Q4 2022 Teleflex Inc Earnings Call
Please standby good morning, ladies and gentlemen, and welcome to the Teleflex Fourthquarter that 2022 earnings conference call.
This time, all participants have been placed in a listen only my age at the end of the Companys to patch 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'll turn the call over to Mr. Lawrence cash Vice President of Investor Relations and strategy development.
Good morning, everyone and welcome to the Teleflex incorporated fourth quarter 2022 earnings Conference call.
Press release and slides to accompany this call are available on our website at Teleflex Dot com.
Please note that webcast viewers have the ability to advance the presentation slides on their own.
Simply fall along with the presentation as we proceed through the call.
As a reminder, a replay will be available on our website those wishing to access the replay can refer to our press release from this morning for details.
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.
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 the slides posted to the Investor Relations section of the Teleflex website, we wish to caution you that such statements are in fact forward looking in nature and our sub.
<unk> 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 <unk>.
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 statements 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.
For the fourth quarter Teleflex revenues were $758 million a year over year decline of <unk>, 5% on a reported basis and an increase of three 7% on a constant currency basis compared.
Compared to the prior year period revenue under the manufacturing and supply transition agreements associated with our prior divestiture, if our respiratory assets negatively impacted growth by 0.6% in the quarter.
Implying underlying constant currency growth of four 3%.
Adjusted earnings per share declined by two 2% year over year to $3.52.
In reviewing the quarter, our fourth quarter constant currency revenue growth remains durable despite an unexpected some component supply chain issue in our surgical business that resulted in an approximately $3 $5 million headwind during the quarter the Saar.
Performance in the quarter continues to demonstrate the benefits of Teleflex is diversified portfolio that has been purposefully built to target the care of critically ill patients.
Of note, our intervention surgical and OEM product categories generated double digit constant currency year over year revenue growth during the fourth quarter.
Encouragingly, we witnessed improving monthly growth on a sequential basis with December representing the strongest month of the quarter as health care utilization continues to normalize.
From a geographic perspective Asia generated strong results and continues to be an important growth driver for teleflex.
Raw material inflation and supply chain challenges remained headwinds for the business during the fourth quarter <unk> continues to be in short supply and it has primarily impacted our vascular and interventional businesses.
Turning to the full year of 2022.
When adjusting for the divestiture of the respiratory assets and one less shipping day constant currency revenue growth was four 3% for 2022 as health care utilization improved through the year and demand for teleflex products accelerators.
Our high growth revenue portfolio maintained momentum across the majority of growth drivers.
Although Europe constant currency revenue declined 5% year over year in 2020 to the remainder of products into high growth portfolio continues to show healthy gains with approximately 14% constant currency growth for the year.
Moving over to Jordan <unk> core revenues in.
In 2022 durable core revenue grew approximately 5% on a constant currency basis as compared to the prior year period, reflecting improvement in procedure volumes strong global execution, new product introductions and positive price our other category, which includes our respiratory and.
Drainage catheter business as well as revenue from the MSA, we entered into with Medline in connection with the sale of our respiratory business declined just under 10% year over year in 2022, now, let's turn to a deeper dive into our fourth quarter revenue results.
I will begin with a review of our geographic segment revenues for the fourth quarter.
All growth rates that I referred to are on a constant currency basis, unless otherwise noted.
America's revenues were $458 million, which represents one 7% growth year over year against a tough comp in the year ago period.
Excluding the impact of the year over year decline in MSA sales Americas revenue grew.
Two 7% in the quarter.
Intervention on surgical regard of double digit growth.
Set by declines in other areas of the business, including interventional urology.
EMEA revenues of $147 $8 million increased one 4% year over year, we continued to see procedure volumes improve year over year.
Now turning to Asia.
Revenues were $78 $5 million, increasing 13, 3% year over year, we saw strength across the region with all geographies posting solid growth during the fourth quarter.
China growth approached 7%, despite COVID-19 associated disruptions towards the end of the quarter.
Let's now move to a discussion of our fourth quarter revenues by global product category.
Commentary on global product category growth for the fourth quarter will also be on a constant currency basis.
Starting with vascular access.
Revenue increased <unk>, 5% to $186 $4 million.
As we anticipated the performance in the quarter demonstrated our return to growth for vascular access despite a tough comp for central venous catheters due to the year over year reductions in COVID-19 patients in intensive care units in the United States.
Although we made sequential progress on back orders supply chain is still not yet back to normal as.
As previously discussed the vascular business has the greatest exposure to tie back packaging for our kits and trays.
<unk> shortages are anticipated to improve in the second half of 2023 as additional supply for the industry comes online.
Over the long term, we remain confident that our category leadership in central venous catheters and mid lines, along with our novel coded pick portfolio continue to position us for dependable growth moving to intervention of access revenue was $125 $1 million up 13.
4% year over year we.
We saw sequential improvements in constant currency revenue growth through 2022 as procedures move back to pre pandemic levels in the quarter, our diversified portfolio served us well with balloon pumps uncontrolled and manta all contributing to growth.
Turning to anesthesia revenue was $99 $6 million up 2% year over year.
Of our larger franchises hemostatic products LMA single use masks and endotracheal tubes, all had strong performances in the fourth quarter, partially offset by regional anesthesia.
In our surgical business revenue was $110 $4 million, representing another solid performance with 10, 4% growth year over year. Despite the aforementioned supply chain disruption due to a specific sub components supplier.
Among our largest product categories skin stapling, and our ligation portfolio contributed to growth.
In other developments, we closed the acquisition of standard Bariatrics early in the fourth quarter and tightened stapler revenue drove a significant portion of the year over year growth in the surgical business.
For interventional urology revenue was $89 $2 million, representing an increase of 13, 1% sequentially and a decrease of three 6% year over year.
Interventional urology continue to be impacted by a year over year decline in patient visits to urologists and staffing shortages.
Although the overall environment for elective BPH procedures has not yet returned to normal there were signs of improvement during the fourth quarter.
Third party data indicates that overall patient visits to urologists were down in the 3% to 4% range year over year in the fourth quarter, which marks a sequential improvement from the high single digit year over year decline witnessed in the third quarter of 2022.
OEM revenues increased 12% year over year to $73 $7 million, despite a very difficult comparison to last year.
Our order book remains well positioned as customers recognize our broad competencies with competitive capabilities, including.
Fourth quarter other revenue declined seven 1% to $73 $6 million year over year, we continue to expect all MSA revenues to six at the end of 2023.
That completes my comments on the fourth quarter revenue performance.
Turning to some commercial and clinical updates.
As mentioned earlier, we completed the acquisition of standard Bariatrics early in the fourth quarter of 2022.
Standard Bariatrics commercialize the Titan STS stapler for use and sleeve gastrectomy procedures to treat morbid obesity and we are excited to have the product and the teleflex surgical portfolio.
We are proceeding with our integration activities and remain on track with our objectives of knows we have completed the training of the teleflex salesforce under tightened stapler, enabling us to double the size setting our organization as compared to standard bariatrics on a standalone basis.
We also recently announced that Teleflex was rewarded our group purchasing agreement with Premier for the tightened stapler.
The agreement will make the tightened stapler available to surgeons affiliated with Premier and provide access to this innovative technology for use in gastric sleeve surgeries turning to your left.
We reached our objective to convert the vast majority of users to your list two during 2022, which would free up time for our sales organization to dedicate increased time to market development activities in 2023.
Training, New physicians continued in the fourth quarter, and we reached our targets for the year.
Of note the number of physicians trained in 2022 remains largely consistent with historic levels, implying continued interest in adding your lift to the BPH treatment paradigm.
To support new physician Onboarding for Euro lift we hosted lie BPH summit training sessions in the U S, Australia and Japan during 2022.
Our direct to consumer program remains an important investment and achieved its pre specified performance metrics for 2022, we will continue to invest in DTC initiatives for your lift, including a refreshed TV and digital campaign that launched in February .
Of 2023.
Now moving to an update of our international strategy for Europe .
We made considerable progress in the geographic expansion for your lift with entry into several new markets during 2022, including Japan and China Star.
Starting with Japan, we had strong launch execution with Europe , gaining sequential traction through 2022.
Revenues exceeded our expectations for the year and we see continued momentum into 2023.
Turning to China.
We initiated your live cases in the fourth quarter as anticipated we will be methodical in our launch activities and follow a similar playbook to the one that has served us well in Japan.
In turn we will spend 2023 training surgeons building our presence in key cities and continuing to engage with the Chinese urology society to build acceptance.
Now for an update on vascular business.
The vascular business unit continues to align its portfolio in clinical education offering with the evolving customer needs today Teleflex is well positioned to serve as a trusted partner with vascular access clinicians in their goal of zero catheter related complications.
We are helping to standardize outcomes by providing protection during and after vascular access procedures and establishing a predictable insertion process across the hospital.
This approach continues to solidify our significant market share and CVC and drive revenue growth through the highly successful launch of the CVC Ergo pack complete portfolio offering a complete vascular access insertion system designed to help clinicians comply with current guide.
<unk> and standards.
We also continued to prioritize growth in the pick and midline categories with the most recent advancement being the launch of the new iron ore pressure injectable Medline portfolio in North America in the fourth quarter of 2022.
The new offering is designed to help alleviate risk associated with line Mr identification without quick and easy identification between mid lines and picks medication may mistakenly be infused through mid lines that should only be infused through a central venous access device.
Potentially causing complications and disruption in patient therapy.
We are still in the early phase of the launch but have seen a great level of interest from customers thus far.
Additionally, innovation and pig placement and positioning devices can be expected in 2023, as we continue to drive towards growth and share gain in this segment.
Turning to the intervention of the access business.
I am pleased that the relaunch of the Langston catheter has progressed through the fourth quarter with product availability in the U S, Canada, Australia, and New Zealand. The Langston catheter is a unique diagnostic tool that helps clinicians determine the degree of aortic stenosis.
Which might result in a subsequent tiber procedure.
Our clinical and medical affairs team works to reeducate, the Americas on this product, including through a panel discussion at TCT and a webinar held in December .
The Langston catheter continues to build value for our customers enhance our engagement with clinicians and timer and demonstrates our relevance in the structural heart space.
We expect further product launches and our intervention business over the coming years, including complex catheters in the structural heart market.
Finally, some comments on the outlook for 2023.
We business improving stabilization in health care utilization over the course of 2022.
And we would expect a further sequential stabilization in health care utilization in 2023.
Indeed, the majority of the procedure markets that we serve are now back at or above 2019 levels.
Firstly some of the more deferrable disease states reflect patient visits to physicians that remain below pre pandemic levels, including urology we.
We anticipate that as Covid has become increasingly endemic and staffing shortage bottlenecks gradually ease the patients will increasingly seek medical interventions during 2023.
Turning to the macro environment 2022 had its share of operational challenges, including inflation and supply chain disruptions for 'twenty to 'twenty. Three we are prepared for some level of continued volatility, although we would expect incremental inflation to be at levels lower than 2002.
'twenty, two and supply chain challenges to improve through the year, we remain focused on our global operations and we'll look for ways to become more efficient as we work through the macro environment.
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.
Given the previous discussion of the company's revenue performance I'll begin with margins.
The quarter adjusted gross margin totaled 60% or 120 basis point increase versus the prior year period.
The year over year increase was driven by price foreign exchange and mix, partly offset by incremental inflation.
Of note our price strategy maintained its traction during the fourth quarter, enabling us to drive more than 50 basis points of year over year price improvement for 2022.
During the quarter, we continued to see an improvement in sea freight costs in line with our expectations.
Conversely, raw material and supply chain disruption remained elevated and have yet to normalize adjusted operating margin was 27, 9% in the fourth quarter, a 30 basis point year over year increase was the result of higher gross margin and disciplined expense management of non revenue generating expense.
Partly offset by deleverage across our expense base from lower revenue year over year inflation in our expense base, such as wages and planned investments in the business for our growth drivers.
Net interest expense totaled $18 $7 million in the fourth quarter, an increase from $11 $8 million in the prior year period.
The year over year increase in net interest expense reflects higher interest rates versus the prior year and increased borrowings on our revolver to fund the purchase of standard bariatrics, partially offset by a reduction in average debt outstanding our adjusted tax rate for the fourth quarter of 2022 was 13, 6% compare.
To 13, 8% in the prior year period.
The year over year decrease in our adjusted tax rate is primarily due to further enhancements and tax efficiencies of our global structure.
Partly offset by tax expense arising from the new provisions of the U S tax law, requiring the capitalization of certain R&D expenses.
At the bottom line fourth quarter adjusted earnings per share was $3 52.
A decrease of two 2% versus prior year.
Turning now to select balance sheet and cash flow highlights cash flow from operations for 2022 was $342 8 million compared.
Compared to $652 $1 million in the prior year period.
The decrease was primarily due to lower operating results higher tax payments higher payroll and benefit related payments and unfavorable changes in working capital driven by an increase in inventory purchases to.
To maintain high customer service levels during a period of elevated global supply chain volatility.
Moving to the balance sheet, our financial position remains healthy at the end of the fourth quarter, our cash balance was $292 million as compared to $445 $1 million as of year end 2021 reduction in cash on hand is due to $240 million of payments on our senior credit facility and $73 million for the.
<unk> of standard Bariatrics.
Additionally, we borrowed $100 million under the senior credit facility for the standard Bariatrics acquisition.
Net leverage at quarter end was approximately one <unk> times, which remains well below our four five times covenant.
Now turning to our 2023 guidance update we expect 2023 constant currency revenue growth of four and three quarters percent to 6% at one quarter per se.
Foreign exchange is expected to be a headwind of approximately half a point in 2023, considering the foreign exchange headwind, we expect reported revenue growth of four and one quarter percent.
Five and three quarters percent for 2023.
Buying a dollar range of $2 $91 billion to $2 95 2 billion.
We continue to expect revenue from standard bariatrics to be within a range of $30 million to $35 million turning to the middle of the income statement.
We expect gross margin for 2023 to be 59% to 59, 5%. Our gross margin guidance range reflects the positive impacts of year over year manufacturing efficiencies product mix and price largely offset by inflation.
Although we saw a moderation in sea freight cost during the second half of 2022 in line with our forecast raw material.
Real inflation was greater than expected at the time of our May 2022 analyst meeting.
2023, we have assumed that macro volatility will persist and continued inflation in raw materials labor and utilities to represent headwinds to our gross margin this year.
Moving to operating margin, we expect a range of 26% to 26% and three quarters percent.
Our guidance reflects the flow through of gross margin hit.
Head count and employee related expenses.
<unk> to grow the business and the inclusion of standard bariatrics, partly offset by the positive impact of restructuring.
Turning to items below the line.
We expect an adjusted tax rate in the $10 one quarter percent to 10 and three quarters percent range for 2023.
Net interest expense is expected to approximate $67 million for 2023.
The majority of the year over year increase in our net interest expense outlook reflects higher interest rates, partially offset by debt repayments.
Moving to earnings.
Our adjusted earnings per share guidance for 2023 is $13 to $13 60.
Which represents a one half point year over year decrease at the low end.
Four 1% increase.
At the high end.
When considering your models for 2023 foreign exchange will be a meaningful headwind to revenue in the first half and then increasingly turn to a tailwind in the second half of the year.
Assuming foreign exchange rates as of the beginning of 2023.
However, as a result of how foreign exchange flows through our inventory there will be headwinds to EPS through the third quarter and then it would become neutral in the fourth quarter.
We also note that while there is no year over year difference in the number of shipping days in 2023 versus 2022.
There will be five extra shipping days in the first quarter and five less shipping days in the fourth quarter of this year.
Historically, the benefit or headwind to our year over year GAAP revenue growth from a shipping day change is approximately 1% and our fiscal quarter.
Although we do not provide quarterly guidance for your modeling purposes, we would expect constant currency revenue growth range in the first quarter of approximately five five to six 5% when excluding the benefit from five extra shipping days or approximately 5%.
Me too.
Inflation has been persistent and at a higher level and we projected at the time of 2022 and honestly and.
In particular from raw material costs, and they're related impact on gross margin.
And although we anticipated a sequential improvement and the procedure environment for your lift throughout 2022 headwind.
Headwinds persisted through the year in particular.
Patient visits due urologists were down year over year in 2022, and staffing shortages remainder bottleneck for procedures, especially in the office setting third foreign exchange was a larger headwind than was expected as a one dollar strengthen against a broad basket of currencies in the second half of 2022.
Interest rates also increased dramatically in the second half of 2022 and.
And are expected to continue rising in 2023, although we have not recasts the entirety of the LLP provided in May 20 twenty-two.
We have updated assumptions related to inflation foreign exchange and interest rates. In addition, we are now assuming a three year <unk> and the 8% to 9% range for global year olds revenues.
And finally since we acquired standard Bariatrics early in the fourth quarter of 2022, we have incorporated the business into the long range plan.
We continued to view the RP targets provided at the 2022 analyst meeting as the vision for Teleflex in 2025.
With 2022 is the base year and incorporating the updates we now believe that we will deliver at the low end of the ranges for 2023, 2025 total revenue Kegler and margin expansion.
The high growth portfolio, which represented a little more than 25% of revenues in 2022.
We expect approximately 12% to 13% haeger for the <unk>.
More the durable core which represented slightly over 60% of revenues in 2022, we.
We expect to grow at approximately 5% kanger with respect to the remaining portion of the total revenue, which will be referred to as the other category, we expect a negative 6% to 7% <unk> do the <unk>.
And that concludes my prepared remarks, I'd now like to turn it back to Liam for closing commentary. Thank you Tom.
In closing I will highlight are three key takeaways from the fourth quarter of 2022 under 2023 outlook first or fourth quarter results were solid and driven by an improving and market for the majority of our businesses.
Second we're confident in our outlook for 2023, our outlook reflects the diversification of the teller effects portfolio through the combination of our growth drivers and stability of <unk> revenues.
Importantly, we will continue to focus on investment in our future growth drivers to enhance longterm value creation.
Third we are focused on achieving our objectives in 2025, we have a balanced approach to top line growth as we invest in our growth drivers and optimize the performance of the <unk>.
We see opportunities to drive margin expansion through mix shift restructuring and price and finally, we will remain disciplined and our capital allocation strategy with a focus on executing on our M&A strategy that.
That concludes my prepared remarks, now I would like to turn the call back to the operator for Q&A.
Thank you.
He'd like to ask a question. Please press one on your telephone keypad.
Needing a speakerphone. Please make sure you'll meet function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question one follow up.
He would like to ask additional questions. We invite you to add yourself in the queue again by pressing start one.
Oh first question will come from Cecilia along with Morgan for me. Please go ahead Cecilia.
Great. Good morning, and thank you for taking the question Liam I wanted to start with twenty-three guidance and and if you could walk through uhm relative to the updated L. R. P and those kangaroo, how we should think about contributions from the terrible Corps high growth assets and you're left and specifically on your left with the 8% to 9% <unk>.
Yeah. So do you do you think you've heard the question in the morning, So I would start with our overarching guidance for twenty-three on revenue, which is $4, 75%, 625% with the mid point at 5.5%.
This represents an improvement over 2022, which had an underlying growth rate of 4.3% and as as regards cadence within the year you obviously heard in Tom's prepared comments, where the corridor one will be five five to six five or the mid point of 6%. So therefore.
I'll, obviously seeing an improvement right out of the gate and core revenue.
As a company we are continuing to focus our efforts on high growth Endurable core to the other part of your of your your question, but the natural evolution for Teleflex as the Guy who did these buckets that they contribute to the overall growth rate of the company or guidance assumption for 2020 through three is cecelia assumes that high growth will grow 821.
11% <unk> with a girl, 4.5% to 5.5% and the other book would be flat to declining and in 2023.
As you know, we're incredibly transparent company and why we will not be guiding specifically to your lift we will report intervention or urology revenues every quarter consistent with all of our other product categories categories.
The exception to this this year will be standard bariatrics and the Titans stapler.
As we have guidance, the full year of $30 million to $35 million.
This is consistent about our past.
Guidance principles of giving guidance to an acquisition within the first year.
Obviously for you or would if we would expect and improving environment in 2023 and that would carry on into 24 25 Cecilia.
Alright. Thank you and then if I could pull it up on gross margin as well just the the outlook that you put out for 23, if you could walk through that's what you're expecting some continued inflation benefit of pricing and then also just your lips to conversion the impact that that's having on gross margin alongside Senate very.
Maryann Tech.
Okay I'll just cover the conversion of your lift too and Tom will cover the rest of the topics on margins Cecilia.
Two we have the the.
The U S market pretty converted at this stage of the your lift too.
Tom will go through your other questions on the gross margin line. Okay. So for 2023, our guidance is 50.
50, 959 and a half.
Or about five basis points at the midpoint.
And for 2023, we expect to realize meaningful margin accretion from the combination of mix price manufacturing cost improvement programs and and our footprint restructuring programs how.
However, we've spoken about in 2022, we continue to expect inflation largely to offset these games and Additionally, we're expecting.
Modest gross margin headwind from foreign exchange. If we were to look at what are the drivers of the accretion the largest being cost improvement programs accounting for.
Some 40% of the positives and then mix price and the footprint about 20% each of the increase and then as we look at what is offsetting that it's largely the inflation, which account for 80% of the offset and then as mentioned, there's a little bit from from foreign exchange as well and some some miscellaneous others.
Items.
So really it's a story of really good underlying margin expansion opportunities.
We've mentioned, we still feel very good about the long term prospects.
However, inflation is having an impact largely offsetting those those nice gains and the underlying business.
Our next question comes from Montana with cafes. Please go ahead.
Hey, Thank you. This is my XR con on from Matt today, Good morning, everyone.
So just to follow ups on Cecilia is good morning to follow ups answer silliest questions. Just first on the the urolift growth keg or of 8% to 9% over the next three years.
By any chance could you parse out how you're thinking about U S growth versus or U S growth.
Yeah. So I will tell you that when it comes to the guidance for Urolift.
Four during the L. R P O.
Over over the coming years.
We are assuming that you're a lift will grow 12% to 13%. So two comments on that.
We.
The high growth will go to 13 them within that you're lytham grow it to 9%. So a couple of comments on that first is that nothing has changed or international assumptions.
We still are confident in the rollout of the product in Japan, as we said in our prepared remarks, we'd begun in China.
Other geographies coming on board, such as Brazil, Taiwan, India, France, Italy, Spain, and ultimately, Germany as you go through the LLP cadence.
I would also say that you know <unk>.
<unk> 2022 played a little bit differently than we anticipated in the U S with procedure to recovery a lot slower than we had anticipated judy patient flow and stopping shortages.
And I think overarching if you if you look at Teleflex as a company within that high growth bucket and 2022 is 25% of our company growing at 12, 13% by 2025, it'll be a third of our company still growing at that 12, 13% and I think this.
Along with our growth within your lift would position teleflex as for attractive longterm durable growth as a company.
Got it that's very helpful. And then just one follow up on the gross margins for 2000 twenty-three do you think you could help us think about the quarterly cadence through the year.
And just how we should flow gross margin through.
Yeah. So I would say there is some pluses and minuses with how foreign exchange comes in and others, but what you should expect is a relatively stable gross margin for the first three quarters and then expect to see some margin expansion or further expansion in the fourth quarter as a result of a higher volume or attract.
Of mixer expectation.
Our next question comes from Shagging thing with <unk>. Please go ahead to your line is open.
Oh, great. Thank you so much for taking the question. So just on your left and I'll be guidance is about 8% to 9% mid single digit the reasonable ballpark for this year and you know I just wanted to get your thoughts on you know what gives me the confidence that <unk>. You know do you have a backlog this happened to you know it it.
It is encouraging that physicians.
Physicians are continuing to train and then with respect to my second question on E. B S. It's a pretty wide range. So so what gets you to the top versus the bottom and and what are the biggest swing practice here. Thank you for taking my questions.
Okay sure. Thank you for the questions I'll, let Tom answer the B S range in a moment, but let me begin with your lift.
So obviously, we feel confident on the 8% to 9% for your lift in within our L. RFP.
We we do believe it will be improving as we go through the L. R. P and as I said earlier nothing has changed in our assumptions for the international markets and we continue to anticipate that the international markets will do well and we do feel good about the global growth.
For the year franchise based on all of that and based on the improving environment that we anticipate as we said in our prepared remarks, and this gives us the confidence and DLR P growth of 8% to 9% Carragher between now and 2025 with regard to your question regarding patient returns. There's two elements I think she'd gone that needs to be taken into account.
Patient returns and staffing shortages.
And we have seen.
In the fourth quarter, we saw 13% sequential improvement in Q3 Q for we did see across all of our businesses and improvement as you went through the fourth quarter as we said in our state or.
Our prepared remarks that was also true of your lift as you went through that fourth quarter. You saw improvements as you went through the three months of the fourth quarter I was actually and ultimately we beat your lift our expectations for your life by in excess of $3 million in the fourth quarter, which is the first time, we've done that.
In a couple of quarters, now, which gives us some encouragement as we move forward I was out on the road last week.
Spend a few days with or urology salesforce.
You're left a meeting with customers and while we're seeing some improvement in staffing levels in hospitals.
Still not seeing it in the AFC and in the office environment I do anticipate that that will improve as we go through this year 2023, and I also believe that patient flow will begin to return to the office, we're going to help that by continuing to trained neurologist and we <unk>.
<unk> tossed around 400 urologist last year.
Everything is within our control over managing I think really really well, we're going to continue with our DTC campaign, and we have a new ad.
We just launched and let's not forget BP age isn't going away 12 million men with BB age are still there is <unk>, but it's not gone and we remain the premier <unk>.
Product for the treatment of BPH and we are in effect the market leader in the treatment of BPH, which gives us confidence for that Tiger for your lift over the RP.
And then with regard to EPS 60 cent range, which is a little bit less than 5%.
Top versus bottom so the the drivers that could push us to the top end of the range would be favorable mix in our in our sales for the year as well as inflation staying at a certain level. So if I were to characterize what would be the swing factor in there.
Probably the largest twin factors can be foreign exchange rates, which have been proven to be pretty pretty volatile over the past year.
As well as just where does inflation go. So that's those are probably the two biggest swing factors in the in the guide.
The next question comes from my compiler Quipu Research. Please go ahead Mike.
Good morning, Thank you for taking the questions I have two on the updated comments around the ORP revenue first and then margin on on on revenue I heard low and the prior Kangaroo was described as six to seven at the company wide level. So let's call. It a six my question is.
Are there any additional kind of unannounced acquisitions considered in that update or is it the base plus standard bariatrics now and no.
Unannounced M&A contribution.
So Mike. Thanks for the question you are absolutely correct. It is the base with the revised Urolift Tiger and the inclusion of standard bariatrics that that is the only thing we've made that's accurate.
Cool the the follow up on margin as it relates the updated dollar P commentary just the level set low N for the prior goes on gross an operating margin expansion.
Jumping off from 22, so so twenty-two on gross margin 59.2.
If I add 250 basis points I'm I'm, just south of 62% in 2025, and then an operating margin 27 per cent plus 200 beeps.
I'm, 29% in 2025 have I done.
The math correct.
You have.
Okay. Thank you.
Thanks, Mike.
Next question comes from Jason Bedford with Raymond James taken. Please go ahead.
Good morning, Sir I wanted to ask about operating margin in the fourth quarter was was strong but the twenty-three margin guidance was a bit softer and heaviness.
Oh to be in it'd be operating line Opex.
Unemployment pretty sharp step up and Opex and I assume some of the restructuring helps this line, but I guess my question is where is the the reinvestment occurring and how much of this is kind of structural inflation driven or a discretionary.
Well to your point I think as we look at the op margin for 2023. The first point is that just given the inflationary pressures and foreign exchange, where we're getting a lesser gross margin benefit than we would typically get.
So we're starting off with less benefit from the gross margin, but then as you as you look at the Opex. There's a couple of things that are I guess I would characterize them as structural and that there are head count related expenses that we're adding back in 2023 that.
We're not there in 2022 variable compensation was lower than target and there were a number of open positions quite a few that took a while to fill given the given the tight labor market environment, and where we've filled those positions and we're resetting the variable compact 100 per cent, there's a pretty big structural kind of move as a result.
That now investments to grow we've.
We've got some continued investments behind our high growth drivers expansion into international markets would be one as well as continuing to build out the capabilities of of our systems.
And otherwise in 2023 now restructuring does provide a benefit part of that is gross margin part of it and and Opex and some as in 2023 and the balance in 2024 and about two thirds of that restructuring will will benefit 2023.
So I would say overall the the.
The biggest impact is just a structural putting the cost back into the into the opex that were not there in 2022.
And that's part of the reason why we benefited in 2022 with a higher margin was was these costs were not even in the cost structure.
Right.
What's the expected dilutive impact from standard bariatrics and twenty-three.
So that will be it says we stated before Jason It's 10 cents. So it was tense and.
It is 10 to 15.
For this year and it was 10 in the fourth and last year.
Our next question comes from the <unk>.
Please go ahead.
Oh good morning, Thanks for taking my question one on twenty-three one on the L. R. P. Just on 20th twenty-three Tom maybe you helped me with the map here the mid point of their queue and guidance day adjusted six per cent I think constant currency, it's slightly below the rest of the year just yeah why would.
By with the growth for Q2, three Q for be lower than Q1, if I'm doing the math correctly.
So I'll take that one instead of time, if you don't mind it already so really.
You have a year over year comp is one of the reasons for it.
If you recall there was omicron last year, which had a slight impact on some of the procedures that were getting done we also.
Spect in Q1 to see a good solid performance Ah as.
In the overseas markets and in Oems Ah, So Ah just because of that impact in the prior year period. So that's why it's a little bit front end loaded in that regard very and I and I think most investors would prefer to see a front end loaded revenue plans in the back end loaded revenue plan in my experience at least.
So I think coming out of the blocks.
Pretty well at a 6% growth with the guidance that with the midpoint of our full year guidance at five and a half I think should be seen as a positive for the investment community.
Mmk Yep, so I agree with that on the front end loaded comment Liam banks and then on the L. R. P. I I guess, maybe two part one if I'm just thinking about the math right. The 5% I think the the midpoint for for revenue, it's about 5% organic this year in 2003, if I'm thinking about that right, but 6% now for the.
<unk>. So it applies in acceleration in 24, and 25, if I'm thinking about that right and on the margins.
Follow up on the earlier question.
People are gonna now look at this operating margin for example of $2006 three at the mid point for twenty-three and approximately 29% goal in 2025, that's a pretty big step up of about 300 basis points. So you know basically what gives you the confidence in both of those if I'm thinking about the revenue acceleration in 2000.
Four and five correctly here and then on the margins I'll basically 150 basis points a year in.
24 and 25.
What gives you that confidence thanks for taking the questions.
Okay. So I will cover the RP and Tom Tom will cover the the margin question, but I know what Tom's answer so it's going to be really focused on inflation, Larry which should be no surprise to anybody given the environment that we're in but let me cover the revenue. It's all constant currency. So what I'm gonna talk about his constant currency. So the first year of the <unk> will be 5.5.
Percent.
We're at the guiding to the low end of RP with just 6%. So you are correct. There is a modest uptick.
In Ah revenue as you go from this year 2023, 24, and 25 and why is that one of the main reasons for that is being improving macro environment that we expect to see beginning as we go through twenty-three and continuing into 24 and 25, the second factor that will help that.
Is the international expansion of some of our high growth portfolio not just your life, but also the international expansion of picks the international expansion of the Interosseus portfolio of the international expansion of the.
Hemostatic products that will bring acceleration of growth in the in the latter half of the L. R. P. A and we feel pretty confident in that it's not a mammoth step up we're going from 5.5% to 6% Tiger over the the horizon of the RP and I think the other comment that I will make.
<unk> that nobody has picked up and so far in their questioning is Java core was 4% to 5%.
We've been micro focused on one element of teleflex. The dual core has been improving all this time another durable corps for the RP is now 5% at the upper end of the original guy to 4% to 5% through excellent execution by the businesses globally and the margins on a high portion of that <unk>.
A core are fairly substantive unhelpful to tell us.
And you know, it's a 14 billion global time for the for the high growth and we're only 5% penetrated so the opportunities for us to continue to grow into that are significant but.
But I'll I'll, let Tom addressed the margin question that you had Larry and thanks for the questions sure Larry So the driver of the op margin expansion, it's really going to come from largely from the gross margin and as you break that down we're expecting continued margin accretion due to mix in price.
Additionally, we have the MSA with Medline, which ends at the end of 2023 and that adds up close to a full point of of margin as a result of that.
And then a third areas that typically we have enough productivity in our operations to more than offset inflation that wasn't the case in 2022.
The case in 2023, we do expect to see that some improvement.
As we go into 24 and 25 on inflation and as a result operations productivity once again becomes accretive to gross margin versus dilutive in 22 and 23.
So those are kind of the key drivers of the gross margin. We also expect to see some leverage in the operating margin as a result of.
Increasing revenues, allowing us to leverage that cost structure. So if I think about the.
The key components that would be four point in time reference.
Preference.
Next question comes from Mike Madison with me to My Company Mike. Please go ahead.
Yeah. Thanks, So I want to ask one on pricing I think you said you had over 50 basis points and I think that was for the full year of 2022.
What would it be kind of assumed in the the guidance for for 23 is it kind of remaining at that level could it even be higher maybe.
So we began the year 2022, expecting 50 basis points of positive pricing and we exceeded that goes in 2022 mikes. So we'd be we came in.
Comfortably above to 50 basis points.
We would expect again to be above 50 basis points and to deliver a minimum of 50 basis points of pricing.
This year and we have a pathway to that we have some carryover from the prior year and we have some additional pricing opportunities that some of which we've already executed.
Okay got it thanks and then.
I think Tom did call out some restructuring and his comments on the margins. So is that existing programs or are you planning anything new there.
That is.
Existing programs, we have a number of footprint.
Programs that are still finalising there'll be largely done by 2025, and then we introduced a new program in the fourth quarter of 2022 that will be complete by 2024. So everything I spoke about are known in existing programs that.
Frankly, we're managing to expectations.
The next question comes from Matthew I, Brian with <unk>.
Please go ahead.
Oh morning, Thanks for taking my question so.
Did they think about Euro list and this this new 8% to 9% take her to the L. R. P. I think that's about 90 $200 million or incremental revenue through that time frame.
By 25.
So if I remember correctly, Japan, and China were supposed to be pretty sizeable contributors I think in the out years, maybe half of that and I need 100 million Bucks, maybe a little bit more than I thought it would imply.
It's been fairly modest improvement here domestically first of all my right about that and secondly.
You know how conservative is that does it make sense to be doing these D. T. C are making the C. D. C spend if you don't think the domestic business can can really accelerate over the next several years.
So a match your overall math is fairly good with regard to the growth in your left over the three year horizon.
I I I think that we are still are reliant on the U S.
To to drive the bulk of the growth just because the overseas markets aren't big enough clearly overseas and international were encouraged by what we're doing.
And by the time, we get to the end of 2025, it will be a bigger portion of the revenue and of course on a smaller base the percentage growth is going to be much better.
Done a really good job in Japan, where we're going to do a really good job in China, Taiwan, India.
Ah, France, Spain, Italy, Germany, Brazil, and so on and so forth, but they're just not big enough to carry carry the growth to get us to that.
<unk> of April 11%.
I think that the DTC does make sense to answer the other part of your question. If you go back to 2022 based on our expectations. The number of impressions were up by 27%. The number of responses were up double very strong double digits. So we feel that that is a an encouraging factor and every time I talk to the urologist and I.
The same was true last week when I was out on the road.
Patients are coming in to them asking them for your list based on the AD campaigns that they see so I think we will continue.
With the DTC campaign, and where we believe that 8% to 11% is very achievable for us as a company.
Okay I appreciate that Lamb, and then as far as the high growth portfolio goes as well you know coming down a little bit from I think it was 14 or 15 before it at about 12 to 13 del implies the rest of the portfolio outside of U L. As his strong can you talk about some of those components, what you're seeing from Manta easy I.
Picks et cetera that are giving you the confidence to reiterate the strength in that segment of the business over the next several years.
Yeah. So the high growth is doing really well is in the fourth quarter regroup approximately 14%. The full year grew approximately 14% X. The contributions of your of if so obviously there are elements within the high growth that are above the average that we expect them. There were elements of the high growth that will be slightly below it.
Obviously now the tightened which comes from standard Bariatrics would be the fastest growing then you'll have manta, which will grow above the average.
We feel really good about the high growth portfolio, we feel really good about being able to deliver the high growth at 12% to 13% over the RP and we feel really good about being able to deliver aid to 11% from the high growth in 2023.
And and the the performance of all other aspects of the high growth except for one have been right in line. If not ahead of our expectations for the entirety of 2022, and there's nothing better than momentum as you know mass as you head into 23, 24, and 25 as you continue to build that out and.
I know, we talk a lot about international expansion with your lift but it is also the same for the rest of the high growth. There is internationally expansion as well as domestic sales growth as we tap into that market and the encouraging thing is as I said earlier all of his high growth is growing into a massive market time, we're we're very underpenetrated with cigna.
Difficult opportunities for growth.
Our next question comes from Anthony portraying with Missy Hi. Please go ahead Anthony.
Thanks, Hope everyone's doing well maybe.
Maybe just in the L. P standard bariatrics, just to kind of clean that up a bit in terms of <unk>.
Topline contribution rolls into organic I would assume sometime later this year or early next year. So maybe the contribution from standard bariatrics.
Standard bariatrics within the LLP.
And can that actually be margin accretive.
By the end of the LLP and I'll have a couple of follow ups.
Yes.
And we're all well Anthony Thanks for asking so I'll answer the last part of your question first yes, it will be maridjan accretive by the end of the at RP.
We expect it to become margin of creative as we exit 2024.
What you should expect from standard Bariatrics is that it will deliver between 30 and 35 million. This year as we stated in our prepared remarks and then as.
As we said previously it should add approximately 50 basis points of growth to teleflex year over year thereafter from an organic perspective. So that's what you should expect from from standard Bariatrics rough map should be around 60 million Bucks by the end of 2025.
And then quick follow up the two I'll throw in there and I'll get back in Q1, just on your left.
We think about it through 2025, obviously, we saw some shifts in patient behavior yeah at.
At what point do you think things sort of normalize here is there a path to normalization, let's say at the end of this year or early next year I'm talking about U S patient behavior and then maybe just your updated views on the M&A landscape.
Sort of what what what level of discussions as teleflex, having and just may be your high level views on.
Thanks.
Yeah sure Anthony So I expect.
The overall environment.
For your allergy patients and staffing to continue to improve as we go through 2023.
When it's going to be 100% normal Anthony it's difficult for me to actually pinpoint that right now.
Fairness.
But I do anticipate to continue to improve and why do I say that the.
The staffing levels in hospitals began to improve in queue for I expect that to continue into Q1. This year and one staffing that will start to improve in hospitals. It will ultimately then begin to approve and asc's and ultimately in Offences thereafter.
And I think the patient flow as I said earlier to still 12 million men. So from from BPH, If you walk into it.
Your honor just office and there's 100 men in the urology waiting room 40 of them are there because they got BPH roughly so it's still the number one reason why a mangoes urologist so.
The size of the market is a significant driver to my belief that it will return to normal as we go through the RP at some stage.
With regard to M&A.
Clearly we have the most important thing that you need we have a very strong balance sheet foreign M&A, where about 175.
Times Levered at the end of the fourth quarter.
Active out there.
Looking at opportunities, we have a lot of lines in the water and the water where efficient hired Anthony.
Very difficult for me to stay and we're going to get a fish on the hook and into the boss, but there are tired that's out there that we are interested in that are targets out there that we are actively pursuing.
And we do believe that we are are attractive acquire and their assets that we feel would fit very well in the teleflex family.
Our next question comes from Craig's P. G with Bank of America Merrill Lynch Alright. Please go ahead.
Good good morning, guys. Thanks for taking the questions. One Mmm, let me just start with with Urolift and I did want to ask I know Japan.
Was better than expected it was Japan in the quarter.
Was the 89 versus the 86000 apply for your guidance.
Japan.
If you could just kinda.
Comment on what drove the few million B does that U S or on the international side.
So that we saw improvement in both sides of the update landeck.
I keep getting back to the point that the international markets at this stage are not substantive enough.
To to to carry the can for for for the overall your lift growth and we would not have been able to beat by $3.3 million Craig without the U S delivering a good proportion of that.
I am encouraged though as I said earlier on what what we're doing in regard to the the.
The the the expansion overseas, Japan has gone exceptionally well we did our first cases in China were starting to roll out in India and other drugs because I won't go through them. All again, but we are we are encouraged by what we see with regards to that rule it out.
Got it thanks for the amendment on your comments on the durable core and appreciate that how that's gonna moved up in terms of the yellow P growth, maybe I mean, what are some of the products. The categories that are really driving that and I do see driving.
That you know.
L O P growth you know for the next several years.
Yeah, I think as I look at where we see an improvement in improving environment first of all the job to understand as in 2022, we had a lot of supply chain issues, we had charges Atari base charges subcomponent and so on and so forth. So that's gonna drive some of the early improvements that you are going to see so you should see.
An improvement in our basket our business as you go through 2023 and beyond vascular.
<unk> Ah in the entire year, but what kind of fence constant currency the normal growth without businesses in the mid single digits. I also believe that intervention access we've got.
A lovely sweet of new products coming through an intervention of access and that's the lifeblood of that business.
And intervention with access we would anticipate will continue to acceleration.
One of our I guess.
No more than the jury of a core of one of our under appreciated assets as our OEM business.
We bought this company called H P. C. A couple of years ago. It does 10 balls catheters that on top of the rest of the OEM business has continued to grow in the high single low double digits from a business that historically used to grow around three or 4%. So I anticipate that OEM will continue to flourish.
<unk> will continue to accelerate its growth over the L. R. P. M B, a real contributor and never forget it it's a creative to our operating margin and will drive that and obviously APAC.
Is it is a key growth franchise for us.
We have a lot of products that we are launching into the APAC region.
We believe will be very successful there. So those are some of the key areas that I believe will continue to grow and as I said earlier as we go through the RP, we would anticipate that intervention urology would also improve as we go through the RP.
[noise] next question comes from to extend the ZIP Stevens George Please go ahead.
Hey, Thanks for squeeze me in here and I'll just ask one one quick one could you give us a little color on what you're seeing in terms of private market valuations and help those who have turned it here recently and maybe how how comfortable are you that you could potentially deploy some capital here in the near term.
Thank you.
So George is you know it takes two to get married so we're willing groomer, Brian whichever way you want to put us and it's a question of finding the other party I will tell you the evaluations.
From the heady days of 2021 have moderated some loss.
And high high quality assets are still not.
Inexpensive, but that's why they're high quality assets and those are the assets that we're going after.
But you can we will remain disciplined George and investors can expect us remain disciplined.
We will look for assets that are accretive to our top line growth. We look for assets that are created through our gross margins will look for assets that will become accretive to our up margins in earnings pretty quickly. After we acquired them. We will we very distant on our our our return on capital and and you know getting above.
Our internal cost of capital Ah by at least you are five.
We've always been able to do that in your four but.
The hurdles will remain the same for teleflex in finding good assets, bringing them into the family and integrating them into teleflex and obviously assets that are unique in the marketplace in segments that are growing faster than the than the than that court segments within teleflex.
Our next question comes from <unk>.
Please can I have your line is open.
Uhm, great. Thanks for taking the questions just a.
Quick clarification from me in the night, and then I'll have a follow up for Tom on that's the low end of the 6% to 7% from 22 to 25 does that include the inorganic contribution of standard bariatrics in 2023.
Yeah, as we said in our prepared remarks, and as I said, a couple of times already the changes that were made we've making is we're revising the high growth bucket and the your live component of that high growth book.
Adding standard bariatrics so.
That's yeah, that's correct.
Okay, and then just for time on the tax rate.
Yep 10, the quarter to 10.75 per cent for for 2023 is is it pretty low, especially compared to historical standard what's what's driving that for 2023, and how should people think about the sustainability of that tax rate moving forward and just into the next couple of years.
Well I would say that you know as you look at 2000 twenty-three there's two drivers of the tax rate.
One is the change in the tax law related to the capitalization of R&D expenses.
We'll start to provide some ability to to amortize in 2023. So we have a less of an expense impact as a result of that and the other driver would be the.
IP consolidation projects or consolidation projects that we've undertaken will begin to show a higher benefit in 2023.
Those benefits will continue.
Throughout the LLP timeframe. So you should think about the rate is.
As being sustainable I would say that there is one caveat and that the he used currently assessing a minimum tax if that were to become legislation that could have an adverse impact on our on our tax rate.
And Matt I, just I just wanted to do I should say that contemplated for 2024 2023 and back.
Sorry, Tom Yeah.
I just wanted to circle back on the standard Bariatrics a question the the difference between pro forma and standard Bariatrics as is isn't that significant given that the product is only recently on the market and the growth is being driven by teleflex.
Following the training of our sales force. So we've doubled with sales force. So it isn't that significant a difference one way or the other matches what I would tell you.
Those are the questions. We have time for today, so now tend to come back to learn any concluding remarks.
Thank you Emily and thank you to everyone that joined US on the call. Today. This concludes the Teleflex incorporated fourth quarter of 2022 earnings Conference call.
Thank you everyone for joining us today a conference call for today is now completed thank you for your participation you may now disconnect your lines.
[music].