Hi, everyone. Thanks for joining. I'm Lily Lozada. I'm on the MedTech team here at JP Morgan, and I'm happy to have the Teleflex management team with us here today. I'll pass things over to CEO Liam Kelly before we open things up for Q&A.
Thank you very much. Good afternoon, everyone. Thank you for joining me today. As Lily said, my name is Liam Kelly. I am the Chairman, President, and CEO of Teleflex. We are pleased to be attending the JP Morgan Healthcare Conference. We 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, that actual events or results may differ materially. Today, Teleflex is a company with global scale and is built on innovation and brand power. We have over 23,000 products across seven clinical areas providing scale and depth. We employ more than 14,000 people in over 30 countries throughout the world.
In 2021, our revenues were $2.8 billion, and we serve more than 120,000 customers worldwide. We also have industry-leading brands that are highly recognizable by healthcare providers around the globe. Every single day, our products are used in over 24,000 surgical procedures in the United States. They have been used by clinicians in over 2,000 patients who require vascular access intervention. To care for more than 8,000 patients in the intensive care unit, have been used by emergency responders to treat more than 4,000 patients in the field, and have been instrumental in treating patients in over 3,500 interventional cardiology procedures. Our products also help treat nearly 200 men a day in the United States with benign prostatic hyperplasia or BPH.
Today, Teleflex has a diversified product portfolio consisting of innovative products and more mature franchises with category leadership, which we believe will enable us to maintain a cadence of durable growth over time. We believe our diversified portfolio also provides competitive advantage and helps to insulate the company from the impact of exogenous macro factors. Our scale puts us in a strong position to leverage our broad product portfolio across the numerous clinical specialties and care settings that we serve. Typically, our products are necessary in the treatment algorithm for patients, which helps keep us positioned for consistent use in critical care and surgical procedures. In addition, more than 70% of our products have an average selling price less than $250, which offers an advantage relative to price pressure typically felt on more expensive medical device products.
Our profitability has continued to improve through positive mix shift towards higher margin products, benefits from restructuring programs, operational efficiencies, and operating expense leverage. 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, minimally invasive BPH treatment, emergency medicine, and anesthesia. Teleflex is a lot more than just a supplier of quality products. We are a partner to the healthcare community and can help clinicians work across key therapeutic areas and specialties. When we look holistically at the healthcare industry, from doctors' offices to emergency room to the operating room, we deliver products, services, and education that allow clinicians to deliver quality care and improve patient outcomes across the globe.
To provide a sense of our financial progress over time, we've improved the revenue growth profile of the business, moving from 8% average annual constant currency growth from 2012 through 2017 to 10% average constant currency growth from 2018 to 2019. Excluding the impact of M&A over these periods, underlying constant currency growth also accelerated from 3.4% from 2012 to 2017 to +6% for 2018 and 2019. Importantly, we continue to exhibit recovery following the COVID-19 pandemic. For 2021, constant currency revenue growth increased 8.8%.
Regarding profitability, we have driven significant improvements with adjusted gross margin increasing by almost 1,200 basis points and adjusted operating margin expanding 900 basis points for the year ending 2021 as compared to 2011. Product mix shift, restructuring benefits, operating efficiencies, and price have all been drivers of the gross margin expansion over the last 10 years. We have also realized strong operating expense leverage as we streamlined our management and reorganized our sales force structures and leveraged share service organizations. Turning to capital allocation, M&A has been a key priority for Teleflex. Over time, we have demonstrated that our disciplined approach to M&A can drive consistent improvement in our financial metrics. In fact, our adjusted return on invested capital improved to 10.3% in 2021 from 6.4% in 2012, despite the impact of the pandemic.
Indeed, over time, we have built a stronger Teleflex and have executed against our strategic initiatives. Despite our past successes, I believe we remain well-positioned. We will drive sustainable constant currency revenue growth, achieve margin and earnings expansion, optimize our product portfolio, and advance corporate social responsibility and an inclusive culture. Now let me expand on strategic priorities that will enable us to deliver on our long-term objectives as a company. The first strategic priority is to drive sustainable constant currency revenue growth. As we look into the future, there is much to be excited about. We are well-positioned for dependable revenue growth. Our combination of growth drivers and diversified portfolio will help to provide consistency in growth. 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 and inorganic opportunities.
We view our business in three buckets, including our high-growth portfolio, our durable core, and other. Our high-growth portfolio is expected to be a key contributor to our revenue growth algorithm. This portfolio has many of the most exciting products. We believe there is a long runway for market penetration. Our durable core is expected to show steady growth over the plan period due to share gains, underlying market growth, and our category leadership. Of note, our durable core includes franchises with healthy growth, including interventional, vascular, and OEM. We intend to grow the percentage mix of our high-growth portfolio over time through multiple organic drivers, including new product introductions and market expansion. Importantly, we will continue to preferentially direct investment to our high-growth portfolio.
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. We are building on our new product development pipeline with a focus on a disciplined approach to advancing our projects. We are also actively engaged in strategies to accelerate time to revenue of our new product development. We are confident that we can drive increasing momentum in our new product cadence over the coming years. Looking outside the U.S., we have an opportunity to expand our commercial presence in overseas markets. Our international sales accounts for approximately 35% of corporate revenues.
We see a lot of potential in our Asia Pacific business with new product launches, expansion in our sales team, and a strengthening of our leadership. Many of the launches are for products already used in the U.S., such as PICC, EZ-IO, UroLift, and from the interventional access portfolio, which reduces the risk profile of the launches. As we focus on our high-growth portfolio, we are confident in the discrete drivers for organic constant currency growth. Of note, we believe that we are still early in our penetration of sizable market opportunities for our exciting portfolio of products. Considering the six product families in our high-growth portfolio, we are just 5% penetrated in an addressable market of approximately $14 billion. With our preferential investment into our growth drivers, we believe there is a meaningful opportunity to expand our global sales base.
Turning to our second strategic priority. We will continue to achieve margin and earnings expansion. We are confident that there are several levers to pull that will enhance our margins. Importantly, we have a slate of margin expansion drivers that are already in place and will contribute throughout the long-range plan and complement our methodical approach to consistent productivity initiatives. Mix shift towards our portfolio of high growth drivers will be the primary driver of adjusted gross margin expansion during the long-range plan. UroLift 2, MANTA, hemostatic products, EZ-IO, and uncontrolled intraosseous family, and PICCs all represent products that have margins in excess of the corporate average. Our existing restructuring initiatives will be another incremental driver of margin expansion as well as other operating efficiencies. Turning to our sales infrastructure.
We continue to have an opportunity to drive distributor to direct conversions and positively influence gross margins. This has been a successful strategy for Teleflex, and we see an opportunity for additional conversions over time. In addition, as we execute on our acquisition strategy, we will reload on our opportunities to convert to direct sales. Offsetting a portion of our margin expansion will be purposeful and disciplined incremental investment to maintain our current momentum. We will allocate investments to drive global product launches, expand our geographic footprint, and develop new products. Although these directed investments will increase operating expense as a percentage of sales through the planning period compared to 2022, we will be targeted in our spend. We are confident that our strategy is prudent and will continue to position Teleflex for sustainable high growth.
Our third strategic priority is to optimize our product portfolio through new product introductions, continued M&A, and thoughtful divestitures of non-core assets. We have a history of successful acquisitions across our business units. From 2011 to 2022, we completed over 80 M&A transactions while deploying $4.8 billion in capital. Of note, as our business development competencies have strengthened, nearly 80% of the capital we deployed for M&A since 2011 has occurred over the past five years. In this time frame, we have executed on multiple scale transactions, including the acquisitions of NeoTract and Vascular Solutions in 2017, and HPC and Z-Medica in 2020. As we look into the future, we will continue to pursue a steady cadence of acquisitions, which will augment our high-growth portfolio and create shareholder value.
Teleflex has been a thoughtful acquirer over the past decade. We take a very disciplined approach to identifying and deciding which opportunities fit 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 margins with a focus on exceeding our weighted average cost of capital in a reasonable period of time. Most recently, we acquired Standard Bariatrics for an upfront payment of $170 million and a contingent consideration of up to $130 million.
Standard Bariatrics has launched the Titan SGS Stapler for use in sleeve gastrectomy procedures for the surgical treatment of morbid obesity. Moving forward, you can expect Teleflex to continue to maintain a routine M&A cadence with a disciplined approach. On a pro forma basis, including Standard Bariatrics, net leverage is 1.9x . Combined with our outlook for strong free cash flow generation, we have ample flexibility to execute on our strategy. We will continue to optimize our portfolio through a disciplined review process focused on M&A as well as divestiture opportunities. We will endeavor to learn from our portfolio moves and be relentless in our focus on continuous process improvement. Our fourth strategic priority is to systematically advance corporate social responsibility and an inclusive culture while remaining true to our core values.
These values define our company, shape our corporate culture, guide our business practices, and direct the way we interact with our stakeholders, from healthcare professionals and their patients, to our employees and shareholders, to our suppliers and distributors, and to the countless individuals who make up the communities in which we live and work around the world every day. We believe that fortifying our culture, creating a welcoming work environment, and looking out for the safety of our employees is foundational for Teleflex. These elements are fostered by our Teleflex core values. Our core values are an entrepreneurial spirit, building trust, and making it fun with people at the center of everything we do. Persevering through a global pandemic and a significant macroeconomic events, our more than 14,000 employees have come together while exemplifying our core values. Mo.ing 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 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 M&A. Third, we will pay down debt when appropriate. Fourth, we plan to maintain our dividend. We will continue to prioritize our capital allocation to enhance our returns while retaining flexibility should business conditions change. In summary, we are well-positioned to drive long-term durable growth. Our long-range plan, which was introduced at our May 2022 Analyst and Investor Day, highlighted our revenue growth and margin expansion goals for 2023-2025, using 2022 as the base year. Specifically, we set out objectives over the LRP term of 6%-7% constant currency revenue growth, CAGR.
Gross margin expansion of 250-350 basis points. Operating margin expansion of 200-300 basis points. At least $1.7 billion in cumulative free cash flow. We remain focused on executing on our growth strategy. We'll update the investment community on our LRP when we report our quarter four earnings results. At which time, we will have our 2022 results for the base year of the long range plan. Thank you all very much for your time and attention today. We'll turn the call over for a Q&A session.
Maybe to start, at your May Analyst Day, you provided a look back at Teleflex, which became a pure play device company in 2011. Can you walk us through how you've constructed the portfolio through M&A and reshaping?
Yes. If you go back to that time, there were multiple elements of Teleflex. There was Teleflex Marine, Teleflex Aerospace, Teleflex Auto, and then Teleflex Medical. We made the decision to become a pure play medical device. As we began our journey, it was clear to us, that we wanted to expand our margins, we wanted to invest in R&D, we wanted to optimize our footprint, and also we wanted to use our balance sheet to do really good M&A. That's where the journey began in 2011. As I said in my prepared remarks, over that timeframe, we've improved our top line growth, we've improved our gross margins, by over 1,000 basis points, and we've improved our operating margins by 900 basis points.
Along the way, we've done 80 M&A transactions, and we've put almost $5 billion of capital to work doing M&A. We have done significant restructuring to our footprint, moving manufacturing from existing locations and higher cost locations in the world to existing facilities in lower cost parts of the world, and continued a cadence of investment behind R&D, bringing new products and new technologies to the market every year.
Great. Can you break apart the Teleflex growth algorithm, including growth profiles of durable core, the growth portfolio and ex-UroLift?
As we launched our LRP, we broke it into three sections. The high growth portfolio, we expect to grow 14%-15%. We expect the durable core to grow 4%-5%. In the other category, where we're exiting our respiratory business, we expected that to decline 6%-7%. The high growth portfolio, as I said again in my prepared remarks, every element within that high growth portfolio is accretive to the Teleflex gross margins. Within that portfolio, you obviously have UroLift, you have PICCs, you have hemostats, you have the intraosseous portfolio, and you have MANTA. Ex the UroLift contribution, the rest of the portfolio through three quarters of this year has grown 14%.
Very much in line with our expectations for that high growth portfolio. There are some very differentiated products within the durable core. Within there, a large proportion of our vascular business. Our surgical business is in there. A large portion of our interventional business and our OEM business is also within the durable core. We have category leadership in many areas, including closed ligation, CVCs, access catheters for interventional cardiology procedures. We feel we're very well positioned to drive that 4%-5% durable core growth. Actually, through three quarters of 2022, it was performing at the higher end of that 4%-5%.
Great. maybe pivoting a bit to supply and inflation headwinds. What are you seeing there, and what are the levers that you're pulling to combat these headwinds?
Do you want to take that one, Tom?
Yeah, sure. We, like a lot of other companies, are experiencing supply chain disruptions. In 2022, we saw a combination of limited supply, or some supply challenges, as well as heightened inflation. You know, as we look to the future, we expect the inflation to continue through 2023, although some areas are starting to show some improvement, such as sea freight and some other logistics, components. As we think about how we combat this, we undertook a restructuring program, which we announced in the fourth quarter, which was intended to reduce our operating expenses to help offset some of this inflation, and to improve the profitability as a result of that.
Now, I do wanna, you know, just point out that as we look at 2023, you know, we're still assuming a level of inflation, but not at the same level of increase that we experienced in 2022.
That's helpful. Teleflex has historically done a good job of taking price. What's the secret sauce there, and do you expect to be able to continue that trend?
Yes. We laid out our plan for last year, 2022. We believe that we would take 50 basis points of pricing within the year. As we close out the year, I can tell you that we will be in excess of that 50 basis points. Within the company, pricing is a real discipline, and pricing has to be a discipline within the company. We all know we're living in an inflationary environment now, and we hear of many companies taking price. Teleflex was always an organization in a non-pricing positive market, where we could always carve out 10 or 20 basis points of pricing because of that disciplined approach that we take to our portfolio.
It's a better pricing environment this year, and we're taking advantage of that, without crossing that line where you're disrupting the supplies with our customer base and impacting the volume. The areas where we have been able to take price has been in our surgical portfolio, our OEM portfolio, our vascular portfolio, and overseas within Asia-Pacific. We do believe that there will be opportunities for pricing in 2023 and also in 2024, because the vast majority of your contracts nowadays tend to run on a three-year cycle. We will have additional opportunities as contracts come up in this year, 2023, and again in 2024.
Great. Maybe I'll pause for a second here and see if there's any questions in the room. No.
Liam, you highlighted on one of the slides that there's a considerable amount of opportunity in some of the existing portfolio. Is that balance between having the discipline of getting after those opportunities and adding more? How are you blending that so you can go deeper on those opportunities where it's probably lower cost to deliver?
Just to repeat the question, it's really focused on making a determination of taking opportunities within the existing portfolio where we've many levers and bringing in new products into the family through M&A. I think that one thing I believe we've done a pretty good job of is identifying to investors the high-growth portfolio that I just went through a minute ago. There are significant opportunities for growth within that, the majority of our investment is going behind those growth drivers. We intend to go into 2023 fully invested behind those growth drivers. There's significant opportunities as I outlined in my slide. Obviously, UroLift is growing into a $12 billion market. PICCs are growing into a $500 million market.
Hemostats are growing into a $600 million market. Intraosseous is into a $700 million market in its entirety, and MANTA into a $200 million-$300 million market. The new addition to the high-growth portfolio in 2023 will be the Titan SGS Stapler from our acquisition of Standard Bariatrics. That is growing into a $300 million market. We expect that product to do $30 million-$35 million next year. The second part of your question is determining to invest behind that and then bring new technologies into the company through M&A. That's where our business unit structure is a significant advantage to us because as we do M&A, we're bringing it into one specific business unit. That business unit is responsible for the integration of it.
Like with Titan SGS right now, the surgical business unit is focused on integrating that, putting the appropriate investments behind it, and delivering the top-line growth and the margin expansion associated with it. Our structure allows us to do both at the same time, and we have proven to be very efficient at doing that, when you consider the M&A, 80 transactions since 2011, while driving the top-line growth of the core portfolio at the same time.
Maybe turning back to macro for a second. Do these macro headwinds impact your ability to achieve your margin targets in your LRP? How should we be thinking about margin progression and the drivers of leverage?
Well, I would say that, you know, certainly the environment has changed a little bit since we had our Analyst Day back in May, in that inflation has become a little bit greater, and we took down the level of sales for the UroLift. You know, as we look to the future, you know, the key drivers of margin expansion still remain intact. The majority of that margin expansion really will be sourced from mix, from a combination of multiple product offerings. You know, our high-growth portfolio, those products also are higher margin. As they grow faster, they're gonna drive favorable mix. UroLift certainly being, you know, a key component of that.
In addition to, you know, mix, we also have a number of restructuring programs that were currently underway, where we're moving manufacturing from higher cost locations to existing lower cost locations. As I mentioned, we just initiated a new program in the fourth quarter of 2022 to help offset some of the inflationary pressures. In addition, you know, we continue to look for pricing opportunities to help offset inflation. So, you know, the key drivers that we talked about at our Analyst Day remain intact. Certainly, you know, we wanna understand, you know, where inflation is going, as that can have a pretty adverse impact in the early year cadence of that margin expansion opportunity.
Maybe, touching on UroLift a little bit more. It's had some challenges recently and hasn't recovered in line with other procedures. Can you just discuss the environment there and your outlook for growth contribution to the portfolio?
Yes. When we began the year 2022, we assumed that UroLift would grow 15% within the year. As we went through the year, that was based on an improving environment as we went through, what became clear as we went through the year was there were two factors impacting UroLift. The first was patient flow to urologists, which through the first three quarters were down double digit over 2021. We know that 2021 was also down double digits over pre-pandemic. Cumulatively, flow to urologists is down over 20%. The second is the staffing shortages that we saw within the environment. Now we did see in quarter three, in the hospital setting, staffing improve, and we saw that in the other 88% of our business, and we also saw that in UroLift.
We're hopeful that the staffing issues will continue to improve. What we also saw in quarter four was that the patient flow to urologists, even though it was still negative, it was less negative. It was minus around 4% in the fourth quarter. We're seeing the environment eventually begin to improve, which is quite encouraging. I do believe that UroLift will return to growth in 2023 in this year. I also believe that everything's within our control, we're managing very, very well. We're continuing to do DTC. We're continuing to train doctors, urologists. We will have trained approximately 400 urologists in the year 2022, and we'll continue that cadence.
We have continued to invest behind the sales force and to keep the sales force intact, we've continued with our international expansion. We kicked UroLift off in Japan in April, in quarter four we did our first cases in China. Now with the COVID restrictions being lifted in China, that'll give us greater access to that markets. We're also in this year, 2023, going to launch in places like Taiwan and India, and continue the rollout in Brazil, France, Spain, and Italy. We will continue to work on the international markets, we continue to expect a recovery in UroLift in the United States in 2023 based on the dynamics that we see in the fourth quarter.
Maybe taking a step back, can you give us a sort of state of the union on various products in your high growth portfolio, and how should we be thinking about the relative contributions of those key products?
Yeah. During the first three quarters of 2022, as I said earlier, the high growth portfolio ex-UroLift grew 14%, which is very much in line with our expectations. Now there's pluses and minuses within there, as there always is in life. intraosseous, pardon me, hemostats performed better than expected, while PICCs performed a little bit worse than expected. PICCs were impacted by the global shortage of Tyvek that's out there in the medical device world today. We would anticipate that that would improve as we go through this year, 2023, and we could see our PICCs return to growth. Other than that, intraosseous, MANTA, and the rest of the high growth portfolio really did perform in line with expectations.
At 14%, it's clear that it's right within the wheelhouse where we wanted it to be in 2022. We expect that we'll have a similar performance in 2023. As I said earlier, then we'll add the Titan SGS in 2023 to the high growth portfolio.
We'll pause again and see if there are any questions. Okay. Maybe looking to 2023, what are the high level building blocks for your revenue and margin assumptions next year?
I'll cover the revenues for 2023. Clearly, the durable core has performed at the upper end in 2022. We would expect to see that continuing. The vast majority of the high growth portfolios I've just gone through has performed within line of expectations. The last building block is to get the UroLift product to growth. I do believe we will get the UroLift product to growth in the U.S. and then have obviously a higher percentage growth in the international markets just because you're growing off a much smaller base.
Getting UroLift to growth, as Tom will go through now, is key to the margin expansion, 'cause so much of our margin expansion comes from mix. Every product within that high growth portfolio has accretive margins to the Teleflex average.
Then as for improving margins in 2023, it's really the same set of drivers that I spoke about for the LRP timeframe. Principally mix, we also have a number of restructuring programs that are gonna drive cost savings, then pricing are really the key drivers of the margin expansion for next year. As I mentioned, you know, obviously we'll need to understand where inflation is headed and estimate how that may impact the margins in the nearer term.
Maybe touching on, capital allocation, how are you prioritizing between M&A and buybacks and dividends?
As I said in my prepared remarks, we do intend to continue the dividend at the same level for the foreseeable future. Our preferred use of capital is to continue to invest firstly in our business, we have a number of restructuring programs going on. We have a number of R&D initiatives we want to invest behind, and obviously, we wanna invest behind the high growth portfolio. After that, our priority is to continue to do M&A. We're at about 1.9x levered pro forma, including Standard Bariatrics at the end of quarter three. We believe that we have a significant opportunity to continue to do M&A. We will continue in our disciplined approach as we always have.
We will look for assets that are accretive to our growth, accretive to our gross margins right out of the gate. We will accept some EPS dilution in the shorter term, just as long as through top-line growth, it'll lever the income statement and give EPS accretion within a reasonable time, and a reasonable time in our book is in around that 18-month timeframe. We are active out there in the market right now looking for the right type of asset. And the assets we like are those that fit within one of our current verticals or in a very close adjacent space. We like assets that have a healthcare economic argument. We like assets that have better clinical outcomes, and we like assets with really long IP so that it's protected over a multiyear period.
We like single-use products that get used over and over again and are sticky. What I mean by sticky is that it's obvious to the clinician that's using them, and they'll see it as an obvious improvement to whatever they're doing today with the older technology that in many instances we're displacing.
Maybe one last question in the few minutes that we have left here. To follow up on that, when you think about M&A, are there any gaps or areas of the portfolio that you feel like you'd like to augment?
No, I don't, I don't look at it so much as gaps within the portfolio. What I look at it as is attractive end markets and call point. For us, it's really about where do we have sales, clinical people every day in a call point, where we're interfacing with the clinicians. Right now, I think, we've a very strong call point in the intensive care unit. We have an incredibly strong call point in the cath lab. Emergency medicine is a very strong call point for us. Obviously, urology is a very strong call point for us, and we will add to in time, probably not in 2023. I would like that organization focused on getting the UroLift back to growth.
When it does get back to growth, that would be the perfect time to bring something, some new technologies into that. From a tuck-in perspective, after the surgical business is integrated to Titan, I would love to do another tuck-in there, and I will always do a tuck-in in OEM if I can find one. We have been very successful in that business. It's not really about filling gaps, it's about augmenting our portfolio. Obviously, we divested of the respiratory assets. Every year, we have a close look at our entire portfolio to define what fits within Teleflex and what potentially doesn't fit within Teleflex, and we do that in a very disciplined approach on a systematic and ongoing basis.
Great. With that, I think we're just about out of time. Thanks for the Teleflex team and everyone for joining.
Thank you very much.
Thank you.