Q4 2021 Teleflex Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the fourth 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 call is being recorded and will be available on the company's website for replay shortly.
Now I would like to turn the call over to Mr. Lawrence.
Vice President of Investor Relations and strategy development.
Good morning, everyone and welcome to the Teleflex incorporated fourth 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 pass code.
028958.
Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer, and Thomas Powell Executive Vice President and Chief Financial Officer, Liam and Tom will provide prepared remarks, and then we will open the call to Q&A Bill.
Before we begin I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides.
Wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.
The factors that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well as our filings with the SEC, including our Form 10-K , which can be accessed on our website. During this conference call you will hear management make stay.
Regarding intra quarter business performance management is providing this commentary to provide the investment community with additional insights concerning trends and these disclosures may not occur in subsequent quarters with that said I will now turn the call over to Liam for his remarks.
Thank you Larry and good morning, everyone. It's a real pleasure to speak with you today.
For the fourth quarter Teleflex generated seven 9% constant currency revenue growth year over year and increased 10, 4% over the comparable period in 2019 in the quarter. There was one extra shipping day, which added approximately 1% to the year over year growth rates.
Adjusted earnings per share Rose 10, 8% year over year.
Our fourth quarter performance was driven by the company's balanced growth drivers broad portfolio of medically necessary products and category leadership offset by the impact of COVID-19, and the divestiture of the respiratory assets.
As we had anticipated at the time of our third quarter earnings report COVID-19 remained a headwind during the fourth quarter and elective surgical procedures did not return to comparable 2019 levels spur.
Pacific Li Covid cases increased significantly during December in geographies with large populations, including the northeast, Florida, Texas, and California as Covid spread quickly through these regions.
We also saw increased staffing shortages as COVID-19 infections accelerated quickly in the latter portion of the quarter.
Teleflex executed well in the quarter with dependable service levels to our customers.
Managing supply chain challenges freight logistic delays and responding when COVID-19 infection rates began to accelerate.
Of note when excluding <unk>, which is the product that was most impacted by the pandemic revenues from the remaining business grew over 9% on a constant currency basis in the fourth quarter year over year.
Turning to our performance in 2021.
Although the year presented challenges I am proud to say that teleflex executed very well.
We confronted the unprecedented market disruption head on as the pandemic continues to ebb and flow, we remained diligent and flexible in order to support our customer needs and keep our workforce safe.
We responded effectively as freight and raw material supply challenges escalators through the year.
Throughout the year, we stayed true to our objectives by advancing our strategy of driving durable growth expanding margins and remaining good stewards of our balance sheet.
During the year, we invested in our growth drivers executed on our overseas strategy.
New products.
Our customers remained our focus and teleflex team members enables us to supply customers with products necessary to care for their patients.
We continued to optimize our portfolio with the integration of H, PC and Zee medical acquisitions and.
We divested certain low growth and low margin respiratory assets.
And we did not take our eyes off our people as we fortified our culture and advanced our ESG initiatives.
From a financial perspective, we delivered on our full year 2021 financial commitments with constant currency sales growth of eight 8% adjusted operating margin expansion of 310 basis points and adjusted earnings per share of $13 33.
At 24, 9% increase year over year.
None of this would be possible if it were not for the tireless efforts of the global Teleflex team.
I would like to thank our employees for their hard work and dedication during 2021 and throughout the pandemic.
Turning now to a deeper look at our fourth quarter revenue results.
I will 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.
During the fourth quarter, our Americas, EMEA Asia, and OEM segments demonstrated resilience with all regions showing constant currency revenue growth over 2020, when excluding the impact of the extra shipping day. Despite the continued headwinds from Covid.
As I mentioned earlier this underscores the benefits of our diversified product portfolio.
Americas revenue was $451 $7 million in the fourth quarter, which represents seven 6% year over year growth.
Contributors to the year over year growth, where surgical vascular and interventional.
Partially offset by the impact of COVID-19.
EMEA revenue was up $164 $5 million increased four 8% year over year.
With interventional surgical and vascular access product leading the growth.
EMEA continues to face a headwind from COVID-19.
Although procedure volumes improved year over year as countries across the region continued to open up <unk>.
Excluding the impact of the respiratory divestiture revenues rose eight 7%.
Turning to Asia.
Revenues were $78 5 million.
Increasing <unk>, 5% year over year.
Excluding the impact of the respiratory divestiture revenues rose six 7%.
Let's now move to a discussion of our fourth quarter revenues by global product category.
Consistent with my prior comments regarding our reportable segment commentary on global product category growth will also be on a constant currency basis and ranked by size of our business units.
Starting with vascular access for quarter revenue increased six 4% to $193 million.
Our category leadership in central venous catheters, and mid lines, along with our novel coded pick portfolio continue to position us for dependable growth.
The <unk> portfolio continues to perform well with 11% growth year over year as we continue to invest behind our differentiated portfolio and are gaining market share.
<unk> continues to be a dependable growth driver with fourth quarter revenues rising approximately 17% year over year.
Moving to intervention.
Fourth quarter revenue was $114 9 million.
Up eight 2% year over year.
We exited.
Secured wells during the quarter and saw strong demand for our complex catheter and balloon pumps, we continue to invest behind our interventional portfolio, including complex catheters and manta, our large bore closure device.
<unk> momentum remained strong both in the U S and in international markets with growth of approximately 45% year over year.
Of note, we exceeded our objective for 8% share in 2021 of the 200 to 300 million dollar global market opportunity.
Turning to anesthesia and emergency medicine.
Fourth quarter revenue was $102 8 million.
Up 25% year over year.
Hemostat products drove the growth in the quarter offset by tough comparisons in the airway business and lower sales of Ostomy products.
For the full year hemostat revenues were approximately $66 $5 million and fell squarely into the $60 million to $70 million range that we had established coming into 2021.
In our surgical business revenue was $106 $4 million in the fourth quarter, representing 16, 1% growth year over year.
Among our largest product categories, we continue to witness robust growth in sales of our instruments and ligation clips as the elective surgical procedure environment was stronger than in the prior year period and hospital capital spending increased.
For interventional urology fourth quarter revenue was $92 9 million, representing a decrease of 1% year over year, and a 12% increase sequentially.
This result was above the 85% to $91 million implied guidance for the quarter.
We saw a clear improvement in Europe procedure trends during October and November when compared to the third quarter. However December was negatively impacted year over year by the surge in COVID-19.
With continued staffing charges and an increase in procedure cancellations.
Of note.
We did not see any pull forward of your lift procedures into the fourth quarter of 2021 from 2022, resulting from the announcement of the Medicare physician fee schedule final rule in November .
OEM revenues increased 39% year over year to $67 $2 million in the fourth quarter as customer demand remained strong across our portfolio.
We remain well positioned with broad capabilities in our markets, including faster growth opportunities in thin walls advanced intervention on micro catheters used in Europe vascular and other applications.
And finally, our other category, which incorporate sales of respiratory products not included in the divestiture to Medline urology care and manufacturing and supply transition agreement revenues.
Declined by 12, 2% to $84 $7 million year over year.
The decline reflects the loss of revenues due to the divestiture of the respiratory products, partially offset by manufacturing and supplier transition agreement revenues and growth in urology care.
We continue to expect manufacturing and supply transition agreement revenues to phase out at the end of 'twenty 'twenty three.
That completes my comments on fourth quarter revenue performance.
Turning now.
To some commercial updates and starting with Europe .
As we reflect on 2021, we continue to see COVID-19, as being the most disruptive force on the intervention urology business.
Given the deferral nature of BPH treatments.
<unk> willingness can modulate depending on the severity of the pandemic.
Our experience has shown that when COVID-19 infections pick up your lift procedures are negatively impacted and then recover when COVID-19 case count drop.
In addition.
<unk> charges, which we identified in the second quarter created business disruptions, particularly in our office sites of service.
Importantly, our analysis continues to confirm that we have not lost share to competing device based treatment for BPH.
For 2021, your lift revenues increased 18% year over year, despite the broader category for urology procedures remaining below pre pandemic levels.
We continue to see Europe positioned for accelerating growth as pandemic headwinds abate.
Covid has remained a headwind early in the first quarter, but we anticipate improvement in sales trends throughout the year as elective surgical procedures become less disrupted.
Europe remained differentiators from other outpatient BPH treatments with strong clinical results.
Studies, showing rapid symptom relief and recovery.
New sustained sexual dysfunction and durable results.
Investors familiar with Teleflex will be aware that the euro is being positioned for patients that are suffering with BPH and have failed or are not satisfied with drug therapy.
In 2022, we will be intention is laser focused on improving utilization of existing <unk> users and driving increased productivity of surgeons that were trained in the midst of the pandemic.
We will also fully engage our sales organization to advance the rollout of your lift too with conversion of the vast majority of the U S. Users anticipated by the end of 2022.
Europe two remains an important margin driver.
We remain positioned to generate 400 basis points of view of gross margin expansion once the U S user base is fully converted.
We believe that a tactical approach to moving our existing <unk> users back towards pre pandemic procedure levels is the most efficient way to improve growth in 2022.
As for our consumer marketing efforts.
We continue to view direct to consumer as a multiyear catalyst for your lift in the U S.
For 2021, we exceeded all of our internal targets for.
For the DTC campaign, and I would like to share a couple of highlights.
Impressions increased nearly 200% year over year and exceeded our 150% objective.
Likewise, Urolith brand awareness increased 60% year over year to 16% and has surpassed 14% for TARP, which declined 600 basis points in 2021.
Importantly, our DTC programs are extremely focused on driving revenue per teleflex since the vast majority of our customers only offer euro lift for minimally invasive treatment of BPH.
We will continue to fund our DTC campaign in 2022, and retain our flexibility to flex up and down depending on the macro environment.
Additionally, our international market expansion remains active with several milestones expected for 2022.
In Japan, we continue to make progress towards an upcoming commercial launch for unit we.
We secured reimbursement for Europe last December .
And have a team in place to initiate our rollout launch once the reimbursement is implemented on April one of this year.
Japan remains an important long term opportunity per unit with a $2 billion of time and we are excited for the 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.
Now turning to Brazil.
We are encouraged by our initial commercial activity with a focus on training surgeons and securing reimbursement in the coming years.
Additional urolith launches could come in the second half of 2022.
Including France, and initial activities in Italy, and Spain.
Finally, we remain on track for a regulatory clearance in China in 2023.
To round out the O'hare and American farmers from Sequester cuts Act on December 10, 2021.
A number of important items, the LOE increased convergent factor in the Medicare physician fee schedule by 3% for 2022.
Versus the final rule issued in November .
For Europe , specifically the.
The change will translate into an incremental $100 to $150 in profitability in the office setting in 2022 as compared to the <unk> final rule.
We are encouraged by the improvement in reimbursement.
We'll continue to work with stakeholders to address the unintended consequence of the changes to physician fee schedule that will limit choice for Medicare recipients and move procedures to higher cost sites of service.
Moving to some updates in our interventional business units.
We have completed the sales force expansion, which is intended to provide additional resources for manta training and increase our market penetration.
On the clinical front, we recently received five 10-K clearance to extend the indication for our specialty support Catheters Guide extension catheters and specialty guide wires to include cross chronic total occlusions.
Our FDA filing was based on successful results from a peer reviewed prospective single arm study.
Study that enrolled $150.
The study met.
The protocol is primary endpoint a procedural success.
Which is defined as the.
Recapitalization in more than 93% of these very complicated CTO cases.
We view complex PCI and.
And especially CTO PCI.
And interventional cardiology.
And our new labeled indication keeps us competitively positioned.
We continue to innovate around the corner.
And the platform and in Italy.
Release of the 14, French depth locator during the quarter.
The depth locator.
French manta closure for Impella emergent cardiogenic shock procedures.
Regarding E C class.
We have not.
Regulatory clearance following the receipt of a completed response letter.
Partly we do not have to collect additionally, we have clear line of sight on the.
Additional information that FDA is requesting.
We remain committed to gaining FDA clearance for this novel and innovative product and we will work collaboratively with the agency.
We will update the investment community when we have additional information to share.
Now turning to our 2022 outlook.
<unk> remains well positioned to drive.
By growth in these challenging times, although the pandemic.
Still with US we expect the impact to be lower in 2022 versus 2021.
We believe that elective surgical procedures should improve in 2022 over 2021.
The entity of the global health care systems to adapt to the pandemic environment.
With each subsequent surge in COVID-19 infections hospitals continue to improve their ability to treat COVID-19 patients.
The surgical procedures.
We also expect more people to become fully vaccinators and increasing availability of therapies to treat the virus after infection.
Our range of guidance contemplates varying scenarios for the impact of Covid.
Which depending on the level of disruption in form our view on the top and bottom end of our outlook.
In addition, our 2022 guidance assumes a normalization in our operating expense as the impact of the pandemic wanes.
We will fund our commercial organization to remain in front of our customers and maintain investment for our growth drivers.
It is important that we manage teleflex for long term durable.
Good growth.
We will continue to fund our investments to keep us well positioned.
Assumed we will be in <unk>.
Physician to modulate our spending.
The projects for long term growth.
We would expect to deliver.
Underlying constant currency growth in 2022 that captures our prior.
And RP growth algorithm up 6% to 7%.
When adjusting for the one 6% headwind from the divestiture of the respiratory app.
Okay.
We have made substantial progress over the past several years and reshape.
Shaping the teleflex portfolio by investing behind growth drivers and divesting slower growth respiratory assets.
As we look forward with.
When excluding your list and our other business.
The remaining three quarters of our business is positioned to grow 4% to 5%.
The green, including Manta.
Hemostat interosseous and picks.
On top of these revenues.
Europe remains a significant opportunity as pandemic related disruptions recede in the United States and we execute on our multi year.
We will also continue.
To execute on our M&A strategy to layer in additional 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 fourth quarter financial results Tom.
Thanks, Liam and good morning.
Performance I'll begin with <unk>.
<unk>.
Gross.
And operating margins remained strong in the fourth quarter and exceeded levels achieved in the 2000.
In <unk> comparable period.
Our continued progress in margin expansion in 2021 has allowed us to increase investments for growth drivers, which is an important component of our long term strategy to enhance durable growth.
For the quarter adjusted gross margin totaled 58, 8%, an 80 basis point increase versus the prior year period.
The year over year increase in gross margin was driven by product and regional mix restructuring benefits operational efficiency programs.
Favorable impacts from pricing M&A and foreign exchange.
Partly offset by inflation and freight raw materials and labor.
Fourth quarter adjusted operating margin was 27, 6% or 100 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 and.
And the partial normalization of expenses.
Following deep reductions in discretionary spending during the prior year as a result of the Covid pandemic.
Yes.
Yes.
Net interest expense totaled $11 8 million in the fourth quarter, a decrease from $18 5 million in the prior year period.
The year on the early redemption of the 2026 senior notes.
And the impact of reductions in outstanding debt using the proceeds of the respiratory divestiture and the operating cash flows.
Our adjusted tax rate for the fourth.
Compared to 10, 1% 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 as compared to the prior year period.
At the bottom line fourth quarter adjusted earnings per share increased 10, 8% to $3 60.
It exceeded our internal expectations.
Turning to select balance sheet and cash flow highlights.
Cash flow from operations for 2021 totaled 652.
$1 million compared to $437 1 million in 2020.
This represents a year over year increase of roughly $215 million.
The increase was primarily attributable to favorable operating results.
Contingent consideration payments and proceeds received from the respiratory business divestiture that were attributed to performance obligations under the manufacturing and supply transition agreement.
Moving to the balance sheet.
Our financial position remains sound.
At the end of the fourth quarter 2021, our cash balance was $445 1 million versus.
Versus $375 9 million at the end of the fourth quarter of 2020.
During the fourth quarter, we repaid $205 million of revolving credit facility borrowings.
And at the end of the fourth quarter $141 million was outstanding on our revolver.
Yes.
Net leverage at quarter end was approximately one seven times, which remains well below our four five times covenant.
Lastly, we have no debt maturities of material size in 2022 or 2023.
Now moving on to our 2022 guidance.
To begin I'll provide a framework of key planning assumptions underpinning our financial guidance.
Although hard to predict in the current environment, our outlook for 2022 assumes that elective surgical procedures improve over 2020 one.
Flex COVID-19 disruption in the first quarter.
We also expect inflation to be greater in 2022 and 2021.
A larger impact in the first half of the year as compared to the second half.
Our 2022 guidance ranges to account for uncertainty on the severity of Covid.
The impact of staffing shortages and inflationary pressures.
The high end of the range assumes less impact from these factors, but not a totally normal environment.
In addition, our planning assumptions exclude any material regulatory or health care reforms as well as any future M&A that has not been disclosed.
Now for the key elements of our 2022 guidance starting with revenue with.
High growth drivers and the durable growth core.
We are taking a metered approach to begin the year given expected near term pressure from the recent COVID-19 surge.
We expect constant currency revenue growth of four to five 5% in 2022.
Excluding a one 6% headwind from the sale of the respiratory assets last year, our constant currency revenue growth is expected to be five 6% seven.
Seven 1%.
And captures our prior growth algorithm and the 2019 to 2021 LLP.
Our high growth portfolio, which is spread across several business units and includes year lift manta hemostat EZ Io on control and fix.
Represents approximately 25% of total revenues in 2021.
As implied by our 2022 constant currency revenue guidance, our hydro portfolio is expected to increase in the mid teens with a.
Approximately 15%.
Our durable core platforms, which account for over 60% of revenues are estimated to increase approximately 4%.
Our other category includes sales of respiratory products not included in the divestiture to Medline.
Manufacturing and supply transition agreement revenues and urology care and accounted for approximately 12% of total revenues in 2021.
For 2022 segment is anticipated to decline in the low to mid teens year over year, largely due to the respiratory divestiture.
Now turning to currency.
We expect foreign exchange rates will be a headwind to revenue growth of approximately one 7%.
As a result, we expect our reported revenue growth to be two 3% to three 8% year over year, implying a dollar range up to $8 74 billion to $2 $91 7 billion.
Moving to gross margins.
We anticipate that adjusted gross margin will be in a range of 59, and three quarters to 60 and one quarter percent.
We continue to benefit from mix shift towards higher margin products restructuring and operational efficiencies, partly offset by incremental inflation.
The incremental inflation is estimated to be a headwind of approximately 70 basis points in 2022, due primarily to elevated freight costs raw materials and direct labor.
Our guidance assumes that the elevated freight cost will show improvement in the second half of the year.
Regarding our operating margin, we expect adjusted operating margin to be in the range of 27, and three quarters percent to 28 and one quarter percent.
Our 2022 guidance assumes incremental investments support our key growth drivers, including the airlift Manta and choices in the Asia Pacific region.
In addition, as we have previously indicated we continue to expect a normalization of operating expenses is totally disruptions abate.
Keep in mind that discretionary expenses, including TNT and open head count.
Were significantly curtailed in 2020 due to the impact of the pandemic on revenues and commercial activities.
Although operating expenses increased in 2021, and we're not yet fully restored to pre COVID-19 levels.
As we plan for an improving environment in 2022, we are assuming a normalization of our operating expenses as well as investments for our growth drivers.
Despite the disruption for the past two years.
We continue to make considerable progress on our margin expansion initiatives.
Of note a comparison of the midpoint of the 2022 guidance versus the 2019 pre pandemic levels reveals a healthy 190 basis point increase in gross margin.
And the 220 basis point increase in operating margin.
We believe our incremental investment is prudent to fuel our long term durable growth initiatives, especially as we've seen a disruption from the current COVID-19 surge improving over time.
In turn we view 2022 is a transition year for margins.
As it remained multiple levers to drive profitability higher over the coming years.
Clearly product mix shift manufacturing efficiencies and the.
Announced restructurings, partially offset by continued investments in the business to sustain our durable growth profile.
Moving down the P&L.
We expect net interest expense to be approximately $51 million.
The year over year decrease in interest expense largely reflects reductions in debt funded by proceeds from the respiratory divestiture and strong cash flow generation.
Turning to taxes.
Project that our adjusted tax rate will be in the range of 10, 5% to 12, 5% for 2022.
Of note the high end of the range reflects the change to the tax deductibility of certain R&D expenses, beginning 2022 under the 2017 tax cuts and jobs Act.
We understand there is bipartisan support for these R&D tax benefits leading to the potential that the provisions that became law for 2022 could be reversed at some point during the year.
If the law is repealed we would anticipate that our tax rate to be towards the lower end of the guidance range.
Considering these elements our adjusted earnings per share guidance for 2000 22000.
<unk> $13 70.
To $14 30.
A two 8% to seven 3% year over year increase.
Inclusive in the guidance is an approximately <unk> 17 headwind associated with the divested respiratory business and approximately 33 for incremental inflation.
Earnings per share growth, excluding the respiratory divestiture and incremental inflation is expected to be approximately 7% to 11%.
As a reminder, the low end of our adjusted EPS growth range reflects the change in the R&D expense deductibility for tax purposes.
We estimate that weighted average shares outstanding will increase to $47 7 million for the full year 2022.
Lastly, I want to provide some additional color on the cadence of our 2022 financial results.
First as I mentioned previously our first quarter results are expected to be impacted by continued COVID-19 related headwinds on elective surgical procedures similar.
Similar to what many medical device companies.
2021.
Third we expect a headwind from foreign exchange rates to be higher in the first and second quarters before moderating in the second half of 2022.
We expect our reported revenue to be approximately flat year over year in the first quarter.
On a days adjusted constant currency basis, our first quarter growth is expected.
5%.
And when excluding the impact of the respiratory divestiture our days adjusted constant currency growth is expected to be roughly five 5% to 6% in the first quarter.
First quarter driven by increased.
Well inflation and a normalization.
Of operating expenses.
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 and our 2022 outlook.
First our diversified product portfolio enables tunnel flex to deliver.
Constant currency growth of seven 9% in the fourth quarter and eight 8%.
For 2021, despite the significant disruption from Covid during the year.
Second we continue to execute on our strategy to drive durable growth across our diversified portfolio with investments in organic growth opportunities margin expansion and deployment of capital for M&A.
Third we remain confident in our growth strategy.
We see our core growth platforms, driving 4% to 5% growth with the additional growth coming from Europe , we have levers in place to drive further expansion in our margins.
And our balance sheet is in a solid position with leverage of one seven times, providing ample financial flexibility for our capital allocation priorities.
We remain confident in our future and our ability to continue to meet our 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.
Like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach power equipment. We do ask that you limit yourself to one question and one follow up.
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And your first question.
From Jayson Bedford with Raymond James.
Good morning, and thanks.
Thanks for taking the questions.
The comprehensive review here so.
Just to start and I hate to be too granular here, but maybe can you comment on what youre seeing in the environment today versus let's call. It a month ago and I just wanted to feel comforted that you are seeing a little bit of a pickup as COVID-19 .
Yes, so right across our business, Jason obviously, we have winners and losers every time the COVID-19 outbreak so parts of our business do better parts of a <unk> <unk>.
Obviously in some of our respiratory filters do better are elective procedures as Europe being the first one and then surgical and interventional tend to do worse, but we saw as we came through the end of August and the last outbreak. We saw in particular Urologic procedures pick up September October November .
As hospitals reopen.
And as people feel more confident in going in and having these procedures done and improving in the month of February .
And in the month of March and again I've got to commend hospitals.
And Doc offices and <unk> they are managing the additional outbreaks much better the issue of omicron module, but there's a lot more contagious so actually added to the staffing shortage within days.
And as we went through February Jason to answer your question directly.
Okay, and just as a quick big picture follow up.
You made the comment in the release around optimizing the portfolio for growth, which is consistent with past commentary, but I guess the question is the current environment more or less conducive per year per your for your strategy meeting or asked another way can you be more active in this environment.
Well the one thing you need to be active Jason is firepower and we have lots of firepower. So.
Our leverage levels as we said in the call.
Of one seven times, so we have firepower.
Let me answer it this way.
Feel a lot better today than I did a year ago with regards to valuations.
We always augment our portfolio and don't forget in the last 24 months, we have acquired HBC and C met again, we divested of our respiratory assets, we are active us ever chasing assets.
Think valuation expectations have modified as the IPO market has modified and it's not just us telling that private companies are.
That is also the banking community communicating that to them.
Yes I'm.
I am glad that we maintained our financial discipline over the last 12 months when it was pretty heavy out there and.
And I think it's.
We're having a lot easier conversations with private companies now and they see a strategic exits as very very favorable compare to an IPO at this stage.
Your next question.
Taking my question and congrats on a nice end to the year here.
Starting with your lift.
Are you seeing from the recent reimbursed.
First name change and Big picture.
The contribution to growth there you talked about I think from 4% to 5%.
Your lift bridging.
To your long term goal I think of 6% to 7% what are the other drivers that I had one five.
Oh, yes, sorry, so so with your first of all.
We're really pleased with.
With a strong finish to the year.
$93 million in the fourth quarter.
Budgeting. It I think we're really proud of what we did.
We delivered revenue growth of eight 8% versus our original guidance.
Okay Tonight, and don't forget the original guide of $28 million to $32 million of respiratory revenue that we divest in op margin 310 basis.
Points of expansion and Eric.
Percent growth.
Earnings per share, while LNG divestiture looking forward.
Forward.
We've obviously communicated that we expect Europe to grow 15%. This year, we feel that thats very achievable in the current environment.
We expect it's going to be impacted by Covid in the first quarter.
As one would anticipate.
And then we would anticipate lower single digits in the first half of the year and then picking up strongly in the back half of the year, obviously, an easier comp in Q3.
And then.
Going into Q4 as people work through their deductibles you would expect it to continue along that vein.
We are really confident on our core business being well careful of 4% to 5% Larry good execution I think we should be at the upper end of that range.
Our growth algorithm of 6% to 7% is very very much intact as demonstrated in our guide today, So our constant currency guidance for its five 5%, but there was one 6% of a headwind from the respiratory divestiture, just 30 basis points from the loss of a day, which is in Q1, which actually gets you too.
Five 9% to seven 4%. So if anything the algorithm has improved because of the base our core business doing even better through good execution and solid investment behind some of our good growth assets, such as interosseous, such as our pain portfolio, such as <unk> and such as our <unk>.
Static portfolio.
That's helpful and for my follow up Liam just to follow up on Jason's question earlier on M&A what are your criteria.
Deal size, how are you thinking about deal size and any areas of interest you can share. Thanks for taking the questions absolutely. Larry. So we look at assets that are in that 600 to $360 million to $300 million in revenue.
Our strategic criteria is that it fits within one of our pillars are in an adjacent space, It's got really strong IP.
Has a great value proposition within the hospital.
Also has is clinically better than anything within the marketplace available I would like products that are sticky that get used over and over again.
Obviously look for assets that are accretive to our gross margin and we look for assets that are will become accretive to our op margin in time will accept some shorter term op margin dilution like we did for example, with <unk> as long as we can see leverage into the future. So those are really our financial and strategic criteria.
Larry and thanks for the questions.
Your next question is from Matt Taylor with UBS.
Thank you for taking the question and good morning, Good morning, I was wondering.
Good morning, I, just wanted to ask specifically on.
The 15% guidance.
Two things one could you help us a little bit more with the cadence of your lift growth that you expect through the year and how much contribution from Japan are you anticipating.
Yes. Good question, Matt So as I said to Larry the first half will grow in the lower single digits.
It's due to the impact of COVID-19 through the first quarter and up see staffing shortages, while the second half of the year will grow really strong double digits. The contributions whether it be smaller from the international markets, You've got Japan, Brazil, and France, They will ramp in the <unk>.
Second half of the year, but they won't really become meaningful until 2023 and beyond so far this year 2022. The main growth driver for Euro lift will continue to be the United States and I would just add to that Matt.
<unk> mentioned this in my prepared remarks.
Utilization within our existing docs.
And continuing then to ramp up the docs that we trained through the pandemic that is the most.
S Tactical way to drive growth in Euro lift in 2022, and then bring on the international markets in 'twenty three and beyond.
Obviously, youll see places like China come into being in 2000.
Places like China come into being in 23, So we feel that we've got a real great algorithm for growth for all of Teleflex.
That is in that mid teens growth, which includes Europe as well as that you've got manta hemostat intra season picks all driving that real solid topline growth for teleflex.
Okay, great. Thanks, and just a follow up on the pipeline did you give an update on <unk> could you give us an update on that.
That is yes, I did in the prepared remarks.
So as I said in the prepared remarks.
Proceed to CRM and we are working on the information requested the good news is the request from the FDA is not focused on clinical data and we have clear line of sight on the additional information that the FDA is requesting.
We will continue to interface with the FDA.
And it is very collaborative, but it's clear to US. Matt. This is also the first time. The FDA has approved a biologic products such as this that we're breaking new ground together and as you are aware, Matt as most investors will be aware the RFP from the military within that $3 million to $4 million now, it's a nice market in the future to $100 million.
We'll grow into.
But that $3 million to $4 million is not in our guidance for this year.
Okay. Thank you.
Sure.
Your next question is from Shagging, Zeng with RBC capital markets.
Great. Thank you for taking my question.
Just wondering if you could.
Just let us know what the impact of inflation and FX on margins and EPS in Q4, and then what have you assumed in 2022 and then just with respect to margins can you bridge us from 'twenty, one 'twenty two I'm just trying to understand the puts and takes.
So as it relates to I guess.
Oh conversion, we have gotten that done.
40 basis points.
Shannon I think you called out 70 basis points on the call.
Annual pre tax savings I think.
You have about $40 million in 'twenty, two and 'twenty three and then just higher level of investments that you can just bridge that that would be helpful. Thank you. So given that level of detail requires somebody call. It Thomas Powell So Tom.
Okay. So I think the first question was just on the impact of inflation.
Our FX and inflation in the fourth quarter. So as we look at the fourth quarter.
I'll start with FX first.
What we saw is a bit of a move in the exchange rates and some of the the tailwind that we had been experiencing in the earlier part of the year lessened quite a bit so it was.
An adverse impact on our margins.
Relative to the prior year, but still slightly positive on a year over year basis.
As far as inflation, we had talked about.
Inflation picking up in the fourth quarter relative to what we're seeing in the third quarter than we had estimated the amount to be approximately $3 million it actually turned out to be higher.
Close to $4 $5 million in the fourth quarter, and we've obviously assumed that thats going to continue to be.
Some of the case going into next year.
As we think about just.
Margins.
We go into to next year.
There are a number of puts and takes first of all I would say that the gross margin I'd like to remind everyone that it.
It had increased 270 basis points in 2021 versus 2020, so really strong expansion in 2021, despite a hiring freeze.
Linemen.
As we look to 2022, our guidance is <unk> 59, and three quarters to $62 five representing an.
An increase of 60 basis points at the midpoint.
Gross margin increases as mentioned attributable to mix, mostly euro lift as well as restructuring and operational efficiency programs.
Being partly offset by inflation.
And for 2022, our guidance assumes that supply chain inflation is approximately $20 million higher.
Then to 2021 inflation level and that equates to.
And incremental inflation impact of about 70 basis points.
So if you were to look at.
Our guide on gross margin, excluding the impact of that incremental inflation were up about 130 basis points at the midpoint.
And as we think about the cadence of gross margin, we do expect to see a strengthening gross margin as we go throughout.
2022.
Right now our guidance assumes or.
Included in our guidance is an assumption that we will see some improvement in raw material and logistics inflation in the second half of the year versus the levels. We're currently expecting and we also expect to get a mix benefit as we go throughout the year as Youre lift becomes a greater percentage of the mix and actually the manufacturing supply agreement.
A lesser part of the mix. So I would say big picture gross margin is impacted by inflation and the cadence.
Quarterly margin expansion impacted buyer.
Bye.
Inflation levels as well as mix.
Now as we look at the operating margin.
We are guiding to 2007 and three quarters to $30 a quarter.
Which is flat to 2021 at the midpoint a couple of things again to highlight.
First of all is that increase in the supply chain inflation has an adverse impact to.
The gross margin that drops down to the operating margin.
And then secondly, do want to highlight that in 2020, we had significantly reduced opex spending as a result of the COVID-19 pandemic in part because the pandemic caused limitations on our commercial activities, but also in part because we wanted to reduce costs to offset the COVID-19 revenue impacts now.
In 2021, we partially restored activities and spending but we weren't back to pre pandemic levels of activity we're seeing.
And.
In 2022, our guidance assumes that we will have largely resumed normal commercial activities, including hiring sales training meetings et cetera, and as a result, we will incur an incremental about $20 million or 70 basis points of opex in the year.
So if you look at the op margin.
Excluding the impacts of the supply chain inflation and normalization of expenses.
We see about 140 basis point improvement at the mid point now. In addition in 2022, we plan to continue to invest behind key growth franchises, including <unk> <unk> and EZ Io I would say that given the successes we've seen in the euro with DTC as well as Salesforce additions will continue to invest there as well as behind Manta.
And then again, we will see some op margin improvement as the year progresses for a lot of the same reasons that were.
<unk>.
Talking about in the in the gross margin improvement.
So thank you so much for any color hopefully I captured all of your questions.
I appreciate it.
Thanks, John .
Your next question is from Cecilia furlong with Morgan Stanley .
Good morning, and thank you for taking the questions.
Thank you sorry back on Europe .
You talked about initiatives to drive increased CLO.
And your existing position.
Drive adoption and new ice cream positions can you walk through some of the.
Key points that you're focused on this year and then kind of a.
A bigger longer term picture, but as again as you think about all of the international markets coming online, Japan, China, Brazil, Europe as well how do you think about just the durable long term growth profile yet.
Good luck.
So I think once we get is what's very clear to me to the latter part of your question Cecilia is that your lead growth is impacted by Covid.
We've seen this at every outbreak of Covid and as I said, just a few minutes earlier. We saw we told you were to pick up in September through November quite substantially and then obviously in December we saw it take a step back because of the.
The outbreak of Covid, notwithstanding that we still exceeded our internal expectations because of the robustness of the growth in the first two months of the quarter and the reason it's area that we're focused on a few pillars of growth for Europe . The first pillar of growth.
It's going to be around driving utilization in existing docks over the next number of years, what we've seen during COVID-19 is our champions in our intervention of this and remember these are people that.
Almost.
Predominantly to a very very high percent only offer your lift and because of reluctance in patients because of staffing shortages, we've seen their utilization drop a little bit through the COVID-19 environment. So the easiest way to get units back into drive that 15% growth drive utilization there the second.
Point is for the future is to continue to do that but also to expand overseas and we will see Japan coming in beginning in April 1st you can see France in the back half of the year Youll see Brazil continues.
Move as we go through the year, you'll see China come in next year, maybe Dan somewhere like Taiwan Youll see.
Yes.
Pardon me, Italy, and Spain come along so most companies would expect the revenues to do in the U S. If you execute well overseas you should do almost the same amount of revenue overseas over a multiyear period and then lastly is obviously, bringing on new docs and will continue to trend new docs as we go through the year and I think that it's important for everybody.
You realize we haven't penetrated this market by any stretch of imagination. We've only trained about 3400 docs out of 12000, and we've only done 300000 procedures almost all of them in the United States out of 12 million men in the United States and 100 million globally.
The opportunities for growth over a multiyear period I feel really encouraged by it but just want to get caught in the rearview mirror and then really show what this product can do from a growth profile and Celia its Larry I would just mentioned that.
We will obviously provide a longer term view of our outlook for euro lift at our May analyst meeting.
Your next question is from Mike Matson with Needham <unk> company.
Hi, Thanks for taking my question.
Wanted to ask about the euro lift reimbursement changes that happened I think that went into effect at the beginning of the year. So can you maybe talk about what youre seeing there have you seen maybe position changing site of care or anything else in the 15% guidance how much have you factored in if anything for that.
Sure.
So we haven't seen any site of service change and I don't anticipate seeing any site of service change.
The coming.
At year.
A lot of assigned in by President Biden actually improved the reimbursement for the euro lift and the office procedure by changing the conversion factor by about 3% that actually added another.
100 to $150 net to <unk>.
Urology just for doing this procedure.
Also implemented our own pricing.
Strategy in the marketplace and that has been incredibly well received and only six weeks into it at a very high percentage of our customers have signed up.
Two our plan, so I would envision a very.
I wouldn't envision much of the shift in site of service and Mike don't forget as well, 70% of our year live cases are done outside of the office and the CMS ruling only impacted.
Medicare Medicaid patients in the office, which if you do the math is about 20% of the total so.
We have strategies in place the team is executing and the 15% growth is predicated on everything that we know today and our knowledge of what's going to happen with Covid as we move forward throughout the year.
Okay, Thanks, and if I could just slip one in for Tom quickly is there any kind of EPS impact.
From currency I didn't hear that called out and you kind of walk through the headwinds but.
Just given that it is meaningful to the top line I wanted to see if it was getting.
Set on the bottom line. Thanks.
So the currency impact that we've assumed in our guidance is about 20.
Your next question is from Matthew Ms Jarman with Keybanc.
Okay.
So Matt.
Good morning can you hear me okay.
Got you.
Okay excellent.
Hey, just a first question on vascular access that continues to exceed our expectations.
And it's about $100 million above where you were at in 2019 it.
It seems like you are pretty confident around picks and vital care as you're kind of moving those into the high growth category.
I'm just curious how should we think about the durability of that improvement.
In vascular access versus maybe some of the other areas that may have been COVID-19 related beneficiaries.
Yes, so for vascular access this year, we expect it to grow in the mid single digits in its entirety, obviously, our CVC portfolio.
Benefited from coal, but over the last couple of years, but the growth is really coming from our interosseous portfolio and also from our <unk> portfolio as we continue to take share because of our coating technology.
This is really a global play for US we've launched a really nice new CVC kits.
It is getting excellent traction out there in the market globally and Thats also helping uptrade our customers on our <unk>.
In our key.
But in our key North American market for sure.
So we feel really good at our largest franchise mass it continues to execute incredibly well.
Have a new as well as that new product, we have another new product thats coming around our positioning in our picks and we're very excited about.
So this is one of the.
Often said not all growth is equal. This is one of the businesses that gets more R&D dollar spent on it than others.
That flow of new products come to keep ourselves differentiators.
It's a great franchise.
Okay excellent and then just an update and I'm, sorry, if I missed it.
The medica ended for 2021 and thoughtful growth drivers for that product into next year.
Yes, we're really happy with where the Medicare.
We told the investment community to be somewhere between 60% to 70, we finished squarely in their 66 $5 million really proud of the achievements, bringing that into teleflex and nothing has changed in our outlook as well capable of high single with good execution low double digit growth and.
And really accretive to our margins again, another another growth driver and that's in the book at the Tom spoke about that's driving on average in the mid teens and of course, we have a cardiac study that we just completed.
We will file with the FDA and that will expand the $600 million Tam also.
So really excited about it.
And your last question comes from David <unk> with JMP Securities.
Great. Thanks, and then maybe just a couple quick product ones.
A follow up on that.
<unk> side.
Would you noted anything on the competitive front.
A bigger player there that grew for years at the rate that you seem to be now is has anything changed there or would you actually point to the differentiated coatings is sort of how you are maintaining that.
So for US it's all about the coatings I'm much changed.
It was in the past hospital didn't have to report infections on fixed and the assumption was when the burden.
Measuring it the assumption was that the big infections were lower.
Our infections on CBC is used to be at 4% before we launched our quota technology on the Cdc's.
Many studies have shown we've been able to bring it down to practically zero and of course once they started measuring thick infections.
They were around 4%. So now hospitals don't get reimbursed for those infections and that's why we're being so successful with our Pic technologies, it's really around our coatings that are both.
Jed.
Thrombogenic <unk> infection.
Thank you for that and maybe just a follow up on.
On an area, we don't talk about a lot but on surgical.
You mentioned the <unk>.
Instruments.
<unk> clips.
But 16%, even if theres procedure bounce back.
Hi.
What is happening there what has differentiated there how are you able to put up numbers like that and an area that I would think would be.
Much lower growth.
Opportunity.
Also within this is also a global play for our surgical business. So we have a really strong surgical business in the Americas, and APAC and as procedures bound so did our surgical portfolio, but we're also working on expanded indications for our.
Core ligation clips that should help us continue to augment the growth now it's not going to grow at that clip for next year and I don't want to mislead anybody that is going to do that it will be in the low single digits.
We go through next year.
But we are we have some new products coming down the down dip.
This year. So I said next year this year 2022 and grow in the low single digits, but we have some nice pipeline of products coming through there and we've expanded our vascular closure, we've really done some nice work on our instruments and of course, our coals ligation pips continued to perform exceptionally well globally and quite frankly the team.
<unk> and surgical has done an outstanding job in executing as procedures have returned.
Okay.
Also an area that we take price.
I mentioned that.
Nice opportunity for us.
I'll close on pricing because I think it is important thing that we didn't mention we anticipate having positive pricing. This year on that 50 basis points consistent with what we drove last year.
Order to offset some of the inflationary pressures and it's companies like Teleflex I believe that will be successful because we are used to taking price as part of our DNA and we will continue to execute on that price in particular within surgical and within our vascular business unit and also overseas.
And Europe .
So I just wanted to make that point as blood <unk>. Thank you.
That is currently all the time, we have for questions. This morning, I will now turn the call back to Mr. Kirsch for closing remark.
Thank you April and thank you to everyone that joined US on the call. Today. This concludes the Teleflex incorporated fourth quarter 2021 earnings Conference call.
This does conclude our conference for today. Thank you for your participation you may now disconnect.
Okay.