Teleflex Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Teleflex Incorporated Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. If you would, please limit your questions to one question and one follow-up question. If you have more questions, please press star one again to re-queue. I would now like to hand the conference over to your speaker today, Mr. Jake Elgawies, Treasurer and Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you and good morning, everyone, and welcome to the Teleflex Incorporated Fourth Core 2020 Earnings Conference Call. The press release and slides to accompany this call are available on our website at www.teleflex.com. And as a reminder, this call will be available on our website, and a replay will be available by dialing 855-859-2056 or for international calls, 404-537-3406. Passcode 8789956. Participating on today's call are Liam Kelly, Chairman, President, and Chief Executive Officer, and Thomas Powell, Executive Vice President and Chief Financial Officer. Liam and Tom will provide prepared remarks, and then we'll open up the call to Q&A. 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, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today, as well as our filings with the FTC, including our Form 10-K, which can be accessed on our website. Additionally, during this conference call, you will hear management make references to the estimated positive or negative impacts that COVID-19 had on our operations during the short quarter and full year of 2020. You'll also hear management make statements regarding intra-quarter business performance during the first quarter of 2021. Management is providing this commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur at subsequent quarters. With that said, I'd like to now turn the call over to Liam.

Thank you, Jake, and good morning, everyone. It's a pleasure to speak with you today. Before I get into the details of our quarterly performance, I'd like to once again offer my sympathies to anyone who has been impacted by COVID-19, as well as my sincere thanks to all the healthcare workers who continue to put themselves at risk to battle it each day. I'd also like to take a moment to again recognize the Teleflex employees around the world. This past year has been challenging, but our team has done a tremendous job serving our customers and patients globally, overcoming obstacles to manufacture and distribute our products to the people that need them most. Thank you. Now turning to our results. Considering the volatile environment we operate in, we are pleased with our fourth quarter performance as our business did better than we expected and trends continued to improve across many of our product categories and geographies. We saw better than expected sequential improvement from quarter three to quarter four. Despite a rising number of COVID-19 infections that occurred throughout the fourth quarter, the recovery in our business was led by product lines that were initially most negatively impacted by COVID-19, those being our interventional urology, interventional access, and surgical businesses, as well as continued strength within our vascular access and other product categories. While, from a regional perspective, we saw strength within the Americas, as well as positive growth within EMEA and improving trends in Asia. Quarter four revenues totaled $711.2 million, which represents an increase of 2.3% as compared to the prior year period on a constant currency basis. Growth in the quarter was aided by two additional selling days, which we estimate contributed approximately three percentage points, excluding the impact of the additional selling days we estimate that our constant currency revenues declined approximately 1%. The day's adjusted declines reflect continued recovery progression relative to the 4% decline we experienced during the third quarter of the year and the 12% decline we experienced during the second quarter of the year. And it was ahead of the expectations we had at the time of the third quarter earnings call. During the fourth quarter, we estimate that headwinds associated with COVID-19 caused a net negative impact of approximately $61 million, or approximately 9%. If we were to normalize for the negative COVID impact, we estimate that our underlying business grew by approximately 11% on a constant currency basis, or 8% when normalizing for the selling day impact. In addition to seeing continued sequential improvements in our constant currency revenue performance, during Q4, we also saw a significant sequential improvement within our adjusted gross and operating margins as compared to the second and third quarters of the year. This improvement drove adjusted earnings per share, which exceeded our internal expectations. Lastly, I am happy to announce that on December 28th, we closed the acquisition of ZMedica, a market leader in hemostatic products. We are pleased to be able to deploy capital for a differentiated product portfolio that leverages existing Teleflex call points and is immediately accretive to our revenue growth rates, adjusted growth and operating margin profile, and our adjusted earnings per share. Turning to a more detailed review of our fourth quarter results. As I just mentioned, quarter four revenue grew 2.3% on a constant currency basis and 4.4% on an as reported basis. The increase in revenue was driven by our vascular access portfolio, which saw some tailwinds in terms of COVID related purchasing and solid mid single digit growth of interventional urology and our other segment. From a margin perspective, we had generated adjusted gross and operating margins of 58% and 26.6%, respectively. This translates into year-over-year declines of 120 basis points at the gross margin line and 50 basis points at the operating margin line. However, from a sequential standpoint, this represented an improvement of 80 and 150 basis points, respectively, compared to quarter three levels. On the bottom line, adjusted earnings per share was $3.25. Overall, our financial performance in the quarter demonstrates the sustained resilience of our diversified global product portfolio, and it gives us confidence in our ability to achieve our long-term financial objectives once we get past COVID-19. Let's now turn to a discussion of our quarterly revenue trends, which will be on a constant currency basis. The Americas delivered revenues of $419.5 million in the fourth quarter, which represents an increase of 5% over the prior year period. Growth within the Americas was driven by vascular access and respiratory products, which both saw elevated demand driven by COVID. In addition, Interventional urology was a strong contributor, as Urolift continues to be our fastest recovering procedure. However, there were offsets with declines in other product categories. We estimate that the Americas would have grown approximately 12%, excluding the impact that COVID-19 had on the region. EMEA reported revenues of $161.4 million in the fourth quarter, representing growth of 4.1%. During the quarter, EMEA benefited from a one-time order of tracheostomy products and from the extra selling days, the combination of which more than offset our estimated 1% COVID headwinds. Turning to Asia, revenues totaled $78.6 million in the fourth quarter, which represents a decline of 7.2%. However, we estimate that we would have had positive constant currency revenue growth in the mid single digits, if not for the impact of COVID-19. Additionally, during the fourth quarter, we finished transitioning a distributor in Japan. When normalizing for both COVID and the distributor change, growth in the region would have been in the mid to high single digit range. And lastly, our OEM business reported revenues of $51.7 million in the fourth quarter. which was down 6.9% on a constant currency basis. As we anticipated during the fourth quarter, our OEM business saw a lagged impact related to COVID relative to our other businesses. Investors familiar with Teleflex will be aware that our OEM business supplies device companies with complex catheters and surgical sutures, and the quarter four impact reflects reduced orders from these customers, whose businesses tie to non-emergent procedures. Excluding the impact COVID-19 had, the business grew roughly 31%, which includes a benefit of approximately 13% from the acquisition of HPC. As it relates to HPC, I am pleased to report that we remain on track with our integration efforts. Let's now move to a discussion of our revenues by global product category. Starting with vascular access. fourth quarter revenue increased 16% to $182.5 million. We estimate that COVID-19 positively impacted the growth rates of our vascular products during the fourth quarter by approximately 5%. Key drivers of revenue growth included PICs, which increased approximately 20%, CVCs, which increased approximately 16%, and EZIO, which grew approximately 14%. Moving to interventional access. Fourth quarter revenue was $106.7 million, or down 6.9% as compared to the prior year period. The decrease was largely due to the delay in the recovery of certain non-emergent procedures because of COVID-19, along with the negative impact stemming from a catheter recall and distributor conversion in Japan, both of which began last quarter. We estimate that the recall and distributor issue impacted our business negatively by approximately $3 million. We expect the impact from the recall to continue to linger for the next few quarters, as we do not expect to be back on the market with this product until September of this year. While the distributor inventory headwind should reverse and be a modest tailwind for us in 2021. When normalizing for the impact that COVID had, along with the aforementioned headwinds, we estimate that underlying growth was in the high single digits, consistent with our long-term growth outlook for the segment. In addition, we are pleased that Manta grew 33% globally in quarter four. Now turning to anesthesia. Revenue was $86.1 million, which is lower than the prior year period by 2.1%. The revenue decline was the result of lower sales of laryngeal masks and endotracheal tube products. We estimate that COVID had an approximate 1% negative impact in the quarter, implying flattish performance on an underlying basis. Since we closed the ZMedica acquisition just days before year end, its impact was immaterial on quarter four results. Shifting to surgicals. Revenues declined by 5.7% to $92.3 million, driven by lower sales of our ligation portfolio. We estimate a 9% headwind from COVID during quarter four, indicating recovery as compared to the estimated 13% COVID headwind in quarter three. Moving to interventional urology. Quarter four revenue increased by 5.3%, to $93.9 million, which represents a new high-water mark in terms of revenue dollars in any given quarter. On a year-over-year basis, the business faced a difficult growth comparison, while sequentially it grew by 15% versus quarter three. We estimate an approximate 28% COVID-19-related headwind during quarter four. Notwithstanding the significant headwind on our growth in quarter four, we are pleased with the path to recovery for this business unit and are also happy with the impact of the national DTC campaign, which is exceeding our expectations. Additionally, we are encouraged that we trained approximately 130 new urologists in quarter four, moving to a cadence that is consistent with our expectations prior to COVID-19. and a positive leading indicator for future growth. And finally, our other category, which consists of our respiratory and urology care products, grew 6.1%, totaling $98.1 million. We estimate that growth during the quarter was partly due to increased demand for certain humidification and breathing products resulting from COVID-19, mainly in the Americas. That completes my comments on quarter four revenue performance, turning to some recent clinical and commercial updates. Starting with Urolift. The response to our national DTC campaign is exceeding our expectations. The strategic role of DTC is important, as about half of the 12 million men being treated for BPH believe prescription medications are their only solution. Overall, we view the pilot national DTC as a successful campaign. Key statistics include a doubling of brand awareness among men aged 45 or higher post-campaign versus pre-campaign levels, approximately 150% increase in visits to eurolift.com during the campaign, and direct response numbers that exceeded our internal projections by a wide margin. Lastly, we note that Google search trends demonstrate a significant and sustained increase in response to the campaign. As such, we expect to continue the national DTC effort in 2021 and beyond. Turning to Eurolift 2, we have completed the market acceptance test and received positive feedback across more than 100 procedures completed by 20 urologists. We have begun a full controlled launch. The launch is controlled due to restrictive access caused by COVID-19. This will ensure we don't disrupt growth recovery with a more fulsome rollout beginning in the second half of 2021. We remain confident that conversion to the UL2 will occur over time and we continue to expect to generate significant margin expansion as the revenue base is fully converted. Regarding Japan, we remain on track for a reimbursement decision in 2021 and view the approximate $2 billion addressable market as an incremental growth driver that will be a positive catalyst for the foreseeable future. Overall, between nationwide DTC, Japan rollout, and the launch of UL2, we have multiple drivers to build momentum as we seek to further expand our leadership position in BPH. Turning to to the next slide on key clinical updates. Recently, a comparative analysis of sexual function outcomes from Urolift studies and the medical therapy of prostatic symptoms trial was published in the peer-reviewed journal European Urology Focus. The comparison reveals that Urolift is superior to BPH medical therapy in preserving erectile and ejaculatory function and sexual satisfaction. Importantly, this study challenges the idea that medical therapy is the most conservative treatment option for BPH. Over time, we believe that more clinical research like this publication to consider Urolift as a first-line therapy for treating BPH, turning to an update on interventional access. Regarding the CTO PCI study that we mentioned on our Q2 earnings call, I am pleased to announce that we have completed enrollment for this study. This is a prospective single-arm IDE study of 150 patients across 13 sites to evaluate the performance of the entire range of Teleflex coronary guide wires and specialty catheters in chronic total occlusion patients. percutaneous coronary intervention procedures, which is the most demanding PCI environment. Once the study results are finalized, we anticipate updated labeling for our guidewire and specialty catheter products, which can address an estimated 100,000 CTO PCI procedures. Overall, we continue to invest in clinical and commercial catalysts that will help to sustain our upper single-digit revenue growth aspirations in a normalized environment. Lastly, turning to EasyPlaz. I am happy to update the investment community that we successfully submitted our BLA to the FDA in late January. We recently performed a market assessment update and still see a $100 million initial market opportunity for EasyPlaz. We are increasingly confident in our ability to address this commercial opportunity with revenue likely ramping in early 2022. In addition, we believe there are potential revenue synergy opportunities with ZMedica to leverage their sales reps as well as our channel strength across the healthcare and government call points, which could add to our baseline expectations. Which brings me to an update on our latest acquisition. On December 28th, we completed the acquisition of ZMedica, an industry-leading manufacturer of hemostatic products that is a classic Teleflex deal and a great strategic fit. Investors familiar with Teleflex will be aware that we aim to invest in innovative products and technologies that can meaningfully enhance clinical efficacy, patient safety, and comfort, reduce complications, and lower the overall cost of care. Given their differentiated products and attractive end markets, we view the ZMedica acquisition like that of VitaCare from a few years ago. Since we acquired VitaCare in 2013, we have more than doubled the sales, which are still growing in the healthy double-digit range. One difference is that ZMedica is growing into a $600 million addressable market, while VitaCare's addressable market was closer to $250 million. Regarding our long-range financial targets, ZMedica only reinforces our ability to get to those goals, and we remain committed to delivering constant currency revenue growth of at least 6% to 7% on an annual basis and reaching 60% to 61% and 30% to 31% adjusted growth and operating margins once we return to a more normalized environment. We plan to hold an Analyst Day event in the fall of this year, at which time we intend to provide updated long-term financial goals and timetables. This completes my prepared remarks. Now I would like to turn the call over to Tom for a more detailed review of our fourth quarter financial results. Tom?