Q2 2023 Teleflex Inc Earnings Call
Please standby good.
Good morning, ladies and gentlemen, and welcome to the Teleflex second quarter 2023 earnings Conference call. At this time, all participants have been placed on listen only mode.
At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that the conference call is being recorded and will be available on the Companys web takes place.
And now I will turn the call over to Mr. Lawrence Kirsch, Vice President of Investor Relations and strategy development.
Good morning, everyone and welcome to the Teleflex incorporated second quarter 2023 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 will have the ability to advance the presentation slides on their own.
Simply all along with the presentation as you 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.
Liam and Tom will provide prepared remarks, and then we'll open the call to Q&A.
Before we begin I'd like to remind you that some of the matters discussed in this 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 are subject to risks and uncertainties and actual events or results may differ materially.
Factors that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well as our filings with the SEC, including our Form 10-K, which can be accessed at our website.
Now I will turn the call over to Liam for his remarks.
Thank you Larry and good morning, everyone. It is a pleasure to speak with you today.
This mornings call, we will discuss the second quarter 2023 results, our pending acquisition of <unk> life Sciences, and our financial guidance for 2023.
Turning to the second quarter Teleflex revenues were $743 $3 million a year over year increase of five 5% on a reported basis and an increase of five 9% on a constant currency basis.
Second quarter adjusted earnings per share was $3 41.
0.6% increase year over year.
We saw stable utilization in the acute care setting in our global markets.
Balanced performance in the quarter continues to demonstrate the benefits of teleflex is diversified product portfolio and broad geographic footprint.
From a macro perspective, we continue to see sequential stabilization with respect to material inflation and we'll continue to monitor trends during the second half of 2023.
Our supply chain remains stable in the second quarter, although we are still not yet at normal levels.
As expected we witnessed a continued stabilization in hospital staffing.
This was evident in our second quarter revenue growth as most teleflex products are exposed to the hospital setting.
Conversely, we are still experiencing geographic pockets that are encountering more persistent staffing disruption in the ASD and opposite of service, but note that bottlenecks are seeing some easing.
Now, let's turn to a deeper dive into our second quarter revenue results.
I will begin with a review of our geographic segment revenues for the second quarter.
All growth rates that I referred to are on a constant currency basis, unless otherwise noted.
America's revenues were $424 $7 million, which represents 3% growth year over year.
In particular, we saw strong performances in our vascular interventional and surgical businesses.
<unk> revenues up $147.8 million increased <unk>, 7% year over year during.
During the quarter, we saw strength in our vascular and urology drainage businesses.
Turning to Asia revenues were $86 $7 million, increasing 19, 1% year over year.
During the second quarter, we saw stable demand across the region, including growth in excess of 20% in China.
From a product perspective, we saw strong double digit growth in interventional access and interventional urology in the region.
Let's now move to a discussion on our second quarter revenues by global product category.
Commentary on global product category growth for the second quarter will also be on a constant currency basis.
Starting with vascular access revenue increased six 6% to $173 $8 million, we executed well during the second quarter.
Initial launch activities for our next generation Arrow Vps rhythm <unk> navigation device and the new iron opaque pre loaded with the Navi curve stylist at generated a positive customer response.
Over the long term, we remain positioned for dependable growth with category leadership in central venous catheters that midline anticipated share gains, but our novel caused a big portfolio and new product introductions.
Moving to incremental axis.
Revenue was $124 $8 million.
Up nine 6% year over year.
Procedure volumes remained stable in the quarter and we continued to benefit from our diversified portfolio.
Balloon pumps, right heart catheters, and access and closure all grew at double digit rates.
<unk> continues on a trajectory our strong double digit growth in 2023.
Turning to anesthesia revenue.
Revenue was $108 million down three 6% year over year, a tough year over year comp due to timing of military orders in the prior year period impacted results.
In our surgical business revenue was $106 million up seven 7% year over year.
In the quarter, we advanced our integration of standard Bariatrics and training of new surgeons on the use of the Titan S. G S stapler and sleeve gastrectomy procedures is accelerating.
For interventional urology revenue was $77 $8 million.
Renting a decrease of two 3% year over year.
Once again, we witnessed year over year growth for your lift in the hospital setting, but the office site of service remains challenging.
The overseas launch activities continue to progress inline with expectations with Japan, Your lyft usage growing in line with our expectations.
OEM revenues increased 19, 8% year over year to $84 $1 million.
Strength in the quarter was broad based across our portfolio with a double digit growth in all of our product categories, including micro catheters.
We continue to have good visibility into the business and see solid demand dynamics throughout 2023.
Second quarter other revenue increased four 8% to $76 million year over year.
We continue to expect all MSA revenues to six at the end of 2023.
That completes my comments on the second quarter revenue performance.
Turning to some commercial updates.
On July 26, we announced a definitive agreement to acquire privately held <unk> life Sciences for an upfront cash payment of $600 million at closing and up to an additional $50 million on the achievement of certain commercial milestones.
The acquisition will expand teleflex interventional urology to include a portfolio.
Fast growing non animal stabilized hyaluronic acid R. N a S H, a spacer and tissue boating products that improve patient outcomes in urology euro gynecology disorders, colorectal conditions and radiation oncology procedures.
<unk> is estimated to generate net sales of approximately $56 million on a standalone basis in fiscal year 2023.
We believe <unk> will contribute meaningfully to our growth in the coming years with revenue growth in the high teens to low 20% range year over year in 2024.
The strong growth profile, our palette gives us further confidence in our ability to deliver on our 2023 to 2025 L. RP growth objective.
The barrier gel rectal space or is the flagship product for life Sciences and generates the majority of the company's revenue.
<unk> is a N a S H, a spacer with a compelling value proposition.
Driven by a reduction in radiation delivered to the rectum during prostate cancer radiation therapy, while increasing tumor control and patient quality of life.
In addition, the palette life Sciences portfolio also includes deep flux answer Leicester, which our MAA S. H E based tissue bulking agents designed to treat pediatric Betsy call urethral reflux and fecal incontinence, respectively.
The acquisition of <unk> life Sciences will allow us to incorporate this exciting high growth and high margin technology into our interventional urology business unit, along with our well established global call points we.
We are focused on bringing urologists and other specialists more innovative technologies that can positively impact patient care.
The acquisition of palette is attractive for three primary reasons.
First marriage as a differentiator of rectal spacer with a strong growth profile following FDA clearance in may of 2022.
And represents a highly complementary product to our existing interventional urology business.
In recent years the treatment of prostate cancer has increasingly utilize hypo fractionated radiation therapy, which uses higher doses of radiation in fewer treatments.
In order to reduce radiation associated complications usage up temporary rectal spacers has grown as a way to protect healthy rectal tissue from harmful radiation.
Vera gel has grown by expanding market adoption since its launch due to its unique product features.
Unlike other technologies Vera gel is easily sculpted when placed between the prostate and rectum, providing comprehensive protection from radiation therapy.
The scope of ability allows the physician to achieve predictable protection up healthy erectile tissue prior to radiation therapy.
BARDA is.
He is also highly visible on trends rectal ultrasound.
Which AIDS accurate placement is biodegradable and offers one step assembly up the delivery device in all sites of service.
Second.
There is a large and growing global market for rectal spacers.
The American cancer Society estimates that there will be 288000, new cases of prostate cancer in the United States with the incidents growing 3% a year.
Durable growth driver to our portfolio.
We also expect interest in rectal spacers to provide opportunities cross-sell urolift.
From a financial point of view the transaction is consistent with our strategy to acquire assets that are created to teleflex as growth rate and margins.
Alex adjusted gross margin will be accretive to both the corporate average and the intervention neurology business units.
In addition, we expect <unk> operating margin to enhance the corporate average in the near term.
Finally, who was close our balance sheet remained sounds, allowing us to continue to execute on our long-term capital deployment strategy.
The acquisition is subject to customer at closing conditions, including receipt of certain regulatory approvals and is expected to be completed in the fourth quarter of 2023, we look forward to welcoming the <unk> employees to teleflex.
Turning to an update on the Titan Sds stapler.
We continue to execute in our commercial strategy for the Titan Ses powered stapling device for use in sleeve gas directed me procedures to treat obesity.
Feedback for the Titans Stapler remains positive and we remain confident in the value proposition for the Titans Sds stapler.
The 23 centimeter continuous staple line enables ideal pouch creation and no overlapping staples that are common with traditional power staplers. We are optimistic that over time, we will be able to generate data that shows a reduction in complications and meaningful time savings purpose.
<unk>.
Despite the continued positive feedback from the field, we now expect tightened stapler revenue to be in the high teens for 2023, which is lower than what our original guidance for 2023 had assumed.
Value analysis committee clearance has taken longer than we anticipated, which has slowed our ability to train surgeons.
We have learned from the early experience and have refined our strategies for gaining back approval.
Our efforts are taking hold with more than two times. The number of surgeons trained in the second quarter of 2023 versus the first quarter of the year.
Moreover, we have a strong pipeline of surgeons in queue to be Proctor. So we expect further improvement through the year.
We continue to monitor the usage of G. L. P. One drugs and trading obesity based on our market checks <unk>. The G. LTE ones had some impact on bariatric surgery volumes in the second quarter.
It remains too early to assess the long term impact on the market given questions on reimbursement and safety profile Indian term, we remain acutely focussed on penetrating a large sleep gas rectum. Your market that is in excess of 120000 procedures in the United States given the very early stages of the Titans.
State law.
We remain confident that the tightened stapler would be a meaningful contributor to our high growth portfolio through the <unk> period.
That completes my prepared remarks, now I would like to turn the call over to Tom for a more detailed review of our second quarter financial results Tom.
Thanks, Liam and good morning.
In the previous discussion of the company's revenue performance I'll begin with Margaret.
The corner desk gross margin was 59%.
60 basis points decrease versus the prior year period.
The year over year decrease was primarily due to continued cost inflation five three calls an unfavourable impact on productivity you the raw material supply.
Partially offset by seasonal price lower logistics and distribution related costs and.
Benefits from cost improvement initiatives.
Turning to price.
There is no changed our expectation for at least 50 basis points, a positive price year over year 2023.
Adjusted operating margin was $26, 6% in the second quarter.
The 90 basis points you over your decrease the result.
Gross margin.
Head count employee related expenses.
Essence to grow the business and the inclusion of standard very accurate.
Net interest expense totaled $16 $6 million in the second quarter, an increase from $11.2 million in the prior year period.
The year over year increase in net interest expense reflects higher interest rates versus the <unk>.
Prior year, partially offset by reductions an average staff Sanders.
Are adjusted tax rate the second quarter of 2023 was 10.8% compared to 12% in the prior year period.
The year over year decrease in our adjusted tax rate, primarily due to reduction in tax costs, resulting from U S X law, requiring capitalization of R&D effects.
At the bottom line and second quarter adjusted earnings per share was $3.41.
An increase of 6% versus prior year.
Pretty now to select balance sheet and cash flow highlights.
Cash flow from operations for the six months was $176 million compared to $101.9 million and the prior year period.
The increase was primarily attributable to lower tax payments and favorable changes in working capital.
Moving to the balance sheet <unk>.
Financial position continues to provide the flexibility to operate the business and execute on our discipline capital allocation strategy.
At the end of the second quarter.
Balance was $258 million as compared to $292 million as an ear and 2022.
The reduction in cash on hand is primarily due to $154 5 million payments are senior credit facility.
Partially offset by 131.2 million a freak accident in January during the first six months of 2023.
That leverage at quarter end was approximately 1.6 times.
<unk> well below are four and a half times covenant.
Turning the financial guidance.
Starting with the acquisition of life Sciences.
As mentioned previously.
Sciences is expected to generate net sales of approximately $56 million in 2023.
Assuming of December 1st 2023 close date.
The acquisition is not expected significantly impact Teleflex is 2023 revenue.
In 2024, we would expect that business will see you over your revenue growth in the high teens.
Per cent range.
Assuming the December 1st 2023 close.
Transactions is expected to be approximately 15 cents and 35 cents dilutive.
Please adjusted earnings per share in 2023, and 2024 <unk>.
Beginning in fiscal year 2025, and thereafter.
<unk> expects the acquisition preschool.
<unk> adjusted earnings per share.
Hello, Flex plans to Nancy acquisition borrowings hundreds revolving credit facilities and cash on hand.
Signing of the transaction, we remain solid financial position pro forma net leverage for approximately two and a half times. According.
There's no change to our extended long-term capital deployment strategy.
Moving to our outlook for 2023.
Given our operational performance in the second quarter and our second half hour, we are revising our 2023 financial guidance.
Specifically, we are increasing the bottom end of 2023 constant currency revenue guidance by 50 basis points to 5.5% 6.25%.
Putting the foreign exchange, we now assume a positive impact on foreign exchange translation.
28 million or 30 basis points to get growth 2023.
This compared to our prior guidance, which I assume at $10 million or 35 basis point headwinds for 2023.
No our second quarter revenue results reflect the foreign exchange resolve that was approximately 6 million favorable what was previously expected.
The balance of the updated full year 2023 impact of changes in foreign exchange rates.
<unk> over the second half of 2023.
A revised foreign exchange guidance for 2023 captures the actual wait a second quarter now assumed current foreign exchange rates, including a euro two dollar exchange rate of $1.10 in the second half of the year.
Considering the revised foreign exchange headwind, we expect recorded revenue growth of 5.8%.
655 per cent in 2023.
And flying a dollar range of $2.953 billion.
2.974.
And applying increase the low end of the dollar range of $42 million in the high end of $18 million.
There are no changes to our outlook for gross and operating margin 2023.
Hello. The line, we now expect net interest expense to approximate $77 million in 2023, which.
Which reflects net incremental borrowings under a revolver the acquisition.
We are maintaining our 2023 guidance for adjusted earnings per share a $13 $13.60.
Justin D. T. S outlook has been updated to include 15 cents a delusion the acquisition.
15 cents solution associated with the recall E T tubes, and the endurance catheter during the second quarter.
Upset by 15 cent foreign exchange benefits.
The balance from favorable operating performance.
Better than expected results and a second order and higher growth expect it from the second half of the year.
That concludes my prepared remarks, I would now like to turn it back from your closing commentary.
Thanks, Tom.
In closing I will highlight are three key takeaways from second quarter of 2023.
<unk> are diversified portfolio and global footprint drove durable growth in the second floor.
Our execution remains strong we are launching new products and our margins remain healthy.
Second.
The solid second quarter performance keeps us well positioned to deliver on our financial guidance for 2023.
As we look into the second half 2023, we anticipate stable to improving backrow conditions.
Third.
We will continue to focus on our strategy to drive durable growth.
We will invest in organic growth opportunities and drive innovation expand our margins and execute on our disciplined capital allocation strategy to enhance longterm value creation.
We are excited about the acquisition appellate life Sciences, we believe that the acquisition will be a meaningful contributor to our growth in the coming years be immediately accretive to gross margins I'm Gonna <unk>.
Hence are adjusted operating margins in the near term.
In turn we have further confidence in our ability to deliver on our 2023 to 2025 at R. P revenue objectives.
That concludes my prepared remarks, now I would like to turn the call back to the operator for Q&A.
Thank you.
You would like to ask a question. Please press star one on your telephone keypad, if you're using a speaker phone make sure. The commute you function is turned off to allow your signal to reach out to our equipment.
We do ask that you limit yourself to one question and one follow up if you would like to ask additional questions being forced you to add yourself to the queue again by pushing start one.
And our first question comes from <unk> of RBC. Please go ahead.
Great. Thank you so much for taking the question so that I might be acquisition would add about 50 basis points to override teleflex growth and 400 basis points to international <unk>.
Is that in Nepal.
Does this help offset some of the weakness in your left or is your into nine per cent L. I P.
<unk>.
Thank you very much for the question should go on I'll I'll start with your question in as it relates to the L. R. P. As it relates to the <unk> the acquisition appellate emboldens, our confidence in at least achieving to six per cent growth is laid out in <unk> and here are the building blocks.
<unk> will grow at 5% I think given the performance so far this year and what we expect for the remainder of the year, we feed her a super confident that 5% the high growth portfolio will be growing.
At least 12% and within that the intervention of urology business units, which will include palette will be growing at least 8%. So. This addition, appellate insurers our ability we believe to achieve our 6% at R. P grow with fries that we laid out in our capital markets today.
With regards to the addition, what addition that it will make into the future growth of Teleflex I mean, your math is it's it's pretty spot on him. It's delivering 56 million. This year, it's going to grow in the high teens, the low twenties in 2024, and I do believe that that kind of a number should be sustainable into 2025 is.
Well. So obviously your math is is pretty right on the money and I think it's an impulse. It's an important point to note as I outlined in my prepared remarks, the gross margins from <unk> is a really important factor insofar as it is not alone crazed teleflex, it's a creative to the intervention or urology business unit today.
And it's a creative to the high growth portfolio. Thanks for the question chicken.
And just as a follow up on your list can you just elaborate on <unk> I know that.
The patient volume comes with a little easier this quarter, but just telecom congested places can you elaborate on <unk> and thank you for taking my questions.
Yeah. Thank you should gun, we've we've still seen through the first half of the year.
A reduction in patient flow to the urologist I I think from within the quarter. There was some green shoots I guess when you see that the hospital rate of growth continued we still see pressure in in the office size of service and that still remains somewhat.
Of a of a challenge to US we continued to train.
A a a a robust amount of surgeons and actually we saw it take up in the amount of surgeons that we trained in queue too, but the office still remains a troublesome side of service for this product in the quad for sure. Thank.
Thank you.
Our next question comes from Jason Bedford of Raymond James. Please go ahead.
Good morning, I wanted to to follow up on the comments on the Titans stapler. It seemed like the revision in the guide there seem dependent on a longer back committee approvals and I'm just wondering.
What's the source of the pushback there do you need more clinical data is at a price issue just loved <unk> data in on that a little bit more.
Yeah, Jason I mean, obviously, our initial expectation at the low under 30 million, it's now in the high teens.
We still expect how you're going to be a significant contributor to D. L. R. P. The pushback as we go through the back committees and the fat committees have the knock on effect of having an impact on the Proctor ring now as I also said in my in my prepared remarks with double the number of surgeons <unk> from Q1 Q2, so that's encouraging.
Just time, Jason is the biggest issue uhm, we would've thought that this product because it's functioning exceptionally well. That's that's splits very encouraging the product is doing exactly what it's supposed to do I think what's also important is it it's a very very big and market 300 million.
So once we get through the value analysis committees, the product gets adopted and it's going pretty well. It's just taking is longer than we tell us. It's early in the ramp it's a big market. We have a path forward. We know what we need to do it's just taking his longer at <unk> to to to get there as we go through that adoption curve.
And I think that it's also.
Having the buttress material for the entirety of 2024 will be an important factor forest technically are proud of doesn't need buttress because it's a complete line of staples, but 60% of bariatric surgeons use buttress when they do a gastric sleeve and it is the standard of care and surgeon will tell you I use buttressed cause I.
Want to sleep at night, and it's just the standard of care and I think having that in 2024 will also help get us through but it's it's simply time, Jason does no major pushback, it's not a pricing issue is not a product performance issue. We got the clinical data that we need so we have everything we need to get through but it's just taking longer for these dark comedies to come together and allow us.
<unk> the system.
Okay.
That's very helpful. Thanks.
Quickly as a follow up.
<unk> Oh, yeah.
Yeah, I think Oh, a M has performed exceptionally well not just this year, but it over the last two years as well coming in just shy of 20% stellar performance. This is a business that we have really good visibility into there are no one time stocking major items to to answer your question.
And directly this is pure performance, it's taking share.
From other competitors in the market. It is also that acquisition that we did a number of years ago really helping us go along but it's really good performance by by Greg and the entire team and the OEM Division.
And I do believe that OEM will have good solid double digit growth this year and I do believe that the future is good for that Oh over over the foreseeable future with the visibility we have.
Our next question comes from Anthony patrolling of Missoula America's. Please go ahead.
Thanks, and good morning, everyone, maybe Liam just uhm.
Pivot to.
Standard Bariatrics.
Just an update on on traction in the quarter expectations through the end of the year for standard we've been hearing obviously, some some noise on the G O P ones impacting bariatrics from intuitive. So just an update on very accurate and then I'll have a follow up on on earnings.
Yeah, absolutely Anthony and as we said during our prepared remarks were not expecting the high teens for standard bariatrics.
Think that there's some impact from G. L. P. One, but the main issue.
Is getting through these back committees and therefore, you have to get through the back committees before your Proctor and as I answered to Jason's question, we double the number of surgeons that we Proctor from Q2 Q1 product is performing very very well the introduction of buttressed will help us I I do believe that G O P ones have some.
Impact, but it's not the big impact I mean, we're just starting to ramp within this curve and I do think that there's there's mixed views in G. O P. Once they get the reimbursement is for a short period of time and therefore, if you talk to most bariatric surgery.
Think it's having a shorter term impact but in the longer term they don't see it having a longterm impact on on on gastric sleeve surgeries, just a weight loss from gastric sleeve is so more significant than it is from the G. L. P ones, but we're watching it very very closely Anthony and thanks for the question.
And then maybe for Tom just on margins in the progression here <unk> 26 to.
$26 75, and maybe just a recap on you know looking out through the L. R. P.
As we look forward to 24 25.
Just how we should be layering margin expansion in according to or you know based on what's still out there for the L. R. P.
And how we can translate that into earnings power now, it's a little bit confounded down to the earnings line with the <unk> acquisition and some of the below the line sort of moving parts. So how do we <unk> how do we think about margin expansion from here based on the current guidance out through the L. P and how does that play in the earnings power now that.
We have an additional you know additional drivers in the non-operating lines.
Thank you.
Okay, well as we spoke earlier in the year, we reaffirm the LLP guidance at that point in time.
The way I would think about the addition of Pal Ed is that it is a product that we expect to do about $56 million in revenue. This year on a full year basis obviously.
We wouldn't have it for the entire year, but then to grow in the high teens to low twenties over the next couple of years.
And as we had mentioned we expect it to be margin accretive.
<unk> V I U B U business unit to all of Teleflex in the high growth portfolio. So we see this as slotting in very nicely and providing some.
Additional comfort as.
As we look out in the future years in our in our margin progression.
Our next question will come from Leary routine of W. F. Please go ahead.
Hi, This is Nathan trade back off her Larry can you just talk about <unk> like the overlap with your physician how penetrated as the U S market. So far is Barrett journal, expanding the market or taking sure. Thanks.
Yes, Nathan Thank you very much to the question. So so we see this as the market development opportunity. If you look at our existing intervention urology customer base only 20% of them use the barrage of spacing technology today, a 97% of them actually treat.
Prostate cancer. So this is a market expansion opportunity for us.
In the domestic market or within the United States the product is approved.
And it's also approved and in Australia, we will be expanding approvals into other geographies as we take this under our wing.
But we definitely see this as as as a margin expansion opportunity and we definitely see it as an opportunity to leverage our existing salesforce leveraged that channel we have a superb global channel now into the Jurado, just and we believe that we can expand America. This other spacing technologies out there I think between having another company.
Talking about spacing another company raising awareness, we believe we have a better product and anything that's out on the market today sculptor both it it is visible it is easy to inject it doesn't solidify overly quickly it's a one step process.
Reversible we've.
We've had excellent clinical data there have been zero embolism, sipping zero device related adverse events and we have robust clinical data to support the product we loved the growth profile beloved the margin profile and we love Dissynergies within our sales force and we're not going to build this into our model.
But there is the potential that it could have also a halo effect for your lift in expanding into urology is that previously may not have been open to trying a new technology like your list.
Okay. Thanks, and if you could just give us your high level thoughts on 2024 in light of the acquisition you know, which is expected to be 35 cents dilutive like what is your ability to absorb this delusion I mean, the street has got 14 50 too many P. S next year.
Yeah Ah Nathan we're not gonna get into 2024 on today's call. We're halfway through the year, we've raised our our revenue guidance for the second quarter in a row, we feel really confident about where we're where we're at as a company. We've also we have maintained this year's earnings.
Per share guidance, even with the 15th solution that's coming from from pallet. So we feel we feel really good about where we're at and we'll get into 2024 guidance. When we get to February next year, you know I've already made comments on the RP about R. R. R. R. R.
Belief and confidence in being able to achieve all aspects of the of the revenue profiled with pallet within our R. L. R. P. 6% in all of the components within that I just laid out.
Our next question comes from the line of Matthew O'brien of.
Five per cent of their please go ahead.
Good morning, and thanks for taking our questions. We are just talking about pull out a little bit here that that the <unk> product got approved in.
May of last year, you're saying, it's at least you know.
The majority of revenue total <unk> now so I you know I don't have the numbers, but I'm, assuming it's 30 or 40 million Bucks a revenue in a year basically that that they've generated already and then you're saying you know kinda high teens to low 20 per cent growth for next year.
I would think that just to <unk>, they've been able to grow with that quickly that you guys are <unk> should be able to grow it.
At a similar rate so why is high teens low twenties, the right number why isn't it 30 40 50 per cent I know you have to integrate it but why wouldn't it be significantly higher than that just given.
Well they did with it on their own.
Well I think match you know everything you say, it's hard for me to push back too hard you know, we're definitely gonna have more sales reps out there. We've got a very strong sales force within the United States and globally for this called point I mean, I think the high teens low twenties is probably the right number for US right now uhm, if it's better than that is bad.
And that and everyone's happy I think for US we feel right now that that's the right number you are correct. We've got an integrated it's not the toughest integration on the planet and all transparency.
It's one call 0.1, big large call point and then obviously.
<unk>, we have a methodology to address that through the addition of clinical trainers and this is an investment.
[noise] hypothesis forest with the addition of pallet, we are going to continue to expand this market and grow this market and if it's better than the high teens and low twenties will let you know and and and withdraw from there but.
We feel it's a great transaction and and if it's if it's better than what you expect then the multiple is better than we expect and everything within the dynamics of it is better than we expect.
Yeah. That's that's understandable appreciate that and then just back to Euro lift you know I know, it's getting to be a smaller part of the overall business, but there's other areas of med tech that just have not recovered from the pandemic you know it could take a women's health is one area is this a category that you know, especially in the outpatient setting and it says.
<unk> setting that is just probably structurally different from now on and like most likely will not reaccelerate, hence the eight to nine. Thank you talked about last quarter, probably is it gonna happen in the future. Thanks, Yeah, Cheers, Matt now and not in all transparency when when we began the year I taught that your life was going to recur.
Over you know I I expected it to grow somewhere in the region of around around 3% now as I look forward to the full year I would expect intervention or urology, which would include <unk> to have a low single digit declines something around 3% right now I think what's changed America. This huge.
The condition is progressive there are loads of men out there that have b P. H I think the pressure in the office matches I look at it today is the real issue if.
If you go back to serve 17 18 19, we were growing the market because we were using the office call point.
To bring men in from the drove drop out on the drug category.
We were able to convert those men during that period of time with the change in reimbursement with the patient flow with the lack of staffing that channel for now is challenged in pulling those men in an expanding the market. So I think that we need to get the the office channel.
Addressed and I, just can't see that get an address in the next two quarters being totally honest. So I I think it's going to take it some time to recover now having said that.
This quarter, which we trained more dogs that then we had the part before for a number of course, so doctor putting their hands up to get trained the international profile is excellent I couldn't be happier with what's happening overseas.
And domestically I think that for the remainder of the year I think it's going to do what I said, it's gonna do you know there are a couple of green shoots it was minus 5% last year was minus 5% in the first quarter was minus two and a half this quarter. So there's a couple of green shoots of some positivity there, but I I think that it's a challenge.
Call a point in that office right now with all of the factors that are playing into it.
Our next question will come from Craig <unk> of Bank of America Securities. Please go ahead.
Good morning, guys. Thanks, Thanks for taking the questions. So you wanted to start with.
Some of the components.
<unk>, namely Liam I think you said that you know expect intervention.
<unk>, including <unk> to grow at least 8%.
Which would mean.
Underlying urolift longer term growth takes a step down so I just wanted to make sure that that's correct and maybe what's driving that is that'd be it sounds like it to the U S side, but maybe a little bit more color on what you see over the next several years for your lift and then also standard bariatrics. So I know you <unk>.
<unk> and some pretty good growth for the next several years.
Just wanted to understand how we should think about that that growth level in 24 25 relative to what you had expected before.
Yeah, I mean, I think outside start with the first part of your questions. Your question and your assumption on your math is I can't fault you are absolutely correct, but that's why I'm. So confident in the 6% at RP I'm not expecting any rule. It says I'm not expecting anything from your lived within the RP right now the intern.
National market as strong if the domestic market recovers, it's great for investors, it's great for Teleflex and it's great for a red R. P.
The margin profiling is strong so in effect.
In my mind. This basically it takes your lift off the table in regards to the RP.
With regard to standard bariatrics like I said earlier, it's a huge market once we get through the the the fact committees and the.
The <unk> the surgeons.
Our goal here is to continue.
With the performance of the product to continue to take our Ah.
I appreciate a chair in the Bariatrics leave America Bariatrics leave market isn't going away because of G. L. P. One it's going to be there forever. There is a place for this if you talk to any surgeons they'll tell you that so I do believe that it's going to be a meaningful contribution to the L. R. P.
For 24, and 25 as we grow into that huge market.
Got it and just as a follow up on 24 uhm.
No you guys aren't gonna provide guidance or or talk about what the street has estimated.
Would love to hear any of the puts and takes that are gonna affect 24, obviously you have the <unk> acquisition.
The MSA rolling off so I just wanted to.
Ask you specifically on what we should be thinking about what we're thinking about 24 EPSN if maybe the message and that you guys have given previously is not fully quite reflected in in the streets estimates.
I think the street needs to think about obviously, the MSA to $70 million of revenue that goes away next year.
Then you you lay her in.
And that's a very low margins and has an impact on an E. P. S of about 25 cents.
But then you later in the <unk> acquisition and of course Bled acquisition ads back in $56 million of revenue.
Ah Ah Ah.
On the base year, and obviously them growing at at high teens to low twenties. So that that those are the puts and takes.
On the top line and I don't I'm, not expecting Tom to get into any real details about 2020 Ford EPS, but I think those are the two main ones common.
They are you know I will say that you know a couple of things that were watching as well our foreign exchange rates, which have shown a nice improvement.
Recently, and so that should give us half your benefit next year and we're also starting to see some improvements in the areas of inflation. So.
<unk> <unk> has already come back and shipping times are are improving dramatically which will allow.
Allow us to be able to do a couple of things, including bringing down our level of inventories Which'll, obviously help out a cash flows as we continue to manage those down but I think the key key things that are changing are the MSA.
Paulette and then you know, we're we're watching effects and inflation, mostly but those could be some tailwind tourists.
Our next question comes from Christian Stewart of Seal King. Please go ahead okay.
Hi, Thanks for taking my question.
Tom I was just wondering on the bottom line why just reiterate the guidance rather than tightening the reins.
Well, it's a it's a fair question.
As we think about what's happened is that we.
We looked at all the puts and takes of the quarter and there are.
End of the year and so if you if you think about what we've commented on you know the EPS range was really driven by adding in the incremental dilution from palette of 15 cents and then associated with the recalls in the second quarter. We had another 15 cents of expense.
<unk> as I mentioned has improved and as a result of both second quarter and full year expected benefit that actually is a an offset a 15 cents and then the balances a combination of improved operating performance in the second quarter in second half so essentially.
A number of changes since our last guidance that pretty much net out you know is is Liam commented we are.
Covering the dilution associated with the <unk> acquisition and still maintaining guidance. So we're we're effectively raising if you will from from that standpoint that we're covering something new.
But you know as we continue to monitor the year will look at it and you know reevaluate the range is the third quarter.
Okay. Thanks very much.
Our next question will come from Richard <unk> of <unk> Securities. Please go ahead.
Alright uhm.
Great So maybe.
Maybe I'm wondering if you could provide some color the trend endure hi, <unk>, including magenta.
Static devices et cetera.
Yes, as I said in my prepared remarks man continues to penetrate the market is on track for real solid.
Double digit growth.
If you look at the other areas of the high growth portfolio. We've discussed two of them all already and you know we would expect X yearly for the high growth portfolio to be well within those high high single digit growth I do want to take a moment on the jury book or if you don't mind I think that the <unk> has been performing really really solidly.
We've had excellent performance from OEM that was mentioned earlier, but intervention of access has had a great performance as has Asia Pacific and as investors familiar with Teleflex will be aware both intervention in APAC have very strong gross margins for the company. So the the whole portfolio of Teleflex, We believe is working.
Really really well from the <unk> to the high growth and we believe that you know for two quarters in a row, we called up our our our revenue forecast two quarters in a row and we have seen significant improvement.
From last year, you know think back last year, we grew 4.3% look at our guidance for this year the midpoint houses at almost five 9%. So we've seen significant improvement and again. This is the advantage of a diversified global company not Everything's Gonna go the way you think but when you add it altogether it all makes sense and it's.
I think it's a it's a it's a solid performance and the addition of <unk> is really gonna help us.
That's great. So I do have a full up on launching could you what causes through the pages of gross margin operating margin.
Thank you.
You want the cadence of gross margin and operating margin throughout this year.
Okay. Okay.
It is time to cover that absolutely well I think.
First of all one thing that you may want to understand it's just that FX has got a pretty meaningful impact on how margins actually play out we.
We actually saw foreign exchange have.
Ah meaningful positive impact in the first quarter it turned slightly negative in the second quarter as it impacts gross margin and then the third and fourth quarter. We expect after the FX impact or I should say, we expect the FX impact of even greater to gross margins. So if you were to strip out the.
Foreign exchange impact, what you'd see as a sequentially improving.
Gross margin throughout the year with a a fairly sizable improvement from the first in the second quarter and then again from the third to the fourth quarter.
If you were to maintain the effects in there what you're going to see is a.
Gross margin that is about the same each quarter, a little bit softer and the third a little bit stronger than the fourth.
Is what we experienced here in the in the second quarter.
In the second quarter, we had a couple of puts and takes you know obviously, we had the recall expense foreign exchange as I mentioned was modestly negative impact, but we also had favorable pricing and some credits from foreign countries that that provided some benefit. So overall I would say that pay attention to how effects may play out and if you were to.
Strip that out you'd see sequentially, improving gross margin and it's very similar on the operating margin, but if you strip out the the FX impact you achieve sequentially improving up margin throughout the year. Obviously, we do have to consider effects and as a result, what you're going to see is probably a little bit softer gross margin of the third quarter.
And something the same or a little bit stronger in the fourth quarter as what we saw on the second.
Our next question will come from George Sellers of Stevens. Please go ahead.
Good morning, and thanks for taking the question I guess switching back to pull it quickly.
With the 97% of your lift yours yours that are also treating prostate cancer and I believe you said 20 per cent already use bare Jill.
Are they also already using a spacer product or is this more of a white space opportunity.
[laughter].
So there would George Great question, there would be a white space opportunity of about 60%. So in addition in total about 40% of them are using a spacing product of some sort.
20 per cent of amusing Perry Joe.
And so therefore, you would be left at around 60% of white space and again I will reiterate for US. This is not about attacking the other 20%. This is about attacking the 60% educating the physicians on the benefits of using spacing the benefits of marriage L. As a space are the ones that I outlined already.
And to remove that toxicity from other oregon's around the prostate so it's really around white space George growing into a an existing customer that we know.
Engaging with their radiology oncologists, which is an excellent called point for us to get into Ah, where some of that some of the product is used by those individuals. So really encouraged by by that and I think it's a nice opportunity.
Okay. Thank you for that detail that's really helpful switching to the OEM segment that this continues to really perform exceptionally well and it it sounds like you've got visibility to that continuing the remainder of the year, but could you just give some additional detail on the pieces driving that outperformance and you know how.
Should we be thinking about that sustainability over the LLP.
Yeah, I think great question again, George I think that's the beauty about the ODM businesses is right across the board, we've got really strong double digit in the catheter business. We got a really strong double digit into suit your business, we got really strong double digit in the in the completed product business and obviously.
The complex catheters.
Within those catheters are performing exceptionally well it's right across the board you are correct. We have great visibility to this business. This is one business where the customers.
Order well ahead in advance to make sure that they have capacity booked.
In I think we have a really encouraged by what we see it is dilutive to our gross margins, but God is it accretive torn up margins. This is a great business for us and one that's performing exceptionally well with lung visibility and you know if I could find another took him to plant OEM.
We've got the capital available I'd do it in the morning, because it's it's we've got solid growth within their in a really strong customer base.
That is all the time that we have for questions. This morning, I would like to turn the conference back to Lawrence crush for closing remarks.
Alright, Thank you jail and thank you to everyone that joined US on the call. Today. This concludes the Teleflex incorporated second quarter of 2023 earnings Conference call.
You may now disconnect.
Please wait the conference will begin shortly.
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