Teleflex Incorporated (TFX) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Quarter 2 2013 Teleflex Incorporated Earnings Conference Call. My name is Carolyn, and I'll be your operator for today. [Operator Instructions] A reminder, the call is being recorded for replay purposes. And now, I'd like to turn the call over to Jake Elguicze. He's Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to the Teleflex Incorporated Second Quarter 2013 Earnings Conference Call. The press release and slides to accompany this call are available on our website at www.teleflex.com. As a reminder, this call will be available on our website, and a replay will be available by dialing (888) 286-8010, or for international calls, (617) 801-6888, passcode 88095129. Participating on today's call are Benson Smith, Chairman, President and Chief Executive Officer; and Thomas Powell, Executive Vice President and Chief Financial Officer. Benson and Tom will make brief prepared remarks and then we'll open up the call to questions. 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 on Slide 4. 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 made in our press release today, as well as our filing with the SEC, including our Form 10-K, which can be accessed on our website. With that, I'd like to now turn the call over to Benson.

Thanks, Jake, and good morning, everyone. Similar to our other calls, I'll begin with an overview of the results for the second quarter and discuss some strategic highlights. Tom will then provide you with a more detailed review of our financial performance, including details of our product line and geographic revenue mix, and then finally, our outlook for 2013. So beginning with our financial highlights. Second quarter 2013 revenue was approximately $420 million. This represents an increase of 9.6% versus the prior year quarter on both an as-reported and constant currency basis. We saw both a year-over-year and sequential improvement in pricing, as well as from the contribution of recently introduced products to the market. In addition, LMA continued to contribute meaningfully to our top line growth, adding approximately 8.5% of constant currency revenue growth in the quarter. From an overall Teleflex portfolio perspective, we continue to see the impact of negative hospital and physician office trends on a year-over-year basis. Our current internal estimate has hospital utilization rates down approximately 3% for the first half of 2013, versus 2% growth for the full year of 2012. In 2012, the combination of share gains, price and new product introductions provided an additional 3% growth on top of the 2% utilization growth for total Teleflex growth of approximately 5%. This year, the combination of share gains, price and new product introductions is generating approximately a 4% improvement. However, through the first half of 2013, the negative 3% utilization number is reducing this to approximately 1%. Past data shows that utilization rates eventually rebound and almost always within 6- to 12-month time frame. Given the basic underlying demographics, it's hard to construct a scenario where that won't happen in this case. When exactly that will happen is harder to predict. So we are assuming that the current trends will continue for the balance of the year. That assumption is causing us to reduce our revenue constant currency guidance range by 1% on both the top and bottom of the range. As such, our new range calls for constant currency revenue growth of between 10% to 12% for 2013. Hitting that range will require improved revenue performance over the last half of the year, and Tom will provide some additional details that describe where that improvement is coming from. In spite of a softer revenue picture, we are not lowering our adjusted EPS guidance. By the way, this would be the case even without the adjustments we are making in accounting for the dilution of our convertible notes. Improved gross margins, strong OpEx control and improved operating margins are all helping to compensate for the slight reduction in revenue. Turning to adjusted gross and operating margins, they were 49.8% and 17%, respectively. Adjusted gross margin improved 170 basis points versus the prior year quarter. In addition, it was up 100 basis points from the first quarter of 2013. And I'm pleased to say that the gross margin levels reached this quarter were the highest ever attained by the company as a pure-play medical device enterprise. Year-over-year gross margin improvement was primarily due to the mix benefit of higher margin LMA product sales, as well as the continued benefit we are seeing from price increases. Operating margins also moved in a positive direction in the quarter, increasing approximately 230 basis points from the first quarter of 2013. And while the adjusted operating margin was flat when compared to the second quarter of 2012, it's important to understand that the prior year's amount did not include the medical device excise tax, as well as many of the expenses associated with businesses that were acquired during the course of 2012. This takes us to adjusted earnings per share, which were $1.27 for the quarter, up 3.3% versus the prior year. And while Tom will go through the mechanics behind this in more detail during his prepared remarks, I do want to point out that we decided to make a change in how we calculate adjusted earnings per share. The change in methodology is related to the impact that our convertible notes have on our weighted average share count. This adjustment increased the company's adjusted earnings per share by $0.04 in the second quarter and $0.07 for the first 6 months of 2013. The change in methodology did not have any impact on the previously reported adjusted earnings per share figures for the second quarter and 6-month period of 2012. The rationale behind making the change is that the company believes that reflecting the antidilutive impact of the convertible note hedge agreements is more representative of the economic reality that would occur upon maturity of the convertible notes. And this presentation is not atypical for companies with similar circumstances. Let's move now to some of the strategic highlights for the quarter. During the second quarter, the average selling prices of our products expanded, both when compared against prior year as well as versus the first quarter of 2013. Our Latin American business led the way, up almost 300 basis points. That was followed by North America business, which achieved price improvements of 116 basis points. Reversing the negative trend in pricing that we experienced in the first quarter of 2013, our European markets show pricing improved approximately 62 basis points. Finally, our Asian businesses experienced a slight decline in average selling prices that total approximately 14 basis points. A slight improvement came from Japan but that was offset by a decline in pricing coming from China. Based on our second quarter pricing results, our outlook remains unchanged from what we've said on our last earnings call and we continue to expect 70 basis points in improvement. We also remain confident in our longer-term pricing assumptions as part of our margin enhancement programs. Moving to R&D investment and the sales of recently introduced products. Similar to the past few quarters, the company continued to make progress on internal product development efforts. R&D spending was up 21% or 30 basis points from the prior year quarter. From this investment came newly introduced products, which contributed 132 basis points of revenue growth. This was led by an increased sale of our ArrowADVANTAGE 5, ArrowEVOLUTION, and customized European ASK product offerings. In addition, we also saw an increase in revenue associated with newly launched regional anesthesia products. Finally, we received several market clearances from the FDA and launched several products towards the end of the quarter that we expect to positively impact our second half of 2013 results. Some of the more notable regulatory approvals obtained were the 510(k) and CE mark approvals that were received on our ARROW GPSCath Balloon Dilatation Catheter. This product enables multiple vascular procedures to be performed with 1 dual-function catheter, which will potentially reduce both procedure time and expense. This product combines angioplasty and our proprietary VisioValve Injection System, allowing physicians to perform high-pressure angioplasty and inject physician-specified fluids, while maintaining guidewire position. This product is expected to launch during the third quarter of 2013, and it comes from the Hotspur acquisition we closed last year. Another recent 510(k) was received on our ARROW NextStep Retrograde Femoral Length Dialysis Catheters. Designed for clinician ease of insertion and to take better advantage of the blood flow dynamics within the heart through its unique reversed port configuration, these products are also expected to launch during the third quarter. Moving to some products that were launched at the end of the second quarter. The Rusch TruLite Laryngoscope System provides a disposable blade and handle designed for single-patient use. It features an LED lighting technology and addresses clinician concerns regarding potential risk of patient cross-contamination, as well as the cost associated with maintaining reusable laryngoscopes. And before I move on and provide you with an update on LMA, the last new product launches I would like to call your attention to is that of our ARROW VPS G4 Vascular Positioning System. Launched to the market in the second quarter, the ARROW VPS G4 Device is the only system to use micro-doppler ultrasound technology in combination with intravascular ECG and advanced algorithms locate the exact location of the lower 1/3 of the superior vena cava and cavo-atrial junction. We expect this newly designed product to continue the good adoption we've seen to date with our catheter navigation technology. During the second quarter, we penetrated additional accounts, and as of the end of June, we have our vascular positioning technology in approximately 90 hospitals. Now let's move on to discuss LMA. During the second quarter, LMA contributed approximately $32.5 million in revenue. I'm pleased to say that LMA performance and integration efforts continue to run ahead of schedule. And similar to the first quarter of 2013, the adjusted earnings per share contribution from LMA in the second quarter exceeded our initial expectations. In an attempt to continue to build upon our airway management and laryngeal mask portfolio, during the second quarter, we acquired the assets of Ultimate Medical and its affiliates. Ultimate is a leading supplier and innovator of airway management devices with a portfolio of patented products and a full range of laryngeal mask airways. Ultimate recently developed the Cuff Pilot, which is the world's first integrated cuff pressure indicator for airway management devices. This technology allows clinicians to continuously assess cuff pressure which may reduce the risk of aspiration and tracheal injury. Currently, the Cuff Pilot technology is used with Ultimate's portfolio of laryngeal masks and it has the potential application for use with the market-leading LMA brand of laryngeal masks as well. Another acquisition that we closed during the second quarter was Eon Surgical. And for those of you who attended our Analyst Day last year, you may recall that we said we were interested in further developing our product capabilities to serve the microlaparoscopy market. Well, we accomplished this through the acquisition of Eon. Eon has advanced a minimally invasive microlaparoscopy surgical platform technology designed to enhance surgeon's ability to perform scarless surgery, while producing better patient outcomes. Microlaparoscopy, unlike single incision surgery, provides surgeons a mechanism for performing minimally invasive procedures without significant changes in technique. We're excited about this acquisition as it will expand our surgical product offerings and address a significant market growth opportunity. And before I turn the call over to Tom, I would like to provide you with a brief update on GPOs, IDNs and the profitability improvement initiatives that are underway at the company. Once again, during this past quarter, we continued to expand our GPO and IDN relationships. In Q2, we closed a total of 7 agreements; 6 of those awards were brand new. These new wins were across several product categories including PICCs, laryngeal masks, cardiac transradial access and laryngoscope blades. Turning to our profitability initiatives. I am happy to report that we have completed the North American Distribution Center consolidation program, eliminating 3 U.S.-based distribution centers. And finally, we completed the integration of the legacy Arrow ERP system into the Teleflex SAP platform. I would like to take a moment to thank all of the employees who worked on both of these projects. Your dedication to the successful completion of these initiatives is greatly appreciated. With that, I will now turn the call over to Tom and he can walk you through our most recent quarterly financial performance in more detail. Tom?

Thanks, Benson, and good morning, everyone. Revenues for the first quarter were $420.1 million. This represents an increase of 9.6% on both an as-reported and constant currency basis versus the second quarter of 2012. The growth in constant currency revenue is largely due to the acquisition of LMA, which contributed approximately 8.5% of growth and pricing, which contributed another 91 basis points of growth. Turning to gross profit. Adjusted gross profit and margin were $209.2 million and 49.8%, respectively. This compares to $184.4 million and 48.1% in the prior year quarter. A 170-basis-point increase in gross margin in the second quarter is primarily due to the acquisition of LMA, as well as selective price increases. In addition, gross profit in the second quarter of 2012 was adversely impacted by certain costs associated with the startup of the Singapore distribution center, and these costs did not reoccur in 2013. Now let's move to the discussion of operating margin. For the second quarter of 2013, the adjusted operating margin was 17%. This represents a sequential increase of approximately 230 basis points as compared to the first quarter of 2013. When compared to the second quarter of 2012, adjusted operating margin was flat. Versus 2012, the gains achieved in gross margin were offset by additional costs for the medical device excise tax and additional amortization and operating expenses associated with the late-stage technology acquisitions completed in 2012. If we were to exclude these costs, the adjusted operating margin would have been approximately 18.4%. Turning now to taxes. The GAAP tax rate for the second quarter of 2013 was 12.3% and included net tax benefits from the resolution of both a foreign tax matter and a U.S. state matter. Both of these benefits related to prior periods and were, therefore, added back in determining adjusted EPS. On an adjusted basis, the tax rate for the second quarter of 2013 was approximately 26% and was in line with our expectations. For the first 6 months of 2013 on an adjusted basis, the tax rate was 26.9%. And for the second half of 2013, we are projecting a slightly higher adjusted tax rate than what occurred in the first 6 months of the year. Now turning to earnings per share. Adjusted earnings per share for the second quarter were $1.27, representing an increase of 3.3% versus the prior year period. As mentioned by Benson, during the second quarter, we made a revision to the calculation of adjusted earnings per share. Previously, the number of weighted average shares used to calculate adjusted earnings per share excluded the antidilutive benefit of the convertible note hedge agreements. After the revision, the antidilutive impact of the hedge agreements will be included when calculating adjusted weighted average shares. We've made this revision for a number of reasons. First of all, we believe that this presentation more accurately depicts the underlying economic dilution associated with the convertible notes and more clearly portrays the potential dilutive impact of the convertible notes upon their maturity. And as mentioned by Benson, this presentation is not atypical for companies with similar circumstances. Second, we believe that the change will provide for greater transparency of operating performance and will reduce earnings volatility caused solely by changes in our stock price. Finally, we believe it is important to make the change now while the earnings impact of the change is still somewhat minimal. In hindsight, we would've preferred to have made the change before the year began. This change in methodology increased our adjusted earnings per share for the second quarter by $0.04, and for the first 6 months of 2013 by $0.07. It did not, however, have any impact on the adjusted earnings per share amounts that were reported during the second quarter and first 6 months of 2012. Consistent with past practice, the company will continue to include in its adjusted weighted average shares any additional dilution associated with the warrants. Let's now move to a more detailed review of our constant currency product line and geographic revenue results. Critical Care revenue in the second quarter was up 14%, totaling $289.3 million. The increase in Critical Care revenue was due to higher sales of urology, vascular, interventional access and anesthesia products, including the addition of LMA. Partially offsetting these growth areas was a decline in sales of respiratory products. Surgical revenue in the second quarter was up 6.6%, totaling $78.1 million. The growth in Surgical revenue was primarily the result of increased sales of ligation and access products. Partially offsetting this growth was a decline in the sales of chest drainage and general surgical instrument products. Cardiac Care revenue in the second quarter was down 1% and totaled $20.2 million. The decline in Cardiac revenue was primarily due to lower sales of balloon pumps. And lastly, OEM revenue for the quarter was down 11% and totaled $32.1 million. The decrease in OEM revenue was largely due to reduced sales of catheter and performance fiber products. Next, I'll take you through our top line performance from a geographic perspective. Revenue in the Americas segment for the second quarter of 2013 was up 12.9% and totaled $199.8 million. The increase in constant currency revenue was due to LMA product sales, new product introductions and price increases. Moving to EMEA. Revenue in the second quarter was up 8.1% and totaled $137.8 million in the second quarter. The increase in revenue in EMEA was due to LMA product sales, new product introductions, price increases and higher sales of existing products. Finally, sales in the Asia segment were up 17.3% totaling $50.4 million. The increase in this segment was due to LMA product sales and higher sales of existing products. Finally, I'd like to provide you with an update regarding our full year 2013 financial outlook. As Benson mentioned, hospital utilization and patient visit trends were negative for the first half of the year, which impacted our revenues. We are encouraged by our above-market revenue performance and our ability to generate positive pricing in such an environment. We also believe that population demographics support increasing hospital utilization and patient visits over the longer term, which will benefit us. However, given the potential for the near-term continuation of current trends, we are lowering both the top and bottom end of our 2013 constant currency revenue growth range by 1%. We now expect full year 2013 constant currency revenue growth to be between 10% and 12%. This compares to our prior expectation of constant currency revenue growth of between 11% and 13%. Our expectations for adjusted gross and operating margins remain as previously communicated. We project adjusted gross margin to be in the range between 50% and 51% for the year, and we continue to project adjusted operating margin to be in the range between 16% and 17% for the year. This range includes the impact of the medical device tax. Finally, we are very encouraged by progress made for the longer-term financial goals and margin expansion. It's our expectation that strong operating performance and cost control measures will offset the earnings impact of slightly softer-than-expected revenues. As such, we continue to expect 2013 adjusted earnings per share to be in the range of $4.70 to $4.90. And similar to the remarks I made in our last few earnings calls, from a cadence perspective, we continue to project adjusted earnings per share to be greater in the second half of 2013 versus the first half, with particular strength in the fourth quarter. That completes my prepared remarks. With that, I'd like to now turn the call back over to the operator for questions. Operator?

[Operator Instructions] To begin, please stand by for your first question, which comes from the line of David Lewis of Morgan Stanley.

I wonder -- so 2 questions I want to focus in on both the top and bottom line. First of all, you think about the trends in the first quarter. Most of the business metrics are coming in, in line or slightly better. But organic growth, specifically volumes, is obviously soft again for the second quarter. So if you think about the back half of the year visibility of organic growth, our math has your organic growth sort of having to accelerate kind of 1% to 2% in the first half to something like 5% or so in the back half. I wonder if you could just give us some very specific commentary on if that's sort of how you see the back half? And what gives you the confidence that, that organic growth number can get better in the back half? Or is it simply assuming that LMA gets dramatically better in the organic growth and acceleration is not as severe. But that's the first question. I have one follow-up.

So the overall answer really is we have an additional day in the back half and we have some new products that have already been launched in the first half that start to contribute. And I'll turn it over to Tom to give you some more specifics around those points.

Okay. Well, we do see it similar to the math you just laid out. And as Benson mentioned, we have an extra shipping day just how our days are calendarized during the year. And that, we expect to add about 120 basis points of growth by itself. But then in addition, we have a number of items, none of them by themselves are all that significant but, collectively, they do support the growth. And I'll just highlight a number of those. First of all, as mentioned, we acquired Ultimate during the year, which will add revenues in the back half of the year. We also had a number of new products coming out. I think Benson highlighted a number of the key ones. And that will add some fairly significant growth in the back half. We also had acquired EFx, EZ-Blocker, Hotspur and we expect, as those businesses continue to ramp up, we'll get more revenue growth out of them in the back half of the year versus the first half. We also have a distributor go-direct strategy that's aiding our revenues a little bit. And then a number of one-off issues that really benefit the back half of the year versus the first half, and I'll enumerate a couple of bigger ones. In 2012, there was a customs strike in Brazil that we don't expect to reoccur this year, and so it somewhat helps with an easy comparable. We also had some import restrictions being imposed by the government of Argentina and we're trying to see those loose, then we have some belief that we may get some additional benefit in the back half. And then we had a distributor who was adjusting stocking levels down in the first half, that now has kind of reached that new point and we expect those revenues to continue as normally as would be expected. And also, we're likely to get a little bit of benefit from the euro in the third quarter as a result of just last year's exchange rate, I think, being around EUR 1.25. Have some negativity from the yen likely. But overall, I expect all of these different matters to add up to support the stronger second half that we've got projected.

Okay, Tom, very clear. And then maybe just one quick one. Benson made a comment about maintaining the earnings guidance range regardless of the adjustment. But just so we're crystal clear, on the $4.70 to $4.90, is the approximate $0.12 to $0.16 of antidilution included in that number or not? And if it is included, is the way to think about this the operational performance is the low end of the range and you're at the top end of the range when you include the adjustment?

So our operational income expectations right now are exactly the same place they were when we issued our guidance. So we expect operational performance to come in at exactly the same number. There is a modest benefit that comes from the adjustment that we're making, but not enough to take us outside the range.

Yes, so one way to think about it is, if you go back to when we first communicated earnings for the year, back in December at our Analyst Day, we had assumed a dilution from the converts sent from the warrants of $0.11. And as a result of this change, we're going to be taking out the dilution associated with the converts because we're now going to be counting the hedge agreement, which essentially offsets that dilution. However, we still have the dilution associated with the warrants. And if stock price stays at today's level, that's probably about $0.04. If it increases a little bit, it might be a $0.06 of dilution. So net-net, we see this change as, perhaps, generating a net $0.05 benefit versus our initial kind of guidance expectations. And so we didn't see that as being meaningful enough to cause us to change our guidance range at all on EPS. However, as Benson mentioned, we do want to reiterate that our underlying business performance is still very much on track with our initial expectations. While revenue is softer than planned, as discussed, we've enacted a number of cost-savings measures and we've also seen some greater performance out of LMA than initially expected. And some of the productivity initiatives that we're putting in place are really starting to drive some performance improvements. So overall, I think the headline is that operating performance is largely on track with our expectations at the beginning of the year.

And Tom, is it safe to assume based on your comments around distribution being on track here in the second quarter, that margin performance in the back half of the year should be stronger than the first half? You still feel comfortable with that?

On the gross margin line, we feel comfortable that gross margin will be kind of that 50% level that we achieved in the second quarter, perhaps a little bit higher as we get into the fourth quarter. On the operating margin line, we had a pretty solid performance in the second quarter and that's going to be tough to replicate throughout the whole year. But we do see improved performance over what we'd see in the first quarter, perhaps not quite at the level that we saw in the second quarter on the operating margin line.

The next question we have comes from the line of Matthew Taylor from Barclays.

I just wanted to touch on the pricing initiatives. You had some bounce back from last quarter. One thing you talked about last quarter was some disruption in Asia and prices were down there. So I was wondering if you could just give us a little more insight on some of the dynamics in the different regions. And what you're expecting out of each of those going forward? You mentioned your long-term view is kind of intact. So any commentary on that would be helpful.

So I'll repeat a comment I made last quarter, and that is the underlying instructions that each of our regions have is not to be aggressive with price to the point that it puts volume at risk. In this particular quarter, the -- most of the pricing decline that came in China came from a decision to lower the price on a clip applicator so that we would get those placed in more hospitals and sell more clips. We took the hit on price for the applicators but we'll see the revenue in future quarters come in from the clips. So -- and I use that as an example. Most of these changes in our estimates from quarter-to-quarter are really around very unique circumstances. Last quarter, it happened to be Europe. We were able to recover relatively nicely in Europe in the quarter and I would say the same thing is true as we look through the last half of the year in Asia. We expect improved pricing in Asia to come out. So -- and as I said last quarter, as we move further into next year, more and more of our pricing comes from increasing prices to distributors, as opposed to end users. And we have a high level of confidence of being able to achieve that.

And I just wanted to ask one on your organic growth and revenue expectations for the year. So you talked about some lower utilization, I guess, in the U.S. hospitals. In terms of making your guidance for the year, how much of that is predicated on continuation of the current trends in the environment? And how much is more Teleflex specific with some of the new products that you talked about? If you could help us just kind of parse out those different factors, that would be great.

So I would say comments on utilization, well, there's probably more publicity about what's going on in the United States. There's lower utilization trends in Europe and lower utilization trends in Japan as well. Our assumption is that they stay -- that these utilization trends stay at about the same level they are now, which is in negative territory for the balance of the year. Our ability to take share, launch new products and get price doesn't seem to be impacted by those declines in utilization. So those are sort of the baseline assumptions in hitting our new revenue guidance line.

The next question we have comes from the line of Matt O'Brien from William Blair.

This is Kaila in for Matt. I just have a couple of questions for you. With respect to those utilization trends that you just discussed, what gives you the confidence in those markets just remaining stable and not deteriorating?

Yes, so that's a good question. And I would say, we have no magic crystal ball. Personally, over the last 4 weeks, I visited with most of the largest GPOs in the United States. And I would say, they don't have a good explanation for the lower utilization trends. They were as surprised as much as anyone else. So I can't say that we know for sure what's going to happen, whether they're going to improve or that anybody else knows that they're not going to decline. The best we can do is really peg our growth rates on top of what we think the utilization rates are likely to be at this point in time. They've been relatively consistent that, that minus 3% level throughout the year. So that's sort of the core that's driving that assumption. But we don't have a magic crystal ball here to be able to say for sure what's going to happen to utilization rates.

Understood. Great. And then just with respect to VasoNova, what sort of pull-through revenue are we currently seeing in PICCs? And then where do you think that, that could go over time?

So I think right now, Kaila, I think we're approximately still seeing the same type of pull-through on additional PICC revenue that we've stated in the past. I believe that our prior statements refer to somewhere around, call it, a 30%-or-so pull-through rate on additional PICC product revenue associated with VPS sales, and I think that, that's still in line.

Okay, and then just over time, where do you think that, that could go?

So I'll take a stab at this. The biggest, I think, improvement that we can make in our product offering over the next 6 months is the ability to package our Stylet with our antimicrobial and antithrombogenic PICC. Right now, there's some product modifications that we need to undergo so that the Stylet will fit comfortably within that product. So right now, the very best PICC we have that's receiving some attention doesn't marry well with the Stylet to the VPS unit. Once that obstacle is removed, we're pretty confident that we're going to see some upward trends in PICC conversions as a result of VasoNova placements.

The next question we have comes from the line of Larry Keusch from Raymond James. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Benson, I was just wondering if I could take your temperature on M&A. You've obviously done some larger deals with M&A and with LMA and obviously some of these smaller technology deals. But how are you thinking about sort of size and scope of M&A activities at this point?

So I would say that the best answer to that, Larry, is what you've seen from us over the past 2 years is what you can probably expect at least over the next 1.5 years. We still see some very attractive technology additions that we can make, Eon Surgical being a good example of something that occurred this quarter. And we've got some other things that we're looking at during the balance of the year. And we remain quite alert to other sort of LMA-type opportunities. It's very hard to predict whether they materialize or not, but our appetite for that remains pretty consistent with what it has been over the last 2 years. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay, and then just lastly on LMA, specifically, I wonder if you can give us any update? You indicated, again in your prepared remarks, that the integration is slightly ahead of plan. That's sort of what you indicated in the first quarter. I think you've been looking for a $0.35 to $0.40 accretion for this year? And I think in the last quarter you indicated that you expected to pull some forward, some of the accretion that was going to be spread in 2014 and 2015, more into 2014. So if you could just update us on how that's all progressing, that would be helpful.

Yes, I would say we're well on track, certainly in -- for 2013, where we expected to be, and as we've indicated, we're performing a little ahead of that and actually expect that trend to continue. At this point, we're still in the process of quantifying some of the 2014 accretion and still have the opinion that it's going to be higher than what we initially thought of it. Because some things are moving a little faster than what we had in our planning process. So I guess the bottom line is my remarks sort of remain unchanged from what they were on last quarter's call.

The next question comes from the line of Chris Cooley of Stephens.

Question for you, Benson. Just looking at the results here to date, and the leverage you've been able to realize through the P&L, and as you see the mix starting to kind of ramp. We see these newer products and LMA ahead of expectations, a little bit on integration. Could you revisit for us this morning your long-term objectives? In particular, how you think about the business from a margin structure? Has that changed at all, in light of the current environment post the analyst meeting at the end of last year? And then I have just 1 quick follow-up thereafter.

Yes. So the short answer to that question, Chris, is really, no. The majority of the improvement that we need to make to get to those longer-term gross margin numbers and operating margin numbers are not particularly revenue sensitive. They have more to do with changes that we're making in our operational footprint and again, are not appreciably revenue dependent. Now more revenue helps but we don't expect utilization softness to be an interference with our ability to make those improvements. And excuse me, I forgot the second half of your question.

That's fine. What I just wanted to get is basically if you feel like you can still obtain the margin targets there? And then...

Well, as an overall statement, I would say, I feel a greater sense of confidence in our ability to get there just based on the details and issues that have been addressed. We've been putting more and more meat on the bones in terms of exactly how we're going to get there and what the timetable is. So if anything has happened in the confidence factor in our getting there, it's gone up as opposed to gone down over the last quarter.

Makes sense. And if I could, just 1 quick follow-up and I'll get back in queue. When you look at the second quarter results, respiratory and OEM both down, 6.5% and 11%, respectively, was there any -- could you kind of parse out that decline for us between volume? Or was there anything structural there in terms of like a contract shift, depletion of the product? Just kind of curious about getting a little bit of color behind both of those declines.

So there are different drivers there. OEM benefited last year considerably by a Pebax shortage. We happened to have it on hand and that resulted in a lot of orders for those products well in advance of our end customers real need. So it was a benefit to us to last year, probably inflated the OEM numbers somewhat last year. And this year, simply as a comparison, this year to last year, it looks negative. Now on top of that, there is some softness in our end customers' utilization rates for some products that is contributing to that a little bit, and that's really due to some utilization decline. Our expectation is that most of that Pebax issue is behind us and as we look at the balance for the year, it's going to be more favorable. Respiratory therapy is perhaps one of the products that is generally used by lots of hospital patients. And that probably has had a greater impact from downward trends in utilization than other product areas. In fact, if you look at our surgical numbers, they're up quite nicely. So where we've gotten products in really strong niches that are non-postponable, we continue to see good growth out of those segments. So those are the answer for respiratory and OEM.

[Operator Instructions] The next question we have comes from the line of Jim Sidoti of Sidoti & Company. James Sidoti - Sidoti & Company, LLC: Great. Just a bookkeeping question. On the first quarter call, you guys -- and I think the guidance, initial guidance, you expected the total of the noncash amortization and the noncash interest expense to be about $0.99 and you've taken that down to $0.90. Can you just let us know why the change there?

So, Jim, I think it was just a slight reduction there from the initial expectations once we looked at it as part of the reforecast process, but nothing material there. James Sidoti - Sidoti & Company, LLC: Okay, and then the -- on previous calls, you talked about making some further consolidations, I think with the LMA manufacturing to get additional accretion in 2014. Is that still on track?

So we expect a good gross margin improvement in the LMA product line, yes, and I can't be more specific about the details on that.

[Operator Instructions] We have no questions at this time. So I'd now like to turn the call back over to Jake for closing remarks.

Thank you, operator. And thanks to everyone that joined us for the call today. This concludes the Teleflex Incorporated Second Quarter 2013 Earnings Conference Call.

Thank you, Jake. Ladies and gentlemen, thank you for your participation in today's conference. That concludes your presentation. You may now disconnect. Have a good day.