Carrier Global Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2021

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Telstra Second Quarter of 2021 Earnings Conference Call. This time, all participants have been placed in a listen only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference is being recorded and we will be able to the company's website replay shortly. And now, I would like to turn the call over to Mr.

Operator

Laurence Kirsch, Vice President, Investor Relations and Strategy Development team. You may begin, sir.

Speaker 1

Thank you, Dexter. Good morning, everyone, and welcome to the Teleflex Incorporated 2nd The press release and slides to accompany this call are available on our website at www.teleflex.com. As a reminder, this call will be available on our website and A replay will be available by dialing 800-585-8367 or for international calls at 416-621-4642 with the passcode 5,188,749. Participating on today's call are William Kelly, Chairman, President and Chief Executive Officer and Thomas Powell, Executive Vice President and Chief Financial Officer. William and Tom will provide prepared remarks and then we will open the call to Q and A.

Speaker 1

Before we begin, I'd 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 our slides. We wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties

Speaker 2

and actual events or results

Speaker 1

may differ materially. But are not limited to factors referenced in our press release today as well as our filings with the SEC, including our Form 10 which can be accessed on our website. In addition, please note that while we have provided commentary about intra quarter business performance during the recent earnings calls to provide additional details and insights around trends, We do not intend to provide such commentary on today's call or in connection with future earnings calls. With that said, I'll now turn the call over to Liam for his remarks.

Speaker 2

Thank you, Larry, and good morning, everyone. It's a pleasure to speak with you today. We are delighted with our 2nd quarter performance, which exceeded the outlook we provided on the first quarter earnings call, reflecting The company's resilient base business and innovative growth drivers offset by varying degrees of COVID-nineteen challenges on a global basis. The majority of our global product families witnessed constant currency growth over the Q2 of 2019. As anticipated, we witnessed improvements in underlying utilization trends for the product categories most impacted We are encouraged with EuroLift as momentum continues to build, driving 26% constant currency revenue growth as compared to the Q1 of 2021.

Speaker 2

During the Q2, our Americas, Asia and OEM segments performed well With constant currency revenues growing over 2019, while EMEA is now back to 2019 revenue levels. As we anticipated, Americas and Asia continue to recover more quickly than EMEA. Although uncertainties with COVID-nineteen remain, we continue to anticipate that our revenue performance will improve as we move through the remainder of 20 For the Q2, operating margin showed gains over 2020 2019 in comparable periods and was driven by gross margin and disciplined expense control. Our continued progress in margin expansion in 2021 has allowed us to increase directed investments towards growth drivers, which is an important component of our long term strategy to enhance Given the strength of the second quarter results, we are maintaining our constant currency revenue guidance, which now includes a $28,000,000 to $32,000,000 sales headwind from the June 28 initial close of the respiratory products And our margin improvement in the 2nd quarter, we are increasing our 2021 earnings per share guidance to a range of $12.90 to $13.10 from a previous guidance of $12.65 to $12.85 We continue to execute on our strategy to drive durable growth With investment in organic growth opportunities, margin expansion and deployment of capital for M and A.

Speaker 2

Turning now to a more detailed review of our 2nd quarter results. 2nd quarter revenue was 713 at $15,500,000 an increase of 21% year over year on a constant currency basis and 6.8% over the comparable period in 2019. The year over year increase was driven by contributions from interventional, Anesthesia, Surgical and Interventional Urology, offset by unfavorable year over year comparisons due to higher demand for Our vascular access and respiratory products in quarter 2, 2020 associated with COVID-nineteen. We are also pleased with our 2nd quarter growth in operating margins with sequential improvements over Q1 strong performance. Q2 adjusted and operating margins set new high watermarks for Teleflex as a pure play medical device company, An encouraging sign for our longer term profitability objectives.

Speaker 2

2nd quarter adjusted earnings per share of 3 point $0.35 increased 73.6 percent and exceeded our internal expectations. The earnings outperformance reflects the recovery in healthcare utilization during the Q2, coupled with improved volume, modest price increases and prudent operating expense management. Overall, I am very happy with our 2nd quarter financial performance, Turning now to a deeper look at revenue results. I will begin with a review of our reportable segment revenues. And unless otherwise noted, the growth rates I will refer to on a constant currency basis.

Speaker 2

Americas revenues were $414,800,000 in the Over the comparable period in 2019, growth was driven by a rebound in procedures following the disruption from COVID Earlier in the year, with particular strength in Interventional Urology, Surgical and Interventional. EMEA revenues of $157,100,000 increased 8.4% year over year and was flat over 2019 levels. EMEA benefited from a favorable COVID related comparison As procedures improved year over year as countries across the region continued to open up. Turning to Asia. Revenues were $80,600,000 increasing 10.3% year over year and Importantly, we saw solid double digit growth in China and high single digit growth in Japan, more than offsetting declines in Southeast Asia.

Speaker 2

And lastly, our OEM business, which accounts for roughly 9 OEM was up 6.5% as compared to the comparable period in 2019. Following a 17.1 decline in the Q1 of 2021, the business witnessed a rebound as customers stepped up orders on signs of increasing healthcare utilization. We continue to expect a sequential improvement in growth through the second half of twenty twenty one, driven in part by incremental capacity. Let's now move to a discussion of our 2nd quarter revenues by global product category. Consistent with my prior comments regarding our reportable segments, commentary on global product category growth will also be on a constant currency basis.

Speaker 2

As a reminder, there were no meaningful differences in year over year selling days in the Q2. Starting with vascular 2nd quarter revenues decreased by 2.1 percent to $167,700,000 Although we are facing difficult year over year comparisons in vascular access due to the higher demand experienced in quarter 2 2020 associated with COVID-nineteen, the performance of our innovative products remains strong. Our PIC portfolio performed well With over 30% growth year over year, we continue to invest behind our differentiated PIC portfolio and continue to take share. Intra Aussies was also strong in the 2nd quarter with growth of 15.5% year over year. Moving to interventional.

Speaker 2

2nd quarter revenue was $112,100,000 which rose 30.9% year over year. The increase was due to a recovery in certain non emergent procedures on a year over year basis. MANTA, our unique large Foreclosure device grew 160% year over year, which keeps us well positioned to reach 8% share in 2021 out of a $200,000,000 to $300,000,000 market opportunity. Turning now to anesthesia. 2nd quarter revenue was $95,400,000 up 38.8% year over year.

Speaker 2

Zmedica contributed roughly 60% of the growth as the business continues to track to our $60,000,000 to $70,000,000 revenue expectation for 2021, Currently offset by lower sales of tracheostomy products. Excluding FX and the Zmedic acquisition, underlying growth for anesthesia in the 2nd quarter Approximately 16% year over year. The integration of Zmedica is going very well and we are pleased with the progress we are making. In our surgical business, revenue was $98,200,000 representing 39% growth year over year. The increase in revenues was driven by sales of our metal and polymer ligation clips and instruments as elective surgical procedures continue to recover.

Speaker 2

For Interventional Urology, 2nd quarter revenue was $92,200,000 an increase of 129 point 4% year over year and 35.6% over the Q2 of 2019, reflecting a move back towards more normalized growth. We are encouraged by the business trends with physicians remaining engaged in the use of UroLift in all care settings and patients Increasingly seeking treatment for symptoms of BPH. Our DTC momentum remains solid, and we remain comfortable in our 30% Plus revenue growth objective for UroLift in 2021. And finally, our other category, which consists of our respiratory and urology care Products declined by 9.9 percent to $86,900,000 The decline reflects difficult comparisons from the prior year related to COVID associated respiratory product demand in Americas and the EMEA. That completes my comments on 2nd quarter revenue performance.

Speaker 2

Turning to some clinical and commercial updates. In the Q2, we trained 118 urologists and remain on track to achieve our target to train 450 to We continue to execute on our 2021 DTC program. For this year's campaign, we are optimizing our network selection, refreshing the ads and working in conjunction with social media campaigns To augment the overall impact, given the positive awareness from the DTC campaign, we have decided to make incremental investment In the second half of twenty twenty one, to tap into this underpenetrated market, we view DTC as a multiyear Indeed, UroLift is leading the way in minimally invasive treatment of BPH, and this is the first Turning now to UroLift 2. We are in a full rollout in the U. S, which is consistent with our timing expectations.

Speaker 2

We continue to anticipate that the vast majority of physician customers will be converted to UroLift 2 by the end of 2022, paced by advances in visualization, We remain positioned to generate significant margin expansion As the revenue base is fully converted. Regarding Japan, we remain on track for reimbursement decision in 2021 and view the approximate $2,000,000,000 addressable market as an incremental growth driver that will be a positive catalyst for the foreseeable future. Our submission was not reviewed at the July MHLW meeting and we now expect a review in September with a launch in the Q4 of 2021. There is no change to our expectation for UroLift revenues in Japan to ramp up beginning in 2022 with modest contribution in 2021. On the U.

Speaker 2

S. Reimbursement front, CMS published its proposed physician fee schedule to office based procedures would not go into effect until January 1, 2022, and therefore do not impact our 2021 outlook. 2nd, the proposed reductions were broad based across a range of office based procedures in a variety of surgical specialties and not specific to UroLift. 3rd, we continue to view the strength of our clinical data, including the LIFT pivotal trial and real world studies as a differentiator versus other BPH treatment modalities and a driver of UroLift adoption. Our next steps, Teleflex will engage with key stakeholders during the public comment period To reiterate the benefit of UroLift for the treatment of BPH, we would hope that CMS recognizes the importance of maintaining patient access Safe, effective and less invasive procedures including UroLift in lower cost settings such as the physician's office.

Speaker 2

We anticipate the final rules will be published during the Q4 of 2021. Separately, CMS published the proposed outpatient prospective payment system rates on July 19. These rates cover facility payments for UroLift In the hospital outpatient and ASC settings. In this case, the proposed payments for UroLift increased by 3% 2 thirds of UroLift revenues are generated in the ASC and outpatient settings. Turning to the next slide on a clinical update for UroLift.

Speaker 2

On July 9, the largest U. S. Medicare and commercial claims analysis 2015 to 2019 evaluated surgical retreatment and postoperative complications Endured by patients who underwent TARP, green light laser, Rezum and UroLift procedures. At 4 years after the index procedure, surgical retreatment rates were comparable for UroLift, TURP and Greenlight laser and highest for Rezum. Also at 300 days post treatment, overall complication rates were lowest After UroLift, while Rezum had the highest rates, these statistically significant results demonstrate the efficacy of UroLift As compared to other therapies for the treatment of BPH in real world settings, we will continue to bolster our body of clinical evidence, which should help to sustain UroLift as the leading minimally invasive procedure to treat BPH and address a multibillion dollar global market Now I will provide some background on the respiratory divestiture.

Speaker 2

Consistent with our strategy to drive durable growth and disciplined portfolio review process, we completed the initial phase of the divestiture of a significant portion of our respiratory products to Medline Industries on June 28. The transaction generated $286,000,000 in cash, less $12,000,000 in working capital not transferred to Medline. As noted previously, The product lines that were divested generated $139,000,000 in revenues in 2020. Looking forward, the divestiture of the respiratory assets will improve our organic growth rate and margins over time and better positions us That completes my prepared remarks. Now, I would like to turn the call over to Tom for a more detailed review of our Q2 financial results.

Speaker 2

Tom?

Speaker 1

Thanks, Liam, and good morning, everyone. Given the previous discussion of the company's revenue performance, I'll begin at the gross profit line. For the Q2, adjusted gross margin totaled 59.9%, an increase of 600 basis points versus the prior year period. The increase in gross margin was driven by product and regional mix, benefits from cost improvement initiatives, Favorable impacts from pricing, M and A and foreign exchange, partly offset by logistics and distribution expense. 2nd quarter adjusted operating margin was 28.2% or a 640 basis point year over year increase, Driven largely by the gross margin improvement as well as disciplined expense management and partially offset by investment in the business.

Speaker 1

With our revenue base improving and operational efficiencies, we delivered a more typical one to 1 drop through from gross margin to operating For the quarter, net interest expense totaled $15,900,000 an increase from $15,500,000 in the prior year period. As previously mentioned, in the Q2, we issued a notice of redemption to holders of our outstanding $400,000,000 aggregate principal amount of 4.78 percent senior notes due in 2026. The notes were redeemed on June 1, 2021 and was funded using borrowings under our revolving credit agreement and cash on hand. Our adjusted tax rate for the Q2 of 2021 was 14.4% as compared to 15.8% in the prior year period. As compared to the prior year period.

Speaker 1

At the bottom line, 2nd quarter adjusted earnings per share increased 73.6 percent to 3 point Estimated favorable impact from foreign exchange of approximately $0.16 Turning now to select balance sheet and cash flow highlights. For the first half of twenty twenty one, cash flow from operations totaled $265,000,000 as compared to $134,000,000 in the prior year period And represented a year over year increase of $131,000,000 The increase was primarily attributable to favorable operating results, Lower contingent consideration payments and lower payroll and benefit related payments, partially offset by unfavorable changes in working capital and higher tax payments. Overall, the balance sheet remains in good shape. At the end of the second quarter, our cash balance was 361,800,000 versus $375,900,000 at the end of the Q4 of 2020. We paid down $75,000,000 in debt during the 2nd quarter And net leverage at quarter end was approximately 2.5 times.

Speaker 1

Post quarter close, we made a $259,000,000 payment against our revolving credit facility using funds primarily generated from the initial close of the respiratory business divestiture. Now moving on to 2021 guidance. Starting with revenue, we are maintaining our constant currency revenue growth guidance for 20 which was not contemplated in our prior guidance. As you contemplate your model adjustments, Note that the divested respiratory products are in our other revenue category. And please see the investor slide deck for historic revenues for divested respiratory products.

Speaker 1

Key contributors to our 2021 constant currency revenue growth outlook are expected to be interventional urology, interventional, surgical and anesthesia product offerings. For interventional urology, there is no change to our expectations for at least 30% growth in 2021. We continue to expect the acquisition of XIMEDICA to add $60,000,000 to $70,000,000 in sales in 2021. Turning to currency, we expect foreign exchange rates will be a tailwind to reported revenue growth of approximately 2%. As a result, we continue to expect our as reported revenue to increase between 10.5% 11.75% over 2020.

Speaker 1

And This would equate to a dollar range of between $2,804,000,000 $2,835,000,000,000 Now for some commentary on our margin outlook. We are increasing our adjusted gross margin guidance for 2021 to a range of between 59.25 percent 59.75 percent, representing a raise from the prior guidance of 100 basis points at the low end and 50 basis points at the high end. We expect gross margin expansion to be driven primarily by a favorable mix of high margin products, including Interventional Urology, Interventional Access and Surgical, as well as for manufacturing productivity improvement programs and benefits from previously announced footprint restructuring programs, partially offset by inflation. There is no change to our expectation For adjusted operating margin, we are increasing our 2021 guidance to a range of between 26.75% 27.5%, Representing a raise from the prior guidance of 75 basis points at the low end and 50 basis points at the high end. The increase in adjusted operating margin will largely come from the gross margin line and leverage, partially offset by the expected increase in spending in the second half of twenty twenty one As we progress towards a more normalized environment as well as incremental strategic investments in UroLift and Manta.

Speaker 1

Moving down the P and L. We now expect interest expense to be in the range of $60,000,000 to $62,000,000 for 2021 versus our previous guidance of $61,000,000 to $63,000,000 The decrease in interest expense largely reflects the reduction in debt funded by proceeds On taxes, we continue to expect our adjusted tax rate will be in the range of 13% 13.5%. Considering all of these elements, we are raising our adjusted EPS outlook for 2021 to a range of 12 point 9 At the same time, we expect to be able to increase our earnings per share guidance by 0.25 We are pleased to be able to increase our earnings per share guidance by $0.25 while also covering the $0.10 to $0.15 of EPS dilution from the respiratory divestiture that was not reflected in our prior outlook. And that concludes my prepared remarks. I would now like to turn call back to Liam for closing commentary.

Speaker 2

Liam? Thank you, Tom. In closing, I will highlight our 3 key takeaways from the quarter. First, we delivered a strong second quarter with top and bottom line performance that outpaced our expectations laid out on the Q1 call. 2nd, we remain encouraged by our growth trajectory with the majority of our global product families posting constant currency growth Over the Q2 of 2019.

Speaker 2

3rd, we maintained our revenue outlook and raised our adjusted margin and earnings per share guidance In closing, we feel good about our solid performance in the quarter and our future growth opportunities. When considering At the early Q3 close of the respiratory divestiture, our leverage reached 2.3 times, which places us In a positive position with respect to flexibility on our balance sheet, we will continue meeting our commitments to patients,

Operator

And your first question comes from the line of Matt Taylor. Your line is open.

Speaker 3

Hi, good morning. Thank you for taking the question. So firstly, I just wanted to ask you about the UroLift trends that you're seeing, if you could Describe any trends during the quarter? And then just talk about your confidence to reiterate the guidance for

Speaker 2

Absolutely, and thanks for the question. Now, Matt, we are not going to get into inter quarter details on this quarter, as Larry outlined in his opening comments. What I will tell you is that, first of all, we're really pleased with what we saw in UroLift in Q2. We are positively reaffirming our growth expectations of plus 30% for UroLift. And we are really pleased with the growth in the quarter of nearly 130% And sequentially quarter over quarter plus 26%.

Speaker 2

Investors familiar with UroLift would recall that UroLift grew Around 30% days adjusted in Q1 versus 2019. And in Q2, that growth versus 2019 actually accelerated to around 36%. And we continue to expect the total dollar revenues per UroLift to continue to improve In Q3 over Q2 and again in Q4 over Q3. So a good positive message on Euridigmath.

Speaker 3

Thanks, Liam. And could you just comment on your overall thoughts on those the reimbursement change and talk about your efforts There to get a different outcome in the final rule and what would happen, I guess, if the worst case scenario sticks And you do have these cuts in the office.

Speaker 2

So to be honest, Matt, we're looking forward to engaging with CMS to better understand what their objective was in making such broad based reductions to over 600 surgical procedures that are performed in the office setting. It will be our goal to demonstrate both the excellent clinical Potential unintended consequence of some procedures being moved to higher costs of care settings. We believe that the timing of this change As it is being proposed, maybe ill advised at a time when most government bodies are trying to promote procedural return post COVID And they're promoting that return to lower cost settings where the patient also views that lower cost setting as being a less risk setting of So our plan is to engage with the key stakeholders, including other device industry, trade groups, physician associations and patient at Advocacy Groups. I think our strategy will depend on the final ruling, Matt, as to what decisions that we will take moving forward. And we believe that CMS will listen given that there is such a broad comments going to land in regard to this

Operator

Your line is open.

Speaker 4

Hi, good morning and thank you for taking the questions. Liam, I wanted to continue with Yirelifts, but just Curious, could you talk about just the users' training on NEROLift during COVID? What you've seen from recent contributions as well as Any trends in your website of service? And then also just what you're expecting from DTC contributions in the back half of this year?

Speaker 2

Yes. So thanks, Vasyl. So regarding site of service, about 30% of procedures have traditionally been done in the office with the remainder done outside of the In the ASC and the hospital, as we went through COVID, which was the other part of your question, We saw a slight increase in office procedures. And as we come out the other side of COVID, we see that normalizing again and getting back to that more normalized With regard to the DTC, I feel we're really encouraged by the performance of DTC, so much so We've actually increased the investment in it in the back half of the year. We had anticipated that we would have about 125% of the impressions In 2021 versus 2020, with this increased investment now we would think that will be 150% plus The number of impressions that we're going to gain.

Speaker 2

I was actually spent a week on the road with the Sales team meeting urologists. And I met over 20 urologists. And this is only anecdotal, and I get that. But All of our one urologist was able to tell me that they've had people turn up into their practice, whether it be a hospital, ASC or an office, Referring to the ads that they saw on television or hit them on Facebook and asking the urologist about UroLift based on that. So That is very encouraging, and we continue to see it as an excellent return on our investment.

Speaker 2

And We're spending additional dollars in the back half of the year.

Speaker 4

Great. Thank you. And then just on gross margins as well. For your second half, Could you comment on what is implied for either EuroLift 2 conversion or OEM contributions as well as geographic

Speaker 2

So I'll just touch on the UroLift and then I'll ask Tom to comment. So we anticipate The UL2 conversion being completed by the end of 2022, we're in full ramp now as we go towards the back end of the year. I'm pleased to confirm that we still anticipate that we will pick up full 4 percentage points of margin from that Conversion to the UL2 and therefore that would add about 40 basis points to the total of Teleflex. So you'll begin to see Some of the conversion as we go through the back end of the year, Cecile, but you'll see the majority of it come through in 2022. And Tom might answer some of the cadence of gross margins, if you don't mind,

Speaker 1

Sure. Well, I think there's some question about OEM and other geographies. So as we look at the OEM business, we had a soft first Quarter with a nice recovery in the 2nd quarter. So we really saw improving trends there as customers We began seeing improvements in procedures and began ordering again. And we expect that to continue through the balance of the year.

Speaker 1

Then in terms of The various geographies, as we said all along, our expectation was that the North American Region would recover first or the Americas would recover first followed by Asia and the May. And that's still kind of playing out as expected. So we expect All regions continue to show improvement in the back half of the year relative to the first, but perhaps the Americas a little bit stronger and some of the others. And then in terms of the overall gross margin, I'd say that overall we're really encouraged by what we've seen in the first half of the year Allowing us to take the guidance up. At the upper end of the guidance range, we're at 59.75%, which is slightly ahead of where we were for the first half of the So, we are really encouraged by what we're seeing and we're cautiously optimistic about the back half.

Speaker 5

Great. Thank you so much for taking the question. I guess the first one is on UroLift reimbursement. Could you talk about the potential Phase in of the office rates, it does appear that changes to the labor codes may go into effect, but it may be phased in over a 4 year period. Firstly, is that your And secondly, what impact do you expect this to have on procedures in the office setting and your ability to move them to more comfortable settings over time?

Speaker 5

And then even with Expected physician payment cuts in the HOPD and ASC setting, I believe it's about 6% in addition to the cuts in the office setting. What impact do you expect that to have on utilization in those settings? And then I have a follow-up.

Speaker 2

Okay, Shagun. So We're really focused on what we can control right now. So we're expecting that we'll spend a lot of time working with the key stakeholders in this comment period. I don't want to start second guessing the results, to be honest, Shagun, because depending on the outcome of the final ruling, that would depend on one strategy. We're going to continue to work with CMS, some of our industry bodies, patient advocates organizations.

Speaker 2

And obviously, there are clinicians themselves Putting through comments to CMS in regards to this reimbursement. With regard to the site of service, I mean, there is a certain amount of flexibility there for physicians. Many of the urologists would have part of their workload would Being in an office environment, part in an ASC, and it's not uncommon for even part to be in a hospital. So that does give the physician a certain amount of flexibility. I believe that CMS will be open to the comment period.

Speaker 2

And I believe that they will listen to what All of these individuals have to say with regard to this. With regard to the ASC and the hospital reimbursement, We were very encouraged by that. Overall, it's a 3% increase. Again, this will come into effect on January of 2022, Shagun. So absolutely no impact on anybody And again, it was broad based.

Speaker 2

So there are 600 procedures that are impacted by this, Shagun. So you can imagine there's going to be a significant amount of comments during that And you had a second question, Shougon, I believe.

Speaker 5

Yes. So thank you for that. So just with respect Q3 and the second half of twenty twenty one, I was just wondering if you could talk us through the cadence. It does appear that Q3 sales are typically below Q2 levels and EPS is just Honestly, so what are your thoughts on where consensus currently stands and especially with respect to EuroLEFT? I think last I checked, consensus

Speaker 2

Yes. So things are kind of playing out as we expected, Shagun. The recovery is being led by the Americas and Asia and Europe are lagging. So I'll start with overall Teleflex. So Look, COVID has not gone away, and we're monitoring it, the situation very closely.

Speaker 2

And I, for What it's worth, I'll add my voice of encouragement for people to please get vaccinated. The key here is getting people vaccinated Because the second or third or fourth wave, whatever we're on now, is not impacting those that are vaccinated and not impacting geographies So we remain cautiously optimistic and we're very encouraged by the trends that we saw from Q1 to And we expect the stability of Q2 to continue and that has given us the confidence to maintain our full year revenue guidance despite the respiratory In any other language that would be seen as a call up of between $28,000,000 $32,000,000 on the revenue and obviously a significant call up on our EPS as well. So for overall Teleflex, what I expect is our growth to accelerate in the back half of the year versus the first half. We grew 8 point 6 percent constant currency in the first half of the year. If you take the midpoint of our revenue guidance range inclusive of the 1.6% divestiture headwind, That would imply acceleration in the second half to 9.6% inclusive of that.

Speaker 2

If you exclude The divestiture headwind, it's about 11.2% in the back half versus the 8.6%. So full year, we have effectively, as I said, raised our revenue guidance and Strong EPS. And this is the 2nd quarter, again, as investors will know, that we have raised both our revenue and EPS. With regard to UroLift, as I said a few moments ago, I expect the absolute dollar values of UroLift to increase in Q3 versus Q2 and again in Q4 versus Q3 in that regard. So thank you for the questions, Svein.

Operator

We have a question from Matthew O'Brien with Piper Sandler. Your line is open.

Speaker 3

Good morning. Thanks for taking the questions. And I'm going to stick on your list as well, so forgive all the questions here. But Liam, there's a proposal for down roughly 20% in the positions office that you talked about. If it ends up being down 10% in the final rule, would you have to Cut your price and by how much in that setting?

Speaker 3

And then do you think clinicians would start to deploy less staples per case if

Speaker 2

So it would have no impact on the number of staples, Matt, because there's 2 codes. 1 is for 4 Staples and the other then is for all additional staples thereafter. So it wouldn't and it's the cuts have been defined Across the board on all of the different categories, I think that we will assess what we will do once we get Final ruling, obviously, a 10% reduction is a lot less draconian than a 20% reduction. But one would imagine that common sense will prevail. If you look at what CMS did in the prior ruling, they added A COVID impact of about 3.5%.

Speaker 2

And speaking with the members Of the key associations, their expectation was that, that would be removed in this ruling, and nothing more than that. So We'll see how it plays out. But I don't see it having a significant impact or us having to make all any changes to our overall pricing Because we have strength in all care settings in the ASC, in the office, in the hospital and in all of those areas. So we probably have an advantage With a certain amount of flexibility, Matt, that other companies don't.

Speaker 3

Got it. Very helpful. And then the follow-up is on The competitive side of things, I would just love to get your view on surgical robots for BPH and the pros and cons of that. Is that an area that you think you need to Eventually, have a presence in?

Speaker 2

Yes, there's one out there. There's a Prosep robot out there, Max. It is getting some utilizations. Robots are seen as being somewhat sexy right now, but it's really treating tarp. And what we hear in the feedback is it requires a secondary procedure because it doesn't use heat.

Speaker 2

It The use of the jet of water and when you use water, it doesn't coagulate because you don't have any heat to stop the bleeding. So therefore, it requires a second procedure by the And in their pivotal trial, there were a number of patients that had had blood transfusions where there were issues with So I think it's I don't see it as really a treatment for BPH or the technology that's going to That's going to impact on UroLift. And our clinical data is rock solid. It's ours is a minimally invasive procedure, no catheter, no sexual And we have a large, large bolus of trained physicians That are rolling out UroLift. So we're aware of it, Matt, but I don't see it as a need for us to Get into robotics would be the direct answer to your question.

Speaker 3

Great. Thank you very much.

Speaker 2

Thanks, Matt.

Speaker 6

Yes. Thanks for taking my questions. I have another one on the UroLift reimbursement. So I think you said around 30 The procedures were being done in the office setting. So I guess what I was wondering is what was the growth in that setting?

Speaker 6

I mean is that bigger contributor to growth? Or has that kind of been growing in line with the rest of the business?

Speaker 2

So Thanks for the question, Mike. So it's been growing in line with the rest of the business. During COVID, there was a little bit of a shift to more procedures to the office, but that's the only impact that you Taken into consideration, but very much in line with the other sites of service in the business.

Speaker 6

Okay. So it's not like the reimbursement level was creating some significant incentive to do more procedures in that Or something like that, right?

Speaker 2

No, Bill, the UroLift was profitable in all sites of service. And as I said earlier, that's an advantage that we have over almost every other treatment modality. We have flexibility, whereas others don't. And again, it's 30% of the procedures and approximately 70% of those of that 30%, Mike, is Medicare and Medicaid.

Speaker 6

Okay, got it. And then my second question would just be on pricing. I don't know if you quantified the pricing benefit, but I guess just Stepping back in terms of pricing, just given what's happening in the broader economy with inflation and things like that, do you think it's Getting any maybe any easier to get some pricing increases with your products?

Speaker 2

So Mike, I've been doing this a long time. And I can tell you, I can count on no hands, no fingers, no toes, the amount of time the customer called me up and asked me for a price increase. So it's a tough environment, always looking for pricing. But as I said on the last earnings call, we got out ahead of this early. We anticipated That there might be some movement in price momentum and we had about 20 basis points of positive pricing in Q1.

Speaker 2

That actually accelerated in Q2. We took some additional opportunities in Q2 and we continue to view that very closely. On the other side of the ledger, on the inflation side, we feel we have that very much under control within our in particular, in our global supply chain. Any inflation that we saw, we saw it begin last year in transportation. So that was already in our run rate.

Speaker 2

And we saw some modest inflation in some of our resins, but it was pretty it's very manageable. And we're going to more than offset it with Really positive pricing and building momentum in the quarter with that positive pricing.

Speaker 6

Okay, great. Thanks. Thanks, Mike.

Speaker 7

Hi. Good. Great. Thanks. And I want to say congratulations to Larry on the new role with the company.

Speaker 7

Couple of questions here. One, Liam, is just the overall procedure backlog sort of environment. A lot of chatter on that this earnings season. Certainly hard to quantify, but as you look across the portfolios, is there any way to sort of View how much deferred procedure backlog is still out there and perhaps which segments would benefit most into the back end of the year? And I'll have One follow-up.

Speaker 2

So Anthony, thank you for acknowledging Larry. We're happy to have him on the Teleflex ship. Regarding the backlog, it's hard for us to quantify it too in all transparency. There has to be a backlog of procedures out there because for almost a year, there were very few procedures I think that any backlog of procedures will be dependent on-site of service and customer confidence So therefore, again, back to the CMS decision that I mentioned, this would not be, I think, the most appropriate time to make that change that they're talking about because Patients themselves see an office or an ASC environment as a much safer place to go and get a procedure done and it's a lower cost side of service for the But I would imagine that there has to be backlog, in particular, in our UroLift business. There has to be a backlog in surgical business and there has to be a backlog on our interventional business.

Speaker 2

It's hard for us to map it out. I don't think we've seen much of it yet, Anthony, come through the system Because there just isn't that additional capacity in the hospitals and they're probably going to do some of those more acute procedures first. And we're not baking that in any significant backlog into our thinking in the back half of the year, I can tell you.

Speaker 7

Okay. And then the follow-up would be on UroLift and I'm just going to sneak 1 in on Mantha. So on UroLift, can you just level set on How many procedures your active users are doing on a monthly basis and the average number of implants, we're assuming it's still 4.5 implants. And then, Monza, that was a breakout queue. Just some color on Was that new center usage share gain or just kind of a rebound from backlog?

Speaker 7

Thanks again.

Speaker 2

Yes. So I'll start with the UroLift. So the UroLift, the average is still about 4.5 implants. And as we recover out of COVID, we're just around that 4 Procedures per average urologist. With regards to MANTA, We continue to see MANTA grow.

Speaker 2

It had an outstanding quarter. And the areas that we're seeing MANTA procedures come in is It's still predominantly in that TAVR area, about 84% of them were in TAVR in that quarter, consistent with Q1, About 11% in EVAR and a modest 4 ish percent in PVAD. So we We continue to train physicians. We're penetrating more accounts. And it is one of the areas, Anthony, that we're going to put some investment in, in the back half The year because we want to actually train more interventionalists and we see this as a future catalyst for Teleflex growth, Good solid sustainable growth for a company like Teleflex and you should expect to see

Operator

Next is from Richard Newell from SVB Leerink. Your line is open.

Speaker 8

Hi, thanks for taking the questions. I just had a couple more here under our list.

Speaker 7

I know it's got a lot

Speaker 8

of attention, but I think The first is on price. What are your options, Liam, to price differentiate by care setting, if you had to? Just is there a way to use rebates where you could keep pricing in one setting at one level and If you needed to keep

Speaker 6

the doctor whole, should there be

Speaker 8

a cut? And then I have a follow-up.

Speaker 2

Yes, Rich. Obviously, we'll Our pricing strategy once we get the final ruling. But to answer your question, yes, we have flexibility based on-site of service and based The individual contracts that are in existence. So that flexibility remains with us. As you know, We are not a price reducing company and never has been and it is not our intention to be that.

Speaker 2

It is our expectation that we will I didn't answer your question directly.

Speaker 8

That's helpful. And then just maybe 2 quick ones here. So on the Q3 commentary, Especially with respect to UroLift, feel free to answer the total company as well. I just if you look at the UroLift ramp, the consensus is at, I think someone mentioned $100,000,000 $304,000,000 sequential improvement off of $92,000,000 it leaves a wide range between the possibilities of where consensus is and What that could mean? I think it would be helpful for investors to just give a sense relative to the consensus.

Speaker 8

Is it just right, Maybe a little conservative, little too aggressive for the ramp. I think any color there would be helpful. And then while I have you, just On Japan, is there any Japan contribution assumed in that 30% for the back half of the year? What's the definition of modest? And how do we think about a year 1 kind of contribution case for Japan when and if you get approval Perfia Reversion.

Speaker 8

Thanks.

Speaker 2

So let me start with Japan, Rich, because I'm not going to comment on consensus. So on And we have modest means modest, Rich. We have a very modest amount of dollars In the quarter four number for UroLift, it's a $2,000,000,000 market. The only predicate we have for a ramp is what happened in the United States. And think of Japan as about onethree of the size The United States market and what happened in the U.

Speaker 2

S, in the very first year, we did $5,000,000 then we did $16,000,000 then we hit $50,000,000 And once you had built that base of $50,000,000 then it accelerates it to over $100,000,000 then $203,000,000 and so on and so forth. Now Japan has an advantage in that it's a single payer market. So once we get reimbursement, we can sell it at all sites of service. It is also a conservative market. We've already identified the 20 top key opinion leaders in order to start driving adoption.

Speaker 2

And the way it works there, it's quite hierarchical. Once you get those key opinion leaders, you get them training, speaking on the podium, Then it will start to trickle down to the other urology practice. We will start in the tertiary hospitals, The key thought leaders and build it out from there. And we give a lot more detail on the size of the different markets in Japan and other geographies that we're intending on attacking Once we get to our Investor Day later in the year, I will say that we will be in Japan before any of our competitors will get there. We're well ahead And we also believe we'll be in the China market well ahead of any of our following competitors.

Speaker 2

So we'll have time To build the market, make this a standard of care, that's also an advantage compared to the U. S. Because as you know, both competing technologies, Rezum and Europe were in the market around the same time. Actually, Razum was probably there just a little bit before. And back to the UroLift, rather than talking about the consensus, I'll just reiterate what I said earlier, Rich.

Speaker 2

We expect sequential improvement in absolute dollars in Q3 over Q2 and in Q4 over Q3.

Speaker 6

Great. Thank you for taking the questions. Liam, just a bigger picture question. What is your sense of why CMS I made these changes specifically to the physician office. And then how many how feasible is it after that 30% of the procedures you're talking about to switch from a physician office to an ASC side?

Speaker 2

So I think, Matt, don't ever forget that, first of all, the urologist duty of care is the patient. And they will do the right thing by the patient And give the best procedure to that patient. So I think the one thing to make note of is that UroLift It's a minimally invasive procedure, instant relief, no sexual dysfunction, very no side effects and the patient will not have To wear a catheter in the event that they once they have the procedure. So we made an easy decision for the clinician to actually pick UroLift over any of the technology. And that's why we are the Dominant player in the space.

Speaker 2

With regards to Shift's side of service, I don't think we're once we get the I'm hopeful that once we get the final ruling that, that may become a mute point as The shifting side of service from one area to another in that regard. And I think that The motivation behind CMS is difficult for me to ascertain at this stage In all transparency, but we will engage with them. And as we engage with them, we will Listen to what they have to say and that's what I said earlier on. We need to understand what their motivation was because it is not clear to us at this stage what drove this change On 600 surgical procedures performed in an office.

Speaker 6

Fair enough. And then for Tom, just on the margin profile, that's I think that's effectively a major change 1st half versus kind of what we were thinking. Are you managing costs effectively here? Is it mix or is this structural improvement Towards your previous like long term targets on higher sales.

Speaker 1

So So I would say, as we think about the margin improvement in the guidance, I think that's what you're asking is what's driving that is that, Yes. We obviously are managing expenses and costs. But I would say that really what we saw is very, very Nice, I would say, manufacturing efficiency throughout the first half of the year with expectation that will continue into the back half of the year. We've also seen a lot of the businesses recover from their COVID kind of depressed levels. And those businesses that recovered well are some of our higher margin brands.

Speaker 1

So we saw our surgical, our interventional urology all Move upwards in terms of their recovery and that helped drive the margin as well. If you think about just kind of the first half, second half, We do expect in the second half of the year that there will be incremental expense associated with running the business as we continue to see Our business and really the industry returned to more of a normalized state. We expect our people to be out traveling more. We expect to resume hiring, Etcetera. And so we will see some additional operating expenses in the second half of the year relative to the first half.

Speaker 1

We also have some investment. As we mentioned, we've put some investment into the plan that's incremental to what we previously had and that's behind UroLift as well as MANTA. So I would say that overall, we're really encouraged by gross margin and where that's going. And then based on the success in the first half of the year, it affords us the opportunity to put a little more Thank you, Dexter, and thank you to everyone that joined us on the call today. We appreciate it.

Speaker 1

This concludes the Teleflex Incorporated 2nd quarter 2021 earnings conference call. Have a good day.

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Carrier Global Q2 2021
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