Good morning, ladies and gentlemen. Welcome to the Teleflex Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And now I'll turn over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategic Development. Please go ahead.

Good morning, everyone, and welcome to the Teleflex Incorporated Second Quarter 2022 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. Please refer to our press release from this morning for details on how to access the replay. 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'll open the call up 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'll now turn the call over to Liam for his remarks.

Thank you, Larry, and good morning, everyone. It's a pleasure to speak with you today. For the second quarter, Teleflex revenues were $704.5 million, a year-over-year decline of 1.3% on a reported basis and an increase of 2.3% on a constant-currency basis. Adjusted earnings per share increased 1.2% year-over-year to $3.39. In reviewing the quarter, we posted solid execution across the vast majority of Teleflex, with nearly 90% of the collective business driving constant-currency revenue ahead of plan. Volumes have continued to recover in the U.S., EMEA and Latin America as COVID hospital admittance have declined from peak levels earlier this year. However, the revenue results were below our expectations as UroLift sales did not rebound to the level we had anticipated. Excluding UroLift, constant-currency growth in the quarter was 4% year-over-year as the remainder of the business collectively outperformed our forecast for the quarter, albeit with some pluses and minuses across the portfolio as we navigated a dynamic environment. Moreover, when adjusting for the impact of the Respiratory divestiture and UroLift, the rest of the business grew 5.2% constant currency. This solid performance continues to reflect the benefits of a diversified portfolio that has been purposely built and is primarily targeted to the care of the critically ill patients. In the quarter, our high-growth portfolio, which includes UroLift, MANTA, hemostatic products, EZ-IO, OnControl and PICCs, maintained momentum across the majority of growth drivers. Although UroLift declined 13% year-over-year in the second quarter, the remainder of products in the high-growth portfolio increased in excess of 20%. Although the second quarter presented some additional challenges, we remain confident that the environment will continue to improve over time, including for the most elective surgical procedures like UroLift. Moreover, we will continue to execute against our strategy that we articulated at the May…

Thanks, Liam, and good morning. Given the previous discussion of the company's revenue performance, I will begin with margin. For the quarter, adjusted gross margin totaled 59.6%, a 30 basis point decrease versus the prior year period. The year-over-year decrease was a result of volume and mix; incremental inflation in freight, raw materials and labor; partly offset by favorable pricing. Of note, our price strategy continues to maintain its traction in the second quarter. Adjusted operating margin was 27.5% in the second quarter. The 70 basis point year-over-year decline was the result of the lower gross margin, lower leverage across our expense base and planned investments in the business for our growth drivers. Net interest expense totaled $11.2 million in the second quarter, a decrease from $15.9 million in the prior year period. The year-over-year decrease in net interest expense reflects savings from the early redemption of the 2026 senior notes and the impact of reductions in outstanding debt using proceeds of the Respiratory divestiture and operating cash flow. Our adjusted tax rate for the second quarter of 2022 was 12% compared to 14.4% in the prior year period. The year-over-year decrease in adjusted tax rate is primarily due to further enhancements through tax efficiencies of our global structure, partly offset by tax expense arising from the new provision of the U.S. tax law requiring the capitalization of certain R&D expenses. At the bottom line, second quarter adjusted earnings per share was $3.39 or an increase of 1.2% versus prior year. Normalizing for foreign exchange, incremental inflation and the Respiratory divestiture implies underlying adjusted EPS growth in the low double-digit range year-over-year. Turning to balance sheet and cash flow highlights. Cash flow from operations in the first half was $101.9 million compared to $265.1 million in the prior year period.…

Thank you, Tom. In closing, I will highlight our 3 key takeaways for the second quarter and our 2022 outlook. First, our diversified product portfolio enables Teleflex to deliver constant-currency growth of 2.3% in the second quarter despite meaningful macroeconomic headwinds. Moreover, when adjusting for the headwind from the Respiratory divestiture, the underlying business growth was 3.5%. Second, we will continue to effectively manage the business and look for ways to minimize incremental headwinds from inflation and supply chain challenges. While the near-term UroLift revenue results are disappointing, our guidance implies an improving growth trajectory in the second half of the year. Moreover, we are well positioned when the macro headwinds for the urology market abate. Third, we continue to execute against our long-term growth strategy. We will continue to incrementally invest in our high-growth portfolio and drive dependable expansion in our durable core portfolio. We have levers in place to drive further expansion in our margins, and our balance sheet is in a solid position with leverage at 1.8x, providing ample financial flexibility for our capital allocation priorities, including mergers and acquisitions. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q&A.

[Operator Instructions]. Our first question will come from Cecilia Furlong from Morgan Stanley.

Liam, I did want to start with UroLift. And really looking to just get a bit more color in terms of how you're thinking about the back half, the revised guidance, but either contributions from backlog coming back in, either ramping volumes under your prior high-volume utilizers, DTC, just kind of a balance of how you're thinking about the environment and then really also just your longer-term view on that 15% growth for the overall business, how you're thinking about potential backlog recapture in '22 and beyond.

Okay, Cecilia. So let's start with the full year outlook for UroLift. Obviously, our prior guidance assumed 15% growth, which would have revenue of $393 million. And due to the current market environment that I went through in my prepared remarks, we are now expecting $335 million, representing a reduction of $58 million or approximately 2% for Teleflex in our entirety. I would like to point out, before I get into the pieces of UroLift, that our constant-currency call-down at the midpoint is 1%, which is an indication that the rest of the portfolio is outperforming by approximately $30 million. And I would also point out that a good portion of this outperformance is coming from the high-growth, high-margin portfolio such as hemostats, intraosseous and PICCs and the like. The UroLift updated guidance, to answer your question, is not assuming any significant improvement in the operating environment. Essentially, we are taking our quarter 2 revenue run rate and assuming sequential improvement into Q3 and further sequential improvement into Q4. This would obviously imply positive growth in the back half of 2022. Now I would like to point out as well that the updated guidance for UroLift is based on slower urology procedural recovery trends in the U.S. Our assumptions for OUS have not changed in that regard. Regarding the backlog, we are not assuming that there is a backlog that will come back in, in the latter half of the year. I think our observation is that the UroLift procedure is still -- is a very postponable procedure and there's a reluctance of patients still to come back to the urologists. And there's also a staffing shortage, as I went through in my prepared remarks. So that's our assumptions in the back half, Cecilia, for UroLift and an update on the call-down for the full year.

Our next question comes from Jayson Bedford from Raymond James.

Can you hear me okay?

Yes, we can hear you, Jayson. Thank you.

Maybe just a follow-up question on UroLift. I think you mentioned in the script that you're seeing better utilization in those accounts who are using UL2. And I'm just -- there's a lot of reasons for that, but I'm wondering what initiatives have you put in place to maybe accelerate conversion to UL2.

So Jayson, we're very pleased with the rate of conversion that we're seeing right now. We are actually slightly ahead of our plan -- our internal plan that we laid out at the beginning of the year. What we're seeing is that when surgeons move over to the UL2, it's also an opportunity for us to introduce the Advanced Tissue Control. And the combination of those 2 new products is actually driving greater throughput in those practices. It's a combination of the sales force reengaging with the surgeon. And it's also a combination of expanding the size and complexity of prostates that surgeon is willing to treat because the outcomes on the UL2 are actually better than the UL1, and obviously, they feel much more comfortable doing median lobes with the Advanced Tissue Control. So we're ahead of our plan, and we do envision having the bulk of the North American -- the U.S. market converted by the end of this year. And that will also result obviously in that 400 basis points in margin expansion for the UroLift products.

And just broadly, Liam, has the UroLift strategy changed at all over the last 6 months? Meaning -- you came out with a newer strategy at the beginning of the year. Obviously, it's been a bit slower. Has the strategy been tweaked at all?

So the strategy is as it was because it is working insofar as we did see sequential improvement from Q1 to Q2. UroLift actually grew 7% quarter-over-quarter. And we have to bear in mind they had a really tough comp in the prior year, it grew 120 -- over 120% in the prior year, was below our expectations. But what we're seeing with physicians is that they are actually -- the new docs that are trained -- we're actually seeing an improvement in the cases per physician from the new docs trained. And we've also brought on a larger number of high-volume docs within quarter 2. So therefore, that's what gives us the encouragement for the improvement -- the sequential improvement in Q3 and the further sequential improvement in Q4, Jayson.

Our next question comes from Matthew O'Brien from Piper Sandler.

Just to continue along the UroLift questioning. I'll ask my questions upfront. Liam, going down $60 million for the year roughly for UroLift, how much of that is just the volume impact that you're seeing on the folks going into urologists versus maybe losing a few people because of the recall or competitive launches versus reimbursement headwinds? And then just to be -- the second question, just to put a finer point on it, can you still grow UroLift 15% in '23, '24 and '25 like you mentioned at the Analyst Day?

Okay. So there's a lot in that question. So we don't believe the reimbursement is having an impact. We know that it's not competitive pressures that's having an impact. The impact of the recall was pretty minimal, Matt. There were -- there was some sales force disruption. We did have to swap out some product from the customer and get new product in there and get the count. So there was that disruption. I will tell you -- when I look at the performance of the UroLift in the year, I will tell you that what we are seeing is a drop-off in patient throughput and in-person visits to urologists in Q2 versus Q2 last year, and that's compounding the drop that we saw in 2021 versus 2020 -- 2019. We're also experiencing staffing shortages. We did an internal survey of over 100 urologists, and over 50% of them cited staffing shortages within their practices. So that is a compounding issue. We firmly believe that the end market conditions is what's driving the volatility out there. And as I said to Cecilia, our observation is this is a very postponable procedure. You're not going to die because you didn't have your BPH treated. Regarding the longer term and your question regarding the LRP, just to level set everybody, the LRP assumes a CAGR of 6% to 7% for Teleflex and a 15% CAGR for UroLift. Using 2022 as the jump off, and I think that's an important point to reflect on, I remain confident in the plans we outlined during our Investor Day. Ex UroLift and the Respiratory divestiture, our durable core grew 4% in Q2. And also if you look at Q2 ex UroLift, our actual growth accelerated. And again, if you exclude the Respiratory divestiture, we went from…

Our next question comes from Shagun Singh from RBC Capital Markets.

Liam, Tom, I know it's early, but could you provide some color beyond 2022? UroLift has been a major growth driver for you guys. It's part of the thesis that gets you to your target of 6% to 7%. How concerned are you of an economic slowdown and the impact on that business? How are you thinking about M&A to further boost or even maintain this growth trajectory longer term? And then if I could just ask a question on the macro items, FX and inflation. What have you assumed? What impact does it have on EPS in 2022? And how much of it flows through into '23?

Okay. I'll ask Tom to answer the FX and inflation. I'll take the couple of macro questions. So in relation to if we enter into a recession, I think that Teleflex is well positioned. Normally, medical devices -- no industry is immune to a recession and the impact, but I think medical devices in general have been cushioned from the impact of a recession. I think Teleflex in particular will be even more cushioned than other types of medical device company. And the reason I say that is that Teleflex, our whole portfolio is skewed towards the elderly population. And normally, when you go into -- if you look at the last recession and if you look at unemployment rates -- and the reason I'm citing unemployment rate is because it impacts insurance for those individuals. So if you look at the last recession, unemployment went up to about 11%. But if you look at the demographics, those over the age of 55, unemployment was about 7%. And it was double that for those under the age 55. And because our portfolio is skewed towards that population, I think we would be somewhat -- not completely insulated but somewhat protected from a recession. Regarding that question specific to UroLift, with 12 million men in the United States suffering from BPH and 100 million globally, there's enough of a patient population there to continue to grow UroLift even in that type of an environment. Regarding your question on M&A in the current environment, obviously, interest rates have gone up so the cost of funding has increased. I do think though that the environment is more receptive to more appropriate valuations right now than it has been at any time in the past. And as I said in my prepared remarks, we are active out there right now. We feel good about the environment. Our leverage is 1.8x so we have firepower. We are chasing assets at the moment. We are looking at scale transactions, tuck-in transactions. And as you heard in my prepared remarks, we announced a late-stage technology and a dealer to direct, not that material for Teleflex but nonetheless an indication that we're active out there in the market looking at M&A in this current environment. And I'll ask Tom to answer the FX and inflation question. If you don't mind, Tom.

Absolutely. So on the FX front first. So the impact for the year right now is to reduce our revenue by approximately $100 million. We had previously expected it to be a $45 million impact, so you've got an incremental $55 million as we think about rates where they currently are as of this week. On the earnings impact from FX, that's up to $0.46 for the full year. It was $0.20 previously. As we think about next year, obviously, I'm not able to estimate what currencies will become early next year. But assuming they're at the same level as they are today, what we'd see is a little bit of an incremental impact because the first quarter was stronger and the second quarter was stronger than where they are today. Again, we'll have to wait and see what currencies do next year to answer that question. On the incremental inflation, we're now expecting an inflationary impact of $0.47 to earnings versus $0.33 previously. And that's largely due to raw material inflation continuing to increase. We're actually seeing some stabilization in some of the logistics and sea freight, so encouraging sign there.

Our next question comes from Matthew Mishan from KeyBanc.

Excellent. I got 2 just to shake it up a little bit off of UroLift. First, just what snaps back in Interventional for the second half to get you to double digit -- high single-digit, double-digit growth for the year?

Okay. So on Interventional, you are correct, it's an accelerating back half of the year. Obviously, one of the contributors to that is MANTA. As we said, we expect MANTA to grow in and around that 50% mark and will drive a significant proportion of the growth. We also have some supply chain disruption for some of our products in the second quarter that will flush out in the back half of the year. And the Langston product is returning to the market also in the back half of the year, which drives that acceleration. And there's a little bit of comp year-over-year that helps as well, Matt, but we're confident that Interventional access will get to high single digits, low double digits in the back half of the year from a revenue perspective.

Okay. Excellent. And then on free cash flow, Tom, you were walking through some of the moving pieces of the first half. And I think everyone has been talking about the higher working capital. As you think about the full year, how should we be thinking about full year expectations for free cash flow at this point?

Well, for the full year, right now, cash flow from operations is in the $400 million to $450 million range, with CapEx in the $75 million to $80 million range. Some of the things that impacted the first quarter and first half will also play out in the full year as to why it isn't as strong as last year: so an incremental tax payment this year that's actually recouped over the next 2 years, it's pretty significant; and also some of the changes in working capital where we've taken up inventories to make certain we've got adequate supply to provide a buffer against supply chain disruptions. We also had a really, really strong AR collection last year that's not expected to reoccur this year. It's right at the end of last year that we don't expect to reoccur. And then as also mentioned, there's increased compensation related to payroll. Just the payouts in early 2021 were depressed given 2020's performance, and we're back to a normalized level of payout for this year. So those are some of the big drivers as to why the cash flow isn't as strong this year as it had been previously.

Our next question comes from Mike Polark from Wolfe Research.

Two quick follow-ups on UroLift and then one bigger-picture question, if I may. Just the recall, was it fully sorted exiting June? Or is there a tail to complete July, August? And then July, any -- will you hazard a comment on UroLift volume thus far in July? And then the broader question is just -- you made a comment or 2 about favorable benefit so far from certain pricing actions. Can you just remind us broadly across the portfolio what you're doing there, order of magnitude? What kind of benefit are you driving towards? And what's kind of the -- over what time horizon might those benefits start to manifest in the numbers?

Okay. So I'll start with pricing. So when we laid out our plan, our pricing was going to be 50 basis points. We will be at least 50 basis points on the year. We're ahead of that target as we sit here today. The areas where we take price, our Surgical business is doing well. Our Vascular business has been performing well. And also, our Anesthesia business has been driving some of that pricing. On the -- regarding the recall, yes, the recall is fully behind us in the quarter. We took all of the reserves for the inventory we took back in quarter 2, and it's all reflected in our financial results already. Regarding your question on future UroLift growth, in the quarter and what's happening in July, I don't want to get specifically into July, but it is reflected in what I said. We're expecting sequential improvement in Q3 and then further sequential improvement in Q4. So that will give you -- that's the indication that we have right now.

Our next question comes from Craig Bijou from BofA Securities.

I have one on UroLift and then a follow-up on margins. So at the Analyst Day end of May, you guys seemed pretty confident. And I apologize for asking such a granular question, and Liam, I know you provided a little bit of detail on the monthly performance. But I mean how did June sequentially compare to May? It seems you guys felt pretty strong at the Analyst Day, and then there's a decent-sized miss here. And I understand you didn't get the expected revenue in June from UroLift. But I was hoping just to maybe understand a little bit about the sequential growth kind of within the quarter, if you would.

No, absolutely. And just to level set, so we were off the quarter by around $14 million. And when we gave our guidance at the beginning of the year -- and you're right, we reaffirmed it at the Analyst Day in quarter 2. We did anticipate an improving environment from April to June. So April was slightly below our plan. May did improve despite cold cancellations within the month of May, but we did not see the expected improvement in June. June was not a good month for UroLift, to be fair. In actual fact, June was worse than either of the 2 months and decelerated. We did get a little bit of an impact from the recall, just sales time from the recall. But I think the more significant factors were the ones that I pointed to: in-person visits to urologists dropping year-over-year and staffing shortages within urology practices so they're not able to see the throughput of patients. I mean urologists in our survey, and it was done during the quarter so it was reflective of the COVID environment, they did cold cancellations from patients due to COVID, either the patients had it or they were close contacts as they went through. So your -- it's a fair question. And for sure, June was much worse than the other 2 months.

Great. And then just thinking about margins really on '23 or going forward. And I know you're not going to provide guidance, but given some of the pressures that are bringing down margins this year, the lower just nominal amount of UroLift revenue this year, how should we think about your ability to expand margins looking ahead into '23?

So I might ask Tom to cover that. If you don't mind, Tom.

Yes. Sure. So conceptually, as we think about moving forward, there are a couple of things that will drive margin in the future. One is clearly mix. And as we've spoken about, our high-growth portfolio of products also are higher-margin products. So as those continue to grow, they will provide a nice mix benefit as they represent a disproportionate amount of growth in the business. We -- and obviously, UroLift -- we need to get UroLift back and growing to help us achieve everything that we wanted to achieve at the Analyst Day guidance. I would say that as we look at some of the other drivers, we've got restructuring programs out there that, based on what we've currently announced and are active on, we've got about $45 million of savings left to be realized there. And then we also have a number of cost improvement initiatives that go on every year within the plants and distribution centers, et cetera, that drive meaningful amounts of productivity, a lot of Six Sigma type of work. So those are the key drivers for us. As we think about the guidance we have provided at the Analyst Day, we had assumed an inflationary environment continues throughout the LRP time frame. Although not quite to the same level of this year, we had assumed that there would be inflationary pressures going forward. And that's still our belief right now based on what we're seeing.

Our next question comes from Richard Newitter from Truist.

Just going back to UroLift for a minute. The -- I'm just curious. I totally appreciate that it's mostly the underlying environment, office visits aren't kind of back to where you needed them to be, staffing shortages, maybe a little bit of recall impact. But is there anything else that you guys are picking up in the field with respect to potential share shifting to other types of minimally invasive or even more invasive types of procedures? Is there anything going on there? And anything with respect to retreatment rates and changes in views on the way doctors are kind of doing even more traditional types of surgical approaches?

Yes. So I'll start with retreatment rates. The Kaplan study, which was a 35,000-patient retrospective study clearly demonstrated that retreatment rates for UroLift were very similar to TURP and were well below the retreatment rates for other technologies that are out there in the marketplace. With regard to share shift, no, Rich, plain and honest answer, we haven't seen any share shift in the marketplace. We've analyzed our -- all of the accounts within -- that do business with UroLift and Teleflex, and we have not seen share shift within our existing accounts. We firmly believe that it is end market dynamics that are having the impact on UroLift and the postponable nature of the procedure. So yes, I think that would be the case.

Our next question comes from Mike Matson from Needham.

So I have two questions. I'll just ask them both. So first on UroLift. I mean the DTC, I mean you're talking about these metrics and that you're running ahead of expectations and so forth. But I mean, I guess, I'm just wondering -- we're almost a year into this now. I mean what's happening with these patients? I mean shouldn't the ultimate measure or metric here be the procedure growth, I mean, which is negative? So are these patients just not scheduling with their urologists yet? Or are the urologists turning them down because they're too busy doing other procedures or something? And then my second question is not on UroLift but just on Vascular Access. You saw slower growth, and you called out some factors there that caused that. Just wondering if that would potentially continue beyond the second quarter.

Yes, Mike. Thank you. So with regard to DTC, we're very pleased with the performance of DTC. At the half year stage, we're ahead of all of our metrics regarding patients that we're sending on to urologists through all the different media. We do know from our survey it is taking urologists much longer to schedule these patients. That time frame has elongated. But we see the role of DTC is to make men aware that UroLift exists and move those men on to the care of urologists so that the procedure can get done. You are correct, the ultimate measure should be the patient flow on volume. But unfortunately, in the current environment, patient flow into urologists is down. And also the capacity of urologists to do these procedures because of staffing shortages is also impacted. With regard to your question on Vascular Access. So Vascular Access grew 1% in the quarter. What we saw was fewer intensive care patient visits because of COVID. And this is one of the businesses that is seeing some supply chain disruption. So we've got a modestly heightened back order situation with our Vascular Access portfolio in the second quarter. We still expect it to grow mid-single digits for the full year, Mike.

That is all the time that we have for questions this morning. I will hand it back to Lawrence Keusch for any final remarks.

Thank you, Darius, and thank you to everyone that joined us on the call today. This concludes the Teleflex Incorporated Second Quarter 2022 Earnings Conference Call.

Our conference call for today is now concluded. Thank you all for your participation. You may now disconnect.