Liam Kelly : So our guide would assume if I want to put it into percent, it would assume that roughly 2% to 3% for Q1 growth, underlying would be 3.5% to 4.2% normalized for the MSA and FX and the other moving pieces. As I said earlier, we would be a wee bit lighter just because of the tough comp, and also, you’d have the Palette ramp as you go through the year. Vascular will be a little bit lighter in the first quarter just due to the recall. And to your point, the new product ramps in particular in vascular is important this year as we go through the year. We’ve launched a number of new products into the PICC franchise and as they ramp through the year. Regarding our degree of confidence in hitting the first quarter, we’re — towards the back end of February, Matt and we as a team would feel confident in our ability to deliver in that first quarter number.
And as I said, we’ve done 4 for 4. All of ’23, we at least reached, if not exceeded our revenue and EPS for 4 quarters in a row. And as a team, we’re united in the fact that we’re not going to be happy until we go 5 for 5, 6 for 6 and ultimately 8 for 8 and then reset the goal into the following year, and that’s what we’re planning to do.
Matthew O’Brien : And then just to Larry’s question on just some of these headwinds on the EPS side that you’re facing this year. I don’t suspect there’s a lot of upside to Palette or the MSAs this year, but it would seem like you’re positioned for a meaningful snapback in terms of EPS growth next year. Just — and something even in the kind of low to mid-teens kind of EPS growth, is that — am I way off base in thinking that just given all these headwinds that you’re facing this year?
Liam Kelly : I’ll tell you, Matt, I’d appreciate if you’d be a little bit patient with that as we execute through ’24 before we start guiding to ’25. But we would anticipate — look, I’ll go back to the underlying. The underlying EPS growth, if you exclude the headwinds is good and solid. And as Tom went through, you have a few factors that will help then on top of that such as Palette and interest and so on and so forth. So we’ll guide to ’25 a little bit later in the year, Matt, if you don’t mind.
Operator: Our next question comes from the line of Mike Polark with Wolfe Research.
Mike Polark : Liam in your prepared comment, you mentioned you’re continuing to assess vertical integration opportunities to gain further control of your supply chain. I’m curious what that means. Is that an interest in doing more M&A in the OEM space? Or is that just a comment on, we’re looking at any and all ways to be better on sourcing and supply chain?
Liam Kelly : So it’s more of the latter, Mike. What we discovered out the other side of the pandemic and as supply chain disruption hit was that if it was within our control, we were able to manage it an awful lot better than when we were reliant on third-party vendors. And there are some subcomponents that we feel we have the ability to bring in-house over time. So it’s really looking at subcomponent suppliers within our supply chain. It would help our margins, that’s a given as we bring it in and that’s obviously an attractive element to it as well. But it’s the latter to your question.
Mike Polark : The follow-up, an item on the GAAP to non-GAAP reconciliation for 2024. There’s a pension charge, $2.85. It’s not an insignificant number, $150 million, if I had the math correct. What’s going on there? Is that a cash item? Or is that a non-cash item?
Thomas Powell : It’s a non-cash item. So we essentially are exiting 1 of our pension plans where we fully funded and offered pensioners a buyout option and then we’ll — whoever it didn’t take the buyout option, we’ll go and put an annuity in place for them. So essentially, we’re just exiting a pension plan, but it’s non-cash.
Operator: Our next question comes from the line of Richard Newitter with Tourist Securities.
Lin Zhang : It’s Lin Zhang on for Mike. So I’m just wondering what assumptions around the [inaudible] growth incorporated in the guide? And also appreciate you share your expectation of the Palette that’s the path [inaudible].
Liam Kelly: I’m sorry, the line is incredibly bad and we’re having great difficulty hearing you.
Lin Zhang : Your assumption around direct growth you’ve incorporated in the guide.
Liam Kelly : Yes. Thank you. I apologize, we couldn’t hear you that well. So the Titan Stapler, we do assume that it will grow in 2024, not at the levels we thought that when we acquired it in all transparency. We now have the impact of the GLP-1s or a good portion of the impact of GLP-1s in our run rate as we went through 2023. And our expectation is that it will return to growth or continue to grow, I should say, in 2024. We are continuing to proctor surgeons. The product is performing exceptionally well. No issues with the Titan product itself. And now with the launch of Buttress, 60% surgeons will use buttress. Technically, our product doesn’t need it, but it’s how surgeons do the procedure, and therefore, having buttress will give us access to greater parts of the market. And our proctoring in — as recently as January was well in line with our expectations and we continue to bring on new surgeons.
Lin Zhang : And also another 1 for me. So you just shared your expectation of slice that back in OEM growth. So how should we think about the size of the step back? Should we still think consider OEM as like low double-digit grower?
Liam Kelly : Well, I think that it’s going to take — I pointed as a modest step back. So it grew around 18% or 19% last year. So it will come back into the double-digit area and as we continue to execute. So low double-digits isn’t a bad starting point. But just bear in mind that those modest step backs will be offset by step-ups in businesses like Vascular, like Anesthesia and also geographically like EMEA.
Operator: Our next question comes from the line of Anthony Petrone with Mizuho Securities.
Anthony Petrone : Nice underlying print here. Maybe, Liam, just starting with — just procedure volumes. We’ve been seeing a lot from the managed care companies on MLR losses talking about procedures running hot. We’ve seen it across a few of the prints. I think the underlying, excluding days here for Teleflex also shows that. So maybe just the state of the union on procedure volumes specific to the U.S., and then I’ll have 1 OUS geographic question as a follow-up.
Liam Kelly : Yes. Sure, Anthony. So what we are seeing is solid procedure volumes in the acute hospital. We continue to see that. We’re back to pre-pandemic levels. I think we’re executing well against it. We’re also benefiting from a plethora of new product launches. And those product launches will continue into 2024, and help even augment what we’re seeing from a procedural point of view within the hospital. So it’s a very positive environment in the acute care hospital. And we — as you know, Anthony, we really like that space.
Anthony Petrone : And then pivoting to China, we’re still hearing different things about VBP, different programs that are coming out at various provincial levels. So maybe do you have any update from the Teleflex standpoint on China VBP? And more of a broader question and I don’t think this has really come up on a lot of conference calls, but everyone’s so doggedly focused on VBP near term. But should we be modeling medium-term net that China is just a down pricing market over the next 3 to 5 years just given where things are geopolitically?
Liam Kelly : Yes. So there are a series of provinces coming together and running volume-based procurement tenders. I think we’re gone through the phase of the national tenders, and now you have amalgamations of provinces. We saw that in 2023, and we participated in some of those in 2023. While that was happening, China continued to be a real solid double-digit grower for Teleflex. So we have strategies around volume-based procurement. And I think that for Teleflex, we only sell the most unique of our products in China. We sell very, very little of our Anesthesia portfolio there. We sell practically nothing of our Drainage Urology portfolio in China. Our main businesses there are in our coated CVCs, our Interventional business and our Surgical business.
And there will be an impact from VBP. But because of our differentiation of our products, the discount levels are a little bit less for Teleflex, and they’re being offset by volume. And as you know, had positive pricing as a company. So we’re more than capable of managing what’s going on within China with certain of our strategies around volume-based procurement. So I’m still positive on China as a geography for Teleflex as a company. And I think that it’s one that will provide growth in the longer term for the company.
Operator: Our next question comes from the line of Craig Bijou with the Bank of America.
Craig Bijou : I want to start with the high-growth product bucket. And what was growth in ’23? How to think about expectations for growth in ’24 and ’25? And I think Tom made a comment about investments to grow. So maybe more broadly, how do you think about your need to invest behind some of these high-growth products and considering the margin impact?
Liam Kelly: Yes. So high-growth products portfolio performed very well in 2023. There were some really standout contributions, I’m thinking particularly of the intraosseous the hemostatic portfolio. MANTA really continues to penetrate that market. If you look forward into the high-growth for 2024, we would expect the high-growth to grow in the region of 10% to 11.5%, 12-ish percent somewhere around there. We would expect the durable core to do a little bit better again this year than it did last year in the 5% to 6% range. But obviously, the offset is in the other category because of the MSA, and that’s going to decline in or around that 30-ish percent. Regarding the investment behind it, it’s easier to invest behind the high-growth, Craig, in all transparency just because it is much better margin.
So you get the drop-through op margin from the growth even with the additional investment. And our focus of our investment has always been and this has been for the last number of years, behind those high-growth buckets because of the margin profile and the benefit that it brings to mix within our income statement.
Craig Bijou : And if I can ask a follow-up on UroLift. The office business you highlighted that’s still seeing some challenges in the U.S. What about the other sites of service in the U.S.? And then on Japan, just how do we think about the launch there in the longer-term or medium-term expectations for growth?
Liam Kelly : I’ll start with Japan, and then I’ll talk about the sites of service. So Japan is doing exceptionally well. It’s really in line with our expectations. What we told investors Japan would do. Japan is doing. The team there is executing very well. Also geographically, we’re very early in Taiwan and India, and we’re ramping in those geographies. They’re smaller, for sure, and we’re very early days in China. We continue to work on China, getting the product listed in the public system and the inflection point for China will be 2025 once we start to get listed in more of the products. With regard to the sites of service, we again grew in the hospital site of service in Q4, but it’s again, the office, unfortunately, is still challenging for us just because of the reimbursement change that was made there.
Operator: Our next question comes from the line of Kristen Stewart with C.L. King.
Kristen Stewart : The Interventional business grew very nicely in this quarter and 15% for the full year on a constant currency basis. You’d mentioned MANTA was continuing to do very well there. Can you just expand upon what’s driving that growth and how sustainable you feel it is going into 2024?
Liam Kelly : Yes, Kristen. So it’s 1 of the areas that will take a modest step back. And as I said earlier, it will be offset by the other businesses that will take a step forward. I mean that’s why we’re a portfolio company at the end of the day because you have these ebbs and flows. And they’ll have a tough comp. MANTA will have a tough comp next year. It will continue to grow, but it will have that aspect. We continue to see really nice growth in the pump business. The competitor that was off the market was back in Q3, they’re back in Q4. But notwithstanding that we continue to execute well there. And the lifeblood of this business unit is new products. We have a really good cadence of new products. We launched the GuideLiner Coast last year.
We’ve got the Ringer coming as we go through the year. And over the next number of years, we have a really nice suite of products going into the hands of this sales force. So I’m really happy with how the Interventional business is going well. Obviously, the intraosseous on control is within there. That continues to perform very well, had a really solid quarter 4 as well to help drive the growth.
Kristen Stewart : I just want to make sure I understand your comments around ’25 and the LRP. So it sounds like you feel pretty confident about being able to hit the gross margin line, but operating margins are going to be tougher to achieve that forecast. Is that correct?
Liam Kelly : Yes, that’s what I was saying, Kristen. I mean, I think we could get there and we have a potential path to get there. Will we get there by the end of ’25? It’s tougher to get there by the end of ’25. We really get there. It just might take a wee bit longer. And again, definitely solid path to the revenue and the solid path to the gross margin line and underlying EPS as we’ve gone through with a couple of your colleagues underlying EPS is solid.
Operator: Our final question comes from the line of Mike Matson with Needham & Company.
Mike Matson : Just wanted to ask on Palette with Barrigel. I know obviously, there’s a big opportunity within prostate that you’re going after. But I think you’ve talked about potential to expand into other types of cancer. So can you talk about the timing there and whether or not you have to do trials to get those indications?
Liam Kelly : We are expanding the indication. It is within our model. We will have to do clinical trials in order to get there. We have begun mapping out and enrolling the investigators that would help us with that. And obviously, as we build the relationship with radiation oncologists, they would be a key part of that as well as urologists in order to get this expanded indication. I don’t want to go into details on the call, Mike about Palette indication because we — as you’re very aware in the city you live in, we have competitors.
