Thank you for your question.
Operator: Your next question will come from the line of Jailendra Singh with Truist Securities.
Jailendra Singh: I want to ask about the capital deployment strategy over the next 12 months. Has there been any change there in terms of your priority to pay down debt versus buyback shares or even M&A allocation? And one quick clarification, what is the magnitude of the swaps rolling off next year?
Ari Bousbib: The first question and the second question, I’ll give to the technicians here. The first question on capital allocation. Look, it’s fascinating, we are getting from our investors 2 different messages. One is please, please reduce your leverage. And one is, please, please do not change your leverage. And I have to tell you, we historically have been living with a level of leverage that’s admittedly higher than others. We are at around 3.5 net leverage right now. I want to just — for the anecdote, tells you that we’ve had in the past, much higher levels of leverage and a much more difficult market conditions and much lower levels of cash flow conversion. And we’ve lived with that nicely because we have a highly predictable, high-visibility business model.
Our strategy has been, a, to invest in the business in capital expenditures, to innovate new products and services; b, by companies that add, that are accretive and enable us to grow faster; and, c, return money to our shareholders through share repurchases. And that has been a very effective strategy, especially when rates were extremely low. I remind you that just 2 years ago, treasuries were at 0, 0. And I’m very glad that we had that amount of leverage. Today, treasury is at, what, 5.5? I mean we’ve never seen in history, such a sharp dramatic rise in interest rates in such a short period of time. Obviously, we are paying the brunt of our leverage, the price of that leverage because of that, and it’s costing us 10 points, 10 points of growth in earnings per share.
However, I would argue that mid-single-digit treasury rates is high versus 0, but it’s not the end of the world. I will also tell you that we though the brunt of that sharp increase in interest rates this year in ’23. And assuming like everyone else assumes that the curve, if it needs to be believe indicates a stabilization and even a potential decline, then that should be a headwind — I’m sorry, a tailwind to our EPS going forward, and we don’t anticipate a sharp increase in rates or interest expense going forward. And so therefore, we should be able to resume strong EPS growth going forward. That’s for the leverage. Having said that, we are working as we speak on, obviously, refinancing and readdressing some of the shorter-term maturities, which we have in ’24, in ’25, and we’ll do that soon, hopefully.
And that will continue to alleviate that headwind that we faced this year in interest expense and continue to stabilize our balance sheet. But from there, at least, we intend to continue to use our cash to invest in the business and do acquisitions and share repurchase, especially at the levels where we are. Thank you for your question. Any comment on the swap?
Ronald Bruehlman: Yes, we have about $800 million of swaps rolling off in the second quarter of 2024. Adding to that — add anything to that, which is at about an average rate of about, call it, somewhere between 2.5% and 3%. So it will be a headwind next year, but not to the extent that you saw on the swap that rolled off this year.
Ari Bousbib: Yes. Thank you very much.
Nicholas Childs: Well, thank you, everyone, for joining us today. We look forward to talking to everyone on our next call. And myself and the team will be available for any follow-up calls and any other follow-up questions you have across the day and over the next few days. So feel free to reach out. Thanks, everyone, for joining.
Operator: This concludes today’s conference call. You may now disconnect.
