The Teleflex Fourth Quarter 2023 Earnings Conference Call has begun and all participants are in listen-only mode. The call is being recorded and will be available for replay on the company's website. Lawrence Keusch, Vice President of Investor Relations and Strategy Development, is moderating the call and Liam Kelly, Chairman, President and CEO, and Thomas Powell, EVP and CFO, will provide prepared remarks. The call will also include a Q&A session. Forward-looking statements will be made and caution is advised as actual results may differ. The call can be accessed on the company's website.

The fourth quarter results for Teleflex were positive, with a 2.1% increase in revenues and a 4% decrease in adjusted earnings per share. This was impacted by 5 fewer shipping days, but when adjusted for this, the implied constant currency growth was 8.1%. The company expects a stable procedure environment and improvements in staffing and supply chain dynamics for 2024. They also plan to assess opportunities for vertical integration to gain control of their supply chain.

In 2023, there were some improvements in sea freight and raw materials, but costs remained higher than historic levels. The fourth quarter revenue results for 2024 showed a decrease in Americas and EMEA, but an increase in Asia. The growth in Asia was driven by strong commercial execution and demand. The fourth quarter revenue by global product category also showed a decrease due to the 5 fewer shipping days, but Vascular Access saw improvement while Interventional and Surgical slowed down.

In the fourth quarter, the company's revenue decreased 1.2% to $186.7 million due to fewer shipping days and the impact of the Endurance catheter recall. Despite this, there was double-digit growth in the underlying PICC business. The Interventional segment saw a 7.2% increase in revenue, while Anesthesia declined 3.4% due to product recalls. The Surgical segment also saw a decline of 2%, but the core surgical franchise showed solid trends. International Urology saw a 4.2% increase in revenue, with outperformance in Barrigel. The UroLift office remains a challenge for the company.

The company's UroLift revenue saw growth in international markets, particularly in Japan. The OEM sector also had a strong quarter with all product categories recording growth. Other revenue declined due to the exit of the MSA by Medline. The integration of Palette Life Sciences is on track and the company is focused on expanding the use of their rectal spacer for prostate cancer treatment. The company also continues to gather clinical data supporting the effectiveness of UroLift for BPH treatment, with a recent study reinforcing its position as the standard for minimally invasive surgery.

The results of a study on BPH surgery showed that within 1 year, 1 in 20 patients may require retreatment regardless of the type of surgery they received. UroLift had the lowest rate of procedural complications, but had the longest time to the first complication. At 5 years, TERP had the lowest retreatment rate, but UroLift was comparable to published rates. The company is focusing on supporting UroLift with clinical data and has multiple presentations scheduled for major urological meetings. They have also launched a new product, Gore Seamguard Bioabsorbable staple line reinforcement material, for use with the Titan Stapler in sleeve gastrectomy procedures. In 2024, they plan to launch the Ringer Catheter and new ligation products.

In the fourth quarter, the company's adjusted gross margin increased by 10 basis points due to favorable price and cost improvement initiatives. However, adjusted operating margin decreased by 160 basis points due to expenses related to the acquisition of Palette Life Sciences. Net interest expense also increased, but the adjusted tax rate decreased compared to the previous year.

The company saw a decrease in their adjusted tax rate due to an increase in tax deductions from additional amortization of R&D costs. This resulted in a 4% decrease in adjusted earnings per share compared to the previous year. Cash flow from operations increased by $168.9 million, primarily due to lower tax payments and favorable changes in working capital. The company's cash balance decreased due to payments for the Palette acquisition, but their financial position remains strong with a net leverage of 1.9x. The company expects the Palette acquisition to be dilutive to adjusted EPS in 2024, but increasingly accretive in 2025.

In 2024, Teleflex expects constant currency revenue growth of 3.75% to 4.75%, which includes the loss of $75.7 million in revenues from a manufacturing transition services agreement and the addition of revenues from Palette Life Sciences. Foreign exchange is expected to have a $5 million or 15 basis points headwind on revenue. Gross margin is expected to be 60% to 60.75%, with operating margin at 26.25% to 26.75%. Net interest expense is projected to be $78 million for 2024.

The company's net interest expense outlook for 2024 has increased due to the Palette acquisition and planned debt repayments. The tax rate for 2024 is expected to be 12%, with an additional 150 basis points due to the Pillar 2 global minimum tax. Adjusted earnings per share for 2024 are estimated to be between $13.55 and $13.95, with dilution from the Palette acquisition, termination of the MSA, and higher tax rate. Foreign exchange will also have a negative impact on earnings per share. The company met its financial commitments for 2023, with a 6.5% increase in constant currency revenues and adjusted earnings per share of $13.52.

The company's recent acquisition of Palette has expanded their presence in the urology market, in addition to their existing products in the field. They plan to continue investing in organic growth opportunities and driving innovation, as well as focusing on disciplined capital allocation. The integration of Palette is going well and is expected to contribute to future growth. The company is open to further expansion in the urology market, which is currently fragmented and has potential for growth.

The main product at Teleflex is the Barrigel for rectal spacing, which has exceeded expectations in the first quarter of ownership. The company plans to integrate Palette before expanding into the urology space, with a focus on men's health. The CEO is confident in the company's future success, citing a strong balance sheet and upcoming product launches. He believes they can achieve their 2025 long-term revenue plan through strong execution.

The speaker's goal is to continue executing well in the upcoming year, with a focus on achieving and possibly surpassing their goals. They expect gross margins to increase, but acknowledge that it may be more challenging due to inflation and the costs associated with a recent acquisition. They believe they have a plan in place to reach their target margins. In response to a question about gross margins, the speaker explains that they will benefit from the acquisition and the exit from an MSA, but there are also headwinds such as inflation and foreign exchange that may impact margins.

The speaker is asked about the synergy between two urology products and the impact on the company's sales. They respond by saying that there are no assumptions baked into the company's guidance, and they expect modest growth in the fourth quarter. The company's guidance is considered to be appropriately conservative, and the speaker expresses confidence in their ability to execute it. In response to a question about the company's 2024 guidance, the speaker explains that they are happy with their performance in 2023 and expect conservative growth in 2024, with a focus on delivering strong earnings growth.

The speaker, Liam Kelly, discusses the company's guide for the year and believes it is a prudent and achievable goal. He mentions that there are some expected changes in growth rates for different business units and also talks about their ability to deliver. He then addresses M&A and states that they have the financial ability for it, but are mindful of dilution and the feedback from investors. He also mentions the impact of MSA and Palette on earnings per share growth.

The company's M&A team is actively searching for assets that would fit well within the company's portfolio. They are taking into consideration investor feedback on dilution. During the Q&A portion of the earnings call, an analyst asked for more details on the company's guidance for the year. The company responded that they expect Q1 to be the low point of the year, with improvement in sales as the year progresses. They also mentioned that Q4 is typically the biggest quarter due to seasonality and patients getting more procedures done. The analyst asked if Q3 could potentially be higher than Q2, but the company clarified that they expect Q4 to be the biggest quarter.

In response to a question about pricing and earnings, Liam Kelly shares that they exceeded their goal for 2023 and hope to do the same in 2024. He also mentions that while the operating margin targets for 2025 may be challenging, they still believe the business is capable of achieving high single to double digit growth in underlying EPS. Tom Powell adds that dilution from the MSA and Palette will be resolved by 2025, providing additional benefits.

The company is expecting to see improvements in inflation and interest expenses in the coming years, which should lead to improved benefits by 2025. The Q1 guidance was better than expected, with strong performance across Vascular and International segments. There may be extra selling days and new products contributing to an acceleration in stack growth throughout the rest of the year.

Liam Kelly discusses the projected growth for the first quarter, which is expected to be around 2-3% underlying and 3.5-4.2% normalized for MSA and FX. He mentions that the company may be slightly lower due to tough comparisons and the recall of a product in the Vascular division. However, they are confident in their ability to meet the first quarter numbers and have a track record of exceeding expectations. When asked about the headwinds for EPS this year, Kelly declines to provide a forecast for 2025 but mentions that the underlying EPS growth is solid.

Tom is discussing how certain factors, such as palette and interest, will help them in the future. They are also looking at opportunities for vertical integration to gain more control over their supply chain. This could involve bringing some subcomponent suppliers in-house. In terms of financials, there is a non-cash pension charge in 2024 due to exiting a pension plan.

The speaker is asking about the assumptions for growth in the guide and the expectation for the Titan Stapler. The response is that growth is expected for the Titan Stapler in 2024, but not at the same levels as when it was acquired. The company is proctoring surgeons and the launch of Buttress is expected to increase market access. The speaker also asks about the size of the step back in OEM growth, to which the response is that it will be a modest step back, with offsetting growth in other areas like Vascular and Anesthesia.

During a conference call, Anthony Petrone asks Liam Kelly about Teleflex's procedure volumes and the state of the U.S. market. Kelly responds that they are seeing solid volumes in acute care hospitals and are benefitting from new product launches. Petrone also asks about China's value-based procurement (VBP) and Kelly explains that there are tenders being run by provinces, with Teleflex participating in some in 2023. Petrone also asks about the medium-term outlook for China's market, to which Kelly responds that there may be down pricing due to geopolitical factors.

Teleflex's high-growth product portfolio had a strong performance in 2023, with standout contributions from products like intraosseous and MANTA. The company expects this portfolio to continue growing at a rate of 10-12% in 2024, with the durable core also expected to see a 5-6% growth. The company plans to invest in these high-growth products, despite potential margin impact.

The speaker discusses the growth of the Interventional business, which saw a 15% increase for the full year on a constant currency basis. They mention the decline in the MSA category and the challenges in the office site of service for UroLift, but highlight the success in Japan and potential growth in other regions. They also mention the investment focus on high-growth areas for their margin profile.

In response to a question about MANTA's performance, Liam Kelly explains that it will take a modest step back in the coming year, but will be offset by growth in other areas. He also discusses the success of the pump business and the importance of new products for the Interventional business unit. Regarding the 2025 Long Range Plan, Kelly clarifies that while the company may be able to achieve the gross margin target, it may take longer to reach the operating margin goal.

The company has a solid path to revenue and gross margin, and underlying EPS is also strong. They are expanding the indication for Palette with Barrigel, but will need to conduct clinical trials. In China, Tarp is the main procedure for BPH treatment, but there is also a focus on herbal remedies. The company is working on getting listed on regional tenders in China.

Teleflex Inc. is in the process of expanding their business in Shanghai and Beijing, where they plan to apply for reimbursement for medical procedures. However, the reimbursement does not cover the total cost and patients in China are used to paying out-of-pocket when visiting hospitals. The conference call has now ended and the company thanks everyone for participating.

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