Good morning, ladies and gentlemen, and welcome to the Teleflex Fourth Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question-and-answer session. Please note that this conference call is being recorded and will be available on the company's website for replay shortly. Now, I will turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development.

Good morning, everyone, and welcome to the Teleflex Incorporated fourth quarter 2023 earnings conference call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, a replay will be available on our website. And for those wishing to access the replay, you can refer to our press release from this morning for details. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer; and Thomas Powell, Executive Vice President and Chief Financial Officer. Liam and Tom 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'll turn the call over to Liam for his remarks.

Thank you, Larry, and good morning, everyone. On this morning's call, we will discuss the fourth quarter results, provide some commercial updates and introduce our financial guidance for 2024. We had a solid finish to 2023 as momentum seen through the year continued into the fourth quarter. For the quarter, Teleflex revenues were $773.9 million, a year-over-year increase of 2.1% and an increase of 0.7% on a constant currency basis. As a reminder to investors, there were 5 fewer shipping days year-over-year in the fourth quarter. The shipping day impact in the quarter was an estimated $57 million or approximately a 7.4 percentage point reduction in constant currency growth year-over-year. When adjusting for the shipping day impact, the implied constant currency growth was 8.1% year-over-year. Fourth quarter adjusted earnings per share was $3.38, a 4% decrease year-over-year. During the quarter, utilization continued to return towards normal seasonality. From a macro perspective, we witnessed a stable to improving environment for material inflation and supply chain. These dynamics generally track to our expectations for the full year. For the full year 2023, we had a strong performance with revenues reaching $2.975 billion, which represents 6.5% constant currency growth year-over-year, while adjusted earnings per share was $13.52. As we look to 2024, we anticipate a stable procedure environment with seasonality in line with pre-pandemic levels. Although the Teleflex portfolio is not likely to benefit from pent-up demand due to the focus on critical care procedures, we would anticipate that staffing will continue to see improvements during the year. Supply chain dynamics largely stabilized through 2023, and we expect to see continued improvements in 2024. Teleflex has broad global manufacturing capabilities and we continue to assess vertical integration opportunities to gain further control of our supply chain. Turning to inflation. There were elements of improvement during 2023, including sea freight and raw materials. For 2024, we are assuming some further disinflation, but note that costs remain somewhat elevated relative to historic levels and are above 2023. Now let's turn to a deeper dive into our fourth quarter revenue results. I will begin with a review of our geographic segment revenues for the fourth quarter. All growth rates that I refer to are on a constant currency basis and reflect the negative impact of 5 fewer shipping days year-over-year, unless otherwise noted. Americas revenues were $450.6 million, a 1.9% decrease year-over-year, driven by Surgical and Vascular and reflective of the 5 fewer shipping days in the quarter. In particular, we saw year-over-year growth in our Interventional Anesthesia and Interventional Urology businesses despite the fewer shipping days in the quarter. EMEA revenues of $152.4 million decreased 2.7% year-over-year, driven by Anesthesia and Surgical and reflective of the impact of the fewer shipping days. Urology products, Interventional and Vascular businesses generated the highest shipping days adjusted growth in the quarter. Turning to Asia. Revenues were $88.3 million, increasing 12.6% year-over-year. Revenue growth was broad-based across the region, with strong double-digit increases in Korea, India and China. The performance in the quarter was driven by strong commercial execution and solid underlying demand. Let's now move to a discussion on our fourth quarter revenue by global product category. Commentary on global product category growth for the fourth quarter will also be on a year-over-year constant currency basis and reflects the impact of the 5 fewer shipping days. On a shipping days adjusted basis, the sequential growth in the fourth quarter trended in line with our expectations with Vascular and Anesthesia growth rates improving, while Interventional and Surgical slowed. Starting with Vascular Access. Revenue decreased 1.2% to $186.7 million. Along with the fewer shipping days, the year-over-year growth also reflected the impact of the previously announced Endurance catheter recall. The quarter was led by year-over-year growth for EZ-IO and other access despite headwinds from the fewer shipping days. Of note, we achieved double-digit growth in our underlying PICC business when excluding the negative impact of the Endurance recall. We continue to see opportunities for share gains in the peripheral access markets and our new product initiatives will help play a role. During the quarter, we continued to execute on our launch activities for our next-generation navigation device and new PICC stylets. Moving to Interventional. Revenue was $135.6 million, up 7.2% year-over-year. Despite the impact of the fewer selling days, we demonstrated solid growth, which underscores our positive momentum as we continue to make good progress with our growth drivers. Turning to Anesthesia. Revenue declined 3.4% year-over-year to $98.2 million. Among our larger product categories, hemostatic products performed well in the quarter, with strong double-digit growth, partially offset by declines in atomization and ET Tubes, as we recover from the recall which occurred earlier in 2023. In our Surgical business, revenue was $109.6 million, down 2% year-over-year against a tough comparison. Our underlying trends in our core surgical franchise continue to be solid, including our ligation portfolio. For 2023, Titan generated revenues in excess of $12 million. For International Urology, revenue was $93 million, representing an increase of 4.2%, starting with Palette, which we acquired in October 2023. Revenues in the fourth quarter were modestly better than expectations with outperformance of Barrigel. For UroLift, the office remains a challenge as we continue our efforts to stabilize this size of service. In the international markets, UroLift revenue saw a healthy growth in Japan, while in China, our initial launch activities remain on plan with a focus on training surgeons and gaining reimbursement. OEM had another solid quarter, with revenues increasing 10.9% year-over-year to $82.6 million. The strength in the quarter was broad-based across our portfolio, with all product categories recording year-over-year growth, including continued strength in microcatheters. Fourth quarter Other revenue declined 10.2% to $68.2 million year-over-year. As previously disclosed, fourth quarter Other revenues reflects the early December 2023 exit of the MSA by Medline and accounted for the majority of the year-over-year revenue decline. That completes my comments on the fourth quarter revenue performance. Turning to some commercial and clinical updates. Following the acquisition of Palette Life Sciences on October 10, 2023, I am pleased to report that the integration is tracking to our expectations. We have completed and issued cross-functional product sales training for selected members of our legacy UroLift sales force, and our dual-bag reps are now interacting with clinicians in the field. Our focus remains on expanding the use of rectal spacing in the treatment of prostate cancer, and we are engaging with urologists and radiation oncologists. Barrigel is a differentiated rectal spacer that is clinically proven to significantly reduce unwanted radiation exposure. Moving to UroLift. We continue to expand our foundation of clinical data that supports the use of UroLift as a safe and effective minimally invasive treatment for BPH. In November 2023, we highlighted a new peer review study in the Nature Journal, Prostate Cancer and Prosthetic Diseases, that reinforces the position of the UroLift system as the gold standard in minimally invasive surgical treatment for BPH. Results suggested that within 1 year of BPH surgery, 1 in 20 patients may require retreatment regardless of whether they receive a TURP, GreenLight, Rezum or UroLift. Additionally, at 1 year, procedural complications requiring a return procedure in the outpatient setting was lowest following UroLift and highest following Rezum. The average time to the first complication was the longest for UroLift. At 5 years, retreatment was lowest for TURP and statistically similar between GreenLight and UroLift. The retreatment rate for UroLift is comparable to published controlled trial rates, thereby underscoring the durability of the UroLift system. We continue to focus on supporting UroLift with clinical data, and note that we have 8 sponsored research abstracts that have been accepted for presentation at major urological meetings in 2024. Turning to an update related to our surgical business unit. We have completed the launch activities for the Gore Seamguard Bioabsorbable staple line reinforcement material to be used with the Titan Stapler. The ability to offer synthetic buttressing material alongside the unique features of the Titan Stapler should enable Teleflex to further address surgeon clinical needs and preferences in the sleeve gastrectomy market. Lastly, as we look into 2024, we will continue to advance our new product introductions with a number of launches across our business units. In our interventional business, we expect to receive FDA marketing clearance and launch the Ringer Catheter in the second half of 2024. Ringer incorporates a unique balloon design that allows blood to flow through a vessel while the balloon is inflated. We will initially launch with a PTCA indication, but we have completed enrollment in a vessel perforation trial that will be utilized to seek FDA label expansion. In our surgical business, we anticipate launching new ligation products, including an automated polymer clip applier in the second half of 2024. We will also continue to refresh our laryngoscope families with a series of launches during the year. Our anesthesia business unit is also on track for new product launches, including updated technology in our EZ-IO business that would enable expansion of our user base, for which we expect FDA approval in 2024. We will provide more details upon launch. That completes my prepared remarks. Now, I would like to turn the call over to Tom for a more detailed review of our fourth quarter financial results. Tom?

Thanks, Liam, and good morning. Given the previous discussion of the company's revenue performance, I'll begin with margins. For the quarter, adjusted gross margin was 60.1%, a 10 basis point increase versus the prior year period. The year-over-year increase was primarily due to favorable price, benefits from cost improvement initiatives, lower logistics and distribution-related costs and the Palette acquisition, partially offset by continued cost inflation and unfavorable fluctuations in foreign exchange rates. Adjusted operating margin was 26.3% in the fourth quarter. The 160 basis point year-over-year decrease was primarily driven by the inclusion of Palette Life Sciences operating expenses, employee-related expenses and investments to grow the business, partially offset by the flow-through of the year-over-year increase in gross margin. Net interest expense totaled $22.5 million in the fourth quarter, an increase from $18.7 million in the prior year period. The year-over-year increase in net interest expense reflects higher interest rates versus the prior year and higher average debt outstanding utilized to fund the acquisition of Palette, partially offset by increased interest income. Our adjusted tax rate for the fourth quarter of 2023 was 11.6% compared to 13.6% in the prior year period. The year-over-year decrease in our adjusted tax rate is primarily due to an increase in tax deductions as a result of additional amortization of R&D costs, which as a result of the U.S. tax law change, resulted in capitalization of such costs starting in 2022. At the bottom line, fourth quarter adjusted earnings per share was $3.38, a decrease of 4% versus prior year. The year-over-year decrease in EPS reflects dilution from the acquisition of Palette Life Sciences and the related incremental borrowings. Turning now to select balance sheet and cash flow highlights. Cash flow from operations for the 12 months was $511.7 million compared to $342.8 million in the prior year period. The $168.9 million increase was primarily attributable to lower tax payments, favorable changes in working capital and favorable operating results. The favorable changes in working capital were primarily driven by lower inventory purchases stemming from the buildup of inventory in the prior year due to elevated global supply chain volatility. Moving to the balance sheet. At the end of the fourth quarter, our cash balance was $222.8 million as compared to $292 million as of the end of 2022. For the 12 months, the decrease in cash is primarily due to payments to fund the Palette acquisition, partially offset by net proceeds from borrowings and operating cash flow. Net leverage at quarter end was approximately 1.9x. Inclusive of the acquisition of Palette Life Sciences, our financial position remains sound and continues to provide us flexibility to execute on our long-term capital allocation strategy. Turning now to financial guidance. Starting with a couple of discrete items for 2024. First, we continue to expect the Palette acquisition to be $0.35 dilutive to the company's adjusted earnings per share in 2024. Beginning in fiscal year 2025, the transaction is expected to be increasingly accretive to adjusted EPS. Second, as previously disclosed, the manufacturing transition services agreement with Medline associated with our sale of certain respiratory assets included in December 2023. Of note, Teleflex generated $75.7 million in revenues from the MSA in 2023, which will not repeat to 2024. Moving to our outlook for 2024. We are expecting 2024 constant currency revenue growth of 3.75% to 4.75%. The year-over-year growth includes the loss of the $75.7 million in MSA revenues, partly offset by the incremental revenues from Palette. Turning to foreign exchange. We assume approximately $5 million or 15 basis points headwind to revenue from foreign exchange translation in 2024. Our outlook for foreign exchange includes a euro to dollar exchange rate of approximately $1.08. Netting the loss of MSA revenues, the incremental Palette sales and foreign exchange headwinds represents an approximately 100 basis point year-over-year headwind to growth in 2024. Considering the foreign exchange outlook, we expect reported revenue growth of 3.6% to 4.6% in 2024, implying a dollar range of $3.082 billion to $3.111 billion. Turning to margins. We expect 2024 gross margin to be in the range of 60% to 60.75%. Our gross margin guidance reflects the year-over-year positive impacts from the termination of the MSA, manufacturing efficiencies, rights and the Palette acquisition, partially offset by inflation and the impact of changes in foreign currency exchange rates. We expect operating margin to be in the range of 26.25% to 26.75% for 2024. Our guidance reflects the flow-through of gross margin and the positive impact of restructuring, offset by the inclusion of operating expenses for Palette Life Sciences and investments to grow the business. Moving to items below the line. Net interest expense is expected to approximate $78 million for 2024. The majority of the year-over-year increase in our net interest expense outlook reflects the impact of borrowings associated with the Palette acquisition, partially offset by planned debt repayments during 2024. Our tax rate is expected to be approximately 12% for 2024, which reflects favorable mix offset by discrete items in 2023 that will not repeat in 2024, and the impact of Pillar 2 global minimum tax. We estimate the impact of Pillar 2 to add approximately 150 basis points to the 2024 tax rate. Turning to earnings. We expect 2024 adjusted earnings per share to be in a range of $13.55 to $13.95. Our adjusted EPS outlook reflects $0.35 of dilution from the acquisition of Palette, $0.26 of dilution from the termination of the MSA and a $0.23 headwind associated with the year-over-year increase in our tax rate, primarily due to the Pillar 2 minimum tax. Relative to foreign exchange, although there is a negligible impact on revenue, the headwind to earnings per share is approximately $0.24 year-over-year. Based on current foreign exchange rates, we expect roughly half of the headwind to EPS to fall into the first quarter of 2024. When adjusting for these items, including the negative impact of foreign exchange, the underlying adjusted constant currency EPS growth is approximately 7% at the low end of guidance and 10% at the high end of guidance. Although we do not provide quarterly guidance for your modeling purposes, we expect reported revenues for the first quarter to be in a range of $725 million to $730 million, including a negligible foreign exchange impact year-over-year. That concludes my prepared remarks. I would now like to turn it back to Liam for closing commentary.

Thanks, Tom. In closing, I will highlight our 3 key takeaways from the fourth quarter of 2023. First, we delivered on our financial commitments for 2023. For the year, constant currency revenues increased 6.5% and adjusted earnings per share were $13.52. Compared to our initial 2023 guidance, constant currency revenue growth exceeded our guidance, while adjusted earnings per share was at the high end of our range. Our execution remains strong. We are launching new products and our margins remain healthy. Second, the fourth quarter performance and stable to improving macro environment provides a solid foundation for growth as we head into 2024. Third, we will continue to focus on our strategy to drive durable growth. We will invest in organic growth opportunities and drive innovation over time, expand our margins and execute on our disciplined capital allocation strategy to enhance long-term value creation. The integration of Palette is progressing well and we expect the acquisition to be a meaningful contributor to our growth in the coming years. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q&A.

Our first question comes from Patrick Wood with Morgan Stanley.

I guess the first one Palette, we will talk a lot about Barrigel understandably as the bulk of the business. But you obviously acquired with that a number of other urology assets that are a little bit smaller. And that combined with obviously UroLift and Barrigel, you've got a bit of a platform that you're kind of building up on that side of things. So my question is essentially like how much interest is that for you guys longer term in scaling up in that market overall, just given it's quite a fragmented industry and there's quite a lot of interest in different areas? Is that something that's kind of crossed your minds? Or is it you kind of now done with urology to your mind?

UroLift in 2017. We knew the urology call point very well because of our surgical business. There isn't a radical prostatectomy done in the world that doesn't use one of our surgical products. We built on that with the Palette acquisition. The main product in there is Barrigel for rectal spacing. It's performed beyond our expectations in the first quarter of ownership. And that momentum, we'll carry that on. We will integrate Palette before we do anything else in the urology space, but urology is definitely an early area of interest to us, Patrick, in particular, men's health. There are areas within men's health that are open for disruption. There are some parts of men's health that haven't had innovation or new technologies in a number of years, similar to the fact that there had been no disruption to BPH until UroLift came on to the market. So we think there are areas for disruption within men's health, and it is an area of focus for us, probably not in the next 6 months, Patrick, to be fair, as we integrate Palette into Teleflex. But thereafter, our balance sheet, as you know, is in great shape. So we would see that as a definite area of expansion for Teleflex.

And then as a quick follow-up, you've obviously got a lot of product launches moving through '24. You have things that are moving from dilutive to accretive, the inflation environment is getting a little bit better. There's things that are moving considerably in your direction as we move through '24. Is that environment part of what gives you confidence around the '25 LRP? Not to jump the shock, but is that big picture why you still feel very confident in that?

I feel really good about the Long Range Plan. In our first year, we achieved a revenue growth of 6.5%. This year, our guidance is between 3.75% and 4.75%, taking into account a headwind of 100 basis points. When we adjust for those headwinds, the underlying growth we expect this year is between 4.75% and 5.75%. As we enter the second year of the Long Range Plan, I am confident in our ability to meet our current guidance, which will set us up for the final year of the plan. For me, execution is key. I believe we executed very well in 2023, and my aim is to maintain that level of execution through 2024, striving to meet and possibly exceed our goals each quarter as the year progresses. Regarding margins, we are expecting an uptick in gross margins this year. However, achieving our margin goals will be more challenging. The investment community is aware of this, as we have faced more inflation than expected. We have also integrated a valuable asset in Palette, which brought some operating expenses, but we still believe these numbers are achievable, and we have a clear path to reach them.

Our next question comes from the line of Jayson Bedford with Raymond James.

Maybe just on gross margin. The fourth quarter was strong. I wanted to ask about the '24 guide. You did what 59.5% in '23. I thought the MSA adds 100 basis points, and then you have Palette, you have a bigger revenue base. So I guess, my question is, is the gross margin headwind all on the FX side? Or are there any new pressures that you're contemplating here?

Well, to your point, we get a nice benefit in 2024 from both the acquisition of Palette and from the exit from the MSA. So those are both accretive to gross margin. What I would say is that we've got a number of headwinds, as Liam had mentioned, inflation is still higher than it had been pre-pandemic. And if you look at the total of our favorable pricing, savings from manufacturing, cost improvements, savings from footprint programs, they're able to offset those inflationary pressures as well as some capitalized balances that are on the balance sheet and will roll out in the P&L in 2024. So those are kind of a wash. In addition to the inflation headwinds, we're also experiencing a modest adverse impact from foreign exchange.

And then just maybe to pile on the last line of questioning. On the urology selling effort, have you seen any selling synergies between Barrigel and UroLift? And can we assume that there's nothing baked into the guide?

You can assume there's nothing incorporated into the guidance. For UroLift, we observed a slight improvement in the fourth quarter compared to the third quarter, and we're monitoring that closely. We still project $66 million to $68 million for Palette, and we expect Interventional Urology to achieve around 7.5% revenue growth at the midpoint. The lower end of our guidance suggests growth just above 7%. The midpoint assumes there won't be any improvement in UroLift from the third quarter. We chose the third quarter as it is the most recent quarter without seasonal impacts. They will face a challenging comparison in the first quarter, but I anticipate continued improvement as the year progresses. Overall, I believe our guidance is appropriately cautious, and our goal is to execute on it throughout the year. As a team, we are confident in our ability to meet all expectations.

Our next question comes from the line of Shagun Singh with RBC Capital Markets.

I wanted to discuss the 2024 guidance. You are predicting around 5% to 6% growth after accounting for the one-time factors you mentioned. Additionally, I expect about 1.5 times EPS growth compared to sales growth. What accounts for the cautious outlook, particularly for the top line, considering the strong finish in 2023? I have a follow-up as well.

So look, we're really happy with where we landed at the end of 2023 in quarter 4. If you adjust for the days, we delivered a robust 8.1% growth in the fourth quarter. And in the entire year, we delivered 6.5%. I will say, Shagun, that if you look at the low point of our guide this year at 3.75%, and you add back that percent to get you to 4.75%, it's the exact same starting point at the low point as we had last year. I think that the guide is prudent. I think the guide sets us up so that we can execute as we go through the year. And I think that it allows us, as we go through the year as a company to do what we did in 2023, and that has always been our goal. Now there are a couple of moving pieces within the guide, Shagun, from the different business units I would expect APAC, OEM and IA and surgical to take a modest step back. Surgical because they'll anniversary the Titan acquisition. And then I would expect a modest step forward in growth rate for EMEA, Interventional Urology, Vascular and Anesthesia. And I think that I feel as I said, good about the way we've guided and I feel good about our ability to deliver.

And then just on M&A, Liam, can you provide us your updated thinking there and especially how you're thinking about short-term P&L dilution relative to top line accretive M&A? And any interest in adjacencies?

I believe that the most crucial element in M&A is having enough firepower, and we do have that. With a leverage ratio of 1.9x, we have significant capacity to pursue opportunities without excessively increasing our leverage. We are aware of the issue of dilution, as our investors have expressed concerns that the combination of two significant factors in 2024 has led to considerable dilution. As Tom explained, our underlying earnings per share growth remains strong and positive. However, we are affected by the MSA, which is contributing to dilution, as well as Palette's impact related to foreign exchange. When we consider these factors, our growth outlook ranges from 7% to 10% if we exclude them. We are fully aware of this situation and are actively exploring assets in the marketplace. Our M&A team is engaged, and we are identifying attractive opportunities that align well with Teleflex, all while keeping investor concerns about dilution in mind.

Our next question comes from the line of Matt Taylor with Jefferies.

This is Mike Sarcone on for Matt. Just a first one on guidance. Understanding that you provided 1Q, which is helpful. Do you think you can elaborate a little more on phasing through the year? I know you mentioned kind of seasonality consistent with pre-COVID levels, but we've got a bunch of moving pieces, particularly big shifts or swings in selling days in the 2023 base period. So any more color you can provide on how you're thinking about phasing through the year?

Yes. So I think that the low point of the year would be quarter 1, and then you would see improvement as you go through the remainder of the year from the revenue side and it would be fairly consistent after quarter 1. And the reason that the quarter 1 is a little bit dampened is, as I said, there's a few tough comps in the mix there. But we would envision that once you get through to Q1, you would get back to a more normalized seasonality with quarter 4, the biggest of the year, just due to the normal seasonality and patients getting more procedures done in quarter 4, and this has been a phenomenon for a number of years now since Obamacare came into being. So that would be our expectation on the revenue line.

Just a quick follow-up there. When you see improvement in sales each year. Do you think 3Q could be above 2Q in terms of sales dollars?

No, I'm talking in general that once you get through the low point of Q1 that Q2, Q3 and Q4 would be above Q1, with Q4 always being the biggest quarter from a revenue perspective just due to that normal seasonality. Mike, the point I was trying to make is that Q1 would be the low point.

Our next question comes from the line of Larry Biegelsen with Wells Fargo.

Liam, what was price in 2023? And what are your expectations for ‘24? And I have 1 follow-up.

We had a good year with price in 2023, we exceeded our goal of 50 basis points and came in above that. Our goal for 2024 is to deliver another 50 basis points, and I'd be hopeful that this is the third year of the pricing cycle, so I'd be hopeful that we'd be able to at least deliver that 50 basis points again.

I appreciate it. I know you just guided to 2024. I appreciate your comments about the operating margin, LRP being a bit challenging for '25. So I guess my question is, is the 7% to 10% underlying EPS growth in 2024 the right way to think about '25? And are there any moving pieces to consider like interest expense, which I would imagine would come down from that $78 million and could be a nice tailwind for you? Any just high-level thoughts beyond '24.

I mean the reason that we're calling out the underlying earnings per share is because underlying that's what the business is doing. And therefore, we do believe that our business is well capable of driving that high single digits into the double digits. And I think even though the up margin targets will be a challenge. I just still think that they're doable for the business, but when will we get there? If we don't get there in 2025, then get there shortly thereafter. I might ask Tom just to give a bit of color on the interest, Tom, if you don't mind.

Sure. To discuss EPS and its implications for 2025, we anticipate some dilution in 2024 due to the MSA ending, which will affect our run rate by 2025. Similarly, we expect Palette to achieve profitability by 2025, contributing positively. Additionally, we are noticing a decrease in inflation in the marketplace, but it takes time for this to reflect in our inventory and clear through the P&L. If the inflation trend continues to decline, we should see benefits improve by 2025 in that sector. Regarding interest, we plan to use our free cash flow in 2024 to pay down some of our prepayable debt, which will lower our outstanding debt each quarter. Moreover, our guidance includes an assumption of a 325 basis point rate cut, so we anticipate a more favorable interest expense environment as we progress through the year and into 2025.

Our next question comes from the line of Matthew O'Brien with Piper Sandler.

Just clarification upfront to make it clear for everybody on the call, 5.25% at the midpoint is the constant currency growth rate assumption, when everything is adjusted, 8.5% is the midpoint for the bottom line when everything is adjusted. I just want to make sure that's fully clear.

Yes, I think your math is good, Matt, as always. Those would be the adjusted top line and bottom line midpoints. Thanks for clarifying that. That's good of you.

So the Q1 guide actually was better than I was expecting because the comps are so tough, and I understand Palette is there this year, but the rest of the business would have to be doing well across Vascular, International. I don't know if there's extra selling days, but I'd just love to hear a little bit about the comfort on the outlook for Q1 specifically. And then I think it implies actually an acceleration into your stack growth over the remainder of the year. So again, I don't know if that's new products, et cetera, but we'd just love to hear about that. And then I do have 1 quick follow-up.

Our guidance suggests that we expect around 2% to 3% growth for Q1, with underlying growth estimated at 3.5% to 4.2%, adjusted for the MSA, FX, and other variables. As mentioned before, we may be slightly lower due to tough comparisons and the ramp-up of Palette over the year. Vascular is also expected to be somewhat softer in the first quarter because of the recall. However, the introduction of new products in vascular is crucial as we progress through the year, particularly with several new offerings in the PICC franchise. As for our confidence in achieving the first quarter goals, we are nearing the end of February and the team feels assured about meeting that target. We've successfully reached, or surpassed, our revenue and EPS goals for all four quarters in 2023. We're focused on achieving five consecutive successes, and ultimately, eight, before resetting our targets for the next year, which is our plan.

Regarding Larry's question about the challenges affecting EPS this year, I don't expect much improvement from Palette or the MSAs this year. However, it seems that you are in a good position for a significant rebound in EPS growth next year. Even if it's in the low to mid-teens range for EPS growth, is my thinking off base considering the challenges you're facing this year?

I would appreciate your patience as we work through 2024 before we provide guidance for 2025. We expect that the underlying EPS growth, excluding the headwinds, is solid. As Tom mentioned, several factors, including Palette and interest, will contribute positively. We will offer guidance for 2025 later in the year.

Our next question comes from the line of Mike Polark with Wolfe Research.

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?

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.

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?

It's a non-cash item. We are essentially exiting one of our pension plans where we fully funded it and provided pensioners with a buyout option. For those who didn't take the buyout, we will put an annuity in place for them. In summary, we are simply exiting a pension plan, but it doesn't involve cash.

Our next question comes from the line of Richard Newitter with Tourist Securities.

It's Lin Zhang on for Mike. So I'm just wondering what assumptions around the growth incorporated in the guide? And also appreciate you share your expectation of the Palette that's the path.

Thank you. I apologize for the sound issues. Regarding the Titan Stapler, we expect growth in 2024, though not at the levels we initially anticipated at the time of acquisition. We have already felt some of the effects of GLP-1s throughout 2023. We believe it will continue to grow in 2024. We are still proctoring surgeons, and the product is performing very well with no issues. With the launch of Buttress, 60% of surgeons are expected to use it. While our product doesn't require it, it aligns with how surgeons perform the procedure, allowing us to access a larger market. Our proctoring efforts, as of January, are on track with our expectations, and we are onboarding new surgeons continually.

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?

I believe it will take a modest step back. Last year, it grew about 18% or 19%. It will return to the double-digit range as we continue to execute. A low double-digit growth is a reasonable starting point. However, keep in mind that these modest declines will be balanced by growth in businesses like Vascular and Anesthesia, as well as in regions such as EMEA.

Our next question comes from the line of Anthony Petrone with Mizuho Securities.

There is a strong underlying performance here. Liam, could you start by addressing procedure volumes? We’ve observed significant activity from managed care companies regarding MLR losses, noting that procedures are on the rise. This trend is apparent in several reports. Additionally, even when excluding days for Teleflex, the underlying data reflects this. Could you provide an update on procedure volumes in the U.S.? I also have one follow-up question regarding international markets.

Yes, we are experiencing solid procedure volumes in acute hospitals, which have returned to pre-pandemic levels. Our execution in this area has been strong, and we are also gaining from a variety of new product launches, which will continue into 2024 and enhance procedural activities in hospitals. It is a very positive environment in acute care hospitals, which we are quite enthusiastic about.

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?

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.

Our next question comes from the line of Craig Bijou with the Bank of America.

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?

Yes. So high-growth products portfolio performed very well in 2023. There were some really standout contributions, I'm thinking particularly of the intraosseous and 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 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.

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?

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.

Our next question comes from the line of Kristen Stewart with C.L. King.

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?

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.

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?

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.

Our final question comes from the line of Mike Matson with Needham & Company.

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?

We are broadening the indication, which aligns with our model. We will need to conduct clinical trials to achieve this goal. We have started identifying and enrolling investigators to assist us with this process. As we strengthen our relationships with radiation oncologists and urologists, they will play a crucial role in obtaining this expanded indication. I prefer not to discuss the specifics of the Palette indication on the call, Mike, as you know we have competitors in your city.

And then just on you are within China, I know you talked about the size there, and obviously, there's a ton of people there. But can you just talk about kind of the competitive landscape? And then I'm not even sure whether this is something that's covered by government payers, insurance or is it something that's out of pocket for these BPH treatments there?

Yes. So the landscape is similar to where it is everywhere else in so far is that Tarp is the main procedure that is used on men within China. The nuance in China is that they don't tend to be as pharma-focused in so far as that they will try other herbal remedies within that. But you're right, it's such a huge population. The way it works within China is your first step is to get it listed on all of the regional tenders. So we're going through that process now in Shanghai and Beijing, in those 2 big provinces. That would be an obvious place to start. And then thereafter, you apply for reimbursement. The reimbursement never covers in any procedure of the total cost of the procedure, Mike, there's always some out-of-pocket and the general population in China is used to having to pay out-of-pocket when they go to a hospital.

I would now like to turn the call over to Mr. Lawrence Keusch for closing remarks.

Thank you, Mandeep, and thank you to everyone who joined us on the call today. This concludes the Teleflex Incorporated fourth quarter 2023 earnings conference call.

That is all the time we have for questions this morning. Our conference for today is now concluded. Thank you all for your participation.