Teleflex Incorporated (TFX) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. I'm Amit Hazan. For those who don't know me, a kind of newly minted med tech analyst here at Goldman. Happy to be here, still pretty new, haven't launched on anything yet. And I should say Goldman doesn't cover Teleflex at the moment. But this gives me a really nice opportunity to have a top level conversation, which is what this conference is all about. So we have Teleflex as our next presenting company. Liam Kelly, the President and Chief Executive Officer, has joined us. Thanks, Liam, for being here.

Thanks for having me.

So what we thought is the first question we would ask folks today, just given it's the start of a new decade, is what's the most important trend do you think investors should be thinking about for the next decade as it relates to med tech? And in particular, what do you think might be underappreciated?

So I think that one of the areas that we in Teleflex put a lot of focus on and pay a lot of attention to are global demographics and also what's happening in the developing markets as well as demographics. And I think what is a little bit underappreciated is what demographics -- the impact that demographics are going to have on demand for medical devices. Just in North America alone, the average American would spend $360,000 in their lifetime on health care, but it's not linear. Between the age of 50 and 65, you spend about 10% of that dollar value. But between 65 and 85, you spend 60%. Now there are 10,000 Americans every day passing over the 65 age mark. And by the time you get to 2030, there'll be 20 million Americans in that bracket. And what that means is that if this was just a normal population expansion because from a demand perspective, this is the equivalent from a demand perspective of 120 million new Americans being born in that time frame. Now if that was happening in the birth side, they'd be building nurseries, maternity hospitals. And what are we doing to prepare for this is very little. So demand is coming, but I think the industry and, in particular, the deliverers of care need to be prepared for this increased demand. What we're doing in Teleflex -- and it just isn't in North America. You also have the same thing in Western Europe, in places like the U.K., Germany, France, et cetera, and also in places in Asia like Japan. By the time you get to 2035, there'll be 30% less Japanese on the planet just because of the aging profile of that community. And what Teleflex are doing and if you look at our M&A strategy, we're building a portfolio that is going to take the best benefit of that demographic expansion. UroLift is an example. They already get -- the more likelihood you are to have BPH, VSI. The older you get, the more likely you're going to need cardiac intervention. So our whole portfolio has been developed around building a protected portfolio that's going to benefit most because what always comes with demand is price pressure. So we're preparing and we have been preparing our portfolio to offset the price pressure but take advantage. And then the last thing and just last thing on demographics is you do also have a growing middle class, in particular, in China and India. There's going to be -- again, by the time you get to 2035, there's going to be 500 million Chinese that are considered middle class. And in that pay-for-play market will demand more health care. So I don't think there's ever been a better couple of decades, if not 3 decades, to be in medical devices because of that trend.

Okay. Fair enough. That seems to be -- I mean, maybe when we're started turning 65, I think, in 2011, so this will be the second decade of that being a key underlying growth driver?

Yes. I think it's starting right now. I think you're starting to see it. If you -- I look at some of these reports about hospital utilization numbers, and they -- for those past 12 months or so, we've seen a positive trend there. So I think it's actually starting. I think we're in it right now at the very early stages of it, and it will continue through 2030, I think.

Yes. Okay. Fair enough. So let's do a state of the regions update. I mean this is the -- you're the first med tech CEO to speak this year. So again, we'll kind of talk about both you guys and the industry, have you kind of presenting a little bit to the extent that you can. You guys are growing low double digits in the U.S. market. We'll start there. Med tech, more broadly, growing 5% or so. Both of you -- both you and med tech growing just consistently over the last few years, better every year, a little bit better every year. So how do you assess the U.S. market for investors and for the industry and for you guys in 2020?

Yes. So we're growing significantly above the market growth. In the segments that we play in, we would estimate that the market growth in our segment is in around 2% or 3%. You're right, we're growing double digits in North America, and we have a few key drivers. Obviously, UroLift is a big driver for us, our interventional portfolio, our OEM portfolio, our surgical and our vascular portfolios. Again, it's not by accident. We have built these portfolios to dominate niches. I think that the baby boomers I spoke about are having an impact, for sure. And I think it's a great time to be in North American market with the right portfolio. It's not just about turning up. You don't get anything for turning up. You got to turn up with the right portfolio, with the right organization, with clinically differentiated products that are actually going to make an impact in health care economics. It's -- the pay as you pump day is gone. It's all about patient outcomes. You now have value analysis committees. These wonderful value analysis committees as you try and get into the hospital with new and innovative products that are going to save lives, but it has to save that life in a cost-effective way today in order to get adopted. And I think we have a portfolio that is allowing us to grow at more than triple times the market because of the portfolios that we've put together. And obviously, with UroLift, we're actually changing clinical practice there, so that's an added accelerator.

And I don't want to get to that, but -- so in the U.S. market, you talked about value analysis committees. We have a U.S. regulatory environment, some might argue, is a little bit more difficult and challenging for companies than it was in prior years. I'm curious if you believe that and if those 2 aspects change how you think about the U.S. market over the next couple of years versus the growth that you've been able to put up in the last couple of years?

Yes, I would have to say that I find the U.S. regulatory environment more business-friendly over the last couple of years than it has been. If you bring an innovative product to the marketplace, your likelihood of getting a fast track is much higher than it used to be. We have EZPlas currently going through a fast track approach with the FDA. And I've got to tell you, when you're in that process, they are very collaborative and they're very good to work with. And I think that, at least my experience over the past few years, has been a quite a collaborative FDA and willing to work with business to get to the right outcome for the patient.

Okay. So let's move to the EU real quick and EMEA. First, let's start just, I guess, top level for med tech as an industry and for you guys. But we have these new regulations, the MDR regulations are coming this May. Just thoughts on those regulations, how they impact you and the industry? I know there's going to be some big loopholes there that will allow folks to have a little bit more time than May 2020. But still, some of that's going to come into effect. Does that have an impact?

Well, I think the impact there is companies are ready. We're ready. Any CEOs of other companies with business in Europe I speak to are ready. The question is, will the regulators in Europe be ready? By the end of last year, 2019, what was promised was there would be 15 notified bodies ready to process MDR applications. And we've seen them fall well short of that number, significantly short. So therefore, the companies are ready, and I think they have extended some of the time lines because of the lack of readiness on the other side. And my own belief is if this regulation was going to help patient outcome, I think every CEO of every medical device company would be saying, yes, that's perfect. Let's go for it. I don't think they've been able to demonstrate clearly that it's going to have that positive impact for patient outcomes. But notwithstanding that, it is probably going to disadvantage Europe from the advantage they had. And as you can tell from this accent, I originated from that part of the world. And Europe always had an advantage in getting medical technologies to patients in Europe first because it was much easier to get a CE mark than get FDA approval. So patients there benefited from that innovation. With MDR, the opposite is going to be the case. And what you will see is now companies pivot and focus on a much more business-friendly FDA and bring products to them. So it's good for American patients, they'll get the products first. Not so good for European patients. And then I think it's going to be much more difficult for the smaller companies to be compliant. But I think you will actually see products be removed from the market by the smaller companies and some of the older products, even by the larger companies, get removed from the market.

Yes. And that's, I guess, the question the investor is going to ask is, looking at numbers for 2020, 2021, they're going to -- especially they're going to start thinking about those buckets that you mentioned, right? Are there going to be products that are going to have to be taken off the market and impact numbers that we have in our models? Are there going to be delays in approvals? And so could you speak to that a little bit? Do you -- are you concerned at all for -- speaking from a Teleflex perspective, is that something that you're concerned about as you think about your EMEA business?

Well, we're taking a fairly systematic approach. We're looking at our entire portfolio and substituting products. Where we have a substitute product and a product that is going to take a significant amount of resources to get it through the MDR, we're going to limit our portfolio. We don't anticipate it having a significant impact on revenue or anyone's model for that matter. On the other side of the coin, there is a cost associated with this, that's already embedded into most companies' thinking. I'm sure it's embedded into ours and I'm sure everybody else is as well because this shouldn't be a surprise to anybody. The date of May 2020 has been out there for a while. But we are ready. We would be compliant. We will substitute some products within our portfolio. But there will be smaller companies that just won't have the capacity to be compliant. And that would probably generate an opportunity for the bigger ones. But on the other side, it may remove some products that might help patients from those smaller companies.

Understood. Okay. So let's move to Asia and just hit that real quick, too, from a regional perspective, and we'll hit emerging markets with that. Obviously, it's not only Asia, but let's hit those together. So your Asia business, we'll use that as a proxy, you guys are growing high single digits. I think med tech is probably a little faster than you here. So maybe just give a little bit of puts and takes here. And for you guys, specifically, it looks like if we size up the business for you, that's a clear opportunity for future growth to catch up to where med tech is. Just curious about the kind of playbook for how you plan to get there.

Yes. And I think it's important to understand, comparing Asia to Asia or indirect markets, everybody slices and dices it differently. Within our Asia business, we have Japan and we have Australia and New Zealand. So most companies tend to break out Asia and have Japan as a different segment. And it's slower growing, obviously, in that market. Asia has been a bright spot for us over the last few years. Traditionally, we've been growing in that 4% or 5%. And this year, you're correct, we're up in the high single digits through the first 9 months of the year. So we've taken some steps forward to take our business direct. China, a few years ago, we're thinking about introducing a 2-invoice rule into the country. We, in anticipation of that, canceled our master importer in order to eliminate one of those invoices and be compliant. I'm glad we were proactive because it's had a dual impact. The first impact is 4 to 5 regions have implemented the 2-invoice rule, so we're now able to submit for tenders in those regions. And secondly, we are actually now have that business under our own control. We'll have more of a relationship with the end customer. And therefore, we're able to grow that business faster. So our Asia business -- our China business has been growing double digits within Asia Pacific, and that's been a positive development for us.

Okay. And on China, so if we go back to the third quarter, one of your -- one of the larger competitor talked for the first time about some new pricing concerns in China that they have more on the basic medical device products. So the question to you is just kind of just to get a sense if you have any exposure to that in the China market.

So the products that we sell in China are at the top end of our range of products. So the products that are easy to be substituted and copied, the ET tubes, respiratory masks, we sell very little of that into that geography. We sell the top end of our surgical portfolio, our coated vascular portfolio, our laryngeal mask portfolio that's difficult to copy. So -- and price pressure has always been in China. I mean it's been there since 2014. [ Jin Jin in ] Guangzhou tenders started back in 2014. Most companies tend to have adopted an approach. We have an approach that's working for us. We have not seen that type of price pressure that, that company you're referring to has referenced. But price pressure has always been there. And it's a question of using your portfolio in order to come up with strategies to ensure that the cost of the product gets to the end patient.

Okay. So let's move to you guys' and probably everybody's favorite question, top line organic revenue growth. And as we reviewed the story preparing for this, it reminded me how well you guys have executed through your transition, which is a compliment you really deserve. You used to be a 4% grower. And in '18, you go to 5%. You take off in '19. You're an 8% organic grower, it looks like for the year, maybe a little bit more. You've got a goal of 6% to 7% in your kind of LRP '19 to '21. And when I think about the '19 story and where you are, the pipeline that you guys talked about as I kind of read through and listen to some of the calls you've had this year, it becomes pretty obvious to me that you're clearly ahead of plan. Is that the right way to think about it?

So you're correct, we set out our LRP at 6% to 7%. And our basic hypothesis was that we would get 4% to 5% from our business and then we'd add about another 2% from NeoTract. So it was quite a simple story, and that was going to build up 6% to 7%. Now 9 months into our LRP, and we're growing in excess of that. And if you take the midpoint of our full year guidance, it would indicate that we should finish the year at 8.1% growth on a target of 6% to 7%. We were able to take up our full year guidance twice during the year, which is always a nice position to be in as a company. And the basic question is what happened? Why is it better than we expected? Well, first of all, NeoTract will -- of that 8% approximately, NeoTract will add just a little over 3% to that growth is our expectation. So that has done much better than we had anticipated. And that's down to the investment that we put into that business. At the beginning of 2019, we pulled forward investment into NeoTract. We doubled down on direct-to-consumer marketing that accelerates the growth of that product, and we've continued to develop that market. At the end of 2018, we had done almost $200 million in a $6 billion market, and that's just in North America. 12 million men suffer with this condition in America. There's 100 million globally. So we're very early in the adoption curve. We're investing heavily behind it. We're continuing it to grow. And then the other thing that happened is that the rest of our business has grown approximately 5%, which is at the top end of our expectations. And that's really come from good execution in a number of our businesses. And the Teleflex story has become very, very simple. We just got to do 5 things right. We got to continue to accelerate the UroLift product; continue to grow in interventional access; continue to grow in vascular, in particular in PICCs and Vidacare, where we're taking share of the aforementioned company that you were referring to; and of course, we've got to accelerate in Asia Pac. Now those 4 out of the 5 have one thing in common. They are all accretive to our long-term growth margin goals. So every dollar we grow -- we have this philosophy that not all growth is equal. So every dollar we grow gives us leverage within our income statement. And then the fifth one is OEM that is accretive to our op margins. So again, every growth there gives our shareholders a better return. So our story has become very simple and our execution has been at a very high level in the first 9 months of our LRP. And I think, as an organization, we couldn't be happier with what we have. And in particular, when you think of the earnings that we're driving off that top line growth is -- we believe it's been pretty impressive, probably a good story for an analyst to cover.

A lot on our plate right now, but definitely. So if we think about the story a little bit longer than '21 then, just given what you just said, that even if we take the 6% to 7% as our starting point, should we be thinking that you can hit that number a little bit longer term without doing any more M&A?

So when we laid out the 6% to 7%, a couple of things weren't in there in all transparency. So we hadn't acquired MANTA when we put out that 6% to 7%. We also hadn't anticipated having UroLift in Japan in 2021, which now, we believe, will be generating revenue in Japan in 2021. And we didn't have any dealer direct in our M&A in that model. So we feel pretty confident in that 6% to 7% without those aspects being included within it. And your assessment is correct, yes, the 6% to 7% does not require M&A right now in our mindset.

Okay. And let's do just a quick pre-mortem on that. If you're not going to hit that, and like we talked about, it looks pretty good right now, but give us a scenario that we're sitting here at the end of '21 and why you didn't hit that?

Get to 6% to 7%?

Yes.

So if we're sitting here in 2021 and we haven't hit the 6% to 7%, you'd be talking to somebody else. It won't be Liam Kelly that will be here, I would say. So I have a high degree of confidence we're going to hit that 6% to 7%. We did an LRP in '20 that went through to the end of 2018. And we blew the socks off our margin expansion in that LRP. The one area we came up a little bit short was on our revenue expectations that time. And as a company, we took a long, hard look in the mirror, every executive within Teleflex. And as we laid out the next LRP, we were determined that, that was not going to happen to us again. So we put together very robust building blocks to ensure that we would be able to achieve that 6% to 7%. And as I sit here right now, I feel increasingly confident that's very much achievable.

Okay. So I want to get to talk a little bit about breadth of growth. You've touched on a few of these again, but this might give you a chance to do a little bit more of that. So you've got 7 product categories. We'll think about it in terms of the product categories you guys show in your presentation. But 5 of them are actually growing at or above that LRP rate that you're targeting. So it's not like it's just urology, which is obviously way above. Anesthesia being the exception, it's below, this year at least. So how sustainable is that breadth of growth that you're seeing in those product categories as you think about the next couple of years?

So yes, you're correct. I mean we've had a very successful year. As I said, there's 5 areas that we're focused on that we're going to grow. And those are, obviously, Interventional Urology. I mean, we're -- through the first 9 months of the year, that has been growing 45%. I mean, it's incredible how we've been able to grow that business. And we've been able to grow it because of the investment we've put into it. Interventional Access through the first 9 months of the year has been growing double digits. Anesthesia has been growing 7% through the first 9 months of the year. And OEM has been growing around 8%. So all of them are above the LRP. How sustainable is that? I think that most of those businesses, the dynamics of the end market aren't going to change in 2020. I think that surgical has primarily surprised me a little bit. It's doing a little bit better than I expected. And we took some opportunistic pricing in that business in 2019. So that, I don't think we'd be able to maintain the 6% next year, but it would still be a 4% to 5% grower. So it will still be a nice business. Anesthesia, you're right, it's a little bit underwhelming this year. But don't forget, that's the channel for EZPlas. So as we bring EZPlas to the market, that's an opportunity for that business to get on to a good, positive trajectory for us as an organization. So again, it's hard enough to feel very positive when you've had the 9 months we've had. And our guidance would indicate that we expect that to continue, and that's even with the sterilization headwind of around $9 million within that last quarter. So it would indicate that we expect to grow around 7.4% in Q4 and hit the midpoint, 8.1%, in the full year. So you're correct, we feel good about the business.

Okay. So let's move to a couple of product-specific questions. Let's start with UroLift. Obviously, it deserves that. So I wanted to ask a training question first. You guys talked about this a lot. I think there's 12,000 urologists in the U.S. You talk about that under 20% of them are trained to date. I don't know if there's an update to that. But is this a market where those first 20% do the majority of procedures? Or is it much more fragmented in training? Does training essentially still give you kind of this projection of underlying growth support because there's a lot more doctors to train to do a whole lot of procedures?

Yes. So that's a great question. When we began the journey with the UroLift product, I would -- there's about 6,000 urologists that take care of about 70% of BPH patients. So we segmented our urologists into 10 different segmentations. And my expectation was that the champions, and those are the individuals that tend to do 6-plus procedures every month, would have been in the top quartile. That's an obvious thing that you'd expect, an actual factor across all of the quartiles. An average urologist would see 75 unique BPH patients every month. But what we've discovered is when you see 50 per month or whether you see 200 per month, you have the same opportunity to become a champion. It's all a question about how that urologist adopts the technology because, really, what you want to think about is we are changing patient care. Instead of writing prescriptions for pills, we're just asking the urologist to adopt a different philosophy. The 12,000 urologists that we have trained are the 12,000 urologists in the country. At the end of this year, we should have trained -- or at the end of 2019, we should have trained about 2,500. Now bringing on new urologists is important, but driving utilization in the existing urologists you've already trained is even more important. About 60% of our growth comes from that, from utilization, and the rest from bringing in new urologists. But then next year, that moves into the base, and that then allows you to continue. I think the underlying story here is we have a massive opportunity in front of us. At the end of this year, we'll be at about, call it, $275 million in a $6 billion market with a very wide moat behind us. But we will build this the right way. We will focus on patient outcomes. We'll focus on training the urologists the right way because we will make this the standard of care. This product has the potential, and I'm not going to put a time line on this, but it has the potential to be $1 billion product category for Teleflex.

So you talked about utilization, what's the average, by the way, for doctors with average utilization for your training?

The average per urologist is just over 4 a month.

And then if you take kind of the high end?

That would have broken through the teens.

I would say the opportunity is there to grow. Okay. And competition, I have to ask, any changes in what you're seeing from Boston and Merit?

No. No change there. I mean they're obviously focused on their product, which is called the Rezum. I think that we're probably farther down the road in making our products the standard of care. And I think that, in time, I think that the Rezum product would probably be categorized as a therapy you can do in the office rather than truly addressing BPH.

Okay. So we talked about it earlier, you talked about your share gains. Can you give us more color on whether it's regions? Or where do you think it's product-specific? Or dealers are moving to direct sales force? What's driving that share gain for you against a very big and strong competitor?

In UroLift?

Just PICCs.

Oh, PICCs. Pardon me. Sorry, I missed that part. So within PICCs, the main differentiator for us is our coating technology. So we have an antimicrobial and an anti-thrombogenic coating on our product. So basically, it helps prevent infections and stops the catheter from clogging, which is an issue with PICCs. Up to a few years ago, hospitals did not have to document infections on PICCs. They did have to on CVCs, and that's why we are a 90%-plus market share in CVCs in North America. There's numerous clinical papers on our coating technology that will demonstrate, the most recent one was done in California, and it demonstrates a 9-log reduction in infections by swapping from a Bard PICC to a Teleflex PICC. And an infection will cost the hospital $43,000 to treat, and they won't get reimbursed with it. So that's the simple reason why we're taking share. We started off a few years ago, and we were the third player in the marketplace. We probably had about 6% or 7% market share. Now we're #2. We're probably in that 12-ish, 13% market share. Bart, BD, is still #1. AngioDynamics is probably #3 now. And we're growing -- every quarter, we're growing double digits in that segment, simply because of our coating technology. This saves patients' lives and it saves hospitals money. It fits right in the wheelhouse of what I spoke about earlier about what products need to be today to be successful.

And share gains, are they mostly U.S.?

Yes, they're mostly U.S. We do not have a registered product in China, which is a big PICC market. It's U.S. and Europe is where we're growing more aggressively.

Okay. And in terms of registrations or new markets you're getting into with PICC, is there anything on the horizon?

We're currently doing a clinical trial with a coated PICC in China. We would anticipate having that registration through sometime in later 2021.

Okay. Let's move to MANTA. This is discussed often too. Maybe give you a chance to just talk about the product and the market opportunity real quick. I think most people probably know it, but just that and then let us know if that kind of early 2020 is still the right time frame for the full launch?

Yes. So first of all, what MANTA is it's a large bore closure device, a single use, large bore closure. It's the only one that's approved for use in North America. If we just take the global TAVR and EVAR market, we would size this market anywhere between $200 million to $300 million. There are other markets that's applicable for such as the Abiomed device, for example, but we've excluded that from sizing the market. The product really is based -- its success will be based again on clinical outcomes and health care economics. It reduces major complications by approximately 17%. A major complication would cost a hospital $18,000, and it also reduces the mean time to closure from around 12 to 15 minutes down to less than 20 seconds. So we save the hospital time, and we save them complications, and therefore, we save them money. We have been doing a limited market launch with this product since for Q2, Q3 and Q4 of last year, 2019. And right now, we're in full launch with this product. We are very excited. The limited launch has gone well. We have done our price discovery. We think we know where to price this product to ensure mass adoption within the U.S. market, and now we are beginning our rollout of the product into the U.S. market. We're -- it's quite sticky. The reorder rates on the test sites has been very high, and the clinical outcomes have been consistent with our clinical data. So very excited by the product. And again, it wasn't in our 6% to 7% LRP, just to reemphasize that.

Yes, it makes sense. And you've got some countries in Europe, obviously, that the adoption was very best, right? So it can happen quite quickly. And I know you don't want people to get ahead of themselves. So give us a sense of the -- for the U.S. market, what the challenges will be for you? I mean, are we talking about sales force here for you just getting integrated into these sites? And is it more data, cost-effectiveness, just awareness? Where are we in terms of help me not get ahead of myself to think that this could be a big product even in 2020?

So I think this is a product that will ramp in 2020 and will probably have a bigger impact in 2021 and 2022, that's the way we look at it. And here's why. A big catalog will do 300 procedures a year. It takes 12 procedures to train a doc on this product, 10 to 12. So it takes 5 to 6 in proctoring and 5 to 6 under observation, so that takes time, as one can appreciate. And I think that we have the sales force in place. We recruited during 2019, 20 clinical sales individuals that will be able to do this training. And we already have almost 90 salespeople in sales territories, that this will be a product that's added to their bag, they're wearing the lead as we see in the cath lab every day. So we have the channel, we have the additional resources already on board to hit the ground running, but it will be a gradual ramp as we go through the year, and will probably be a bigger accelerator to our growth in 2021 as it really starts to get adoption in 2021. And that's what our internal expectation is. The market you're referring to that adopted it pretty quickly was the Netherlands, but that did take 2.5 years. And if you look at the Netherlands, there's 16 million people in a very small area, whereas we got to cover the whole North America now, but we're very excited by it, but it will have a ramp in 2020 and then really have some meaningful revenue in 2021. But it's a limited launch, couldn't have gone better.

Okay. So let's talk about another possible 2020 launch or product at Percuvance. Just give us your updated thoughts on how you see that playing out this year?

Yes. So Percuvance, we're looking at that as a show-me product. And what I mean by that is I want to see that get some traction. We've had a few false starts with that product within Teleflex. Now surgeons are quite excited about it. We've been in a limited market launch. We've been testing the market with this product. And we are going to have a slower rollout in 2020 as we continue to get knowledge of the product and allow it to build expectations with the customer. One thing we're learning from the UroLift product is to go deep rather than wide, convert the full house first, then move on to the next one. And I think that's the strategy, but it will take longer to build and I want to see this get through a number of VAC committees before I get the investment community too excited about it. So it's a show-me product, in my mind.

Okay. So let's then talk about the pipeline. I think if reading transcripts, maybe I'm getting the body language wrong, but it seems like you've alluded to some excitement in your pipeline. I'm sure everyone has excitement about stuff that they're working on in their pipeline. But is there anything you can talk to today that hasn't gotten that much airtime that you think is exciting in your pipeline, even if we're talking about 2 or 3 years out?

So I think when we get to -- we'd probably have another Analyst Day in 2021. And I think that will be the appropriate time. There are a few things that we're working on internally. There's one in our vascular division that I'm very excited about. Too early to talk about it in any great detail, but it really fits into our core modus operandi around infection control, catheter infections and so on and so forth. And that's something that we'll probably be ready for a discussion by the time we get to 2021. There's also some developments that are going on within the interventional business units and the surgical business units that I think could have an impact. But they're very early. But as you'd expect from a company our size with that many business units, that there are projects coming through the pipeline that we have invested behind and we're excited about, and it could be a nice showcase for us at our next Investor Day.

Okay. Let's touch on the P&L quickly. I think as we've talked about the story and we think, okay, these guys have real heavy lifting in this component. They've got this covered in this component. One area where I think when I look at the numbers, I say, wow, they've got their work ahead of them is actually on operating margins. I think about your 30% to 31% target by 2021, you're at 26% to 26.5% for '19, that's a lot to go in 2 years. And so help me out and just walk me through that bridge, what is it that you guys are going to do that's going to transpire so quickly to drive that much margin expansion?

So what we expect to see is -- I don't want to get into 2020 guidance, but what you will see in 2020 is the margin expansion you saw in 2019, which is 30 to 80 basis points, you'll see a much more accelerated up margin expansion in 2020 this year. And then you will see a larger bolus come through in 2021. And the reason that there's a larger bolus come through in 2021, first of all, we pulled some investments forward into 2019, which subdued the margin expansion, so if you add that investment that we made, if you add the headwind we had from FX and the tariffs, which weren't originally in there, that's about 150 basis points of headwind just in the 2019 numbers. So if they weren't there, obviously, it would be significantly better. And you'd be challenging me as to why it's not more and we'd be having a different conversation. But what you would expect then to see is an uptick in 2020, and then a significant more uptick in 2021. And why is that? Because there's one restructuring program that will hit in 2021 that's around $10 million, that's almost a single time event. And then in 2021, we'll have north of $300 million of UroLift revenue with the UroLift 2, that will pick up, call it, somewhere in the region of about 400 basis points of margin on that $300-plus million, and that will hit in 2021. So that's why it's a little bit more back-end loaded than you might have expected. So we still feel very confident on the 60, 61 and the 30%, 31% as we laid out that day. But the operating margin, in particular, is more back-end loaded, for sure.

Okay. Fair enough. Let's talk about the M&A environment a little bit. So that's obviously important for you guys. We had our banker presentation here at lunch. I don't know if you saw that. It seems like they talked about some obvious things, valuations versus a few years ago seemed to be higher. Level of innovation and market opportunities also potentially better. So in terms of the targets that you're looking at, and I know you're looking at a more modified number of targets in certain ranges, does that hold for you, too? Do you agree with what their assessment of the market is?

So for sure, valuations are higher than they were a few years ago. I must admit, the assets that we look for, the valuations have always been pretty high. You look at -- let's go back to NeoTract for one second, right? So that has done $50 million the year before we bought it. We -- the sticker price was $1.1 billion. They didn't look inexpensive at the time. Now it looks like a steal because of the execution that we've been able to do with this portfolio. So the good quality assets were never inexpensive. I think what makes us a little bit unique is we're looking at a fairly broad area. So we're looking at men's health, interventional cardiology, radiology, surgical, vascular, and we would also -- anesthesia, and we would also do a -- took an acquisition in our OEM business that they've done well with some of the tuck-ins. And I think if you're looking at that broadly, and especially with the size of acquisition we're looking for, we need 26 million or less than 30 million for a percent of growth. So if we can find an asset that's going to add 30 million in growth every year, that's a percent growth for Teleflex. If it's accretive to our margins, then that's a slam dunk for us. The larger companies aren't going to be competing with us for those assets. It's just not big enough for them. They'd have to do 5 of them to make it significant. Whereas for a company our size, it really does make a difference to us when we buy those, and it means more to us. So I think we're probably uniquely positioned to execute across those types of acquisitions. And I think there's always value to be found out there as long as you're patient, disciplined and look fairly broadly. And it's been a real success story for us, and we'll continue to be disciplined.

Okay. So both the environment is roughly the same as what it's been in the last few years. Capital allocation strategy, as you guys look at it, is roughly the same as well?

It is. Yes, our preferred use of our capital is to continue to do M&A, and our leverage ratio right now is around 2.4x. So we have capacity, for sure. And we're active.

Yes. Okay. So then let me just kind of test top line versus bottom line here. So if you -- would you acquire top line growth if it meant that you had to sacrifice your margin and EPS targets?

So again, when we do these acquisitions, and the last one we did, again, UroLift, I'll go back to that, that was dilutive to our margins when we bought it. It only became accretive to our operating margins halfway through last year. So the answer to your question is, we would look at an asset, the assets we're looking for, we want them to be accretive to our revenue growth, accretive to our gross margins. I will accept if it's not accretive to my operating margins there and then as long as I have line of sight to making it accretive to my op margins and give a shareholder return in the not-too-distant future. And by that, I mean, 18 months or so that I can see an opportunity to leverage it with the top line growth.

Okay. Whiteboard versus adjacencies. I mean would you consider -- how far would you go outside of your current kind of bailiwick?

I think a closely aligned space is as far as I would venture, I think. We're already got a reasonably broad portfolio. I mean I went through the areas where we look for our acquisitions, and I think it's fairly broad. There are some adjacencies that would make sense to us. And I think our philosophy is as long as we know the call point, as long as we know the end customer, we're going to make a really smart decision around M&A. But don't expect us to go into hips or knees or anything like that, that's not our wheelhouse. We're not going to go there. We will stick to the areas that we know well. And even when we went into BPH, that was a customer we knew very, very well. When we acquired that company, we had over 200 sales reps every day talking to urologists because our surgical business, a large part of that, is used in radical prostatectomy. So we knew that customer very, very well. We knew the BPH space really, really well.

Okay. You also have a unique opportunity, which is that you still have opportunities to buy dealers in the world. Can you just size that up for us? How much is left of that? And how likely is that to be a driver versus the other side buying products in companies?

So it is an opportunity for us. And again, it wasn't in our LRP. About 6% of our global revenue still goes through these distributors, and about 1/4 of that is an opportunity for us to take direct. We really didn't do much go-directs in 2019. And the reason you don't build them into your LRP is, like all acquisitions, it's opportunistic. I would be disappointed if we got to the end of 2021 and we hadn't done some dealer to direct because they're there. We have ongoing conversations with the targets that we have in mind. And I think it's an opportunity for us to execute on during this year, 2020 and 2021. And I would be disappointed if we didn't do a couple over the next -- between this year and next year.

Are there divestment or any opportunities at Teleflex as well?

So we do look at our portfolio every year. When we looked at it at the end of last year, we made the decision that the vein reprocessing business wasn't something that belonged with us, and we sold that. It worked out well because we were selling it at the same time we were bringing MANTA in. So really, you had $11 million or $12 million going out. MANTA was coming in. It was -- our M&A was pretty much awash for the year. So the investment community didn't see any dilution as a result of that action. We've always said that we would look at our portfolio every year, and we make a decision on that. It's not like being a PM. Businesses are fairly integrated. You can't just sell one stock and buy another. It does take a lot of planning for a company to do and make sure that you don't have abandoned costs and abandoned overhead, if there is something you want to move on. But we look at it on a systematic basis.

Okay. Let me stop there. Anybody want to ask a question? Just about out of time. So why don't we stop here. I want to thank you for the conversation. Good luck this year. And it's nice to see some of you out there. Good luck to you guys as well. Talk to you soon.

Thank you very much. Cheers.