Good morning, ladies and gentlemen and welcome to the Teleflex Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And 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 Third Quarter 2022 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, this call will be available on our website and a replay will also be available. Please refer to our press release from this morning for details on how to access the replay. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer; and Thomas Powell, 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 our slides. 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. During this conference call, you will hear management make statements regarding intra-quarter business performance. Management is providing this commentary to provide the investment community with additional insights concerning trends and these disclosures may not occur in subsequent quarters. With that said, I will now turn the call over to Liam for his remarks.

Thank you, Larry and good morning, everyone. For the third quarter, Teleflex revenues were $686.8 million, a year-over-year decline of 1.9% on a reported basis and an increase of 2.4% on a constant currency basis. Compared to the prior year period, revenue under the manufacturing and supply transition agreement associated with our prior divestiture of the Respiratory assets negatively impacted growth by 1.3% in the quarter, implying underlying constant currency growth of 3.7%. Adjusted earnings per share declined by 6.8% year-over-year to $3.27. In reviewing the quarter, the majority of our business units executed well. When excluding UroLift and adjusting for the Respiratory divestiture, the remaining 88% of the business grew at an underlying rate of 4.3% in the third quarter. This solid performance continues to reflect the benefit of Teleflex's diversified portfolio that has been purposely built to target the care of critically ill patients. We saw improvement in revenues as the third quarter progressed with September strengthening over July and August. Our OEM business unit drove double-digit constant currency year-over-year revenue growth. While the Interventional business unit grew approximately 9%. Our Surgical business turned in another solid performance with mid-single-digit constant currency growth year-over-year. From a geographic perspective, we saw strong results in Asia which continues to be an important growth driver for Teleflex. Conversely, Interventional Urology continues to be impacted by patient business to urologists that remain down year-over-year and staffing shortages, with third quarter revenues modestly missing internal objectives. In the quarter, our high-growth revenue which includes UroLift, MANTA, hemostatic products, EZ-IO, on controls and PIC maintained momentum across the majority of growth drivers. For the 9 months, UroLift has declined 5.8% year-over-year. While the remainder of products in the high-growth portfolio continues to show healthy gains with 14% growth. Moving over to durable core revenues…

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 totaled 58.7%, an 80-basis point decrease versus the prior year period. The year-over-year decrease was driven by the expected incremental inflation, partially offset by favorable pricing. As expected, we have seen an improvement in sea freight, although raw material and component availability have yet to normalize. Of note, our pricing strategy continued to maintain its traction through the third quarter. Adjusted operating margin was 26.9% in the third quarter. The 160-basis point year-over-year decline was the result of the lower gross margin, deleverage across our expense base from lower revenue year-over-year, inflation in our expense base such as wages and planned investment in the business for our growth drivers, partially offset by disciplined expense management of nonrevenue-generating expense. Net interest expense totaled $13.2 million in the third quarter, an increase from $11.8 million in the prior year period. The $1.4 million year-over-year increase in net interest expense reflects higher interest rates versus the prior year, partially offset by a reduction in average debt outstanding. Our adjusted tax rate for the third quarter of 2022 was 9.8% compared to 11.3% in the prior year period. The year-over-year decrease in our adjusted tax rate is primarily due to further enhancements in tax efficiencies of our global structure, partially offset by tax expense arising from the new provision of the U.S. tax law requiring the capitalization of certain R&D expenses. At the bottom line, third quarter adjusted earnings per share was $3.27, a decrease of 6.8% versus prior year. Turning to select balance sheet and cash flow highlights. Cash flow from operations for the 9 months was $244.4 million compared to $450.5 million in the prior year period. The…

Thanks, Tom. In closing, I will highlight our three key takeaways from the third quarter and our 2022 outlook. First, our third quarter results reflect the diversification of the Teleflex portfolio through the combination of our growth drivers and stability of durable core revenues. Importantly, we will continue to focus on investment in our future growth drivers while managing overall costs for the business. Second, in the quarter, we augmented our growth drivers with the acquisition of the Standard Bariatrics Titan SGS powered stapler. We expect revenue growth and margin accretion over time as we effectively integrate Standard Bariatrics into the Teleflex Surgical business and expand the reach of this innovative stapling technology. Accordingly, we expect the Standard Bariatrics acquisition to enhance our long-term constant currency growth. Third, we continue to execute against our long-term growth strategy. We will continue to incrementally invest in our high-growth portfolio and drive dependable expansion in our durable core portfolio. We have levers in place to drive further expansion in our margins. And our balance sheet is in a solid position with pro forma leverage of 1.9x, providing ample financial flexibility for our capital allocation priorities, including M&A. That concludes my prepared remarks. Now, I would like to turn the call back to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from Cecilia Furlong with Morgan Stanley. Cecilia, your line is open.

Good morning and thank you for taking the questions. Liam, I wanted to start on your commentary on UroLift and really just the site of care that you talked about in terms of where you're seeing patient flow offices versus inpatient. Can you just talk about how that's trended versus pre-COVID times? And then also just the role of DTC, you talked about surgeon training. How you're thinking about DTC going forward?

Hi, Cecilia, thank you for the question. With regard to pre-COVID patient flow and post-COVID patient flow. So we know that in Q2, patient flow was down approximately 12%. It was down high single digits in Q3 and we know that in 2021, patient visits were also below pre-COVID levels. So you add those together and we're seeing a significant drop in patient flow pre-COVID. The other impact is obviously staffing shortages. Now in the rest of our business and also within the UroLift portfolio included in that, we did see a modest improvement in staffing levels in the hospital side of service. So that was somewhat encouraging during the quarter. And if that continues -- that will continue to be encouraging. With regard to our DTC, we believe that the DTC continues to add value. We're ahead of our targets with regard to patients that we're transferring to urologists. TV actually dominates the way men first learn about UroLift. So it is definitely a medium we want to continue. And our brand awareness for UroLift continues to rise. So it is now at 19%, well ahead of TURP in that regard and TURP is seen as the gold standard when it comes to brand awareness and that's why I'm comparing it to TURP. So we're very encouraged by the results that we have from DTC. And it is our expectation to continue that. We do believe that the market will eventually recover. We do believe the patient flow will improve. We do believe that staffing levels will improve. And when that does happen, we're well positioned to take advantage of it.

Great, thank you. And if I could follow up, just your comments on Japan as well, the initial launch there. Can you talk through either your contribution, what you're seeing to date, outlook for 4Q? And then as you think beyond '22, just to your confidence, especially just given the current macro environment with the 15% growth that you laid out at the Analyst Day earlier this year? And thank you for taking the questions.

No, absolutely. So we're encouraged by what's happening in Japan. As you know, I was there in Q2 and met with a number of urologists. The adoption continues to be very solid within the geography. And obviously, this quarter, we will do our first UroLift cases in China which is, again, a good opportunity for us. Obviously, with -- in regards to the LRP, we do need to see the market recover. And I presume you're asking specifically to UroLift, I think that the LRP was a CAGR of 15% for UroLift over the 3-year horizon. And our LRP doesn't actually begin for another 2-and-a-bit months. It was using 2020 is to jump off and then beginning in 2022 as a jump off and then 2023 as the first year. Now as I said already, we do need to see the end markets recovering. We do need to see that patient flows begin to come back. And we do need to see staffing levels improve. And we are prepared when that does happen. Our sales force is fully staffed. The DTC has continued. The clinical data is compelling. The market is still massive. There's still 12 million men in the United States that suffer with BPH. And our patient survey that we did, does tell us that we are getting a heightened level of cancellations from patients for BPH procedures. And as the environment continues to improve, we would expect that to improve also.

Thank you. And our next question comes from Jayson Bedford of Raymond James. Your line is open.

Good morning. Maybe for Tom or the group. Just in this environment, revenue has slowed a little bit in the business. Wondering if this has impacted your thoughts on the pace of margin expansion, specifically thinking about your LRP goals.

Well, I will say that as revenue slows, you do lose leverage in the P&L. And for us to continue to drive margin expansion, we want to see that top line moving. I think as Liam just touched on, the LRP doesn't start for another couple of months. And our expectation is to continue to grow the top line. We'll have to look and see how inflation impacts us but that certainly has been a drag as well. But if you think about the business, the key tenets of margin expansion remain with restructuring programs are still in place. We do have good growth in our high-growth portfolio which, as you know, has got higher than average margin. So as Liam mentioned, getting UroLift back and growing in North America at a solid pace will certainly help us assure that margin achievement over the longer-term horizon.

And Jayson, I would just add, you are correct that the revenue has slowed. But if you normalize for the days in the Respiratory divestiture and you take the midpoint of our guidance for the remainder of the year, it will tell you that our underlying growth is actually in excess of 5%. And that's even with the decline in the current environment with the UroLift revenue. Obviously, an improvement in that will help us. And we have got really good pricing discipline, as you know. And we feel that we will do well in excess of that 50 basis points that we laid out. And we also have the restructuring programs which through the LRP will deliver another $28 million of benefit dropping through the gross margin line through to operating margins. So lots of moving pieces and we're in an inflationary environment and we will potentially lose some leverage this year. But with an improving environment, we'll see what will happen over the LRP timeframe.

Okay. And just as a quick follow-up. Liam, you mentioned an elevated backlog during the quarter. Is there a dollar amount that you could attribute to this dynamic?

So I don't want to get into too many specifics of a dollar amount but it's in the -- obviously, clearly in the millions of dollars and it was really impacting the Vascular Access business and the Interventional Access business. Those were the two that were most impacted. We have third-party providers in both of those businesses, one being Tyvek and the other being a third-party extrusion company that's causing us some difficulties at this moment in time. We would expect that to normalize in the fourth quarter and it's part of the reason we're able to maintain our constant currency guidance, that and the addition of Standard Bariatrics.

Thank you. We now have Shagun Singh from RBC. Please go ahead when you’re ready.

Thank you so much. Can you hear me, okay?

We can hear you, Shagun.

Okay, great. So, I was just wondering, Liam, if you can share any specific data points that might suggest that patients will return once the environment stabilizes. I'm a little surprised given the pace of cancellations for UroLift. So what makes you confident? And then your Q4 UroLift guidance now implied $86 million versus $101 million implied in the prior guidance. What gives you the confidence that you can achieve the 15% CAGR in '23 and beyond? And then can you just remind us of your confidence in the 6% to 7% LRP if UroLift does slow in 2023 and beyond. I know you made the acquisition of Surgical Bariatrics [ph] that adds about 60 basis points. So that should help offset some of that headwind. But if you can just talk about the 6% to 7% and how you're thinking about M&A as you think about the portfolio overall? Thank you for taking the questions.

Okay. Thanks, Shagun. There's a lot in that to unpack. So let me begin. As I said earlier, the LRP begins in 2-and-a-bit months, I think I feel confident in the 6% to 7% we outlined and the addition of Standard Bariatrics helps my confidence on the 6% to 7% CAGR over that period of time. I think that, again, reminding people that the 15% for UroLift is also a CAGR. And we probably have an easier comparable in the first year of that 3-year plan that should help us to improve that. Why do I feel confident that patients will return? Because there's a lot of them. There is 12 million patients out there that our target market is the 1.5 million men that have BPH, took the pill and no longer take it. And I'm also encouraged by what I see going on in the hospital environment where staffing levels are starting to improve. Some -- what we've learned from our patient study is some patients are having difficulty making appointments to actually get in to see the urologists. So if that staffing improvement in the hospital moves to the office and the ASC, that should also assist in getting that to come back. And you're correct in your math, it would imply for Q4 an $86 million number for UroLift. And what is considered in that is just the normal seasonality that one sees because of the deductible impact that happens every year going from Q3 to Q4. And obviously, the input from the international markets as we expand over there. So there isn't, in our $86 million, an implied continued recovery. If that happens, that will help but it's not implied in our guide as we've given it today.

Thank you. Your next question comes from the line of Matt Taylor of Jefferies. You may proceed with your questions.

Hi, good morning, guys. Can you hear me, okay?

We can hear you, Matt. Good morning.

Great. Hi, men. I’m okay. I have a couple of questions. I'll keep my questions to [indiscernible]. So, I wanted to ask you about -- you said you're going to be well in excess of the 50 basis points. So can you give us any sense for how much better you're tracking? And then also, can you keep this up next year? Is it something that you view as durable? Or is it more onetime?

So I think that Teleflex has always been a company that can carve out pricing even in a nonpricing environment. When none of our peer companies were getting pricing over the last number of years, we were always able to carve out 10 or 20 basis points. I think that we will do in excess of 50 basis points this year. We're tracking ahead of that, Matt, for the first three quarters. And I do think that we will be able to repeat that again next year at least. We are living in an inflationary environment. We're being impacted by it. Our customers are getting impacted by it. We're trying to walk that very fine line where we're being partners with our customers but at the same time, recognizing that we are seeing inflation. Inflation for us is costing us 100 basis points in gross margin this year as a result of what's being passed on to us from our customers. And therefore, there must be a recognition that we must pass some of that on to our customers and in a thoughtful way and in a way that maintains that business relationship with the customer.

Okay. Got you. And then I want to check some math. I went back on the disclosures about the high-growth portfolio ex UroLift. And I think it looks like you did like low double digits in Q1, excess of 20% in Q2. And then it looks like low double digits in Q3 versus -- is that correct? And then the 14% year-to-date, what do you expect for the high-growth portfolio going forward? And are the fluctuations quarter-by-quarter just comps? Or is there something else going on there?

No, the quarter-by-quarter isn't comps. The quarter-by-quarter, honestly, Matt, is some backorder clearance as we've had a few issues with Tyvek in some of our businesses, it flushes through in one quarter and that's what really -- if you go back to the transcript of Q2, we outlined that we had cleared through some backorders. So it's not particularly comps. It's really the timing of some of these backorders clearing as we overcome some of the supply-chain constraints. And you're correct in your math that we do expect that it is running at just over 14% ex UroLift for the first three quarters. And obviously, we anticipate staying in that region for the remainder of the year. So our high growth ex UroLift is performing well in line with expectations. And once UroLift recovers, that entire high-growth bucket should improve. And obviously, for individuals working their models, Standard Bariatrics will be included in the high-growth portfolio moving forward.

We now have the next question on the line from Mike Polark of Wolfe Research. Please go ahead when you’re ready.

Good morning. Thank you for taking my question. I have one on UroLift and then one on Standard Bariatrics. On UroLift, just 3Q to 4Q and I know this was asked differently but what is the lift embedded from the OUS efforts ramping into 4Q? Can you frame kind of the $7 million sequential step up? How much of that do you view as kind of the core U.S. business versus some of the OUS stuff starting to contribute more meaningfully?

Yes. So on that one, normally, what you see in seasonality within the U.S. is a pickup in that, call it, 7% to 10% just based on the deductible phenomenon that goes with that. Obviously, OUS, in particular, Japan has been ramping steadily. And as we advised investors, it's 1/3 of the size of the U.S. and we expected it to ramp at 1/3 of the size of the U.S. And in the first year, the U.S. business has done $5 million and then $15 million and then $50 million and so on and so forth. So if you take 1/3 of that, that would be a good metric for Japan. And we continue -- and the contribution in all transparency in China is very modest within the fourth quarter. So I wouldn't advise building much in for that. We will do cases. It's difficult to get people in and out of the country but we are encouraged to ramp within -- in 2023 and China would be more of a 2023 ramp than a 2022 impact.

Helpful. And then on Standard Bariatrics, $15 million for the product this year in its first full year, you're guiding, I believe, $30 million to $35 million next year, a very healthy ramp. It's a sizable market and you've structured in a sizable earnout. So I'm curious, what's the dream of the sellers here? How much kind of upside is implied? And if they achieve their earn-out, what does that mean for the revenue run rate and over what time horizon, is that framed up?

Yes, Mike, I think the way I'd frame that is that Teleflex pays out the full $130 million, no one will be happier than Liam Kelly because that will mean that the business will have done better than I would have anticipated. I think that when we look at this business, it's a unique technology. And I look at this and a lot of these technologies that gain share, they tend to be evolution rather than revolution. And this really fits into that category. It's right into the sleeve gastrectomy market that the surgeons conduct every day. It speeds up the procedure, you get less leaks, higher burst pressure when you complete it. And all in all, it's being adopted pretty rapidly out there. We have a number of the high-volume users that have already adopted the technology and a high-volume user for us will be someone that's doing 10 sleeves a month. And we're very encouraged by the way it's moving forward. But to your question, if we pay out the $130 million, Teleflex would be delighted.

Thank you. We now have Craig Bijou of Bank of America Merrill Lynch. Please go ahead, your line is open.

Good morning, guys. Thanks for taking my questions. Just a couple on UroLift. And I appreciate all the comments that you made, Liam but I wanted to ask specifically on -- so I believe you said doc visits were down 12% year-over-year in Q2. Now they're down high single digits in Q3. But sales for you guys were, let's call it, just flat sequentially. So I wanted to reconcile that dynamic. And I know you mentioned that staffing was getting better in the hospitals. But did staffing improve in the office setting from Q3 to Q2? Or did it get worse? And then, is there a timing factor from visit to procedure that may be kind of embedded in those numbers as we look at them sequentially from Q2 to Q3?

Yes, I'll answer the last bit of it first, Craig. Yes, there's definitely a lag. So it takes somewhere in the region of 6 to 8 weeks for a patient to work through the funnel and have a procedure do. They've got to come in, see the urologist. They've got to do their IPSS score. They've got to do a cystoscope. And then they've got to get slated for a procedure. We did our survey of urologists in August. And we know that, in general, 53% of them are suffering with staffing shortages. But if you look at the urologists in the office side of service, their staffing shortages are more acute. 61% of that category of urologists said that they were suffering with staffing shortages. So I think that the -- I did see an improvement in the hospital side of service. From a staffing level, the office was as it was in Q2, no significant improvement. I will say, Craig, though, as the hospital side of service does improve, that frees up capacity for the office and ASC to improve -- approve. So I would anticipate there will be a lag in the improvement flowing down to the other two sites of service because the hospital is also for contract labor, aren't paying as much as they were a couple of quarters ago. So all of these dynamics will actually help free up some labor into the other sites of service but there definitely will be a lag. And as I said earlier, when that does happen, Teleflex is well positioned to take advantage of it.

Okay. Thanks for that color, Liam. And then apologize for getting granular here. But you guys mentioned the overall business in September was stronger than July and August. So wanted to ask maybe specifically on UroLift. I know June was a tough month for UroLift but any color on the monthly trends within the quarter for UroLift sales?

Yes, sure. So as expected, August was impacted by the vacation season and we knew that was going to happen. But we did see an uptick in the day rate in September as also was expected. So -- and as I said, we saw the improvement in staffing levels. So we're encouraged by the uptick in September coming out of the holiday season in our day rate and that's what is the basis for our guidance for Q4.

Okay, thanks for taking my questions, guys.

Sure.

We now have Matthew O'Brien of Piper Sandler. Please go ahead when you’re ready, Matthew.

Hi, good morning. This is Phil on for Matt. Thanks for taking my questions. Can you guys hear me all right?

We can hear you, Phil. Thank you.

Just to touch on UroLift again. I mean, do you expect the strength of trainings to continue through fourth quarter and into 2023 here? And then additionally, I understand that the timeline of visit recovery is a bit up in the air but do you expect more of a step function in terms of visits once they do return? Or will it be a slower ramp as patients return a little bit more slowly?

So with regard to the training, the training was -- in Q3 was right in line with our expectations. So we're ramping to the traditional 400-ish docs that we would train in any given year. So we're on track for that. And that for us is encouraging because it lets us know that docs are still interested in the procedure. They want to take the procedure. We're moving from the early adopter to the fast follower and that is quite encouraging. With regards to visits, the first milestone for me, Phil, is to get to a flat visit year-over-year. We've gone through this year with minus 15, minus 12, minus high single digits. So we have to get the flat first before we get the normal cadence of increase. And even when we're flat year-over-year, that is still below 2019 pre-COVID. So there is a ways to go in the patient visits. And you are correct. Once patient flow starts to come back, there should be a lag thereafter. And then you should see momentum begin to build once the patients are back, visiting their urologists.

Great and thanks for that color. And I guess just shifting gears, congratulations on the Standard Bariatrics acquisition. I was wondering if you would need any additional pieces to surround that asset? Or if you believe that it's -- it can exist in its current state? And I guess just broadly -- more broadly on M&A, what are your thoughts given pullback in valuations and your own leverage ratios?

Yes. So Standard Bariatrics first, obviously, it's a great acquisition for us. We already have a significant call point in the -- with the bariatric surgeon. We sell our mini lap, our percutaneous surgical system. We sell the Weck EFx closure and we sell our cold ligation products. So we already have that call point around it. And this is an opportunity for us to double our sales force in that call point as the Standard Bariatrics and double the number of salespeople that are selling the Titan SGS as well. Regarding M&A, pro forma, we're at 1.9x levered. So we're in pretty good shape. We are active out there in the marketplace looking for assets. The team internally ran some analysis on the Standard Bariatrics acquisition because I'm taking from your question, should you do a share buyback given where your stock is at? And actually, if you're a short-term holder of Teleflex, the staff buyback in the first year might be preferable. But if you're a long-term holder for sure, over the 2, 3, 4, 5, 6-year horizon, it's a significantly better return on Teleflex using their balance sheet to do M&A, rather than do a stock buyback, even with our stock price where it is today. So we've run that analysis. We feel confident we can give shareholders a better return by continuing to bring in attractive M&A into the company, continue to expand Teleflex's reach into new and aligned procedures and that would be our mantra going forward and that's what we're going to execute towards.

Thank you. Your next question comes from Lawrence Biegelsen of Wells Fargo. Please go ahead when you’re ready.

Hi, good morning. This is Vick in for Larry. Just a couple from us. Can you provide us with a framework for 2023, not asking for a specific guidance but any sort of items you're aware of now like FX or inflation running through the P&L that you can share your preliminary thoughts on? And any reason why you don't think you'll be at 6% to 7%? And then I have a follow-up. Thanks.

So with regard to what we know now, that's going to flow through the P&L for next year. Obviously, FX is going to be an impact. We had set up our plan this year. And we brought the -- in particular, the euro to the dollar which is our biggest exposure. We brought that to parity in Q2 for the remainder of the year. And we've updated that and that was one of the reasons for the $10 million call down on euro and other currencies moving because we realigned that rate. That would give you an average for the year of approximately 105 to the euro. And if it stays at parity or below parity, that's going to be an obvious headwind for the next year. We are seeing heightened inflation but we had built in incremental inflation into our LRP in the future. And the first year, your 2023 question, we'll get to that when we get to February, we'll give guidance for the first year of the LRP when we get to February. But as I said a little earlier, I'm still very confident on the overall 6% to 7%. And the addition of Standard Bariatrics just gives me even more confidence on that 6% to 7% over the LRP horizon.

Great. And just a follow-up. Can you talk about MANTA penetration in the quarter? And how are you thinking about the rest of this year and potentially, next year? Thanks so much.

Yes. So with MANTA, the penetration is really into the TAVR procedures, where about 75% to 80% of our procedures are done there and that continues to be a focus for us. As we head into next year, what we're really excited about, we've got a clinical study being done on top of the Karolinska one that I spoke about in the call and the Karolinska one was excellent because it basically shows, the adoption curve is really quick for MANTA. And even better, the complication rate is right in line with our original study that we did, the SAFE study. So that's really encouraging. Now we have another trial going on that's going to help with the positioning of MANTA and the use of ultrasound Doppler to position the product which should make it even easier for those surgeons to continue to use the product. With regard to penetration, we see that the penetration level obviously continuing to ramp. It's a $200 million to $300 million market and we're very early in the adoption curve. So we see no reason why that won't continue over a multiyear period.

Thank you. We now have Anthony Petrone of Mizuho. Your line is now open.

Thanks and hope everyone doing well. And will be after hearing the name. So maybe, Liam, just a little bit on Japan and China, just on the cadence of actually physician training, urologist training in those markets. How do you expect that to proceed? You're doing about 400 a quarter in the U.S.? Is it really the same cadence in those markets? And maybe your early thoughts on 2023 when you think about contribution from Japan and China in UroLift. And I'll have one follow-up. Thanks.

Yes, Anthony, welcome back. Good to have you back on the story. So just to be clear, we'll do around 400 a year in the United States rather than the quarter. In Japan, we're very early in the cycle. So we're really in a few major metropolitan areas. Obviously, Tokyo being one of them. We have added some additional sales reps in this quarter as we continue to prepare for 2023. And again, I feel really confident on the ramp at 1/3 of the size of the U.S. market. So next year, it should be something in the region of 1/3 of about $15 million, what we should expect from Japan. China, we'll do our first case this quarter. Obviously, we're starting in the private hospital sector. And again, we'll start in the major metropolitan centers. We will start in Shanghai, Beijing and Guangzhou and then we'll expand out beyond that. I would like to get the initial trainings done in China before we give too much more color on how many docs we can bring on. But we have identified a number of the key opinion leaders in China and that training will -- as I said, will take place during Q4. Excited about both. I think those are the markets that can really move the needle for UroLift. They're large enough. They've got -- Japan has good reimbursement. We will get reimbursement and put it on to the regional tenders in China, once we build some traction in the private markets and that will take us a few years to do that.

Great. And then the follow-up maybe for Tom. Just when we think about inflation for next year, I think previously, there was a dollar number that we should be thinking about that will roll into next year. Some companies have given that dollar amount. So just wondering if there's an updated view on how inflation rolls in, next year? And when we think about the restructuring programs and offsets, if you can provide some color on potential offsets? Thanks again.

Sure. Well, as we mentioned in our prepared remarks, inflation continues to exist for us. As we think about the components of it, we're actually seeing some improvement in sea freight and we had expected that all along this year. And so we're seeing the costs of freight going down quarter-over-quarter. Materials, however, continue to be at elevated rates. We haven't seen that stabilize quite yet or return to a normalized level. So we will continue to expect to have inflation in our numbers. And historically, we've always had a level of inflation. I would say that this year, it was higher than typical. We will have some rolling into next year as a result of just how we capitalize our inventory and how that rolls off the balance sheet. But right now, we're not in a position to give specific guidance for inflationary pressures for next year. Now with that being said, there are a number of offsets. We talked about pricing which we were very successful this year in getting pricing out there to help offset some of the inflation pressures. Restructuring programs are -- that are currently announced will also provide a benefit in next year. And as we look out to the next couple of years, we expect to realize about 0.5 point in margin expansion from restructuring just next year with a full point over the next couple of years. So there is a nice benefit from restructuring, from pricing. Underlying in our business, we still have a nice mix benefit that we're seeing come through from our high-growth portfolio, as mentioned. They grow at a faster rate and carry a higher margin. So that's an underlying mix benefit that we continue to see and expect to see for the number of years over the LRP. And as UroLift continues to recover, we'll expect to see more and more contribution from that business unit as well on the margin line. So again, we'll give specific numbers on inflation as we get to the guidance for 2023.

Thank you. Our next question comes from Richard Newitter of Truist. Please go ahead.

Hi, thanks for taking the questions. Maybe just -- actually two on our UroLift here, sorry to harp on your left. I know it's a lot of focus there already but I think it's so important for investors. You've mentioned the CAGR, granted it's off of a potentially lower starting point. I'm just curious, to get to that 15%, even if it is off the lower starting point, can you give us a sense of what the minimum level of the U.S. portion of that needs to grow? In other words, do you need to be back to double-digit U.S. growth over the CAGR in order to get there? Or is there enough room that you don't need to rely on that in the international contention there? And then I have one follow-up.

Well, Rich, clearly because international has such a lower base, the percentage growth in international is going to be significantly greater than the U.S. So by logic, you will tell you that to get to a 15% CAGR, that the U.S., just by definition, is going to be lower than that 15% in that regard. I still believe that with the number of men that are out there, the 12 million in the United States with BPH and the 1.5 that have BPH and are in the drug dropout category, I still think that growth within the U.S. is well within our reach as an organization. And as I've said a few times in the call, we're well positioned. We got our sales force fully staffed. We got DTC going. We just are back doing a BPH Summit. We did a live one. That's a nice inflection normally for us to get more interest. And we're going to have one in Japan in the fourth quarter and then we'll have a number of them next year again. So things seem to me like getting more towards normal, at least in that regard, regarding access. And to answer your question, so the U.S., for sure, doesn't have to grow at 15% for the CAGR to be 15%.

Okay. Yes. I was more just asking because I have to get back to double digits, if you can answer that. But the second question, too, for me on UroLift was, I just want to make sure I understand the staffing issues in the office setting. My understanding was, doctors tend to schedule their UroLift procedures on one or two operating days. So I'm just trying to get a sense for how that might be the mix of where the UroLift's volumes coming back? Is it more -- you're talking about the higher volume accounts that are maybe doing many more UroLift’s, so they just can't get back to their -- meet the demand levels because they're doing multiple days per week of operations? Or what exactly am I missing if the office setting should be easier from a scheduling and patient management standpoint? Thanks.

Yes, you're right, Rich. It's easier from a scheduling and that's why urologists like to do the procedure there because they're in control of it. But what you're missing, I think, in your analysis, Rich, is everything that happens before the appointment gets scheduled. So the patient has to come in, has to see the urologists. They have to fill out an IPSS score card. They may do some additional diagnostics on them in order to determine the bladder health of the patient. And then they will definitely do cystoscope, all of that requires labor. Every step along the way requires labor. It's not just about the procedure itself, it's about what happens to the patient flow as they work their way through to get to the endpoint of the procedure and that's what's causing the impact. As I said, 61% of office-based urologists in our survey clearly identified, they had staffing charges. And I was down south in just about -- just over a month ago, visiting with urologists, every one of them mentioned staffing shortages, every one of them.

Thank you. Your next question comes from Michael Matson of Needham & Company. Your line is open.

Yes, thanks. I guess I have two questions. I'll just go and give to you both now. So first, with UroLift, with regard to the sales force, has there been any changes, disruption, turnover in that sales force? Have you added headcount this year? And then the second question is just on Standard Bariatrics, is this -- I mean, I totally understand the opportunity on the sleeve gastrectomy market and bariatrics but is this sort of a platform technology that would enable you to offer like a full range of stapling products over time to kind of enter that duopoly market?

Well, I think that we already have a series of products within that call point. Obviously, it's a fast-growing market. It's a market that's going to continue to grow as we as a society continue to eat more of the wrong stuff. So we do see this as an opportunity for us to continue penetration within the bariatric market that there are some aligned technologies that may be of interest to us as we go deeper into this. It is an area of interest for Teleflex and always has been, as I said earlier, we've got our cold ligation clips in there. We got our facial closure in there and we got our mini lab that we -- our sales force is in there. Regarding turnover, like all medical device companies, we experienced heightened turnover in 2021 right across the border in Teleflex and in UroLift. Right now, we have a very stable sales force in the UroLift area. We have, I think, right now as I sit here today, I think we have about four or five open territories within the business units. And we feel really confident that we're well poised to be ready for the -- for when the market recovers.

Okay, thanks. Just on the stapling question, I guess what I was getting at is, would you look at offering staples that can be used outside of bariatrics, like the broader kind of surgical staple market?

I'm sorry, Mike, I missed the question.

Yes, no problem.

We already sell staples in our general surgical portfolio but they're skin staplers. And obviously, our Hemo-lok, our Horizon are both, cold and metal ligation clips. So don't see ourselves really going up against the big guys to try and take them on, in more broad stapling, Mike. It's -- the reason we went into this one is because it's so differentiated. It speeds up the procedure. It gives a better outcome for the patient and gives a better outcome for the docs. So this is probably the reason we went into this area of stapling.

Thank you. You have no further questions. So I would like to hand it back to Lawrence Keusch for some final remarks.

Thank you, Abrika and thank you to everyone that joined us on the call today. This concludes the Teleflex Inc. third quarter 2022 earnings conference call.

Thank you for joining. This does conclude today's call. Thank you for joining and thank you for your participation. You may now disconnect your lines.