Good morning, ladies and gentlemen and welcome to the Teleflex Fourth Quarter of 2021 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. At the end of the Company's prepared remarks, we will conduct a question-and-answer session. Please note that this conference call is being recorded and will be available on the Company's website for replay shortly. And now I would like to turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development.

Good morning, everyone and welcome to the Teleflex Incorporated fourth quarter 2021 earnings conference call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, this call will be available on our website and a replay will be available by dialing 800-585-8367 or for international calls, 416-621-4642 using passcode 1028958. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer; and Thomas Powell, Executive Vice President and Chief Financial Officer. Liam and Tom will provide prepared remarks and then we will open the call to Q&A. Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in our slides. We wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include but are not limited to, factors referenced in our press release today as well as our filings with the SEC, including our Form 10-K which can be accessed on our website. During this conference call, you will hear management make statements regarding intra-quarter business performance. Management is providing this commentary to provide the investment community with additional insights concerning trends and these disclosures may not occur in subsequent quarters. With that said, I will now turn the call over to Liam for his remarks.

Thank you, Larry and good morning, everyone. It's a real pleasure to speak with you today. For the fourth quarter, Teleflex generated 7.9% constant currency revenue growth year-over-year and increased 10.4% over the comparable period in 2019. In the quarter, there was one extra shipping day which added approximately 1% to the year-over-year growth rate. Adjusted earnings per share rose 10.8% year-over-year. Our fourth quarter performance was driven by the company's balance of growth drivers, broad portfolio of medically necessary products and categories leadership, offset by the impact of COVID-19 and the divestiture of the respiratory assets. As we had anticipated at the time of our third quarter earnings report, COVID-19 remained a headwind during the fourth quarter and elective surgical procedures did not return to comparable 2019 levels. Specifically, COVID cases increased significantly during December in geographies with large populations, including the Northeast, Florida, Texas and California, as COVID spread quickly through these regions. We also saw increased staffing charges as COVID infections accelerated quickly in the latter portion of the quarter. Teleflex executed well in the quarter with dependable service levels to our customers while managing supply chain challenges, freight logistic delays and responding when COVID infection rates began to accelerate. Of note, when excluding UroLift which is the product that was most impacted by the pandemic, revenues from the remaining business grew over 9% on a constant currency basis in the fourth quarter year-over-year. Turning to our performance in 2021. Although the year presented challenges, I am proud to say that Teleflex executed very well. We confronted the unprecedented market disruption head-on as the pandemic continued to ebb and flow. We remain diligent and flexible in order to support our customer needs and keep our workforce safe. We responded effectively as freight and raw material supply challenges…

Thanks, Liam and good morning. Given the previous discussion of the company's revenue performance, I'll begin with margins. Gross and operating margins remained strong in the fourth quarter and exceeded levels achieved in the 2020 comparable period. Our continued progress in margin expansion in 2021 has allowed us to increase investments toward growth drivers which is an important component of our long-term strategy to enhance durable growth. For the quarter, adjusted gross margin totaled 58.8%, an 80 basis point increase versus the prior year period. The year-over-year increase in gross margin was driven by product and regional mix, restructuring benefits, operational efficiency programs, favorable impacts from pricing, M&A and foreign exchange, partly offset by inflation in freight, raw materials and labor. Fourth quarter adjusted operating margin was 27.6% or a 100 basis point year-over-year increase, driven by the gross margin improvement as well as disciplined expense management and partially offset by planned investment in the business and a partial normalization of expenses following deep reductions in discretionary spending during the prior year as a result of the COVID pandemics. Net interest expense totaled $11.8 million in the fourth quarter, a decrease from $18.5 million in the prior year period. The year-over-year decrease in net interest reflects savings from the early redemption of the 2026 senior notes and the impact of reductions of outstanding debt using the proceeds of the respiratory divestiture and operating cash flows. Our adjusted tax rate for the fourth quarter of 2021 was 13.8% compared to 10.1% in the prior year period. The year-over-year increase in our adjusted tax rate is primarily due to a lower benefit from stock-based compensation as compared to the prior year period. At the bottom line, fourth quarter adjusted earnings per share increased 10.8% to $3.60 and exceeded our internal expectations. Turning…

Thanks, Tom. In closing, I will highlight our three key takeaways from the quarter and our 2022 outlook. First, our diversified product portfolio enables Teleflex to deliver constant currency growth of 7.9% in the fourth quarter and 8.8% for 2021 despite the significant disruption from COVID during the year. Second, we continue to execute on our strategy to drive durable growth across our diversified portfolio with investment in organic growth opportunities, margin expansion and deployment of capital for M&A. Third, we remain confident in our growth strategy. We see our core growth platforms driving 4% to 5% growth with the additional growth coming from UroLift as pandemic headwinds subside. We have levers in place to drive further expansion in our margins. And our balance sheet is in a solid position with leverage of 1.7x, providing ample financial flexibility for our capital allocation priorities. We remain confident in our future and our ability to continue to meet our commitments to patients, clinicians, communities and shareholders. That concludes my prepared remarks. Now, I would like to turn the call back to the operator for Q&A.

Thank you. [Operator Instructions] And your first question comes from Jayson Bedford with Raymond James.

Good morning and thanks for taking the questions and the comprehensive review here. So I guess just to start and I hate to be too granular here. But maybe can you comment on what you're seeing in the environment today versus, let's call it, a month ago? And I just want to feel a little comforted that you are seeing a little bit of a pickup as COVID wanes.

Yes. So right across our business, Jayson, obviously, we have winners and losers every time there's a COVID outbreak. So parts of our business do better, part of the them do worse. Vascular, obviously, in some of our respiratory filters do better. Our elective procedures, UroLift being the first one and then Surgical and Interventional tend to do worse. What we saw as we came through the end of August and the last outbreak, we saw, in particular, UroLift procedures pick up September, October, November. And then we saw them being impacted in December and that continued into January. We would expect then to see an improvement as hospitals reopen and as people feel more confident in going in and having these procedures done. So we would anticipate the environment improving in the month of February and in the month of March. And again, I've got to commend hospitals and docs offices and ASCs. They are managing the additional outbreaks much better. The issue with Omnicron was it was a lot more contagious. So it actually added to the staffing shortage with individuals having to isolate for five days once they were exposed to just because of the infectious nature of it. But yes, an improving environment in -- as we went through February, Jayson, to answer your question directly.

Okay. And just as a quick big picture follow-up. Liam, you made the comment in the release around optimizing the portfolio for growth which is consistent with past commentary. But I guess the question is, the current environment more or less conducive for your strategy? Meaning -- I'll ask another way, can you be more active in this environment?

Well, the one thing you need to be active, Jayson, is firepower and we've got lot of firepower. So our leverage levels, as we said in the call, at 1.7x. So we have firepower. Let me answer it this way. I feel a lot better today than I did a year ago with regards to valuations. We always augment our portfolio. And don't forget in the last 24 months, we have acquired HPC and Z-Medica and we divested of our respiratory assets. We are active out there purchasing assets. I think valuation expectations have modified as the IPO market is modified. And it's not just us telling the private companies, that it's also the banking community, communicating that to them. So yes, I'm glad that we maintained our financial discipline over the last 12 months when it was pretty heavy out there. And I think it's -- we're having a lot of easier conversations with private companies now and they see a strategic exit as very, very favorable compared to an IPO at this stage.

Your next question is from Lawrence Biegelsen with Wells Fargo.

Hi, good morning. Thanks for taking the questions. Congrats on a nice end to the year here. Liam, starting with UroLift, what are you seeing from the recent reimbursement change? And big picture, the contribution to growth there. You talked about, I think, from 4% to 5%, your lift bridging to your long-term goal, I think, of 6% to 7%. How much growth -- where do you see that additional growth coming from? How much is from international markets? And what are the other drivers? And I had one follow-up.

Yes, Larry. So with UroLift, first of all, we're really pleased with the strong finish to the year, $93 million in the fourth quarter. And indeed, our overall performance in the year and thank you for acknowledging it. I think we're really proud of what we did. We delivered revenue growth of 8.8% versus our original guidance of 8% to 9.5%. And don't forget, the original guide of $28 million to $32 million of respiratory revenue that we divested, delivered gross margins 59.4%, 270 basis points of expansion, up margin 310 basis points of expansion. And earnings per share, 25% growth in earnings per share, while also losing $0.10 to $0.15 in the respiratory divestiture. Looking forward, we've obviously communicated that we expect UroLift to grow 15% this year. We feel that, that's very achievable in the current environment. We expect it's going to be impacted by COVID in the first quarter as one would anticipate. And then we would anticipate lower single digits in the first half of the year and then picking up strongly in the back half of the year, obviously, an easier comp in Q3. And then going into Q4, as people work through their deductibles, you'd expect it to continue along that vein. We're really confident on our core business being well capable of 4% to 5%, Larry. And with good execution, I think we should be at the upper end of that range. So our growth algorithm of 6% to 7% is very, very much intact, as demonstrated in our guide today. So our constant currency guide is 4% to 5.5%. But there's 1.6% of a headwind from the respiratory divestiture, that's 30 basis points from the loss of a day which is in Q1 which actually gets you to 5.9% to 7.4%. So if anything, the algorithm has improved because of the base, our core business doing even better through good execution and really solid investment behind some of our good growth assets such as Intraosseous, such as our PICC portfolio, such as MANTA and such as our hemostasis portfolio.

That's helpful. And for my follow-up, Liam, just to follow up on Jayson's question earlier on M&A. What are your criteria deal size? How are you thinking about deal size? And any areas of interest you can share? Thanks for taking the questions.

Absolutely, Larry. So we look at assets that are in that $600 million to -- $60 million to $300 million in revenue. Our strategic criteria is that it fits within one of our pillars or in an adjacent space. It's got a really strong IP. Has a great value proposition within the hospital. Also has -- is clinically better than anything within the marketplace available. And we like products that are sticky. They get used over and over again. We obviously look for assets that are accretive to our gross margin. And we look for assets that are -- will become accretive to our op margin in time. We'll accept some shorter-term op margin dilution like we did, for example, with NeoTract as long as we can see leverage into the future. So those are really our financial and strategic criteria, Larry, and thanks for the questions.

Your next question is from Matt Taylor with UBS.

Hey, thank you for taking the questions. Good morning.

Good morning, Matt.

Good morning.

Good morning. I just wanted to ask specifically on UroLift, the 15% guidance. Two things. One, could you help us a little bit more with the cadence of UroLift growth that you expect through the year? And how much contribution from Japan are you anticipating?

Yes. Good question, Matt. So as I answered Larry, the first half will grow in the lower single digits due to the impact of COVID-19 through the first quarter and obviously, staffing shortages, while the second half of the year will grow really strong double digits. The contributions will be small from the international markets. You've got Japan, Brazil and France. They'll ramp in the second half of the year but they won't really become meaningful math until 2023 and beyond. So for this year, 2022, the main growth driver for UroLift will continue to be the United States. And I'll just add to that, Matt and I mentioned this in my prepared remarks that we trained through the pandemic. That is the most best tactical way to drive growth in UroLift in 2022 and then bring on the international markets in ‘23 and beyond. And obviously, you'll see places like China come into being in '23 and so we got a real great algorithm for growth for all of Teleflex and also from UroLift. And as Tom outlined in his prepared remarks, we've got 25% of our total revenue that is in that mid-teens growth which includes UroLift but as well as that, you've got MANTA and Hemostat and intraosseous and PICC, all driving that real solid top line growth for Teleflex.

Great. Thanks, Liam. And just a follow-up on the pipeline. Did you give an update on the RFP? Or could you give us an update on that, where that is?

Yes. I did in the prepared remarks, Matt. So as I said in the prepared remarks, we've received the CRL and we are working on the information requested. The good news is the request from the FDA is not focused on clinical data and with clear line of sight on the additional information that the FDA is requesting. We will continue to interface with the FDA and it is very collaborative. But it's clear to us, Matt, this is also the first time the FDA has approved a biologic products such as this. So we're breaking new ground together. And as you're aware, Matt and as most investors will be aware, the RFP from the military within that $3 million to $4 million, it's a nice market in the future, it's $100 million that we'll grow into. But that $3 million to $4 million is not in our guidance for this year.

Great. Thanks, Liam.

You too.

Your next question is from Shagun Singh with RBC Capital Markets.

Great. Thank you for taking the questions. I was just wondering if you could just let us know what the impact is of inflation and FX on margins and EPS in Q4. And then what have you assumed in 2022? And then just with respect to margins, can you bridge us from '21 to '22? I'm just trying to understand the puts and takes. So as it relates to, I guess, UroLift 2.0 conversion, we have slightly less than 40 basis points inflation. I think you called out 70 basis points on the call, annual pretax savings. I think you have about $40 million in '22 and '23. And then just higher level of investments. If you can just bridge that, that would be helpful.

Thank you, Shagun. That level of detail requires somebody called Thomas Powell. So Tom?

Okay. So I think the first question was just on the impact of inflation or FX in inflation in the fourth quarter. So as we look at the fourth quarter, I'll start with FX first. What we saw was a bit of a move in the exchange rates. And some of the tailwind that we had been experiencing through the earlier part of the year lessened quite a bit. So it was an adverse impact on our margins relative to the prior year but still slightly positive on a year-over-year basis. As far as inflation, we had talked about inflation ticking up in the fourth quarter relative to what we were seeing in the third quarter and we had estimated the amount to be approximately $3 million. It actually turned out to be higher, close to $4.5 million in the fourth quarter. And we've obviously assumed that, that's going to continue to be some of the case going into next year. As we think about just margins as we go into next year, there are a number of puts and takes. First of all, I'd say that the gross margin, I'd like to remind everyone that it had increased 270 basis points in 2021 versus 2020. So really strong expansion in 2021 despite a higher inflationary environment. As we look to 2022, our guidance is 59.75% to 60.25%, representing an increase of 60 basis points at the midpoint. The gross margin increase, as mentioned, attributable to mix, mostly UroLift as well as restructuring and operational efficiency programs being partly offset by inflation. And for 2022, our guidance assumes that supply chain inflation is approximately $20 million higher than the 2021 inflation level and that equates to an incremental inflation impact of about 70 basis points. So if you were to…

Yes. Thank you for all your color.

Hopefully, I answered all your questions.

Yes. Appreciate it.

Thanks, Shagun.

Your next question is from Cecilia Furlong with Morgan Stanley.

Hi, good morning and thank you for taking the questions. Liam, I wanted to start back on UroLift. Just -- you talked about initiatives to drive UroLift utilization in your existing position base. As well as drive adoption in newly trained positions. Can you walk through some of the kind of key points that you're focused on this year? And then kind of a bigger longer-term picture. But as you get out of COVID, as you think about all of the international markets coming online, Japan, China, Brazil, Europe as well, how do you think about just the durable long-term growth profile of UroLift?

So I think once we get -- what's very clear to me to the latter part of your question, Cecilia, is that UroLift growth is impacted by COVID. We've seen this at every outbreak of COVID. And as I just said a few minutes earlier, we saw UroLift pick up in September through November quite substantially. And then obviously, in December, we saw it take a step back because of the outbreak of COVID. Notwithstanding that, we still exceeded our internal expectations because of the robustness of the growth in the first two months of the quarter. And the reason, Cecilia, that we're focused on a few pillars of growth for UroLift. The first pillar of growth is going to be around driving utilization in existing docks over the next number of years. What we've seen during COVID is our champions and our interventionists. And remember, these are people that almost predominantly to a very, very high percent only offer UroLift. And because of reluctance in patients, because of staffing shortages, we've seen their utilization drop a little bit through the COVID environment. So, the easiest way to get UroLift back in to drive that 15% growth is drive utilization there. The second point is, for the future is to continue to do that but also to expand overseas. And you'll see Japan coming in beginning in April 1. You'll see France in the back half of the year. You'll see Brazil continue to move as we go through the year. You'll see China come in next year. Maybe then somewhere like Taiwan, you'll see -- pardon me, Italy and Spain come along. So most companies would expect the revenues they do in the U.S., if you execute well overseas, you should do almost the same amount of revenue overseas over a multiyear period. And then lastly is obviously bringing on new docs. We continue to train new docs as we go through the year. And I think that it's important for everybody to realize we haven't penetrated this market by any stretch of the imagination. We've only trained about 3,400 docs out of 12,000. And we've only done 300,000 procedures, almost all of them in the United States out of 12 million men in the United States and 100 million globally. So the opportunities for growth over a multiyear period, I feel really encouraged by and we just want to get COVID in the rearview mirror and then really show what this product can do from a growth profile.

And Cecilia, it's Larry. I would just mention that we will obviously provide a longer-term view of our outlook for UroLift at our May Analyst Meeting.

Your next question is from Mike Matson with Needham & Company.

Hi, thanks for taking my questions. I wanted to ask about the UroLift reimbursement changes that happened. I think that went into effect at the beginning of the year. So can you maybe talk about what you're seeing there? Have you seen maybe the physicians changing site of care or anything else? And with the 15% guidance, how much have you factored in, if anything, for that issue?

So, we haven't seen any site of service change and I don't anticipate seeing any site of service change in the coming year. The law that was signed in by President Biden actually improved the reimbursement for the UroLift in the office procedure by changing the conversion factor by about 3%. That actually added another $100 to $150 net to the urologist for doing this procedure. We've also implemented our own pricing strategy in the marketplace and that has been incredibly well received. Only six weeks into it, a very high percentage of our customers have signed up to our plan. So I would envision a very -- I wouldn't envision much of the shift inside of service. And Mike, don't forget as well, 70% of our UroLift cases are done outside of the office. And the CMS ruling only impacted Medicare Medicaid patients in the office which, if you do the math, is about 20% of the total. So we have strategies in place. The team is executing and the 15% growth is predicated on everything that we know today and our knowledge of what's going to happen with COVID we move forward throughout the year.

Okay, thanks. And if I could just slip one in for Tom quickly. Is there any kind of EPS impact from currency? I did hear that called out and you kind of walked through the headwinds. But just given that it is meaningful to the top line, I wanted to see if it was getting kind of offset on the bottom line. Thanks.

So the currency impact that we've assumed in our guidance is about $0.20.

Your next question is from Matthew Mishan with KeyBanc.

Hello Matt.

Can you hear me?

Yes.

Okay, excellent. Just the first question on Vascular Access. That continues to exceed our expectations and it's about $100 million above where you were at in 2019. It seems like you're pretty confident around PICC and Vidacare as you're kind of moving those into the high-growth category. I'm just curious, how should we think about the durability of the improvement in Vascular Access versus maybe some of the other areas that may have been COVID-related beneficiaries?

Yes. So for Vascular Access, this year, we expect it to grow in the mid-single digits in it's entirety. Obviously, our CVC portfolio benefited from COVID over the last couple of years. But the growth is really coming from our intraosseous portfolio and also from our PICC portfolio as we continue to take share because of our coating technology. This is really a global play for us. We've launched a really nice new CBC kit that is getting excellent traction out there in the market globally and that's also helping uptrade our customers on our CBCs in our key -- globally but in our key North American market for sure. So we feel really good. It's our largest franchise, Matt. It continues to execute incredibly well. We have a new -- as well as that new product, we have another new product that's coming around our PICC, positioning in our PICC that we're very excited about. And so this is one of the -- we've often said not all growth is equal. This is one of the businesses that gets more R&D dollars spent than others. And keeps that flow and new products come to keep ourselves differentiated and it's a great franchise.

Okay, excellent. And then, just an update -- and I'm sorry if I missed it, on where Z-Medica ended for 2021. And thoughts on growth drivers for that product into next year.

Yes. We're really happy with where Z-Medica finished. We told the investment community to be somewhere between $60 million to $70 million. We finished squarely in there $66.5 million. Really proud of the achievements, bringing that into Teleflex. And nothing is changed in our outlook. That's well capable of high single, good execution, low double-digit growth and really accretive to our margins, again, another growth driver. And that's in the bucket that Tom spoke about, that's driving an average in the mid-teens. And of course, we have a cardiac study that we just completed, we will file with the FDA. And that will expand the $600 million TAM also, Matt. So, really excited about it.

And your last question comes from David Turkaly with JMP Securities.

Great, thanks. Maybe just a couple of quick product one to follow up on that. The PICC side, would you notice anything on the competitive front, there was a bigger player there that grew for years at the rate that you seem to be now. Has anything changed there? Or would you actually point to the differentiated coatings as sort of how you're maintaining that?

So for us, it's all about the coatings. And what changed, Dave, was in the past, hospitals didn't have to report infections on PICCs. And the assumption was when they weren't measuring it, the assumption was that the PICC infections were lower. PICC infections on CBC is used to be at 4% before we launched our coated technology on the CBCs. And with -- many studies have shown we've been able to bring it down to practically 0. And of course, once they started measuring PICC infections, they were around 4%. So now hospitals don't get reimbursed for those infections. And that's why we're being so successful with our PICC technologies. It's really around our coatings that are both antithrombogenic and anti-infectious.

Thank you for that. And maybe just a follow up. An area we don't talk about a lot but on surgical, you mentioned instruments and ligation clips. But 16%, even if there's procedure bounce-back, seems high. I guess what is happening there? What is differentiated there? Or how are you able to put up numbers like that in an area that I would think would be a much lower growth opportunity?

Yes. Also within -- this is also a global play for our Surgical business. So we have a really strong Surgical business in the Americas and in APAC. And as procedures bounced so did our Surgical portfolio. But we're also working on expanded indications for our coal ligation clips that should help us continue to augment the growth. Now it's not going to grow at that clip for next year and I don't want to mislead anybody that is going to do that. It will be in the low single digits as we go through next year. But we are -- we have some new products coming down the -- this year -- sorry, I said next year, this year, 2022, it will grow in the low single digits. But we have some nice pipeline of products coming through there and we've expanded our vascular closure. We've really like working on our instruments. And of course, it holds like as we continue to perform exceptionally well globally. And quite frankly, the team in Surgical has done an outstanding job in executing as procedures have returned. And also an area that we take price, I should mention that. It's a nice opportunity for us. And on pricing I think it's important that we did mention, we anticipate having positive pricing this year on that 50 basis points consistent what we drove last year in order to offset some of the inflationary pressures. And it's for a company by Teleflex, I believe that will be successful because we're used to taking prices out of our DNA and we'll continue to execute on that price, in particular, with Surgical within our Vascular business unit and also overseas in Asia and Europe. So, I just want to make a point as well before we close. Thank you.

That is currently all the time we have for questions this morning. I will now turn the call back to Mr. Keusch for closing remarks.

Thank you, April and thank you to everyone that joined us on the call today. This concludes the Teleflex Incorporated Fourth Quarter 2021 Earnings Conference Call.

This does conclude our conference for today. Thank you for your participation. You may now disconnect.