Thank you very much, Robbie. So, good evening. It's our pleasure to be at the last of the day and to send you home safely. We are pleased to be attending the J.P. Morgan Healthcare Conference, and we genuinely appreciate your interest in Teleflex. Before I begin the presentation, I'd like to remind you that some of the matters discussed today will contain forward-looking statements regarding future events. I wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, and that actual events or results may differ materially. So, today in Teleflex, we are a company with global scale that is built on innovation and brand power. We have over 18,000 products across seven clinical areas, providing scale and depth, and we employ more than 14,500 employees in over 30 countries around the world.
Our 2023 revenue was $3 billion, and we also have industry-leading brands that are highly recognizable by healthcare providers around the globe, including Arrow, Barrigel, LMA, Weck, QuikClot, and of course, UroLift. Our portfolio adds value to highly relevant clinical areas. We have products with category leadership in seven key clinical verticals, including vascular access, interventional cardiology and radiology, minimally invasive surgery, interventional urology, emergency medicine, and anesthesia. Our portfolio is diverse, and its construction has been purposeful. Teleflex is more than just a supplier of quality products. We are a partner to the healthcare community and can help clinicians treat their patients across key therapeutic areas and specialties.
When we look historically at the healthcare industry from doctor's office, when we look holistically at the healthcare industry from doctor's office to the emergency room, to the operating room, and the intensive care unit, we deliver products, services, and education that allow clinicians to deliver quality care and improves patient outcomes. Indeed, over time, we have built a stronger Teleflex and have executed against our strategic initiatives, and as I reflect on our past successes, I believe that we remain well-positioned into the future. Our corporate objectives remain focused on driving sustainable, constant currency revenue growth, achieving adjusted margins and earnings expansion, optimizing our product portfolio, and advancing corporate social responsibility and an inclusive culture, so let me expand on a number of strategic priorities that will enable us to deliver on our long-term objectives. The first strategic priority is to drive sustainable, constant currency revenue growth.
As we look into the future, we are excited about the opportunities in front of us. Our combination of growth drivers and diversified portfolio will be important to growth, while our continued focus on margin expansion and our revenue base will drive attractive free cash flow generation. This will be prioritized for internal growth drivers, inorganic opportunities, and returning capital to shareholders. To sustain our momentum, a key building block of Teleflex's long-term growth investment strategy will be to transform our internal development capabilities, resulting in an improved new product launch cadence and associated increase in our new product revenue. Turning now to our second strategic priority, we will continue to target adjusted margin and earnings expansion. We are confident that there are several levers to pull that will enhance our margins over time.
Importantly, we have a slate of margin expansion drivers that are already in place and complement our methodical approach to consistent productivity initiatives. Mix towards our portfolio of high-growth drivers will be the primary driver of adjusted gross margin expansion over the coming years as their percentage of total sales increases. We will also continue to drive price for our most differentiated products in our portfolio. In addition, our existing restructuring initiatives will be another incremental driver of margin expansion, as well as other operating efficiencies, including distributor-to-direct conversions. Purposeful and disciplined incremental investment to maintain our current momentum will be offsetting a portion of our margin expansion. We will allocate investments to drive global product launches, expand our geographic footprint, and develop new products. Although these directed investments will increase operating expenses a percent of sales over time, we will be targeted in our spend.
We are confident that our strategy is prudent and will continue to position Teleflex for long-term durable growth. Moving to our capital allocation priorities, we are focused on four key priorities for our cash generation. First, we will continue to invest in the business as we expand our internal innovation engine, with the potential for capital investment to execute on footprint consolidation and other productivity initiatives. Second, portfolio optimization remains a priority, with a focus on tailoring our business for long-term growth and profitability. Third, we will maintain our dividend and return capital to shareholders. Our capital allocation strategy has evolved over time, and we now have the ability to opportunistically purchase our stock. Given the strength of our cash flow generation at Teleflex, the board approved a $500 million share repurchase authorization in the third quarter of 2024.
A $200 million ASR has been completed during the fourth quarter of 2024, leaving the company with room for additional share repurchase under the current authorization. And fourth, we will pay down debt when appropriate. We will continue to prioritize our capital allocation to enhance our returns while retaining flexibility should business conditions change. Our third strategic priority is to optimize our product portfolio through increasing our investment in research and development, new product introductions, select mergers and acquisitions, and thoughtful divestitures of non-core assets. Of note, we expect to continue to increase our investment in internal innovation over time. We expect R&D to approach 5% of revenues as compared to 4.1% in 2022. We are preferentially investing our R&D resources into our faster-growing businesses and targeting opportunities in higher growth markets. Now, I will turn to a brief review of new product developments, starting with interventional access.
We received FDA clearance for the Ringer Perfusion Balloon catheter in the first half of 2024 and initiated a limited market release in the second half of 2024. As a reminder, Ringer incorporates a unique balloon design that allows blood to flow through a vessel while the balloon is inflated. Although the initial indication for Ringer is for angioplasty procedures, we are pursuing a perforation label. The clinical study for this indication is now complete, and we will be moving forward with an FDA submission. Moving to our surgical business, the Titan SGS stapler is now available with Gore Seamguard Bioabsorbable Staple Line Reinforcement Material. This complementary pairing supports bariatric surgeons by addressing clinical preference in the sleeve gastrectomy market. We have received positive feedback from surgeons, and the percentage of Titan staplers with buttress is steadily moving higher as part of our mix.
In our interventional urology business, the first patient was recently enrolled in a study for Barrigel in men with cancer following the surgical removal of the prostate. The trial will study rectal spacing with Barrigel in patients undergoing hyperfractionated post-prostatectomy radiation therapy across the United States and one site in Australia. The study endpoints are to demonstrate Barrigel rectal spacer as a safe and effective option that reduces prostate radiation side effects for this patient population. Based on the segmentation of risk groups between low, medium, and high, prostate cancer recurrence after radical prostatectomy ranges from 16%- 46%. We will continue to optimize our portfolio for growth and profitability through a disciplined review process that considers M&A as well as divestiture opportunities. As we look into the future, we will assess periodic acquisitions to augment our global portfolio and create shareholder value.
We will endeavor to learn from our portfolio moves and be relentless in our focus on continuous process improvement. Teleflex has been a thoughtful acquirer. Since 2018, we have made five acquisitions, including Essential Medical, which brought us the MANTA large bore closure device. HPC, which allows us to enter into faster-growth OEM markets, including thin-walled microcatheters. Z-Medica and its portfolio of hemostatic products. Standard Bariatrics. And, of course, Palette, which positioned Teleflex to compete in the prostate cancer market with the Barrigel rectal spacer for use in radiation therapy. We take a very disciplined approach to identifying and deciding which opportunity fits our key criteria. We are looking for assets with category leadership, obvious clinical benefits, the ability to lower the overall cost of care, and strong intellectual property protection.
We also pay close attention to opportunities that allow us to leverage our infrastructure and expand our geographic footprint. From a financial perspective, we look for assets that are accretive to growth and operating margins over time, with a focus on exceeding our weighted average cost of capital in a reasonable period of time. Our current net leverage is approximately 1.7 times. Combined with our outlook for strong free cash flow generation, we remain well-positioned and have ample flexibility to execute on our overall capital allocation strategy. Thank you very much for your time and attention today. And now we'll turn it over to Robbie for some Q&A. Thank you.
Great. I have a bunch of questions, but if anyone in the audience has one, just raise your hand and we'll get a mic to you. Maybe we could start off with a higher-level question. What elements of the business do you see as the main drivers of growth for Teleflex in the near and midterm?
Yeah, so as I spoke about in the presentation, we have a number of products within our high-growth portfolio that will be driving both our revenue growth and our margins over a period of time. Within that, obviously, you have the Palette Barrigel product that came through that recent acquisition. We have the MANTA product, which is penetrating the large bore market very successfully. We have our PICC portfolio within our vascular business, and that is a significant opportunity for us because of the coating technology within our PICC catheters. We have our hemostatic portfolio that came through the acquisition of Z-Medica. These are hemostatic products that are used on every ambulance, every crash cart throughout America in order to stop bleeding, and it has a unique indication for internal bleeding as well. And we have our intraosseous portfolio, the EZ-IO and OnControl, that continue to penetrate those markets.
And lastly, we have Titan that I just spoke about, where we've added buttress to that product. And all of these have one thing and two things in common. They're the faster-growing parts of Teleflex, but also they have higher margins than the rest of Teleflex, so we get that leverage every time we grow in these areas. And from a business unit perspective, I think that the business units, the interventional access business unit with complex catheters with MANTA in there as well, combined with the opportunity we have for balloon pumps in the nearer term, is a good opportunity for us. I think our vascular business has been performing well, where the PICCs reside, but also continuing to expand central venous catheters. And our surgical portfolio has also been performing very well over the past period of time.
So you combine all of that, and you combine that with the high-growth portfolio, a few of the businesses performing well, and the ability for international expansion. I think those are the areas we're most excited about for longer-term growth.
Speaking of international expansion, when you look around the world, what are the geographies you see for the biggest opportunities, and what are the investments you're putting behind them?
The biggest opportunity we would see for international expansion would have to be within Asia-Pacific, some expansion in Eastern Europe as well, but predominantly within Asia-Pacific. Currently, APAC is approximately 12% of our revenues, and we're launching products there that are within the high-growth portfolio, and they're seen as new products within Asia-Pacific, whereas in the Americas, they've been in the market for a number of years. It just takes a few years longer to get the products registered and growing. And we are investing behind the headcount and the sales infrastructure in order to penetrate those products within the market. A few key areas where the APAC team is focused on is the expansion of PICCs in particular and the intraosseous portfolio. They see that as a big opportunity.
Indeed, UroLift in Asia-Pacific continues to perform well, in particular within Japan, and we're seeding the market in China for future growth.
You've done a number of deals, but when you look internally at your R&D portfolio and pipeline, what are you most excited about? What should investors be looking forward to?
Yeah, we have purposefully put a focus on internal R&D as part of our strategy. If you go back to 2021, 2022, we were spending approximately 4.1% of our revenue in R&D. We always thought that was a little bit light for a company with our growth aspirations. And you'll see that we increased our investment through 2024 to approximately now around 5% of revenue invested in R&D. That is delivering on some key products even in this cycle through 2024 and 2025. So if you look at the, I mentioned the Ringer catheter in the presentation, the Ringer perfusion catheter has been launched. It is an exciting product. It's going to have expanded indications into the future. We've also got a range of products around the PICC portfolio and the tip positioning portfolio to accompany the PIC. On the Titan stapler, we launched the buttress material.
60% of surgeons use buttress on the competing technologies. They technically don't need buttress for the Titan stapler because of the seal pressure within the Titan. But in actual fact, after just a few quarters of launch, 45% of our customers are using buttress. So it was always our intent to launch that, but it has been adopted pretty broadly. And in the future years, we have the Endurance catheter just submitted for a 510(k) coming back to the market. We have the Triumph catheter within the interventional business that will be launched in late 2025, early 2026. And we have EZ-Plaz, which is a freeze-dried plasma that we're still working on to bring to the market in the next period of time. So the current portfolio is solid, and the future portfolio also shows promise.
Maybe spend a minute on the Palette acquisition, how that stands, any updates?
Yeah, we're really happy with that acquisition. We closed Palette in the fourth quarter of 2023. Now we've had it for over a year. We initially thought that the asset would grow at approximately 20%. In actual fact, the asset has grown approximately 30% with our updated guidance on the asset. It continues to allow us to grow into the white space in that market, and we're continuing to convert urologists and radiation oncologists to spacing, and really, just to explain what the product actually does, you're a man, you've got prostate cancer, and you're going to have to go through some form of radiation therapy. There is a risk of ancillary damage to organs, and this product simply creates space between the prostate and those organs to make sure there is no ancillary damage. Our product is simple, easy to use, and will penetrate that market segment.
We have just begun to recruit patients for an expanded indication for that product. The current market, addressable market for spacing globally, is around $330 million. We have an opportunity to expand the indication for post-radical prostatectomy. So you've had your prostate removed, and after that, you have a recurrence of cancer. Now, the beauty about this indication is that the Barrigel will be the only product that is indicated for this use. So it will allow us a unique opportunity to address that approximately $100 million market exclusively for the Barrigel product. So a year and a quarter into ownership, Robbie, I think we're incredibly happy with the performance of that acquisition. And of course, its gross margins are better than UroLift margins, and the UroLift margins were already above the corporate average.
Maybe same question on Titan stapler, an update there and how that's progressing.
As I said a little earlier, the combination of the buttress material and kind of countering the GLP-1 phenomenon in regard to bariatric surgeries, that combination has really helped us to execute very well on Titan. We continue to proctor surgeons. We continue to take share within that market of gastric sleeves. And I know people thought there was never going to be a gastric sleeve done again when GLP-1s came along, but some of these patients need a surgical intervention in order to get the impact that they need. And that, combined with some of the clinical evidence that we put out there to support this product, has been very compelling. We've put out a few clinical papers that show that the patient gets released from the hospital a little bit earlier than with existing modalities of doing this gastric sleeve.
And we've also seen a reduction in time to do the procedure, so if you're a hospital administrator, there's two elements of patient care that you want. You want to use less time to use a very expensive operating room, and then you want the patient to go home as soon as you can because you don't have to, so those two combined have been quite compelling for our customer base, and the product through three quarters is growing well in excess of the company average.
How are you thinking about the IABP market, and has there been any update or change in thinking since the original assessment?
So just to refresh everyone's memory, the intra-aortic balloon pump market is approximately a $250 million market. It's a duopoly. Teleflex had approximately a third share, a third in the U.S., a little less than a third in EMEA, and more than a third in Asia. The competing company has had a couple of quality issues, and the FDA issued a notice in May to advise customers in the United States not to use the product. So we immediately, obviously, ramped up our manufacturing capacity for pumps to take full advantage of this opportunity. And our assessment hasn't changed from when we gave that assessment. If you recall, at the end in our quarter two earnings call, we updated our guidance and called it up by approximately $15 million, with the majority of it being as a result of the intra-aortic balloon pump opportunity.
So we're continuing to execute against that. We believe that the competing technology will be off the market for at least the first two quarters of 2025, and we expect to have a similar opportunity each quarter until they come back. And our goal is obviously to grow into that market, to take a larger market share position than the third that we have, and then to hold on to that market share. In the fourth quarter, we ramped up our manufacturing of the catheters because the $250 million market is half pumps and half catheters. So now, as we sit here in Q1 of 2025, we also have catheters to support those additional pumps that we're putting into the marketplace. So we're executing against the opportunity, and our thinking is very similar as it was when we gave that guidance in the Q2 earnings call into Q3 and Q4.
Great. As you continue to assess the outlook for UroLift, what are you doing to drive stabilization in that business? And then part two of the question, how are the international markets performing in particular?
Yeah, so let me start with the international markets. The international markets are performing very well. Japan continues to perform very well. We're driving good solid growth there. We continue to seed the Chinese market. We have the product in some of the key geographies in order to get it onto the tenders there. And of course, Europe, even though it's small base, continues to grow. The pressure on the product has been within the United States and within the office side of service due to the change in reimbursement that occurred three years ago. What have we done? We've pretty much turned over every stone we can, Robbie, to stabilize the growth. We've, first of all, put in a volume rebate scheme. We followed that up with a volume rebate scheme for the office side of service.
The good news is that the volume rebates scheme in the office side of service showed a tempering of the rate of decline with the customers that took that up. So we're going to double down on that in 2025 in an attempt to stabilize the office side of service. We put in a pre-authorization for the doctors to make sure that if they did the procedure, that they would get paid for it. We supported the product with clinical data to keep it relevant. And the product is working perfectly well. The outcomes from the patients, the results are exceptional from the UroLift product. It's just the change in reimbursement has made it challenged in that office side of service. We did make some changes to the management team. We brought in a new president of the division, brought in a new VP of sales, new VP of marketing.
We restructured the division insofar as that we could get more focus on the two products within their bag, which is the Barrigel product and the UroLift product. We did think when we brought Barrigel in, we'd get a halo effect for the UroLift, just having another call point in that urology call point. The halo effect actually went to Barrigel with the increased performance. But we continue to work on UroLift, and this year, 2025, is the last year of the reimbursement change. So we would be hopeful that we'd begin to see stabilization from 2026 on, or at least bottoming from 2026 on in the office side of service.
Maybe looking forward, there's no formal guidance yet for 2025, but any puts and takes we should be keeping in mind as we look out to the new year?
Yes, I mean, you're right. We don't have formal guidance, and obviously, we want to respect that. But notwithstanding that, there are a few puts and takes on the revenue side that I think are worth calling out. Obviously, the continued execution on Palette Life Sciences and Barrigel is a nice opportunity for us. The balloon pump opportunity that I spoke about is a good opportunity for us, and we'll execute against both of those. On the take side, UroLift will continue, we believe, to be challenged within 2025 from a growth perspective. It's difficult to see the urology bottoming out in 2025, given what we've seen for the first three quarters of 2024. And we did see some vertical integration in our OEM business in Q3 with some inventory management going on with our customers.
Obviously, we're paying close attention to the inventory management as we get ready to guide for 2025 and watching that closely. While at the same, so we do expect that that $7 million per quarter will continue for the first half of the year. FX is a little bit of a wildcard right now, candidly. The euro to the dollar, the dollar has strengthened, and we'll wait and see how that progresses as we get closer to our guidance range. So those are the big puts and takes from a revenue perspective for 2025.
What about on pricing? Where did 2024 end up ballpark on pricing? How should we be thinking about that moving forward?
Yes, so we're very proud of the fact that we've been, even before there was inflation, Teleflex as a company was able to drive sustainable pricing of 10-20 basis points when there was negative pricing in the marketplace for most companies. We've obviously increased our efforts in that area with the level of inflation that we've seen over the last number of years. And in 2024, we would expect to deliver at least 50 basis points in positive pricing. The pricing has been broad-based within different parts of our portfolio. Obviously, in your most differentiated areas, there are always an opportunity. Our interventional portfolio, our vascular portfolio, and overseas in Asia-Pacific has always been a good opportunity for pricing.
Europe traditionally has not been, but I'm very proud of the fact that we were able to have meaningful conversations with our customers in 2024 about pricing, and we were able to get some positive momentum in pricing in Europe. As we look forward, I think it might take a wee bit of a step back in 2025, just given that the inflationary environment has started to ease, and it's more difficult to have that conversation with a customer. But we're very proud of the pricing momentum that we've built into the company over the last number of years and going forward.
If I move down the P&L over maybe the short and medium term, how should I think about gross and operating margin expansion and the key drivers behind it?
Okay, thanks, Robbie. Let me take that question. So gross margin expansion is expected to be driven by mix shift to more higher margin products through manufacturing cost efficiency programs, through favorable pricing, through announced restructuring programs in both manufacturing and distribution sites, and to the extent there are opportunities through accretive M&A. Now, on the operating margin side, we expect that to be driven, or that margin expansion to come largely from the gross margin expansion rather than from operating expense leverage as a result of our focus on investing behind growth and our historical focus on maintaining tight control over OPEX spending. So we really look for margin expansion to parallel along with top-line growth as a means to drive earnings and cash flow generation.
That same question on tax over the near- to medium-term, how should we be thinking about the tax rate?
We provided an updated tax rate for 2024 of 12%-12.5%. We're not going to provide specific guidance for 2025 just yet. We'll provide formal guidance at the time of our fourth quarter earnings call later in February. With that said, the adoption of Pillar Two, the minimum tax, has occurred at different times in different countries across the EU. As a result, we would expect to see some continued upward pressure on the tax rate in 2025 as we see further adoption across the EU.
How should investors think about share repurchase authorizations moving forward? Or said another way, should investors consider share repurchase a recurring part of the strategy moving forward?
Absolutely. So anchored by our strong cash generation, we expect return of capital to shareholders to continue to remain an element of our disciplined capital allocation strategy. And as Liam mentioned at the second quarter earnings call, we announced a $500 million share repurchase authorization. There's $300 million of that still outstanding, and we expect to use that opportunistically in the future. And we expect, again, to use share repurchases as another means to augment our capital allocation strategy, which currently focuses on internal investment, investment in high return M&A, in improving our balance sheet, and maintaining our dividend.
Maybe just quick poll of the room, any questions? Sure. If you could wait for a microphone.
You mentioned earlier on in one of the questions that a big growth lever for you is going to be PICC
s with your coating technologies and maybe even the CVCs. Given the current sentiment around coating technologies on central line catheters, do you have any clinical trials planned, or do you have some reason to believe the superiority of your technology to drive that growth?
The drive in the United States is to diminish catheter-related infections within hospitals. There is an initiative by the authorities to ask hospitals to measure infections on every catheter that is used. Hospitals, if a patient gets a catheter-related infection, the majority of them get them from a PICC catheter, either a central venous catheter. With our central venous catheters, there's a bolus of clinical data there that supports the reduction in colonization as a result of using the catheter, where you basically take infection rates from a rate of approximately 4% down to practically zero. An infection will cost the hospital in the United States $43,000 to treat that patient. The mortality rate is 25% if you get a CLABSI in an acute hospital. They will not get reimbursed for the $43,000 that they spent in treating that patient.
So there is a significant opportunity for us to continue to penetrate with that technology, given the plethora of data that's there to support it.
Any other questions? All right, maybe we could wrap it up with an M&A question. You've been a fairly acquisitive company over the past several years. What's your current view on the acquisition-rich target environment in this current market?
Yeah, so we've been a fairly disciplined acquirer, and we'll continue to be disciplined. We look for assets that are accretive to our top-line growth, that we can expand margins over time. We're pretty focused on non-dilutive M&A in this cycle. The most important thing you need to do with M&A is to have capacity. We're at 1.7 times levered. We believe, as Tom outlined in our capital deployment strategy, we have ample opportunities to do important M&A, strategic M&A, and return capital to shareholders, given our strong free cash flow. From a financial metrics, our hurdle rate, our internal cost of capital is approximately 10%. We like to get above that by year five. We normally get there with a lot of the transactions we've done by year four.
The environment right now is, in the same way as public company multiples have contracted in med tech, that is also reflected in the price that one would be paying for private assets. That's really our hunting ground is in those private assets. We would look for assets that would sit within one of our verticals as a company, where you'd obviously get synergies, drive your top-line growth, expand your margins, and not be dilutive to our shareholder base. We feel the environment is appropriate. We will be disciplined. We will be thorough within our due diligence for anything we'll bring into Teleflex. We're active out there in the marketplace as we have been in the past, but we'll continue to be opportunistic with bringing in really important M&A.
Great. Thank you for a great discussion. Thank you, everybody, for attending.
Thank you, Robbie.