Teleflex's second quarter results released Thursday topped analysts' expectations despite sales at its important interventional urology unit falling 79% in April.
The company estimates COVID-19 wiped $144 million off its total sales. However, with COVID-19 also adding $14 million to sales at its vascular access unit and other categories, the overall results were better than expected.
Teleflex reported gaining momentum throughout the quarter. By June, interventional urology revenue was down 8% as healthcare systems resumed work put on hold in response to COVID-19.
In the absence of guidance from the company, analysts predicted Teleflex would generate sales of $533 million in the second quarter, according to a consensus collated by Zacks. Teleflex eased past that prediction to bring in sales of $567 million, almost $25 million above even the most optimistic analyst estimate.
Teleflex achieved the results despite making a very slow start to the quarter. Interventional urology, which sells the previously fast-growing UroLift device that targets symptoms of benign prostatic hyperplasia, suffered the biggest hit, but sales at the interventional access and surgical divisions were also down 30% or more in April due to the deferral of elective procedures.
In April, Teleflex predicted interventional urology would rebound quickly as the UroLift procedure can be performed in ambulatory surgery centers and offices. That prediction came to pass; sales of interventional urology devices were down just 8% in June, having slumped 79% in April. The surgical business was down 21% in June, an improvement of 13 percentage points over the low it hit in April.
While some units are recovering faster than others, the overall trend across the quarter was positive for Teleflex. CEO Liam Kelly told investors the “positive momentum largely carried forward into July.” Still, the overall situation remains too unpredictable for the company to reinstate the guidance it withdrew early in the crisis.
Even so, Teleflex gained enough confidence in the durability of the recovery to start a national direct-to-consumer UroLift advertising campaign that it put on hold earlier in the year. Kelly said it's too soon to gauge the impact of the campaign, which got underway early in July, but the hope is the results will be good enough to justify promoting UroLift for a “multi-year period.”
Teleflex also used the second quarter results to disclose a workforce reduction plan and investigation by the Department of Justice. The job cuts will affect an undisclosed number of people in sales and marketing in Europe, the Middle East and Africa and certain manufacturing roles. Teleflex is making the cuts to save up to $13 million a year.
The DOJ investigation grew out of a probe into practices at a single customer of Teleflex’s NeoTract unit, which sells UroLift. Teleflex began sharing documents with DOJ in relation to its communication with the customer and the rebates it offered them last month. Earlier this month, DOJ told Teleflex it had started an investigation into NeoTract's operations more broadly under the civil False Claims Act. Teleflex denies any wrongdoing.
“While the company intends to cooperate with the government's investigation and request for information, we will vigorously defend our programs, practices and conduct, which we believe are lawful and in accordance with industry best practices and standards,” Kelly said.