My name is Craig Bijou, one of the Med Tech Analysts here at B of A. It is a pleasure to have Teleflex here from the company, Liam Kelly, CEO, and Larry Keusch, Vice President, Investor Relations and Strategy Development. Thank you, guys, for coming.
Thanks for having us.
Maybe just want to start with, let's start with Q1 results a couple of weeks removed from that. Just talk about, I guess, some of the, I mean, I guess how Q1 result played out, if it played out how you expected, and some of the things that did weigh on growth during the quarter.
Q1 played out exactly as we expected. The growth was -3.8%, but there were two less selling days within the quarter. Adjusted for selling days, the growth was approximately -1.7%. I think that we continued to see good solid performance from the balloon pumps in the Americas. We continued to see progress with Palette and the Barrigel product within the portfolio. Intraosseous performed well. I think all in all, it played out pretty much exactly as we expected it to play out. I thought we executed fairly well, came in and hit all of the numbers, and margins were in line, earnings were in line. Right down the income statement, it was as we anticipated. The part of your question, what weighed on growth? As expected, OEM, we saw a negative growth in OEM, and that was anticipated.
It's really two factors that are driving that. The first is the ALOS customer from last year, which cost us around $7 million in the quarter. Secondly, as expected, we saw inventory management by our key customer base. UroLift also had some declines, but we had anticipated that as well. As I said, played out as we expected, thought we executed pretty well and started the year in line with expectations.
Yeah. Great. That's helpful, Liam. You reiterated your guide as well. 1%-2% growth. Maybe if you could talk about the progression of that growth through the year. I think the Street's modeling 1% in Q2, 3.5% in Q3, and 6% in Q4. Is that the right way to think about the growth acceleration through the year? Maybe kind of expand on what are those drivers that would accelerate that growth?
At the midpoint of our guide for Q2, that would be 1%. At the midpoint of our guide for the full year, that would tell you we'd have to accelerate just north of 4% in the back half of the year. Those are the numbers. There are a few uniquenesses to the first half versus the second half for Teleflex. Number one, as I mentioned, within OEM, there was a customer loss last year, which began in Q3. We anniversary that loss at $7 million a quarter, so $14 million of comp in the first half versus the second half. Obviously, you get that pickup. The second impact, I mentioned there were two less days in the first quarter. There's actually an additional day in the back half of the year, and it hits us in the fourth quarter.
OEM order rate has also progressed well as we got to the end of the first quarter and early into Q2. We expect that to continue. That will obviously help in the back end of the year. In Asia, the first quarter is the low point for Asia. We've had some volume-based procurement in our surgical business there. We would anticipate Asia ramping and getting better as we go through from Q2 on. Lastly, we have an Endurance catheter that will be returning to the market in the second half of the year. That will also drive some growth in the back half of the year. We feel confident in our ability to drive that 1%-2%.
Got it. That's helpful, Liam. On the EPS side, let's just talk about you lowered guidance by $0.75. One, I think it was $1.05 of it was a tariff impact. You actually had $0.30 of good guys that offset some of that tariff impact. I do want to, given I think the tariff impact in total was $55 million. And I guess, how should we think about that number today with some of the, I know 50% of the tariff was from China, both ways, bilateral. How do we think about that number today, given the recent news from the weekend?
Yeah. First of all, the news from the weekend was encouraging. Not that unexpected because tariffs at that level, American tariffs, they're an embargo. I mean, it's very difficult to have that level of imposition. Your numbers are accurate. It's a $55 million total impact before the change. We were pretty explicit in how we broke it out. It'll help people with the math. Half of the tariffs were impacted by China. 80% of that half was an impact of goods coming from the United States into China, with the other 20% with goods coming from China, mostly raw materials into the United States. Obviously, we'll update the guidance in Q2. When we do, it'll reflect that change in the tariffs. There's a 90-day hiatus, I guess, on the tariffs.
Our assumption will be that they come back after 90 days until someone tells us differently. Again, in the $55 million, there were some pauses, but we did assume in that $55 million that they were coming back. We'll be absolutely clear as we outline it. We're also hopeful that there will be some exemptions for other tariffs for medical devices. Our advocacy groups and our representative groups continue to lobby for an exemption for medical devices. We would believe that somebody lying in a hospital bed will desperately need a central venous catheter to keep them alive. I don't think it's appropriate to put burdensome tariffs on medical devices coming into the United States.
Understand. That's helpful. I think you, so because they do run through the balance sheet, I think you expect most of that impact to come in the second half. I think it's modestly more in Q4 than Q3. When we think about what the potential impact for 2026 may be, I mean, should we assume that it's a little bit more than half? I don't know, $30 million for Q4, and then annualize that and think of that as where to think about the potential impact for 2026. I know that doesn't have any mitigation strategies in the number. Maybe two pieces of that. Is that the right way to think about it from a financial perspective? I'll let you talk about some of the potential mitigation strategies that you do have.
Yeah. You are absolutely correct. There is practically zero impact anticipated in Q2. Q4 will have a larger impact than Q3. Given the volatility in tariffs and given that it is only a few weeks since we had our earnings call, and even since then we have had this massive change, I do not think it is appropriate to look into 2026. Whatever we think today will not be what is in place in 2026. That is just a fact of life. I think we are better off living in the here and now. We have given very clear guidance as to what the impact is in 2025. Obviously, we have given very clear guidance as to what the change would impact on Teleflex in 2025. Now, with regard to the mitigations, obviously, within the $0.55, and you were right, it is $1.05. We have already circumvented about $0.30 of that.
This latest change will obviously help as well. There are other things that we're doing. Number one, we are looking at the USMCA compliance of our products. Today, about 50% of our products are USMCA compliant. We're working to improve on that number. I don't think we're ever going to get to 100% just because of some of the components and where they come from. We believe there's a possibility for us to improve beyond that 50%. Secondly is pricing. We're looking at pricing mitigation strategies to offset it. Clearly, our business is heavily contracted, so we have to wait for the opportunity for those contracts to come up to push through those pricing differentials. Thirdly is supply chain changes that we're looking to make where we manufacture products in dual locations.
We are looking at how can we change our supply chain in order to mitigate some of these strategies. I think lastly, we are looking at strategies for products that we manufacture in Mexico. They move into the United States, but they are destined for other countries. We are looking at strategies to overcome some of those tariffs if they remain. As you see, Craig, it is pretty volatile, and it changes at least day to day, if not week to week.
Craig, if I could just clarify on one point, the $1.05 associated with the $55 million of tariffs, you accurately pointed out there were $0.30 of benefits, if you will. None of that associated with any mitigation efforts yet. That was all pre-mitigation. The components of that $0.30, roughly $0.20 of it was associated with the lower share count, and mostly due to the accelerated share repurchase of $300 million that was completed in April. The remaining $0.10, there was a portion in there of expense control, again, not associated with tariff mitigation and some positive effects.
Okay. Helpful. Wanted to get that financial piece out of the way and kind of get to the big news for you guys this year. Earlier in the year, you announced that you're going to separate into two different companies. Maybe if we can just kind of start with the rationale for separating the companies or separating into two and kind of, I guess, your vision of the shareholder value creation from that separation.
Yeah. So really, the decision, we've been working on this for well over a year before we announced it. Over that year period of time too, we were also working on the acquisition of the Biotronik BI assets. So we were contemplating all of this in our decision-making process. It seemed clear to us that there were two entities living within Teleflex that could benefit from different capital allocation strategies, different growth strategies. As we went through the overview of our portfolio, it became clear that we could do with simplifying our business in order to unlock shareholder value. I'll just give you a very simple example. Today, Teleflex has seven business units. We've got 19 manufacturing plants. Teleflex RemainCo w hen we complete the separation through either a spin or a sale, Teleflex RemainCo will have three business units, and it will have seven manufacturing plants.
That's just one little example of how this simplification can help streamline decision-making in RemainCo and continue to add value. From a financial perspective, there's two different growth modalities within the two entities. You've got one entity that is going to grow at low single digits, be in the mid-50s gross margin. Then you have Teleflex RemainCo that's going to grow at 6% plus. It's going to be in mid-60s gross margin. It's going to have operating margins similar to Teleflex today. That takes into account disynergies because of the spin that I think it's important that people realize and additional investment in R&D. It is going to drive double-digit earnings growth. I think neither company could truly realize the value as one company.
I think from a financial perspective, by separating them into two different entities, it can help release that value to the shareholders. Whether we execute on the separation through a spin or a sale, we're pretty agnostic to that as long as we maximize the shareholder value in either process.
That's helpful. It's a helpful explanation. I do want to ask the separation and the assets that went where they went. It's a question that, I mean, I have, I've asked, I think investors are asking, the urology business, the OEM business, the acute care business. I think many investors think that they're not necessarily tied together to compose a separate standalone company. I guess, I guess why am I wrong or how should we think about that and why you chose to put those businesses where they were?
Those two businesses are pretty much in the acute care call point based in the hospital, the AC, and in the office side of service. They are an acute care element of it. The other element of it is the OEM business. As we were looking at bringing in the Biotronik BI products into Teleflex, it became clear we were going to become a bigger competitor on the branded side to some of our main customers on the OEM side. By combining OEM with a large acute care franchise, this allowed OEM to have pretty much untethered access to their current customers and to access broader customers without having that sense of competition from the owners, as in Teleflex, of that OEM business.
I think that that is probably a nuance that many investors, our analysts probably did not truly get as we were looking at that separation. It goes back to the growth profile of the combined assets in both sides. As I went through earlier, you have got an incredibly good future for SpinCo as a slightly lower growth value asset that will generate significant cash flows. You have got value creation through Teleflex Remain Co that is going to have a higher growth, double-digit earnings, horsepower, and the ability to invest more in R&D in order to sustain that organic top-line growth over the longer term.
One other question on this, you said you've been working on it for more than a year. I guess with OEM, you talked about the struggles that OEM had, the temporary struggles. UroLift has been under pressure, or urology is, Palette's done well. UroLift, which makes up the majority of the urology business, has been under pressure. I guess why was earlier this year the right time to separate those businesses given the prospect or forecast for growth or negative growth for both of those businesses in 2025, recognizing that the spin's not supposed to happen until 2026, so things could turn around. I guess just in terms of timing and those businesses specifically, maybe just provide a little bit of color on the thought there.
Yeah, I think the important part of your question is what you said in the middle of it. It's happening in 2026, and they could turn around. That is the reality. If you look at the OEM business, it will have negative growth this year in the region of about 10-12%. That's transitory. The last customer, as we spoke about earlier, will anniversary that in the second half of the year. The destocking that we're seeing in the inventory management by our customers is in the front half of the year, front-loaded, and that will normalize as we go through the year. OEM will return to growth in 2026 and will be a significant growth driver for this company, for NewCo. The other side of it is you're right, UroLift has been challenged over the last number of years.
Complementing that, Barrigel has been a massive growth driver with very solid margins and cash flow. UroLift, this is the last year of the reimbursement change. As you head into 2026, you will be in a different environment for UroLift where there will be no further cuts to reimbursement in the office side of service. The product has been challenged because of that reimbursement change in the office side of service. That is why the timing to announce this was appropriate because a lot of these things are transitory. As you move into 2026, it gives a significant opportunity for NewCo to overcome on a year-over-year comp basis and get back to growth.
Helpful. I think on the Q1 call, I think a lot of investors and analysts probably, I know I was surprised by your comments about significant interest in NewCo in the acquisition of the NewCo assets. Maybe if you can just talk about, and I believe the significant is relevant, the wording that you chose to use. I guess maybe if you can just talk a little bit about what interest you are seeing to the extent that you can talk about it. I think the bigger picture question is how you think about what's better for both companies, the sale versus the spin. There are a lot of different factors, timing. Maybe just kind of start with what you can share about the inbounds, and then we'll kind of go from there.
Yeah. The word significant was picked on purpose. We were expecting inbound interest. When we announced the spin, we said that at the time we announced the spin that we would entertain inbound interest. What we're impressed by is not alone the quantity, but the quality of the interest. There's both financial and strategics in the mix in relation to interest within the assets. I think that it somewhat validates what we've been talking about for the last few minutes is that these are quality assets that people are attributing a value to. Now it's early days, and we'll begin to engage with these interested parties over the coming weeks and months. We feel that this is a positive path to run the parallel process. We are going to continue with parallel process. We're going to continue with a sale.
Simultaneously, we're going to continue with the activity to spin the asset. Regarding your other part of your question, how do you make a determination as to which is which? That will exclusively be decided as to what's better for our shareholders. We began this process to increase shareholder value. We're focused on that. This will be determined by the financial metrics of what is in the best interest of our stockholders of Teleflex to release that value.
I guess what would you be willing to do? Obviously, there's a lot of different permutations that could happen. You could sell the entire thing. You can sell pieces of the business. There's likely interested buyers in parts of it and not other parts. I guess in terms of what could happen or what could the result, could you sell the parts, the three? Are you going to hold out for selling it all? Would you then, if you sold two, resorb one back into RemainCo? I mean, obviously, there's no definitive answer yet. I mean, how do you think about it? Or how should investors think that you're thinking about it?
It's early days, Craig, I'll start by saying there. I will tell you that the majority of the interest has been on the entirety of NewCo. That's encouraging. We have had interest also expressed in parts of it. As I said earlier, both inbounds are both financial sponsors and strategics. What's encouraging for us is it looks like with the amount of inbounds, it's going to be competitive. Again, we'll be led by that principle of releasing shareholder value. Your question on this piece, that piece, the other piece, we'll do what makes sense for our shareholders, ultimately. We will continue, as I said earlier, down the spin path. We'll continue with the parallel process to engage with these interested parties. Seeing that the majority of them interested in the entirety of NewCo, I think is encouraging.
If you were to go down the sale path, I guess, what would be the use of the proceeds of a sale? How would you allocate those?
Yes. Clearly, there are some covenants with regard to some of our debts. We'd have to pay some of our debt, but it would be our intent then to return capital to our shareholders as part of our capital deployment strategy and continue to execute on that.
Okay. Okay. Maybe moving on to some of the businesses. We talked about OEM a little bit. I think while I know you guys, Q1 came in as expected, I think it was a surprise to a number of investors, the level of the decrease in Q1, the 27% down. Maybe just kind of walk through, you did it a little bit earlier, the confidence that you have. I know you talked about seeing some orders come back in Q1. I do not know if you are willing to comment about if that has kind of continued or accelerated thus far in April. Maybe just kind of talk about your confidence and why you do feel so confident that it is not a lost customer, it is just a temporary, or it is not a permanent impact on the business, and it is more temporary.
We're very confident that it's temporary. We have that one lost customer, but it's not an impact of losing a customer, Craig, in that regard. It is inventory management by our customers. When we spoke about the increase in order rate, what we were talking about was order rate picking up late in the first quarter as you got into March and continuing through April. We feel very confident that we're going to see our OEM business progress well as we go through the quarters and as we anniversary that $7 million a quarter lost customer. The business will still be negative in Q2. It was negative 27% in Q1, and it'll be negative 10-12% in the full year. You can obviously see there's going to be an improvement as you go through the quarters. Our flow of new business is also very encouraging.
We've just recently gone through a review with the team, and they've got nice inflows of new business as you get into the back half of 2025 and into 2026. We feel very confident that OEM business is going to return to a more normalized growth as we get into 2026.
Expectation, I think the street's are like negative 13% in Q2. I don't know if you're willing to comment on that, but just given the surprise that happened in Q1, is there, I mean, is that the right way to think about it? Low double digits? I mean, any directional help for the street?
Yes. I think I've given a fair amount of color there on what to expect with regard to the full year, with regard to the fact that the second quarter will still be negative. I think there's a fair amount of color there for people to work with.
I would say I think it is fair to assume in Q2, double digit negative.
Okay. Okay.
What double digit means, but definitely double digits. That's not single digits.
Maybe Palette has done extremely well. You talked about that. Maybe just I think when you initially bought it, it was going to be high teens to low 20s growth. It came in above that. It seems like it's trending even higher than that. I know you're not going to say what it is, but it seems like it's trending higher. What's going better than what you expected with that business?
Last year, the business grew approximately 30%. I will tell you in Q1, that cadence continued on a much bigger base of business. It is trending significantly above the high teens, low 20%. Now, the high teens, low 20% was a multi-year outlook, and we would always expect to start somewhat stronger. I am really encouraged by how that business is performing. It is really a testament to continuing to convert the white space. There is only 40% of urologists who treat prostate cancer that actually use spacing. There is 60% still available to us to go after. That is really what we are targeting. There are some competitive conversions that are bound to be when you are growing that fast. Our focus is really on that white space in converting that.
We're also in the recruitment phase for patients for the clinical study that will expand the market by approximately a third. That is for post-radical prostatectomy spacing. What we like about that application is that it is only applicable to the Barrigel product. The other technologies that are on the marketplace cannot be used for post-radical prostatectomy spacing. That will take the market from $330 million, add another $100 million to the total addressable market. That $100 million can only be addressed by the Barrigel product. We should see that indication. We'll finish the enrollment in the clinical study. We should see that at the back end of 2026. We should get that indication, and then we'll be able to continue to convert that market for post-radical prostatectomy. All in all, I think Barrigel Palette is performing exceptionally well.
Great acquisition and benefiting greatly from the sales force that we were able to ascribe to it.
The indication, sorry, just clarifying, the indication you expect in the end of 2026?
Post-radical prostatectomy. When somebody has a radical prostatectomy, and normally you have that because you have prostate cancer, in anything from 15%-70% of the time, the cancer returns. Therefore, you need more radiation therapy. Now it is even more critical you have spacing because you do not have a prostate creating that additional space. That is where the spacing would be used before you do the radiation therapy so you do not do any ancillary damage.
That's a $100 million market. Just you're the only spacer that's going to be there.
That's correct.
Okay. With that, we're out of time. So Liam, Larry, thank you.
Thanks, Craig. Thank you. Cheers.
Thank you.