Teleflex Incorporated (TFX) Earnings Call Transcript & Summary

All right. Let's kick it off. Thanks so much, everyone. Day 2, Morgan Stanley Global Healthcare Conference. Patrick, I'm obviously on the Medtech team. I have no idea where the disclosures thing goes, but it's morganstanley.com/researchdisclosures. Given I've read that out about 20 times now today, so I'm sure you can all go there and have a really good time. But what is good to have is, Liam, have him from Teleflex as CEO. So thank you so much for agreeing to do this.

It's our pleasure to be here, and thanks for having us.

Yes. I appreciate it. I mean, predictable topic to start with. You guys announced that very recently a lot of changes, one of which was the strategic decision to reorganize the business. From a SpinCo, RemainCo and that whole process, what are we up to at this point?

Yes. So first of all, I'll just start by saying our North Star guiding principle is to release shareholder value. So we began this process. So we announced the separation on our Q4 earnings call. And we said that we were going to separate through a spin, knowing that we anticipate we get some inbound interest. And when we got to our Q1 earnings call, of course, we had inbound interest. And then as recently as our Q2 earnings call, we updated the investment community on that level of interest. So again, we're encouraged by the quantity and the quality of the inbound interest. We have engaged as we're on this parallel path with the interested parties. We have held management meetings. Internally, we've identified the management team is going to be running these businesses, the presidents of these businesses. We've -- and a CFO, CHRO identified for -- to run that. We have the data room established. We have also, obviously, as I said, had the management presentations with these groups, and we continue to interact. So we are firmly on a parallel path right now. And as part of that parallel path, we are, at this moment in time, focused on the separation through a sale, but a lot of that work will obviously benefit the separation through the spin as well. Like I said, our North Star will be shareholder value. We know what our tax basis is. We appreciate that the spin is a tax-free event for our shareholders. But also we see now with the inbound interest of value that is being ascribed through the interest at least to these assets. And it does reinforce our philosophy. These were good assets at the outset, and that is reinforced by the level of interest that we're having. So we're firmly on the parallel path to answer your question where we're at. We're engaging with the individuals. If it's a separation through a spin, the timeline would be mid-2026, as to when we do that. And also, a separation through a sale will be sometime in 2026 as well.

To try my luck. On interested parties, is it more of the like entirety of the asset or parts that will go to different assets or a mixture? Or how is that looking?

It's a mixture, but the majority of the interest is in all of NewCo. And obviously, a singular transaction would be easier to execute. But the majority of the interest is in all of NewCo. And given the level of interest, I think that's a distinct possibility, either that or a separation through a spin would be the possibility. And I think we have a mixture of financial sponsors and strategics within that. So that results are quite encouraging.

Got it. And then how are you thinking -- if it were to be a sale, we discussed this a little bit. How do you think about use of proceeds?

Absolutely. So it were to be a sale, and we've outlined this also on our Q2 earnings call, we would use the proceeds to pay down debt and to return capital to shareholders. That would be the two key uses of the proceeds. And nothing has changed. That would still be our goal to do that.

Maybe pivoting to the other change, obviously, BIOTRONIK's Vascular business, which I guess is now your vascular business.

It is.

In that way, it's very early, I get that. How is the initial integration going? How are you finding things?

So it's 10 weeks. It's going well. We see the two teams are working very strongly together. We have aligned on the manufacturing strategies with the footprint and so on and so forth. We have had several integrations with the sales and commercial entities. We have mapped out the process for cross-training on the different products, and it's been really strong collaboration between the two teams. It is still running reasonably independently. It's only 10 weeks, and we're going to take our time and integrate it thoughtfully and bring it into the business. But the good thing is 10 weeks in, no surprises. I think that the business has the potential to do exactly what we thought it would do on our Q2 earnings call. So we're encouraged by what we put forward. And as we outlined on the earnings call, the business should give us around over $200 million in the second half of the year, $99 million in Q3 and the remainder in Q4. There is some seasonality involved in that. So early days, but very encouraged so far.

You've done in the time quite a few deals and integrations. So you've got a lot of experience in this area. How are you finding like the people getting onboarded, attrition rates, like how happy are they? What's that level like?

Yes. I think, nothing to point to in attrition rates. All of the key leadership team have transferred across to Teleflex. I think in general, the team is happy to be part of the larger Medtech company. And I think that they see the possibilities of the combination of the suites of products being part of Teleflex with our interventional business. So I would say that, the mood in the BIOTRONIK VI business is pretty positive. I think the mood in the Teleflex camp is pretty positive as they come together and no surprises in attrition. The individuals that move across, 10 weeks later, are still very much engaged with us in driving the business forward.

Got it. I mean, you're mentioning the product synergies. How do you think about like some of those cross-selling opportunities like I think, PK Papyrus and then Ringer and like, maybe paint the audience some of the opportunities in that? Not specifically, but in the product synergies.

Well, the market that we're addressing is a $10 billion market. So the market possibilities are fairly significant. And there are a number of synergies that we believe that will bode well for both businesses. There's geographic synergies and there's product synergies. And then, there is also segment synergies that I think -- and I would look at this very much like the Vascular Solutions business that we bought in 2017. As we integrated that business, having a broader portfolio, having broader access to the cath lab, really accelerated the growth in both businesses. So if we start with the product synergies and you mentioned PK Papyrus and Ringer, in CTOs, perforations happening in approximately 3% of cases. And in PCI 0.5% of cases. And if you have a perforation, it's obviously an emergency event that needs to be addressed. And our product, the Ringer can be used to actually address the perforation to allow you to continue the procedure. You now don't have to withdraw all of the devices that you're using, so you can place the Ringer catheter, continue with the procedure, as you would have normally, it makes it safe and effective to do that. Then as you exit, you remove the Ringer and you grab the PK Papyrus from the BIOTRONIK VI business and you see up the perforation. So there's a logical synergy that you can dominate this segment, this niche within the space that is probably $120 million market opportunity for the combination products. And then our complex catheters, which had an excellent Q2 interventions, it's slightly better than we anticipated and the complex catheters drove that. They give you access to very torturous anatomy. And the drug-eluting stent from BIOTRONIK is one of the most malleable stents to get into those small arteries in order to assist. So that combination also helps. And then if you think about it geographically, 50% of the BIOTRONIK business is in EMEA, 25% in the Americas, and 25% in Asia Pacific. Our focus and our business is strong in the United States. So the BIOTRONIK VI sales organization will actually help us penetrate our markets in Europe whereas we will help them get access to the cath lab. That was one of the things we saw with the vascular, the VSI integration. But getting that access to the cath lab when you're a bigger player is very, very helpful and the reps call it wearing the lead, where they're actually wearing the lead in the cath lab as they're going through the procedures. And then the third synergy that we see, we have products within our portfolio that are indicated for peripheral vascular but we don't have a channel. Whereas now, as we integrate the BIOTRONIK VI business, we'll have a channel for those products. So all in all, I think there's synergies on the Teleflex side, the synergies on the BIOTRONIK side and there's also synergies from a product and geographic perspective.

Could you clarify that particularly, I understand, I mean, how does that work in practice? Are you -- it's like, you go to the reps and you say, your bag has just expanded massively. Do they -- is there like a training process where they get explained? How does it work like in practice?

So in practice, what normally happens in this scenario is you integrate the two sales organizations over a period of time. You define the training program for the BIOTRONIK salesperson and the Teleflex salesperson. So you cross-train them on the key products that they're going to be selling. That normally takes 2 or 3 months just to get through that type of a process. And then, what you normally do is you will shrink the territories. So they spend more time in their specific call point in their specific and you try and shrink the territories insofar as that the person with the strongest relationship keeps that hospital so that you're able to continue to drive those revenue synergies through that. And then, the other thing that you do is you look at it geographically, where Teleflex has a direct presence in almost every country, whereas some of these smaller companies might not be using a distributor. So there's an opportunity for us to take that business in and bring it into a direct channel. And we always find as good as the distributor is in some of these geographies, in particular, in Europe, there is the possibility for us to accelerate the growth once we take it over.

So for me as a rep, bigger bag, narrower focus in territory, and I hit my numbers because I've got the depth within the accounts, so that...

Absolutely. And you can spend more time on a broader portfolio with a specific customer and you build that relationship deeper.

Right. And scrubbing up and moving around constantly, I mean, in different, yeah, okay. Right. That makes total sense.

They call it windscreen time. So you're trying to minimize windscreen time, where they're actually sitting in the car, but you are -- they are actually in the cath lab rather than driving from account-to-account.

So hip and knee, I saw a study that said that was about 30% of the rep's time was windscreen time. So it was very high, it was interesting. I'd love to hear a little bit more about Freesolve. That's another asset that was super interesting, pretty unique. Maybe give people a little bit of a background of how bioresorbable scaffolding works and then, that sort.

Yes. So what -- Freesolve is a product that is, has a CE mark and is currently going through a clinical trial in Europe and we'll go through another clinical trial in the United States to get approval. It's a bioresorbable sirolimus-coated scaffold made of magnesium. And I was going to use me as an example, but you're way younger than me, Patrick. So I'll use you an example. So it gets absorbed into the body after about 12 months. And it's been derisked by the first clinical study we did in 14 centers, where it was not over 99% absorbed into the body after 12 months. There have been previous scaffolds that were made of plastic materials. And they were more difficult to manipulate and to place correctly. And the other issue with the plastic scaffolds was it took them 4 years to absorb. So let's say you're a younger person and you have a coronary event. Today, they would put a stent or a number of stents into that person. The likelihood is that, that person is going to have more complications in the future. The issue about having a stent is, you can't put a stent across, on top of the stent. So this is a scaffold that actually addresses the issue, but also is absorbed into the body. So after 12 months, it's fear. So if there's another issue that arises later on, you can then go in and do a follow-up procedure and it doesn't burn any bridges. So that's -- and it also addresses a key trend in interventional cardiology and peripheral vascular procedures today leave nothing behind. So you're not burning any bridges, and it gives you an opportunity to go in and do further procedures in the future. So we're excited about it. It gives us nice optionality. The BIOMAG-II study is in Europe. It's 2,000 patients. We're tracking well in the recruitment of these patients. Once that is completed, I think that will give us an opportunity to expand that product within Europe. And we will kick off the study in the United States in 2026 and start recruiting patients in 2026 in order to get approval for this product in the United States. So that's our intent. And it does give us nice optionality for a new technology really focusing on that trend to believe nothing behind within the interventional cardiology procedures.

It's been a while since we've seen intervention in the stent side of the market. So I think people are paying quite a bit of attention.

Yes, I hope so. I mean, I think that the European clinicians are quite excited about it. We do plan to have an Investor Day on BIOTRONIK in the autumn in the fall, to explain the assets to the investment community. And at that stage, I think we will have a couple of clinicians who will go through the core portfolio and also talk a little bit about presales and explain it, so that people can get a better understanding of what the BIOTRONIK VI assets, and why we believe they're going to be meaningful to Teleflex.

That's awesome. I feel like people haven't looked at DCBs or DESs for a long time in a way. So I think it'd be pretty useful.

Yes. And I think that it opens up a new market for lesions and it is a unique application in that regard. So I think once we prove out the technology, I think it does represent a nice opportunity in the future.

Pivoting to RemainCo, like the core business, let's say, x BIOTRONIK, how are you thinking about the growth there? You guys have flagged at 6%, 7% as a growth range. How much of that is just a core cath lab volumes? Like what are the big puts and takes on the growth of the core business?

Yes. So the RemainCo, which will be Teleflex ultimately, we believe it's capable of growing about 6%. The total addressable market that we're going to be addressing is in that $30 billion market, $10 billion of that is the Interventional Access portfolio. If you look at that mid-single-digit 6-ish percent growth rate, I think that the Surgical business and the Vascular business are capable of growing within that range. And I think to your point, the interventional business simply because, number one, you have a faster growing market. Number two, we have a lot of innovation coming through that portfolio is capable of growing above that average, and therefore, resulting in that 6% growth rate. And I would say that for RemainCo, if you exclude in this year 2025, if you exclude the impact of volume-based procurement on our Surgical business, then RemainCo is growing and goes up over 5% in 2025. So I think the portfolio is well capable of doing it. I think it's -- we need to prove it. That's going to be key. In 2026, I think it's important that we focus on execution on delivering good solid top line growth for RemainCo with earnings horsepower to boot to go with that.

Maybe diving into some of those, like vascular, and so just following up. How do you think about midterm vascular growth? What do you think is potentially driving the step-up in growth in the second half of this year? I'd love to dig into that.

Yes. There's a couple of things even in the shorter term. And this year, that's going to drive some improvement within vascular. First of all, we're going to continue to penetrate the PICC market and you'll see that improving in the back half of the year. EZ-IO had a really tough comp in the first half of the year. So just due to some military orders, and you'll see that improve in the back half of the year. And then, we have some timing of some distributor orders, in particular, in EMEA and Asia Pacific that we should see accelerate in the back half of the year. And then as you go into 2026, obviously, the Endurance catheter will return to the market. And in 2027, in our emergency medicine group, which will be within vascular, you will have EZ Plus hopefully coming to the market sometime in 2027.

Yes. On the PICC side of things, I know you guys have had a fair bit of success taking share. Is that still happening?

It is, yes. Even in Q2, it grew double digits. And really, it's because of our coating technology. Hospitals now have to report infections on PICCs in the same way as they have to on central venous catheters. And our coating technologies anti-thrombogenic as well as being antimicrobial, and that gives -- that reduces infection rates and that ultimately saves the hospital money, because they don't get reimbursed anymore for infections that are caused within the hospital from a catheter that is non-coated.

The -- maybe we pivot to interventional. There's a lot of moving parts in there. How are you thinking about things like OnControl, and then the complex catheters and IBP? How are you thinking about the growth of the division overall?

Yes. So our interventional business has performed very much in line with our expectations through the first half of the year. I think, we continue to take share within the balloon pump market. Obviously, we have a competitor that's off the market for this period of time. I think, as you go into the second half of the year, we have a tough comp in Q4 because that's when this began. But I am encouraged by the performance, in particular, as we saw in Q2 with our complex catheters and with our OnControl product. They had solid performances in Q2. Now investors need to realize that when you get into Q3, BIOTRONIK will be merged into that business, and that will be approximately $99 million in Q3. But all in all, we're encouraged by the performance of our overall interventional portfolio, and it bodes well for the future.

Sounds cool. You mentioned before, China VBP, sort of, disguised a lot of what was going on there. But maybe for staff, putting VBP aside, core business, things like, Titan, have been, to our mind, doing really well, comparative in the market. What do you think has been driving that?

So I think, the overall bariatric gastric sleeve market is showing modest declines just due to GLP-1s. But the Titan -- the Titan, the stapler will grow double digits this year. And so therefore, it's an opportunity for us to take share. We're really supporting that product with robust clinical data. We just had a clinical study that demonstrated the reduction in GERD. Prior to that, we had a clinical study that demonstrated that by using the Titan staplers, the 23-centimeter single stapler line reduces operating time and has excellent clinical outcomes. So if you're able to reduce time in the hospital environment that, that is valuable to the hospital because it can mean that they can get more procedures into that operating room. I also think the product is performing exceptionally well. And even though there are less bariatric surgeries done today than they were 3 or 4 years ago, it is still a very big market. So -- and therefore, it's an opportunity for Teleflex to continue to penetrate. I think also within the surgical business, I think our core surgical business with the exception of the volume-based procurement is performing well. And there are some new products coming in '26 and '27. We have the automatic polymer supplier. We have a new clip coming in the future. And volume-based procurement in China will be transitory. So that should be broadly behind us as we get into 2026.

Not to put you on the spot, but the -- how sustainable are the share gains on the stapling side? Because one of your peers called out obviously bariatrics, but then to them also robotics, and -- but their growth rate is wildly different to yours, basically 0. And there's a narrative out there that maybe they haven't invested enough in the assets that they had acquired. And how should we think about the share gains in stapling over time?

So the Titan stapler can be used in conjunction with the robot. And many of our surgeons do use it in conjunction with the robot. The -- what surgeons find when you're doing the traditional staple lines as you were putting -- you take the arm out, load, and go in, take arm out, load, and go in, whereas if you have one additional trocar and you use the Titan stapler you -- it's a single shot and you do a full line. And therefore, you don't have crossover of staples. And that's ultimately why you've less GERD, because the staple lines don't cross each other, causing that GERD. So I think that, there's definitely a trend of increasing robotics in every surgical procedures. But our focus has been in partnering with those robotics to enhance the procedure to drive efficiency and again, to save that time, being able to do a single line of staples in one go, saves time, has great clinical outcomes, and therefore, is an opportunity for us to expand that market. But the competitor, I have some sympathy for it, because the market is not growing like it was a number of years ago.

You should fix our office. None of our staples work. Sorry. We could use it out. The -- I mean, China VBP, it's one of those topics that has been around so long, and it seems to rotate different categories periodically. It's an impossible thing to ask. But like, are we approaching the end for you guys in terms of, like, which categories, how much longer of this do we have, do you think?

So of our total portfolio, where you have a -- and you have to have a local competitor in order to have volume-based procurement. So of our total portfolio, where there's an established competitor, we feel we're through now. All of our portfolio has been through. So I think for us, it is -- we've been through it all. It's painful. There's no getting away from it. It's painful. You work to get the volumes and you lower your pricing in order to get there. But I think the team has executed really well on the surgical volume-based procurement and having participated in the tender, having been one of the winners of the tender. I think, they've done a nice job in gaining the volume that was associated with that tender. So I'm glad we're through though, Patrick, I'm not going to lie, because there's a lot of uncertainty as you go through that. And I think we called it with the impact. So -- and I think it's clearly going to be transitory as we go into 2026. We'll be at the other side, and I think we're done. And what we've seen in the China market is the government themselves realized at the initial stages of volume-based procurement that might have gone a little bit too deep and it impacted not alone the international companies, but the local companies. And on the second round of those first few products that went through, they've actually gone back and that we've seen some price increases that didn't involve our products, but that's what I hear from the market in China, that the pricing has increased modestly on those products.

Good to hear. There were some categories, not that you were embarrassed, which were just obliterated. And correct, you don't know how anyone could make any money in there. Yes. No, that's really interesting. Maybe just pivoting a little bit to SpinCo. Barrigel was a highlight and has been a highlight for that business. How are things going on that side?

Barrigel continues to do exceptionally well. And for those who don't know, Barrigel is a spacing technology as men go through radiation therapy for prostate cancer. It creates space and, therefore, protect some of the organs, so you don't have ancillary damage. It continues to grow really, really well through this year -- through the first half of the year, and it has momentum into the back half. We just got approval in Japan, and there's obviously reimbursement available there in Japan as well, where we continue to educate doctors. And it's a two call point. It's a urologist and it's also the interventional radiologist that does this. So we're educating the urologists that we know and also interventional radiologists on the need for spacing and we're continuing to convert that white space. Obviously, there are some competitor gains as you go through as well. But it's a big market with a nice opportunity, and we're expanding the indications for Barrigel for post-radical prostatectomy, because after you've had a radical prostatectomy in about anything from 16% to up to 50% of times, the cancer comes back. And this will be a unique opportunity for Barrigel to create space and the competing technology cannot be used, because there's nothing to dilate. So this will expand the market by $100 million, and it will be exclusively accessed by the Barrigel product.

It's pretty much still just the two of you, right, in that market?

There is one other balloon company. There is this -- which is a much smaller player. But other than that, yes, there's two main technologies, I would say, in the marketplace.

Yes. And then, two more assets in SpinCo OEM, how is things going?

Yes, OEM. OEM has performed as we said. We said that Q1 would be the low point. We saw an improvement in Q2, and we expect to see an improvement in the back half of the year. Investors that will be familiar with Teleflex will know that Q3 last year, we announced a -- we announced customer vertical integration as well as an impact of inventory management. So we will have anniversaried that as we get into Q3. So that will see an improvement in the OEM business. We've seen order rates improve as we've gone through the year, which tells us that we're getting close to the end of the destocking. Obviously, we need to continue to execute, as we go through the end of the year. And we have a nice bolus of new business in the pipeline as well for the OEM business. So I feel pretty good about the OEM business. Still, obviously, it's had a heavy decline in the first half. In the full year, it's going to be a declining business in the low double-digit range. But notwithstanding that, I see a good pathway to recovery in 2026.

And then, the BPH market overall and how you feel things are going there?

So on the BPH market, obviously, we have UroLift, which has been majorly impacted by the change in reimbursement 4 years ago, and this is the final year of that reimbursement change. And the new rule came out just recently, the proposed rule. So it's not -- it's not the rule yet. It's the proposed rule. But it's very encouraging for UroLift, especially in the office side of service where we've seen significant declines. It basically doubles the profitability of UroLift in that office side of service. And as investors are familiar with Teleflex will know, that's what we used to expand the market when it was a procedure that was viable in the office side of service. So we're encouraged by that, assuming that it becomes the rule rather than the proposed rule. And normally it does, we'll know in October. And I think that should really help UroLift and allow us then to go back out to those urologists in Q4, and give them the information about the reimbursement. There's many urologists out there that believe in the procedure, believe in the outcomes of the procedure, believe in the clinical data, want to do the procedure in the office side of service, but simply because of the profitability of it weren't in a position to do so. So I think this gives us an opportunity to go back to those doctors and reengage with them, with UroLift in the office side of service. So we're encouraged by that, and we think that at long last, we might begin to see the bottom of the UroLift decline.

Got it. Maybe just to pivot back to the cath lab, because you guys have such a multifaceted exposure to that market. When you have a discussion with the customers and outside it, how do you think capacity is for new procedures? Because at least from our perspective, we see so many different procedures now increasingly moving into the cath lab. How much space is there to keep growing there without...

Yes. So, a lot of these procedures that are coming in are actually driving efficiency at the same time. So there's -- and we just launched a product last year that is a combination, it's a Wattson catheter. So instead of the clinician having to use two products, which takes time to insert in the patient, you combine that into one product. So it saves some time, makes them more efficient, makes the cath lab more efficient. And this is why I think if we look at RemainCo and the interventional business being the biggest part of RemainCo, it is a space that is ripe for innovation. Innovation that improves clinical outcomes for patients and innovation that drives efficiency within the cath lab, so that you can actually do more procedures in the cath lab. So I think the interventional cardiology space is an exciting space for many companies, Teleflex being one of them. And I think our portfolio of products, things like Freesolve, that have the potential to make a significant difference to clinical outcomes and allow further treatments down the road for that category of patient and not burn any bridges, I think there's always capacity in the cath lab to do those types of procedures.

You guys are spinning, at the moment, a lot of plates simultaneously. If we had to pick one thing that is on your mind, the most from our day-to-day job in whatever field, what's the one thing that's the most on your mind day today?

So right now, it's the separation, because -- and we are busy. We have a lot of plates. I think -- and I talk to my team regularly and I'd say, okay, just remember, you've got a lot of balls in the year, just remember which two are the glass balls. You don't drop them. And right now, for me, the glass ball for me are the separation. I got three actually. You got the separation. You got executing on your plan for the year, and you've got the integration of BIOTRONIK VI business. And if we do those three well, I think our year would be fine. But the organization has demonstrated it has enormous capacity to do more when asked. And I think, in particular, our finance group have been incredibly busy, because we've had to do quality of earnings for the separation. We've had to do full P&L breakouts. We've done management presentations. We have engaged with the other side. So there's a lot of things that we've been doing on the separation, but at the same time, making sure that we integrate BIOTRONIK VI business appropriately and executing Q1 and Q2 at the same time. And I think we've been able to keep those balls in the air. And I think we've been able to keep the glass balls going as well.

You're doing better than I'm doing then. Liam, thank you so much.

Thank you very much.