Teleflex Inc

NYSE:TFX

Earnings Call Transcript 2020-Q3

[Operator]

[00:00:01] Thank you for standing by and welcome to the third quarter to 2020 Teleflex, Inc. earnings conference call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and answer session to answer questions. During the session, you will need to press star one in their telephone. Please be advised that this conference is being recorded for any further assistance. Please press star zero on. I'd like to hand the conference over the Speaker today. Jacob Elguicze, Treasurer and VP of Investor Relations. Thank you. Please go ahead, sir.

[Jacob Elguicze, Treasurer and VP, IR]

[00:00:36] Good morning, everyone, and welcome to the Teleflex Inc. third quarter earnings conference call, the press release and slide to accompany this call are available on our Web site at W-W Teleflex. Dotcom as a reminder, this call will be available on our Web site and a replay will be available by dialing 855 eight five nine two zero five six four four international calls for zero four five three seven three four zero six passcode four nine eight seven six five. Participating on today's call or Liam Kelly, Chairman, President and Chief Executive Officer, and Thomas Powell, executive vice president and chief financial officer. And Tom will provide prepared remarks and then we'll open up the call to Q&A. Before we begin, I'd 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 10K, which can be accessed on our website. Additionally, during this conference call, you will hear management make references to the estimated positive or negative impacts as a result of covid-19 during the third quarter of 2020. You also, if your management makes statements regarding intra quarter business performance during the month of October, 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, I'd like to now turn the call over to Liam.

[Liam Kelly, President and CEO]

[00:02:27] Thank you, Jake. And good morning, everyone. It's a pleasure to speak with you today. And I hope you're all keeping safe and well overall, considering the environment we are operating in. We are pleased with our third quarter performance as it reflected the expected improvement in trends across many of our global product categories, led by a faster than expected recovery within our interventional urology business and continued strength within our vascular access product sales. While from a regional perspective, we saw particular strength within the Americas as the pace of recovery in the United States during the third quarter was encouraging. Quarter three revenues was six hundred and twenty eight point three dollars million, which was down four point one percent as compared to the prior year period on a constant currency basis, but far better than the 12 percent decline we experienced during the second quarter of the year. The decline in year over year revenue is due to the impact of covid-19, which we estimate caused a net negative impact of approximately 78 million dollars, or approximately 12 percent if we were to normalize for the negative covid impact. We estimate that our underlying business grew by approximately eight percent on a constant currency basis, consistent with our quarter to revenue performance. We also saw a significant sequential improvement within our adjusted gross and operating margins from the levels achieved during the second quarter, with our adjusted earnings per share of two dollars and 77 cents in the quarter meaningfully exceeded our internal expectations.

[00:04:13] This reflects the continued recovery we saw as we moved through the quarter, coupled with prudent operating expense management.

[00:04:23] Before I go into more detail on our quarterly financial performance, I am happy to announce that during the month of October we just signed a definitive agreement to acquire Zem Medika, a market leader and hemostat products. We are pleased to be able to deploy capital for a differentiated product portfolio that leverages existing Teleflex call points and is immediately accretive to our revenue growth rates, adjusted gross and operating margin profile, and to our adjusted earnings per share. Turning to a more detailed review of our third quarter results. As I just mentioned, quarter three revenue declined four point one percent on a constant currency basis and three point one percent on an as reported basis, the decline in revenue was due to covid-19, which we estimate had a negative impact of approximately 81 million dollars across several global product categories. This was somewhat offset by approximately three million dollars of additional revenue within our basket of access and other product categories, which experienced modestly higher than expected demand as a result of covid-19. From a margin perspective, we generated adjusted gross and operating margins of fifty seven point two percent and twenty five point one percent, respectively. This translated into a year over year decline of 140 basis points that the gross margin line and 190 basis points that the operating margin line. That said, we saw a sequential improvement of 330 basis points on both the adjusted gross and operating margin lines as compared to the levels we achieved in the second quarter on a year over year basis. Reduced sales volumes due to Colvard was a headwind.

[00:06:13] However, it was partially offset by our cost containment efforts. As we continue to tighten our belts where we deem appropriate in the current environment, balanced against continued investment to sustain our long term growth aspirations, adjusted earnings per share was two dollars and 77 cents, down six point seven percent year over year. But ahead of our internal expectations, as the business continued to recover during the quarter when excluding the negative impact of covid-19 had on our third quarter results, we estimate that our adjusted earnings per share would have grown approximately 13 percent as compared to the prior year period. Overall, I am very pleased with our financial performance as it demonstrates the resiliency of our diversified global product portfolio. Let's turn to a discussion on our quarterly revenue trends, which will be on a constant currency basis. The Americans delivered revenues of 375 million dollars in the third quarter, which represents an increase of zero point four percent growth within the Americas, was driven by vascular access and respiratory products, which both saw elevated demand driven by covid. In addition, interventional urology was a strong contributor, as Uralsk continues to be one of the fastest recovering procedures. However, there were offset with declines in other product categories. We estimate that the Americas would have grown approximately nine percent, excluding the impact the covid-19 had on the region. EMEA reported revenues of one hundred and thirty five point seven dollars million in the third quarter, representing a decline of seven percent during the quarter.

[00:08:01] Declines occurred across most product categories as increasing covid infection rates negatively impacted procedures and results. Adjusting for covid, we estimate an approximately three percent underlying decline for the region. Turning to Asia, revenues totaled sixty eight point two dollars million in the third quarter, which represents a decline of fourteen point two percent. However, we estimate that we would have had positive constant currency revenue growth in the high single digits if not for the impact of covid-19. Additionally, during the third quarter, we began transitioning a distributor in Japan when normalizing for both covid and distributor change, growth in the region would have been closer to the low double digit range. Consistent with our long, longer term outlook. And lastly, our OEM business reported revenues of forty nine point four million dollars in the third quarter, which was down eleven point eight percent on a constant currency basis, as we anticipated during the third quarter, our OEM business impact related to Corbitt relative to our other businesses. Investors familiar with Telefax would be aware that our OEM business supplies medical companies with complex catheters and surgical sutures. And the Quarter three impact reflects reduced orders from these customers whose business is tied to non-emergency procedures. Excluding the estimated covid-19 impact, the business grew roughly 28 percent, which includes a benefit of approximately 11 percent from the acquisition of HPC. As it relates to HPC, I am pleased to report that we remain on track with our integration efforts. Let's now move to a discussion of our revenue by global product category.

[00:09:56] Starting with vascular access. Due to growth within both our pick and easy bioproducts, third quarter revenue increased six point eight percent to one hundred and sixty million dollars. We estimate that covid-19 positively impacted the growth rates of our basket of products during the third quarter by approximately one percent. Moving to intervention on access, third quarter revenue was ninety three point two million dollars are down thirteen point five percent as compared to the prior year period. The decrease was largely due to the delay in the recovery of certain non-emergency procedures because of covid-19, along with the negative impact stemming from a catheter recall that occurred during the quarter. We estimate that the recall impacted our business negatively by approximately four million dollars. The impact of the recall will continue to linger for the next several quarters, as we do not expect to be back on the market with this product until September of 2021, when normalizing for the impact of covid had on these product lines. We estimate that underlying growth was in the low single digits. Turning to anesthesia revenue of seventy five point seven dollars million, which is lower than the prior year by fourteen point four percent, the revenue decline was the result of lower sales of laryngeal mask, regional anesthesia and area management products. We estimate that Colvert had an approximately 10 percent negative impact in the quarter, implying mid single digit declines for the business on an underlying basis.

[00:11:30] Shifting to surgical revenue declined by twelve point three percent to eighty two point two million dollars, driven by lower sales of our location and instrument product lines. We estimate a 13 percent headwind from covid during quarter three, indicating recovery as compared to the estimated 30 percent covid headwind in quarter two. Moving to interventional urology, quarter three revenue increased by 11 percent to eighty one point eight million dollars. We estimate an approximate 29 percent covid-19 related headwind during quarter three. Notwithstanding the significant headwind on our growth in quarter three, we are pleased with the pace of recovery for this business unit and are also happy with the early impact of our national DTC campaign, which is exceeding our expectations. Additionally, we are encouraged that we trained 120 new urologists and quarter three moving to a cadence that is consistent with our expectations prior to covid.

[00:12:35] And finally, our other category, which consists of our surgery and urology care products through zero point five percent, totaling eighty six million dollars in large part. We estimate that growth during the quarter was due to increased demand for certain humidification and breathing products resulting from covid-19 from a monthly perspective. We know that September outperforms July and August when normalizing for the distributor termination and the product recall within our interventional business. Furthermore, as we have progressed through the first few weeks of October, we continue to see additional modest improvements as compared to last October. That said, due to the significant resurgence of covered cases globally and we're normalizing for selling days, we expect to see a modest improvement in the constant currency revenue performance during quarter four as compared to the decline of four percent we achieved in quarter three. Tom will provide more details later. That completes my comments on quarter three revenue performance, turning to some recent clinical and commercial updates.

[00:13:47] Starting with your urolift and the response to our national DTC campaign is exceeding our expectations, the strategic role of DTC is important as about half of the 12 million men being treated for BPH believe prescription medications are their only solution thus far.

[00:14:07] We are tracking well against the target to generate six x the number of impressions from the regional campaigns in the year ago period. Web traffic has increased over 150 percent since the launch, and another encouraging metric is that multiple urologists are now motivated to get trained on a urolift as a result of patient requests due to the campaign. In addition, while there was likely a nominal impact on quarter three results, we expect the momentum for the campaign to continue building into quarter four and early next year as we turn down the advertising, both strength starting in early September.

[00:14:53] Turning to your left, too, since the FDA clearance on July 31st, we have begun to market acceptance tests and receive positive preliminary feedback, including the streamlining of the delivery device triggering mechanism and the reduction of waste. We are also increasing manufacturing levels for the product ahead of the full commercial launch slated for early in 2021. Lastly, regarding the live ATC, we know that the market acceptance test is well underway and we have received very positive feedback, which indicates that the device is delivering on the intended benefit of enhanced tissue control when treating challenging anatomy's such as obstructive medians. Taken together, we see these efforts as helping to build momentum as we seek to further expand our leadership position in BPH. Turning to the next slide on key commercial updates. We recently received an expanded indication for Ezio as the device can now be used for up to 48 hours when alternate intravenous axis is not available in both adults and pediatric patients 12 years and older. While we do not expect a material sales uplift from this label expansion, we are always looking to improve our portfolio based on clinician feedback. And this is a prime example of those efforts. Lastly, I'd like to provide the investment community with a few more details of the Zembiec acquisition we announced last night. In mid-October, we entered into a definitive agreement to acquire Medicare, an industry leading manufacturer of Hemostat products.

[00:16:44] Under the terms of the agreement, Teleflex will acquire Zedekiah for an upfront payment totaling 500 million dollars and up to an additional 25 million upon the treatment of certain commercial milestones. As part of the transaction, Teleflex will also be acquiring certain tax attributes that are expected to result in future tax benefits. We value these tax attributes that approximately 40 million dollars which we considered when arriving at our purchase price.

[00:17:15] The Medicus anesthetic technologies are helping reinvent haemorrhagic control with cost effective, efficient, bleeding control solutions being adopted by markets worldwide. The company offers three main brands, quick class combat gauze and quick cost control. Plus would utilize the proprietary technology consisting of gauze impregnated with Calan. The technology activates and accelerates the body's natural clotting ability. The medical products currently focus on the trauma surgery E.M.S. military emergency departments and interventional segments with opportunities to expand into additional indications over time. Teleflex, the strategy is to invest in innovative products and technologies that can meaningfully enhance clinical efficacy, patient safety and comfort, reduce complications and lower the overall cost of care. The acquisition of Zemanek enables Teleflex to leverage strength in the hospital's EMS and military. ClearPoint, with the differentiated products that complement, are easy iio, an easy class product portfolio. We are excited to announce this acquisition, given its above company average revenue growth capabilities, as well as its above company average growth and operating margin profile pending the receipt of certain regulatory approvals.

[00:18:36] The transaction is expected to be completed during the fourth quarter of this year as we look forward. The transaction is expected to contribute between 60 million and 70 million dollars of revenue and between seven and 15 cents of adjusted earnings per share in fiscal year 2021 beyond 2021. We expect the acquisition to deliver a high single digit revenue growth profile and further accretion to adjusted earnings per share. Uneasy ties after our recent meetings with the FDA, we determined to proceed with the BSA submission rather than an EU aid. We continue to work closely with the agency in determining the timing of that submission. Overall, we continue to invest organically in clinical and commercial catalysts that will help to sustain our revenue growth aspirations in a normalized environment. We will also look to augment those internal efforts through the deployment of capital for inorganic growth opportunities such as the America that completes my prepared remarks. Now, I would like to turn the call over to Tom for a more detailed review of our third quarter financial results. Tom?

[Thomas Powell, EVP and CFO]

[00:19:47] Thanks, Liam. And good morning, everyone. Even the previous discussion of the company's revenue performance, I'll begin at the gross profit line for the quarter adjusted gross profit was three hundred and fifty nine point six million versus 380 million in the prior year quarter, or a decrease of approximately five percent adjusted gross margin total at fifty seven point two percent during the quarter, which is a decrease of 140 basis points versus the prior year period. The decline in gross margin was primarily due to covid-19 related impacts, including lower sales volumes and higher manufacturing costs, along with the foreign exchange headwind. The volume impact was significant for the quarter as the adverse revenue impact from covid-19 tended to skew toward higher gross margin products, including interventional urology, interventional access and surgical. In total, we estimate estimated covid-19 negatively impacted our adjusted gross profit by approximately 59 million dollars in the quarter. We continue to tightly manage discretionary spending as a means to partially offset the reduced revenue and gross profit resulting from covid-19, and as a result of the efforts, we estimate that operating expenses were reduced in the third quarter by approximately 22 million dollars. While we expect the actions taken to continue to deliver OpEx savings through the remainder of the year, by far the largest quarterly OpEx reduction was realized in the second quarter.

[00:21:17] Adjusted operating profit during the third quarter of 2020 was one hundred and fifty seven point six million, and this compares to one hundred seventy five point three million in the prior year, or a decrease of approximately 10 percent. Third quarter operating margin was twenty five point one percent. We're down 190 basis points year over year, driven primarily by the gross margin decline. And while our adjusted margins were down in the third quarter as compared to the year ago period, we are pleased to see the sequential improvement in both gross and operating margins from the lows we experienced during the second quarter. Looking forward, we expect sequential margin improvement to continue during the fourth quarter. Net interest expense totaled sixteen point four million, which is a decrease of approximately 14 percent versus the prior year, the decrease in interest expense primarily reflects reduced average interest rates associated with our variable rate debt, partially offset by higher average debt balances versus the prior year period. Moving to taxes for the third quarter of 2020, our adjusted tax rate was seven percent, as compared to ten point three percent in the prior year period. The year over year decrease in our third quarter adjusted tax rate is primarily due to a favorable mix of taxable income versus the prior year period, as well as a higher benefit from stock based compensation as compared to the prior year period.

[00:22:48] At the bottom line, third quarter adjusted earnings per share decreased six point seven percent to two dollars and 77 cents. Included in this result is in an estimated adverse impact from covid-19 of approximately 60 cents, as well as the foreign exchange headwind of approximately nine cents. Turning to select balance sheet and cash flow highlights the first nine months of 2020 cash flow from operations totaled two hundred and forty one point five million, as compared to two hundred eighty nine point two million in the prior year period. The decrease is attributed to larger contingent consideration payments, partially offset by several changes in other working capital driven by higher accounts receivable collections. Overall, the balance sheet remains in good shape at the end of the third quarter, our cash balance was two hundred forty seven point five billion versus five hundred and fifty three point five million at the end of the second quarter during the third quarter. We repaid nearly two hundred eighty five million of our revolver borrowings and restored revolver availability to the full one billion dollars. That leverage at quarter end was approximately two point six times the acquisition of Z, Medicare is projected to increase net leverage by less than three quarters of one turn and net leverage pro forma.

[00:24:11] The acquisition remains comfortably below our four and a half times covenant. Our intention is to finance the purchase of the Medika through revolver availability. However, we may choose to permanently finance the acquisition through a future notes issuance. Lastly, we have no near-term debt maturities of material size. Even the continued uncertainty surrounding the impact of Koed 19 pandemic on business operations, we are not reinstating financial guidance at this time. However, we will provide the following directional expectations for the fourth quarter. Looking ahead, we continue to expect further sequential improvement in our constant currency revenue performance as compared to what we achieved in the third quarter. However, due to the resurgence in global covid-19 cases over the past seven to eight weeks, we expect our constant currency revenue growth to be only modestly better than what we achieved during the third quarter. This expectation of a modest fourth quarter improvement excludes the benefit of two additional selling days that occur in the fourth quarter of 2020, which we estimate would add approximately three percent of additional revenue growth during the fourth quarter. And this expectation also excludes any benefit from the acquisition of Zedekiah as a closing date is not yet determined, and that concludes my prepared remarks. I would now like to turn the call back to Leon for closing commentary. Liam?

[Liam Kelly, President and CEO]

[00:25:40] Thanks, Tom. In closing, we delivered solid third quarter results as our diversified portfolio showed continued expected improvement relative to our quarter two results on both the top and bottom line. Excluding the impact of covid, we see our underlying business performance is encouraging and very much in line with our initial expectations. We continue to view the resurgence of Koban globally, combined with the willingness of the more vulnerable population to get procedures done as the primary wildcards impacting recovery. Over the next several quarters, you have elements of uncertainty. We remain confident in our ability to execute as we head into 2020 one and are optimistic in our long term prospects. We as an organization will continue to focus on serving our hospital customers and working with our key stakeholders. We will manage the business prudently while staying focused to capitalize on the long term potential of our global product portfolio. In closing, I want to thank all of our employees who continue to manufacture, distribute and support products that are required in the fight of over 19.

[00:26:49] Focusing on meeting our commitments to patients, clinicians, communities and shareholders, that concludes my prepared remarks and I would like to turn the call back to the operator for Q&A.

[Operator]

[00:27:00] Thank you, ladies and gentlemen. It's a reminder to ask a question you will need to press for one and your telephone to withdraw your question. Press the pound or hash key to maximize the Q&A session. Please limit yourself to one question and one follow up. Thank you. We have our first question from David Lewis, Morgan Stanley. Please go ahead.

[David Lewis, Morgan Stanley]

[00:27:23] Well, good morning and thanks for taking the question. You know, it's pretty clear that business visibility has declined a bit since sort of our conference in September. And sort of if you can isolate what you think those factors are, because it sounds like this happened several weeks ago, not just the last 48 hours or so, would you say this is just the lack of improvement in hospital census in the U.S.? Is it international markets, specific international markets that are weaker or the OEM business that perhaps had an early benefit that that didn't have follow through? But I think given these issues probably have gone on for several weeks versus several days, I want to sort of isolate what it was, particularly you think is the is the business weakness in it. Tom, I just want to be clear on the guidance we should be thinking sort of low single digit organic declines in the fourth quarter. And then I had just one quick follow up.

[Liam Kelly, President and CEO]

[00:28:11] Ok, David. So, first of all, I think that our underlying business is actually performing very well. If you look at the third quarter, we grew by eight percent with a couple of headwinds in there beyond coal, and that eight percent excludes coal. But so if you were to look at our underlying business performance, we're closer to the nine percent excluding the Langston recall and excluding the go direct in Japan, which will have longer term benefits for us. My thinking over the last number of months hasn't changed, to be totally frank with you, although I am seeing covid getting worse when I attended your conference. I think that I was pretty clear that although some of our peer companies were expecting a recovery and Quapaw for that, we did not expect that recovery until early in 2021. And nothing has changed in my thinking around that before. Tom actually comments on core before. I think it's important that I share with you in the investment community our thinking for revenue growth in the fourth quarter. You know, many of you familiar with Teleflex will know that we've been seeing over the past couple of months that we expect the recovery to be early 2021 rather than the fourth quarter. And we continue to believe that to be the case. And that said, David, nothing has changed in my thinking. However, because of the significant rise in infection rates globally, we are more cautious now on the pace of the recovery, even compared to a few months ago in formulating what we believe would happen in the fourth quarter. We projected forward the modest year over year constant currency revenue growth improvements we saw in October for the entire quarter. What we did not factor in was an increase in elective procedures, increased volumes of patients as a result of DTC. Nor did we factor in the second shutdown in relation to Corbould, which we think is highly unlikely.

[00:30:03] We did take into consideration the difficult comparable against quarter for last year where we had a pretty good quarter and we believe this to be a balanced position and therefore concluded that we would see modest improvement in Q4 constant currency revenue growth as compared to Q3, excluding the billing days. And of course, then the billing days will add approximately three percent. So it's really, David, I think what we're seeing in the end, markets globally, the uptick in clover that we're seeing in places like France, Spain, Italy, Australia, Southeast Asia and in the key market of the United States.

[00:30:44] And I have to say, I was really encouraged by the performance of our U.S. business in the third quarter where we've turned in North America to a positive growth of zero point four percent. And that would have been even better if you were to exclude those that one time length and recall. So but I'll let Tom comment on the fourth quarter.

[Thomas Powell, EVP and CFO]

[00:31:06] Yes, I think you touched on the key points. You know, in the third quarter, we are had some currency growth was down four point one percent. As mentioned, if you were to exclude the benefit of the extra shipping days and Zemanek acquisition, we expect the fourth quarter constant currency growth to be only modestly better. Better than that. So not to cite a specific number, but, you know, we're not thinking there's going to be a significant improvement on the constant currency growth from Q4 or excuse me, from Q3 to Q4.

[David Lewis, Morgan Stanley]

[00:31:38] Ok, it's very, very helpful. And just to cook for me and I'll jump back in to just the imperialist, that business continues to improve. Can you have to isolate the impact of DTC is having on the underlying business just given the covid headwinds? It's kind of hard to see. But do you feel like we're getting to see momentum from third to fourth and then just see Medika look interesting market, very profitable asset. Help us understand how you were thinking about valuation and in returns. Thanks so much.

[Liam Kelly, President and CEO]

[00:32:04] Absolutely. So on unneurotic to start with, obviously grapeseed return to growth. You know, it grew it grew by 11 percent in quarter three. As I said earlier, we have not in our quarter for thinking building a an uplift from DTC. Are we happy with the way the DTC is going? Absolutely. It's going really well. Patient response above expectation. One hundred and fifty percent increase in our Web traffic. We're actually getting now urologists coming to us looking to be trained on the area because patients are turning up to their practice asking about it. This isn't market research, David, but in the in this quarter, just I had conversations with 28 urologists, 27 out of 28, told me that they had patients come into their practice and ask them about urolift in direct response to what they had seen on either a TV or a Web campaign. So we're very encouraged by that regarding the Zembiec acquisition. Let's start with the strategic element that we always look for. Does it fit within Teleflex? Yes, the call points is right where we wanted to be. Amson Trauma. Does it have IP? Yes, very strong IP that runs out 2083. Are there synergies available because we're putting it into our portfolio? Absolutely. Has it got excellent clinical efficacy? Yes, 150 clinical papers written about it and it's a very sticky product growing into a market that's a 600 million dollar market globally with an opportunity to expand overseas. With regard to the valuation of the few of the key metrics that we looked at, obviously the multiple on revenues in the mid sevens based on forward revenues. But if you exclude the tax attributes, it's just around seven times. And then more importantly, from an even deeper perspective in that in the high teens of 21 eBid and in the lower teens, if you go into 2022, we would consider this a scale acquisition similar to Vidacare.

[00:34:22] We really like the accretion and this it's accretive to our top line growth. It's accretive to our gross margins and immediately accretive to our longer term margin goals.

[00:34:32] And it exceeds our internal cost of capital by year four, by the end of year four. And again, a good benchmark for us, as you know, that's what we try and set ourselves up to, is to get to that above our internal cost of capital by year for and our internal cost of capital is in the very high single, just to be clear.

[David Lewis, Morgan Stanley]

[00:34:52] Ok, thanks so much. Thank you.

[Operator]

[00:34:57] Your next question comes from Larry Keusch, Raymond James. Please go ahead.

[Larry Keusch, Raymond James]

[00:35:02] Thanks. Good morning, everyone. Liam, I'm wondering if you can just coming back to your left, I guess two questions on this. How are the trends and procedures progressing when you think about those that are done outside of the hospital versus inside of the hospital? I'm curious if that's continuing to creep upwards. And then how are you thinking about the fourth quarter in terms of the underlying growth for four years left? When you sort of exclude the two selling days, are you thinking that you will still continue to get sequential improvement in your growth, particularly in the DTC kicks in? And then I got a couple of quick questions on America. Okay, Larry.

[Liam Kelly, President and CEO]

[00:35:50] So in regards to your life and your first question about, say, the service, we have continued to see a shift from the hospital to outside of the hospital in particular, to the office settings that has moved by around four percentage points that have moved from the office to pardon me, from the hospital to the office. In relation to the recovery, there's also a striking difference to the recovery within the office setting and in the hospital setting.

[00:36:19] We see the office setting being quite positive in the third quarter compared to record levels.

[00:36:28] And the hospital setting is still under the free covid levels from a Yooralla procedure. So that's obviously being compounded by the fact that procedures are being moved to the office environment regarding moving to the fourth quarter and looking at units in the fourth quarter. As you would be aware, Larry, urolift has got a significant had a significant achievement. Last year, it grew fifty four point four percent last year. So they've got a really tough comp as they head into the fourth quarter. Notwithstanding that, if I look at it sequentially from an absolute dollar perspective, as we go from Q3 to Q4, we would definitely our expectation would be to see an increase dotter value going from Q3 to Q4. And as I said in my earlier comments, Larry, it's very hard to forecast the absolute impact of DTC in the corporate environment. So we haven't really built in the an expected impact of DTC into the fourth quarter just given the uncertainty around covid. Now, having said that, the DTC campaign is going exceptionally well. We will definitely on track to get fixed term multiple of six. The impression that we got last year when we did our 18 regional DTC. As I said, our Web traffic is up 150 percent. The number of patients that are actually going to our doc finder and coming to our call center, I'm not going to tell you the number Nardy for competitive reasons, but I can tell you it's very encouraging what we're seeing happening out there with the DTC.

[Larry Keusch, Raymond James]

[00:38:06] Ok, terrific. And then on the America I mean, obviously, you know, the valuation is what it was and probably commensurate for a company with that sort of high single digit growth. But what how are you thinking about the durability of that growth and sort of why is it durable, I assume, up in that high single digit range? And then the other component of the question is just how are you thinking about sales and cost synergies for the asset and what's built into the deal model? Thanks.

[Liam Kelly, President and CEO]

[00:38:44] Yeah, so a great question. So from a growth perspective, first of all, these markets are growing in the four percent range, four to five percent. So for just turning up, you're actually getting some nice growth, which also helps the size of the markets are also encouraging. The overall market is about a 600 million dollar market globally. One hundred and fifty in the estimates, over 300 million in trauma and 125 in the interventional. We also have the opportunity and built into our model to do some further clinical work, to expand it into cardiac in the future, which will actually expand that market even more. Also right now, the revenue is predominantly generated within North America in that 80 to 85 percent of the revenues in North America. So we believe that expansion overseas is a significant opportunity for us in utilizing our channel, which, as you know, is a key part of our strategy. You know, the active will do about 50 or 60 million dollars last year to do 60 to 70 million this year. And I think a point that shouldn't get lost on the investment community is that the gross margins, the disaster in the low 80s. So it's a nice opportunity for us to continue our margin expansion. And also it shouldn't be lost at the margins without synergies are accretive to our long range goals for profit margins. And we should be able to generate about approximately 10 million of synergies by year three with this assets, which will also help to expand the margin. And that, combined with the growth, makes this a very exciting acquisition for us. And I would really look at this, Larry is as another Vidacare, faster growth, great margins, and also of us being able to take synergies and continue to expand it overseas and into different areas.

[Larry Keusch, Raymond James]

[00:40:38] Ok, and just to be clear, the 50 to 60 million in revenues that you reference in the 60 to 70, that's 2019 and 2020, or is that what's the right way to think about that?

[Liam Kelly, President and CEO]

[00:40:49] That's 2020 2020.

[Thomas Powell, EVP and CFO]

[00:40:51] So the numbers that Leon referenced are 2019 numbers for the 50 to 60 and the 60 to 70 is what our expectations are for 2020 one.

[Larry Keusch, Raymond James]

[00:41:01] Ok, got it. Thank you for the clarification. Thanks.

[Operator]

[00:41:08] Your next question comes from Richard Newitter of SVB Leerink. Please go ahead.

[Richard Newitter, SVB Leerink]

[00:41:13] Hi, thanks for taking the questions. Maybe just to start off, you know, looking ahead into next year, some of the catalysts that you have. You mentioned one of the VLA Padthaway. Now, can you just maybe give us a sense as to what your anticipated timing is with that regulatory pathway? And then also, if you could just touch on timing for Europe, with Japan and, you know, just what's going on with Mantha underlying trends and specifically, you know, the fact that maybe in certain types of procedures that that are going to be done in a more emergent fashion. Can you give us any sense of how you how you think that trajectory might play out into the fourth quarter and its 2020 relative to some of the other parts of the business that that you see a little more cautious on?

[Liam Kelly, President and CEO]

[00:42:04] So I think that with regard to Japan, nothing has changed since our last update, we believe that we will we will get the reimbursement in Q2 and we'll be generating revenue in Q2, Q3 of 2021. So nothing has changed there. In regard to your list in Japan regarding BLR, we made really good progress with the FDA. At one stage we were considering an emergency use authorization. I think the military involvement in this was very helpful to us. And now we believe we'll have a VLA submission. Do we feel more confident now that we will generate some revenue and 2020 one? Yes, we do. The timing of the BLR is still to be ironed out with the FDA and once we get to be L-A, then A we are on a fast track and it is very dependent on when they will approve that. But I feel quite encouraged that we will have the easy players on the market at some stage in 2021. With regard to your question on the minds of the markets have performed really well in North America in the in the in the third quarter return to growth in around that twenty percent mark in the third quarter in North America.

[00:43:19] And we're very encouraged by that. We it is a product that gets us access into the hospitals and clinicians are very are very keen to use the product because it reduces the time to hemostasis. And in today's environment, when you're trying to get more Tyber cases through the cath lab, that is that is very, very helpful. So we see Mantha being one of our key drivers as we go into 2020. One would have many I'd like to point out. Rached So we've got the urolift has got Mantha, we've got Europe, Japan, we now have the America, we have easy players coming on stream. So we have a lot of catalysts for growth as we go into 2020 one. And it's very encouraging. We just want to get out the other side of this covid. And just on your comments that that we're more cautious than we were, I would say we're not we're equally cautious, as we were a couple of months ago. We just don't expect to see the recovery that the recovery from Colvert in Q4. We expect it to be nearly twenty one. And nothing has changed in our thinking around this. But thank you for the question.

[Richard Newitter, SVB Leerink]

[00:44:25] And just on that last one, if I could follow up that we had the last part on for Q4. So I, I, I guess what I'm hearing is you do have some things that could be incrementally positive relative to what's in your internal outlook, like DTC benefit. But you're also being cognizant that that surges are occurring in the U.S. and then more, more, more formidably internationally. So maybe we should just do that. I haven't necessarily seen that impact on elective procedures or hospital funds yet because I was trending better than the third quarter trend. But, you know, you're going to leave you're going to leave out any incremental benefit beyond October or actually you're dialing the potential that things take a step back. And that's why the improvement isn't bigger in four to.

[Liam Kelly, President and CEO]

[00:45:22] So I think it's a great question. I think the way we look at it, look, September adjusted was minus two percent roughly, and we saw a sequential improvement in the first few weeks of October. And actually the first few weeks in October were pretty much flat year over year. But despite this positive trend in October and given the rise in cases and covid and the tougher comps, we still expect a modest improvement in Q4 versus Q3. We haven't built in, as you said, the DTC. Maybe we're being overly conservative, but this is as clear to picture as we have right now. And, you know, if the recovery continues in Q4, as we haven't built in, Teleflex is going to benefit from that. And we'll accelerate if we go into a second lasdun, which I don't expect, it'll be worse than we expect. But I think we're trying to take a balanced and prudent approach to the fourth quarter and what we see in front of us right now, as I said a few times, my crystal ball is cloudy and it's ever been with two months left to go in the quarter. But, you know, I'm encouraged by what I saw in October, which to be to be candid, we're up against a really tough comp in the last two months and we have not built in a continued improvement in recovery. We've basically taken what we've seen in October and prorated that into the last two months of the quarter. Now, if it continues to recover, it will be better. There's no doubt about it.

[Richard Newitter, SVB Leerink]

[00:46:52] And if we have just to be clear, the court's you guidance that you provided, that was all excluding any contribution from Zytiga, correct?

[Liam Kelly, President and CEO]

[00:47:01] Oh, yeah. I mean, there are things that will help us reach those emetic of being one that you point out. Effects should work in our favor. That'll help us. If procedures start to come back a little bit better, that will help us. So, yeah, you're correct. We did not include the Medicare. And also we've got two additional billing days in the fourth quarter, which would add about three percent. So there are struggling just out there and opportunities. But we don't want as we sit here right now, we want to be absolutely as candid as we can with the investment community. Thank you.

[Operator]

[00:47:36] Next question is from Shagun Singh with Wells Fargo, please go ahead.

[Shagun Singh, Wells Fargo]

[00:47:40] Thank you so much for taking the question. So just a point of clarification there on Q4. So should we expect you to be positive in Q4 with the addition of the two extra selling days? And then, you know, a couple of questions on your left. I believe you did start seeing the first set of patients come in in September and October. Are you willing to share with us, you know, what kind of volume lift you're seeing from, you know, from this initiative? And then as we think about Q4 and thank you for all the color there, you know, you do have a full quarter of national BDC initiative that you said you haven't dialed in, you know, six times the ad impressions year over year. And on an underlying basis, year to date, you have been delivering about 40 percent, you know, year to date. So is that is that reasonable to expect for Q4? Thank you.

[Liam Kelly, President and CEO]

[00:48:32] So I think, Shagun, you're correct, we're very encouraged by the underlying performance of all of our businesses and your life is no exception. You know, the underlying performance has been fairly consistent at 40 percent. We have not built in the DTC into the fourth quarter, quite simply should, because it's very hard for us to determine where the patient came from when they go to the urology practice. And because of the uncertainty in relation to the colvert increase in court cases around the United States. With regard to the sharing on the D.C. initiative, you know, for competitive reasons, you go and I don't think it would be wise for us to share many of the specifics. But I can tell you that the number of patients that are actually clicking and calling our call center is very encouraging, if every one of them that it's not going to happen. But if every one of them turned into a procedure, that would that would be quite encouraging for us as an organization. And as we go into the fourth quarter, as we said earlier, you know, we declined by four percent in the third. We expect a modest improvement over that. And then we expect to pick up another three percent from billing days. Effects should work in our favor if it stays where it is. But it is today. And that's where we see the fourth quarter landing.

[Shagun Singh, Wells Fargo]

[00:49:55] I got it. That's helpful. And then if I could just ask a question on 2020 one, I think, you know, you just mentioned that you expect next several quarters of uncertainty, you know, related to covid. You know, what does that mean for 2020 one? You know, consensus is looking for about double digit growth in 2021 versus 2019. I believe it's still below covid levels, you know. So what is your reaction to that? And then on the margin side, you know, how should we think about it? And when do you expect to get your LRP goals? Thank you for taking the questions.

[Liam Kelly, President and CEO]

[00:50:27] Thanks. Well, we would have to answer the most part of that question, we would have to get out the other side, of course. There's so much uncertainty out there with coal, but are we encouraged by the underlying performance of our business? Absolutely. We are encouraged by the underlying performance of our business. Do we think we have a number of catalysts for growth? Yes. Have we just add another one today? Yes, we've added the MEDAKA. Do we do we believe that once we get back out the other side of Colvert that Teleflex will be in a strong position? Yes. With regard to our longer term goals, are the right goals for Teleflex? Absolutely they are. And nothing has changed in my thinking on that. Either they're the right goals for Teleflex and it's not a question of if we get to them, it's a question of when.

[00:51:10] But in order to give the investment community clarity on that, we need to come out the other side of covid we need to have a vaccine are a falloff in the level of the of the condition to a certain level that consumer confidence is high and the hospitals are able to get a higher throughput of patients, even though everyone was expecting it at the beginning of this cold, the crisis that there would be almost like a super boom in Q4 where hospitals will put on extra capacity. We haven't seen that in October and I don't think we're going to see it in November and December. And I don't want to predicate the fourth quarter on a super boom of procedures coming back into hospitals, because, quite frankly, I can't see it happening.

[Shagun Singh, Wells Fargo]

[00:51:55] Thank you so much.

[Operator]

[00:52:00] Next question is from Anthony Petrone, Jefferies. Please go ahead.

[Anthony Petrone, Jefferies]

[00:52:06] Good morning, everyone. I hope everyone is doing well, staying healthy. Two questions for you, Liam, and then I have a follow up for Tom. The first two questions are in your left, and I'm wondering if you could just give us an update on Podell. Urologists trained today. By our math, it's about twenty eight hundred or so, maybe a touch higher than that. And then ultimately, when you look at the pool of 12000 urologists in the US, maybe just to refresh on what the peak target penetration in there is a quick one also on your left would be anything on the DOJ investigation. And then I'll ask the follow ups. Thanks.

[Liam Kelly, President and CEO]

[00:52:47] All right. After this one, DOJ absolutely no update on that. And I would advise the investment community not to expect an update for a number of quarters as they're so focused on the on that single practice. With regard to the number of urologists, Anthony, we've changed. Your math is pretty good. We're in around 2900 of the 12000 trained. And what's very encouraging for me is that we trained 120 urologists in the third quarter, which is right back to our normalized run rate, three covid of training urologists. And I genuinely I know that the DTC is helping with that because we know urologists are coming to us because their patients have come into their office asking them about urolift. And the other part of your question regarding the 12000 urologists, how many do we need to train?

[00:53:35] What's the magic number in our in our research as we broke down our champions, what we've discovered is the champion, the average urologist sees 75 BPH patients. What we discovered is what do you see, 50 unique BPH patients a month? Or when you see 150 unique BPH patients a month, you have the same opportunity to become a champion and a champion of 006 procedures or more a month. So we have to train all of the pretty much all of the 12000 urologists to get this 100 percent penetration. And that's what makes it so exciting, Anthony, is because it's such a big opportunity as we train more urologists and we make this the standard of care for BPH. It is a massive market for us to grow into.

[Anthony Petrone, Jefferies]

[00:54:20] Great, and that's helpful. The two follow up real quick here, we noticed that just the APACS friends, two to three to actually decelerated again, the view is that they're a little bit ahead of the curve with covid. So maybe just the touch on what actually happened in APEC and 3Q. And then, Tom, just in terms of the last slide on the deck for the margin outlook, the total pre-tax savings, eighty five to ninety eight is the overall target. I think you exiting twenty nineteen. It was twenty six million of that was realized that maybe just an update on where you guys sit on realizing the expected savings from restructuring. Thanks again.

[Liam Kelly, President and CEO]

[00:55:04] Yeah, Anthony, I'll take the exact one, obviously was impacted by our decision to take this kind of business direct. So if you normalize for that, it was about 11 percent. If you don't recall that it was in those very low double digits, but about 11 percent slight degradation. And that was that was really driven by an increase in court cases in India and Southeast Asia and a resurgence in Australia. And we're a little bit unique, I guess, insofar as that we are more exposed to Australia. It's a bigger part of our APEC business than it would be for other companies and similar to India. So those are the key drivers for APEC. And I left comments that the other part of the question.

[Thomas Powell, EVP and CFO]

[00:55:51] Well, sir, on the restructuring programs, I'd first like to just say that despite that outbreak, you know, the program still continued to track towards plan and schedule. So we feel very good about that. In fact, one of the initiatives to boost up in order to be able to realize some savings earlier over the next couple of years than was previously expected. You know, in total, the savings are 85 to 90 million. As you mentioned, about 25 percent of those were realised by the end of 2019. And then we expect to realize a fairly significant amount in 2020 in 2021, 2022, and that a fairly substantial amount in 2023. So as far as the cadence, you know, we're going to what's remaining. You're going to see about half of that realised in 2018 excuse me, 2020 2020 one in the rest in the next three years, if that helps.

[Anthony Petrone, Jefferies]

[00:56:44] Thank you. Thank you.

[Operator]

[00:56:50] We have our next question from that Matthew Mishan, KeyBank.

[Matthew Mishan, KeyBanc]

[00:56:54] Still ahead here in the medical, can you take a step back and explain why the technology is differentiated versus competitive products and the clinical evidence that's driving the growth?

[Liam Kelly, President and CEO]

[00:57:08] Yeah, absolutely, Matt. And, you know, there are multiple clinical papers written on the 75 peer reviews. And really it comes down to some of the key factors. If you if you look at some of the human data, eighty eight point three percent successful haemorrhagic control success rates are right up there. And if you look at the military did one to combat Gaus, higher success rate of achieving. Haima says that 89 percent for the and 100 percent for the second application compared to standard gauze. So you're looking at 89 and 100 percent hemostasis compared to standard go to zero percent and 13 percent. And again, in the area of blood loss and trauma, significantly less blood loss after packing was seen. And this is the plot plus where you can actually put it internally and obviously a reduction in blood loss. And there's also an external you study and radial axis that shows shortening the hemostasis by 94 minutes to two years compared to Tayyab. And so it's really hemostasis and time that is the focus of the of the clinical peer reviews. And the product outperforms the standard of care that is used today in the market and is being adopted rapidly in E.M.S. and trauma centers around the United States in particular. And we want to expand that overseas.

[Matthew Mishan, KeyBanc]

[00:58:40] Excellent. And then just the last one. How are you how are you accurately measuring the covid impact on your on your business?

[Liam Kelly, President and CEO]

[00:58:49] So I'm actually going to ask Tom, if you don't mind trying to answer that, because Tom has been working with the finance team in the business units to work through that.

[Thomas Powell, EVP and CFO]

[00:58:59] Ok, well, let me let me walk you through it. And, you know, we will admit it's not a perfect estimation, but we as a business wanted to understand the impact so that we could understand our trends and spend quite a bit of time focusing on that. And so I'll share with you our approach. So essentially, we began with the budget and then we made adjustments for no deviation from the budget, you know, plus or minus trends versus the budget prior to covid to see how different businesses were performing, changes in competitive dynamics, canceled programs and events and C.M.A programs. We also looked at backorder status and any changes there that could impact the results. We looked at distributor ordering patterns, as well as even customer communications regarding order pushouts. And so we used all of this data to come up with kind of a number of adjustments that we attributed to covid. And then the difference is essentially from budget was attributed to the covid impact your net of all of these adjustments. And we used, you know, some other approaches to triangulate around and just validate that. As for margins, once we had established the revenue impact, we could then apply our variable manufacturing costs. We included covid related manufacturing increases, you know, whether it was social distancing, puppini, attendance, et cetera, et cetera. And we made adjustments for such factors such as sales commissions as well as the OpEx cost savings initiatives. So that was our approach. I think we've taken a really hard look at it, but recognize that it isn't a perfect science, but rather, you know, our best estimation of the impact. And I hope you find it's helpful.

[Matthew Mishan, KeyBanc]

[01:00:44] Understood and thank you for the detail. Yeah, thanks, Mike.

[Operator]

[01:00:50] Next question is from Matt O'Brien of Piper Sandler. Please go ahead.

[Matthew O'Brien, Piper Sandler]

[01:00:56] Hey, good morning, guys. This is drone for Matt, thank you for taking the questions. I wanted to follow up a little bit on the Medicare transaction, obviously. Congrats on getting your hands on pretty some pretty interesting products there. Maybe you could speak to a little bit on the potential sales force efficiencies. You know, it seems like they could be pretty meaningful. And then how long will it be the process of training your sales force before you can roll it out to the vast majority?

[Liam Kelly, President and CEO]

[01:01:23] Yeah, so we actually see the sales synergies as the synergies the Teleflex brings because of our channel into the VMS space. So if we look at that, we have a very strong sales organization that sells the easy, sells laryngeal masks as a whole plethora of products into that VMS, the military call point. And we have very strong relationships with the military, which is, as you can see from their co-sponsor of easy classes of product to get it into the marketplace. So we see that really as an opportunity for us to accelerate the growth into that key call point and then thereafter to expand within the other areas of trauma. As I said in earlier in the call, in the total synergies by year three, we expect in the region of 10 million dollars, that comes from a variety of variety of areas and is an opportunity for us. But we want this is a growth asset. And our thinking here is that we will continue to invest behind this in in the channel into the future in order to ensure that we will have more salespeople on the ground in the combined organization than we did as emetic as a standalone. And we will also look to expand into our channel overseas. We also have a direct call pointing to some of these key areas overseas and opportunities there to expand this portfolio. So it's a very nice acquisition. High single digit growth, great margins both on the gross and operating margin, great clinical data and very long IP. So it's well protected and growing into a 600 million dollar market.

[Matthew O'Brien, Piper Sandler]

[01:03:09] Ok, that's very helpful. And then my follow up is on the performance in your other category, I think that includes your respiratory business, which, you know, benefited from covid early on. I mean, it looks like a kind of return to flat this quarter, you know, is the right way to think about that, that some of the tailwinds from covid early on are starting to die down, or is there the potential for that to pick up a little bit again? As you know, the severity of the current outbreak. Thank you. Yeah.

[Liam Kelly, President and CEO]

[01:03:39] So what you'd expect that would happen is as you as you get over the increase in the calves covid, as we did in Q3, exactly as you as you pointed out, Drew, you would anticipate that those businesses will get back to more normalized levels as you head into Q4 and as you see Colvert beginning to increase again, you would expect that both your respiratory and our vascular businesses would benefit from that increase. Normally, we would anticipate that respiratory would benefit from a strong flu season. My own view is that the flu season this year is irrelevant because of colds and hospitals will protect themselves to have supply of these products in the fourth quarter in case the resurgence continues. And in case that we go into a second Lockean, I don't think we're going to go into a second lieutenant, Drew. I think that hospitals have really learned how to treat patients with Colvert, and they're also segregating areas in the hospitals, if not entire hospitals, to move forward patients to them so they can continue to conduct procedures even in the midst of a second covid outbreak.

[Matthew O'Brien, Piper Sandler]

[01:04:44] Thank you.

[Operator]

[01:04:49] Next question is from Matt Taylor of UBS. Please go ahead.

[Matt Taylor, UBS]

[01:04:54] Hi, guys. This is young from that. Just ask one question in the interest of time. Kind of a high level one. But I'm just wondering, when do you expect the operating environment can get back to normal on the other side of covid, you know, for example, after a vaccine is widely distributed? You know, I realize the pathway is pretty lumpy. Tough question, but just kind of curious about your thoughts there. You know, if we can achieve 75 percent herd immunity with the vaccine, you know, can business trends return to a pretty global level potentially even before that or one or two quarters after that? I just want to get your high level thoughts on that.

[Liam Kelly, President and CEO]

[01:05:44] Well, if you look at quarter three, what we saw was things begin to turn back to normal until we saw the upswing in cold cases starting in Europe and then spread to North America. So we were in quarter three. We went through it getting to two, especially the first couple of months of quarter three. And then you get into the third month of four to three and we saw covid cases begin to rise again. I think that the answer to the question is, first of all, get out beyond coal. But in Q1, Q2 next year, then get a vaccine. And I think it's also a little bit psychological that people feel that there's a vaccine out there. So therefore they will feel more comfortable going back and getting procedures done and they won't be as concerned about a second or a third wave as it would be probably at that stage. So I think the vaccine is key. I think that the virus itself weakening and managing it better is also key as we go into the first half of 2021. And I would be very hopeful that if we get through the first half of 2021 and early in 2021, we'll begin to start to come out the other side of this covid pandemic and have a vaccine available and begin to return to some sense of normalcy. But again, my crystal ball is as clear as yours is right now. Everyone's crystal ball is a little bit murky.

[Matt Taylor, UBS]

[01:07:07] Thank you. Very helpful.

[Operator]

[01:07:12] Next question is from David Turkaly, JMP, please go ahead.

[David Turkaly, JMP Securities]

[01:07:17] Great, thanks. And not trying to beat a dead horse here, but you mentioned, you know, France, Spain, Italy, Australia in the U.S., the case in Greece. I'm just curious if anecdotally you've seen any evidence of elective deferrals happening in any of those areas currently? I know what happened in the past, but I, I know there's more cases. But I'm just curious, are you seeing that currently today?

[Liam Kelly, President and CEO]

[01:07:44] So, I mean, the key market here is the United States, and if you look at the United States and if you look at three covid in Africa, in our best benchmark really is the euro business, the states that are I'm looking at the bigger states now where you carry a lot of your volumes that are still below record levels are Massachusetts, New Jersey, South Carolina, those that are rebounding back very strongly and they're above that are North Carolina, New York and Illinois. Three examples. So what you've got is a mixed bag. So in the United States, we haven't seen the deferral of those procedures.

[01:08:28] But what we have seen is in places like India and indeed in in Australia, in the third quarter, we saw the deferral of some procedures and hospitals pushing them back. So, yeah, we did see it in some of the geographies. It'll be interesting to see now what we will see in places like France and Spain. I think what they're going to try and do is keep patients flowing through the hospitals because the bigger human tragedy here could be people not getting procedures and therefore having a very bad outcome in the future because they didn't get that critical procedures that were needed because they were afraid of Colvert. So I think that's a bigger human tragedy in the making. If we don't keep our hospitals open and keep patients flowing through them. And I think the other thing that you're seeing, as I said earlier, is that patients feel more confident going to the office in the city than they do in the hospital. And we're seeing, especially with Europe left the office setting doing quite well compared to the hospital setting and getting back to above pre-war levels in the office in its entirety within the United States. I hope that answers your question as accurately as they can.

[David Turkaly, JMP Securities]

[01:09:36] No, it's great. Thank you. And that's it for me. Thank you.

[Liam Kelly, President and CEO]

[01:09:39] Thank you.

[Operator]

[01:09:42] Next question is from Mike Matson, Needham please go ahead.

[Mike Matson, Needham & Company]

[01:09:47] So just on your list, too, can you give us your latest thinking on the impact to margins and growth, if any, of the product and then the timing to when you're fully converted to your left to.

[Liam Kelly, President and CEO]

[01:10:03] Yes, the margin is still the same, it move the margins from the mid 70s to high 70s, you should think about it getting about four full percentage points on that business. And last year that business did about 300 million dollars will begin to roll out early in 2021. I think that it it's easy for the urologist to adopt this. The early indications that we have from a free market work has been really, really positive. The docs really liked the way the product works. It's easier to use same great outcomes. Same is easier to use and same visibility, same everything. I'm really glad we took our time to change the visibility factor on this because it's coming back to the real positive feedback from the urologists. So as we begin to roll that out in 2021, as we get into 2020, we should be able to have a large portion of the North American market converted.

[Mike Matson, Needham & Company]

[01:11:03] Ok, thanks. And then just on the OEM business, you mentioned this lagged impact because of the customer kind of destocking or whatever that's occurring. But is that largely over, do you think, or would that continue into the fourth quarter?

[Liam Kelly, President and CEO]

[01:11:21] So I think we will definitely see an improvement in the OEM business in the fourth quarter, what happens there, Mike, is obviously we make products for other companies, brands and companies, all of which you will know, and you probably covered a large proportion of them. And what we've seen is as their elective procedures fall off and there was a lag to them placing orders in our business and we expected this to happen. This is not unexpected. We knew William was going to be impacted by coal, but a quarter later than the rest of our businesses. What do you what we've also seen is some of these key companies destock as they're as they're shoring up their capital and making sure that they're managing their free cash flow. So we've seen some of them destock. You can only do that for a certain period of time. So I would expect to see our OEM business begin the path to recovery in Q4.

[Mike Matson, Needham & Company]

[01:12:16] Great. Thank you.

[Operator]

[01:12:21] Next question from Chris Cooley of Stevens, please go ahead.

[Chris Cooley, Stephens]

[01:12:26] Good morning and thank you for taking the question. Just ask one at this point. But Leon or Tom, I'd appreciate if you could provide some additional color on the fourth quarter, not so much in terms of what you excluded. Like to see America, the extra selling days. But what you contemplated in that guide from the perspective of the hospital can most notably the US hospital. I'm curious if you're assuming heavier inventory carries through calendar year end improvements and throughput in terms of procedure growth to the extent that it's there, just kind of some of those exoticness variables would like to get your perspectives on. Thank you so much.

[Liam Kelly, President and CEO]

[01:13:08] Yeah, I guess the question on what we did was we looked at what we saw in October and we pretty much projected that into the remainder of the year now. And we did not assume an uptick in procedures. We did not assume the procedure recovery. And we may be too conservative here, but we do not anticipate getting back to record levels in Q4. We still think that's going to be in early 2021. Now, October, for the first four weeks of October, look, look pretty reasonable. I mean, we were pretty much flat in the first few weeks of October. We do come up against a tougher comp when we get into November and December. Chris, you'll know that, for example, the that grew by 54 percent last year and our overall business performed very well in the fourth quarter of last year. So we took that into consideration. We did not anticipate a further knock down. We anticipated that we would see covid being well managed. We had seen in the month of October the upswing in the cold cases so that that initial upswing was in our thinking when we laid out what we expect to happen for the fourth quarter. So those are the things we included and those will be excluded. And of course, we excluded DDC. We included that we exclude the billing days and they'll add about three percent. We excluded effects that should help us. We excluded. I'm sorry. I'm going back to the exclusion of the inclusions, Chris, but we did also exclude the Medicaid that hopefully would close in the fourth quarter.

[Chris Cooley, Stephens]

[01:14:42] Thanks.

[Operator]

[01:14:47] There are no further questions at this time. I want to turn the call over to Jacob Elguicze for any closing remarks.

[Jacob Elguicze, Treasurer and VP, IR]

[01:14:53] Thanks, operator, and thank you to everyone that joined us on the call today. This concludes the Teleflex Inc. third quarter 2020 earnings conference call.