Everybody up next is Teleflex. We're really happy to have them here today. Liam Kelly, the company's President and COO, is here presenting on behalf of the company. And I think everybody in the audience knows Jake, who does a great job on the Investor Relations side. Thank you guys very much for being here.
Liam will offer some intro comments, and then we'll do some Q and A. So again, thank you very much for being here.
Thank you very much. Just as a way of opening comments, just to introduce you to Teleflex. For the last twelve months, we generated $1,930,000,000 in revenue. We are a pure play medical device company and have been since about the 2011 time frame. In North America, we're structured by business units.
So we have a vascular business unit, an anesthesia, surgical and we also have a respiratory care business, a cardiac business. We overseas, we're structured by geography. Our revenues in Europe are approximately 27% of our overall revenue, and our revenues in Asia are approximately 13%. We see ourselves in the predominantly non postponable procedures, and we have developed a portfolio with strong IP protection. And we just recently announced our Q1 earnings call where we posted a growth of 16%.
Much of it was coming from an acquisition that we recently did, Vascular Solutions that contributed 5.1%, billing days 6%. Our core growth was 4.2 and our growth from previously completed acquisitions was 0.7%. We have market leading positions in central venous catheters, Hemaloc products and in LMA products. And the Vascular Solutions acquisition also puts us into a very strong call point within the interventional call points. That's a brief introduction to the company.
Great. Well, thank you. One of the things we're trying to do in some of these sessions is really, frankly, in all of them, is to get the views of a company like yours on the broader landscape, and then we'll obviously boil down and get some Teleflex specific questions in there. But given your kind of unique position in the marketplace, I'd love to get your views on just kind of the outlook for, broadly speaking, surgical procedure volumes because they've been fairly robust from a med tech perspective when you look at just the reported growth rates of all the different medical technology companies. But then you look at the growth rate of hospital volumes overall, and they're fairly soft.
So what are you seeing in terms of procedure volumes, just broadly hospital procedure volumes now versus, say, six months ago? And what's your outlook going forward?
So what we see today is procedure volumes and core volumes in the market of about, call it, 1%. That is modestly up on what we would have seen about six months ago, where we would have seen approximately 0.8% thereabouts. I think that one of the things that people underestimate is what's going to happen to procedure volumes in the future. And I think that's because of the demographics, in particular, in the key North American market. You have 10,000 Americans every day passing over that 65 age mark.
And you and I will spend approximately $360,000 in our lifetime on health care, but it's not linear. So between the age of 50 and 65, we'll spend about 10% of that expenditure. But between 65 and 85, we will spend 60%. So by the time we get to 2020, and we're here in 2017, there's going to be 10,000,000 more Americans in that bracket. And ten years after that, there's going to be 20,000,000.
So that is, from a demand perspective, it's going to drive demand. The other dynamic you have is in places like India and China, middle classes growing aggressively. That will also drive demand. So the one thing that nobody has figured out is how are we going to pay for this because clearly, demand is going to come through it will bring more pressures on pricing. And what we try to do in Teleflex is we try to position ourselves in these emergent, non postponable procedures so that the option of delivering care to the patient is non optional.
So therefore, we believe we're well positioned to take advantage of that procedural growth that I see is almost inevitable over the next twenty years.
So you see that 1% going higher, in other words?
I do. And I think we've seen the beginning of the impact of the baby boomers in it already. Because if we go back to, let's say, eighteen months ago, that procedural growth rate would have been 0.6%. Okay.
So I just strategically, for Teleflex, I'm trying to get to there's been a lot of consolidation that's going on in the industry. Frankly, over the last two years, more consolidation than I've seen in a twenty year career. Kind of what's your why do you think those transactions are happening? What's your outlook for consolidation in the space broadly as we go forward?
So there's a number of factors at play here in my view. So the cost of funds is relatively inexpensive in the current environment. The environment for health care is pretty positive because of what I said just on demographic trends. And the consolidation is done on the basis that a larger scale company can have a bigger impact on GPO and IDM purchasing groups. Now in Teleflex, we don't fully buy into this consolidation.
We're the consolidator at a different level. We're you see consolidation with the Medtronic and the Covellians and you're talking about the BDs and the Bard. Teleflex in its own right has been consolidating in that, call it, dollars 50,000,000 to $180,000,000 in revenue. And our view is that those size companies have great difficulty in getting access to GPO and IDN agreements in The United States, have great difficulty in accessing public tenders and national tenders in the European market and getting to bids in Asia. And therefore, we have in 2012, we bought LMA, which was approximately $120,000,000 business.
We bought VitaCare, which was a 60,000,000 to $70,000,000 business. And Vascular Solutions was $164,000,000 business. Those are the businesses that are being impacted by the scale argument in our view. And Teleflex is of a scale that we are well positioned to be able to have conversations with any GPO and IDN and to be taken seriously. And we have been very successful in carving out niches within those segments with very strong IP so that we're always a relevant conversation piece for any big GPO and IDN.
So I think the dynamic and I've never had a customer ask me and put forward the hypothesis that they need more consolidation, that they need fewer vendors because their view would be that when this has happened in the past, it hasn't been good for the consumer. The prices have gone up.
So you don't think your scale is too small to compete over the next I'm not talking the next six months, but the next five years?
No. And our scale will increase over the next five years as we continue to do consolidation at that lower level and to do acquisitions. And no, I don't think our scale is going to be an issue. Here's a little example. So we're the market leader in CVCs.
Baird are the market leader in PICCs. They don't get bid together on a GPO contract. There's two separate bids for them. So where does consolidation bring an advantage in that aspect?
Yes, well, that's today though, right?
Yes, absolutely. And that can change over time. And it does in I've been in health care for twenty five years and change happens slowly. Yes.
You know what percentage of your revenues come from markets where you have, say, 1% or 2% market share? Like how well positioned are you in terms of product category leadership? So as I said earlier, we like to
play in these niches where we have a dominant market position. So in our CBC catheters in The United States, we have an 85% market share. In coal ligation, we have a significant market share. We're the number one player. In laryngeal masks, we are the number one player.
In intraosseous, we are the number one player. So we have a lot of segments where we're number one player. And with Vascular Solutions now in torturous coronary access, we are the number one player. So there are very few areas where we would have a low market share. We like to play in markets and niches where we are either the number one or a very strong number two.
The one area where we're a perhaps a distant number two is in the pick market I spoke about earlier. But even in that market, in the last quarter, we grew that business by 25%. So given if you have a unique proposition, there is the potential to grow even in that segment. And our unique proposition there is a coating technology that helps prevent thrombus and is also antimicrobial. So the cost to the hospital of an infection that they now have to document on PICCs that they didn't have to do two years ago is $42,000 per incident of an infection.
So they are really interested in talking to us about a product that helps prevent that infection.
You think it's over half the company though, where your revenues are either you're either in a number one or two position?
So it would be greater than half the company. Okay.
And so one of the other things I wanted to just get a better sense for was just talk about organic revenue growth opportunities for the company as you move forward. Maybe just talk about what your conviction level in a level of growth? And what are the maybe you could kind of talk about the top two or three product categories that you think will drive growth as you go forward?
Yes. So we have long term goals out there to get our growth rate to the 5% to 6% organic growth rate. This year, we've guidance out there of 4% to 5%. If I was to look at the areas where I think there is the potential for growth acceleration, I think for us, products, we've shown marked improvement in our new product acceleration. If you go back to 2015, our new product revenue is 1.1%.
You roll on to 2016, it was 1.3%. And in the latest quarter, was 1.8%. So clearly, the investments we're making in new products is starting to get some traction and to grow that portfolio. Sorry, how do
you define that? I'm just not
So it's products launched and generating revenue in the last three years. That's how we define it. And then we have a few unique growth opportunities that are pretty unique to us. Vascular Solutions, the reason we like that acquisition was because of their top line growth. It's double digit growth and has been for the last ten years, and that will add 1% of growth to Teleflex.
Vidacare has been a great acquisition and continues to drive 1% of growth every year. And we have a couple of we have many new product opportunities in the out years. But Percutaneous Solutions, we've said that by the time we get to 2018, it can be 1% of our overall revenue. By the time we get to 2019, it can be 1% of our growth. And then you get procedural volumes that we spoke about earlier that are improving.
You get the rest of the R and D portfolio coming through. And we believe that we have a portfolio that's well capable of that 5% to 6% organic growth rate.
You said a little bit ago that you maybe have a different thought at Teleflex on consolidation and breadth. What exactly were you referring to? So what I meant by that
is consolidation, our scale or size being a limiter to us in Teleflex having access to the market. And at our scale, it's not a limiter. It can be a limiter, as I explained, to those companies that are, let's call it, sub-two $100,000,000 Normally, as they grow, a percent of that is overseas, And it's difficult for them to have a meaningful conversation with any big GPO when their total revenue in The United States is like $150,000,000 So I don't see and we don't see the scale argument having borne fruit yet. Some of those acquisitions have happened a number of years ago, and we haven't seen in the marketplace consolidation of contracts. We haven't seen different categories being bid separately.
That hasn't happened. And the beginning of that consolidation happened three years ago. And as I said, the medical device market moved slowly, but we've had three to four years now for these changes to occur and they haven't.
Yes. And what's your view just of the Becton Bard merger? Why do you think it happened? What do you think it does to the marketplace?
So I think, again, it's in that consolidation argument that people buy into it. I think that the consolidation of those two companies, there's very little crossover between the two portfolios. I think in the IV side, with PIX now going together with the BD, I can see the logic and the rationale behind that. In the rest of the portfolio, so in urology, BD doesn't seem to have any urology business, doesn't seem to have a surgical business. So I think it's, again, consolidation.
The whether that do I see that having an impact to Teleflex? In the shorter term, for me, it creates a big opportunity for us. There's one less competitor for assets out there in the marketplace that I spoke about earlier. And I think in Teleflex, we have been very focused on the infection prevention. And we present to the clinician a coated product that in a kit.
So they insert it and it's one and done. Our product takes care of the infection rate, whereas if your BD have traditionally been in care and maintenance using flushes, it still takes compliance from the clinician to do a second step, get the chlorate prep, get the flush, flush out the line, whereas with Teleflex products that isn't a requirement. So we still think we have an advantage in the space that we play in today.
So just like you said, companies that you're consolidating, the smaller 50,000,000 to $200,000,000 could benefit from scale. And I think to a certain degree, we've talked about this, but could Teleflex benefit from greater scale if from somebody bigger coming to look at you guys? I mean how much would that help?
So if our portfolio was different, perhaps, but because we are in niches and in dominating those niches, we don't have that competitive pressure in the bids. And we have been had a real focus on pricing. So we've been able to gain positive pricing of 20 to 30 basis points as we reenter into GPO and IDN agreements. And that is simply because an infection will cost the hospital $43,000 and now they have to report infections on PICCs as well as CVCs. So really, they're acutely aware of the health care economics argument as much as the cost of the pump of the actual device.
Okay. So it doesn't seem like that would you don't think it'd benefit. How about geographically? Does
again, geographically, we have, again, enough scale to enter into a French tender, a German tender, Italian tender, a tender within The UK. So we have sales forces throughout all of those geographies. We're direct in every market of substance overseas, and we're direct in most of the key markets within Asia Pacific as well. So again, at a $2,000,000,000 revenue approximately, we have sufficient scale to address every market in the world with a direct presence.
What percentage of sales is emerging markets right now? And what's the growth?
So it depends on how you define emerging markets, but our APAC, which broadly is emerging markets, is approximately 12% or 13% of our business. Traditionally, it has grown in that 5% to 6%. We recently went direct with part of our business in China. That was a long term view. We have just got registration for the VidyCare portfolio.
We're expecting our coated pick to have a registration later in the year. So it will be short term pain for a couple of quarters for long term growth in China. And we view the Asia Pac markets from a growth perspective in three key markets. So we look at China as a definite possibility for growth, and that has traditionally been growing in the 7% or 8%. We see India as a nice possibility for growth.
That has been growing at double digits for the last number of years. And we see Korea, where we've taken our business direct as a very mature market, but one where there is significant opportunity for growth for Teleflex as well.
So it's interesting. Bard has been growing in emerging markets 25% to 30%. What's the delta?
So the main focus of Bard's growth, I believe, and obviously, you'll have to ask Tim and John before they exit. But the main focus of their growth has been pick growth in China. And we don't have a quota pick product registered in China yet. We hope to address that by quarter three of this year, and we'll be in a position then to compete for in that market segment. But our focus on picks has been in the North American market that has been growing traditionally at that three percent and four percent.
And last quarter, we grew at 25%. So with the coated catheter, we see ourselves taking share.
So as you look at 2018 and beyond, do you think you can get the emerging market business up to the kind of growth rate that Bard had once you have the product mix?
So our long term aspirations for growth for our businesses are to have North America growing in that high single digit growth, to have EMEA growing in that low to mid single digit growth and to get double digit growth out of APAC. And I define the whole of APAC, which includes Japan and Australia, which traditionally are slower growing markets. So by definition, China, India and Korea will be growing at a faster pace than that double digit growth And
then maybe just also touch on the CEO transition, the impact on the business and how people should be thinking about it.
So clearly, I've been in Teleflex since 02/2009, so I know the business really well. I've moved over to The United States. This is my fourth year now since I've been here. The company strategy has been time tested, has delivered tremendous shareholder value and has been the product of a management team delivering it. So I think you can see very little change to the strategy because of the fact that it has delivered so well.
I think we'll continue to be a consolidator. I think we'll continue to look for acquisitions that are in niches. We will continue to focus on R and D. We will continue with our margin expansion, our non revenue dependent margin expansion program, and we will continue with all of those to accelerate our growth rate to that five percent to 6%. So I can't and we'll continue to delayer in our distribution channel.
So I can't see a significant change in strategy. Obviously, we want to position the company to have a very strong growth profile because in the 2025, let's say, time frame, the non revenue dependent margin opportunities will eventually finish unless we do another number of acquisitions.
What is the given you've been active, but what is the capacity from here from a capital allocation perspective for M and A?
So at the moment, we're at about 3.5x gross leverage. We have said that we'll deliver very quickly from Vascular Solutions. So we will be in the low 3s by the end of this year, and we will get below three next year. We have a portion of cash, about $520,000,000 offshore. Whether the Trump administration will help us to repatriate that, I don't think either of us should hold our breath.
But we're also looking at internal opportunities. We were able to avail of really good tax planning as part of the VitaCare acquisition, and we were able to repatriate some cash on a very attractive basis. And we're looking to see if that might be an opportunity for us to repatriate some cash. And we haven't stopped our M and A activity on the basis that this might bear fruit, and that would remove a turn in effect from our gross leverage.
So given the nature of your business and the consistency of the earnings and cash flow, How levered are you comfortable taking the company when acquisitions present themselves?
So what we've said and what we've done in the past is we've gone up to 3.7% for VitaCare and again for Vascular Solutions. As long as we've clear line of sight to get back down below 3x. And we've said that to the ratings agencies as well. We don't really have an ambition at this stage to become investment grade. We see the best use of our capital to continue to do acquisitions because it drives tremendous return for our shareholders.
And on the something we were talking about a little bit earlier on the disruption side with or the potential for disruption with Bard and Becton, is that primarily in PIX? Hypothetically, where could the opportunities present themselves?
Yes. We get compared a lot to Bard, and I think it's because Benson spent seventeen years there, more than the crossover between our two companies, quite frankly.
But also your strategy is very similar.
Yes, it is. And we have we've done what Bard did probably twenty years ago, and that's a good point. But the crossover between our two companies is a little bit on PIKs where we have approximately 7% market share and then minutely on dialysis catheters. So there's very little crossover between us, Baird or now BD Baird, which the new formation will be.
Yes. So not in other words, we shouldn't think of that as a big opportunity for the company?
I don't think it's going to be a big tailwind or headwind. As they start putting the two companies together, perhaps it will be a talent acquisition opportunity for Teleflex.
Last question I have, folks, please chime in if you like. I just wonder if you could go through some of the recent acquisitions and talk about the potential I mean, I know you're all your public statements, but the potential for revenue synergies from these transactions, where is the biggest opportunity among the last couple of deals that you've done?
So I guess I'll focus on VSI. So we didn't build any revenue synergies within our model, and it's our latest acquisition. We've just put the two sales forces together in the last number of weeks. And clearly, we had 26 people selling the OnControl device from VitaCare. Now we're going have 86 people selling the OnControl VitaCare device.
Could there potentially be a tailwind with that and get some revenue synergies for sure? Is there the potential for revenue synergies on the international markets? For sure. We just haven't built that into our model. We think that's more prudent.
Obviously, the opportunities present themselves, we'll take them. With the VitaCare acquisition, clearly, the revenue synergies came from the hospital sector. VitaCare had a channel, a very good channel into the EMS and military, but they didn't have channel into the hospital sector. So with our vascular sales force, there was clearly significant synergies. And that's why, quite frankly, we've been able to continue with that 20% growth trajectory with that VitaCare portfolio three years later.
Okay.
So I guess last question for me is, the asset mix that you have today, what's the upside case on revenue growth if you really execute? And I'm saying like put aside the fact you might do further acquisitions and get yourself into faster growing businesses. But what's the upside case if you really execute on the revenue growth side given this asset mix? So I think the key North American market has been one that
we focused on for growth. And within that, as I said earlier, Percutaneous has the opportunity to deliver 1% by the time we get to 2019. Vidicare will continue. Versus I will continue. We continue to invest in R and D.
We have a really good portfolio now of tip positioning pick products that are very, very competitive within the space that could be an accelerator for growth. Within VSI, there is also the RePlas opportunity, which is freeze dried plasma. That has been estimated to be $100,000,000 market opportunity. And I do believe we've just announced the first clinical trial. That has to be followed by a second clinical trial.
They will both be completed by, let's call it, April, May 2020, and then we will take that product to market in the second, third quarter of twenty twenty. That has potential for significant upside for our company as, again, it's a $100,000,000 opportunity there. So I think the potential for upside will continue to delayer. International markets have an opportunity. Taking our business direct in China should be able to accelerate the growth.
So we see nice opportunities to accelerate our growth. And of course, the synergies from Vascular Solutions, the potential synergies from Vascular Solutions in 2018 and 2019 from leveraging our channel, especially in Europe where they went through distributors, will also help that.
But if you aggregate all that up, what's if things go well, I mean, I'm just trying to get a sense for magnitude. Could this be a 10% growth business if you're really executing? Or is it more 7% or 8%? I mean, we know what your guidance is, but I'm asking little rose colored glasses for a second.
Yes. So our guidance is 5% to 6% if we accelerate really, really well. And our 5% to 6% was predicated on our base business without VSI. And we still believe our base business over time is capable of that. And then if you were to add the 1% from VitaCare, I think that's where if everything went well and you had your rose tinted glasses on, I think that would be a positive outcome for Teleflex.
Great. Liam, that's all I had. If there's questions, we'll take them. Otherwise, I think that's it. Thanks, everybody, for being here.
Thank you. Thank you very much.
Yes, absolutely.