.
Quarter, one adjusted earnings per share was $2 87.
Up five 5% year over year, and well ahead of the expectations. We provided the street on our quarter four call.
Overall, I am very happy with our first quarter financial performance, which demonstrates the resiliency of the diversified global product portfolio that we have built but also reflecting progress towards our longer term margin aspirations.
Turning now to a deeper look at the revenue results.
I will begin with a review of our reportable segment revenues and unless otherwise noted the growth rates I will refer to are on a constant currency basis.
The Americas delivered revenues of $375 $5 million in the first quarter, which represents growth of four 7% or eight 3% on a day sales adjusted basis.
Growth in the quarter was driven by strength in vascular anesthesia surgical and interventional urology on a days adjusted basis.
EMEA reported revenues of $141 2 million, representing a 16, 9% decline or 14, 4% on a days adjusted basis.
EMEA was impacted by a difficult year over year comparable.
As the prior year period.
All of a bolus of ordering ahead of the initial COVID-19 surge as.
As well as a higher level of COVID-19 related restrictions on elective procedure deferrals that occurred during the first quarter of 2021.
Turning to Asia.
Revenues totaled $63 7 million.
Which represents 10, 3% growth with no selling day impact in this region in.
Importantly, we saw solid double digit recovery in China, along with double digit growth in India and Korea, this more than offset declines in Japan and Australia.
As we anticipated the Americas and Asia continued to recover more quickly than Europe.
And lastly, our OEM business reported revenues of $53 5 million, which represents a 17, 1% decline on the constant currency basis or 16, 3% declined adjusted for selling days.
As anticipated our OEM business continues to see a lagged impact related to COVID-19 recovery.
Investors familiar with Teleflex would be aware that our OEM business suppliers device companies with complex catheters and surgical sutures and.
And the first quarter impact reflects reduced orders from these customers, whose business is tied to non emergent procedures.
As it relates to the acquisition of HBC. We are pleased that the integration has been completed and we have additional capacity coming online over the next two months, which should help drive growth in the second half of the year.
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 with color provide us per selling day adjustments as well.
Starting with vascular access.
Quarter, one revenue increased by five 8% to $164 million.
Our nine 3% adjusted per selling days as we had strong contributions from central venous catheters, EZ Io and <unk> product lines.
Moving to intervention of the access.
The first quarter revenue was $96 $2 million, which is lower than the prior year by six 4% when adjusting for sales selling days the year over year decline was three 8%. The decrease was largely due to the delay in the recovery of certain non emergent procedures due to COVID-19.
The decline was somewhat offset.
By increases in Manta large bore closure of revenue, which grew approximately 30% globally adjusted per selling days.
Turning to anesthesia.
Quarter, one revenue was $84 9 million.
Which represents growth of 7% or nine 9% adjusted for selling days.
The revenue growth was due to solid performance of Z, Medicare, which performed better than anticipated.
Partly offset by lower sales of laryngeal masks and regional anesthesia products.
Shifting to surgical.
Revenue was $84 million.
Representing two 3% growth.
The four 7% adjusted for selling days, driven by sales of our polymer ligation clips and instruments.
The offset by chest drainage and metal litigation decline.
Now to interventional urology.
Quarter, one revenue was $73 4 million, which was the decline of one 3% when adjusting for selling days the euro net product grew approximately one 9%.
During the quarter, we continued to see cancer procedures negative the impact growth as COVID-19 case count surge in January and February.
As the quarter progressed, we were very encouraged by the strong double digit growth that occurred in March.
The strong growth trends that of a card for your that the March continued during April as we continued to see improvement in our average daily sales trend.
Importantly, our average daily sales in April were for the first time back to pre COVID-19 daily rates on a consistent basis.
We continue to view <unk> as one of the first procedures to be performed as the environment is starting to improve again.
We also trained 115, new urologist in quarter, one and are well on track to achieving our annual targets of training between 450 and 500, new urologists during 2021.
And finally, our other category, which consists of our respiratory and urology care products declined by 15, 3% or 12, 6% adjusted for selling days.
Totaling $81 7 million.
The decline reflects headwinds to elective procedures as well as difficult comps from the prior year related to COVID-19 ordering in EMEA.
That completes my comments on quarter, one revenue performance turning to some clinical and commercial updates.
I wanted to provide an update on our direct to consumer efforts for you earlier.
On the strength of the successful 2020 campaign, where we doubled the awareness per euro lift in the targeted population of men with BPH and as planned we have decided to increase our investment in 2021 and run of National campaign for the full year.
For this year's campaign, we are optimizing our network selection refreshing the ads and working in conjunction with social media campaign to augment the overall impact.
We continue to view DTC is a multiyear catalyst for euro lift in the United States.
As we are still in the early innings of market adoption and patient awareness.
Indeed, Europe is leading the way in BPH and this is the first time in recent years that of BPH brand is reaching patients directly in a meaningful way.
Turning to your net too we continue to make progress with our controlled launch and we remain on track for a more fulsome rollout beginning in the second half of 2021, we remain confident the convergence to the yearend of two will continue over time, and we continue to expect to generate significant margin expansion.
The revenue base Thats fully converted.
As it relates to the euro the ATC device. The launch continues to go very well as we've completed most of the case days and urologist find the use of the device to be in chooses and they seem to appreciate that the device makes it easier to perform procedures with obstructive median lobe.
Regarding Japan, we remain on track for reimbursement decision in 2021 and view the approximate 2 billion dollar address the market as an incremental growth driver that would be of positive catalyst for the foreseeable future.
And we continue to work towards commercialization of France, We anticipate performing our first cases during the second quarter.
With most of the catalysts in place across key geographies, including the U S and Japan, we remain confident that <unk> will become a robust global franchise addressing a significant multibillion dollar opportunity.
Lastly, before turning the call over to Tom I would like to provide clinical update highlighting two recent published studies with our intervention of the access business unit.
The Marvel Real World study was recently published in December of 2020. This study tract 500 patients across 10 centers globally, who enter the underwent transfer of large bore percutaneous procedures.
The primary endpoints of time to Hemostasis was the median of 50 seconds, while the primary endpoint of the major of vascular complication rate related to the Manta access site was in line with the safe Manta IDE pivotal trial.
The study concluded the manta was of safe and effective device for large bore access closure under real world conditions.
In addition to the registry study I just highlighted.
As separate meta analysis was published in February of 2021.
This pooled analysis examined the data for nearly 900 patients drawing from the CE, Mark and stage pivotal trial as well as the Marvel Registry study.
Key findings included a high technical success rate rapid hemostasis and low complication rates.
In this study medium time to hemostasis was Turkey one seconds.
Overall, we continue to invest in clinical and commercial catalysts that will help to sustain our upper single digit revenue growth aspirations for this strategic business unit in a normalized environment.
That completes my prepared remarks, now I would like to turn the call over to Tom for the 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.
For the quarter adjusted gross margin was the highest since teleflex became a pure play of medical device company totaling 59, 4% or an increase of 210 basis points versus the prior year period.
The increase in gross margin was primarily attributable to product mix, M&A and restructuring benefits, which were partially offset by foreign exchange headwinds.
Similarly first quarter adjusted operating margin of 27, 5% was also the highest since teleflex became a pure play medical device company and represented an increase of 190 basis points versus the prior year period.
The increase was driven largely by the gross margin improvement partially.
Partially offset by normalization of compensation expense accruals.
Continuing down the P&L for the quarter net interest expense totaled $16 1 million, which is the slight increase from $14 9 million in the prior year period, reflecting higher average debt outstanding.
Post quarter close we issued a notice of redemption to holders of our outstanding 400 million aggregate principal amount of $4 78 senior notes due in 2026.
We plan to fund the redemption using available borrowings under our revolving credit agreement.
Moving to taxes for.
For the first quarter, our adjusted tax rate was 13, 9%.
Which is up 140 basis points as compared to the prior year period.
The year over year increase in our adjusted tax rate is primarily due to less benefit from stock based compensation as compared to the prior year period.
At the bottom line first quarter adjusted earnings per share increased five 5% to $2 87.
Included in this result is an estimated positive impact from foreign exchange of approximately 13.
Now I'd like to highlight another restructuring program that we recently announced.
During the first quarter of 2021, we can lead to a restructuring plan designed to streamline various business functions.
We estimate that we will incur aggregate pre tax restructuring charges of between $7 million of $9 million <unk>.
Consisting primarily of termination benefits and between 3 million and $4 million in restructuring related charges.
We expect to begin realizing plan related savings in 2021 with total annual pre tax savings of between $13 million and $16 million. Once the plan is fully implemented.
To summarize all of our ongoing restructuring and cost saving programs.
The total remaining pretax savings across all current active programs are expected to be between $53 million and $67 million.
Further details of the programs are available in the appendix to the earnings presentation.
Approximately half of the remaining savings are expected to be realized during 2021 and 2022.
With the bulk realized by 2024.
As such we have good line of sight to non revenue dependent margin expansion for the foreseeable future.
Turning to select balance sheet and cash flow highlights.
For the first quarter of 2021 cash flow from operations totaled $110 8 million as compared to $11 5 million net use of cash in the prior year period or a year over year increase of $122 3 million.
The year over year increase was driven by lower contingent consideration payments.
The lower payroll and benefit related payments and higher accounts receivable collections as compared to the prior year.
Overall, the balance sheet remains in good shape at.
At the end of the first quarter, our cash balance was $324 6 million.
And during the quarter, we paid down 100 million of debt and our net leverage at quarter end was approximately two nine times.
Subsequent to quarter end, we repaid an additional $25 million in revolver borrowings.
Yes.
Moving on to guidance.
Starting with our revenue expectations for 2021.
We now expect constant currency revenue growth of between eight five and nine and three quarters of percent as compared to 2020.
This compares to our initial guidance, which called for constant currency revenue growth of between 8% and 95%.
The increase from guidance reflects our confidence in the business, including first quarter results, which were better than we anticipated.
We expect our interventional urology, interventional surgical and anesthesia product offerings to be key contributors to our constant currency revenue growth during 2021. Additionally.
Additionally, we continue to expect our interventional urology business will increase at least 30% over 2020 levels.
The midpoint of our constant currency guidance range also assumes approximately two 5% contribution from the acquisition of Z net.
Turning to currency, we continue to expect foreign exchange rates will be of tailwind to revenue growth of approximately 2%.
And as a result, we now expect our as reported revenue to increase between 10, 511, and three quarters of percent over 2020.
This would equate to one dollar range of between $2 billion of 804 million Inc.
And $2 billion $835 million.
Turning next to gross margin.
During 2021, we now anticipate adjusted gross margin to increase between 155, and 255 basis points to a range of between 58 at quarter and 59 in the quarter and this is an increase of 25 basis points versus our prior forecast.
We expect gross margin expansion to be driven primarily by a favorable mix of high margin products, including interventional urology interventional access and surgical.
Also contributing our benefits from manufacturing productivity improvement programs benefits from previously announced footprint restructuring programs.
And the acquisition of Zee medical.
Year over year gross margin expansion is expected to be somewhat offset by inflation.
Turning to adjusted operating margin, we continue to expect the adjusted operating margin will increase between 110, and 210 basis points to a range of between 26% and 27%.
The increase in adjusted operating margin will largely come from the gross margin line.
Partially offset by normalization of spending associated with items, including management compensation.
<unk> targeted head count additions.
And the potential for further strategic investments in support of key growth drivers such as your lift and naphtha.
Continuing down the P&L.
We now expect interest expense to range between 61% and $63 million.
This compares to our initial guide, which call for interest expense of between 63% and $65 million.
The reduction in interest expense is primarily due to faster than originally anticipated debt reductions coupled.
Coupled with lower than expected LIBOR rates.
The early retirement of the 'twenty 'twenty six notes was always part of our full year interest expense assumptions.
Moving to taxes, we now expect our adjusted rate will be in the range of between 13 and 13, 5%.
We're a 50 basis point reduction versus our prior guidance.
Considering all of these elements, we are pleased to be able to raise our adjusted EPS outlook to between $12 65 and.
$12 85.
For an expected increase of between 18, 6% and 24%.
Lastly, while it is not our normal practice to provide quarterly financial guidance given.
Given the ongoing situation of COVID-19 I would like to provide some color regarding what we expect to occur in the second quarter of the year.
At the midpoint of our new guidance ranges during the second quarter of 2021, we expect to realize approximately 24, 5% of full year reported revenue.
Approximately 22, 5% of our full year adjusted earnings per share.
Our outlook is predicated on the assumption that COVID-19 will continue to cause disruption during the first half of the year.
That concludes my prepared remarks, I would like to turn the call back to Liam for closing commentary.
Liam Thank you Tom.
In closing I will highlight our key are three key takeaways from the quarter.
First we delivered a strong first quarter with the top and bottom line performance better than our expectation.
Second we announced another restructuring program the reflects our organizational efforts for continuous improvement. This action also.
Tributes to our confidence in long term margin expansion effort.
And third we raised our revenue and adjusted earnings per share guidance, reflecting a strong quarter, one and our outlook for the remainder of the year.
I would like to finish by thanking the entire teleflex team around the world who have worked tirelessly through the pandemic as we begin to come out the other side of COVID-19, We will continue to meet our commitments to our patients clinicians communities and of course our shareholders.
That concludes my prepared remarks, now I would like to turn the call back to the operator for Q&A.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
The pause for just a moment to compile the Q&A roster.
And your first question comes from the line of Richard Richard Milliliter with SBB Leerink.
Thanks for the color on the trends on the euro lift.
Maybe just to start off there.
No.
Mentioned that the U.
Returned to pre COVID-19 euro lists for interventional urology growth levels I'm just.
<unk> is that different.
Different growth rates in the first half of 2020.
40%.
Because of our grows to 50% and in the first quarter of 2000.
<unk> was about 20%.
Which which kind of all of those growth trajectories should we use as a reference point for the early trends that you're citing here in <unk>.
Yes. Thank you very much of the question so.
We are quoting the trends.
In 2020 pre COVID-19 on a days adjusted basis in Q1 2020, even with the impact of COVID-19 in the last few days.
The last week of March we grew approximately.
26 plus percent.
In the prior year.
<unk>.
We are very encouraged by the trends that we saw in the month of April.
So at different times through the impact of COVID-19 as we got into November last year.
Rich we did see days that we got back to a pre COVID-19, but the level on an average daily sales basis, but we have not seen the consistency where it remains for a sequential number of weeks until the month of April and that is very very encouraging to us.
And I will say and the other data point I think is worth looking at is if you compare urology growth.
In this Q1 of 2021 and you compare that back to Q1 of 2019 that is approximately 30%. So we're very pleased to be able to reiterate our full year guidance expectation per euro lift up plus 30% growth and the trends that we've seen in the last few.
Two weeks of March but more importantly in the first few weeks of April have given us the confidence that we will definitely be able to reiterate that long term or the full year guidance.
Thanks for that color, maybe just two follow ups on neuro lift there one.
I know there's been some management changes in the organization.
The the head of the President of Europe.
As expected and the pieces of the timing you said in the past.
Retired at the end of the year can you just talk a little bit about that I think ultimately it would help just to here.
If anything the potential.
Potentially changing.
Yes.
The way you're viewing the market the direct to consumer initiatives management changes that that may be impacting the business or if this is just purely COVID-19 that led to the.
The net.
<unk> trends in the first quarter.
Yes, so I wouldn't call of the translocation of the first quarter lets not forget in January and February.
<unk> was much more severe than it was in the fourth quarter and and for us to be able to deliver the growth of approximately 2% in Q1 compared consistent with Q4, I would see that as an achievement.
The little bit of color I would give you rich is that in the first two months January and February we had the decline of approximately minus 8% per euro lift and in the month of March It was positive north of 30% in absolute growth.
Your year over year in the month of March and we continued as I said earlier to see that and that improving trend as we went into April. So we feel really positive about Europe nothing has changed in the end markets and we're still very positive.
As anticipated that the.
The president of the business units did leave at the end of the year, but we have a an industry veteran.
In to take over that business unit and the core team is still there our turnover in that business unit is significantly less than our turnover in any of the pirates of teleflex and teleflex turnover is well below industry averages I've said it many times Richard you just can't be culture, and our people will stay with <unk>.
Flex because of the concern because of the significant opportunities within there so.
No significant changes within the organization at below below the president level.
Thank you very much of it I appreciate it thanks Richard.
And your next question comes from the line of Cecilia furlong with Morgan Stanley.
Great. Thanks for taking our questions I guess I did want to continue with you on that.
You talked about ex U S expansion into France.
As well as Japan coming online in the back half of the CRE I guess, just as we're thinking about guidance and recovering from COVID-19 can you talk a little bit about just what youre expecting from U S market recovery from.
From the DTC campaign is that sort of thing.
And then kind of <unk>.
Layering that on it as you look at.
Gross margin impact from.
The two rolling out just would love your thoughts on the cadence of Citibank.
Okay. So again.
Again reiterated our plus 30% growth per your lifting of the year and rigor.
Regarding the growth in France in Japan, we see those as incremental growth to our normalized growth levels for Europe.
We we see that the growth of the recovery in your lift is going to be really of a U S. Phenomenon. This year and we would advise the investment community to focus on the U S market, we will generate some revenue in.
In Japan, but we have of mandate is.
At registration study to complete.
And gather some data so I would really see Japan ramp and France ramp for that matter of really being a 2022 story, where you see the increment the revenue really start to gain momentum and as I said earlier I would see that as a an incremental growth driver into the future.
With regards to the U S too.
We still expect that we will have the key north American market pretty much converted by the end of 2022, and we will have an uptick in our gross margins of four full percentage points.
Which accounts for about 40 basis points for teleflex in our entirety.
Regarding DTC, we are I'm very encouraged by what we saw last year with our DTC campaign and as I said in my prepared remarks, we are planning to run the DTC campaign for the full year the cash.
Some of the learnings that we've made during that time.
We're doubling the spend but we're more than doubling the number of impressions, we anticipate making so we expect to make about 125% plus Additionally, the impressions with the campaign in 2021 as compared to 2020.
We are also very encouraged by the number of patients that engage with the urologist.
And encouraged by what we have the appointment of levels that we see being generated out of that so we are investing more heavily behind DTC by rolling it out per our full year in 2021 compared to 2020 so.
In a recovering COVID-19 environment. There are many patients that we have put under the care of of urologists through the DTC campaign that should turn into procedures now that people feel more confident to go back in and get procedures done in the back half of the.
This year of 2021.
Thank you for the color and I guess I wanted to Jake.
The.
From the medical you talked about Q1 performance.
The slightly ahead of the expectation can you just talk a little bit about how the innovation.
And really just how youre looking at that initial 60 to 70 million you called out at the time of the acquisition and thank you.
Thank you, yes, so the integration is going exceptionally well the zee medical team are very welcome to the Teleflex family.
We are seeing no turnover within our identified retention pool.
Approximately 21 work streams and the integration and we're about 35% completed already.
Regarding the $60 million to $70 million and the 21% to 26 cents in earnings guidance that we gave we feel we're very comfortably within that $60 million to $70 million.
And the product is doing better than we would've anticipated right out of the gates. So we're really happy with how things are going with the Medicare.
Okay. Thank you.
Sure.
And your next question comes from the line of Matt Taylor with UBS.
Hi, guys. Thanks for taking the question.
So I wanted to circle back on your lithium ask one about <unk>.
University.
Thank you.
John do you have an inside.
Insight into the trends that youre seeing.
The Thursday.
The airlift and the path of Sharon same store growth.
Or how much of the growth is coming from each of those.
Yeah.
So traditionally about two thirds of our growth comes from existing in the third comes from new users.
We haven't seen any significant change in that as.
As we got to the to the fourth quarter and discontinued within the first we're seeing the average number of procedures being done by urologists, holding pretty firmly and thats quite encouraging one thing that we did see in the first quarter.
During COVID-19 would we sell of the percentage shift out of the hospital to the ASC and the office in the midst of COVID-19.
We saw a few.
Percentage point swing, we've actually seen some of that swing back into the hospital of patients now feel more confident going back into the hospital and getting the cases done. So we're very encouraged by that because our procedures done and all of the site. The service is done in the in the hospital of the ASC and the office.
And.
As we see all of those sites of service begin to come back.
As we did in the first few weeks of April.
The trends are really encouraging for Europe.
Okay, Great and then obviously the April data point.
Alright.
Is your hypothesis that youre going to kind of kind of continue to see those levels through the quarter or the things that you could actually see the momentum acceleration.
Are your customers and your sales force selling.
Telling you that many of the funnel.
The clinical procedures in Q1 that are going to start to.
As more people get back from China.
Well, we know what the canceled procedures, where Matt in the first quarter.
And we know what they were in the second quarter. So we've taken the baseline cancellations of.
2019.
And we have the data on the additional cancellations.
<unk> and cancellations in the first quarter were higher than the fourth quarter as we would expect because of COVID-19 was more aggressive and we hit record peaks in January and February in particular.
So the we had 850 cases.
Which would equate to around 4 million of in the fourth quarter and we had just shy of 920 in the first quarter. So it's over $4 million of canceled procedures.
Over the base rates. So those canceled procedures, one would imagine will come back at some stage as as people feel more confident in coming back and having them done so.
We're feeling we're feeling really good about Europe.
As it is right there and of course as we sit here, where we've got the incremental growth drivers then coming in later into the year and into 2022, such as Japan, France and other geography.
Great.
Thanks, a lot of those data points.
Thanks, John.
Your next question comes from the line of Larry <unk> with Raymond James.
Good morning. Thanks.
I am just hoping to level set a little bit on Japan.
Maybe you can.
Certainly heard the messaging of you to have this.
Post post market study that you have to get down youre not expecting a lot of revenue this year.
But again, just trying to think through sort of what happens with.
Clearance for the UL, two and then kind of sequentially what happens with reimbursement, maybe just walk us through kind of how youre thinking about the timelines there.
Yes, Larry So we are with.
The all the documentation of deferred in the submitted to the authorities.
I'm sorry, we will have them submitted very soon to the authorities.
The <unk>.
The reimbursement team.
The meat.
Once a quarter so.
We will have the main in time for the June meeting, whether the review of them in the June meeting, we do not know, but if the don't reviewed it and give the decision in June the will give the decision in December or pardon.
Pardon me in September so thats, the gating point, Larry as to when we will get a decision on the reimbursement in Japan.
Soon as we get that decision, we will begin to do procedures to comply to the <unk> study that we have to do we've already.
Have the team on the ground, we've got the market development, especially with some of the ground we've already begun to recruit additional sales individuals on the ground in anticipation of getting that reimbursement decision and Japan has an advantage over what we had to do in the United States insofar as that at the single payer market. So once we get reimbursement we haven't.
Reimbursement across all sites through the entirety of Japan.
And I think then we would see the revenue in Japan.
Ramp as we go through 2020.
And beyond and again I'll reiterate what I said, we see this is in addition to the normalized growth levels of.
Your lift over and above what we've seen in predominantly the United States.
Okay.
Do you have a question for Tom, but I just want to clarify one thing Liam so.
Are you, saying that you haven't filed yet for the regulatory clearance.
And Daniel and then you have to get that done before the reimbursement meeting or does this happen all in parallel excuse me, we have regulatory clearance already Larry pardon, Okay, I was talking about reimbursement.
The submission.
Okay, Perfect and then I guess for Tom.
Look certainly on the gross margin side, Tom you are.
Bumping up against kind of of your targets in the pre COVID-19 ORP.
Again, just wanted to think about.
Or have you maybe address a little bit about how you're thinking about the sustainability of of the gross margin. After what we saw in the first quarter and then secondarily to that question on the restructuring again, you highlighted the pre tax savings that you have in front of you over the next several years.
Should we be thinking about that is really all dropping to the bottom line or would you consider actually investing some of the restructuring savings to fuel growth.
Okay, well, starting with the sustainability of the gross margin.
So as you know as we've talked about previously what's really driving our gross margin are our two things primarily mix and I would say that.
Youre left being the greatest driver. We also have the addition of the Medicare This year and so as we continue to see you.
The lift in other high margin part.
The <unk> offerings continue to outpace the rest of the business and we're going to continue to see margin expansion for this year and into the future now with regards to the the other piece of the restructuring programs.
As mentioned, we do have a couple of years.
Outlined already of programs that are out there and we expect to realize some significant savings and if you do the math on that.
Close to two basis points of margin expansion rate there as we think about do we drop this through.
From our perspective, we're going to continue to evaluate what are the options to to kind of look at opportunities to enhance growth with with further investment behind our highlights from brands such as such as.
Your lift.
Z medica.
Manta.
As well as considering what level of profitability increase we've got so we've got the opportunity to continue to drive meaningful topline growth meaningful margin expansion and thats the translate to meaningful earnings per share growth and we'll continue to evaluate what are the opportunities to invest further to to accelerate that top line even more.
Okay terrific. Thanks, guys I appreciate it thanks, Eric.
Your next question comes from the line of Matthew Mcshane with Keybanc.
Okay. Thank you very much for taking the questions.
Tom just back from the gross margin I mean, if you if mix is really what's.
Driving a lot of the improvement.
The just sequentially the.
The Medica Euro links are all moving higher sales of moving higher the probably the mix of COVID-19 related.
The products move a little bit lower net.
Why would the gross margin decline from here.
In <unk> <unk> and <unk>.
John.
With <unk>.
Increasing sales.
What's the what's offsetting that.
Well I would first say that in the first quarter, we had an incredibly clean.
Quarter from the standpoint of manufacturing.
And then also to the point you raised and as we look at the recovery in the back half of the year.
I should say in the first quarter.
Both EMEA and OEM at about 17% constant currency declines in revenue as we look to the back half of the year. We expect both of those businesses to move into positive territory and thats going to have an adverse impact on our on our mix.
And that will partially offset some of the higher growth from from your left another high margin plans now obviously, we're waiting to see how the recovery plays out over the next couple of weeks and months.
And hopefully you know as we continue through the year, we continue the CER favorability in the gross margin line.
Okay.
Okay excellent on the OEM side.
The one does the inventory normalized versus where production.
Versus where customer activity is.
Some of it should lag about a quarter. So you should expect to see it beginning in quarter two of recovery and then in the back half of the year should definitely see it start to pick up so it'll lag by about a quarter. So of my expectation would be the.
OEM results in Q2 will be better than then they were clearly in this quarter and then you get into positive countries to get into the back half of the year on the OEM for the full year should grow in that mid single digit rate growth rate overall.
Excellent and then just back to Tom.
So free cash flow.
Was excellent in the first quarter, how should we be thinking about free cash flow in 2021.
We reached the point now.
We're going to see that inflection in free cash flow that you were talking about back in late 2018 COVID-19.
Yes, so the way I would look at free cash flow is that we would expect it to the growing kind of in line with with the.
Earnings growth and from the 20% range.
Couple of things going on.
In 2021 first of all.
We're seeing an increase from net income we'll also see the increase as a result of less contingent consideration payments. We spent about a little under $80 million last year, and we expect that to be significantly less.
This year.
Over last year, we also closed out the year with the very very strong.
Collection cycle, where are our dsos were down considerably from our historical average and this year, we planned it to be closer to our historical average to the extent, we continue to see favorable trends in collections, we could see more than that 20% growth in free cash flow that I that I cited.
Okay excellent. Thank you very much.
Thanks, Matt.
Yeah.
And your next question comes from the line of Matt O'brien with Piper Sandler.
Hey, guys. Good morning. This is drew on for Matt.
I think I think maybe I know the answer to this question, but I just wanted to ask about the competitive landscape for your OLED.
Boston Park no good progress with its resume product yesterday I believe the Olympias also rolling out of the new product in the space.
Anything new with those technologies and are you seeing any shifts.
The utilization within the market.
So we're seeing no changes in the marketplace.
I think that.
Year over year of growth in this environment is that tough for them to call. Because you don't know what happened in the prior year with some of these companies. So I can tell you the last quarter one teleflex in our entire day, we grew five 5% on a days adjusted basis. So.
And if you look at our growth in Teleflex and our entirety in 2019.
The constant currency days, adjusted we grew five 8% over 2019 so.
We feel that the momentum swing is really moving favorably for us and we also.
The C no changes in the end markets.
At the end of the day it all comes down to patient outcomes.
The no sexual dysfunction will demand have to wear a catheter and revision rates per euro lifted our comparable to the gold standard TARP and of course don't forget the demand is of choice with Europe, where they get the procedure done because they wanted to go to a hospital and ASC or an office with some of these other technologies the restricted as to where they can have the procedure done so.
No change in the end market and I can categorically tell you we have lost no customer to any competitor.
Okay, that's obviously great to hear.
And congrats on the strong performance with Manta.
I believe you mentioned, 30% plus growth maybe you could just kind of help us by framing where that number was relative to the estimates and then relative to the the penetration targets you laid out a couple of quarters ago. So we're very pleased with the growth you are corrected with.
30% growth within the quarter, which is very encouraging.
It is in line with our trajectory even given the worsening situation with COVID-19 in January and February and we expect to continue to see that momentum build as we go through the remainder of the year and we do believe we will get to our 8% plus penetration by the end of the year. So manta is performing.
Very much in line with our expectations and we're very encouraged by it.
Thank you. Thank you.
Your next question comes from the line of Anthony Petrone with Jefferies.
Thanks, and good morning, the one on euro lift in a couple of.
The regional questions one on Europe, maybe the the competitive dynamic against both.
The existing alternative devices, Boston scientific spoke a bit about resume on their call sales and sort of increasing volumes of March.
Just an update on competitive dynamics from getting into new sites.
He'd be the first question and maybe a second quick one on on EMEA.
Maybe Liam just touch more broadly on EMEA, obviously lagged in the quarter.
COVID-19 is still somewhat heightened the opening up so maybe just thoughts on.
When we will see a reversal in EMEA broadly.
And then one quick follow up thank you.
Yes, Anthony Thank you so yes the.
The growth that we saw in mics per euro lift was north of 30%. So over the prior year. So we're really encouraged by that and we're also as I said earlier encouraged by the momentum that we saw going into April where we saw continued sequential improvement in our average daily sales going into April getting back above our pre COVID-19 levels for the first.
Time, I mean, thats, a big water shed moment for us Anthony as you can appreciate we haven't been consistently back being back above pre COVID-19 levels.
For the for an entire year now and so the team is absolutely fired up out there and.
And driving that.
Regarding your question on EMEA EMEA was as expected.
There's a few dynamics going going on there the last year EMEA received.
The positive $8 million COVID-19 order in the prior year quarter, so that they have that tough comp and as we all know the rollout of the vaccine in Europe is not going as well as it is.
<unk> states.
And I think that the.
The increase in cases of COVID-19 in January and February and well into March within Europe was pretty strong that the lockdown still going on now having said that the.
The month of April in EMEA has also been somewhat encouraging so I would expect EMEA to have a much better second quarter than it did the first quarter and it would be remiss of me not to mention APAC.
APAC Anthony grew over 10% of the days adjusted basis in the quarter from of minus 7% in quarter. Four so that was a tremendous swing for us in China had a really really strong first quarter as we see procedures begin to come back in the key geographies of geography for us. So that's some of the regional color Anthony.
For EMEA, but also APAC.
Alright, very helpful. I Wonder if I could just sneak in would be an easy class.
Maybe just a quick update there.
The recap of.
The opportunity you need the starting with military and then broadly as you roll that out of should we still be thinking about that is addressing one of $100 million Tam over time. Thanks again, yes.
Yes, Youre absolutely correct, the EZ pass address the $100 million.
Tam of.
$25 million in the in the military 75 of the civilian as we all know we're going to begin in the military market to help the developed this product.
Very encouraging signs from the FDA.
We got the letter from the FDA following our BLA submission, stating that the application was sufficiently complete to begin substantive review.
And the BLA with site at assigned priority review classification, which indicates that theyre going to it is on a fast track BLA.
Very collaborative we're getting questions back which is what we would expect.
The team is answering them.
Very very collaborative over them back and we would anticipate.
Normal approval.
The points of the fourth quarter, so as they move through this will keep the investment community updated.
Thank you much.
Thanks Anthony.
Your next question comes from the line of Mike Matson with Needham <unk> Company.
Hi, Thanks for taking my questions.
So there is.
There is so much focus here from investors on the acquired.
The acquired products like Youre left the Manta biomet.
<unk> sorry from your R&D team there, but I was wondering if there are any internally developed new products the <unk>.
Cited about the we should be aware of.
Yes, Mike.
I don't think too sorry for our R&D team, they're doing a tremendous job of internally for us. So we have a number of new products that we are excited about being developed internally.
Within the anesthesia group, we have the Polaris, which is a a laryngoscope handle the blade system that we're getting really good traction on within the day.
The vascular business, we have the project Phoenix, which is the new Ergo pack that is gaining tremendous traction right now Florida is within the within the group within the Interventional group, we have the Watson Guidewire, which is the two in one combination product that will be launched later in the week that we're very encouraged by and of.
Of course, the AC three continues to gain tremendous traction and we had a really strong quarter with that product in particular in China.
As we start to roll that out in that geography, having gained approval for it so across the board we've got a lot of products.
Coming through the R&D group and we've been quite successful in augmenting our revenue growth from new products to the positive over over the last number of years.
A few years ago, we used to generate 1% and new revenue growth from new products, and we've moved that up to 152% over the past number of years.
And the other thing I'd point out and it's not related to your question of new product on new products, but.
We have also had positive pricing.
Within the quarter. So I think that we're very encouraged by our ability to increase our prices even in this tough environment.
And that's a positive sign for results of.
Okay. Thanks, I didn't mean to apply that day, they werent doing their job.
Investors are focusing on the some of the external stuff so.
I wanted to get the knowledge.
The for you to talk a little bit about some of the internal stuff.
And then.
I guess just on Manta Manta, I mean, 30% growth I don't take anything away from that that's obviously really good but.
Sure.
But at the same timing of the clinical data on the thing is pretty outstanding so.
What is the pushback that you get from is it just price. The just seems like a no brainer to use of the thing to me and if its price I mean do any of the trials.
Any kind of economic data or do you have any trials planned to collect any kind of economic data at the kind of help with the vac committees and things like that.
So.
Getting through the Vac committees has not been an issue for us Mike with the amount of product.
In the first quarter were really happy with the 30%.
The issue we have is COVID-19 in the first cohort of quite frankly in gaining access.
Because it's difficult to gain access to the hospitals.
Especially in January and February now I know that we're sitting here in April.
January and February seems like a long time ago, but don't forget we were getting 250000 cases of day in January and February they were much worse. The November and December. So it was very difficult for us to get sales representatives clinical experts out there into the market, that's showing the product and I would anticipate that we will continue to see that ramp now.
As people more people are getting vaccinated and our access to the hospital would be much better.
Okay, great. Thank you.
And you do have a follow up question from the line of Richard <unk> with SBB.
Inc.
Hi, Jeff just wanted to follow up.
There may be some confusion just around the commentary with respect to pre COVID-19 euro the growth rates Liam.
Could you just clarify you've thrown around I think greater than 30% in April.
Whats that relative to is that relative to April 2020, or is that relative to April 2019.
That was relative to.
So the 30% was in March and it was relative to the March of 2020 rich.
The 30% that I quoted was for the quarter.
And that was compared to 2019. So we grew 30% in March compared to March of 2020.
And in the whole quarter of one of 2021, we grew 30% over 2019.
As we went into April our average daily sales Scott back to average daily sales levels, we have not seen consistently since January and February of 2020, before we headed into the into COVID-19.
Okay, and my understanding with the January and February of 2020 were exceptionally strong well north of 30%.
Our growth in January February from my memory, we were about Turkey, five ish percent or something like that rich.
Okay. Thank you very much.
And your next question comes from the line of share dancing with Wells Fargo.
Okay.
Your line is open.
Hi, sorry, Kevin Kelly.
Yes.
Alright. Thank you for taking the question. So just kind of looking at pre COVID-19 years Q2 sales of 6% off of Q1 EPS of about 60% higher and I think your Q2 guidance contemplates. The question comes from Brian <unk>.
The of flat.
At the midpoint. So I was just wondering if you could talk to that.
Q1, and then just looking at goals on the factory obesity.
A pretty simple.
Two questions.
Good day.
Second half so should we view it.
As Conservative and then that brings me to my final question with respect to backlog how are you thinking about it I think Chris that the.
The hearing that you should expect from more of a steady flow at the elevated level of the question.
The catch up if you will.
Over the quarter period, so any commentary would be helpful. Thank you.
Yeah, I'll start with the backlog and the I'll.
The address the conservatism.
The Tom get into the specifics of.
Of the guide in the quarters at the where it would be.
But I would say that you will see acceleration in revenue dollars and you'll see acceleration in the adjusted earnings per share as you get through the quarter of I think we should start there as we continue to expect the recovery to continue its really difficult for us to it too.
The forecast or identify the backlog.
And it is.
It is difficult for us to to build that into any forecast because we don't know what type of capacity that's going to be there within the hospital system or outside of the hospital system.
For us to get there.
We do expect those that the backlog should get burned through as you get the laser into the year.
And that would be our expectation.
With regard to whether the.
The guide so the guide would be roughly and I am talking.
The pitch of towards the middle of here should go into the so it should be about $690 million.
And about two books 90 in the earnings per share at the midpoint and both of the guidance that we gave.
In relation to that now regarding conservatism or not I think we continue to see some increases.
The <unk> co.
COVID-19 cases in places like India, and Japan, we see Americas recovering we think we'll see OEM continue to get better in the second quarter as we will with EMEA.
And we do believe that there is the.
There could be opportunities for us there in the second quarter.
But we would prefer to lean more to the Conservatives and the aggressive at this stage just giving the few variance around there. So we would prefer to lean in that direction and if recovery continues within the Q2.
We think that we should be in a good position to take take advantage of that.
It would be our thinking and just to be absolutely clear that $690 million would be up from what we did this quarter, which was around 634. So it would it would see significant sequential improvement on an absolute dollar basis on revenue should done.
And then as it relates to earnings I think Liam pointed out that we expect to see.
The sequential acceleration in earnings per share also we expect to see sequential improvement.
Adjusted earnings per share versus prior year, when we take a look at.
If you go back two years I think we had a really strong Q1 the growth rate isn't as strong in the.
Back half of the year of couple of things to to understand as we look at the first quarter of 2021 I had pointed out earlier that we had a really clean first quarter from our manufacturing performance standpoint, and while we're very encouraged by the performance, we're not quite ready to extrapolate that two of our full year upside.
To that level. Additionally, I mentioned that EMEA and OEM.
We're down in the first quarter in terms of revenue growth and we expect them to recover it and turned into positive territory for the back half of the year and both of those.
The business segments carry a lower gross margin than average.
I would also say that in the first quarter.
We had a really really significant beat in operating expenses and the <unk>.
Part of that was due to savings from travel and perhaps a slower hiring unexpected but the vast majority of it was due to deferred projects as the projects that we had expected to get going in the first quarter that we eventually delayed just given COVID-19 and other reasons now we do expect to make those up in the back half of the year. So some of that.
Opex saving an upside from the first quarter, we expect to be included in the rest of the year spend so hopefully that helps give you some color as to whats going on.
From an earnings standpoint, and why the first quarter just looks so so fantastic evenly benchmark against the two year ago.
That's helpful. Thank you so much for taking the question.
Thank you Hugo.
And your next question comes from the line of David <unk> with JMP.
Good morning, guys I've been bouncing around a little of this morning, but.
I just wanted to ask one quick one for Tom.
I think you mentioned the with sort of a hot topic of late in general but inflation.
And I was just curious as to what specifically, you're referring to and if theres any input that we should be aware of that may be undergoing some sort of the pricing increase that as we think about the rest of this year. Thanks a lot.
Well I would say that.
We are seeing inflation, that's a little bit higher in 2021, and then what we've seen historically a lot of it was anticipated and included in our original plan or current projections.
Reflect what we see as the current environment I'd say, the the areas, where we're seeing inflation is in some material in particular resin polyethylene polypropylene polystyrene or are all well above 10% inflation rates.
Overall materials, we're seeing at a sub 2% inflation growth rate I would say that.
Select labor markets.
We've got some inflation going on in Malaysia that would be pushing up around 5%, but overall I would say that.
Total direct and indirect labor is sub 5% in terms of inflation.
The other area that we are seeing heightened.
The inflation rates as in our in our freight in particular, our sea freight is up significantly where it's up 20%. This year and I think if you follow what's going on there just isn't capacity.
So collectively as we look at all of the different inflation components and manufacturing were up.
Up around 3%.
For the year is our current expectation.
That's up about a full point versus what we've seen historically and again, that's that's fully reflected in our current projections and Dave I would just add to that.
The the Leer.
We anticipate the team some of this inflation. So we took some actions over.
About a year ago, we started taking some action from some of our pricing initiatives and that started to come through in this first quarter than pure pricing in the first quarter, we were positive about 20 basis points.
We are quite encouraged by that we anticipated this and we immediately began to plan to have an access to a modest price increases in some of our more selective areas.
Thank you very much.
Yes.
I would now like to turn the conference back over to Jay <unk> for closing remark.
Thank you operator, and thank you to everyone that joined US on the call. Today. This concludes the Teleflex incorporated first quarter of 2021 earnings conference call of a nice day.
Ladies and gentlemen, thank you for participating you may now disconnect your lines.
Okay.