The paragraph is an introduction to the Teleflex Third Quarter 2024 Earnings Conference Call. The operator welcomes participants and informs them that 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, introduces the call and mentions the availability of the press release and slides on the website. He notes that the call will include prepared remarks from Liam Kelly, CEO, and Thomas Powell, CFO, followed by a Q&A session. Keusch reminds listeners that the call will include forward-looking statements subject to risks and uncertainties. Liam Kelly then begins his remarks, stating that they will discuss third-quarter results, commercial highlights, and provide financial guidance updates for 2024.

In the third quarter, Teleflex reported revenues of $764.4 million, a 2.4% increase from the previous year on a GAAP basis, but slightly below their guidance due to unexpected softness in the OEM business. Adjusted earnings per share dropped by 4.1% to $3.49, although this exceeded expectations due to strong margins. Revenues in the Americas grew by 1.5% to $433.3 million, affected by prior year MSA bookings, while EMEA revenues increased by 3.9% to $150.2 million due to expanded geographic availability and utilization in Europe. Asia saw a 5% revenue increase to $98.3 million, despite challenges from a doctor strike in South Korea impacting APAC growth by approximately 2%. Vascular Access revenue rose by 6.3% to $180.9 million on a year-over-year adjusted constant currency basis.

In the quarter, Teleflex's Vascular Access portfolio drove strong growth, with significant increases in global PICC revenue. Interventional revenue was up 11.4% year-over-year, with expectations for further growth in intra-aortic balloon pump revenues. Anesthesia revenue grew by 3.4% to $101.1 million, led by intraosseous, hemostatic products, and single-use laryngeal masks. The Surgical segment saw a slight decline of 1%, although core franchises like instrumentation and chest drainage grew. Stapler product growth improved, and the buttress kit is expected to drive future growth. Interventional Urology revenue increased by 13.3%, driven by Barrigel revenue from the recent acquisition of Palette Life Sciences. However, UroLift growth faced challenges, and OEM revenue was nearly flat, rising only 0.1%.

The paragraph discusses recent challenges and developments for the company. A major customer has opted to produce a component in-house, impacting revenue. Some clients are delaying orders to manage inventory, but no market share has been lost. The company is increasing manufacturing for thin wall microcatheters, expecting recent revenue softness to be temporary, though not resolved by 2024. Third-quarter revenue fell 28.3% year-over-year, mainly due to an upcoming contract exit with Medline. On a positive note, the Palette Life Sciences acquisition is performing well, with Barrigel gaining traction in the U.S. The company sees potential to expand indications for its NASHA platform and is conducting a study on Barrigel use in post-prostatectomy radiation therapy.

The paragraph discusses a company's performance and revenue guidance adjustments. The Barrigel Rectal Spacer is highlighted as a safe and effective option for reducing prostate radiation side effects. The company's strong third-quarter performance has led to an increased 2024 revenue guidance for Palette, despite ongoing challenges with UroLift in the U.S. due to various factors, including hurricanes and saline shortages. As a result, the overall 2024 Interventional Urology revenue growth forecast has been adjusted from 7.5% to 5%. The intra-aortic balloon pump market in the U.S. is experiencing increased interest following an FDA letter advising against a competitor's products, presenting an opportunity for market share growth both in the U.S. and Asia.

The paragraph discusses the current market dynamics related to the temporary suspension of the CE mark for a competitor's intra-aortic balloon pumps in the EU, which will last until July 2025. Despite this, the company does not anticipate any significant market share changes in Europe but remains prepared to respond to customer needs by expanding its manufacturing capacity for pumps and catheters through 2024. Additionally, the paragraph provides a clinical update on the Titan SGS stapler in the Surgical business, highlighting new data indicating its effectiveness and efficiency for laparoscopic sleeve gastrectomy. The study showed improved outcomes, such as fewer 30-day readmissions and reduced operative time, compared to traditional staplers.

The paragraph discusses the performance of the Titan SGS Stapler, highlighting its status as the first and only FDA-cleared stapler for sleeve gastrectomy pouch creation. It then transitions to a financial overview, with Thomas Powell addressing the company's third-quarter financial results. Key points include a 140 basis point increase in adjusted gross margin to 60.8%, attributed to favorable impacts from terminating the MSA and acquiring Palette, though offset by some inefficiencies and inflation. Adjusted operating margin increased to 27.3%. Net interest expenses rose to $18.8 million, due to the financing for the Palette acquisition and share repurchases. Lastly, the adjusted tax rate increased to 13.6% from 8% in the prior year.

The paragraph discusses the company's financial performance in the third quarter, highlighting a year-over-year increase in its adjusted tax rate due to European tax reform and nonrecurring financial events. The adjusted earnings per share decreased by 4.1% due to acquisition-related dilution, the termination of the MSA, and a higher tax rate. Despite this, cash flow from operations increased to $435.6 million, driven by favorable operating results and reduced cash outflows from inventories. The balance sheet shows a cash balance of $277.8 million at quarter-end, with net leverage at 1.7x. The company has repurchased 678,000 shares under a $200 million accelerated share repurchase program, part of a broader $500 million authorization.

The company has $300 million remaining for share repurchases and emphasizes returning capital to shareholders. Their updated 2024 financial guidance projects adjusted constant currency revenue growth between 3.5% and 4%, down from an initial 4.25% to 5.25% due to various factors including a $13.8 million impact from an Italian regulatory measure and a $4 million foreign exchange headwind. The lower guidance also considers weaker-than-expected performance in their OEM and Interventional Urology sectors, as well as disruptions from hurricanes and saline shortages in the U.S. GAAP reported revenue growth for 2024 is anticipated to be between 2.9% and 3.4%, translating to $3.061 billion to $3.076 billion, or between 3.4% and 3.9% (excluding the Italian measure impact), translating to $3.075 billion to $3.090 billion. The fourth quarter is expected to contribute $809 million to $824 million in revenue, indicating 4.6% to 6.5% growth year-over-year, excluding a $1 million FX headwind.

The company is adjusting its 2024 financial guidance, raising the low end of both gross and operating margin expectations due to strong performance and anticipating fourth-quarter challenges like foreign exchange impacts and capital equipment sales. Gross margin guidance is now set at 60.5%-61%, and operating margin at 26.75%-27%. Despite a slight dilution from capital equipment, future margins are expected to benefit from higher-margin disposables. Net interest expense outlook has been reduced to approximately $78 million due to debt reduction and lower interest rates, while the tax rate is adjusted to 12%-12.5%. Adjusted earnings per share expectations are increased to $13.90-$14.20, with 47.1 million average weighted shares assumed following a $200 million ASR.

The company faced some revenue challenges in the third quarter but benefited from its diverse portfolio and global presence, resulting in gross margin expansion and increased operating income. It raised the lower end of its adjusted 2024 EPS guidance, despite anticipating headwinds from the termination of an MSA and the acquisition of Palette Life Sciences, higher taxes, and foreign exchange impacts. The adjusted constant currency EPS is expected to grow 9-11% year-over-year. Cash flow from operations was strong, with expectations to exceed $500 million for 2024, resulting in about $400 million in free cash flow after capital expenditures. The company is committed to a disciplined capital allocation strategy and continues focusing on driving sustainable growth through internal innovation and M&A, with Palette and other ventures performing well.

In the paragraph, during an earnings call, Patrick Wood from Morgan Stanley asks about the reasons behind a sales cut, noting that it seems to be split between OEM and other factors like weather and IV solutions. Liam Kelly responds, clarifying that the main issue is with the OEM segment, which underperformed despite the rest of the business doing well. The total sales decrease is approximately $22 million, with OEM accounting for a $14 million impact due to unexpected vertical integration and inventory management issues. The other contributing factor to the sales cut is in Interventional Urology. Meanwhile, the company maintains strong margin expansion, earnings per share, and free cash flow.

The company is experiencing strong performance from its Palette product, but its UroLift product's trends have not met expectations due to factors like hurricanes and an IV saline shortage, impacting annual revenue by approximately $11 million. OEM's quarterly impact was $7 million, but excluding OEM, results would have aligned with projections. Financially, the company has a solid balance sheet with a net leverage of 1.7x and $435 million in free cash flow from operations. This financial health allows the company to pursue both a $300 million share buyback and potential M&A opportunities, as they are actively seeking private assets in the market.

The paragraph discusses Teleflex's focus on acquiring non-dilutive assets related to their cath lab and emergency medicine business while maintaining disciplined capital allocation, including share repurchases. Liam Kelly addresses a question about OEM pressures, specifying a $14 million impact due to an unexpected vertical integration by a major customer, which will persist through Q3 of next year. Additionally, he confirms that challenges with UroLift are currently restricted to the physician's office, which faces reimbursement changes, and have not yet extended to hospitals or ambulatory surgical centers.

The paragraph is part of a financial discussion regarding the impact of various factors on business operations and projections. Matthew O'Brien asks about the potential impact on the business for the next year, considering factors like a $10 million OEM headwind, Barrigel's performance, and other positive areas, seeking insights into their effects on top-line growth and operating margins. Liam Kelly responds that specific guidance for 2025 will be discussed in the next earnings call. Jayson Bedford inquires about the annual revenue impact of a lost OEM customer, to which Liam Kelly reveals a $14 million impact on the full-year guidance, with half realized in Q3 and the rest expected in Q4. Bedford also asks about the balloon pump dynamic, seeking clarity on any contribution in Q3 and if underlying assumptions have changed since the last quarter call.

Liam Kelly discusses the company's consistent expectations regarding their market position, noting that a competitor has received an FDA notice, which could benefit their U.S. operations. The CE mark suspension for a competitor is extended to July 2025, leading to limited impact in EMEA, while growth is expected in the Americas, particularly in Q4 due to anticipated pump sales. He confirms that their previous financial projections remain unchanged, with significant revenue anticipated from intra-aortic balloon pumps in Q4. Looking into 2025, they expect continued opportunities in the first half, with more details to be shared during the Q4 earnings call.

In the paragraph, Liam Kelly discusses the positive order trends for balloon pumps, with orders exceeding $10 million in the fourth quarter. He anticipates their competitor will be out of the market until at least the first half of 2025, which presents a long-term opportunity for Teleflex. Quotation rates have remained strong through Q3 and into Q4, indicating a continued opportunity for growth. Matt Taylor also inquires about the impact of weather on IV solutions, asking if it will affect beyond Q4, but the paragraph does not provide a response to this question.

The paragraph discusses the short-term impact of a hurricane in Florida and a saline supply issue affecting urology procedures, specifically UroLift, due to its high saline usage. The supplier is addressing the shortage by importing saline from Europe and Asia Pacific, which is expected to improve the situation by the fourth quarter. In a financial discussion, Thomas Powell explains how the company plans to manage its free cash flow next year by balancing investments in business growth, potential share repurchases, and debt reduction, focusing on utilizing surplus cash effectively.

In the paragraph, Liam Kelly addresses questions about the competitive dynamics in the intraosseous product market after a competitor announced a new device approval. Despite the competition, Kelly emphasizes the strong loyalty and continued success of their intraosseous product, noting it was the first in the market and highlights their proactive innovation efforts, including the launch of a disposable product in a tray format to capture more of the U.S. hospital market. On urology, Anthony Petrone from Mizuho inquires about the integration of Palette and UroLift sales teams and potential synergies with Barrigel. Kelly confirms that the integration is nearly complete.

The paragraph discusses the improved financial performance and growth prospects of Palette Life Sciences, particularly highlighting the increase in revenue guidance from $66-$68 million to $73-$75 million. The integration of Palette, which has better gross margins than UroLift, is nearly complete. Increased sales efforts have boosted performance, with Barrigel showing significant promise due to a unique market opportunity post-radical prostatectomy, where 30% of patients may see cancer return, representing a potential $100 million market. Barrigel is noted as the only suitable technology for this application. The company has begun patient enrollment for a study expected to take 1.5 years before gaining FDA approval for expanded use.

In the paragraph, the discussion revolves around the market prospects and strategic approach of a medical company in dealing with intra-aortic balloon pumps (IABP) and mergers and acquisitions (M&A). The company is addressing the divided market of IABPs and catheters, noting that most sales are capital-based in the U.S., and emphasizing the advantage of using their catheters with their pumps due to fiber optic capabilities. The dialogue also touches on the potential delay in consumable sales due to FDA management. Regarding M&A, there's a question about the company's current stance on acquiring non-EPS dilutive assets and whether there is now a lower tolerance for earnings per share (EPS) dilution in these activities.

The paragraph covers discussions between Ravi and Liam Kelly about market valuations and business strategies. Ravi notes that the market appears to be slightly opening up and valuations are increasing, prompting questions about how the company might use repos or M&A to handle potential dilution. Liam Kelly counters that valuations have actually been stabilizing over the past six months, aligning with public market trends and improved interest rates. He emphasizes the importance of acquiring assets that are not EPS dilutive and are accretive to growth metrics. The conversation then shifts to a question from Dave Turkaly about the geographic focus of the OEM business and the performance of the MANTA device, with Kelly confirming that the OEM business is primarily in the Americas and stating that MANTA, a unique single-shot product for large vascular closure, is effectively penetrating the market.

The paragraph discusses the company's market penetration strategies and pricing dynamics for two medical procedures, TAVR and EVAR. Over the past year, focus has shifted towards increasing penetration in the EVAR market, which has proved to be less price-sensitive than TAVR, resulting in more favorable pricing for EVAR. Liam Kelly notes that the company's IABP (Intra-Aortic Balloon Pump) products are seeing an increase in orders, both from routine replacements and from hospitals switching away from competitor pumps. The company observes systems adopting their pumps, even replacing competitor products that are under two years old. Craig Bijou seeks clarification on whether the increased orders are due to hospitals moving away from competitors or just part of the natural replacement cycle.

The paragraph discusses the growth outlook and internal dynamics of an OEM business. It highlights that the growth rate could have been 9% if $7 million were excluded. Liam Kelly mentions that normal growth for the business is expected in the mid- to high single digits, though double-digit growth is possible when supply chain disruptions are managed well. Capacity expansions at plants are allowing the team to pursue new orders and R&D projects. The integration process will impact growth in 2025, but normalized growth is expected in 2026 and beyond. Michael Polark then asks questions about an in-sourcing decision by a customer, wanting to understand the implications for the OEM business, such as the relationship with the customer, the size of the account after the exit, and whether the insourced product is made for other customers, questioning if this decision poses a risk for other similar products.

The paragraph features a discussion between Liam Kelly and Mike Matson, focusing on two main topics. First, Kelly explains a customer's decision to in-source production of a simpler product they previously manufactured, due to an absorption issue and capability within the customer's plant. Second, there's a conversation about the bariatric surgery market, where despite ongoing declines, Kelly believes the market will stabilize. He asserts that their product, Titan, performs well in this $250 million market, as evidenced by a clinical study, benefiting patients by enabling quicker hospital discharge.

The paragraph discusses improvements in the company's gross margin performance, with guidance indicating an increase of 100 to 150 basis points for the full year. The exit of MSAs contributed to this improvement, accounting for about 100 basis points, and its impact will conclude by the fourth quarter. Looking ahead, the company aims to expand margins by implementing positive pricing strategies, cost improvement programs, and leveraging savings from restructuring initiatives, all to counteract the effects of inflation, which has started to moderate though still remains above pre-COVID levels. Despite some challenges from the past year, they expect to overcome headwinds, including the loss of Palette, contributing to better gross margin outcomes.

In the paragraph, Kristen Stewart inquires about the opportunities and future plans related to intra-aortic balloon pumps. Liam Kelly responds by stating that the opportunity is expected to last at least through the first half of 2025, with the possibility of extending depending on FDA outcomes. Kelly notes that Teleflex Inc. intends to let a portion of the benefits enhance earnings while also reinvesting some into the business for future growth. The conversation concludes with Lawrence Keusch thanking everyone for participating and closing the Teleflex Inc. Third Quarter 2024 Earnings Conference Call.

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