Teleflex Incorporated

Good morning, ladies and gentlemen, and welcome to the Teleflex second quarter 2024 earnings conference call. At 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 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 Kirscher, Vice President of Investor Relations and Strategy Development.

Good morning, everyone, and welcome to the Teleflex Incorporated second quarter 2024 earnings conference call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, a replay will be available on our website Those wishing to access the replay can refer to our press release from this morning for details. 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 will 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 the slides posted to the investor relations section of the Teleflex website. 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. Now, I'll turn the call over to Liam for his remarks.

Thank you, Larry, and good morning, everyone. On this morning's call, we will discuss the second quarter results, review some commercial highlights, and provide an update on our financial guidance for 2024. Before beginning our normal business review, I wanted to highlight a subsequent event following the end of the second quarter. As we have previously disclosed in our SEC filings, the Italian government introduced legislation back in 2015 requiring medical device companies that supply goods and services to the Italian national healthcare system pay back a portion of their proportional revenues to contribute to funding any deficit created by government budget overspend for medical devices each year. The payment amounts are calculated based on the amount by which the regional ceilings for that given year were exceeded. We and numerous other medical device companies challenge the enforceability of the law. primarily on the basis that the legislation was unconstitutional. To date, companies have not been required to pay these amounts while the measure was under consideration by the courts. On July 22nd, the Italian Constitutional Court issued an adverse ruling that supported the legislation related to the payback measure on medical device companies. Although Teleflex has accrued amounts, each year since 2015 we are now truing up our reserves to reflect the full amount expected to be invoiced by the italian government for the three and six months ended june 30th 2024 we recognized a 15.8 million dollar increase in our reserves and a corresponding reduction to revenue within our emea segment related to the italian payback measure Of the total increase in our reserves, $13.8 million related to prior years. The amount related to the prior years does not represent normal adjustments to revenue and is not recurring in nature, making it difficult to contribute to a meaningful evaluation of our operating performance. Accordingly, we have excluded $13.8 million for the prior years in our adjusted second quarter revenues to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. For the second quarter, Teleflex revenues were $749.7 million, up 0.9% year over year on a GAAP basis. When excluding the prior year impact of the Italian payback measure, adjusted revenues for the second quarter were $763.5 million, up 2.7% year-over-year on a reported basis, and up 3.4% on a constant currency basis. In addition to the $13.8 million booked in the quarter for prior years, the quarter includes $2 million in increased reserves for this measure to true up the first and second quarter revenues. Backing out the $2 million in unplanned reserves for the Italian measure implies second quarter revenues came in slightly above the high end of our $760 to $765 million revenue guidance provided previously. Second quarter adjusted earnings per share was $3.42. a 0.3% increase year over year. Now, let's turn to a deeper dive into our second quarter revenue results. I will begin with a review of our geographic segment revenues for the second quarter. All growth rates that I refer to are on an adjusted revenue and adjusted constant currency basis, unless otherwise noted. America's revenues were $426.8 million, a 0.6% increase year-over-year. Investors familiar with Teleflex will be aware that prior year MSA revenues were booked in the Americas, which results in a difficult year-over-year comparison. The impact from the MSA termination in the second quarter was similar to the first quarter. EMEA revenues of $160.9 million increased 9.8% year over year. The growth was driven by a targeted strategy to increase the geographic availability of Teleflex products and improving utilization in Europe. Turning to Asia. Revenues were $87 million, a 4% increase year over year. the quarter was primarily impacted by a softer performance in South Korea due to the ongoing impact of the doctor's strike. We estimate that the doctor's strike impacted our APAC growth by approximately 5%. Although we anticipate the doctor's strike headwinds to linger through the remainder of this year, we expect the impact to diminish. We continue to see Asia as a growth driver for Teleflex and expect growth in the region of approximately 10% for 2024. Now let's move to a discussion on our second quarter revenues by global product category. Commentary on global product category growth for the second quarter will be on a year-over-year adjusted revenue and adjusted constant currency basis, starting with vascular access. Revenue increased 4.8% year-over-year to $181.1 million. In the quarter, our broad portfolio of vascular access drove growth, including our PIC portfolio and central access. Of note, the endurance recall anniversaried towards the end of the quarter, implying normalized comparisons in the second half of 2024. Moving to interventional. Revenue was $141.2 million, an increase of 13.8% year-over-year. In the quarter, our geographic regions had high single-digit or better growth as the broad portfolio continues to perform well, including contributions from growth drivers such as Manta, complex catheters, right heart catheters, and intra-arctic balloon pumps. Turning to anesthesia. revenue increased 2.3% year-over-year to $102.5 million. Growth was led by endotracheal tubes and intraosseous. Of note, we anniversary the ET tube recall towards the end of the quarter. In our surgical business, revenue was $111.3 million, an increase of 6.4% year-over-year. Our underlying trends in our core surgical franchise continue to be solid, with growth of our largest franchises led by instrumentation and chest drainage. Although GLP-1s continue to negatively impact sleeve gastrectomy procedures, Titan Stapler revenue growth in the second quarter was a creative to the growth profile of our surgical business, as well as the corporate average. Consistent with our strategy, we continue to proctor surgeons and roll out our buttress kit following the launch earlier in 2024. For interventional urology, revenue was $83.1 million, representing an increase of 7.1% year over year. Growth was driven by Barragell revenue following the October 2023 acquisition of Palette Life Sciences. And as anticipated, your lip growth was impacted by continued challenges in the office side of service and Salesforce training activities for Barragel during the quarter. OEM revenues increased 5.8% year over year to $88.8 million. The quarter reflects the order timing that we previously communicated with revenue that we had anticipated in the second quarter moving into the first quarter. Second quarter other revenue declined 26.4% to $55.5 million year-over-year. The decline in revenue on a year-over-year basis is primarily due to the planned December 2023 exit of the MSA by Medline. That completes my comments on the second quarter revenue performance. Turning now to some commercial and clinical updates. Starting with the inter-Ortic balloon pump and catheter market. We are currently experiencing increased quote activity following a May 8th letter from the FDA to healthcare providers regarding pump safety and quality in relation to our primary competitor in the intraortic balloon pump market. Intraortic balloon pump therapy is used to treat severely ill patients in cardiogenic shock, which is an acute condition where the heart can't pump enough blood to meet the needs of the body. The global inter-ortic balloon pump and catheter market is approximately $250 million a year with growth in the low single-digit range and consists of balloon pumps, which are primarily replacement sales, and single-use balloon catheters used to treat patients. The market is a duopoly, with Teleflex having approximately a one-third market share. Based on 2023 market data, Asia is just over one-third of the market, North America is about one-third, and EMEA is slightly less than 30%. We are in the process of increasing our manufacturing capacity for pumps and catheters to help customers that are seeking an alternative vendor. Looking forward, we will carefully modulate our manufacturing capacity in accordance with demand signals. We anticipate that the biggest incremental opportunity for Teleflex will be in the U.S. market due to the language in the FDA letter to healthcare providers. Specifically, the agency recommended that healthcare facilities transition away from the use of competitive devices and seek alternatives if possible. We also expect continued share gains in Asia based on solid execution from the team over the past couple of years. Finally, we are not currently assuming any meaningful share shift in Europe, given a temporary suspension of their CE mark. Looking into the second half of 2024, we expect incremental pump revenue in the fourth quarter, given the capital equipment sales cycle and customer training. Based on what we are currently seeing in cold activity, we anticipate a continuation of incremental inter-arctic balloon pump and capital revenue through the first half of 2025 at a minimum. Tom will cover the financial implications of this opportunity when we discuss updated guidance for 2024. Now I will move to an update on Palette, our most recent acquisition. We have now owned Palette Life Sciences for just over nine months, and I am pleased to report that the acquisition is tracking ahead of expectations. First, the integration process continues to progress well, including employee onboarding, training, and IT integration. Cross-functional product sales training and proctoring of the legacy Eurolift sales force on the use of Barragel continue to progress with the first tranche of our jewel bag reps completed at the end of the second quarter. We remain on track to fully complete the integration of the Salesforce by the end of 2024. Second, Barragel continues to gain traction in the U.S. with strong sequential revenue momentum. We are seeing continued penetration of Barragel into the rectal spacing market, and we anticipate an increasing number of urologists and radiation oncologists will utilize the technology over time. Due to better than expected performance in the first half and no change to our second half expectations, we are increasing our 2024 revenue guidance for Palette to $70 to $72 million from $66 to $68 million previously. Our full year 2024 interventional urology total revenue guidance continues to assume approximately 7.5% growth. Finally, I will provide a new product update. In our interventional access business, we recently received FDA clearance for the Ringer perfusion balloon catheter. A limited market release will occur in August, which is on track with our previously communicated second half 2024 timing. As a reminder, Ringer incorporates a unique balloon design that allows blood to flow through a vessel while the balloon is inflated. We expect to initially launch with a PTCA indication, but will evaluate opportunity for label expansion following the completion of our vessel perforation trial. That completes my prepared remarks. Now, I would like to turn the call over to Tom for a more detailed review of our second quarter financial results. Tom?

Thanks, William, and good morning. Given the previous discussion of the company's revenue performance, I'll begin with margins. For the quarter, adjusted gross margin was 60.8%, a 180 basis point increase versus the prior year period. The year-over-year increase was primarily due to the favorable impact of gross margin from the termination of the MSA and the acquisition of Paulette. Favorable price, benefits from cost improvement initiatives, partially offset by continued cost inflation. Adjusted operating margin was 26.7% in the second quarter. The 10 basis point year-over-year increase was primarily driven by the flow-through of the year-over-year increase in gross margin, partially offset by the inclusion of Palette Life Science operating expenses, employee-related expenses, and investments to grow the business. Net interest expense totaled $19.4 million in the second quarter, an increase from $16.6 million in the prior year period. The year-over-year increase in net interest expense reflects higher interest rates versus the prior year period and higher average debt outstanding utilized to fund the acquisition of Palais, partly offset by increased interest income. Our adjusted tax rate for the second quarter of 2024 was 12.3% compared to 10.8% in the prior year period. The year-over-year increase in our adjusted tax rate is primarily due to additional costs arising from the enactment of European Pillar 2 tax reform and realization of discrete items in the quarter. At the bottom line, second quarter adjusted earnings per share was $3.42 an increase of 0.3% versus prior year. The year-over-year increase in EPS includes solution in the acquisition of Paulette Life Sciences and the related incremental borrowings, the termination of the MSA, the negative impact of foreign exchange, and a higher tax rate. Turning now to select balance sheet and cash flow highlights. Cash flow from operations for the six months was $204.5 million compared to $170.6 million in the prior year period. The $33.9 million increase was primarily attributable to favorable operating results and a decrease in cash outflows from inventories as we moderate our inventory levels due to improving supply chain dynamics. The increase in net cash provided by operating activities was partially offset by higher tax payments. Moving to the balance sheet, at the end of the second quarter, our cash balance was $238.6 million as compared to $222.8 million as of year end 2023. The increase in cash on hand is primarily due to operating cash flows partly offset by CapEx and debt payments. Net leverage at quarter end was approximately 1.6 times And now for an update on our capital allocation strategy. In conjunction with our second quarter earnings release, we announced today that our Board of Directors has authorized a share repurchase program for up to $500 million of our common stock. Under the authorization, we will commence an accelerated share repurchase program for $200 million, which we intend to execute on August 2nd. Over the years, we have continuously assessed our capital allocation and routinely discussed a share repurchase in the past. While investing in the business remains our foremost priority, our business continues to evolve. Today, Teleplex has a broad portfolio of medically necessary products that are tied to critical care procedures. We are investing in growth drivers, launching new products to refresh our portfolio offering, and expand our geographic reach, we believe that now is an appropriate time to add another dimension to our disciplined capital allocation process. Our capital allocation strategy is reflective of the strong free cash flow profile over many years and our confidence going forward. Over the years, our capital allocation strategy has been targeted to thoughtful allocation of capital to high return opportunities, including M&A, strong stewardship of our balance sheet, and consistent payment of the dividend. Today, the share repurchase authorization and ensuing intended initiation of the ASR allows Teleflex to augment our return of capital to shareholders. Importantly, we continue to see opportunities for M&A in the areas of focus that we have articulated previously, and this authorization should be viewed as complementary to our core capital allocation strategy and allows us to leverage our strong balance sheet and cash flow opportunistically to drive shareholder return. Proform of the $200 million accelerated share repurchase, our Q2 leverage is approximately 1.9 times, which provides a meaningful available capacity for M&A while maintaining a conservative debt profile. Turning to our updated financial guidance for 2024. We are increasing 2024 adjusted constant currency revenue growth to 4.25% to 5.25% from 3.75% to 4.75% previously, which excludes the impact of the Italian measure from prior years. The increase in revenue guidance is driven by better than expected growth in the first half and incremental intra-aerobic balloon pump revenues in the fourth quarter. In addition, I will remind investors that our year-over-year comparability is impacted by the loss of the $75.7 million in MSA revenues, partly offset by the incremental revenues from Palais. We are focused on executing on the balloon pump opportunity, but it is evolving in real time. At this point, we are expecting incremental IAB revenue in the fourth quarter, which is contemplated in our updated 2024 revenue guidance. Looking into 2025, we expect incremental IABT and catheter revenue, but the magnitude and duration will depend on how demand develops over the coming quarters. We will provide an update as we get more clarity on this dynamic situation. At this time, we are currently assuming that the balloon pump opportunity will continue at least into the first half of 2025. Turning to foreign exchange. we continue to assume a negative impact on foreign exchange of approximately $12 million, representing a 40 basis point headwind to GAAP growth in 2024. The guidance assumes approximately a $1.07 average Euro exchange rate for 2024. On a GAAP basis, which includes the impact of foreign currency and the $13.8 million for the Italian measure, we expect reported revenue growth of 3.4% to 4.4% in 2024, implying a dollar range of 3.76 billion to 3.105 billion. Excluding the impact of the Italian measure, we expect reported revenue growth of 3.85% to 4.85% in 2024, for a dollar range of 3.89 billion to 3.119 billion. This revenue range, which excludes the Italian measure, anchors our 2024 guidance. For your modeling purposes, the 2024 outlook includes an assumption for $765 to $770 million in revenue for the third quarter, representing growth in the range of 3.1% to 3.7% year-over-year, excluding an FX headwind slightly in excess of $4 million. We are raising our 2024 gross margin guidance by 25 basis points at the low and high end to a range of 60.25% to 61%. The increase reflects the strong operating performance in the first half of 2024 and our expectation for accelerated capital equipment sales in the fourth quarter from intra-Aurtic balloon pumps. Capital component of pumps is slightly dilutive to our corporate gross margin. However, we expect the margin profile to improve in the future with the accelerated sale of disposables or catheters that carry a more favorable margin profile. We are also raising our operating margin guidance by 25 basis points at the low and high end to a range of 26.5% to 27% for 2024. Our guidance reflects the flow through a gross margin and the positive impact of restructuring. offset by the inclusion of the operating expenses for Paulette Life Sciences and investments to grow the business. Moving to items below the line, net interest expense is now expected to approximate $81 million for 2024, which assumes the incremental borrowings for today's announcement of a $200 million ASR. The majority of the year-over-year increase in our net interest expense outlook reflects the impact of borrowings associated with the Pellet acquisition, higher interest rates, partially offset by planned debt repayments during 2024. We continue to expect our tax rate to be approximately 12% for 2024, which reflects the impact of the Pillar 2 global minimum tax. Turning to earnings, we are raising the low end of guidance by 20 cents and raising the high end of guidance by 25 cents. which reflects the previously discussed IABP opportunity in addition to our first half performance. In turn, we now expect 2024 adjusted earnings per share to be in a range of $13.80 to $14.20. Our 2024 adjusted ETF outlook continues to reflect 87 cents in year-over-year headwinds After adjusting for these headwinds, year-over-year underlying adjusted constant currency EPS growth is approximately 9% on the low end of guidance and 11% on the high end of guidance. That concludes my prepared remarks. I would now like to turn it back to Liam for closing commentary.

Thanks, Tom. In closing, I will highlight our three key takeaways from the second quarter of 2024. Our diversified portfolio and global footprint drove durable growth in the second quarter. Our execution remains strong, we are launching new products, and our margins remain healthy. Second, the solid performance in the first half of the year and the expected contribution from the inter-organic balloon pumps in the fourth quarter gives us confidence to increase our revenue and earnings per share guidance for 2024. We will continue to focus on our strategy to drive durable growth. Ouellette is performing above our expectations. We are executing on the inter-arctic balloon pump and catheter opportunity, and Titan is generating solid growth. We will invest in organic growth opportunities and drive innovation and expand our margins. Finally, we will execute on our disciplined capital allocation strategy, which now includes a share repurchase program to return cash to shareholders and enhance long-term value creation. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q&A.

Thank you. And if you would like to ask a question, please press star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you limit yourself to one question and one follow-up. If you'd like to ask additional questions, we invite you to add yourself into the queue by pressing star one again. And our first question comes from the line of Anthony Patron with Mizuho Group. Your line is open.

Thank you, and congratulations on a great quarter here. Thanks, Anthony. Maybe start a little bit with intray or balloon pumps. A lot of noise out there, Liam. You mentioned a May 8th notice on the competitor. Maybe just what you're hearing on the ground, it seems like when you look at the results from the competitor, there was not much movement in the second quarter. Your outlook is calling for some market shift, perhaps starting in the second half of this year, extending into 2025. But maybe just what you're hearing on the ground as it relates to interaortic balloon pumps, and if you can, maybe to just size what that opportunity looks like over the next 12 to 18 months, and then I'll have a follow-up.

Yeah, Anthony. So, first of all, we're really delighted to be able to call up our total revenue guidance for the year by 50 basis points, and a significant contributor to that is the interaortic balloon pump opportunity, which we expect to hit in the fourth quarter. With regard to the balloon pumps and catheters specifically, over the past two and a half years, Anthony, we've had a really strong market position and we've been continuing to take share up until this point. The opportunity is evolving real time and based on what we know today and the visibility we have, we do expect the vast majority of those pumps that will ship in Q4. Just on the timing, Anthony, within the marketplace as it takes, for people to get them through their system and to place the orders. I will tell you that our quote rate has been very, very robust since the announcement from the competitor and is encouraging enough for us to realize this is going to impact at least into the first half of 2025. And you have a variety of reactions on the ground from the customers. The bulk of the inbounds have come from US specifically, not North America. Not too much from Europe because the CE mark right now has only been suspended for a shorter period of time. We were always taking share in Asia Pacific and we expect that to continue over a multi-year period. Our goal is to ensure that over the longer term, it's not just about pumps, that the catheters that follow those pumps will be with us for over a multi-year period. And our second goal is to ensure that the share that we take We maintain that over the long term so we become a more meaningful player in the inter-Arctic balloon pump and catheter market.

That's helpful. A quick follow-up there would just be when we think about share gains in that category, just the margin profile of that incremental share gain. How much of a margin tailwind do you expect from pumps? And then just a quick one, just a quick question on capital allocation. Share buyback here. Maybe just a recap on the tuck-in M&A strategy relative to buyback. Is this signaling a shift away from the tuck-in strategy more toward buyback? And how do you balance between those two priorities? Thanks again. Congratulations.

Thanks, Anthony. I'm going to cover the second question first, Anthony, because I think it's an important one. And as both Tom and I said in our prepared remarks, this is in addition to our ongoing M&A strategy. Right now, as we look at our company, our free cash flow generation is really, really strong. Our current leverage is 1.6 times with the 200 million of the ASR that takes us to 1.9 times, a really healthy position. And we continue to be active out there in the M&A market, looking for opportunities. I want to reassure every investor listening to this call, this does not cause us to miss a heartbeat in our M&A strategy and also continuing to invest in the business to improve shareholder return. On the first question you asked about the margin profile, Anthony, I would say that you should look at it in two buckets, really. The first bucket is the pump strategy. volume that's going to hit us in particular beginning in Q4, as I already said. That is dilutive to our corporate average. The catheters that will follow are accretive to our gross margin average. So in its entirety, that business is equal to our corporate average, but it comes in two stages. You'll get the pumps first, and then over the next multi-year period, you will get the catheters that are accretive. So that's how you should model it. And I just want to make an additional point on that. Even despite the pump volume coming in Q4, we have still been able to update our gross margin guidance with an uplift of 25 basis points coming from the core business. So that should really send a strong signal to our investment community that our core business is performing exceptionally well, driving the 25 basis points in gross margin and driving 25 basis points in the operating margin and obviously the EPS that Tom outlined in his comments.

And your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Thanks for taking the questions. Just to follow up on Anthony's on IABPs. Liam, is it fair to think, you know, the guidance rates for the year is about 15 million, maybe 10 of that is IABP specifically. And then that's only for the U.S. And as I look at that market, I think the opportunity for you guys is something like 60 million that you don't already have. here in the States. So you're thinking you're going to get about, you know, one-sixth of that opportunity here in Q4 and then more of it into next year. So is that the right way to think about the opportunity? And I guess why wouldn't Europe be an opportunity with that CE mark being suspended? Thanks.

Yeah, thank you. I think that the way I would look at this, Matt, is that it's evolving in real time. You have to remember this just happened on May 8th. Our quote inbound volume didn't really start to increase until you got well into the back end of June. And here we are sitting in the first day of August. So that'll tell you, I'm just trying to give you a timeline. The way I would look at the call up is that the majority of it is associated with the inter Arctic balloon pumps. The catheters will come later. I would agree with your assessment that there is further opportunity to develop and take more market share at a minimum in the first half of 2025. Regarding your question on Europe, the short-term, and we've had short-term suspensions in the past with the competitor where they've been out of the market. If you go back to 2023, they were out for six months. And there's very little volume that switches in a short period of time, Matt. That's why we're tempering our expectations for what's going to happen in Europe, unless the withholding of the CE mark is extended beyond that time, and then, as I said, in an evolving situation, that would change. I would also point out that we've begun scaling up and continue to scale up our manufacturing to make sure we can match the demand. As I sit here today, I feel really comfortable that we are able to match any demand that comes from this opportunity just because of the nature of the manufacturing process for both the pumps and the catheters.

And your next question comes from the line of Jason Bedford with Raymond James. Your line is open.

Good morning. Thanks for taking the questions. I hate to continue on this balloon pump trend here, but just quickly, the $250 million market you talked about, is there any way to break out capital versus one-time use disposables?

So I would say that if you wanted to break out the 250, the easiest way to look at it, Jason, is about half and half. Half of it comes from the capital on an annual basis. Just remember, the pumps will last for about eight years, and the catheters get used over that cycle. So that's a reasonable rule of thumb for the 250 million.

Okay, thanks. And maybe for Tom, on the guidance EPS. You beat 2Q, you lifted the margin guidance, but of the 20 to 25 cent EPS raise, how much of that is related to the buyback? Thanks.

Well, just as we think about the 20 to 25 cent raise, really that's an organic increase. It's coming from the performance of the underlying business. As we look at some of the pluses and minuses, We're going to get some incremental IEP revenues, which we assume that's going to offset the impact from the Italy payback. And then the increase in the interest expense associated with the buyback is being offset by the reduction in share count. So the buyback itself in 2024 is expected to be EPS neutral. as a result of additional interest expense being incurred and that being offset by the reduction in average weighted shares outstanding. So again, the 20 to 25 cents is really due to the strength of the underlying organic business.

I'll just add, Jason, that the benefit from the share repurchase would be seen in 2025.

And our next question comes from the line of Shingun Singh with RBC. Your line is open.

Great. Thank you so much. Liam, I was wondering if you can give us an update on the interventional urology business in a little bit more detail. You know, what was contribution from M&A this quarter, and what are you seeing on the doctor's office side for UroLift?

Absolutely, Shingun. On the doctor's office side, I will tell you it continues to be challenged. very, very similar to Q1, so no change on the growth profile in the sites of service and no change in the amount of procedures that are being done in the office versus the hospital, and really no change to the growth profile in the office. It continues to remain challenged. I will tell you that as we outlined in our prepared remarks, the biggest change has been in Palette, where through the first half of the year, Based on the performance of Palette Life Sciences, and in particular Barragel, we're updating our revenue guidance from 66 to 68 million to 70, 72 million. UroLift has been performing broadly in line, but by definition, we're holding our full year guidance at 7.5% for interventional urology, and we're really pleased with the performance of Palette, really pleased with the performance of Barragel, the cross-training of the sales reps shagun is now completed of those 50 jewel bagged reps. And as was always the case in our full year guidance and no change, we still anticipate an improvement in the second half of the year as Palette Life Sciences continues to ramp and we get those sales reps, jewel bagged sales reps back into the field selling both products.

Got it. And just as a follow-up for Tom, can you help us with the cadence of margins in the back half, especially, you know, you mentioned IABP, the capital component is going to have an impact. And then where do you stand relative to, you know, your prior LRP, which was at the low end for gross margins and operating margins, 61.5 and 28.75 percent? Thank you.

Well, I would say that, you know, to Liam's point, the margin profile of the incremental revenue from the IABPs is slightly dilutive to our overall average. And what we're expecting in the back half of the year is that we're going to see on the gross margin line a fairly stable gross margin Q3 and Q4. And on the operating margin line, we'll see some further leverage in the fourth quarter just given stronger revenues. So again, as we think about the longer term on the IABP opportunity in 2025, as we sell more of the of the catheters, we'll start to see an improving margin profile from that business. You know, I'd say for the LRP, you know, we continue to believe that the targets are appropriate for the company. I would say that the gross margin, you know, there is a pathway to get there. We're going to need to see some strong mix, good, good performance out of our manufacturing sites and know inflation continuing to to improve for us to be able to to get there but it is they are targets that we're still uh working towards and uh we'll update you as as appropriate on that uh as we get into 2025 guidance and our next question comes from the line of george sellers with stevens inc your line is open good morning and thanks for taking the question

maybe on the ringer balloon catheter discussion could you just give us a little more detail on maybe how that augments your existing device portfolios or where that what that fits and what your expectations are for maybe share shifts over time and any cannibalization to your existing portfolio of balloon catheters thanks george and good morning to you as well um the ringer has a ptca uh indication

which is right in the call point for the biggest part of our sales force that sell our complex catheters. It is growing into an approximately $40 million market. And its indication, as I said, is PTCA. Our thinking on this is that there may be additional indications in the peripheral. And as we all know, we've got one heart and two legs. So the market is much bigger in the peripheral. My expectation is that the surgeons and the interventional cardiologist will tell us where the next application is. When they get this product in their hand, it's a pretty innovative product. And what the product does in effect is it helps the interventional cardiologist in the case where there is an accidental puncture of a vessel. And it allows them to continue to do the procedure by using the ringer catheter. There will be no cannibalization, George, to your part of your question with regard to our current portfolio. And we've just completed a study on perforation, which will be the next indication for this product as we continue to grow into that $40 million market. So another example, again, of the innovation within the interventional access business. New products into this business in particular is the lifeblood of the interventional cardiology You want to be in front of the clinician in the cath lab and having new products within your bag allows that interaction on an ongoing basis. We've seen it with Manta. We've seen it with the Watson Wire. Now we're going to see it with Ringer. And we're really happy that this product was in a little bit ahead of its timeline. So we're happy with the execution of the R&D organization within that business unit as well, George.

Okay, great. That's really helpful, Culler. I appreciate that. Maybe switching back to the interventional urology segment, I'm just curious if there's any quantifiable impact to that training that you talked about that's now complete. How much of a headwind, if any, was that? How should we think about potential headwinds or sequential tailwinds with training in that segment going forward?

Well, I think it's hard to quantify what it's been in the first half of the year, but we had planned for the impact of the cross training. We knew that it was going to have an impact and therefore we always anticipated that in the back half of the year, interventional urology would be improving as you go towards the back half of the year. I think the tailwinds will come in two buckets in my mind, George. Now you have more sales reps out there talking about Barragel. So that's an opportunity. And as you know, we have Barragel and the Palette portfolio ramping in the back half of the year as we go through. And again, I want to reiterate, we're really pleased to call up the $4 million on Barragel just based on the first half performance. But then the other tailwind one would expect is you get these reps that were tied up in training. for quarter one and quarter two, back out there on the road, also positioning the UroLift back to their surgeons. So we'd expect somewhat of an improvement in that as well, as was always anticipated, George. And we have maintained our guide for interventional urology at seven and a half percent. So I think we're confident in our ability to deliver that.

And our next question comes from the line of Larry Beagleson with WF. Your line is open.

Hey, good morning. This is Vic and for Larry. Thanks for taking the questions. First one, you know, M&A has been a major contributor to your revenue growth historically. Can you just talk about what you're seeing on the M&A front and that you're more focused on price to sales or EBITDA deals and it's for what areas? And then I had a follow-up. Thank you.

Yeah, Vic, obviously we're active out there. We're always active out there. At any one time, we have a number of assets that we are chasing and paying very close attention to. Our leverage helps us. We're at 1.9 times pro forma, even with the $200 million on the ASR. And I think that the M&A environment, in my mind, has improved for private assets. I think valuations, I've seen a tempering in the valuation expectations somewhat. In the areas that we're focused on, you know, it's the worst kept secret that we really like the cath lab as a call point. We really like emergency medicine. The intensive care unit where our vascular team is every single day is an area of focus for us. Tuck-ins in OEM and in surgical we could do I would like to restate that the share repurchase is not a substitute for M&A. We are going to do M&A alongside the share repurchase, and we can do both, and we have the cash flow generation to do both. And the share repurchase for us is just another way to return capital to our shareholders where we continue to support our dividend, we continue to reinvest in the business, and for sure, we intend to continue to do really good M&A um the other part of your question is hard to answer vick are you chasing assets that are dilutive or accretive uh if you look at the spectrum that we're covering uh we are aware that um dilution is not a a favorable outcome and we are looking at assets that continue to add value both on the top line and to earnings and those assets are out there um and available

Great, thank you and they just had a follow up on the ASR. When do you expect that to be completed? I think I heard you say or maybe I heard Tom say it's more of an impact in 2025 and and then does the ASR get you to double digit growth next year? Thanks for taking the questions.

So we we expect it to take two to potentially three months to complete the ASR and we expect to kick that off pretty quickly here. So as far as the growth for next year, you know, we're going to wait until 2025's guidance to talk about that in its entirety. But, you know, just the point that more benefit in 2025, that's really due to just how weighted average shares are calculated. You know, just given it wasn't in our beginning number, as we get into 2025, we'll see more of a share impact than we are seeing in 2024. But again, as Liam pointed out, you know, the benefit to earnings will be in 2025. And we'll discuss that comprehensively at our fourth quarter earnings call as we provide guidance for the year.

And our next question comes from the line of Rich Newiter with Truist. Your line is open.

Hi. Thanks for taking the questions. So, I'm juggling a couple of calls. If this is answered, I apologize. But just on the pumps to start the IABP opportunity, You talked about strong quote activity. What is your confidence you can convert that quote activity into actual conversions or share gains? I would love to just hear that. I just want to make sure I'm understanding on the margin impact versus the earnings and revenue impact. So IABP share gains are going to be lower margin up front because of the capital piece. Is that right?

Yeah, Rich, that is correct. The overall business is equal to the company's gross margins. The capital is slightly below and the catheter is slightly above. So in its entirety, it's equal. But the call up on gross margins, the 25 basis points is not attributable to the inter-artic balloon pumps. It's actually despised on the margins. It's not a big that drag because it's just slightly below. But I just want to make sure that people realize that the call up on the gross margins and the up margins are really driven by the core business and the performance of the core business. Regarding your question, which is a good one, is in relation to the ability to convert those quotes. Well, in the past, there were two potential suppliers of product in the marketplace. and our conversion rate was in line with our market share, but it was growing. The overall market is growing at around 3% or 4%. Our inter-Arctic balloon pump and catheter business over the last number of years has been growing at more than double that market share growth. So we have been continuing to taking share, in particular in the U.S. and in Asia Pacific. The quote volume I refer to, Rich, is exclusively in the United States, um where customers have been strongly advised by the fda to seek an alternative supplier and our confidence level in converting that quote volume associated with the call up in q4 is incredibly high based on the activity that we're seeing okay thanks and then just on the the payback

add back the italian um item that that that's getting added back to adjusted revenue can you just explain the the mechanics of that you know why you're adding back a reserve adjustment i might ask tom just to cover that rich yeah sure so rich in total in the second quarter we are taking additional reserves that total 15.8 million dollars

13.8 million of that is related to true up of reserves that are from prior year periods. The remaining 2 million is related to additional reserves related to 2024. So the add back adds back the prior period impact to the reserve for $13.8 million. It's being done largely because we don't see this as part of the ongoing operating performance of 2024, and we wanted to be able to provide visibility to how the business is performing, you know, this year. And that's kind of the logic behind it and the mechanics of it. Hopefully that answers your question. If not, I'm happy to provide more color.

And, Rich, I just want to add ever so slightly to that, to what Tom just said, and just to make sure people are aware that in the current year in Q2, uh when we because as you realize this didn't happen until july we rolled up our numbers in q2 we were above the top end of our guidance range of 760 to 765 and then we took a booking of 2 million after we closed the quarter in late july and there's another 2 million of impact in the back half of the year that we're booking because that's in the current year and i think that should be something that is booked in real time by the company. And as Tom said, the other 13.8 is related to prior year periods and therefore wouldn't be a good representation of the performance of the company.

And our next question comes from the line of Mike Polark with Woolsey. Your line is open.

Good morning. Thank you for taking the question. Follow-up on balloon pumps. and then one other. On the balloon pump, is the consumable captive to the pump or is the consumable market open? That's one question. And then given the market's kind of teetering on full sourcing here with your competitors' challenges, do you expect there to be a price component as you convert these orders relative to history for this market?

First of all, on the catheters, the attachment rate to the actual brand of the pump is incredibly high. If you use a competitor pump traditionally, you use the competitor catheter. It's all part of the decision-making process. And if you use the Teleflex pump, you use the Teleflex catheter. Both companies have adapters that work reasonably well converting catheters, not as good because The catheters work differently. What I mean by that is our fiber optic catheter has a sensor at the tip of the catheter, and that's how it pulses. The competitor catheter has the sensor within the pump, and that's how it syncs. They don't work as well on the fiber optic laser. Therefore, the attachment rate for the catheter brand is incredibly high to the brand of pump that the customer uses. In relation to price, we are normally dual sourced on many of these IDNs where you'll have hospitals within an IDN. Some will use competitor pumps, some will use our pump. So we already have pricing agreements in place. So I'm not anticipating significant price increases as we convert the market. And really, we're trying to look at this long term. in relation to converting the market and maintaining a much stronger share position over a 12-month period and maintaining that position and maintaining the catheters over a multi-year period.

Helpful, Liam. Thank you. For the follow-up, I just want to understand the reduction in gap earnings per share guidance. It looks to be an increase in the restructuring line. So is there anything to call out there of substance? Thank you so much.

I'll ask Tom just to cover the gap, if you don't mind. There's nothing really to call out.

Yeah. Yeah. Okay. Business as usual, Mike. Thanks for the questions.

And our next question is from the line of Craig Boudieu with BOFA. Your line is open.

Thanks, guys, for taking the questions. I had a follow-up on interventional urology and then just a quick follow-up on M&A. So with Paulette's success and the RAISE guidance there, I just wanted to know if the growth profile of that business, which I think you were expecting your mid-20s growth, maybe at the midpoint, does that change? And then I do appreciate that you've kept guidance for interventional urology flat or what it was, but with Polet adding 4 million more, it would suggest that Eurolift goes down by 4 million or maybe there's potential upside. So, I mean, anything maybe with the international side of Eurolift that you would call out?

So, Craig, yeah, your math is right. That's a fact. But I think Polet doing better, we're very encouraged by. I think that you're also correct insofar as that The growth rate this year will be greater than we'd originally anticipated. We thought it would be in the 20s. High teens, low 20s is what we were expecting. And, you know, if you look at it pro forma, last year we did in excess of 56 million. If you take the midpoint, we're going to do 71 million. So there you are, around 25% growth. So very, very encouraging from that aspect. And I think what's important to understand is that we are continuing to – convert the white space, bringing this product to our existing customer base, and also educating radiation oncologists on the need for spacing. And spacing in its entirety is growing. So that's the positive. With regard to interventional urology overseas, I will tell you that the results that we're seeing in Japan for Urolift are incredibly encouraging. We continue to penetrate that market. and also in Japan, and I talk specifically on Japan because it is the biggest next market internationally. What I would call out is that we would anticipate getting Barragel approved within that market in the first half probably of 2025. And that would represent a nice opportunity for us to continue to expand Barragel. Also, we are beginning the enrollment of patients for the study for an expanded indication. And we believe that that will expand the market for Barragel by approximately $100 million. The next biggest market overseas with the potential is probably China, and we continue to seed the Chinese market as we continue to trial the product in some of the larger provinces there to get it on the tender system, Craig. Thanks for the question.

If I could just add on M&A quickly on the share repurchase authorization and the ASR. You know, as a follow-up to, I believe it was Vic's question, Maybe just how are you thinking or does the share repurchase maybe make you more willing to take on some dilution from M&A because you can potentially offset the actual bottom line impact? Thanks.

So, I mean, if you've seen one M&A, you've seen one M&A, Craig, and that's just a fact of life. So at any one time, we're chasing, you know, a handful of assets and they're all different. We view every asset on its merits, and I don't think we would be looking at the share repurchase as an offset. We look at each asset on its own merits. We look at specific metrics about returns, and also we're very acutely focused on accretion dilution on earnings per share as we're doing M&A, and that is a factor in the acquisitions. We all know that Palette was dilutive, but now look at Palette, call up a $4 million at margins that are in excess of Eurolift margins and well in excess of the company average. So you can actually see that Palette now, when it does become accretive in 2025, will be a contributor to EPS. And we apologize to shareholders to have to wait a year for that accretion, but the underlying EPS growth, as Tom outlined in his prepared remarks, is now in that 9% to 11%. So we've good line of sight to solid EPS in the marketplace. And again, thanks for the questions, Craig.

And our next question comes from the line of Dave Turkley with Citizens JMP. Your line is open.

Hey, thanks. Just two quick ones on EPS. I think you called out either increased capacity or supply and then better utilization. I was wondering how and where, if you could comment on that. And then I guess that growth rate you posted, how sustainable do you think that is? Thank you.

Yeah. Thanks very much, Dave. I will tell you that EMEA had a really solid quarter, growing 9.8%. Where did it come from? We were really strong in Germany, France, and Spain. We were actually very strong in Italy as well, and then we booked the 2 million within the quarter, which took it down to a lower level. From a product-specific area, we had really strong performance in our emergency medicine, interventional urology, and interventional access. What's very encouraging for me within Europe is that the in the interventional access manta continues to penetrate that market and we were in there a couple of years before we even came to the united states so that that's that's quite encouraging within that market uh is is it sustainable is the other part of your question you know emea hasn't grown at these levels uh forever um and i think uh we we would expect the remainder of this year to be strong, maybe not quite at these levels. But we would expect EMEA to be, over the longer term, in the mid-single digit growth. And with the way this team is executing, maybe moving up into the higher mid-singles. But we'll map that as we go through our guidance for next year. But really encouraged by what we're seeing. And those are the geographies, Dave, that we're seeing it in.

Thanks. That's why I asked the question, but good to hear. Thank you.

And I will now turn the call back over to Mr. Lawrence Kirsch.

Thank you, Kayla. And thank you to everyone that joined us on the call today. This concludes the Teleflex Incorporated second quarter 2024 Irving's conference call.

And you may now disconnect your lines.