Teleflex Inc. reeled in $628.3 million in revenue in the third quarter, down 3.1% from the same period last year but ahead of the Street’s estimate of $619.4 million. Earnings per share also beat consensus, at $2.46 vs. $2.24. The release of the quarterly results dovetailed with Teleflex’s reveal of a definitive agreement to acquire hemostatic products company Z-Medica LLC for up to $525 million.

Under the terms of the agreement, Z-Medica will receive $500 million in cash when the transaction closes, plus up to an additional $25 million upon achievement of certain commercial milestones.

The deal includes unspecified tax attributes, valued at about $40 million, that are expected to result in future tax benefits for Wayne, Pa.-based Teleflex. The company said those benefits figured into the purchase price.

Good product fit

Headquartered in Wallingford, Conn., Z-Medica’s products include Quikclot, Combat Gauze and Quikclot Control+, a nonabsorbable hemostatic dressing for use in the internal organ space in severely bleeding patients. It also is used to control severe bleeding in surgical wounds and traumatic injuries.

Z-Medica’s products target a range of customers, from trauma surgery, EMS and emergency departments, to the military and interventional segments.

“Teleflex’s 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,” said Liam Kelly, Teleflex’s chairman, president and CEO. “The acquisition of Z-Medica, an industry-leading provider of hemostatic devices, enables Teleflex to leverage strength in the hospital, EMS, and military call points, with differentiated products that complement the Ez-Io and Ezplaz product portfolio.”

The boards of both companies unanimously approved the deal. It is expected to be completed in the fourth quarter of this year, pending regulatory approvals.

Teleflex plans to finance the acquisition at closing via loans under its revolving credit facility and may look to term-out such borrowings through a note offering following consummation.

The deal is expected to contribute between $60 million and $70 million in revenue in 2021.

Richard Newitter, of SVB Leerink, said his group was positive regarding the buy, as well as Teleflex’s recent performance. “Overall, we are encouraged by the margins/EPS upside, y/y recovery in key areas like Urolift (DD) and Americas (flat). We also think the Z-Medica deal fits right in line with what TFX does excel at: rolling up leverageable, under-the-radar growth accretive assets. Reiterate OP.”

He noted that the company’s organic revenue growth on a constant currency basis, normalized for COVID-19, was trending at about 7% in the quarter, toward the upper end of its long-term guidance range. However, an underperformance in the original equipment manufacturer (OEM) and Asia businesses suggested that recovery momentum has stalled in those areas.

COVID-19 headwind

During a Thursday morning earnings call, Kelly said lower sales volumes due to the pandemic was a headwind for the quarter but added that it was partially offset by cost-containment efforts.

Teleflex racked up $82 million in sales of Urolift, its minimally invasive treatment for enlarged prostate, with a continued shift from hospital to nonhospital settings, particularly doctor’s offices. “We see the office setting being quite positive in the third quarter compared to pre-COVID levels, and the hospital setting is still under the pre-COVID levels from a Urolift procedure,” Kelly said.

Kelly also pointed to 20% growth of its Manta vascular closure device in North America. Teleflex acquired the device with its 2018 purchase of Essential Medical Inc. for $160 million. The U.S. FDA approved Manta in February 2019.

Americas revenue totaled $375 million, up 0.1% from the prior year’s third quarter. EMEA brought in $135.7 million, down 3.5%.

Asia revenues came in at $68.2 million, a 14.2% decline from the 2019 third quarter that Kelly attributed largely to COVID-19 impact. He also noted that the company was transitioning to a new distributor in Japan.

Kelly blamed a delayed coronavirus impact for reduced revenues in the OEM business, which declined 11.8% to $49.4 million.

“Investors familiar with Teleflex will be aware that our OEM business supplies medical companies with complex catheters and surgical sutures, and the quarter 3 impact reflects reduced orders from these customers, whose business is tied to nonemergency procedures,” he said.

Excluding the COVID-19 impact, the OEM business grew approximately 28%, which includes a roughly 11% boost from its acquisition of HPC Medical Products, a Gurnee, Ill.-based producer of medical tubing and wiring components, in February of this year.

Guidance withheld

Teleflex withheld full-year guidance for 2020, citing the continuing impact of the pandemic, but predicted sequential improvement during the final quarter, compared with Q3 results.

Kelly said it will take a vaccine or a sufficient decline in cases to raise consumer confidence and significantly increase patient throughput at hospitals. “We haven’t seen that in October, and I don’t think we’re going to see it in November and December,” he said. “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.”

Teleflex’s stock (NYSE: TFX) hit a high of $342.41 but ended the day at $326.65, down 2.44% from Wednesday’s close of $334.83.