Q2 2021 Teleflex Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to <unk> second quarter of 2021 earnings Conference call. At this time, all participants have been placed in a listen only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference being recorded.
The company expense I E Bay's fourth week.
And now I would like to turn the call over to Mr. Longe, Trish, Vice President Investor Relations and strategy.
You may begin sir.
Thank you, Jeff Eric Good morning, everyone and welcome to the Teleflex incorporated second quarter 2021 earnings Conference call.
Release and slides.
A replay of this call are available on our website.
Www Dot teleflex Dot com.
As a reminder, this call will be available on our website and a replay will be available by dialing 805.85836.
Kevin or for international calls 4.
<unk> 6 <unk>.
214642, with the passcode 5188749.
Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer, and Thomas Powell, Executive Vice President and Chief Financial Officer.
A couple of Liam and Tom will provide prepared remarks, and then we will open the call to Q&A.
Before we begin I would like to remind you that some other 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.
In addition, please note that while we have provided commentary about intra quarter business performance. During the recent earnings calls to provide additional details and insights around trends, we do not intend to provide such.
Terry on today's call or in connection with future earnings calls.
With that said I'll now turn the call over to Liam for his remarks. Thank you Lori and good morning, everyone. It's a pleasure to speak with you today.
We are delighted with our second quarter performance, which exceeded the outlook we provided.
On the first quarter earnings call, reflecting the company's resilient base business and innovative growth drivers offset by varying degrees of COVID-19 challenges on a global basis.
The majority of our global product families witness constant currency growth over the second quarter.
Of 2019.
As anticipated, we witness improvements in underlying utilization trends for the product categories. Most impacted by the postponement of non emergent procedures, most notably interventional urology interventional and surgical.
We are encouraged.
Total debt as momentum continues to build driving 26% constant currency revenue growth as compared to the first quarter of 2021.
During the second quarter, our Americas, Asia, and OEM segments performed well with constant currency revenue.
With your growing over 2019.
While EMEA is now back to 2019 revenue levels.
As we anticipated Americas and Asia continue to recover more quickly than EMEA all.
Although uncertainties with COVID-19 remains we continue to anticipate.
Revenues revenue performance will improve as we move through the remainder of 2021.
For the second quarter operating margin showed gains over 2020, and 2019 and comparable periods and was driven by gross margin and disciplined expense control.
Our continued progress on margin expansion in 2021 has allowed us to increase directed investments towards growth drivers, which is an important component of our long term strategy to enhance durable growth.
Given the strength of the second quarter results, we are maintaining our constant.
Instant currency revenue guidance, which now includes $28 million to $32 million sales headwind from the June 28 initial close of the respiratory products divestiture that was not included in our prior guidance.
Based on our outlook for the second half of 2021.
And our margin improvement in the second quarter, we are increasing our 2021 earnings per share guidance to a range of $12.90.
To $13.10.
From our previous guidance of $12.65 to $12.85.
We continue.
1 to execute on our strategy to drive durable growth with investment in organic growth opportunities margin expansion on deployment of capital for M&A.
Turning now to a more detailed review of our second quarter results.
Thing on quarter revenue was $713.5 million.
On the increase up 21% year over year on a constant currency basis, and 6.8% over the comparable period in 2019.
The year over year increase was driven by contributions from interventions on.
Secondly, on surgical and interventional urology.
Asset by unfavorable year over year comparisons due to higher demand for our vascular access and respiratory products in quarter, 2.2020 associated with COVID-19.
We are also pleased with our second quarter.
Gross and operating margins with sequential improvements over Q1 strong performance Q.
Q2, adjusted on operating margins set new high watermarks for Teleflex as a pure play medical device company and encouraging sign for our longer term profitability objectives.
Second quarter.
Adjusted earnings per share of $3.35.
Increased 73, 6% and exceeded our internal expectations.
The earnings outperformance reflects the recovery in health care utilization during the second quarter, coupled with improved volume modest price increases.
On prudent operating expense management.
Overall, I am very happy with our second quarter financial performance, which demonstrates the importance of our diversified global product portfolio, while also reflecting progress towards our longer term margin aspirations.
Turning now to a deeper look at <unk>.
This results.
I will begin with a review of our reportable segment revenues and on.
Unless otherwise noted the growth rates I will refer to are on a constant currency basis.
Americas revenues were $414.8 million in the second quarter.
Revenue, which represents 31, 8% growth year over year, and 10, 8% over the comparable period in 2019.
Growth was driven by a rebound in procedures following the disruption from Covid earlier in the year with particular strength in interventional urology surgical.
And interventional.
EMEA revenues of $157.1 million increased 8.4% year over year on was flat over 2019 levels.
EMEA benefited from a favorable COVID-19 related comparison as procedures improved year.
<unk> per year as countries across the region continued to open up.
Turning to Asia revenues were $86 million in.
Increasing 10, 3% year over year and consistent with the performance seen in the first quarter of 2021.
Asia was up 1.7% as.
Compared to 2019, Inc.
Fortunately, we saw solid double digit growth in China.
And high single digit growth in Japan more than offsetting declines in southeast Asia.
And lastly.
Our OEM business, which accounts for roughly 9 percentage of total sales increased.
A 6.9% year over year to $61 million in the second quarter.
OEM was up 6.5% as compared to the comparable period in 2019.
Following a 17, 1% decline in the first quarter of 2021, the business witnessed a rebound as customers stepped.
The borders on signs of increasing health care utilization, we continue to expect a sequential improvement in growth through the second half of 2021, driven in part by incremental capacity.
Let's now move to a discussion of our second quarter revenues by global product category.
Consistent with my prior comments regarding our reportable segments commentary on global product category growth will also be on a constant currency basis.
As a reminder, there were no meaningful differences in year over year selling days in the second quarter.
Starting with vascular access.
Second quarter revenues decreased.
By 2.1% to $167.7 million.
Although we are facing difficult year over year comparisons in vascular access due to the higher demand experienced in quarter..2 2020 associated with COVID-19, the performance of our innovative products remained strong.
Our pic portfolio performed well with over 30% growth year over year, we continue to invest behind our differentiated pic portfolio and continue to take share.
<unk> was also strong in the second quarter with growth of 15, 5% year over year.
Moving to interventional second.
Second quarter revenue was $112.1 million, which rose 39% year over year. The increase was due to a recovery in certain non emergent procedures on a year over year basis.
Manta our unique large bore closure device grew 160 <unk>.
Percentage year over year, which keeps us well positioned to reach 8% share in 2021 out of a $200 million to $300 million market opportunity.
Turning now to anesthesia second.
Second quarter revenue was $95.4 million.
Up 38, 8% year over year Z.
It contributed roughly 60% of the growth as the business continues to track to our $60 million to $70 million revenue expectation for 2021, partly offset by lower sales of <unk> products.
Excluding FX and the Z medic acquisition underlying growth for anesthesia and the second quarter was approximate.
<unk>, 16% year over year.
The integration of Zee medical is going very well and we are pleased with the progress we are making.
In our surgical business revenue was $98.2 million reps.
Representing 39% growth year over year, the increase in revenues was driven by sales.
Of our metal on polymer ligation clips and instruments as elective surgical procedures continue to recover.
For intervention on urology.
Second quarter revenue was $92.2 million in.
An increase of 129, 4% year over year, and 35, 6% or.
In quarter of 2019, reflecting a move back towards more normalized growth.
We are encouraged by the business trends with physicians remaining engaged in the use of your lifting all care settings and patients increasingly seeking treatment for some symptoms of BPH.
Our DTC moment.
The segment remains solid and we remain comfortable in our 30% plus revenue growth objective for euro lift in 2021.
And finally, our other category, which consists of our respiratory and urology care products declined by 9.9% to $86.9 million.
Momentum Klein reflects difficult comparisons from the prior year related to COVID-19 associated respiratory product demand in Americas and EMEA.
That completes my comments on second quarter revenue performance, turning some clinical and commercial updates.
In.
In the second quarter, we trained 118 urologists and remain on track to achieve our target to train 450 to 500 urologists in 2021.
We continue to execute on our 2021 DTC program for this year's campaign, we are optimizing our network selection refreshing.
<unk>, the ads and working in conjunction with social media campaigns to augment the overall impact.
Given the positive awareness from the DTC campaign, we have decided to make incremental investment in the second half of 2021 to tap into this underpenetrated market, we view DTC.
C as a multiyear cash for Europe, and the U S. As we are still in the very early innings of market adoption on patient awareness and day.
<unk>.
Your line is leading the way in minimally invasive treatment of BPH and this is the first time in recent years that have BPH brand is reaching.
Expense directly in a meaningful way.
Turning now to euro lift too.
We are in a full rollout in the U S, which is consistent with our timing expectations. We continue to anticipate that the vast majority of physician customers will be converted to euros 2 by the end of 2022.
<unk> paced by advances in visualization reduced storage space and increased manufacturing capacity.
We remain positioned to generate significant margin expansion as the revenue base is fully converted.
Regarding Japan, we remain on track for reimbursement decision in 2021 and.
So the approximate $2 billion addressable market as an incremental growth driver that will be a positive catalyst for the foreseeable future.
Our submission was not reviewed at the July MH LW meeting and we now expect our review in September with a launch in the fourth quarter of 2021 there.
There is no change to our expectation for unit revenues in Japan to ramp up beginning in 2022 with modest contribution in 2021.
On the U S reimbursement front CMS published its proposed physician fee schedule for calendar 2022 on July 13.
The proposed reimbursement rates for your lift in the physician office setting were reduced by 19% to 21% year over year.
A couple of points I want to make.
The proposed payment reductions to office based procedures would not go into effect until January 1.2020.
And therefore do not impact our 2021 outlook.
The proposed reductions were broad based across a range of office based procedures in a variety of surgical specialties and not specific to your left.
Third we continue to view the strength of our clinical data, including.
The lift pivotal trials and real World studies, as a differentiator versus other BPH treatment modalities on a driver of your lift adoption.
On next steps Teleflex will engage with key stakeholders during the public common period to reiterate the benefit of your lift for the treatment of.
BPH, we would hope that CMS recognizes the importance of maintaining patient access to safe effective and less invasive procedures, including your lift in lower cost settings, such as the physician's office.
We anticipate the final rules will be published during the fourth quarter of 2021.
Separately CMS published the proposed outpatient prospective payment system rates on July 19th these rates cover facility payments per unit in the hospital outpatient and ASC settings in.
In this case the proposed payments for unit increased by 3%.
Approximately for 2022 versus 2021.
Investors familiar with Teleflex will know that approximately 2 thirds of your lift revenues are generated in the ASC and outpatient settings.
Turning to the next slide on a clinical update for you on it.
On July 9th.
<unk> largest U S Medicare and commercial claims analysis of for BPH procedures was presented at the European Association of Urology meeting.
The study, which included reimbursement claims from 2015 to 2019 evaluated surgical re treatment on post operative.
Complications in June by patients, who underwent TARP greenlight laser rajiv resume and urologic procedures.
At 4 years after the index procedure surgical re treatment rates were comparable for euro lift TARP and greenlight laser and highest for resume.
Also.
Operating income at 300 days post treatment overall complication rates were lowest after Europe, while resume had the highest rates.
These statistically significant results demonstrate the efficacy of your lift as compared to other therapies for the treatment of BPH in real world settings.
Also we will continue to bolster our body of clinical evidence, which should help to sustain unit as the leading minimally invasive procedure to treat BPH and address a multibillion dollar global market opportunity.
Now I will provide some background on the respiratory divestiture.
Consistent with our strategy to drive durable growth and disciplined portfolio review process. We completed the initial phase of the divestiture of a significant portion of our respiratory products to Medline industries on June 28, the transaction generated 286 million and cash debt $12 million.
On working capital not transfer to Medline.
As noted previously the product lines that were divested generated $139 million on revenues in 2020.
Looking forward with the divestiture of the respiratory assets will improve our organic growth rate on margins over time and better positioned.
Our internal resource allocation and a focus on our key growth drivers.
That completes my prepared remarks, now I would like to turn the call over to Tom for a more detailed review of our second quarter financial results Tom.
Thanks, Liam and good morning, everyone.
Given the previous discussion.
Other companies revenue performance all.
Begin at the gross profit line.
For the second quarter adjusted gross margin totaled 59, 9% an increase of 600 basis points versus the prior year period.
The increase in gross margin was driven by product and regional mix.
And it fits from cost improvement initiatives.
Initiatives favorable impacts from pricing M&A and foreign exchange.
We offset by logistics and distribution expense.
Second quarter, adjusted operating margin was 28, 2% or a 640 basis points year over year increase.
Driven largely by the gross margin improvement.
<unk> as well as disciplined expense management, and partially offset by investment in the business.
With a revenue base, improving and operational efficiencies, we delivered a more typical 1% to 1 drop through from gross margin to operating margin during the second quarter.
For the quarter net interest expense totaled $15.9.
$9 million, an increase from $15.5 million in the prior year period.
As previously mentioned in the second quarter, we issued a notice of redemption to holders of our outstanding 400 million aggregate principal amount of $4.78 senior notes due in 2026.
The notes were redeemed.
On June 1.2021 and was funded using borrowings under our revolving credit agreement and cash on hand.
Our adjusted tax rate for the second quarter of 2021 was 14, 4%.
As compared to 15, 8% in the prior year period.
The year over year decrease in our adjusted tax rate.
Primarily due to geographic mix shift of profit.
On the larger benefit from stock based compensation as compared to the prior year period.
At the bottom line second quarter adjusted earnings per share increased 73, 6% to $3.35.
Included in this result.
The estimated favorable impact from foreign exchange of approximately <unk> 16.
Turning now to select balance sheet and cash flow highlights.
For the first half of 2021 cash flow from operations totaled $265 million as compared to $134 million in the prior year period.
<unk> is an extended a year over year increase of $131 million.
The increase was primarily attributable to favorable operating results.
Lower contingent consideration payments.
And lower payroll and benefit related payments, partially offset by unfavorable changes in working capital and higher tax payments.
And overall the balance sheet remains in good shape at the end of the second quarter, our cash balance was $361.8 million versus $375.9 million at the end of the fourth quarter of 2020.
We paid down $75 million on debt during the second quarter.
And net leverage at quarter end was approximately 2.5 times.
<unk> post quarter close we made a $259 million payment against our revolving credit facility using funds primarily generated from the initial close of the respiratory business divestiture.
Now moving on to 2021 guidance.
Starting with revenue, we are maintaining our constant currency revenue growth guidance.
For 2021 of between 8.5 and 9 and 3 quarters percentage year over year.
Of note the strength in the second quarter sales results have allowed us to offset the $28 million to $32 million revenue headwind in the back half of the year associated with the respiratory divestiture.
Which was not contemplate.
<unk> in our prior in our prior guidance.
As you contemplate your model adjustments no debt the divested respiratory products are in our other revenue category.
See the Investor Slide deck for historic revenues for the divested respiratory products.
Key contributors to our 2021 constant currency.
Fee revenue growth outlook are expected to be interventions, all urology, interventional surgical and anesthesia product offerings.
For interventional urology, there is no change to our expectations for at least 30% growth in 2021.
We continue to expect the acquisition of the Medica to add 60.
$70 million in sales in 2021.
Turning to currency, we expect foreign exchange rates will be a tailwind to reported revenue growth of approximately 2%.
As a result, we continue to expect our as reported revenue to increase between 10, 5 and 11 and 3 quarters percent over 2000.
On 'twenty.
And this would equate to a dollar range of between $2.84, and $2.85 billion.
Now for some commentary on our margin outlook.
We are increasing our adjusted gross margin guidance for 2021 to a range of between $59.2 5%.
<unk> and 50, 975%.
Representing a raise from our prior guidance of 100 basis points at the low end.
And 50 basis points at the high end.
We expect gross margin expansion to be driven primarily by a favorable mix of high margin products.
Including interventional urology interventional access and surgical.
<unk> as well as for manufacturing productivity improvement programs.
And benefits from previously announced footprint restructuring programs, partially offset by inflation.
There is no change to our expectation that the acquisition of XE Medica will add approximately 50 basis points of gross margin for 2021.
Yeah.
For adjusted operating margin, we are increasing our 2021 guidance to a range of between 26 and 3 quarters percent and 27, 5%.
Presenting arrays from our prior guidance of 75 basis points at the low end and 50 basis points at the high end.
The increase in adjusted operating margin will largely come from the.
Margin line and leverage.
Partially offset by the expected increase in spending in the second half of 2021, as we progress towards a more normalized environment as.
As well as incremental strategic investments and your lift and manta.
Moving down the P&L.
We now expect interest expense to be in the range of <unk> 60.
60% to $62 million for 2021 versus our previous guidance of $61 million to $63 million.
The decrease in interest expense largely reflects the reduction in debt funded by proceeds from the respiratory divestiture.
On taxes, we continue to expect our adjusted tax rate will be in the range of 13%.
<unk> and 13, 5%.
Considering all these elements we are raising our adjusted EPS outlook for 2021 to a range of $12.90.
The $13.10 debt.
That represents a 29% to 22, 8% year over year increase.
We are pleased to be able to increase our earnings per share guidance by <unk> 25.
While also covering the 10 to 15 <unk> of.
Of EPS dilution from the respiratory divestiture that was not reflected in our prior outlook.
And that concludes my prepared remarks, I would now like to turn the call back to Liam for closing commentary.
Thank you, Tom and clothing, I will highlight our 3 key takeaways from the quarter first we delivered a strong second quarter with top and bottom line performance that outpaced our expectations laid out on the Q1 call second we remain encouraged by our growth trajectory with the majority of our global product families.
Posted constant currency growth over the second quarter of 2019.
Third we maintained our revenue outlook on raised our adjusted margin and earnings per share guidance for 2021, despite headwinds associated with the respiratory divestiture that was not.
Contemplated in our prior guidance.
Families clothing, we feel good about our solid performance in the quarter on our future growth opportunities when considering the aerie third quarter close of the respiratory divestiture, our leverage reached 2.3 times, which places us in a positive position with respect to flexibility on our balance sheet, we will continue.
Meeting our commitments to 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.
Thank you.
Like to ask the question sticking on breadth.
Okay, all of whom keypad.
If you are using a speaker phone. Please make sure your mute function is there enough to allow your signal to reach our equipment.
We do ask the Covid.
David.
Great and 1 follow up.
Can I ask a question.
And I invite you to add yourself COVID-19.
By pressing star 1.
And your first.
Next question comes from the line of Matt Taylor.
Your line is open.
Good morning, Thank you for taking the question.
The first day I just wanted to ask you about.
The euro lift trends that youre seeing if you could.
Describe any trends during.
During the quarter.
Talk about your confidence to reiterate the guidance for euro lift through the year.
Any color on the cadence that we should expect for the rest of the.
Sure.
Alright, Matt absolutely and thanks for the question no we're.
We're not going to get into inter quarter details.
On this quarter as.
As outlined in his opening comments, but I will tell you that first of all we're really pleased with what we saw on your lift in Q2.
We are positively reaffirming our growth expectations at plus 30% per year on lift.
And we are really pleased with the growth in the quarter of nearly 130% and.
Larry actually quarter over quarter plus 26%.
Investors familiar with your lift would recall that Julie grew around 30% days adjusted in Q1 versus 2019 and in Q2 that growth versus 2019 actually accelerated to around 36%.
And we continue.
Sequentially, we expect the total dollar revenues per euro lift to continue to improve in Q3 over Q2 and Inc. And again in Q4 over Q3, so a good positive message on on your roadmap.
Thanks Liam.
Could you just comment on your overall thoughts on the reimbursement change.
Talk about your efforts there too.
Get a different outcome in the final.
And what would happen the.
The worst case scenarios.
And you do have these cuts in the office.
Yeah.
To be honest, Matt, we're looking forward to engaging with CMS to better understand what their objective baas and making such broad based reduction.
Continues to over 600 surgical procedures that are performed in the office setting it will be our goal is to demonstrate both the excellent clinical data that supports your lift on the health care economic stage, which is also very compelling I am sure. They will be attentive to the potential unintended consequence of some procedure.
Reduction being moved to higher costs of care settings, we believe that the timing of this change as it is being proposed maybe other advise at a time when most government bodies are trying to promote procedural return post COVID-19 and they're promoting that return to lower cost settings, where the patient also abused.
Seizures that lower cost setting as being a less risk setting of contacting COVID-19. So our plan is to engage with key stakeholders, including other device industry trade groups physician associations and paves patient advocacy groups.
Thank our strategy will depend on the final ruling math as to what decisions that we will take.
You are moving forward and we believe that CMS will listen given that there is such a broad comments going to land in regard to this particular Julie.
Yeah.
Sure.
Okay.
Morgan Stanley.
Line is open.
Hi, good morning, and thank you for taking the question Liam.
Continuing with yellow. So just curious can you talk about Asia.
You guys came on more or less during COVID-19.
All right you've seen from recent contributions as well any channel.
Kevin.
And then also just what youre expecting from DTC contribution in the back half weighted.
Yes. Thanks, <unk>. So regarding site of service about 30% of procedures are traditionally be done on the office with the remainder done outside of the office.
In the ASC and the hospital.
Yes.
As we went through Covid, which was the other part of your question. We saw a slight increase in office procedures and as we come out the other side of Covid, we see that normalizing again and getting back to that more normalized level.
With regard.
To the DTC sales.
Im really encouraged by the performance of DTC. So much so that we've actually increased the investment in it in the back half of the year. We had anticipated that we would have about 125% of the impressions in 2021 versus 2020 with this increased investment now we would think that it will be 150%.
<unk> plus the number of impressions that we're going to gain.
I was actually spent a week on the road with the sales team meeting urologist and I met over 20 urologists. All on this is on the anecdotal and I get that but all bar..1 neurologist was able to tell me that they have had people turn up into.
Whether it be a hospital ASC or an office referring.
Referring to the ads that they saw on television or hit them on Facebook and asking the urologist about year on that based on that so that is very encouraging and we continue to see it as an excellent return on our on our investment and therefore.
Our planning additional dollars in the back half of the year.
Okay. Thank you and then just on gross margins as well.
Second half could you comment on what.
What is in price.
2 conversion or OEM contributions as well as geographic mix. Thank.
So I'll just touch on the on the Euro lift and then I'll ask Tom to comment. So we anticipate the UL 2 conversion being completed by the end of 2022, we're in full ramp now as we go towards the back end of the year I am pleased to confirm that we still anticipate that we will pick up a full 4 percentage points of margin.
Margin from that conversion to the UL, 2 and and therefore that would add about 40 basis points to the total of teleflex. So you'll begin to see some of the conversion as we go through the back end of the year, so sales, but you'll see the majority of that come through in 2022, and Tom might answer some of the cadence of gross margins. If you don't mind Tom.
Sure well I think there is some question about OEM.
Other geographies so.
As we look at the OEM business, we had a soft first quarter with a nice recovery in the second quarter. So we really saw improving trends there as.
<unk> began seeing improvements in procedures and began ordering again.
We expect that to continue through the balance of the year.
Then in terms of the various geographies as we said all along our expectation was that.
That the North American <unk>.
Region would recover first part of the Americas will recover first followed by Asia and it made it and that's still kind of playing out.
As expected so we expect.
All regions continued to show improvement in the back half of the year relative to the first but.
But perhaps the Americas, a little bit stronger than than some of the others.
And then in terms of the overall gross margin I'd say that.
Overall, we're really encouraged by what we've seen in the first half of the year, allowing.
Allowing us to take the guidance up.
At the upper end of the guidance range, we're at 59 and 3 quarters, which is slightly ahead of where we were for the first half of the year. So we are really encouraged by what we're seeing and we're cautiously optimistic about about the back half.
And we have a question from <unk> Singh with restaurant Group. Your line is open.
Great. Thank you so much for taking my question I guess, the first 1 does not care on a clean placement could.
Could you talk about the potential Steven on the office Street and it does appear that Jake.
On the go into effect, but it may be phased in over.
Oh, that's what she said your expectation and secondly, what impact do you expect this to have on procedures in the office setting and their ability to you know.
To more profitable settings overtime, and then even with respect.
Payment cuts in the <unk> setting I believe it's about 6% inhibition to the cuts on in the office.
Setting you know what impact do you expect that to have on utilization in those settings, and then I have a follow up.
Okay sugar so well.
We're really focused on what we can control right now so we're expecting that we'll spend a lot of time working with key stakeholders in this comment period.
Start second guessing the results to be honest share gun, because depending on the outcome of the final ruling that would depend on 1 strategy. We're going to continue to work with CMS some of our our industry bodies on a patient advocacy organizations and obviously there are conditions themselves putting through comments to CMS.
In regards to this reimbursement with regard to the site of service I mean, there is a certain amount of flexibility there for physicians and many of the urologists would have.
Part of their workload would be in an office environment patent on ASC and it's not uncommon for even prior to be in a hospital. So.
I wanted to give the physician the certain amount of flexibility.
I believe that CMS will be open to the comment period on I believe that they will listen to what all of these individuals have to say with regard to this.
With regard to the ASC and the hospital reimbursement.
And we were very encouraged by that overall is a 3% increase again this will come into effect on January of 2022 should go on so absolutely no impact on anybody on through the ended the year and again it was broad based so there are 600 procedures that are impacted by this should go on so you can imagine there's going to be a significant amount of comments during that.
First on the period and you had a second question should go on I believe.
Yes. So so thank you for that so just with respect to Q3 in the second half of 2021. Other just wondering if you could talk us through the guidance. It does appear that sales are difficult, but it all Q.
2 levels.
P. S is just modestly up so you know what day of.
Thoughts on Greg.
Consensus Garner G standard, especially with respect to euro debt I think last I checked.
Consensus was looking for about 100 sites.
Yes. So can you just kind of playing out as we expected sugar on the recoveries being led by the Americas and Asia and Europe are lagging so I'll start.
All teleflex, so COVID-19 has not gone away and we're monitoring.
The situation very closely.
For what it's worth will add my voice of encouragement for people to please get vaccinated.
The key here is getting people vaccinated, because the second or third or fourth wave wherever we're on now.
It is not impacting those that are vaccinated and not impacting geographies where people have vaccinated. So we remain cautiously optimistic and were very encouraged by the trends that we saw from Q1 to Q2, and we expect the stability of Q2 to continue and that has given us the confidence to maintain our full year revenue.
New guidance, despite the respiratory divestiture headwind in any other language that would be seen as a call up of between 28 and $32 million on the revenue on obviously, a significant call up on our EPS as well so for all.
Overall telecom telephone when I expect our growth to accelerate in the back half of the year versus the first half.
We grew 8.6.
Constant currency in the first half of the year. If you take the midpoint of our revenue guidance range inclusive of the 1.6% divestiture headwind that would imply acceleration in the second half to 9.6% inclusive of that if you exclude the divestiture headwind, it's about 11, 2% in the back half.
Percentage of 8.6 so full year, we have effectively as debt raised our revenue guidance on a strong EPS on this is the second quarter again as investors will know that we have raised both our revenue and EPS with regard to euro debt as I said, a few moments ago I expect the absolute dollar values of your lift.
Versus Q3 versus Q2 and again in Q4 versus Q3 in that regard. So thank you for the questions you're going on.
We have a question from Matthew O'brien with Piper.
Your line is.
Good morning, Thanks for taking the question.
Daryl as well so forgive all the questions here, but.
Liam.
Kozol for down to roughly 20% into divisions offer that you talked about if at all.
Ends up being down 10% in the final rule would you have to cut your price and by how much in that setting and then do you think clinicians will start to deploy.
Let's take on Staples per case.
Our debt situation.
So it would have no impact on the number of staples mass because the 2 cohorts 1 is for for Staples on the other Dennis for all additional staples thereafter.
So it wouldn't and the cuts have been defined across the.
Board on all of the different categories I think that we will assess.
What we will do once we get the final ruling obviously.
A 10% reduction is a lot less draconian than than a 20% reduction.
But 1 would imagine that.
Common sense will prevail.
If you look at what CMS did in the prior ruling they added a COVID-19 impact of about 3.5%.
And speaking with the members of the key associations their expectation was that that would be removed in this ruling.
Nothing more than that so we'll.
We'll see how it plays out, but I don't see it having a significant impact on us having to make all any changes to our overall pricing structure, because we have strength in all care settings in the ASC and the office in the hospital and in all of those areas. So we probably have an advantage with a certain.
Flexibility, Matt that other companies don't.
Got it very helpful. And then the follow up is on.
On the competitive side of things I would just love to get your view on surgical robots for BPH and the pros and cons of that is that an area that you think you need to eventually.
Have a presence in.
The amount of debt is 1 out there is the prospect for robot out there Matt.
It is getting some utilizations robots are seen as being somewhat sexy right now, but it's really treating TARP.
And what we hear on the feedback is it requires a secondary procedure because it doesn't use heat is.
Actually use the jet of water and when you use water. It doesn't coagulate because you don't have any heat to stop the bleeding. So therefore it requires a second procedure by the surgeon to go and afterwards and stop the bleeding and.
In a recent podium speech that was raised by a number of urologists on their end in there.
With all trial there were a number of patients that have had blood transfusions, where there were issues with excessive bleeding. So I think it's.
Don't see it as really a treatment for BPH on the technology Thats going to.
That's going to impact on euro lift.
Our clinical data is.
Pick solid at all.
As the minimally invasive procedure no catheter no sexual dysfunction.
And we have.
A large large bolus of training physicians.
Our rolling out your lift so we're aware of it matched but I don't see it as a need for us to get into robot.
Rocks would be the direct answer to your question Greg.
Great. Thank you very much thanks, Matt.
Okay.
Okay.
All right.
Yes, thanks for taking my questions.
I.
But everyone on the euro with reimbursement. So I think you said around 30% of the procedures were being done in the office setting. So I guess, what I was wondering is.
What was the growth in that setting I mean is that a bigger contributor to growth or has that kind of growing in line with the rest of.
The business.
So thanks for the question, Mike So it's been growing in line with the rest of the business.
Coal, but there was a little bit of a shift to more procedures to the office, but thats the only impact that you should take into.
Consideration, but very much in line with our other sites of service in the business.
Okay. So it's not like the reimbursement.
I have another all was creating some <unk>.
<unk> incentive to do more procedures in that Saturday night, or something like that right now.
No.
It was profitable on all sites of service and other said earlier, that's an advantage that we have overall most every other treatment modality, we have flexibility, whereas other stone and again, it's 30% of the procedures.
While approximately 70% all of those all of that 30% Mike is Medicare Medicaid.
Okay got it and then my second question would just be on pricing I don't know if you've quantified the pricing benefit, but I guess just.
Stepping back in terms of pricing just given what's happening in the broader economy.
And with inflation and things like that do you think its getting any maybe any easier.
To get some pricing increases.
With your products.
So Mike I've been doing this a long time and I can tell you I can count on no no hands no fingers north towards the amount of times, a customer calling me up on ask me for a price increase.
So it's a it's a tough environment always looking for pricing, but as I said on the last earnings call. We got out ahead of this early we anticipated that there might be some movement in price momentum and we had about 20 basis points.
<unk> pricing in Q1 that actually accelerated in Q2, we took.
In addition to the opportunities in Q2, and we continue to view that very closely on the other side of the ledger on the inflation side, we feel we have that very much under control.
Within our in particular in our global supply chain.
Any inflation that we saw we saw it begin last year in.
Some of it didn't transportation so that was already in our run rate and we saw some modest inflation in some of our resins, but it was pretty it's very manageable and we're going to more than offset with really positive pricing and building momentum in the quarter with a positive pricing.
Okay, great. Thanks.
Thanks, Mike.
Okay.
Hi.
Great. Thanks, and I wanted to say congratulations to Larry on the new role with the company.
Couple of questions.
Yeah, 1 Liam is just the overall procedure backlog sort of environment a lot of chatter on that this earning season, certainly hard to quantify but as you look across the portfolios.
Is there any way to sort of view.
How much deferred procedure backlog is still out there and perhaps.
Which segments would benefit most into the back end of the year and I'll have 1 follow up.
So Anthony Thank you for acknowledging Larry we're happy to have him on.
On the Teleflex ship regarding the backlog, it's hard for us to quantify it too in all transparency there.
There has to be a backlog of procedures out there because.
<unk> for almost a year there were very few procedures done.
I think that any backlog of procedures.
We will be dependent on site of service and customer confidence in coming back. So therefore again back to the CMS decision that I mentioned.
This would not be I think the most appropriate time to make that change.
Talking about because patients themselves see an office or an ASC environment is a much safer place to go and get a procedure done and it's a lower cost site of service for the person getting them, but I would imagine that there has to be backlog in particular in our Europe business. There has to be a backlog on our surgical business and there has to be a backlog on.
The <unk> business, it's hard for us to map it out I don't think we've seen much of it yet Anthony come through the system because there just isn't that additional capacity in the hospitals on they're probably going to do some of those more acute procedures force and we're not ex.
Banking data.
In any significant backlog into our.
Thinking in the back half of the year I can tell you.
Okay, and then the follow up would be on.
On euro lift and I'm, just going to sneak 1 in a month or so on euro lift can you just level set on.
How many procedures you Act.
The users are doing on a monthly basis and the average number of implants.
On our interest rates still.
$4.5 implants, and then Montana that was a breakout Q yeah, just some color on it.
Net new center, you should share gain or or just kind of a rebound from from backlog. Thanks again.
Yes, so I'll start with the euro and if so the euro.
Assuming the average is still about $4.5 implants and as we recover out of Covid, we're just around that that 4.
Procedures per average urologist.
With regards to.
<unk>.
Continue to see Manta grow it had an outstanding.
Quarter on the areas that we're seeing manta procedures come in as part sales predominantly in that type of area about 84% of them were in Tyler in that quarter consistent with Q1 on 11% in the var and a modest 4 ish percent in P that so.
We continue to train physicians were penetrating more accounts and it is 1 of the areas Anthony that we're going to put some investment in in the back half of the year, because we want to actually train more intervention on us and we see this as an as future catalysts for teleflex growth.
<unk>.
With sustainable growth for a company like Teleflex and you should expect to see us put more feet on the street and doing more additional training and bring more talks on at a faster pace.
Okay.
Well hear next from Richard Xu from gasoline.
SBB Leerink your line is open.
Hi, Thanks for taking the question I just had.
A couple more here on your lift all I know, it's got a lot of attention but.
I think it's important.
The first 1 is on price what are your options Liam.
To price differentiate by care setting.
So I had 2.
Just is there a way to use rebates.
Where you can keep pricing in 1 setting at 1 level and then.
If you needed to keep the doctor whole should there be a cut.
And then I have a follow up.
Average, obviously was despite in Australia, our pricing strategy once we get the final ruling.
Thank you for your question, Yes, we have flexibility based on site of service on based on the individual contracts that are in existence. So that flexibility remains with us as you know we are not a price reducing company.
Never has been and it is not on our intention to be that it is our expectation.
Vacation that we will maintain our overall average selling price.
For all of our product categories, but we do have a certain amount of flexibility to answer your question directly.
That's helpful and then.
2 quick ones here so.
On the third quarter commentary, especially with respect to your OLED filter it answered the total company.
Company as well.
If you look at the Euro lift ramp the consensus is that I think someone mentioned $100 million to $304 million sequential improvement off of 92.
It leaves a wide range between the possibilities of where consensus is and what that could mean.
Yes, I think it would be helpful for investors to just.
Give a standard relative to the consensus is it is it just right.
<unk> little too aggressive for the ramp I think any color there would be helpful and then.
While I have you just on Japan.
Is there any Japan contribution assumed in that 30% for the back half of the year, what's the definition of model.
And how do we think about a year 1 kind of contribution case for Japan, when when and if you get approval for reimbursement. Thanks John.
Let me start on.
Rich because I'm not going to comment on consensus.
So on Japan.
Modest means modest rich we have a.
Modest a very modest amount of dollars.
In the quarter for <unk>.
Number 4 for your lift.
It's a $2 billion market the only predicate we have for a ramp it's what happened in the United States and think.
And this is about a third of the size of the United States market on what happened in the U S and the very first year, we did buy them we did 16.
Then we hit 50 on once you had built that base of $50 million then it accelerated to over 100 million than 203 hundred and so on so forth now Japan.
Of Japan has an advantage in that it's a single payer market. So once we get reimbursement we can sell it at all sites of service.
It also.
A conservative market, we've already identified the 20 top key opinion leaders in order to start driving adoption and the way. It works there it's quite hierarchy all once.
You get those key opinion leaders you get them training speaking on the podium then it will start to trickle down to the other urology practice, we will start in the tertiary hospitals that debt.
Our key thought leaders and build it out from there and we gave a lot more detail on the size of the different markets in Japan and other geographies that we're intending.
Intending on on attacking.
Once we get to on Investor Day later in the year I will say that we will be in Japan.
Before any of our competitors will get there well ahead of America in regards to that and we also believe we would be in the China market well ahead of any of our following competitors. So we have time to build.
America make this the standard of care. That's also an advantage compared to the U S. Because as you know are both competing technologies resume and euro debt. We're in the market around the same time actually resume was probably there just a little bit before.
And back to the Europe, rather than talking about the consensus I will just reiterate what I said earlier Richard.
We expect sequential improvement in absolute dollars in Q3 over Q2 and in Q4 over Q3.
Okay.
John.
John.
Good day.
Yes.
Great. Thank you for taking the questions.
We have just a bigger picture question what is your sense of why CMS kind of made these changes specifically to it.
On the physician on Opex.
And then how many how feasible is it for.
30 percentage.
The procedure you're talking about.
Switched from a business.
North of 2 in Asia.
So I think Matt that don't ever forget that first of all urologists Julie of carriers to the patient.
And they will do the right thing by the patients.
And give the best procedures of that patient. So I think the 1 thing to make note of is that your lift is a minimum.
Physician base a procedure in center leaf no sexual dysfunction, very no side effects and the patients will not have to.
To wear a catheter in the event that debt.
They.
Once they have the procedure. So we made it on an easy decision for the clinician to actually pick your.
Generally over any other technology and that's why we are the dominant player.
In the space.
With regards to ship site of service.
I don't think we are.
Once we get the final im hopeful that once we get the final ruling that that may become a mute point as to shifting site of service.
We're on 1 area to another.
In that regard and I think thats the.
The motivation behind CMS is difficult for me to ascertain at this stage to all.
All of the transparency.
But we will engage with them and as we.
And with them.
We will obviously listen to what they have to say and Thats, what I said earlier on we need to understand what their motivation was because it is not clear to us at this stage what drove this change on 600 surgical procedures performed in an office.
Sure sure fair enough.
And for.
Tom just on the margin profile.
Yes.
That's.
Effectively on major change first half versus kind of what we were thinking are you managing costs effectively here is it mix or is this is this structural improvement towards your previous Blake.
Long term targets.
On higher sales.
So I would say.
We think about the margin improvement in the guidance I think that's what you're asking is what's driving that is that yes, we obviously are managing.
Expenses and costs, but I would say that.
Really what we saw.
<unk> is very very nice.
I would say manufacturing efficiency throughout the first half of the year with expectation that that will continue into the back half of the year.
We are also seeing a lot of the businesses recover.
From their COVID-19 kind of depressed levels.
And those businesses debt recovered well, our some of our higher margin brands. So we saw our surgical our interventional interventional urology all.
Move upwards in terms of their recovery and that helped drive the margin as well.
Think about you know just kind of a first half second half we do expect in the.
Second half of the year that there will be incremental expense associated with.
Running the business as we continue to see our business and really the industry return to more of a normalized state we expect our people to be on traveling more or we expect to resume hiring etcetera and so we will see some additional operating.
Operating expenses in the second half of the year relative to the first half and we also have some investment as we mentioned we put some investment into the plan that's incremental.
To what we previously had.
What's behind your lift as well as manta.
I would say that overall, we're really encouraged by the gross margin and where that's going.
And then.
Based on the success in the first half of the year it affords us the opportunity to put little more investment in the back half.
Hmm.
All right.
Hum.
Thank you on Dexter and thank you to everyone that joined us on the call today.
We appreciate it. This concludes the Teleflex incorporated second quarter 2021 earnings conference call have a good day.
Yeah.
Yeah.
Okay.
Yeah.
[noise].
Okay.
Yes.
Okay.
Yeah.
Okay.
[music].
All right.
Good day.
All right.
Okay.
Net interest.
Okay.