Q3 2024 Teleflex Inc Earnings Call
Speaker Change: The morning ladies and gentlemen and welcome to the Tulloflex 3.4 2021 earnings conference call. At this time, all participants have been placing a listen only mode.
Speaker Change: At the end of company's report remarks, we will contact a question and answer a session.
Speaker Change: Please note that this conference call is being recorded and will be available on the company's website for replay shortly and now I will turn the call on to Mr. Lawon Keusch, Vice President of Investor Relations is strategic development. Lawrence?
Lawrence Keusch: Good morning everyone and welcome to the teleplex and corporate rated third quarter 2020 for earnings conference call.
Lawrence Keusch: The Press release and slides to a company discolour available on our website at tele flex.com
Lawrence Keusch: 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.
Lawrence Keusch: Participating on today's call are Liam Kelly, Chairman, President, and Chief Executive Officer, and Thomas Powell, Executive Vice President and Chief Financial Officer.
Lawrence Keusch: Liam and Tom will provide prepared
Speaker Change: Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in the slides posted to the Investor Relations section of the Teleplex website.
Speaker Change: 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.
Speaker Change: The factors that could cause actual results or events to differ materially include, but are not limited to,
Speaker Change: 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.
Speaker Change: Now, I will turn the call over to Liam for his remarks.
Liam Kelly: Thank you, Larry, and good morning, everyone.
Liam Kelly: On this morning's call, we will discuss the third quarter results, review some commercial highlights, and provide an update on our financial guidance for 2024.
Liam Kelly: For the third quarter, Califlex revenues were $764.4 million.
Liam Kelly: of 2.4% year-over-year on a GAAP basis and an increase of 2.2% on adjusted constant currency basis.
Liam Kelly: Third quarter revenues were slightly below our $765 million to $770 million guidance, which reflects unanticipated softness in our OEM business.
Liam Kelly: Third quarter adjusted earnings per share was $3.49.
Liam Kelly: A 4.1% decrease year-over-year, but notably higher than expectations, driven by strong margin performance, which Tom will discuss later on the call.
Liam Kelly: Now let's turn to a deeper dive into our third quarter revenue results.
Liam Kelly: I will begin with a review of our geographic segment revenues for the third quarter.
Liam Kelly: All growth rates that I refer to are on an adjusted constant currency basis unless otherwise noted.
Liam Kelly: America's revenues were $433.3 million, a 1.5% increase year over year.
Liam Kelly: Investors familiar with Teleflex will be aware that prior year MSA revenues were booked in the Americas, which impacted growth by approximately 510 basis points in the third quarter.
Liam Kelly: EMEA revenues of $150.2 million increased 3.9% year-over-year.
Liam Kelly: The growth continues to be driven by our targeted strategy to increase the geographic availability of Teleflex products and improving utilization in Europe.
Liam Kelly: Now turning to Asia.
Liam Kelly: Revenues were $98.3 million, a 5% increase year over year. The quarter was primarily impacted by the continued soft performance in South Korea due to the ongoing impact of the doctor's strike.
Liam Kelly: We estimate that the doctor's strike impacted our APAC growth by approximately 2%.
Liam Kelly: Looking forward, the doctor's strike remains ongoing, implying headwinds are likely to linger through the remainder of 2024.
Liam Kelly: Now, let's move to a discussion of our third quarter revenues by global product category.
Liam Kelly: Commentary on global product category growth for the third quarter will be on a year-over-year adjusted constant currency basis.
Liam Kelly: starting with vascular axis.
Liam Kelly: Revenue increased 6.3% year-over-year to $180.9 million.
Liam Kelly: In the quarter, our broad vascular access portfolio drove growth, including our peripheral and central access products.
Liam Kelly: Of note, and as anticipated, global PIC revenue increased strong double digits as we continue to execute our strategy to expand usage of Teleflex products.
Liam Kelly: Moving to interventional.
Liam Kelly: Revenue was $149.9 million, an increase of 11.4% year-over-year.
Liam Kelly: In the quarter, the broad portfolio performed well.
Liam Kelly: We still expect an increase in contribution from inter-Arctic balloon pump revenues in the fourth quarter.
Liam Kelly: Turning to anesthesia. Revenue increased 3.4% year-over-year to $101.1 million.
Liam Kelly: Growth was led by intraosseous products, hemostatic products, and single-use laryngeal masks.
Liam Kelly: In our surgical business, revenue was $111.7 million.
Liam Kelly: A decrease of 1% year-over-year.
Liam Kelly: Our underlying trends in our core surgical franchise continue to be solid, with growth of our largest franchises led by instrumentation and chest drainage, but offset by a tough year-over-year comparison in our ligation portfolio.
Liam Kelly: In the quarter, we were encouraged by Titan stapler growth trends, which improved on a quarter-over-quarter basis, and strong double-digit growth year-over-year, as expected.
Liam Kelly: Consistent with our strategy, we continue to proctor surgeons and roll out our buttress kit following the launch earlier in 2024.
Liam Kelly: We are encouraged by the sequential growth and continue to see the product as a growth driver over the coming years.
Liam Kelly: For interventional urology, revenue was $83.4 million, representing an increase of 13.3% year over year.
Liam Kelly: As expected, growth was driven by Barigel revenue following the October 2023 acquisition of Palette Life Sciences.
Liam Kelly: And, as anticipated, Urallip growth was impacted by continued challenges in the office size of service.
Liam Kelly: OEM revenue increased 0.1% year-over-year to $82.6 million and was softer than expected.
Liam Kelly: We were recently notified by a large customer that they have decided to vertically integrate a component that we have been supplying, which has resulted in a loss of this revenue stream.
Liam Kelly: In addition, we have now started to see some customers delay orders as they increasingly focus on managing infantries.
Liam Kelly: Looking forward.
Liam Kelly: We are not aware of any market share loss and have purposefully added manufacturing capacity for our thin walled microcatheters, one of the fastest growing segments for OEM.
Liam Kelly: Given the continued growth of the markets that we serve, we would anticipate that the softness seen in OEM revenue growth should be transitory, but unlikely to be resolved in 2024.
Liam Kelly: Third quarter, other revenue declined 28.3% year-over-year to $54.8 million.
Liam Kelly: The decline in revenue on a year-over-year basis is primarily due to the planned December 2023 exit of the MSA by Medline.
Liam Kelly: That completes my comments on the third quarter revenue performance.
Liam Kelly: Turning to some commercial and clinical updates.
Liam Kelly: Starting with an update on Palette, our most recent acquisition.
Liam Kelly: We have now owned Palette Life Sciences for about one year, and I am pleased to report that the acquisition continues to track ahead of expectations.
Liam Kelly: Barragell continues to gain traction in the U.S. with strong sequential revenue momentum.
Liam Kelly: We are seeing success in our marketing strategy and continue to convert urologists and radiation oncologists to the use of rectal spacing due to the compelling clinical data and Barigel's ease of use.
Liam Kelly: Longer term, we see a number of potential opportunities to expand the indications for our NASHA product platform.
Liam Kelly: For example, the first patient was recently enrolled in a study for barogel in men with cancer following the surgical removal of the prostate.
Liam Kelly: The trial will study rectal spacing with Barigel in patients undergoing hyperfractionated post-prostectomy radiation therapy across the United States and one site in Australia.
Liam Kelly: The study endpoints are to demonstrate varigel rectal spacer as a safe and effective option that reduces prostate radiation side effects for this patient population.
Liam Kelly: based on the segmentation of risk groups between low, medium, and high prostate cancer reoccurrence after radical prostatectomy ranges from 16 to 46 percent.
Speaker Change: Due to the strong performance in the third quarter, we are increasing our 2024 revenue guidance for Pellet to $73 to $75 million from $70 million to $72 million previously.
Speaker Change: The increase in guidance reflects the performance in the third quarter and updated assumptions for the fourth quarter.
Speaker Change: Although Pellet continues to exceed our expectations, Urolith has not yet stabilized in the United States.
Speaker Change: Given the continued pressure on Urolift, our four-quarter assumptions reflect the third-quarter performance, typical year-end seasonality, and the impact from the recent hurricanes and saline shortages experienced in early Q4.
Speaker Change: In turn, our full year 2024 interventional urology total revenue guidance now assumes approximately 5% growth versus 7.5% growth previously.
Speaker Change: Now, moving to comments on the intraortic balloon pump market.
Speaker Change: In the United States, we continue to experience coat activity above our historic levels following a May 8th letter from the FDA to healthcare providers regarding pump safety and quality in relation to our primary competitor in the interarctic balloon pump market.
Speaker Change: There is no change to our view that the biggest incremental opportunity for Teleflex will be in the United States market
Speaker Change: following the agency's recommendation that healthcare facilities transition away from the use of competitive devices and seek alternatives, if possible.
Speaker Change: We also expect continued share gains in Asia based on solid execution from the team over the past couple of years.
Speaker Change: Regarding the European Union, the notified body for our primary competitor recently announced that the temporary suspension of the CE mark for its inter-Arctic balloon pumps will remain in place until July 1st, 2025.
Speaker Change: We continue to assume that there will not be any meaningful share shift in Europe.
Speaker Change: We will monitor the market closely and be in a position to respond to customer needs should they arise.
Speaker Change: Of note, we have successfully ramped our manufacturing capacity for pumps and catheters to help customers that are seeking an alternative vendor. We will continue to expand our manufacturing capacity through 2024 and will carefully modulate our capacity in accordance with demand signals.
Speaker Change: Taking the various global balloon pump market dynamics into account, there is no change to our outlook for the fourth quarter of 2024 as compared to the prior guidance.
Speaker Change: Finally, I will provide a clinical update.
Speaker Change: In our surgical business, we continue to expand our foundation of clinical data that supports the use of the Titan SGS stapler as safe and effective for patients undergoing laparoscopic sleeve gastrectomy.
Speaker Change: In August, we announced the publication of a propensity-matching review of retrospective data.
Speaker Change: This single-center study found that the Titan SGS stapler enables consistent gastric pouch formation with fewer variations
Speaker Change: providing potential enhanced clinical outcomes and significant procedural efficiency compared with traditional surgical staplers.
Speaker Change: The study showed that the use of the Titan SGS stapler simplified an efficient stapling process was associated with fewer 30-day readmissions, especially those related to nausea and vomiting, which was statistically significant.
Speaker Change: The median operative time for the Titan SGS stapler was eight minutes less than multi-fire staplers, which was also statistically significant.
Speaker Change: This is an important efficiency data point as hospitals seek to optimize OR time. In addition, patients were more likely to be discharged within 24 hours after surgery in the Titan SGS stapler cohort as compared to multi-fire staplers.
Speaker Change: The Titan SGS stapler continues to be the first and only single fire surgical stapler designed and indicated for sleeve gastrectomy pouch creation and the only surgical stapler cleared by the FDA for this specific indication.
Speaker Change: We will continue to focus on supporting the Titan SGS stapler with expanded clinical data.
Speaker Change: That completes my preferred remarks. Now I would like to turn the call over to Tom for a more detailed review of our third quarter financial results. Tom.
Tom: Thanks, Liam, and good morning.
Tom: Given the previous discussion of a company's revenue performance, I'll begin with margins.
Tom: For the quarter, Adjusted Gross Margin was 60.8%, a 140 basis point increase versus the prior year period.
Tom: The year-over-year increase was primarily due to the favorable impact of gross margin from the termination of the MSA and the acquisition of POLEP and favorable price.
Tom: partially offset by manufacturing inefficiencies and continued cost inflation, including labor and raw materials.
Tom: The 10-basis-point year-over-year increase was primarily driven by the flow-through of the year-over-year increase in gross margin.
Tom: partially offset by the inclusion of life science operating expenses and investments to grow the business.
Tom: Net interest expense totaled $18.8 million in the third quarter, an increase from $15.7 million in the prior year period.
Tom: The year-over-year increase in net interest expense reflects the impact of the funding for POLET acquisition and share repurchases in the third quarter.
Tom: Our adjusted tax rate for the third quarter of 2024 was 13.6% compared to 8% in the prior year period.
Tom: The year-over-year increase in our adjusted tax rate is primarily due to additional costs arising from the enactment of European Pillar 2 tax reform.
Tom: non-recurring prior-year discrete benefits not repeating this period
Tom: and non-recurring discrete detriments that occurred in the third quarter.
Tom: At the bottom line, third quarter adjusted earnings per share was $3.49, a decrease of 4.1% versus prior year.
Tom: The year-over-year decrease in earnings per share includes dilution from the acquisition of Paulette Life Sciences and the related incremental borrowings.
Tom: the termination of the MSA and a higher tax rate.
Tom: Turning now to select Balance Sheet and Cash Flow Highlights.
Tom: Cash flow in the year-to-date continues to be solid.
Tom: Cash flow from operations for the nine months was $435.6 million compared to $372.4 million in the prior year period.
Tom: The $63.2 million increase was primarily attributable to favorable operating results,
Tom: A decrease in cash outflows from inventories as we continue to moderate our inventory levels.
Tom: and proceeds from the termination of a pension plan.
Tom: The increase in net cash provided by operating activities was partially offset by higher tax payments.
Tom: Moving to the balance sheet. At the end of the third quarter, our cash, cash equivalents, and restricted cash equivalents balance.
Tom: was $277.8 million, which includes restricted cash equivalents of $34 million associated with the 2024 pension termination.
Tom: as compared to $222.8 million as of year-end 2023.
Tom: Net leverage at quarter end was approximately 1.7 times.
Tom: I will now provide an update on our $500 million share repurchase authorization, which includes a $200 million accelerated share repurchase program.
Tom: Under the terms of the ASR, which began on August 2nd, 678,000 shares were repurchased during the third quarter and represent 80% of the 200 million aggregate under the program.
Tom: We anticipate completing the ASR in the near term.
Tom: In addition, we currently have $300 million left on our share repurchase authorization and will continue to be opportunistic with future purchases.
Tom: Anchored by our strong cash generation, the return of capital to shareholders remains an important element of our disciplined capital allocation strategy.
Tom: Turning to our updated financial guidance for 2024.
Tom: Our updated 2024 guidance assumes adjusted constant currency revenue growth of 3.5% to 4%.
Tom: compared to four and a quarter percent to five and a quarter percent previously.
Tom: Note this range excludes the 13.8 million negative impact of the Italian measure discussed on our second quarter earnings call and a four million dollar headwind from changes in foreign exchange.
Tom: Our guidance now reflects the year-to-date performance and fourth quarter dynamics including lower than anticipated revenue in both our OEM and our interventional neurology businesses.
Speaker Change: As Liam mentioned previously, we have not yet seen a stabilization in EuroLift.
Speaker Change: In addition, we have also encountered procedure cancellations early in the fourth quarter due to disruption from recent hurricanes in the southern portion of the United States.
Speaker Change: and the impact of saline shortages on electric procedures.
Speaker Change: On a gap basis, we expect reported revenue growth of 2.9% to 3.4% in 2024, implying a dollar range of $3.061 billion to $3.076 billion.
Speaker Change: Excluding the impact of the Italian measure, we expect reported revenue growth of 3.4% to 3.9% in 2024, for a dollar range of $3.075 billion to $3.090 billion.
Speaker Change: This revenue range, specifically gap revenue, excluding the 13.8 million impact from the true out of the Italian measure, anchors our 2024 guidance.
Speaker Change: For your modeling purposes, the 2024 Outlook includes an assumption of $809 to $824 million in revenues for the fourth quarter.
Speaker Change: representing growth in the range of 4.6% to 6.5% year-over-year on an adjusted constant currency basis.
Speaker Change: excluding an expected FX headwind of approximately 1 million dollars.
Speaker Change: Our gross margin guidance reflects the operating performance for the first nine months of 2024 and our expectation of an increased headwind from foreign exchange in the fourth quarter and accelerated capital equipment sales in the fourth quarter from intra-aortic balloon pumps.
Speaker Change: The capital component of pumps is slightly diluted to our corporate gross margin. However, we expect the margin profile to improve in the future with the sale of disposables or catheters that carry a more favorable margin profile.
Speaker Change: We are also raising the low end of our operating margin guidance by 25 basis points to a range of 26.75% to 27.0% for 2024.
Speaker Change: Our guidance reflects the flow-through of gross margin and the positive impact of restructuring.
Speaker Change: offset by the inclusion of operating expenses for Palette Life Sciences and investments to grow the business.
Speaker Change: Moving to items below the line.
Speaker Change: We now expect net interest expense to approximately $78 million for 2024 versus $81 million previously.
Speaker Change: The reduction in our net interest outlook primarily reflects debt paydown as well as lower interest rate expectations.
Speaker Change: Our tax rate for 2024 is now expected to be in the range of 12 to 12 and a half percent versus the prior guidance of approximately 12 percent.
Speaker Change: The tax rate for 2024 reflects year-to-date actual results and our expectations for the fourth quarter.
Speaker Change: Turning to earnings, we are raising the
Speaker Change: which captures a performance in the third quarter.
Speaker Change: In turn, we now expect 2024 adjusted earnings per share to be in a range of $13.90.
Speaker Change: to $14.20.
Speaker Change: Finally, we are assuming 47.1 million average weighted shares for 2024, which reflects the 200 million ASR commenced during the third quarter.
Speaker Change: That concludes my prepared remarks. I would now like to turn it back to Liam for closing commentary.
Liam Kelly: Thanks, Tom.
Liam Kelly: In closing, I will highlight our three key takeaways from the third quarter of 2024.
Liam Kelly: First, although we encountered some revenue headwinds in the third quarter, our diversified portfolio and global footprint proved beneficial.
Liam Kelly: In the quarter, we drove year-over-year gross margin expansion and increased our operating income.
Liam Kelly: We continue to focus on execution, our margins remain healthy, and we raise the low end of our adjusted 2024 EPS guidance range.
Liam Kelly: Of note, our 2024 Adjusted Earnings Per Share Outlook reflects approximately 85 cents in year-over-year headwinds.
Liam Kelly: including dilution from the termination of the MSA and the acquisition of Pellet Life Sciences.
Liam Kelly: Increased taxes primarily due to the Pillar 2 minimum tax and foreign exchange.
Liam Kelly: After adjusting for these headwinds, year-over-year underlying adjusted constant currency earnings per share growth is approximately 9% at the low end of guidance and 11% on the high end of guidance.
Liam Kelly: Second,
Liam Kelly: Cash flow performance remains strong in 2024, with cash flow from operations of $436 million at the nine months and up $63 million over the prior year period.
Liam Kelly: We remain on track to drive over $500 million in cash flow from operations for full year 2024. And net of capital expenditures to invest in growth, it leaves approximately $400 million in free cash flow.
Liam Kelly: The Healthy Cash Flow Generation provides a strong foundation for executing on our Disciplined Capital Allocation Strategy.
Liam Kelly: including investment back into the business, inorganic growth opportunities, return of capital to shareholders, and debt repayment.
Liam Kelly: Third, we will continue to focus on our strategy to drive durable growth. Pellet is performing above our expectations. We are executing on the interarctic balloon pump and catheter opportunity, and Titan is generating solid growth.
Liam Kelly: We are continuing on our journey to transform our portfolio, to drive growth, and will execute on expanding our internal innovation engine and pursuing inorganic opportunities, including M&A.
Liam Kelly: That concludes my prepared remarks. Now, I would like to turn the call back to the operator for questions and answers.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, make sure the mute function is turned off to allow your signal to reach your equipment.
Speaker Change: We ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1.
Speaker Change: And our first question comes from the line of Patrick Wood with Morgan Stanley. Patrick, your line is now open.
Speaker Change: That's beautiful. Thank you so much for taking the questions guys.
Patrick Wood: That sales cut, OEM, I mean, at least by my math, looks to be kind of roughly half of it. I think you guys mentioned the prepared remarks. Am I right in assuming the other residual half is predominantly the effect of the weather and the IV solution side? Is that fair or is there something else going on?
Speaker Change: The Earnings Per Share performance and obviously the strong free cash flow which will put us in a good place.
Speaker Change: to execute in our capital allocation strategy. Now specifically to your question with regarding to to the buckets in the full year there's two buckets as you pointed out OEM and interventional urology. The total change at the low end of the guidance Patrick is approximately 22 million dollars.
Speaker Change: The larger impact is OEM.
Speaker Change: and it's driven by two factors. One is the vertical integration of customer order and the order push-out due to inventory management. The total impact of that is approximately $14 million in the full year.
Speaker Change: with the majority of it being as a result of a surprise vertical integration that we were not expecting.
Speaker Change: The other component of it is down to interventional urology. While Pelec continues to perform very well, and we're really happy with the performance of it...
Speaker Change: Our previous guidance had assumed better Eurolift trends in the fourth quarter.
Speaker Change: And we have not seen that. Our updated guidance assumes normal seasonality, but does not assume better trends, and also takes into account the Q4 impact of the hurricanes and the IB saline shortage impacting procedures. The total impact of that book, Patrick, is approximately $8 million in the full year.
Speaker Change: reflecting the improved performance from Palette and Eurolift being impacted by approximately $11 million. So those are the buckets for the full year. And in the quarter, the impact of.
Speaker Change: OEM was approximately seven million dollars and excluding OEM we would have been handsomely within the ranges that we had provided.
Speaker Change: That's a lot of detail, thank you. The follow-on, you know, on the balance sheet side of things, you know, you'd obviously chatted at our conference and a few other times about the potential potentially for a little bit of bolt-on M&A. How are you thinking about the interplay between, you know, doing, you know, the residual $300 million buyback and then bolt-on M&A, how you think about the two opportunities there?
Speaker Change: So the good thing is that our balance sheet is in excellent shape, Patrick. Our net leverage right now is 1.7 times.
Speaker Change: and as you saw in as we went through our prepared remarks our free cash flow from operations is 435 million up 63 million an outstanding performance on free cash flow which gives us a lot of confidence that we can do both
Speaker Change: We have still $300 million left in our share repurchase plan and we intend to use that opportunistically. The M&A environment is pretty ripe right now and we are chasing a number of private assets out there in the marketplace.
Speaker Change: We continue to be active. We don't know when we're going to get an asset on board but I would like the investment community to know that we are working hard. And the free cash flow I gave you was free cash flow from Ops, just to be clear. We're looking at assets that are within the Cat Lab. We're very focused on that call point, intensive care call point, emergency medicine, and tokens in other parts of the business.
Speaker Change: We will remain disciplined and our focus remains on non-earnings-per-share dilutive assets that we want to bring into the Teleflex family. So, active in that area and also would intend to continue with our capital allocation on the share repurchase part of the returning capital to shareholders.
Speaker Change: Our next question comes from the line of Matthew O'Brien with Piper Sandler. Matthew, your line is now open.
Matthew O'brien: Morning, thanks for taking the questions. Maybe just a little bit more clarification from the last question, but just...
Matthew O'brien: Liam, the OEM pressure, are you going to still feel that same $14 million-ish in the first half of next year? And then for EuroLift,
Matthew O'brien: Is it really still contained to just the physician's office, or are you starting to see it spread into other areas of weakness, either hospital or AFC? Because I thought the physician's office business is pretty small at this point. And then I do have a follow up. Thanks.
Liam Kelly: Thanks, Matt. With regard to the OEM, as I said, of the $14 million, the majority of it is from vertical integration. That, candidly, was a surprise.
Speaker Change: this particular business for a number of years and we were not expecting it to be brought in house by this customer who is a large customer of ours.
Speaker Change: That will continue through Q3 of next year, so that unfortunately will continue. The destocking, we'll monitor that closely with the inventory management of our customers and we'll make a determination on that as we go through the year. With regards to your question, it's still the office side of service, Matt. The office side of service is incredibly challenged. Obviously, we're going into the final year of reimbursement in this year and we'll be happy to see the end of those reimbursement changes. That will have another approximately 6% impact on the reimbursement rate for EuroLift in 2025.
Speaker Change: and that that will be the end of the downward trends in reimbursement in the office side of service. So hopefully at the end of that it will begin to show some signs of stabilization.
Speaker Change: Got it. And then I don't want 25 guidance here. I was hoping for some error bars.
Speaker Change: around how to think about next year, just because you've got this what sounds like a $10 million OEM headwind.
Speaker Change: But then Barragel is doing better, and PICS are doing great, and other things are doing well. So I'm just curious if we can think about how all of those factors, plus the MSAs going away, might influence what to think about for the underlying business next year, with the top-line growth going to be mid-single digits.
Speaker Change: and can you get operating margins back to where you saw those in 2021. Thanks.
Speaker Change: So, Matt, obviously, this is the third quarter call, so we'll address the 2025 guidance when we get to our Q4 call, which is our next earnings call, obviously. So if you don't mind, I'll address that when we get to that earnings call.
Speaker Change: Our next question comes from the line of Jason Ford with Raymond James. Jason, your line is now open.
Jason Ford: Good morning, and thanks for taking the questions. Maybe just a couple here. There's been a few numbers thrown around on the OEM dynamic. Just ...
Jason Ford: I guess what's the annual revenue level of the lost OEM customer and I apologize if it's been mentioned.
Speaker Change: No, that's okay Jason, so it's basically 14 million of an impact on our full year guidance with the majority of it coming from the vertical integration.
Speaker Change: So that's the specific number. We had 7 million of it that we saw in Q3 with another 7 million to come in Q4, so a total of 14 million on the full year from OEM.
Speaker Change: Okay, thanks. And just on the balloon pump dynamic, did you see any contribution in 3Q and have your underlying assumptions that you kind of laid out on the second quarter call changed at all?
Speaker Change: So our underlying assumptions have not changed, as investors will be aware, we have a competitor who has got a notice from the FDA advising customers to move away from their pump and seek an alternative.
Speaker Change: Our quote volume continues to be strong.
Speaker Change: in the U.S. and it is focused on the U.S.
Speaker Change: We do not anticipate a significant change in EMEA. We still believe that the majority of the upside will come in the Americas. So you should see an uptick in the interventional access growth rate in Q4, specifically associated with the volume of pumps that we anticipate in Q4, and nothing has changed to our expectations.
Speaker Change: We did not see an impact in Q3, also in line with our previous expectations on the balloon pumps. It is anticipated that it will hit in Q4.
Speaker Change: Our next question comes from the line of Shagun Singh with RBC. Shagun, your line is now open.
Shagun Singh: Thank you for taking the question. I guess a couple of follow-ups on IADP. Can you provide your updated thoughts on that opportunity in Q4 and then also maybe any puts and takes for 2025 and why you don't think Europe will provide any upside to that outlook even into next year?
Speaker Change: So, nothing has changed in our outlook from the Q2 call into Q4, Shagun. We anticipated, on the Q2 call, we called up our revenue by approximately $15 million and we said that a large proportion of that was down to the inter-Arctic balloon pumps, so call it, in excess of $10 million that will hit in the fourth quarter.
Speaker Change: As we go into 2025, we anticipate that the opportunity will continue to be with us through the first half of 2025 and nothing has changed in our assumption in that regard either. And obviously, as I said to Matt earlier, we'll get to guidance.
Speaker Change: when we get to our Q4 earnings call and we'll outline what we anticipate the impact of the bloom pumps will be. We don't expect much of an impact, as I said already, within Europe and we continue to take share in Europe.
Speaker Change: and we continue to take share in Asia Pacific.
Speaker Change: Our next question comes from the line of Matt Taylor with Jefferies. Matt, your line is now open.
Matt Taylor: Hey guys, thanks for taking my question. I just I didn't want to follow up the balloon pump forecast and just try to understand how you're thinking about
Matt Taylor: different guideposts.
Matt Taylor: in terms of
Matt Taylor: the order flow that you've seen already and just predicting how much upside you could get if things get extended and your competitor and they continue to see challenges. So we just love more color on you know the orders that you've seen come through to date and how you're thinking about predicting the upside next year depending on what happens there.
Speaker Change: So, as I said earlier, the orders that we see in the fourth quarter are in excess of $10 million. And also, as I said a little earlier, we still anticipate that the competitor will be out of the market through the first half of next year.
Speaker Change: Now the variable
Speaker Change: All of them are Q2, but they have continued strong through Q3 and into Q4, so we would anticipate that at least through the first half of next year, this would be an opportunity for Teleflex.
Speaker Change: Okay, and can I just ask on the impact from weather and the IV solutions, can you talk about how much you've seen so far? Do you expect any spillover from IV solutions beyond Q4 or do you think that's just a short temporary impact?
Speaker Change: So, from what we're reading, we believe it's going to be a short-term, temporary impact. And obviously, the hurricane is now – has passed through and people are rebuilding down in Florida. So, that was the impact in the southeast. From the saline, we've seen an impact in particular in the central and west regions. We do believe that it's going to normalize because
Speaker Change: We know that the supplier of saline is moving product in from Europe and from some of their plants in Asia-Pacific. So the intel that we have is that we're beginning to see it get incrementally better already.
Speaker Change: and that it should be much better as we go through the fourth quarter. Obviously, for urology procedures, in particular urolith procedures, you do use a lot of saline because you've got to fill the bladder.
Speaker Change: and that's a significant use of saline in when that procedure is getting done and obviously you flush it through in order to make sure that the procedure goes well. So that is our one procedure that is a heavy user of saline in the marketplace.
Speaker Change: Our next question comes from the line of Larry B. Jelson with WF. Larry, your line is now open.
Speaker Change: Good morning. Thanks for taking the question. Tom, one financial question for you. How should we think about debt pay down and how much you could reduce interest expense next year? It seems like a good opportunity relative to the $78 million you're guiding to this year. And I had one follow-up.
Speaker Change: Well, the way we're going to think about our free cash flow is to balance
Speaker Change: kind of investment in organic, inorganic.
Speaker Change: along with potential use of the remaining share repurchase authorization with debt payment. To the extent we've got surplus cash beyond, you know, opportunities to grow the business or potentially retire shares, we would then consider that as a use of cash to pay down our prepayable debt.
Speaker Change: So we're looking to really balance those three equations next year.
Speaker Change: You got it. And then, Liam, you know, I know the intraosseous product for you guys has been a pretty strong growth driver for you. A competitor announced approval of a new device yesterday. I know it's early, but I'm just curious to hear how you're thinking about the competitive dynamics in that space, given that that's a big and important product for you guys. Thank you.
Liam Kelly: The product has incredible loyalty in the marketplace. It is the first Interosys device in the marketplace and has continued to perform very well for us.
Liam Kelly: We haven't been idle, knowing that the competitor is coming to the market and we continue to innovate on our product and just recently we launched a disposable intraosseous product in a tray format for ease of use in order to continue to convert the hospital market in the United States and that launch has gone very very well. So we still think that we have significant differentiation out there and we're monitoring the situation very closely.
Speaker Change: Our next question comes from the Anthony Petroni with Mizzou. Anthony, your line is now open.
Anthony Petroni: Thanks for getting us in here. A couple on...
Anthony Petroni: Urology, and then one on Asia Pacific. And maybe just an update on Palette and Urolift. I know those those sales teams are now integrated.
Speaker Change: I think it actually the full integration goes through the end of 2024.
Speaker Change: And it feels like they're in a position now to be selling a bag. So maybe an update on the integration of Barragell with EuroLift. And are you seeing synergies on either one or both sides of that portfolio?
Speaker Change: and the announcement today on post-radical prostatectomy and maybe as we look ahead what that opportunity means for Barogel and all one on Asia Pacific. Thanks.
Speaker Change: Yes, thanks Anthony for the question. So the integration of Pellet is pretty much done. We've owned it now for almost a year and we couldn't be happier with the performance of the product.
Speaker Change: As we announced today
Speaker Change: we were in a position once again
Speaker Change: to call up our guidance.
Speaker Change: Paulette. If you recall, we began the year expecting 66 to 68 million and now we're at a guidance range of 73 to 75 million for Paulette Life Sciences. And as investors know, the gross margins on Paulette are actually better than the gross margins on Eurolift. So the integration is pretty much done. We have a little bit of cross-training to finish out in the fourth quarter, but we anticipate getting that done.
Speaker Change: Palette Life Sciences
Speaker Change: And the halo that we've seen has actually been to the Barigel product on the Palette side because we now have more sales reps out there selling the product. So that has driven increased performance on the Palette side. And as I said earlier when I was answering Matt's question, obviously, Eurolift continues to be challenged in the office side of service.
Speaker Change: So, post-radical prostatectomy, which was the other part of your question, Anthony.
Speaker Change: So, this is a significant opportunity for Teleflex and for the Pellet portfolio. Anything from 10% to 50% of men that go through a radical prostatectomy, the cancer returns.
Speaker Change: So if you take the midpoint, they're around 30% of an additional market, or about $100 million of a market opportunity.
Speaker Change: What is very intriguing to us about this opportunity is that Barigel will be the only spacing technology that will be applicable in this area because of the compound of NASHA and how it works. Other spacing technologies will not work in this particular application.
Speaker Change: So we feel that that's encouraging. We've enrolled the first patient.
Speaker Change: It'll take us about a year and a half.
Speaker Change: between enrolling all of the patients, to writing up the study, to submitting it to the FDA, to get the expanded indication, and we're really looking forward to getting that indication and addressing that 100 million dollar
Speaker Change: spacing market that patients today don't have access to spacing if you're going through radiation therapy post-radical prostatectomy.
Speaker Change: Our next call comes from the line of Richard Neuwetter with Tourist Securities. Richard, your line is now open.
Speaker Change: Hi, good morning. It's Robbie in 4-H. So I have two questions, one on IABP, one on M&A.
Speaker Change: I guess the first one. With the IABP, you have this 10 million line of sight in four quarter. Could you just help us think about what portion of that is capital versus consumable? And of that cohort, what kind of kind of long tail do you see out of that on the consumable screen?
Speaker Change: Yeah, Robbie, so I will tell you that the vast majority of that is capital in the United States.
Speaker Change: The consumable will follow over a period of time. If you look at the overall market, the global market for inter-Arctic bloom pumps and catheters, it's approximately half and half. Half of the market is pumps and half of it is catheters, to answer the other part of your question as to what would...
Speaker Change: I think that
Speaker Change: The competitors catheter with our pump, you lose that fiber optic advantage, so we think it's compelling that customers will use our catheter with our pump.
Speaker Change: Right, so presumably given the way the FDA is kind of managing this, it seems like the the tail on the consumable would be a little bit more pushed out.
Speaker Change: Secondly, on the M&A, you talked about non-EPS dilutive assets. Does that mean your tolerance for EPS dilution and M&A is a little bit lower now? It sounds like the market might be opening up and valuations might be...
Speaker Change: Picking up a little bit. Sounds a little bit different than what you said in the past. Do we look at the repo here as a boost to earnings to absorb that kind of dilution or make it for a M&A a little bit more neutral?
Speaker Change: So Robby, I think the environment, I would push back a little bit with valuations going up. I think that what we're seeing in the marketplace is that valuations are finally modulating and have been doing for the last
Speaker Change: And secondly, I think with that change in valuation, obviously with the improvement in interest rates
Speaker Change: It's a lot more compelling to bring in an asset that is not EPS dilutive. Obviously, our criteria doesn't change. We're looking for assets that are accretive to our top-line growth and also we're looking for assets that are...
Speaker Change: meet all those criteria and are also not EPS dilutive.
Speaker Change: Our next question comes from the line of Dave Terkeley with Citizen JMP. Dave, your line is now open.
Dave Terkeley: Hey, good morning. Liam, I just want to confirm, is the OEM business primarily in the Americas geographically?
Liam Kelly: Dave, yeah, the vast majority of the revenues is within the Americas, that is correct.
Dave Terkeley: Thank you, and I wanted to ask one on that, Matt. I was wondering if you could give us sort of an update on how that's doing, either like a growth rate and maybe what you're seeing in sort of the underlying procedures that that's used for.
Speaker Change: Yes, so on the procedures, so first of all, Manta continues to penetrate the market. It's the only large foreclosure device.
Speaker Change: out there in the marketplace that that's a single-shot product.
Speaker Change: The procedures that it's used on is TAVR and EVAR. Over the past year, as we continue to penetrate TAVR, we actually have now focused on doing that same penetration within EVAR, and what we've noticed is that the EVAR side of the house isn't as price-sensitive as the TAVR side of the equation, and therefore our pricing in the EVAR market has been a lot more favorable. So we continue to penetrate, Dave, and the product is continuing to perform.
Speaker Change: Our next question comes from the line of Craig Beju with BOFA. Craig, your line is now open.
Craig Beju: Good morning, guys. Thanks for taking the question. We had one on IAPP.
Craig Beju: IABP and then a follow-up on OEM.
Craig Beju: If you have visibility into whether those orders are for a normal replacement cycle for the pumps, so have they reached their useful life, or if you're actually seeing hospitals switch away from the competitor pumps.
Speaker Change: Well, you have the normal recycle for our own pumps within the number, but we are also seeing the uplift is really being driven.
Speaker Change: That's our normal run of the business, Craig, the conversion, but we are seeing accounts converting completely away from the competing product. I think that's your question, and we are seeing that.
Craig Beju: Yeah, I guess, sorry, I wasn't clear. The question's more on your competitor's replacement cycle. So, are you winning?
Speaker Change: are the orders that are coming in that you, the incremental revenue that you're expecting, is that coming from hospitals moving away from your competitor or just you picking up the natural replacement cycle?
Speaker Change: That's fair Craig, sorry about that. So what we're seeing is both. We're seeing the replacement as pumps come up to be replaced, we're getting replacements and then we're also seeing systems completely swap out pumps that in some instances are less than two years old.
Speaker Change: Product that this customer sales as a branded product and we've been making this for many many years.
Speaker Change: And it is a in the decision to in source and we only make it for this specific customer tends to that part of your question second part of your question is why do they move it internally.
Speaker Change: Our assumption from the team is that they have an absorption issue in one of their plants and they are addressing it by moving this inside and they have the capability within their plant for this particular product most of our.
Speaker Change: Products that we make a pretty complex micro catheter is pretty complex extrusion.
Speaker Change: This product was a little bit unique it's not that complex and therefore at.
Speaker Change: The company felt that they could do themselves in house.
Speaker Change: Our next question comes from the line of Mike Matson with Needham Mike. Your line is now open.
Mike Matson: Yes. Thanks.
Mike Matson: One on.
Speaker Change: Titan and bariatric surgery so.
Mike Matson: Good to hear the product doing better but.
Mike Matson: What are you seeing with regard to bariatric surgery procedure volumes.
Mike Matson: Any signs of stabilization there.
Mike Matson: I know it's been declining for a while do you think you are.
Mike Matson: Just the procedures generally sorry.
Mike Matson: As we start to kind of lap the declines that maybe the market will start to level level off.
Mike Matson: [music].
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