The operator introduces the Teleflex Third Quarter 2023 Earnings Conference Call and explains the format of the call. Lawrence Keusch, Vice President of Investor Relations and Strategy Development, welcomes participants and introduces the speakers, Liam Kelly and Thomas Powell. He also reminds listeners that the call will contain forward-looking statements and cautions them about the risks and uncertainties involved.

In the second paragraph of the article, the speaker discusses the factors that could impact the company's actual results, including their recent acquisition and financial guidance for 2023. They then provide a breakdown of their third quarter results, highlighting a stable and improving macro and healthcare utilization environment. The speaker also discusses the company's revenue growth in different geographic segments, with strong performance in the Americas and balanced performance in EMEA and Asia.

In the third quarter, the company saw stable demand in the majority of the region, with revenues in China increasing by over 20%. The company's specific product portfolio has not been affected by government-initiated anticorruption measures in China. Moving on to global product category growth, Vascular Access revenue increased slightly, while Interventional Access revenue increased significantly. Anesthesia revenue declined due to a previously announced recall, but Surgical revenue increased. For 2023, the company expects strong revenue growth from Standard Bariatrics' Titan Stapler. Interventional Urology revenue decreased, with the U.S. office being a challenge for the UroLift product. The company is working to stabilize this aspect of their service.

The company has had a successful quarter with strong revenues in both international and domestic markets. They have also announced the acquisition of Palette Life Sciences, which will complement their existing product portfolio and tap into the growing market for rectal spacers to protect healthy tissue during radiation therapy for prostate cancer.

The acquisition of Palette's portfolio by Teleflex will complement their existing presence in the treatment of benign prostate enlargement and expand their interventional urology business. The acquisition will also allow Teleflex to engage with other specialists in areas such as radiation oncology, female urology, and pediatric urology. From a financial perspective, the acquisition is expected to be immediately accretive to revenue growth and adjusted gross margin. Teleflex has also evaluated the potential impact of GLP-1 drugs on their product portfolio and does not foresee a significant direct impact. However, there has been a slight impact on sleeve gastrectomy volumes due to the interest in GLP-1s.

The SELECT trial showed a 20% reduction in major adverse cardiac events over five years, but a recent study from the Cleveland Clinic showed that bariatric surgery has a 42% lower risk. Teleflex expects some softness in bariatric surgery volumes but plans to offset this by capturing market share. They have also assessed the possible impact of GLP-1s on their interventional business and do not expect a significant impact. Demographics and the use of GLP-1s may only delay cardiac events. The majority of Teleflex's surgical products are used in other surgeries and are not expected to be significantly impacted by GLP-1 usage. They also sell hemodialysis catheters through their vascular and interventional business units.

The sales of hemodialysis catheters in North America make up less than 1% of Teleflex's revenues, with the majority being used for the treatment of acute kidney injury. This is not expected to be impacted by the use of GLP-1 drugs. The potential impact of GLP-1 drug usage on Teleflex's revenues is estimated to be between 1% to 2%, but the actual impact is likely to be less as the use of GLP-1 drugs may not completely eliminate the need for Teleflex's products. The company's highly diversified product portfolio is focused on critical care procedures, and it is estimated that over 98% of Teleflex's revenues will not be directly impacted by increased usage of GLP-1 drugs. The company is also preparing to launch a new product, Wattson Temporary Pacing guidewire, which will complement their expanding structure and heart portfolio.

In the third quarter, adjusted gross margin and operating margin increased due to favorable price, cost improvement initiatives, and lower logistics and distribution costs. Net interest expense increased due to higher interest rates and debt used for acquisitions, but the adjusted tax rate decreased. Adjusted earnings per share also increased.

The company's cash flow from operations for the nine months increased by $128 million due to favorable operating results, lower tax payments, and favorable changes in working capital. The balance sheet remains strong with a cash balance of $881.5 million and net leverage of 1.4 times. The acquisition of Palette Life Sciences in October 2023 increased the cash balance by $600 million and net leverage was approximately 2.1 times on a pro forma basis. The company expects Palette net revenue to be approximately $56 million in 2023 and the transaction to be $0.25 dilutive to adjusted earnings per share, an increase from the previous estimate of $0.15. For 2024, the company expects Palette to achieve year-over-year net revenue growth in the high-teens or low 20% range.

The company expects the transaction to be dilutive to their adjusted earnings per share in 2024 but accretive in 2025. The manufacturing transition services agreement with Medline will end earlier than expected, resulting in a loss of approximately $4 million in sales. The company has increased their 2023 revenue guidance due to strong operational performance and the earlier-than-anticipated close of the Palette acquisition, but this is offset by the lost revenues from the MSA termination. The company also expects a headwind of $4 million from foreign exchange in 2023.

In the third quarter of 2023, the company expects reported revenue growth of 6.25% to 6.45%, with a corresponding dollar range of $2,966 million to $2,971 million. The gross margin guidance has been raised by 25 basis points to 59.25% to 59.75%, and the operating margin is expected to be in the range of 26.25% to 26.5%. Net interest expense is projected to be approximately $76 million, and the tax rate is estimated to be around 10%. Adjusted earnings per share is forecasted to be between $13.30 and $13.50, with a slight dilution from the acquisition of Palette and changes in foreign exchange rates. For the fourth quarter, reported revenues are expected to be in the range of $765 million to $771 million, with a decrease of five selling days but a foreign exchange benefit of $3.6 million. The three key takeaways from the third quarter are the expected revenue and margin growth, net interest expense and tax rate, and adjusted earnings per share outlook.

The company's diversified portfolio and global footprint contributed to strong growth in the third quarter. They are on track to meet their updated financial guidance for 2023 and will continue to focus on their strategy for durable growth. The recent acquisition is expected to have a positive impact on growth and margins. There were no stocking benefits or recalls that affected the strong performance in the Interventional and Surgical segments.

The company is pleased with their third quarter results, with Surgical and Interventional outperforming. They have a bullish outlook for the rest of the year and are confident in their ability to achieve their updated revenue guidance. While there have been challenges in the urology office side, overall, the company's focus on acute care has paid off. The growth in Interventional and Surgical was not due to stocking or a recall from a competitor, but rather driven by strong performance in key product portfolios.

The speaker, Patrick Wood, thanks Liam Kelly for his thoughtful commentary on GLP-1 and asks about the financial impact of recent recalls in Vascular Access and Anesthesia. Liam Kelly provides an estimate of a $5 million revenue impact and a modest decrease in gross margin, with minimal impact on EPS. Jayson Bedford asks about potential cross-selling opportunities between Palette and UroLift, but Liam explains that it is still early in the integration process.

The company has received numerous requests from its existing UroLift customers to try the Palette Barrigel product, which is a positive sign. However, it is too early to see the impact of cross-selling from the Barrigel sales team to the UroLift side. The company has not factored this into their model, but they expect there to be a halo effect in which urologists who previously did not consider UroLift may now do so. Currently, there is a lot of potential for growth, as only 20% of the company's UroLift customers also use the Barrigel products. There was a decline in underlying growth rate in Q4, which was mainly due to a selling day headwind, Palette sales, and MSA. The updated guidance for 2024 is 6.4% to 6.6% on a constant currency basis.

The company's underlying growth is around 7.4% to 8.1%, with an additional $4 million from the MSA acquisition. This is not a deceleration, and the company has executed well in the past three quarters. The company has seen a significant improvement in margins due to favorable pricing, mix, and manufacturing-related variances. The company is also expecting an improvement in 2024 in line with their long-term plan.

In the third quarter, foreign exchange had a negative impact on the company's performance, but they expect improvement in the fourth quarter. They are still working on their annual planning process and cannot provide guidance for next year yet. The company saw strong growth in the Surgical division, with a doubling of proctoring surgeons in the second quarter compared to the first. While it is taking longer than expected to get through value analysis committees, the company has maintained a good pace of proctoring in the third quarter.

The speaker believes that the Titan stapler will continue to be a growth driver for Teleflex, despite the impact of GLP-1s on the market. They are confident in the OEM business and have good visibility into its performance. The microcatheter part of OEM has performed well throughout the year and in the third quarter.

The company is confident that their OEM business will continue to grow in the future due to their unique technologies and product development work with key customers. They address a question about Standard Bariatrics and the impact of GLP-1s on sleeve gastrectomy volumes. The company believes that the $300 million market may be affected by GLP-1s, but it is uncertain how much. They also mention the potential for side effects and cost of these pharmaceutical options compared to surgical options. They provide context for the reduction in major events in the SELECT study.

The speaker mentioned a study from the Cleveland Clinic that showed a 40% reduction in events from gastric sleeves. They believe that clinicians will start to see the benefits of this procedure and the market for it will continue to grow. The company has taken price increases and plans to continue doing so, but it may taper off after the current tender cycle ends in 2024.

The operator introduces a question from Vik Chopra about Teleflex's sustainability of a 10% tax rate and their M&A strategy. Liam Kelly answers the M&A question, stating that they have plenty of financial capacity for future deals and that the interest rate environment has not affected their strategy. Tom will answer the tax question. Kelly also mentions that they are currently talking to multiple potential companies for acquisition, ranging from $100 million to over $1 billion in potential purchase price, and that they will remain disciplined in their approach.

The company remains disciplined regardless of interest rates and expects a modest increase in tax rate for 2024. The acquisition of Palette, specifically Barrigel, will target both urologists and radiation oncologists, with the majority of procedures done by urologists. The unique features of Barrigel, such as its sculptability and one-step assembly, make it an attractive product for prostate protection.

The speaker explains that their product, Barrigel, is unique because it does not require hydrodissection and is reversible if placed in the wrong area. They aim to expand the market rather than take share from competitors. They also discuss their QuikClot product and mention a new cardiac indication that has expanded the market by $50 million. They mention that the market has been under expectations due to budget constraints, but they expect it to improve in the fourth quarter.

During a conference call, Anthony Petrone from Mizuho Group asked about the growth and margin profile of Barrigel, a product acquired by Teleflex. Liam Kelly, a representative from Teleflex, responded that they expect $56 million in revenue from Barrigel in 2023 with high-teens to low-20s growth. He emphasized that the majority of the growth comes from Barrigel and that it is accretive to Teleflex's overall margins and high-growth portfolio, including UroLift. The high growth and margins of Barrigel justified the high price paid for the product.

The speaker discusses the expected dilution for 2024 and the potential impact of GLP-1s on the bariatric market. They believe that GLP-1s will not expand the market, but rather be used as a conduit to gastric sleeve surgery. There is uncertainty about the long-term impact of GLP-1s due to their high cost and the need for lifelong use. However, the company's focus is on bringing a better technology to the gastric sleeve market, which they believe will continue to exist and provide opportunities for growth.

The speaker believes that despite a slow start, the standard product will be a growth driver for Teleflex in the long term. They also mention the impact of GLP-1 on the company's portfolio and how it is not significantly affected. The loss of revenue and EPS due to the early close of the manufacturing service agreement is minimal, with greater impacts from the early close of Palette and FX.

In this paragraph, Samantha thanks the operator and Craig Bijou from Bank of America Securities asks about MANTA, a product that has shown strength in Asia and is expected to be a multiyear driver for the company's growth. Liam Kelly, the speaker, believes that MANTA's uniqueness will continue to benefit the company and mentions other high-growth products in their portfolio. The conference call ends after this question.

In conclusion, the speaker says that the listeners are now free to end the conversation and disconnect from the call.

This summary was generated with AI and may contain some inaccuracies.