Q3 2021 Teleflex Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the Teleflex third 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.
Please note that this conference call is being recorded and will be available on the company's website for replay shortly.
And now I will turn the call over to Mr. Lawrence.
Vice President of Investor Relations and strategy development.
Everyone and welcome to the Teleflex incorporated third quarter 2021 earnings Conference call. The press release and slides to accompany this call are available on our website at Teleflex Dot Com as a reminder, this call will be available on our website and a replay will be available by dialing.
805, 858367 or for international calls for 166214642, using the pass code 407982 to 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'll open the call to Q&A before we begin I'd like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in.
Our slides we wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially the factors that could cause actual results or events to differ materially include but are not limited to factor.
As referenced in our press release today as well as our filings with the SEC, including our Form 10-K, which can be accessed on our website. During this conference call you will hear management make statements regarding intra quarter business performance management is providing this commentary to provide the investment community.
<unk> with additional insights concerning trends and these disclosures may not occur in subsequent quarters 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 for the third quarter Teleflex generated double digit constant currency.
Revenue and 27% adjusted earnings per share growth on a year over year basis, Despite a greater than expected headwind from increased COVID-19 infections due to the Delta variant all of our global product families grew on a constant currency basis year over.
A year with the exception of our other category due to the divestiture of the respiratory assets to Medline, although we encountered a change in macro trends versus expectations at the time of the second quarter. The solid performance for teleflex during the third quarter of 2021 reflects the.
The diversified nature of our business and the benefits of the company's broad portfolio of medically necessary products and category leadership.
Our six primary product families and broad global footprint helped offset pressure on product revenues associated with elective surgery that were subject to pauses during the third quarter.
As many investors would be aware there were restrictions on elective surgical procedures in as many as 28 states during the third quarter. However, as we have seen since the pandemic began our broad based portfolio provides a hedge in periods of increased COVID-19 activity.
With more than 60% of our business either benefiting from increased COVID-19 related treatments or remaining relatively insulate us from disruptions due to the pandemic, although we do not routinely provide intra quarter commentary.
Given the larger than expected surge in COVID-19 infections from the Delta variant I will share some details for the third quarter relative to guidance provided at the time of our Q2 earnings report, we saw greater than anticipated pause in elective surgical procedures across select geography.
Fees in the U S Europe and Asia, However, as COVID-19 infections trended down we saw our average daily sales for products most exposed to elective surgical procedures begin to improve as we progressed through September.
During the third quarter, our Americas, EMEA Asia, and OEM segments demonstrated resilience with all regions showing constant currency revenue growth over 2020, despite the headwinds from the Delta variant as I mentioned earlier this underscores the benefit.
Of our diversified product portfolio for the third quarter gross and operating margins exceeded levels achieved in 2020 and 2019 in comparable periods. Our continued progress in margin expansion in 2021 has allowed us to increase directed investments towards <unk>.
Growth drivers, which is an important component of our long term strategy to enhance durable growth as we look to close out the year, we anticipate some modest improvement through the fourth quarter as compared to the third quarter, but acknowledge that the macro environment is not yet where we had expected it.
Would be at the start of the year.
We remain cognizant of the uncertainty around COVID-19 infections as the weather turns colder in the northern hemisphere, new variance and health care worker shortages.
Accordingly, we believe that it is prudent to assume that COVID-19 will remain a headwind and that our broad based return to elective surgical procedures to normal volumes is unlikely during the fourth quarter. We anticipate these elements to be transitory in nature, and we expect a more nor.
<unk> environment to be established in 2022 given our year to date results and outlook for the fourth quarter, we are reducing our constant currency revenue growth to a range of 8% to 9% from eight 5% to 975% previously.
Revision and the constant currency growth outlook is primarily driven by lower growth expectations for products used in elective surgical procedures.
However, given the strength in our operating margin performance and improvements in our balance sheet. We are increasing earnings per share guidance to a range of $13 15 to $13 35 versus our previous range of $12.90 to <unk>.
<unk> in dollars and 10 cents, implying growth of 23% to 25% year over year, turning to a more detailed review of our third quarter results.
Third quarter revenue was $703 million, an increase of 10, 3% year over year on a constant currency basis.
The year over year increase reflects the benefit of our diversified portfolio and was driven by contributions from all business segments offset by the impact of COVID-19, and the divestiture of the respiratory assets to Medline in comparison to the comparable period in 2019 third.
Quarter revenue increased five 8% and demonstrates is accelerating quarter over quarter growth in our vascular OEM and anesthesia businesses, which offset sequential deceleration in areas of the business is more exposed to the surge in COVID-19, including interventional urology.
Intervention, though and surgical.
Third quarter gross and operating margin performance exceeded our expectations, reflecting the strength of our diversified portfolio, partially offset by greater than anticipated headwinds from COVID-19, our year to date margin performance is an encouraging sign for our longer term profitability objectives.
Third quarter adjusted earnings per share of $3.51.
Increased 26, 7% year over year and exceeded our internal expectations, despite higher than anticipated headwinds from COVID-19 on our adjusted earnings per share results in the third quarter the year over year performance reflects growth in our diversified product portfolio modest price increases.
Gross margin expansion and better than expected operating expense management, we continue to execute on our strategy to deliver durable growth with investment in organic growth opportunities product innovation margin expansion and deployment of capital for deleveraging our balance sheet.
And M&A I am proud of how the team continued to execute in a challenging environment.
Our third quarter financial performance demonstrates the resilience of our diversified global product portfolio, our targeted investment in growth drivers, including euro lift on manta, while also reflecting progress towards our longer term margin aspirations, turning now to a deeper look at revenue results.
We'll begin with a review of our reportable segment revenues all growth rates that I refer to are on a constant currency basis, unless otherwise noted.
America's revenues were $417 $3 million in the third quarter, which represents 10, 9% growth year over year.
Contributors to the year over year growth, where surgical vascular and interventional.
Partially offset by the impact of pause in elective surgical procedures EMEA revenues of $143 $9 million increased three 6% year over year with interventional vascular products, leading the growth EMEA benefited from a favorable COVID-19 related compare.
Arizona due to improve procedure volumes year over year as countries across the region continued to open up despite disruptions related to COVID-19.
Turning to Asia.
Revenues were $75 million, increasing six 3% year over year.
<unk> was strong in the third quarter growing north of 30%, but it was partially offset by the impact of COVID-19 in southeast Asia.
Let's now move to a discussion of our third quarter revenues by global product category.
System with my prior comments regarding our reportable segments commentary on global product category growth will also be on a constant currency basis and ranked by size of our business units.
As a reminder, there were no meaningful differences in year over year selling days in the third quarter.
Parting with vascular access third quarter revenue increased eight 5% to $175 $5 million.
Our category leadership in central venous catheters, and mid lines, along with our novel coded pick portfolio continues to position us for dependable growth our vascular access portfolio remains important in the treatment of COVID-19 patients driving strength in the third quarter due to increased rates.
Corona virus infections.
<unk> portfolio continues to perform well with 10% growth year over year, we continue to invest behind our differentiated pic portfolio and are taking market share.
Interosseous was also solid in the third quarter with growth up 12% year over year move.
Moving to intervention.
Third quarter revenue was $104 $3 million up 10, 4% year over year, we executed well during the third quarter, although increased COVID-19 infections slowed complex PCI and type of our procedures.
We continue to invest behind our intervention portfolio, including complex catheters and manta, our large bore closure device manta momentum remained strong both in the U S and in international markets with over 80% global growth year over year in the third quarter.
The year to date performance for Manta, we are confident in our ability to achieve 8% share in 2021 of the 200 to 300 million global market opportunity turning now to anesthesia third quarter revenue was $97 $1 million up 26.
6% year over year.
Products from Zee medical contributed roughly 85% of the growth as the business continues to track to our $60 million to $70 million revenue expectations for 2021, partly offset by lower sales of tricky ostomy products in our surgical business revenue was $92 eight.
Dollars, representing 10, 9% growth year over year.
Among our largest product categories, we witness robust growth in sales of our ligation clips and instruments as the elective surgical procedure environment was stronger than in the prior year period, partially offset by the impact of the Delta variant in select geographies for interventional urology third quarter.
Revenue was $83 $1 million, an increase of one 5% year over year and below our expectations at the time of the quarter two conference call.
The quarter was impacted by elective surgery cancellations due to stage restrictions and ICU capacity limitations as Delta variant infections rose sharply in certain regions of the U S. As well as continued business disruption associated with the pandemic.
We are closely monitoring trends in our your lift business importantly, our analysis of commercial and Medicare billing claims over the past six months indicates that your lift has not lost market share to competing minimally invasive treatment for BPH and remains the leading procedure.
We continue to see COVID-19, as having the most significant impact on euro that utilization with physician office staffing shortages also disrupting the business we see both of these impacts as transitory in nature.
A more normalized environment in 2022.
Preference for your lift continues to be driven by strong clinical results, which studies showing rapid symptom relief and recovery no new sustained sexual dysfunction and durable results. Indeed, our analysis shows that very few of our experienced users or other technologies.
For the treatment of BPH given their confidence in euro lift the euro lift system remains distinct from other device based BPH treatments and we intend to maintain our leading market position in day surgery treatments for this condition.
We continue to target patients that are suffering from BPH and have either failed or are not satisfied with drug therapy.
Population that is estimated to be one 5 million men in the United States.
As we look towards the fourth quarter of 2021.
We aren't assuming a relatively stable macro environment as compared to our September trends, given lingering COVID-19 headwinds for elective surgical procedures when.
When taking into account the softer than expected your lift revenues during the third quarter and a recalibration of the fourth quarter.
We are reducing our 2021 interventional urology revenue growth guidance to 15% to 17% year over year, we would anticipate a more normal environment for elective surgical procedures to emerge during 2022.
We remain encouraged by the physician engagement as measured by our active users.
New physician training and the ability to perform your lift procedures in all relevant care settings.
Our OEM business, which accounts for roughly 9% of total sales.
Increased 29, 4% year over year to $64 $1 million in the third quarter, we continued to see strength in our OEM business as customer ordering normalizes, and we remain well positioned in our markets with customers valuing our design and manufacturing capabilities.
And finally, our other category, which consists of respiratory products that were not included in the divestiture to Medline manufacturing service agreement revenues and urology care products declined by four 3% to $83 $4 million year over year decline largely reflects the loss.
Revenue due to the divestiture of the respiratory products, partially offset by manufacturing service agreement revenues and growth in urology care.
We continue to expect manufacturing service agreement revenues to phase out at the end of 'twenty two 'twenty three that completes my comments on the third quarter revenue performance.
Turning to some commercial updates on starting with your lift.
In the third quarter, we trained 124 urologists.
Interest in your lift remained strong and with over 355 doctors trained in the year to date, we remain positioned to meet our training targets of 450 to 500 urologists in 2021.
Turning to our consumer marketing efforts, we continue to view direct to consumer as a multiyear catalyst for your lift in the United States.
We have continued to fund our DTC campaign to prime the pump for the recovery in elective procedures.
I'm going to keep investing in the fourth quarter. We recently won a bronze award for best New branded TV campaign from DTC perspective, which is a meaningful accomplishment given 13 finalist search interest for your lift remains high and well above other minimally invasive BPH treatments with the majority of urologists.
<unk> continuing to report patients asking for your lift system moving to your lift too we remain on a full rollout in the United States, We formally launched the product as well as the euro lift ATC to the broad urology community at the <unk> meeting in September we are well positioned to convert them.
Georgia physician customers to your lift too by the end of 2022 fueled by advantages and tissue compression reduced storage space and increased manufacturing capacity. Your lift too remains an important margin driver as we remain positioned to generate four.
100 basis points of your lift gross margin expansion as the revenue base is fully converted.
Regarding Japan, we continue to make progress towards an upcoming commercial launch for Europe.
Recently, the three major Japanese urology societies agreed on guidelines for Euro lift usage, which is a positive development.
As for reimbursement approval, we remain highly engaged with the M. H L. W. And has been officially notified that euro lift will be reviewed at an expert panel in November.
Although we cannot control the timing of the regulatory pathway.
Panel confirmation is an important milestone towards reimbursement in Japan, marking one of the final steps in the process.
There is no change to our baseline assumptions that our commercial ramp will begin in 2022.
<unk> remains an important long term opportunity per euro lift with a $2 billion Tam.
And we are excited for our upcoming launch.
We continue to expect our sales in the region to ramp in a similar fashion to the U S. In a market that is one third the size.
Aside from Japan, our international regulatory and commercialization efforts for your lift remain active on another positive note. We are excited about our initial commercial activity in Brazil.
Although we had been expecting to enter Brazil in late 2022, we have been able to sharpen our timeline with a limited market release late in the third quarter of 2021, we have made good progress with select key opinion leader training.
And initial your lift cases have already been performed in the hospital and office setting.
Although it is early and the market will take some time to develop Brazil remains an important geography and our expansion of your lift outside of the United States and we are quite encouraged by the early experience on the U S reimbursement front and as a reminder, CMS published its proposed physician fee schedule.
For calendar 2022 on July 13th 2021.
Opposed rule would negatively impact reimbursement for roughly 600 procedures performed in the doctor's office across a broad range of surgical specialties with a disproportionate hit to device heavy procedures, such as Europe's teleflex provided a detailed response to CMS during the public comment.
<unk> regarding our position on the proposed rule, we believe that the changes to the physician fee schedule.
Would limit health care access for Medicare patients and shift procedures to more costly sites of service.
Teleflex, along with numerous other stakeholders have urge CMS to postpone the implementation of the proposed physician fee schedule until additional analysis can be performed given the unintended consequences of the current proposed rule, we anticipate that the final rule will be published in November.
<unk> consistent with historic timing.
Turning to vascular.
We are pleased with the performance of our recently launched.
So ergo Pac kit, which contributed over $5 million in revenue during the third quarter. Among other improvements the new kit configuration for our CVC catheters as a nightmare Guidewire, which is kink resistance and then enhancement the clinicians find beneficial.
Given our leading market share and CVC.
Launch is a trade up strategy that drives incremental gross profit dollars and helps sustain our dominant market leadership position and CVC lastly.
Lastly, on our acquisition of Zee medical which was completed in December of 2020.
The integration of the Medicaid continues to track slightly ahead of our internal milestones and.
We are pleased with the progress we are making.
Regarding potential label expansion opportunities for the hemostat portfolio, we have completed patient enrollment in our 231 patient <unk> study.
<unk> the performance.
Ric Clark control, plus hemostatic devices for mild to moderate bleeding in cardiac procedures as compared to standard goes we intend to file a five 10-K for expanded use a quick cost controls plus following the completion of the study.
That completes my prepared remarks, now I would like to turn the call over to Tom for a more detailed review of our third quarter financial results, Tom Thanks, Liam and good morning, everyone.
Given the previous discussion of the company's revenue performance I'll begin at the gross profit line.
For the third quarter adjusted gross margin totaled 59, 5%, a 230 basis point increase versus the prior year period.
The year over year increase in gross margin was driven by product and regional mix.
It fits from cost improvement initiatives.
Favorable impacts from pricing.
M&A and foreign exchange, partly offset by raw material and distribution inflation third quarter. Adjusted operating margin was 28, 5% or 340 basis point year over year increase driven by the gross margin improvement as well as disciplined expense management and partially offset by.
Planned investment in the business.
For the quarter.
Net interest expense totaled $11 8 million a decrease from $16 4 million in the prior year period.
The year over year decrease in net interest expense reflects savings from the redemption of the 2026 notes and also includes the impact of debt pay down using the proceeds of the respiratory divestiture and operating cash flows.
Our adjusted tax rate for the third quarter of 2021 was 11, 3% as.
Compared to 7% in the prior year period.
The year over year increase in our adjusted tax rate is primarily due to a lower benefit from stock based compensation compared to the prior year period.
At the bottom line third quarter adjusted earnings per share increased 26, 7% to $3 51.
Included in this result is an estimated favorable impact from foreign exchange of approximately <unk> 13 per share versus prior year, turning to select balance sheet and cash flow highlights year to date cash flow from operations totaled $455 million compared to $241 5 million.
In the prior year period.
And represented a year over year increase of $209 million. The increase was primarily attributable to favorable operating results lower contingent consideration payments.
Payroll and benefit related payments and proceeds received under the manufacturing supply agreement with Medline.
Moving to the balance sheet.
Our financial position remains sound.
At the end of the third quarter 2021, our cash balance was $481 2 million versus $375 9 million at the end of the fourth quarter of 2020.
As noted previously we made a $259 million payment in July against our revolving credit facility using funds primarily generated from the initial close of the respiratory business divestiture at the end of the third quarter, we had $342 million drawn on our revolver and net leverage was approximately two times.
Now moving onto our 2021 guidance update.
With revenue we are adjusting our 2000 2021 constant currency revenue growth guidance to a range of 8% to 9% year over year compared to eight 5% to nine and three quarters percent previously the revised outlook reflects the benefits of our diversified portfolio.
Offset by lower Euro lift revenues.
Due to the recovery in elective surgical procedures progressing at a slower rate than what our prior 2021 financial guidance had assumed.
Turning to currency.
Continue to assume a 2% tailwind to reported revenue from foreign exchange rates in 2021.
Which is unchanged from our previous assumption.
As a result, we are reducing our as reported revenue growth guidance to 10% to 11% year over year versus 10, 5% to 11 and three quarters percent previously.
The updated guidance would equate to a dollar range of between $2 791, and $2 eight $1 6 billion.
Now for some commentary on our margin outlook.
We are lowering the top end of our 2021 adjusted gross margin guidance by 25 basis points to a range of between 59 in the quarter and 59, 5%.
On a year over year basis, we expect gross margin expansion to be driven primarily by a favorable mix of high margin products, including interventional urology interventional access and surgical.
As well as from manufacturing productivity improvement programs and benefits from previously announced footprint restructuring programs.
Partially offset by inflation.
Relative to our prior guidance the revised outlook is associated with lower year lift revenues and the impact of higher inflation than previously assumed there is no change to our expectation that <unk> will add approximately 50 basis points to gross margin for 2021.
On the topic of inflation, we continue to experience increased cost pressures in raw materials freight and to a lesser extent labor.
Additionally, at the end of 2020, we had entered into contracts for sea freight lanes in order to lock in pricing at that time.
The majority of those contracts expired at the end of September with the remainder expiring at the end of the year as a result of the expiring shipping contracts and increasing inflation. We now estimate that we have inflationary costs will be roughly $3 million higher than the fourth quarter than what was incurred in the third quarter.
This impact is reflected in our revised guidance for gross margins for adjusted operating margin. We are increasing our 202021 guidance range to 27, 5% to 28%.
Representing an increase of 75 basis points at the low end and 50 basis points at the high end of the range versus prior guidance.
The increase in adjusted operating margin reflects the year to date performance, partially offset by the lower gross margin outlook.
Moving down the P&L.
We now expect interest expense to be roughly $57 million versus our previous guidance of $60 million to $62 million.
The decrease in net interest expense for 2021, largely reflects a reduction in debt.
Funded by proceeds from the respiratory divestiture and our strong cash flow generation on taxes, we now expect our adjusted tax rate for 2021 to be roughly 12% to 13%.
Versus the prior range of 13 to 13, 5%.
Considering all of these elements, we are raising our adjusted EPS outlook for 2021 by 25 at the high and low end of the range.
$13 15.
To $13 35 sites.
A 23, 2% to 25, 1% year over year increase.
That concludes my prepared remarks, I would now like to turn it back to Liam for closing commentary.
Thanks, Tom in closing I will highlight our three key takeaways from the quarter.
First our diversified product portfolio enabled teleflex to deliver double digit constant currency growth in the third quarter, even with greater than expected disruption from COVID-19.
Second we continued to execute on our strategy to drive durable growth across our diversified portfolio with investment in organic growth opportunities margin expansion and deployment of capital for M&A.
Third.
We raised our earnings per share guidance for 2021, reflecting 23% to 25% earnings growth year over year.
In closing we feel good about our overall performance in the quarter, which was anchored by our diversified portfolio of medically necessary products.
Our balance sheet is in a solid position with leverage at two times, providing ample financial flexibility for our capital allocation priorities, we remain confident in our future and our ability to continue to meet commitments to patients clinicians communities and shareholders.
That concludes my prepared remarks, now I would like to turn the call back to the operator for Q&A.
Thank you.
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We do ask that you limit yourself to one question and one follow up.
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We invite you to add yourself to Nicky again by pressing star one.
And now our first question comes from Matt Taylor from UBS. Your line is open.
Hey, good morning, Thanks for taking the question.
So firstly I want to ask you about was.
What youre, assuming for Q4 and recent trends from the commentary that you made.
About the environment it seems like you're assuming stability with some of the sub subdued trends that you saw.
In late Q3, and so I just wanted to make sure that was correct and get any color on what you've actually seen happen in the early part of Q4.
Thank you very much for the question I think that as we look into the fourth quarter, we have to start with what we saw in the third quarter and we're really pleased with our revenue results, which were better than our expectations and clearly demonstrate the advantage of a global diversified portfolio.
In the quarter, even though certain elective aspects of our business such as your lifting interventional access and surgical were impacted by Covid, we still met expectations for revenue in that tough environment and exceeded our expert expectations on margins and EPS I mean, EPS actually grew 27% within the quarter.
In Q3, we delivered growth of 10, 3% over 2020, and nearly 6% over 2019, and we saw strength in OEM, the Americas, EMEA and APAC APAC and in fact mass EMEA and APAC would have grown six 8% and 12, 2% respectively.
Normalized for the impact of the respiratory divestiture.
We also saw strength within many of our segments surgical interventional vascular and anesthesia and our key growth drivers next year lift continue to deliver really solid results Manta grew 82% interosseous grew 12% picks grew 10%.
And to your question as we progress through the quarters procedure volume did not recover in line with our original expectation and we are not as far along on the recovery slope as we had hoped at your lift is clearly a deferrable procedure and I would look at it as revenue deferred rather than revenue postponed procedures bigger.
<unk> to be impacted in the second half of July, but we did see improvements Matt in September.
Within all of our procedure volumes that were impacted and if you look at our assumptions for your lift in particular and our updated assumptions for euro lift the lower end of the range.
Would be attributable to a flat lining up what we saw in September through the end of the year.
Regard I don't really want to get into the specifics of Q4, Matt because there's only one quarter left and clearly our guidance outlines what we're expecting in Q4 from all aspects of our business.
Okay Alright. Thanks next please.
For all that color.
Maybe I could just ask you one question about the euro lift reimbursement, obviously, we'll see what happens here over the next week or so with the final outcome of the.
The phase III Boston.
How are you preparing for some of the different scenarios.
It stays or if there was a phased in.
There is something better, but maybe you could talk about what you think the company would be to do.
Some of those different things that could happen to help.
<unk> maintained their business in the office or move it to the ASC.
Yes, so youre correct math Theres no update as we sit here today, we would expect the proposed ruling to come through.
In early next month, that's the normal timeline for it.
We've really put a strong case to.
To support the CMS.
Rethink of the proposed ruling we believe it will limit Medicare and Medicaid patient access to over 600 procedures and we still believe the appropriate action is to cancel the proposed ruling and engage with key stakeholders on a new proposal as I'm not sure. The investment community is aware, but there were over 30000.
Comments during the comment period.
And we believe that CMS is duty bound to take all of the comments into consideration.
<unk>.
When they are final ruling comes out as Rx, we anticipate issuing a press release math on the publication, we have certain advantages over other minimally invasive procedures in so far as we have flexibility with size of service.
The euro lift procedure is profitable not only in the office, but also in the ASC and the and the hospital and the vast majority of urologists.
That do their procedure in an office.
Parents ownership or access to an ASC and have that level of flexibility. So we'll wait for the final ruling Matt and then we'll make a decision on how we will proceed but rest assured plans are afoot within teleflex.
<unk> moved quickly once we get the final ruling.
Our next question comes from Cecilia furlong from Morgan Stanley. Your line is open.
Great. Good morning, and thank you for taking my question Liam I wanted to continue with Euro lift and ask if you could talk about just procedure deferrals.
Either the impact that DTC you may have had during the quarter.
Or just COVID-19 pressure, but as you think about for Q, what you contemplated from potentially being able to recapture those procedures and then also how youre looking at the environment today from a deferral recapture perspective versus what played out in the March April time frame.
Yes so.
I'll start with the last of it I think that hospitals are much better able to adapt to the COVID-19 environment and I think they're managing the subsequent waves much better rigor.
Regarding the deferral of the <unk>.
Procedures in the DTC DTC, we're really encouraged by the response, we're getting from that.
Do anticipate 150% the number of impressions and we're well on track through three quarters to get to those number of impressions. The number of patients responding through the campaign content continues to have a similar uplift and we're really encouraged by that.
What we see as we go into the future as I said earlier is that the low end of the range implies.
The.
Lining of our September run rate for the remainder remainder of the year now so still yet to your point on deferral procedures and other aspects. We do expect to see some seasonal improvement due to the deferral and also due to patients using up their deductible during the year as we have seen.
In previous years.
We would also expect to enter into normal trading environment in 2022.
And the market opportunity hasn't changed I mean, I think that's the most important thing there is still 12 million men that suffer with BPH. Your lift is still the go to product for the treatment of BPH and we still only done 30, just over 300000 procedures all of those 12 million men and we still only trained 3000.
Now to the 12000 urologists. So we're still have a significant a massive opportunity to continue to convert those that customer base.
Our own observation is that the procedures just deferral.
More so than we would've thought when we've quite frankly, when we bought the company and also no one would've anticipated COVID-19 in that environment and we do think that there are there are three aspects that are that are impacting the product number one.
Appointment as not being schedule is because the state restrictions and fear of Covid I think number two schedule procedures that are subsequently canceled.
<unk> III and the lesser impact is really staffing shortages that are out there in the marketplace.
Okay understood then.
I did want to ask just on staffing shortages as well.
The impact that you've seen there.
Neither throughout <unk>, but then more recently if that is a growing issue and then also how you're seeing kind of care shift this quarter versus what you saw earlier in the year with some cases being pushed into the office that I was just curious if you've seen similar trends as it is.
It stayed more in line with your traditional break out. Thank you. Thank.
Thank you it's pretty in line with what we saw traditionally <unk> been regarding that.
We do see.
De case procedures in hospitals rebounding.
And Thats one of the trends that we've seen regarding your question on staffing shortages, we would anticipate that the staffing shortages.
Would improve as we go through Q4 and into 2022, and that's simply because it's not doctors that the issue is it's a lot of the ancillary work workers that are within the office TASC in the hospital and a lot of those.
People. Unfortunately were furloughed in the midst of Covid, they've been receiving government checks. The government checks began to dry up in September. So we would anticipate a bolus of those individuals coming back into the workforce in Q4 and into 2022, and we would anticipate seeing that environment improve also.
Our next question comes from Anthony <unk> from Jefferies. Your line is open.
Great. Thanks, and good morning, everyone, maybe Liam just a high level on the nursing shortages were hearing it on several calls it seems to be more pronounced in certain areas of the ICU critical care.
But there are other specialty areas that are seeing shortages as well so just from a high level how substantial of an overall impact do you think nursing and hospital staffing shortages wasn't <unk> and if you use your crystal ball looking into 2022, how long of the of a headwind do you think.
Is it transient or does it bleed deep into into next year and I'll have a follow up on your lift.
Yes, Anthony I think the difference inside of service quite frankly.
Yes.
In the hospital environment My observation is that the staffing shortages is fatigue.
A lot of these people are just exhausted from fighting Covid.
We've seen a lot of retirements as well and the nursing environment I think that's going to take a little bit longer to work through quite frankly and get people back into the into into that work environment. I think we may have to consider the importation or the acceleration of nursing through through through the education process or the importation of nursing.
Through the issuance issuance of visas to other jurisdictions.
I think then if you look at the ASC and the office and in particular the office. The dynamic here Anthony is that these people were furloughed in the midst of coal, but because office.
Dos working in opposite like a small business. So they have to try and protect their cash flow. Their furloughed people. Those people went down to government assistance now the government assistance dried up in around September timeframe. So I would anticipate that would probably rebound a little bit faster simply because that those individuals will want to come back to the workforce.
In order to generate an income so that's how I would see it and if you recall it Anthony.
Did call out.
Staffing shortages in Q2, I think we were one of the fewer companies to start identifying it a little bit early around the trend.
Okay.
Appreciate that and just the follow up on Euro lift when you sort of think about the potential that.
Perhaps maybe the market froze here a bit ahead of the reimbursement announcement do you think any of that was at play and three Q or was the bulk of the headwind here really just the deferral of procedures due to delta and so as you mentioned earlier that Theres a high probability that these are recaptured over the next couple of quarters. Thanks.
I would say it would have very high degree of confidence Anthony It has nothing to do with CMS CMS ruling won't come in until next year.
It Hasnt, even been announced so it is all about coal but.
Our next question comes from Jayson Bedford from Raymond James Your line is open.
Hi, good morning, just.
Couple of your lift questions.
Questions.
Not to get too granular, but is there something different about the geographic makeup of your <unk>.
Thats business that made it more exposed to delta meaning.
Indexed to Florida and Texas.
Yes, so I think we have very strong.
<unk> in Florida, and Texas. They are two of our key markets for your lift for sure and you also have to look at in particular in Florida. The population, it's a big retirement community. There. So the age profile of men in that area would obviously make it a significant market for us I think that the main impact of Jason.
In your lift in the quarter is simply the Delta variant it.
Simply <unk>.
28 states have imposed restrictions now we would've thought that as we went through September we would have anticipated some of those states.
Reducing the restrictions than we would've expected in this month of October.
That they would've also being.
Removing restrictions and as I said earlier it is a very deferrable procedure I personally you know two people that need the euro lift and neither of them are willing to have it done in this in this COVID-19 environment. There are waiting until until the environment improves. So I think that's the simple impact and I think they were deferred.
The important word because it is simply deferred those two people that I know personally I don't want to get the procedure done it will happen if it doesn't happen in Q4. It was happened in Q1.
Okay. Okay. That's helpful.
As a bit of a related follow up durable growth is obviously a focus for the team here I think the debate will turn to the level of durable growth that this business can produce euro lift is obviously key to this debate. So it doesn't sound like your view of the end market has changed but you did mentioned normalized growth.
A few times in reference to your lift so I'm just curious what is normalized growth for your lift.
So I think as we would look at it.
I would envision getting into a more normalized growth pattern once we get out the other side of the call. But this is simply a COVID-19 impact on the business I agree with you with the you referenced the durable growth.
Let's reflect a minute we grew 10, 3% in the third quarter. An outstanding result, when you consider the environment. We're in we drove 27% earnings per share growth in the third quarter and as you move into the fourth quarter I'm going to compare ourselves back to 2019, because that's a better base year for me.
We grew 6% in Q3 over 2019.
In Q4, the implied growth at the midpoint of our range is high single digits. So we're showing acceleration over 2019, so I believe that even in the midst of COVID-19. The advantage of a diversified portfolio is allowing us to post real positive growth with real hefty earnings power as a result of that.
Regarding your question on the durable what is durable growth for euro lift obviously, we're going to give guidance when we when we get through the fourth quarter I want to see how the fourth quarter plays out I am keeping an eye on this new variance that has raised its head in the UK.
Israel.
I wouldn't want to make sure that that doesn't become an issue and become delta power too as we go through the fourth quarter, but I agree with you at the end markets haven't changed.
The strength of our position in those end markets haven't changed and the clinical outcomes of the product hasn't changed it is the best product on the market and once we get out the other side of call, but we'll get back to normalcy.
Our next question comes from Matt O'brien from Piper Sandler Your line is open.
Yeah, Hi, guys. This is actually drew on for Matt and thank you for taking the questions.
I do just wanted to ask you about your lift in DTC, a little bit here I mean in your deck you expect.
You mentioned that you expect to double your impressions in 2020 here in 2021.
But your revenues are obviously, making a significantly and obviously I think it's obvious that Colgate plays a big part in that but.
But do you just have a sense for where those patients are currently going today are they are they getting into the doctor's office and being seen but the procedures are being deferred due to COVID-19 or are they facing logistical issue was even getting to that point.
Thank you. So we know for a fact that theyre going to the Doctor's office, we know because we actually direct them to the to the doctor. So they are under the care of that Doctor now.
Again, the impact is simply Colbert, you've got restrictions in 28 states you've got people that are not comfortable quite frankly going in.
Two to have a procedure.
And that is the impact one one data point that I think it's important for investors to realize is the vast number of our champions or in the office.
<unk>.
And the vast vast majority of those.
Only offer one minimally invasive.
Modality for the treatment of BPH and Thats your lift.
So by investing behind DTC.
And by transferring patients to those doctors with the best clinical output those doctors in the vast majority.
Only offer your lift so that's why we have a heightened degree of confidence in continuing with our DTC and I would just like to point out that our expectation for impressions with the investment we're making is a 150% and through three quarters of the year, we are well on track to achieve that level of impressions. So we're very encouraged.
<unk> by the DTC, where I'm very encouraged by the engagement and it was also nice to get the bronze award.
For the advertisement itself.
Thank you and then just to kind of follow up on that point, a little bit just on the competitive landscape.
Boston talking about good progress with resume Olympus rolling out a new product in space.
I know you said that share has been stable, but just wondering if your rough start bumping up against any of these other products in this space.
Any sense for your customers are taking a look at some of the newer products. Thank you.
So I would read those comments closely because they combine two products in the comment.
And as we analyze the data we know that we're not losing share. It's not a question of if we know that we're not losing share. If you look at the claims data. It shows the market share is steady and your lift is holding its dominant position with.
The minimally invasive treatment of BPH. So this is a COVID-19 question not a competitive question in my mind.
Our next question comes from Matthew Mission from Keybanc. Your line is open.
Okay, great good morning, guys.
I wanted to switch the conversation over to the margin side.
Gross and operating margins.
I think Tom you laid out.
Okay.
Miracle locked in contracts.
Last December congratulations on doing that but they are actually running.
<unk> got at this point, how should we think about that headwind into the fourth quarter and really into 2022 of that excess freight and logistics.
As well as sort of.
Lagging costs.
Materials that end up getting into your numbers as you as you as you kind of move forward.
Well I would say that.
As a result of locking in the contracts, we were able to save considerable expense during 2021.
As mentioned a number of those contract did expire at the end of September and others at the end of December. So we we do have some heightened inflation in the in the fourth quarter.
I cited $3 billion overall, the majority of that is really due to the increase and in freight both from the U S.
Exploration of the sea freight contracts as well.
Heightened inflation overall logistics and.
And that will play into 2022.
In terms of inflation as we're looking at things right now assuming expenses stay or rates stay where they are we're going to see some heightened inflation throughout 2022 on the freight line and obviously, we'll get into more detail on that as we provide guidance for the year and we have greater clarity as to how the rates seem to be trending and what do we expect some recovery here or not next.
Here.
Okay excellent and then on the Pan reimbursement for Euro lift.
Where are you.
If you'd now scheduled to.
To be meeting in November what are you scheduled previously for it in September and then.
It did take it up where they took it out because it will move it to November what's the logistics of.
Why it was delayed by an extra couple of months.
It's not a lift by couple of months.
It's they write out to companies and gives them their time, they're going to review it.
We got ours and it was it was November in all transparency, we thought it was going to be October but it was November and we're really happy that they are going to review. It then it's a $2 billion market.
It's a great opportunity for us we've already done the pre market working in the marketplace and we expect to ramp as we go through 2022.
And.
We didn't anticipate any revenue in the fourth quarter in our original guidance. So we feel really encouraged and also we feel encouraged by Brazil, where early into Brazil, much earlier than we thought.
And we think that's going to be a nice market for us to have already done a limited market launch we've been down there. We've actually trained some surgeons. We've got Procter has already trained within the region and we feel we feel really really good about both Japan and your lift and we feel very good about the international expansion of your lift on.
The global marketplace, which is <unk>.
Big an opportunity is the U S market once we once we start to ramp overseas.
Alright, Thanks, a lot.
Thanks, Bob.
Sure.
Thinking that we would offset some of the inflation with price increases shipping charges are harder to implement people don't like them, you're better off in my view just.
Looking at it as a straightforward price increase.
Okay got it and then you know just wanted to ask about easy Plaza. Thank you. The last time you talked about it you said you thought you could have an approval by the end of this year is that rain and does that still you're thinking on it.
So.
Yeah. Unfortunately, it's out of my control right now because it's with the F. D. A we've got our submission in would continue to engage with them. It's unchartered waters for the FDA. This is they've never approved of biologic like this before but they are they continue to engage with those who continued to be helpful. And obviously will update the investment community make as soon as we have news on it.
Thinking there is no furniture a question at this time I would know that I could turn to call number back to Larry.
Thank you operator, and thank you to everyone that joined US on the call. Today. This concludes the Teleflex incorporated third quarter of 2021 earnings Conference call.
This is currently all the time, we have for a question. This morning. This concludes our conference call. Thank you for participation.
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