Unidentified Analyst: Thank you.
Operator: Your next question comes from the line of Matt Taylor of Jefferies. Your line is open.
Mike Sarcone: Good morning. This is Mike Sarcone on for Matt today. Thanks for taking the questions.
Thomas Powell: Hi, Mike.
Mike Sarcone: Hello. Just a follow-up on Standard Bariatrics, and thanks for all your commentary on the GLP-1 impact. Do you think you can give a little more color on the reduction you’re seeing in sleeve gastrectomy volumes? Any quantification would be helpful. And then just given that, what kind of share gain do you expect you need to at least offset the reduction versus your prior expectations for the volumes?
Liam Kelly: So, it was a $300 million market roughly, Mike. So, who knows what the impact of GLP-1s will ultimately be. That’s got to be the starting point. I have a view that it’s obviously going to reduce sleeves in the nearer term. And it will depend if that is an air pocket depending on the outcomes, the longer-term outcomes of GLP-1s, how people bear with the side effects of GLP-1s. And don’t ever underestimate the cost. There’s a significant cost to these pharma options compared to a surgical option. And I know everybody is all heated up about the 20% reduction of major events in the SELECT study. Just to put that into context, as we said in our prepared remarks, that’s going from 8% to 1.6%. So, it’s a percent of a percent, which is a dangerous way to measure something as every analyst on this call will know, the true reduction is around 1.6% in absolute terms.
And, as I said in my prepared remarks, the study that came out of the Cleveland Clinic showed a 40% reduction in the same events from gastric sleeves. So, I think, clinicians will start to take a step back and look at this on balance. What we are seeing is a reduction in the customers that we’ve converted for the number of procedures that they are doing for sure. But, as I said, it’s a – it was a $300 million market. What is it? A $200 million market now, plenty of opportunity, Mike, for us to grow into, because if you talk to most surgeons, they will tell you that this is the morbidly obese population we’re talking about that get a gastric sleeve. And I believe firmly that gastric sleeves, and if you talk to bariatric surgeons, gastric sleeves will exist in the future.
And so, therefore, to grow into that, let’s call it, a $200 million market is still significant opportunity for Teleflex.
Mike Sarcone: Great. Thanks, Liam. We’re on board with you in that kind of 10 to 20 bps per year impact. And just – my second question is just on the ASP pricing that you’re taking. Is it possible to quantify the level of price you’re taking and how sustainable that is or your thoughts about your ability to take price in 2024 and beyond?
Liam Kelly: So yes, it’s a good question. I think we’re two years through the cycle now and most of our tenders and contracts go on a three-year cycle. So, through this year, we had laid out our plan to do 50 basis points. I can tell you we’re doing better than that. We’re a good bit north of that 50 basis points, similar to what we did last year. So, that’s a good story for us. And I think next year, we’ll be well in a position to do another 50 basis points, at least a positive pricing in the environment. After that, Mike, I think it will trail off a little bit, because we’ll have been through the cycle, the three-year cycle of your normal tenders, and we’ll assess that then in 2025.
Operator: Your next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open.
Vik Chopra: Hey. Good morning. This is Vik in for Larry. Thanks for taking the question. Two for me. The one on 2024, I just wanted to ask about the sustainability of the 10% tax rate given the recent changes in the tax laws? And my follow-up question is, on your M&A strategy, you recently closed the Palette deal, I’m just curious as to how much capacity you have left to do additional deals and how the higher interest rate environment is impacting your M&A strategy? Thank you.
Liam Kelly: So, I’ll cover the M&A first, and then I’ll ask Tom to cover the tax question that you had, Vik. So, on the M&A, as we said in our prepared remarks, pro forma, we’re at 2.1 times levered. So, we have lots of firepower. Depending on what EBITDA the asset would bring, that would put you up towards the $2 billion mark of firepower available to Teleflex as we sit here today. Regarding the interest rate environment, interest rates were high at the time when we bought Palette, we’re still able to get to our internal cost of capital by year five. We still found a really attractive asset. We still found an asset that is going to continue the transformation of Teleflex. It’s going to augment our topline growth. It’s got really attractive margins as we’ve been through previously.
And if you could find another Palette in the morning, I wouldn’t blink twice. I would be all in to execute on that. As I sit here today, we’re talking to more than a handful of companies. They range from anything from $100 million potential price to over $1 billion in potential purchase price. And I think the environment is still pretty attractive to companies like Teleflex who have the balance sheet to execute. Obviously, interest rates, we’ll remain disciplined. We’ve always remained disciplined through every cycle. When interest rates were low, we were disciplined; when interest rates are higher, we’re going to be disciplined. Nothing will change in that regard. And I’ll ask Tom to answer the question on the tax, if you don’t mind, Tom.
Thomas Powell: Sure. So, our current 2023 tax rate of approximately 10% is a very attractive rate, I would say. And we’re currently in the process of working through the AOP and plans for next year. So, we’re not in a position to provide specific guidance for 2024 at this point. You know, I would say that the expectation would be that the tax rate would be modestly higher than where we are in 2023.
