Teleflex Incorporated (TFX) Earnings Call Transcript & Summary

Okay. Thank you, guys, all for being here on the second day of the JPMorgan Healthcare Conference. My name is Allen Gong. I'm on the medical supplies and devices team here at JPMorgan. It's my pleasure today to introduce the management team of Teleflex, and specifically speaking today will be the President and CEO, Liam Kelly. After prepared remarks, the breakout room will be across the hall in the Yorkshire room.

Thank you very much. And good morning, everyone, and thank you for joining me today. As introduced, my name is Liam Kelly, and I'm the President and CEO of Teleflex, and we are pleased to attend this conference and we appreciate your interest in Teleflex. Before I begin the presentation, I'd like to remind you that some of the matters discussed today will contain forward-looking statements regarding future events. I wish to caution you that such statements are in fact forward-looking in nature and are subject to risk and uncertainty. And that actual events or results may differ materially. Our mission in Teleflex is to improve the health and quality of people's lives. We estimate that every day, our products are used in over 31,000 surgical procedures in the United States to help more than 1,600 patients who require vascular access intervention, to care for more than 6,000 patients in the intensive care unit and by 3,200 emergency responders to treat patients every day. It is no secret by now that demographics are going to play an important role in the future demand of health care. And one of the things we think is unique about Teleflex is how we have purposefully aligned our portfolio to these favorable demographic trends. Let me provide you with a few examples that illustrate why we believe Teleflex will benefit from changes in the health care landscape. There are 10,000 Americans every day crossing over the 65-year age mark. Most spend about 10% of their total health care expenditure between the age of 50 and 65. However, between the age of 65 and 85, they spend 60% of the total. And our view is that future demand for increased health care is inevitable. What we've tried to do as a company is to position our portfolio in what we would classify as nonpostponable procedures, where it is very difficult to cancel the delivery of care and the use of our products without having a very adverse event for the patient. To illustrate that point, consider a typical patient who enters the hospital through the emergency room with a heart attack. The person might require the use of an EZ-IO product to help get fluids into the body, be fitted with one of our laryngeal masks and ET tube breathing devices, and a CVC or PICC catheter. Notably, the hospital reimbursement for this type of patient could run between $6,000 to $8,000 per day, depending on the number of days spent in the intensive care unit. However, the use of Teleflex products was not optional, and the cost of Teleflex products involved in that care would have a total price tag of approximately $600. Clearly, a very small part of the overall cost of the procedure, and therefore, not a huge target for price concessions. Turning to Asia, one of the fastest-growing geographies. There will be over 1 billion people over the age of 50 by the time we reach 2025. The middle class in China is also growing rapidly, and they are demanding better health care. While another important trend we are seeing is the shift to lower acuity patients out of the hospital and into lower-cost sites of service such as the ASC. This benefits us in 2 ways. First, the hospital is left with a higher acuity and higher cost mix of patients, putting more pressure on hospitals to take actions to shorten the length of stay and reducing hospital-acquired infections. This most obviously benefits our coated catheter products. Second, the products that our lower cost sites of service utilize are generally the same products used in the hospital, allowing Teleflex to participate in this shift to lower cost sites of care. So why are we so excited about the opportunities that lie ahead of Teleflex? First, we enjoy leadership positions in growing markets such as vascular and Interventional Access as well as Interventional Urology, and we also have a strong presence in the Asia Pacific region. These leadership positions are built on established and well-respected brands that stand for quality and innovation, and our customers trust and respect the clinical value of our products every day. Next, we are in a unique size that we believe is an advantage. Because we have global scale, we're relevant to every GPO and IDN within the United States. We can apply for tenders within Europe, and we are relevant to Asian markets with an infrastructure and a footprint in each of those areas. We are also small enough to be nimble and make quick but informed business decisions. For example, we completed several acquisitions over the years that move the needle for Teleflex, whereas those acquisitions may not have the same impact for other larger companies. We have a track record of execution, delivering a combination of constant currency revenue growth with gross and operating margin expansion that has resulted in an adjusted earnings per share 3-year CAGR of approximately 16.1%. And we have been and will continue to be a serial acquirer. We have completed over 40 transactions since 2011, most of which have added scale, revenue growth, margin expansion and ultimately, shareholder value. We think our ability to source, research and integrate acquisitions is a core competence of Teleflex. And lastly, we created a great deal of momentum in 2019, and we see that occurring in the future, too. We expect a strong mix of higher growth, higher-margin products to accelerate our constant currency revenue growth and further expand our margins. Here's a look at our reportable segments through the first 9 months of 2019. Combined, these segments reported revenues of approximately $1.9 billion through September of 2019, which was an increase of 8.4% on a constant currency basis over the prior year period. During the first 9 months of 2019, our constant currency revenue growth was broad-based and was quite strong across several geographies. Next, let me dive a little deeper on some of the drivers of our September 2019 year-to-date performance from a global product category perspective. Like our geographic performance, our revenue growth from a product line standpoint was also broad-based, driven primarily by strength in our Interventional Access, which grew over 11% by our OEM business, which delivered growth of nearly 10% and Interventional Urology as UroLift continued to become rapidly adopted by urologists, delivering over 45% growth. When you look at our total revenue trend over a multiyear period, you can see we have delivered relatively consistent revenue growth over the long-term since 2011, the first year we operated as a pure-play medtech company. When you look at our annual organic constant currency revenue growth from 2015 through 2017, we averaged approximately 4%. While during 2018, that accelerated to 5.1%. During the 2019 through 2021 time period, we expect to be able to grow our revenues on average between 6% and 7%. In addition to increasing our revenue growth profile, our ability to consistently and meaningfully drive both growth and operating margin expansion continues to be a differentiator for Teleflex as compared to many of our peers. To date, we achieved this expansion through nonrevenue-dependent sources such as restructuring initiatives and by adding higher-margin products to our portfolio through either scale acquisitions, distributor conversions or internally developed products. Like our thoughts on revenue, during the 2019 through 2021 time period, we anticipate that we will be able to expand our adjusted gross and operating margins, reaching between 60% and 61%, and 30% and 31%, respectively, by 2021. Our ability to be successful in the future is predicated on 5 strategic building blocks. First is driving revenue growth by addressing major health care challenges, such as through infection prevention, improving outcomes with less invasive evidence-based products that lower the cost of care and augmenting that internally developed growth with strategic M&A. Second is delivering nonrevenue-dependent margin expansion. We believe we can drive margins higher through the execution of previously announced restructuring initiatives taking certain portions of our business that today utilize a third-party distributor to a direct sales model as well as leveraging our global infrastructure. Next is being a serial acquirer. To date, most transactions we have completed have added shareholder value, and we think we get better with each deal we complete. The fourth strategic initiative concerns demographics, and it is our belief that our product portfolio is well aligned to meet the needs of procedures that cannot be postponed as the global population ages. And last is our people. We continue to work hard to make Teleflex a great place to work, offering people career-building opportunities and striving to maintain our core values and culture as we do so. Let me dive a little deeper into the first strategic building block of driving accelerated revenue growth. Our goal by the end of 2021 is to further transform Teleflex from a medium growth company with gross and operating margin expansion to a high-growth company with gross and operating margin expansion. Our focus is to selectively invest in what we have identified as key disease states and markets, continue the cadence of new product launches, focus our sales and marketing efforts on driving utilization of higher-margin products, leverage our global infrastructure for incremental margin expansion and execute strategic M&A as a growth accelerator. We have often said that not all revenue growth is equal, and our preference is to invest more heavily where we see the highest potential returns on capital. As we look across our portfolio, we see certain disease states and target markets that ranked highest in our evaluation for potential investment. And some of these market segments, such as catheter complications and emergency medicine, we already have significant leadership positions, and the objective is to drive deeper utilization. Others, such as Interventional Cardiology, offer the opportunity to grow our market share significantly. While the Interventional Urology and men's health category is a bit of a unique situation, and that while we have a leadership position in the market for the minimally invasive treatment of BPH, the global market is massive and we have only really scratched the surface. We have also implemented initiatives to drive utilization of existing products, where in most cases, we have captured only a small share of our customers' total procedure in that area. The products on the upper half of this slide represent products we are currently selling, while the products on the bottom half of the slide are either still in development or have not yet been launched on a full-scale basis. Let me highlight just a few. Starting with Interventional Urology. The UroLift system is addressing a market of over 12 million men in the U.S. and nearly 100 million worldwide, who are currently seeing a physician for BPH or benign prostate hyperplasia. With over 100,000 UroLift procedures completed, we have only scratched the surface of penetrating this large opportunity. UroLift is a 1-hour procedure that provides rapid relief, 0 incidence of new sustained sexual dysfunction, lower risk of needing a catheter and a procedure that can be done in the doctor's office. Given UroLift's unmatched patient experience, excellent clinical data, established reimbursement and focused commercial strategy, we expect it to make strong contributions to our revenue growth rate for the next several years. Turning to intraosseous access. The EZ-IO device is a tool that enables clinicians to establish vascular access quickly in trauma or critical care situations, while the OnControl Powered Bone Access System has revolutionized bone marrow and bone lesion biopsies. We think there is significant opportunity to increase the utilization for each of these products in the future. In vascular access, our PICCs and catheter navigation systems continue to benefit from hospital focus on reducing catheter-related bloodstream infections, and we continue to have the only antimicrobial and antithrombogenic coated PICC on the market worldwide. Key Interventional Cardiology products include Turnpike and TrapLiner. These products continue to facilitate physicians' access through torturous anatomies, enabling them to perform Interventional procedures that in many cases prevent a more open surgical procedure. Moving to the bottom half of the slide, we have a pipeline of products we feel will further augment our long-term constant currency revenue growth objectives. RePlas is our freeze-dried plasma product currently on a fast track BLA regulatory pathway. This is another highly innovative product in our new product pipeline that we are extremely excited about. We believe it addresses the issues with availability and waste in the market today by providing a plasma solution that does not need to be thawed and can be quickly reconstituted within minutes in a trauma situation. UroLift 2 offers a cartridge-based system for physicians that reduces shelf space and waste, further simplifies the procedure and increases gross margins in our Interventional Urology business unit. While through the acquisition of Essential Medical in October of 2018, we obtained the MANTA Vascular Closure Device. MANTA is the first and only FDA-approved device specifically designed for large bore closure. MANTA has excellent clinical data, demonstrating rapid hemostasis and the reduction of complications as compared to suture mediated and surgical closure. Our initial target market for MANTA will be TAVR and EVAR procedures, and we estimate that the global market for this is between $200 million and $300 million globally. We believe leveraging our global infrastructure is one of the core competencies of Teleflex, especially as it relates to our M&A strategy. There are several opportunities to enter new markets with existing high-margin products. We also see opportunities across other businesses' units to collaborate for introductions of new and exciting products into new geographies. Dealer-to-direct conversions have been a significant driver of value over the past several years as the ability to gain better control of the commercial channel has obvious long-term benefits. And while not every market is a fit for the dealer-to-direct conversion, we believe there's an incremental dry powder to take businesses direct in countries outside of North America. Turning to M&A. We will continue to be a serial acquirer and have an M&A focus across 4 categories. First is scale acquisitions. Each of the scale acquisitions completed to date have very similar characteristics. They had market leadership positions, presented obvious clinical benefits, lowered the overall cost of care, had strong IP, afforded us the ability to leverage our sales force and allowed us to take those technologies to new geographies and leverage our preexisting infrastructure. Our target for scale acquisitions continues to be in that $50 million to $200 million in revenue range. We think that our size is a unique advantage here and that not only can we move quickly on these types of transactions but the completion of these types of acquisitions moves the needle for us, while it would not do the same for larger companies. Dealer-to-direct opportunities also remain in focus. And often when we complete a scale acquisition, that refills the bucket for new opportunities to take businesses direct. Late-stage technology acquisitions also continue to interest us if they fit our strict criteria. And lastly, sometimes, we will opportunistically buy a supplier and reverse integrate them. We believe we are best-in-class at sourcing, researching and integrating acquisitions, and our track record speaks for itself. Our last 4 scale acquisitions positively impacted our financial profile and created significant shareholder value. LMA, which we acquired in 2012 is a global market leader in laryngeal masks with a portfolio of innovative products. By purchasing Vidacare in 2013, we acquired the leading provider of intraosseous, or inside-the-bone, access devices. This transaction continues to contribute to our revenue growth and gross margin expansion. Vascular solutions, acquired in early 2017, provides a broad range of products in the Interventional Cardiology and Interventional Radiology space with strong clinical benefits and IP protection. And of course, NeoTract, acquired in late 2017, provided us an extremely high-growth asset with an innovative technology that is creating a new category of minimally invasive treatment for benign prostate hyperplasia. We anticipate each of these acquisitions will continue to make positive contributions to our revenue growth, adjusted gross and operating margin expansion over the next several years. In closing, we believe Teleflex is a rare and differentiated asset in the medical device space with an accelerating revenue growth profile, incremental nonrevenue dependent margin expansion opportunities, strong free cash flow and robust adjusted earnings per share growth. We believe that our diversified product portfolio positioned against the backdrop of strong demographic trends and being led by an experienced management team will help us achieve our goal of further transforming Teleflex from a medium-growth company with gross and operating margin expansion to a high-growth company with gross and operating margin expansion. And thank you very much for your time today and your attention. That completes my prepared remarks. Thank you. So hello, everybody. Thank you for joining us in our Q&A session. It's the team from Teleflex here. So my name is Liam Kelly, I'm the President and CEO of Teleflex. Tom Powell is here beside me, he's the Executive Vice President and CFO of Teleflex; and in the audience is Jake Elguicze, who's our Vice President of Investor Relations. So with that, I will throw it open to some Q&A. And I will repeat the question, so that it's captured in the live webcast, so you'll have to excuse me for repeating what you say. So with that, Travis?

I had a question about management. Actually, 2 questions. But first is just if you could catch us up on the time line for the whole market launch, is that going ahead as expected? And also if you could just talk about how the thinking on pricing and seeing the market evolved over the course of the pricing trial that we did last year?

Yes. So the question is basically around the MANTA product, which is a large bore closure product in relation to are we in full launch and the pricing and the pricing discovery that we did. So yes, so we are in full launch as of right now. So as expected, we went to full launch in January 1. During the previous 3 quarters, we had a limited launch, and we were trying to discover a few things. And I will get to the pricing part of it. But really what we wanted to discover was, what was the training methodology that we wanted to put in place? And what we've discovered is that it takes about 10 procedures for a clinician to become expert at using the product, 5 proctored and 5 under observation. A fairly busy cath lab, we'll do about 300 procedures. That will give you an idea of how much time it would take to bring on a new cath lab. The other thing that we were trying to discover was to make sure that the clinical data in the trial was -- the outcomes were as good as they were in the clinical trial, and that also proved positive. A nice outcome for us. Obviously, the clinical data is compelling. It reduces major complications by 70%. It reduces the time to closure from about 12 to 15 minutes down to less than 20 seconds. So all of that was born out. But actually, what was -- what we weren't expecting was a, key driver for clinicians to use this, was certainty. That when they close, it closed and it's done, and they don't get called back out to revisit the patient. So that was a nice by-product of our discovery. With regard to pricing, the list price of this product is in around $1,200, and that's what got quoted to us a lot. And what we tried to, and what we did figure out during the launch was what's the relationship between price and volume? For the larger centers, it would be -- and the range that we looked at was in and around $800 to $1,200. So for the larger centers, it would be in the lower end of that range. And for the smaller centers, it will obviously be a little bit higher. But even at the lowest of that range, it is still very much accretive to Teleflex's overall gross margins. I'll preempt your question, Travis.

So what is the portion of the DRG in that procedure?

So the question is what's the portion of the DRG? So it's covered under the general DRG for an EVAR or a TAVR. These procedures are not the most profitable for a hospital but those figures that get quoted are before any rebates. And there are rebates for the larger component of the TAVR or EVAR from those companies. So post rebates, it actually is a profitable procedure for the hospital.

How should we think about the revenue opportunity this year?

Yes. So the question is, how should we look at the -- think about the revenue opportunity. We will get to that on February '20 when we give guidance that we haven't preannounced. So I will tell you that how we've sized the market. Just taking TAVR and EVAR, the market is $200 million to $300 million globally. And the other thing I'd say on MANTA, on the revenue is that when we started our guidance last year for 2019, what we said was M&A would be pretty much a wash. We were selling a business within the interventional business, which was a vein reprocessing business, which was around $11 million, and we had MANTA coming in. So there is some base revenue there in 2019, just to give you that insight. So to try and answer your revenue question, but we will get the guidance when we get in February.

[indiscernible] Switching gears just a little bit, still on the acquisition part. On the M&A front, what are you looking for? Are you looking for revenue producing? Is there a certain number or a certain aspect or an area of interest?

So the question is that when we're looking at M&A, what is our target from a revenue perspective. So first of all, from a strategic standpoint, we start there always, and we're looking at our M&A. We look at assets that fit within one of our verticals already or in a very close aligned space. We look for assets that have very strong IP, that's really important to us because we want to have it protected for a number of years. UroLift, for example, as IP that runs out to 2035 as an example. We look -- in today's market, you need a product with a good health care economics argument. It's not just good enough, it's going to have better patient outcomes. It also needs to have better patient outcomes, it's going to be cost-efficient for the hospital and reduce cost. We look for products that have clinical excellence that is better than anything else that's out there on the marketplace today. And also -- and you'll find this in any textbook, we like products that are sticky, that the clinician will use it again and again and again, and you don't have to spend 30% of revenue in R&D just to keep it relevant within the marketplace. From a size capacity, we're fairly agnostic to the size, but our scale acquisitions, they'll normally fall within that $50 million of revenue to $200 million in revenue. And that's a sweet spot for us because if we do a transaction, less than $30 million of growth is a percent for Teleflex, whereas some of the larger companies would need 10x that for a percent of growth. So these opportunities that we look at, we feel we are uniquely positioned to take advantage of them. We do look for assets that are accretive to our margins. And we will accept some dilution in OP margin in the shorter term, as long as we can see line of sight as you leverage the growth to get it accretive. And again, UroLift was a good example of that. It only became accretive to our operating margins halfway through last year, and we bought it, as you know, at the end of 2017. So that's normally our criteria. We have a number of financial metrics that we look at. On the 4 scale transactions that we did, you'd normally like to get above your internal cost of capital by -- when you take your synergies or by year 5. So on 3 of them, we'll be above our internal cost of capital by year 3, and on VSI, we'll be at the end of year 4. So we've gotten over that hurdle on all of the transactions. We look at things like how much is $0.01 of EPS cost us, see -- so if we can compare to what we've done in the past and what we see in the marketplace. And we obviously, we use -- we build a 10-year discounted cash flow model, as you would anticipate for a company like us. So I think we've been very successful with our M&A strategy. It served us well. And our balance sheet is in great shape right now. We're down to about 2.4x leverage. So we have capacity. And I will tell you that we're active out there looking for assets.

And then on the UroLift DTCs, can you give us a sense of what you're thinking in terms of the cadence going forward? I think you were at 6, you went to 12. And maybe talk a little bit about just the revenue uplift at a fraction we expect to see, if there's DTC going on in there?

Yes. So the question is around the UroLift direct-to-consumer that we've been doing in Teleflex. So you're absolutely correct, [ Travis ], we've done 6 in 2018. We've planned to do 12 in 2019. I can tell you by quarter 4 in 2019, we had pulled forward and made additional investment, we ended up doing 16. What we do at DTC is we have a control market that is a similar size, similar opportunity to the one that we're doing, DTC. And even though both markers are growing, we see a significant uplift in revenue growth within that market. At some stage in the future, when we have enough urologists trained, and it's a little bit down the road, we would roll it out to be a national DTC campaign, and it's focused on digital media, radio advertising and TV advertising. That -- those are the 3 media that we use. We haven't fully buttoned down our plans for 2020 as of yet, but we'll give more color on that once we get to guidance. But you should expect, [ Travis ], that we'll continue to invest and continue to accelerate DTC for this product because it does drive revenue and does raise awareness. On some research that we did with some of our patient groups. So there's 100 million men, as we all know, that suffer from BPH. One of the most important markets is the U.S. market where there are 12 million men. But of the survey that we did of the men that have BPH, and they're seeing a urologist, so you think they'd be well informed about the condition, only 6% of them are aware of the Urolift. So there is a significant opportunity for us there to educate the patient population and the urologists to bring more patients in for this procedure that would benefit them greatly.

Liam, along those lines, what's the tipping point in terms of trained clinicians for you to get to that sort of national sort of program? Can you provide us the number of trained physicians, today?

Yes. So the question is, what's the tipping point to go to a national program of trained physicians. So I'll answer it this way, [ Mark ], more than we've trained today. The right moment is really where you don't want to do a national campaign until you have, what we call, a Catchers' Mitt. So you have enough urologists out there. The last thing you want to do is raise awareness with a patient, they are curious enough that they go and look for your -- a urologist, and we don't have one there for them. I mean that would not be what we want to do. So we have about 2,500 of the 12,000 urologists trained at the end of the year. So we did train just over the 450 that we had said we would train, and we were just over 2,000 at the end of 2018. So we have ways to go before we have sufficient -- when we began our journey with UroLift, I thought that once you got to in or around that 6,000 -- but that would be the magic number because that is the urologists that treat over 70% of BPH patients. What we've actually found as we've segmented our customer base is that a champion can come from any spectrum of our urologists -- of the 12,000 urologists. I would have thought initially that the champion -- a champion is a urologist who does 6 or more every month. I would have thought it would have come from those 6,000 or a large percentage of them. But -- whether an average urologist would see 75 unique BPH patients a month. So whether you're seeing 50 a month or 200 a month, you have the same opportunity to adopt this technology and become a champion, has -- is what we've discovered. So we'll have to train, and I hate to answer this way, [ Mark ], but we'll have to train more than we've trained today in order to go national.

And then when we see the news coming out of our centers of excellence, does that tell us anything about the volume the center is doing? Or is that more just the physician has been trained and they're focused on the clinical outcomes?

Yes. Centers of excellence are under both volume. They are -- so sorry, the question was, centers of excellence, should that tell the investment community, anything about volume. So the answer to that is, no, [ Travis ]. The centers of excellence are really around clinical outcomes and the urologist has some training criteria that they must do every year in order to remain the center of excellence. It's more about the patient experience and putting the patient at the center of everything we do, rather than around the volume within those centers.

Can you tell us about the range utilization for UroLift? If we were to say the top quintile or top decile of docs who have been trained, the number of procedures, we know obviously what the champion model is, but in the top 5% that's happening.

So the question is how many procedures, if I cut this -- how many procedures do the big users do? I guess that's the question. And it's interesting, sometimes you find these urologists that adopt the procedure in the strangest places. During the summer, I was in California, but very much in land on the border with Mexico in a town of 30,000 people, and there was an individual there that had broken through the teams that they were doing every month. And if I was a sales rep, and if Tom was my boss. And Tom said, "Go forth, lean on your territories, California. And go and find me a champion". I can tell you, the last place I would have gone is that little village to find a champion. But there was a champion, and this individual -- and it goes back to what I said earlier, it's all about the urologist adopting the technology. It's how they want to adopt the technology. And all we're asking them is to put down the pen and stop writing prescriptions and just ask the man a couple of questions about their quality of life and if they'd consider a minimally invasive procedure that would take an hour, they have no sexual dysfunction, they have immediate symptom relief and we'd remove all the symptoms that they're suffering at the moment from their condition, wouldn't have to wear a catheter, you could go in on a Friday, 1-hour procedure, you could be sitting at your desk on a Monday, symptom-free. And the urologists that adopted and take on asking the man those 2 questions really can adopt that technology even in smallest areas.

Could you update us on the UroLift 2 launch and sort of the differences in terms of revenue and margins sort of the cadence of those?

So the UroLift 2, we don't anticipate -- oh sorry, the question is give an update on the launch of the UroLift 2? I keep forgetting to repeat these questions. But the UroLift 2, we don't think is going to have an impact on revenue because if a Urologist adopts a procedure, they adopt the procedure. If they -- if they're going to do a Urolift, whether it's UroLift 1 or UroLift 2, I think, we don't anticipate a significant uptick in volume. It does improve our margins in the mid-70s to the high 70s. We did postpone. We were going to do some cases in Q4. We did postpone that. Two reasons for that. We pulled forward the hiring of the reps that were supposed to come in, in this quarter now, Q1, we brought those into Q4. We focused on training them. And then as we were doing our last training with our key opinion leaders, they identified an opportunity around visualization. And the UL 1 has such a reputation out there in the marketplace. We want the UL 2 to be perfect when it goes into the hands of the clinician. And we thought this improvement was worth postponing a little bit. So we're making that change. We should have that done, hopefully, by the February time frame. And then 60 days for a submission, and we'll be launching the UL 2. We were reasonably conservative in our outlook for converting the whole market by the end of 2021, so I don't think it's going to have any material impact on our margin expansion or anything like that. So still very excited to get the product out there. And it makes it easier to do the procedure. It reduces our clinic, our carbon footprint. It should help the margins in the doctor's office or ASC because they'll have less clinical waste themselves, and it'll also reduce their carbon footprint.

Is there a big training lift for a physician that's already trained on UL 1? What does that look like?

And the question is around the training requirements. We've done this assessment. So we know -- so for the UL 1, for someone to become proficient is 15 cases. To move them from the UL 1 to the UL 2 is 5 cases.

Can you just help us think about the growth of base business x UroLift? What are the components? And just marry that with LRP.

Yes. So if you take our updated guidance for last year, and if you take the midpoint, it's about 8.1%, a little over 3% is coming from UroLift and a little less than 5% is coming from the rest of the business. When we began our LRP at 6% to 7%, we were thinking at the time that about 4% to 5% would come from the base businesses, as we call it, and that about 2% will come from UroLift and that will get you to your 6% to 7%. What's happened is that our core business is doing better than we expected. It's at the upper end of that range. And also, UroLift is doing better than we expected, and that's what's getting us to approximately that 8% growth in the first year of our LRP at the midpoint of our guidance.

Maybe ask that question and maybe a little more depth. Along the conference calls, I keep hearing about PICCs and CVCs and EZ-IO growing at pretty excellent rates. And I'm wondering, what's your confidence in the sustainability of that? Those mid-single-digit plus or high single-digit rates [indiscernible]

So the question is around the sustainability of areas where we're currently growing today. And market dynamics don't change that much year-to-year. So the end markets -- and you all know this, I'm a big believer in demographics. And I think that what we are seeing are the baby boomers, especially in North America, start to come through the system. And I think we are beginning to see the increase in demand from those baby boomers. And we have been very thoughtful in Teleflex around building a portfolio that's going to get the best advantage to those -- that increased demand with the least pushback on price pressure. If you're in the orthopedic space right now, you're giving up 2% to 3% on pricing almost every year. Whereas this year, Teleflex, we should be around 30 basis points to the positive in pricing. And that's a good indication of our ability to price within the marketplace and take price at that time. So I think that the end markets aren't going to change that much. Our coating technology will allow us to continue to grow in PICCs. The EZ-IO and the Vidacare portfolio will continue to be sustainably growing. I think Asia is a good opportunity for us. Our Interventional Access business has good strong end markets. And of course, OEM has consistently been growing in those high single digits. And that, I believe, is also sustainable. And the good thing about 4 out of the 5 of those growth drivers is they're all accretive to our margins. So back to our philosophy that not all growth is equal. Where we grow, we get that nice mix shift at the gross margin line to give a greater return to our shareholders.

Liam, how do you think about accretion to shareholders when you're looking at some early-stage technology versus some of the scale acquisitions that you've done in the past?

So the question is around accretion for late-stage technologies versus scale or dealer directs and so on. So you are correct. Normally, for late-stage technology, by definition, it doesn't have any revenue or much revenue. So therefore, they do tend to be dilutive in the shorter term. And -- but you make the bet based on your belief that it will become accretive over time. And we have had a number of examples of late-stage technologies that have the ability to become accretive over time. The most recent one was our Tip positioning system that we bought 2 years ago. That is now at the point where it's generating revenue in the PICC space and will be accretive to Teleflex moving forward. So -- but in the shorter term, it was dilutive because you have to spend money finishing the product in R&D. But you do shorten the R&D time frame. If we were -- if we hadn't acquired that, it would have taken us probably 4 years longer to get to where we are today. So that's the trade-off.

Meaning if you started it yourself?

Correct.

What are -- can you just comment on some of the financial metrics you think about when you're thinking about those types of acquisitions?

Yes. So the question is around the financial metrics that we use. Especially for late stage, they are all unique and individual with the way we look at them. We would like to think that within 18 months to 2 years that we would start to approach accretion to our opt margins. And we would like to understand that the end-market pricing at the time of purchase would -- from first sale would be immediately accretive to our gross margins. That's what we look for.

And we'll also do a robust financial analysis where we'll do a discounted cash flow based on what we expect the product to eventually do in the marketplace. We recognize it will not be accretive immediately, similar to an internal development, where you're going to be spending money and incurring expense. But ultimately, we want to value this the same way with a larger transaction. We will take a look at the discount rate differentially as a result of the greater risk of an early-stage transaction. And we also realized that perhaps in that portfolio, we're going to have some real good home runs for minimal investment. And we may have some that, frankly, we ultimately walk away from. So I would say that we use the same financial rigor in looking at these that we would with a large transaction.

And in terms of impact from sterilization capacity in Georgia that was going to impact Q4, I'm wondering how should we think about the potential impact of that in 2020, if that happens?

Yes. So I'll cover the revenue, Tom, you can cover the EPS in the fourth quarter, so -- if you don't mind. So from a revenue, yes, around $9 million in the fourth quarter was the impact. We began pretty early in revalidating sterilization cycles in other facilities from the existing vendor and other vendors. So we believe we'll have the majority of that result in this quarter, quarter 1. It might have an impact, but it won't be a large impact in the year, and it will be a small impact in Q1, is our expectation. Do you want to briefly...

Sure. And so our estimate of the EPS impact was about $0.07 in the quarter.

And in the fourth quarter, about $9 million, that would be 1.4% in the fourth quarter, and it's around 40 basis points on an annualized basis for '19.

I have time for one more question, if...

Okay. No, I don't think we have any more. Sorry. Pardon me.

Okay. Just thank you for your attendance and support, and we look forward to spending time in the future with you all.

Thank you.