Teleflex Incorporated

At this time, all participants have been placed in the 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 call is being recorded and will be available on the company's website for replay shortly. And now I will turn the call over to Mr. Lawrence Kirsch, Vice President of Investor Relations and Strategy Development.

Good morning, everyone, and welcome to the Teleflex Incorporated third quarter 2021 earnings conference call. The press release and slides to accompany this call are available on our website at 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, 416-621-4642 using the passcode 4079822. 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 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 SEC, including our Form 10-K, which can be accessed on our website. During this conference call, you will hear management make statements regarding intra-quarter business performance. Management is providing this commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters. With that said, I'll now turn the call over to Liam for his remarks.

Thank you, Larry, and good morning, everyone. It's a pleasure to speak with you today. For the third quarter, Teleflex generated double-digit constant currency revenue and 27% adjusted earnings per share growth on a year-over-year basis, despite a greater-than-expected headwind from increased COVID-19 infections due to the Delta variant. all of our global product families grew on a constant currency basis year over year, with the exception of our other category due to the divestiture of the respiratory assets to Medline. Although we encountered a change in macro trends versus expectations at the time of the second quarter, the solid performance for Teleflex during the third quarter of 2021 reflects the the diversified nature of our business and the benefits of the company's broad portfolio of medically necessary products and category leadership. Our six primary product families and broad global footprint help offset pressure on product revenues associated with elective surgery that were subject to pauses during the third quarter. As many investors will be aware, there were restrictions on elective surgical procedures in as many as 28 states during the third quarter. However, as we have seen since the pandemic began, our broad-based portfolio provides a hedge in periods of increased COVID activity with more than 60% of our businesses either benefiting from increased COVID-related treatments or remaining relatively insulated from disruptions due to the pandemic. Although we do not routinely provide intra-quarter commentary, given the larger-than-expected surge in COVID-19 infections from the Delta variant, I will share some details for the third quarter. Relative to guidance provided at the time of our Q2 earnings report, we saw a greater than anticipated pause in elective surgical procedures across select geographies in the U.S., Europe, and Asia. However, as COVID-19 infections trended down, we saw our average daily sales for products most exposed to elective surgical procedures begin to improve as we progressed through September. During the third quarter, our Americas, EMEA, Asia, and OEM segments demonstrated resilience with all regions showing constant currency revenue growth over 2020, despite the headwinds from the Delta variant. As I mentioned earlier, this underscores the benefit of our diversified product portfolio. For the third quarter, growth and operating margins exceeded levels achieved in 2020 and 2019 in comparable periods. 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 durable growth. As we look to close out the year, we anticipate some modest improvement through the fourth quarter as compared to the third quarter, but acknowledge that the macro environment is not yet where we had expected it would be at the start of the year. We remain cognizant of uncertainty around COVID-19 infections as the weather turns colder in the northern hemisphere, new variants and healthcare worker shortages. Accordingly, we believe that it is prudent to assume that COVID-19 will remain a headwind and that a broad-based return to elective surgical procedures to normal volumes is unlikely during the fourth quarter. We anticipate these elements to be transitory in nature and we expect a more normalised environment to be established in 2022. Given our year-to-date results and outlook for the fourth quarter, we are reducing our constant currency revenue growth to a range of 8% to 9% from 8.5% to 9.75% previously. The revision in the constant currency growth outlook is primarily driven by lower growth expectations for products used in elective surgical procedures. However, Given strength in our operating margin performance and improvements in our balance sheet, we are increasing earnings per share guidance to a range of $13.15 to $13.35 versus our previous range of $12.90 to $13.10, implying growth of 23% to 25% year over year. turning to a more detailed review of our third quarter results. Third quarter revenue was $700.3 million, an increase of 10.3% year-over-year on a constant currency basis. The year-over-year increase reflects the benefit of our diversified portfolio and was driven by contributions from all business segments upset by the impact of COVID-19 and the divestiture of the respiratory assets to Medline. In comparison to the comparable period in 2019, third quarter revenue increased 5.8% and demonstrated accelerating quarter-over-quarter growth in our vascular, OEM, and anesthesia businesses, which offset sequential deceleration in areas of the business more exposed to the surge in COVID-19, including interventional urology, interventional, and surgical. Third quarter growth in operating margin performance exceeded our expectations, reflecting the strength of our diversified portfolio, partially offset by greater than anticipated headwinds from COVID-19. Our year-to-date margin performance is an encouraging sign for our longer-term profitability objectives. Third quarter adjusted earnings per share of $3.51 increased 26.7% year-over-year and exceeded our internal expectations. Despite higher than anticipated headwinds from COVID-19 on our adjusted earnings per share results in the third quarter, the year-over-year performance reflects growth in our diversified product portfolio. Modest price increases, gross margin expansion, and growth. better than expected operating expense management. We continue to execute on our strategy to deliver durable growth with investment in organic growth opportunities, product innovation, margin expansion, and deployment of capital for deleveraging our balance sheet and M&A. I am proud of how the team continues to execute in a challenging environment. Our third quarter financial performance demonstrates the resilience of our diversified global product portfolio, our targeted investment in growth drivers, including Eurolift and Manta, while also reflecting progress towards our longer-term margining aspirations. Turning now to a deeper look at revenue results. I will begin with a review of our reportable segment revenues. All growth rates that I refer to are on a constant currency basis unless otherwise noted. America's revenues were $417.3 million in the third quarter, which represents 10.9% growth year over year. Contributors to the year over year growth were surgical, vascular, and interventional, partially offset by the impact of pauses in elective surgical procedures. EMEA revenues of $143.9 million increased 3.6% year over year, with interventional and vascular products leading the growth. EMEA benefited from a favorable COVID-19-related comparison due to improved procedure volumes year over year as countries across the region continued to open up, despite disruptions related to COVID-19. Turning to Asia, revenues were $75 million, increasing 6.3% year over year. Japan was strong in the third quarter, growing north of 30%, but was partially offset by the impact of COVID-19 in Southeast Asia. Let's now move to a discussion of our third 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 and ranked by size of our business units. As a reminder, there were no meaningful differences in year-over-year selling days in the third quarter. Starting with vascular access, third quarter revenue increased 8.5% to $175.5 million. Our category pick portfolio continues to position us for dependable growth.