TELEFLEX INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Commercial Updates:
  • Palette acquisition: Tracking ahead of expectations, Barrigel gaining traction in the U.S., guidance for Palette raised to $73 million to $75 million from prior $70 million to $72 million.
  • Intra-aortic balloon pump: U.S. quote activity strong, EU CE mark suspension for competitor's pumps extended to July 2025, manufacturing capacity ramped.
  • Surgical business: Titan SGS Stapler clinical data supports safety and efficiency in laparoscopic sleeve gastrectomy, with single center study showing benefits.
• Financials:
  • Q3 GAAP revenues $764.4 million, +2.4% year-over-year; adjusted EPS $3.49, -4.1% year-over-year but higher than expectations.
  • Adjusted gross margin 60.8%, +140 basis points year-over-year; adjusted operating margin 27.3%, +10 basis points year-over-year.

Segment Performance

• Geographic Segments:
  • Americas: $433.3 million, 1.5% year-over-year increase, with prior year MSA revenues impacting growth by ~510 basis points.
  • EMEA: $150.2 million, 3.9% year-over-year increase, driven by targeted strategy to expand product availability.
  • Asia: $98.3 million, 5% year-over-year increase, but impacted by South Korea doctor strike with ~2% headwind.
• Global Product Categories:
  • Vascular Access: $180.9 million, 6.3% year-over-year increase, led by broad portfolio including peripheral and central access products.
  • Interventional: $149.9 million, 11.4% year-over-year increase, with intra-aortic balloon pump contribution expected in Q4.
  • Anesthesia: $101.1 million, 3.4% year-over-year increase, led by intraosseous, hemostatic, and single-use laryngeal mask products.
  • Surgical: $111.7 million, -1% year-over-year, with solid core trends but offset by tough comparison in ligation portfolio; Titan stapler showed tightened growth.
  • Interventional Urology: $83.4 million, 13.3% year-over-year increase, driven by Barrigel post-Palette acquisition; UroLift impacted by office site challenges.
  • OEM: $82.6 million, 0.1% year-over-year increase, softer than expected due to customer vertical integration and order delays.
  • Other Revenue: $54.8 million, -28.3% year-over-year, due to planned MSA exit by Medline.

Guidance

• Revenue: Adjusted constant currency revenue growth 3.5% to 4%, GAAP revenue growth 2.9% to 3.4% (range $3.061 billion to $3.076 billion), excluding Italian measure 3.4% to 3.9% (range $3.075 billion to $3.090 billion).
• Margins: Gross margin guidance 60.5% to 61%, operating margin guidance 26.75% to 27.0%.
• Net Interest: Expected to be approximately $78 million for 2024.
• EPS: Expected to be in the range of $13.90 to $14.20.

Risks

• OEM Risks: Customer vertical integration and order delays, with softness likely transitory but not resolved in 2024.
• UroLift Risks: Ongoing challenges in office site of service, impact from hurricanes and saline shortages affecting procedures.
• Competitive Risks: EU CE mark suspension for competitor's intra-aortic balloon pumps, potential share shifts if not managed effectively.

Question and Answer

Q: On the sales cut in the top line, especially regarding OEM and other factors?

A: Liam Kelly explained that OEM impact is from vertical integration and order pushout, while Interventional Urology is impacted by UroLift challenges and Q4 events like hurricanes and saline shortages.

Q: Balance between share buyback and M&A?

A: Liam Kelly said the balance is possible with strong cash flow, active in M&A and opportunistic with share repurchase.

Q: Outlook for OEM revenue?

A: Liam Kelly stated OEM softness is likely transitory, with normal mid-high single digits growth once past vertical integration.

Q: IABP opportunity?

A: Liam Kelly said Q4 revenue from IABP, U.S. quote activity strong, EU impact minimal, with consumables to follow over time.

Q: Impact of weather and IV solutions?

A: Liam Kelly said it's a short-term temporary impact expected to normalize in Q4.

Q: Palette integration and UroLift?

A: Liam Kelly said Palette integration is nearly complete, UroLift still challenged in office site, but Barrigel is gaining traction.