泰利福醫療 (TFX) 2025 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Teleflex year-end 2025 earnings conference call. (Operator Instructions) Please note that this conference call is being recorded and will be available on the company's website for replay shortly.

And now I will turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development. Lawrence?

Good morning, everyone, and welcome to the Teleflex Inc year-end 2025 earnings conference call. The press release and slides to accompany this call are available on our website at teleflex.com. In addition, we have provided supplemental non-GAAP income statement information for 2025 continuing operations in the appendix of our slide deck, which can be found on our Investor Relations website. As a reminder, a replay will be available on our website, those wishing to access the replay can refer to our press release from this morning for details.

Participating on today's call are Stuart Randall, Interim President and Chief Executive Officer; and John Darren, Executive Vice President and Chief Financial Officer. Stu and John will provide prepared remarks, and then we will open 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 the slides posted to the Investor Relations section of the Teleflex website.

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 10-K, which can be accessed on our website.

Now I will turn the call over to Stu for his remarks.

Thank you, Larry, and good morning, everyone. In January, I stepped into the role of interim CEO. As a reminder, the Board made its decision to transition the Chief Executive Officer position following the announced sale of our acute care, Interventional Urology and OEM businesses and as Teleflex enters its next phase as a more focused, higher growth organization.

We remain grateful for Liam Kelly's impactful leadership and the significant contributions he made during his tenure. The Board is actively conducting a CEO search with the support of Spencer Stuart, a leading executive search firm and is evaluating external candidates.

While we are moving with urgency we are taking a disciplined and thorough approach to ensure we identify the right leader with the experience and capabilities to guide Teleflex in the future. At the same time, it is critical that we maintain momentum across our strategic priorities during this transition period.

By way of background, I have had the privilege of serving on Teleflex's Board since 2009, and I bring more than three decades of experience in the medical device and health care industry. As interim CEO, my immediate focus is on execution, advancing the closing of our two strategic divestitures, consistently delivering on our financial commitments, and ensuring continuity across the organization. I am working closely with our leadership team to keep the business moving forward, aligned with our strategic objectives. With that context, let me expand on the key elements of our strategy.

In December year, we signed definitive agreements to sell the acute care, interventional urology and OEM businesses to two separate buyers. The strategic divestitures will result in total cash proceeds of $2.03 billion, with net after-tax proceeds of approximately $1.8 billion.

As an update, we are working through the regulatory and other conditions to closing and continue to expect the sales to close in the second half of 2026. To be clear, our value creation strategy is unchanged, and we intend to use these net proceeds to return significant capital to shareholders through our previously announced share repurchase authorization of up to $1 billion while also reducing debt to enhance our financial flexibility and support future growth and value creation. These planned actions signal our commitment to disciplined capital allocation and shareholder returns.

We will continue to evaluate additional opportunities to return capital to shareholders as appropriate, consistent with our focus on long-term value creation. The creation of Teleflex RemainCo, which represents our continuing operations, results in a more focused and optimized portfolio centered on highly complementary businesses.

Vascular, which now includes the emergency medicine portfolio, interventional, which no longer includes the intra-aortic balloon pump portfolio and Surgical. We are positioning Teleflex as a medical technologies leader with increased flexibility to invest in innovation and compete in these priority markets.

Specifically, product innovation will be a strategic priority for investment going forward, we expect R&D expense for RemainCo to represent approximately 8% of sales compared to approximately 5% of revenue that Teleflex spent historically.

A couple of comments regarding our 2026 adjusted EPS guidance. For 2026, our adjusted EPS guidance is in the range of $6.25 to $6.55. However, it is important to note that there are a number of assumptions included in this guidance will have significant impacts on our EPS as we move through 2026 and into 2027.

First, this guidance range includes the full year negative impact of stranded costs related to our strategic divestitures which we estimate to be $90 million. Stranded costs are necessary to support both continuing and discontinued operations for a transitionary period of time.

Second, this guidance range does not include the positive impact of the transition services and manufacturing services agreements that will come into effect upon the closing of the strategic divestitures. On an annualized basis, we expected TS and MS agreements to fully offset the aforementioned standard costs.

Furthermore, we are taking action on reducing expenses when the TS and MS agreements roll off in the future. and have announced an initial restructuring plan to mitigate approximately [$50 million] of costs to rightsize the organization post divestitures.

Finally, our 2026 adjusted EPS guidance does not include the anticipated positive impact from our announced plans to repurchase $1 billion of our common stock and repayment of debt with the remaining proceeds from the strategic divestitures, both of which we intend to execute following the closings of the transactions.

We anticipate these actions will result in a meaningfully lower share count and significantly reduced interest expense. Although we have not included the benefits of these actions on our 2026 adjusted EPS guidance, we continue to anticipate closing of the strategic divestitures in the second half of 2026. Taken together, we expect these factors will contribute to significantly higher adjusted EPS in 2027 and beyond.

Now moving to the agenda for the remainder of this morning's call. First, we will discuss our continuing operations results, and then conclude with our financial guidance for 2026. Before I begin, please note that we have reclassified the assets associated with our pending strategic divestitures of acute care, interventional urology and OEM businesses as discontinued operations to reflect the strategy to separate the company provide a clearer view of the ongoing performance of RemainCo and in accordance with accounting guidance requirements.

Given that Telflex is entering a new phase with a streamlined portfolio focused on the acute care setting, I will limit my comments to the continuing operations for the second half of 2025, inclusive of the acquisition of Biotronic Vascular Intervention business. All growth rates that I referred to are on a year-over-year pro forma adjusted constant currency basis, unless otherwise noted.

Pro forma adjusted constant currency growth excludes a $14 million impact of foreign exchange, the Italian payback measure in 2025 of $9 million and the impact of approximately $14 million in RemainCo product revenue that was discontinued at the end of 2025 due to a strategic realignment but includes revenue generated by the acquired Vascular Intervention business for the prior year period.

Now let's move to the second half 2025 continuing operations revenue by global product category. Commentary on global product category growth from continuing operations for the second half of 2025 will also be on a year-over-year pro forma adjusted constant currency basis, unless otherwise noted.

Starting with Vascular Revenue increased 2.4% year-over-year to $472.7 million was primarily driven by growth in our central access, hemostatic and [atomization] products offset by a tough comparison from the prior year period, in part due to military surge orders that did not repeat in 2025.

Moving to Interventional. Revenue was $427.5 million, an increase of 8.1%, the strong performance for the second half was driven by a broad interventional portfolio. For the second half of 2025, reported Vascular Intervention revenues were $202 million.

In our Surgical business, revenue was $219.3 million an increase of 3.2%, reflecting impact of volume-based procurement in China. Underlying trends in our core surgical franchise continued to be solid with strong double-digit growth from the majority of our franchises. This completes my comments on the second half revenue performance.

Now I would like to turn the call over to John for a more detailed review of our financial results. John?

Thanks, Stu, and good morning. All results that I speak to will be on a continuing operations basis for 2025. Due to the reclassification to discompete operations, historic continuing operations reflect the impact of stranded costs in all periods presented.

Given Stu's previous discussion of revenue, I'll begin with margins. For 2025, adjusted gross margin was 63.7%, the 200 basis point decrease year-over-year was primarily due to the adverse impact of tariffs. The addition of the Vascular Intervention acquisition, which has a slightly lower gross margin than the corporate average, and, to a lesser extent, increased logistics and distribution costs and foreign exchange.

Full year adjusted operating margin was 22.7%, the 230 basis point decrease reflected the year-over-year gross margin pressure, higher operating expenses associated with the acquisition of the Vascular Intervention business and a negative impact of foreign exchange rates.

Adjusted net interest expense totaled $93.6 million for 2025 as compared to $77.4 million in the prior year. The year-over-year increase is primarily due to the borrowings used to finance the Vascular Intervention acquisition.

For 2025, our adjusted tax rate was 12.6% compared to 13.4% in the prior year. The year-over-year decrease is primarily due to the beneficial tax provisions included in the recently passed one big beautiful Bill Act, including the ability to deduct US based R&D expenses.

At the bottom line, 2025 adjusted earnings per share was $6.98, representing an 8.7% increase year-over-year. The increase is primarily due to higher revenue and adjusted operating income, including the impact of the Vascular Intervention acquisition, a lower tax rate and share count partially offset by negative impact of interest expense and foreign exchange. At the end of the fourth quarter, our cash, cash equivalents and restricted cash equivalents balance was $402.7 million as compared to $285.3 million as of year-end 2024.

Turning to our guidance framework for 2026. As we have indicated, 2026 results include a number of transient factors related to our strategic divestitures that will impact our near-term results, which we expect will be mitigated with the close of both transactions.

Therefore, we anticipate 2027 will be more reflective of the underlying business going forward, ultimately building a clearer financial profile with significant improvements in margins, interest expense and adjusted earnings per share.

With that context, I'll go over items that will impact our 2026 results. First, we will incur approximately $90 million of stranded costs associated with the classification to discontinue operations throughout 2026. Once the strategic divestitures close, which is still expected to be in the second half of 2026, transition service and manufacturing service agreements are estimated to fully offset the stranded cost on an annualized basis.

Of note, until the divestitures close, cash generated by the discontinued operations will accrue to RemainCo, thereby reducing the economic impact on the company from the stranded cost until fully offset by the transition service and manufacturing service agreements.

Accordingly, our initial 2026 guidance reflects the fully burdened cost structure for RemainCo inclusive of approximately $90 million in stranded costs, but does not include any positive impacts from the transition service and manufacturing service offsets.

Second, the exact timing of the closings of the strategic divestitures will pace our ability to deploy capital during 2026. As a reminder, we expect to receive net proceeds of approximately $1.8 billion after tax from the divestitures.

We remain committed to returning significant capital to shareholders through our previously announced $1 billion share repurchase authorization and our intention to repay debt with the remaining proceeds from the strategic divestitures. We continue to expect to close the divestitures in the second half of 2026. As we receive these proceeds, we will execute on our capital deployment initiatives with continued focus on maximizing value.

As we look forward to 2027 and beyond, we anticipate these capital deployment actions in combination with the impacts of the transition service arrangements and manufacturing service arrangements and our efforts to further mitigate stranded costs and rightsize the organization will result in a significant increase in our adjusted EPS.

Moving to a review of our 2026 guidance. Please note that our 2026 guidance is provided on a continuing operation basis and excludes the acute care, Interventional Urology and OEM businesses. For year-over-year comparison purposes, 2026 guidance is based on a pro forma adjusted constant currency growth that excludes the impact of foreign exchange and the Italian payback measure in 2025 of $14 million and $9 million, respectively, and the impact of approximately $14 million in product revenue that was discontinued at the end of 2025 due to a strategic realignment.

Pro forma adjusted constant currency growth guidance for 2026 includes Vascular Intervention revenue for the first half of 2025. We expect pro forma adjusted constant currency revenue growth for 2026 to be in the range of 4.5% to 5.5%.

To put the 2026 growth outlook into context, continuing operations delivered 4.7% pro forma adjusted constant currency revenue growth in the second half of 2025. This performance establishes a solid foundation for our future mid-single-digit revenue growth profile, and we remain confident in our ability to achieve this goal as we move forward.

Turning to adjusted earnings per share. We expect the range of $6.25 to $6.55 in 2026. Again, this reflects a set of assumptions and excludes a number of factors as already discussed. Additionally, for modeling purposes, you should consider the following: we expect 2026 adjusted operating margin to be approximately 19%, which reflects the full impact of approximately $90 million in stranded costs associated with the separation activities and no offsetting benefit from transition service and manufacturing service agreements during 2026. In addition, I would also note that our 2026 operating margin is inclusive of R&D investment of approximately 8% of sales.

Once the strategic divestitures close, we expect at least $90 million on an annualized basis from the recognition of transition service and manufacturing service agreements to fully offset stranded costs, which will be netted in our expenses.

Of note, when taking into account the positive impact of transition service arrangements and manufacturing service arrangements in terms of reducing RemainCo's operating expense profile, we estimate that our underlying steady-state adjusted operating margin will be approximately 23%, which is 400 bps above our fully burdened adjusted operating margin guidance for 2026.

As a first step in the process to mitigate the approximately $90 million in stranded costs, restructuring, as disclosed in today's press release has been approved by our Board to eliminate a portion of these stranded costs, streamline global operations and improve our long-term cost structure, primarily through workforce reductions and capital asset rationalization, reducing costs and increasing operational efficiency.

These actions are expected to be substantially completed by mid-2028. We expect the restructuring to result in approximately [$50 million] in annual pretax savings. Looking forward, we see opportunities over the next several years to improve adjusted operating margin through leverage from revenue growth and other cost-saving initiatives above our steady-state margin profile of approximately 23%, moving to assumptions below the line.

Net interest expense is expected to approximate $105 million for the full year 2026. Our estimate reflects a refinancing of our $500 million senior notes which are due in November 2027 and does not assume any debt paydown associated with the after-tax proceeds from the strategic divestitures.

Finally, we are assuming a 2026 tax rate of approximately 13.5%. For shares outstanding, we are not assuming any share repurchases in 2026 guidance, implying a share count largely consistent with 2025. Nonetheless, we are committed to executing our $1 billion share repurchase program upon the closing of each of the strategic divestitures and we'll provide updates to our guidance throughout the year. That concludes my prepared remarks.

I would now like to turn it back to Stuart for closing commentary.

Thanks, John. In closing, I will highlight our three key takeaways from the fourth quarter. First, Teleflex is in the midst of a transformation that optimizes our portfolio, create some more focused medical technologies leader and positions our company for meaningful value creation opportunities going forward, is energizing to see how focused and committed our team has been to delivering for customers, patients and shareholders.

Second, RemainCo delivered strong pro forma adjusted constant currency growth of 4.7% year-over-year in the second half of 2025. This growth performance over the second half of 2025, which reflects the period in which we have owned the Vascular Intervention business came with our 2026 pro forma constant currency growth guidance of 4.5% to 5.5% are in line with our mid-single-digit growth profile and represent a strong reflection of the stable growth potential of our go-forward business.

Third, we continue to expect our two strategic divestitures and to close in the second half of 2026. We remain committed to using the estimated $1.8 billion in after-tax proceeds from the transactions to return significant capital to shareholders for a $1 billion share repurchase program while also reducing debt to enhance our financial flexibility and support future growth and value creation.

The closing of the transactions will also enable us to recognize TS and MS fees, which are expected to be at least $90 million and fully offset the stranded costs on an annualized basis. We are also actively engaged to reduce our cost with today's announced restructuring that is targeting approximately $50 million in savings.

With a more streamlined portfolio and clear strategic priorities, we will be well positioned to drive durable performance and long-term value for shareholders. We expect our financial performance to improve through 2026 and more fully reap the benefits of our efforts in 2027 and beyond with meaningful increases in adjusted earnings per share. That concludes my prepared remarks.

Now I would like to turn the call back to the operator for Q&A.

(Operator Instructions)

Michael Matson, Needham & Company, LLC.

Yeah, so just in terms of the use of proceeds from the divestitures, you have the $1 billion share repurchase authorization. And I think I heard you guys saying that you are planning to fully utilize that. Maybe you could just comment on what that mix of the $1.8 billion is going to look like between share repurchases and debt repayment?

Well, yeah, you got -- started already. So it's $1 billion for the share repurchase. And that other $800 million, we are committed to paying down debt. So it will likely be the deferred draw revolver we put in place for the Bison acquisition of about $700 million, and then we'll put the other $100 million towards our revolver.

Okay. Got it. And then just in terms of the restructuring savings, the $48 million to $52 million. I believe the press release said that you do expect to see some of that savings in '26, was any of that baked into the $625 to $6.55 EPS guidance range?

It is. So -- and there's some nuance. There was a -- we also announced another restructuring in Q4 for the Biotronic acquisition, and that's going to go towards additional savings post 2026. So just coincidentally, there's about $50 million already line of sight on post 2026 as well. So yes, the current restructuring has some savings in '26, that's already based to the guidance but we also have line of sight on $50 million post 2026 between the two restructurings.

Jayson Bedford, Raymond James.

Good morning, and I appreciate there's a lot of moving parts, and thank you for all the detail here. I guess what I wanted to ask was I appreciate the pro forma [4.5 or 4.7] growth in the second half. Do you either have a first half number or a full year number? Just trying to think apples-to-apples here?

Jason, I think we think the 4.7 is the most representative of the growth profile, where we own Biotronic. I think this is an opportunity for you to model off that 4.7 with our -- along with our guidance. for the full year. We won't be getting into organic growth. We've put everything into the pro forma number -- and so I think that's your starting point, the 4.7, think about it that way as you launch yourself into 2026.

Okay. Okay. And then just on Surgical, you mentioned double-digit growth in most franchises ex the VBP impact. What's driving the double-digit growth? And how much of the VBP impact is left for '26?

Yeah, Jason, it's Larry. Relative to Surgical, we've had some strength really across the portfolio, one standout has been our instrument portfolio, which has seen strength now for many quarters. We've got a refreshed instrument line there. And keep in mind, this instrument portfolio is really sort of aimed at ear, nose and throat procedures. That's been a really solid one.

Of course, ligation continues to be a good driver of growth with the exception of China, where the VBP has been hitting. So that's kind of the key drivers within surgical.

Yeah. And I would say, too, as we get into 2026, we have an automatic applier that continue to show some nice growth, and there's some real opportunity for that growth in EMEA.

[Bradley Bowers, Mizuho]

Hey, thanks for taking. The questions for Anthony and I. So first one, just on costs. We're getting the full pro forma sales profile. I just wanted to hear where we are on the pro forma cost profile, if there are any stranded costs to speak to?

So yeah, as we've disclosed and discussed, there's a $90 million worth of stranded costs sitting in our P&L, right? So that's items you can't directly attribute to the disposition, but nonetheless you need to run the HoldCo company. So while it sits in disc ops, we're still managing that business.

We still have the opportunity to use those cash flows and so that's some of the overhead burden that exists and the accounting, unfortunately, doesn't allow you to allocate it. It makes keep it into continuing operations.

And as we said, we're looking for opportunities to fully mitigate that in the beginning with the TSA and MSA arrangements and then finally, through restructuring programs, it's our intention to go after that entire $90 million.

And Bradley, it's Larry. I would just add that as you look at the 2025 adjusted income statement that we have provided that also is inclusive of the stranded cost for the continuing operations. So that's already in there as well.

Awesome. That's helpful. And then just one more kind of on the medium term of the business. It sounds like use of cash repo and debt paydown, but legacy Teleflex was acquisitive. How much is tuck-in M&A still on the table? And how much is that a driver of immediate --

Yeah. So yeah, there may be some go to rec if there's something that looks like it's a great interest to us. We'll certainly consider pursuing it, but I think for 2026 right now, the business is integrating the rest of the Biotronic acquisition and getting the separation complete and the sale is complete. So we're not expecting any significant M&Ain 2026.

Shagun Singh, RBC Capital Markets.

So obviously, 2026 as a transition year. But can you give us a look into what the company might look like in 2017 and beyond? Maybe touch on strategic priorities, how we should think about sales growth, margin profile and where the company could go beyond that? And then my second question is just on the CEO search. Who is the right leader for this role? And what qualities or experience are you looking at? Thank you.

I'll start with -- I'll start with your first question and Shagun. We're not putting out a long-range plan right now. So I'm not going to give you growth profiles for '27 or what things may look like. I think when you're thinking about '27 though, and you think about the mid-single-digit growth, you look at '27 with our ability to take out the stranded costs, our ability to pay down a significant amount of debt and then buy back shares. I think you'll find, one, a really -- with your own math, a really nice underlying margin.

And then I think with the share buyback, you're going to -- you should find yourself coming up with a significant uplift in the EPS. But I'll let you do that math, but I do not have guidance otherwise for 2027.

Yeah, this is Steve. On the CEO search, as we've ever previously reported, we're working with Spencer Stewart on the search. We're really focused on people who have demonstrated experience, midsized, high-growth organization, operating on a global basis, really focused on high acuity hospital settings.

Ravi Misra, Truist Securities.

Hi, great, thanks for taking the call. So just a couple of questions. Given the recent rulings on tariffs, can you kind of help us think about how that's contemplated in your outlook for committing operations? And then just on this kind of cost reduction program that you've implemented and mitigation that's coming in, in the following year, help us think about maybe how quickly the pace of that could maybe come in.

We're -- I think kind of mid-20s was our expectations for kind of RemainCo operating margin a year ago. It sounds like low 20s is the is the kind of new base that we should be thinking about? Help us think about maybe what gets us back to that mid-20s and above range.

Yeah. I think operating leverage, so if you start -- I won't tell you guys how to do your models, but if you start modeling out '27 with mid-single-digit growth and you start and you take out the stranded costs, the mitigation for the stranded cost, I would think you're quickly going to find yourself back in that mid-20s is what I would suggest.

But I'll let you decide how you model that. As for tariffs, our plan does contemplate the tariffs that were expected last week before the Supreme Court's decision. And now there's certainly some significant uncertainty whether these additional tariffs will come in 10% tariff or 15% tariff wherever it may land.

We were -- we did consider that we have additional tariffs of about $18 million this year on top of the prior year. So somewhere in the neighborhood of $35 million. What I would tell you is there would be some obvious savings if the Supreme Court ruling was did, and that's where it stood.

Of course, those savings get much less if you're in the 10% to 15% realm. And then the question becomes this 150 days, is that the end of it -- and as the administration are going to find another opportunity to push tariffs. So I think with all the uncertainty, we've left our plan where it's at before the Supreme Court's decision. So there's likely some upside. But again, I can't tell you that for sure.

Keep in mind that when we pay tariffs, they get capitalized in inventory. So a lot of what we -- in our plan is already sitting on our balance sheet and will come to find its way into the P&L. So despite tariffs ending that would happen. And typically, you're looking at least two quarters before you start seeing some relief. And so I think you just -- if you're trying to think about what that opportunity might be, keep that in mind.

And as far as refunds, that's anybody's guess right now. I think many think it's going to be very, very difficult to refund -- get a refund from the federal government. I'm sure you've seen several organizations have already filed lawsuits requesting refunds. So it's -- unfortunately, we're back to this uncertainty, but that's what's contemplated in our plan right now is the full year of tariffs, and we'll continue to update everyone as we know more as the days progress.

Matthew O'Brien, Piper Sandler Companies.

Good morning. Thanks for taking the questions. Just to be -- John, just to be more direct on -- I know you don't want to talk about '27 much, but as I do the math on the stranded costs, the potential benefits from the debt paydown and then the share repurchases as well for this year.

And I know it's all pro forma, and you're not doing it all this year, but I'm getting more like almost $9.5 on the $10 in earnings this year. Is that a fair way to think about what the pro forma '26 number could look like, given that you're excluding those benefits right now? And then I do have a follow-up. Thanks.

Yeah. I don't want to -- I can't confirm your model. I think there's some opportunity in there, too, and there is a -- the reality is we're also -- so we're going to have some of the restructuring benefits happening at the same time. So the $90 million gets more than offset. So you've got all the pieces.

There's the restructuring, there's the covering the TSA, MSA cost. If you're modeling '27, I assume you should be able to come up with some leverage if you're thinking mid-single-digit growth. So you have that opportunity. And I can't speak for how you're coming up with your shares. I mean that's going to be a debate on share price to be sure. But I would think you'd find yourself closer in that -- in a $10 a warrant range is what I would think.

Yeah. And Matt, it's Larry. I would just again reiterate we absolutely intend to deploy the proceeds from the transactions for that $1 billion share repurchase authorization that's in place, and the remaining $800 million is debt.

Yeah. Significant interest savings you should be modeling for 2027. Yeah.

Mike Polark, Wolfe Research.

Hi, good morning. I didn't hear a ton about Biotronic integration. Can we just get an update on how that's going, Salesforce retention, cross-selling US versus Europe, what have been the highlights so far, any challenges that have popped up?

Yeah, I think it's going well. The sales force integration is taking place in the very back half of the year and a little bit into the first half of Q1. We did -- if you go back to Q4, so we did announce a restructuring related to the VI acquisition. That has kicked off well. We've been able to retain the talent we expected to retain.

So no big regrettable losses from our standpoint. And I think it's going well, the bags have been combined for the sales force, and we think there's some significant opportunity for revenue synergies moving forward.

Yeah, this is Steve. I would just add. I was at the -- our Asia and North America sales training meetings in the last couple of weeks. And I would say these organizations are fully integrated and are working together, putting good marketing plans in place. So I feel really good about the integration of the sales forces and the opportunities that lie in front of them.

As my follow-up, I want to ask about R&D as a general concept, 8% as a portion of revenue for RemainCo. Can you just remind us, is that step-up versus historical Teleflex entirely explained about Biotronic and some of the pipeline there? Or does RemainCo expect to increase investment in surgical existing interventional and vascular?

So what I would tell you is, yes, Biotronic came with a higher amount of R&D. So we were, as total Teleflex now with the discontinued business, we're about 5%. There are much bigger investment opportunities in the interventional space. And so there's a -- in addition to what Biotronic was spending, we have made some decisions to put in additional R&D resources for the interventional space. And then I think second to that would be in the vascular space, we've increased our R&D as well.

Surgical, I would say, to a lesser extent.

Travis Steed, BofA Securities.

Hey everybody, I guess looking ahead a little bit, obviously, the TSAs are going to offset a lot of the onetime stuff for probably, what, two years. But once those go away, do you have enough juice in the bag, I guess, to continue to expand margins once the TSAs go away in a couple of years?

So right. So when the TSAs go away, as the TSAs go away, I should say, and there's going to be a little bit of overlap here with some of the restructurings. And while we're getting TSA revenue, in fact, it may give us a little bit of a headwind as we get into later years because we'll have a little bit of both happening at the same time.

But our goal is to completely mitigate and offset those stranded costs. But keep in mind, the op margin profile with the growth profile should also contribute to some significant leverage over time to continue to move up that op margin on its own.

We'll continue to look at cost-saving initiatives. As an organization, we've been very lean on the OpEx side, and we'll continue to be looking for those opportunities to be sure. But I think about once you kind of cover those costs, your real opportunity is that P&L leverage. As you continue to grow, you keep a big base of that OpEx the same and i.e., you end up with a much better op margin. And that's kind of our long-term thinking, if you will.

Again, we don't have a long-range plan in place yet, but I think that's the real opportunity

Okay. So it sounds like 2027, you kind of reset the base. And then from there, it sounds like you probably have an ability to continue to grow earnings and get EPS leverage going forward, kind of earnings can grow faster than revenue and margins continue to expand '27 plus and beyond.

That's right. And I think that -- that -- I'm sorry, it's not just resetting the base in '27. Some of that opportunity for leverage exists in '27 as well. I'm sorry, '26 as well and '27.

[Larry Biegelsen]

Alright, thanks, sorry about that dropped a couple of times. So hopefully, I don't think this was asked yet. Just on revenue for 2026, you grew -- RemainCo 4.7% in the second half of '25. The guidance calls for similar growth in '26. So what's giving you the confidence to start the year there given that you guys had some missteps recently and you don't have a permitted CEO.

Yes, that's my first question. Maybe just a second, John, just any phasing considerations for '26 for revenue and margins.

Sure, sure. And Larry can spend some time with you later on some of the cadence, but there will be a step-up over the four quarters from the beginning of the year with the recent integration and the new combining of the bag. There's also some step-up as you move through the year.

VBP impacts in 2025 were more pronounced in the second half of 2025. So two things as I think about the confidence in that trajectory are those. I think there's a real opportunity for that sales synergy to take place. And again, the comps get a little easier in the second half because of the VBP. We'll still have some VBP impacts in 2026, likely in our Surgical business, but we think the lion's share of VBP is behind us now.

Great. Thank you for those follow-ups, Larry. And that is all the questions we have today. So I will now turn the call back over to Lawrence Kirsch for closing remarks. Laurence?

Thank you, Greg, and thank you to everyone that joined us on the call today. This concludes the Teleflex Inc. Year-end 2025 earnings conference call.

You may now disconnect your lines. Thanks, everyone.