Teleflex Incorporated (TFX) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2013 Teleflex Incorporated Earnings Conference Call. My name is Steve, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. Now, I would like to turn the call over to Mr. Jake Elguicze, Treasurer and Vice President of Investor Relations. Please proceed, sir.

Thank you, operator, and good morning, everyone, and welcome to the Teleflex Incorporated Third 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 49689482. 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 other calls, I will take us through an overview of the results for the quarter and discuss some highlights. But first, I want to address some questions that, I believe, may be on some of your minds. In particular, I will provide some detail regarding our signed agreement to acquire Vidacare Corporation. We are excited about this addition to our product portfolio and want to share our rationale, as well as our expectations. I will discuss this after I review the quarter's highlights. Secondly, I want to provide some commentary around why we are lowering our revenue expectations for the year, especially in light of positive results during the third quarter. Thirdly, does our lower revenue guidance for the fourth quarter have any impact on our 2014 growth expectations? And lastly, has anything happened in the third quarter which changes our thinking about either the achievement or the timing of our margin expansion goals? The answer to the last question is no. We continue to make very good progress in the planning process and expect to provide much more visibility into the details at our upcoming analyst meeting in December. Regarding our revenue guidance, after the second quarter call, I was asked many times at various investor meetings why we didn't take an even more conservative posture. It was quite clear, I think, to many people, that in order to hit our guidance for 2013, we would have a steep uphill climb for the second half of the year. However, a number of discrete elements led us to believe this was possible and we enumerated those on the last call. We were also influenced by what appeared to be a strong order trend in July, and we expected resolution to certain dealer negotiations that would also have had a positive revenue impact in the fourth quarter. However, the order trend, while it was much improved over the first half, was not quite as strong as we expected and sufficient to get us to our guidance levels in light of other factors that happened. In particular, let me share some of those details about the other factors. Today, as we look ahead into the fourth quarter, we do not see any signs yet of a strong flu season similar to last year's fourth quarter. And that is likely to result in unfavorable comparisons in our respiratory therapy business. And while our dealer negotiations are making good progress, the timing will not result in any significant improvement in the fourth quarter. Generally, our other underlying business trends are quite positive. As a result, while there will be some negative impact this year, we do not expect that these circumstances will alter our growth expectations for 2014. We expect our OEM business, which has been in negative territory all year, to be back in positive territory by the first quarter next year. In addition, we expect that our respiratory therapy year-over-year revenue comparisons will be much more favorable in 2014 compared to 2013. And we have every reason to expect that our agent-dealer negotiations will be concluded successfully. This, coupled with our positive trends in our other product lines, leaves our 2014 growth expectations intact. Naturally, we'll provide more substantive information at our New York analyst meeting in December, when we release our 2014 guidance. So with that overview, let's begin with our third quarter highlights. Overall, the third quarter was a good quarter for Teleflex. Revenue this quarter totaled $413.8 million. This represented an increase of 11.6% versus the prior year on a constant-currency basis, and 12.4% as reported. Revenue growth continued to be driven by our pricing initiatives, as well as from the introduction of new products to the marketplace. In addition, LMA continues to contribute meaningfully to our top and bottom line growth. While from an adjusted earnings standpoint of view, the company achieved $1.33 this quarter, representing an increase of almost 27% versus the prior year. The earnings growth in the quarter primarily came from improvements in our gross margin, as well as some cost containment initiatives. And while Teleflex's longer-term success and operating margin expansion is becoming less and less dependent on pricing and revenue growth, I know that many people in the investment community continue to be interested in the sustainability of our pricing initiatives. During the third quarter, the average selling prices of our products once again expanded, both when compared against prior year, as well as when compared against the first and second quarters of 2013. This past quarter, the improved average selling prices of products contributed approximately 109 basis points of revenue growth. Thanks to a distributor-to-direct conversion in South Africa that occurred during the second quarter of the year, our European business saw an improvement in pricing of 180 basis points. However, even without that, Europe had an improvement of 68 basis points. That was followed by increases in the Americas, which generated a 103 basis point improvement, and Asia, which saw its prices increase 69 basis points. Finally, our OEM business experienced a slight decline in the average selling prices of products that totaled 34 basis points. I'm pleased to say, however, that the price improvements we have been able to generate have not come at the expense of losing longer-term GPO and IDN contracts. In fact, during this past quarter, Teleflex won a total of 10 agreements. Nine of those awards were new, and included product categories like laryngeal masks, PICCs and our VasoNova VPS technology. Currently, our VPS technology is in approximately 100 accounts nationwide and all indications point to a robust fourth quarter. Next, I would like to touch on recent new product launches that we are quite excited about. As many of you are aware, part of Teleflex's longer-term margin expansion is expected to come from the introduction of new products at higher margins. It is our belief that an example of this recent launch is our ARROW JACC with Chlorag+ard Technology. Designed specifically for the nurse call point, this product is the first and only long-term antimicrobial and antithrombogenic central venous catheter. It employs our Chlorag+ard Technology as a weapon against thrombosis and infection for up to 30 days and is effective against the full spectrum of bacteria. We believe that this product represents a significant step forward in raising the standard of care for patients requiring vascular access, while equally addressing the clinical need for efficiency and cost-effectiveness. And before I move on to discuss the Vidacare opportunity that we announced last night, I would like to take a moment to provide you an update on LMA. The acquisition of LMA, which closed last October, is another example of how the management team at Teleflex has improved the company's product mix and operating margin profile. During this past quarter, LMA contributed its highest amount of revenue yet as part of Teleflex, totaling approximately $34 million, while its gross margin reached almost 61%. Keep in mind that when we acquired LMA a little less than 1 year ago, it's gross margins were in the 57% to 58% range. Because the integration and performance of LMA continued to progress so well, during the course of 2013, we began to look for another LMA-like acquisition and we believe we found it in Vidacare. Based in Texas, privately-held Vidacare is the leading provider of intraosseous, or inside the bone, access devices for diagnostic monitoring and therapeutic devices. With a strong patent portfolio, Vidacare will expand Teleflex's vascular access product portfolio with a defining technology that moves Teleflex into the inside the bone segment and strengthens our presence in the EMS channel and nurse call points. And similar to LMA, Vidacare will also improve Teleflex's overall gross and operating margin profile, as currently, Vidacare's gross margins are approximately 85%. Many of you may not be familiar with the intraosseous access device, so let me take a moment and provide you with a bit more detail. Vidacare products incorporate a patented power driver and needle system to access the inside of the bone space for a variety of medical, diagnostic and therapeutic purposes. Their products include the EZ-IO intraosseous vascular access system, the OnControl Bone Marrow System, and the OnControl Bone Access System. Vidacare's proprietary devices have become the recognized technology standard and are used in a broad range of applications, including vascular access, emergency medicine, oncology and spinal surgery. The EZ-IO intraosseous vascular access system gives immediate, stable and secure vascular access via the intraosseous space in the bone, where marrow is located and where blood and stem cells originate. The intraosseous space is the body's largest noncollapsible vein that provides a route for infusion of fluids and essential medications into the central circulatory system as quickly as traditional IV lines. EZ-IO is used by a vast majority of the United States advanced life-support ambulances and emergency departments, as well as the United States military, when vascular access is difficult to obtain. The OnControl Bone Marrow System provides the first significant advancement in bone marrow biopsies and aspirations in more than 50 years, offering patients and clinicians a vastly improved procedure option with significantly lower pain and exceptional quality core samples. While the OnControl Bone Access System provides rapid and safe access to the vertebrae during spinal surgery procedures with increased precision in needle placement and shorter surgical procedure times. The transaction, which Teleflex intends to initially fund with borrowings under its revolving credit facility, is valued at $262.5 million, net of cash acquired. Like all acquisitions, this is subject to customary closing conditions, including the receipt of certain regulatory approvals. It's expected to be completed late in the fourth quarter of 2013, and based on that, the acquisition is not expected to significantly impact Teleflex's 2013 revenue or adjusted earnings per share expectations. However, Vidacare is expected to contribute approximately $68 million to $72 million of revenue at approximately $0.10 to $0.15 in adjusted earnings per share in fiscal 2014. We, at Teleflex, are really excited about this opportunity and look forward to Vidacare's employees becoming part of the Teleflex family. With that, I will now turn the call over to Tom and he can walk you through our most recent quarterly financial performance and our outlook for the remainder of 2013 in more detail.

Thanks, Benson, and good morning, everyone. Revenues for the third quarter were $413.8 million. This represents an increase of 11.6% on a constant-currency basis. When taking into consideration the impact of foreign exchange, revenues in the third quarter increased 12.4% versus the third quarter of 2012. The growth in constant currency revenue is largely attributed to the acquisition of LMA, as well as sales of new products, which contributed 1.5 percentage points of growth, and pricing, which contributed another 1.1 percentage points of growth. Turning to gross profit. For the third quarter, adjusted gross profit and margin were $205.8 million and 49.7%, respectively. This compares to $180.6 million and 49.1% in the prior year quarter. The 67 basis point increase in adjusted gross margin was primarily due to the acquisition of LMA, as well as selective price increases. Also during the quarter, we incurred a number of costs that we would characterize as shorter term, or nonrecurring in nature, that held us back from achieving further gains in gross margin. Those costs include the transition to and startup of the new North American Distribution Center located in Olive Branch, Mississippi; the transfer of cardiac production to the Chelsor [ph] facility; and some inefficiencies in ramping up production at several plants following the rollout of SAP at the end of the second quarter. While these costs adversely impacted gross margin during the quarter, we do not foresee ongoing issues and expect that each of the referenced initiatives will achieve its longer-term savings objectives. Now let's move to a discussion of operating margin. For the third quarter of 2013, the adjusted operating margin was 17.3%. This represents a sequential increase of approximately 30 basis points, and an 80 basis point improvement when compared with the third quarter of 2012. If we exclude the impact of the medical device tax on our third quarter 2013 results, operating margin would have been approximately 18%. The improved operating margin was the outcome of the gross margin gain, coupled with tight SG&A cost control initiatives put in place to counter a softer-than-anticipated revenue environment. As we look to the future, we intend to leverage the cost programs currently in place as a means to reset SG&A spending levels, which will help us to achieve our longer-term margin expansion objectives. Turning now to taxes. The GAAP tax rate for the third quarter was 10.2% and included net tax benefits from the favorable resolution of foreign and U.S. tax matters, as well as the balance sheet impact of statutory tax rate changes. These benefits do not directly relate to the current period and were therefore removed when determining adjusted earnings per share. On an adjusted basis, the tax rate for the third quarter was approximately 23.8%. This tax rate was slightly better than our original expectation, primarily due to a favorable return-to-accrual adjustment for approximately $2.8 million, which added approximately $0.07 to third quarter adjusted EPS. And now, turning to earnings per share. Adjusted earnings per share for the third quarter was $1.33, representing an increase of 26.7% versus the prior year period. Let's now move on to a more detailed review of our constant currency product line and geographic revenue results. Critical Care revenue in the third quarter was up 17.9%, totaling $289.3 million. The increase in Critical Care revenue was due to the addition of LMA, as well as higher sales of vascular, urology and interventional access products. Partially offsetting these growth areas was a decline in sales of respiratory products. Surgical revenue in the third quarter was up 3.9%, totaling $73.2 million. The growth in Surgical revenue was primarily the result of increased sales of ligation, suture and access products. Partially offsetting this growth was a decline in the sales of general surgical instrument products. Cardiac Care revenue in the third quarter was down 1.6% and totaled $17.6 million. Similar to recent quarters, the decline in Cardiac revenue was primarily due to lower sales of intra-aortic balloon pumps. And lastly, OEM revenue for the quarter was down 9.4%, and totaled $33.7 million. The decrease in OEM revenue was largely due to reduced sales of catheter, extrusion 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 third quarter was up 13.8% and totaled $192.5 million. The increase in constant-currency revenue was due to LMA product sales, new product introductions and price increases. Moving to EMEA. Revenue in this segment was up 9.6% and totaled $132.3 million for the third quarter. The increase in EMEA was also due to LMA product sales, price increases, new product introductions and higher sales volume of existing products. Finally, sales in the Asia segment were up 25.2%, totaling $55.3 million. The increase in this segment was due to LMA product sales, price increases and higher sales volume of existing products. Finally, before I open up the call for Q&A, I'd like to take the opportunity to provide you with an update regarding our full year 2013 financial outlook. While our third quarter revenue growth of 11.6% was strong, it was not quite as strong as we were previously expecting. As outlined by Benson, these and other factors now cause us to take a more tempered view toward fourth quarter revenue growth. As an outcome, we are lowering our 2013 constant-currency revenue growth estimates to a range between 8.5% and 10%. This compares to our prior expectation, which called for constant currency revenue growth of 10% to 12%. In addition, our expectations for adjusted gross margin are slightly lower as well. Previously, we projected adjusted gross margin to be in the range between 50% and 51% for the year. We now expect our full year gross margin to be between 49.5% and 50%. To offset the earnings impact of the softened revenue and gross margin expectations, we have taken steps to reduce planned SG&A spending. As an outcome, we expect that adjusted operating margin will remain in the range between 16% and 17% for the year. This range includes a negative impact of 65 basis points from the medical device tax. And finally, because of the strong earnings performance in the third quarter and our expectation to closely manage SG&A spending for the balance of the year, we are raising our full year adjusted earnings per share expectations for 2013. We now expect 2013 adjusted earnings to be in the range of $4.85 to $5 per share. This is an increase from our prior expectations, which call for adjusted earnings per share to be in the range of $4.70 to $4.90 per share. That completes my prepared remarks. With that, I would like to now turn the call back over to the operator for questions. Operator?

[Operator Instructions] And your first question comes from the line of David Lewis from Morgan Stanley.

Benson, I wonder, you talked a little bit about organic growth here this year and maybe next year. 4Q implied numbers are actually in line with our model, but they still do imply the acceleration. And I appreciate you sort of mapped out a view of sort of how this can improve into next year. I guess, in this environment, I guess, I'm trying to understand, what's the most appropriate way to think about your business heading into '14? I mean, should investors think about the roughly 3% organic growth we saw here in the third quarter or something closer to the 5% organic growth that your implied numbers assume for the fourth quarter?

I think it's somewhere between those goalposts. We are -- I think our current view of the macro environment is that it's stabilizing, but not necessarily improving in terms of physician visits and hospital visitations. I think we still see some confusion in terms of what the impact of the Affordable Care Act is likely to be, at least in the short term. Looking at where the villains are this year and in the Teleflex portfolio, it is primarily our respiratory therapy business, our OEM business, and our Cardiac Care business. Specifically, I think we feel quite optimistic that the OEM business is likely to see a good turnaround and be in positive territory next year. So that will -- I think that drag will be eliminated. We are starting to see some encouraging green shoots around our Cardiac Care business with some new accounts that we've won and the introduction of the Hotspur balloon into that product line. The respiratory therapy business is likely to remain our most challenged business in terms of the overall macro environment. But as I mentioned earlier, at least the comparisons between '14 and -- excuse me, '14 and '13 are likely to be more favorable. So I think we're going to see an uptick from where we are this year. And I think we're likely to take a bit of a conservative view, though, with some of the uncertainty in terms of our planning and our guidance for 2014.

Okay. Very, very helpful. And maybe just shifting focus to Vidacare for a second here. I wonder if you could give us a sense of Vidacare growth rate, I don't think I caught that in your prepared remarks. Other -- what Vidacare has been growing at? What you see the core end markets as growing at? And I wonder, Benson, just more strategically, if you take a step back, is this transaction more about leveraging the vascular channel or really driving growth within the intraosseous segment?

Yes, so Vidacare has been growing. Our estimate is Vidacare has been growing in the mid-teens. They've certainly had a couple of recent years that have been higher than that as a result of dealer-to-direct conversions. We've sort of stripped that out in our own model as onetime events. Speaking a little bit about the rationale. There's a couple of really good points we like about this. First of all, they have just really started the process and are seeing quite good growth rates in the hospital segment as well. And so we think this is a really good addition to our vascular sales effort in the hospital. It gives us a broader product portfolio. And so, it's certainly a plus for us from that perspective. With the acquisition of LMA, that is a product line that's also used in the ambulance segment. And personally, we were -- Teleflex was somewhat underrepresented in that space. And so the -- about 1/3 of Vidacare's business is in that hospital environment, so this will allow us to have better coverage and better presence in that segment. And then the bone marrow product lines are one that was a bit -- I'm just going to say, a bit neglected in the Vidacare portfolio. They've just recently started to pay more and more selling attention to that product line, and we think that's going to be a great product in the interventional radiology space. Lastly, I would just say, we see that there's considerable opportunity for expansion over the next several years, in the Asian market in particular. So it's more of a growth play than LMA was, but there still are good synergies that we're going to get out of the acquisition.

And your next question is from the line of Larry Keusch from Raymond James. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Benson or Tom, just continuing on Vidacare and some of the comments made in the prepared remarks this morning, the $0.10 to $0.15 accretion for 2014. I'm wondering what -- how are you sort of getting to that? What are the assumptions there? And I guess, going back to the release from last night, you indicate that the initial financing is going to be done through your revolver, which I think would imply that there may be something more permanent put in place at some point. So again, if you could speak to that and, again, how that plays into the current assumptions for accretion for 2014.

Okay, well the $0.10 to $0.15 for next year is largely based on bringing the business into ours. We expect that the integration will go fairly quickly and that we'll be able to realize a lot of the synergy savings throughout 2014. And so as we move into 2015, we're kind of looking towards a doubling of that level of earnings as a result of a pretty quick integration. Then going forward after that, it's largely going to be driven -- our future gains will be driven through the revenue growth that Benson had referenced. Now with regard to the financing, your point is something that we're obviously using the revolver to finance this. Initially, our assumption is that more permanent financing would follow and the costs of that are included in that $0.10 to $0.15 assumption for 2014 and going forward. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay, great. Appreciate it. And then, I guess the other quick one for me is, when you think about the respiratory business and the OEM business, and the comments, Benson, that you made relative to, again, 2014, why does the OEM business actually improve? And I guess the other question is, respiratory has been -- it's a low-margin business for you guys. It's been fairly volatile. What are you doing there to keep it or to improve it, I should say? And I guess the other question is, why keep it?

So, let me address the OEM circumstance first. This year, we had a higher number of contracts with outside customers that were ending, and the customers had an opportunity to take that business in-house, and due to some of their own economic pressures, decided to do that. I think we've got pretty good visibility in terms of what that's going to look like in 2014, and pretty good visibility in terms of projects that we have been working on this year that will be commercialized by our outside customers next year. It is, I would say, among the rest of our businesses, the most subject to some volatility from year-to-year, based on what's going on with some of its outside customers. So if we looked -- we went back to 2012, they were in the growth rate of about plus 10%. This year, it's closer to minus 10%. Next year, we think it's going to be up at least in the mid-single digits. So I think we've got pretty good visibility in terms of what that's going to look like. And this late in the year, most of the orders that are actually coming in are for next year. So I think we have a pretty good sense of comfort about the OEM business. The respiratory therapy business is a business that is more subject than most of our other businesses to ups and downs in procedures and admissions. I think it is a more challenged business from a standpoint of our overall gross margins. We expect some fairly substantial improvement in those gross margins as a result of our footprint consolidation. And I think, as we look at our overall product portfolio, it's a business that's under review pretty constantly.

And your next question is from the line of Matthew O'Brien from William Blair. Matthew O'Brien - William Blair & Company L.L.C., Research Division: Just a couple of quick housekeeping items for you. I think you mentioned the nonrecurring costs that impacted gross margin in the quarter. Can you quantify, from a basis-point perspective, what that impact was? And then, Benson, as a follow-up to David's question on growth for Vidacare, are you saying, going forward, we should expect something around mid-teens growth?

So, just to quickly answer your question about the overall impact. Just 2 items accounted for about 100 basis points in what we would describe as nonrecurring gross margin events, principally coming from a needle recall that we had in the Cardiac Care business, and a -- the expenses relating to the opening of the North American Distribution Center that have basically already resolved and are back on track. So that's the quantification of that. In terms of the -- in terms of Vidacare rates going forward, I think our conservative estimate is that this will contribute at least double the growth rate of our non-Vidacare product line over time, certainly, over the next 5 years. It becomes a little less clear as we move out further than that as those markets start to mature. But for the next 5 years, I think we're going to see double the growth rate out of that product line versus our overall Teleflex growth rate. Matthew O'Brien - William Blair & Company L.L.C., Research Division: Okay. And then within Cardiac Care, this is something you mentioned in the past. But balloon pumps is a smaller piece of the business, but you've seen some impact, I think, from some data over in Germany. Has that expanded beyond Germany at this point? Is it starting to impact utilization here in the U.S. or elsewhere?

No. It continues to remain confined to Germany. And our expectation is that, unless there's several other studies that confirm the Shock II trial results, it's unlikely to affect clinical practice outside of that area, and that's what we've seen so far. Matthew O'Brien - William Blair & Company L.L.C., Research Division: Okay. And if I could just sneak in one more on VasoNova. I think you said 100 accounts at this point. But especially with things[ph] here in Q4, can you just give us a sense for next steps for that product and then where you're at in terms of PICC pull-through?

So, a good bit of our efforts in the third quarter revolved around the introduction of the new console. And we had -- most of that effort was directed actually at existing accounts that were using the first-generation equipment that was out there. And they had converted to it with the anticipation of moving to the new console when it was available. So that was -- that consumed a fair amount of selling time during the third quarter. Now that time has shifted over to new accounts, and we follow that pretty closely in terms of what the interest level is. And as I mentioned in my prepared remarks, the indications are -- look quite promising for a relatively robust quarter in terms of account conversions. And excuse me, you had one -- was there one other part to your question? Matthew O'Brien - William Blair & Company L.L.C., Research Division: With the -- just the PICC pull-through? I think you've provided some of that -- some of those metrics in the past.

Yes. So we can -- actually, we continue to see encouraging PICC pull-through. We saw a noticeable increase in our antimicrobial, antithrombogenic PICC from accounts, even outside of the VasoNova realm. And our effort here is to really get that product packaged with a -- prepackaged with the VasoNova stylet as soon as we can, because of the interest in the antimicrobial, antithrombogenic features. Lastly, we are starting to see some initial use of VasoNova with CVC catheters, and that's an encouraging sign.

And your next audio question is from the line of Rich Newitter from Leerink Swann.

Benson, if you wouldn't mind, just with respect to the Vidacare acquisition. You guys had a very successful integration of LMA, maybe you could just elaborate a little bit more. You talked a little bit about the strategic rationale and the strategic differences behind the integration. But can you talk about, just logistically and operationally, where there might be kind of differences and similarities between kind of the next few months and the steps that you'll need to take to integrate?

One of the reasons that I think the LMA integration, particularly in the field, went so well was that it was a lot of revenue on a product line basis associated with essentially one product. And our observation was that that's much easier to integrate into your -- particularly your selling and marketing organizations that don't have 30 new products to be able to learn. Also, what helped was that the LMA sales force that came with it was very clinically-oriented and were able to quickly pick up the technical information about the sale of the rest of the vascular line. From that point, we see some real similarities in Vidacare, 80% of their business plus is in that EZ-IO product line. It is a clinically-driven product. From what we have learned about their sales force, they're very confident in terms of -- and comfortable walking in and talking with clinicians. So we think a lot of the same factors that helped LMA be a good integration for us, we're likely to see with the Vidacare line.

Okay, that's helpful. Well, maybe -- also, can you provide a little bit of insight into what kind of step-up in quarterly amortization we can expect from this acquisition?

So, I think the -- I believe that the expected amortization next year is somewhere in the $8.5 million range, I believe.

And that would be assuming -- this is assuming a close starting in Q1?

Yes, Rich. That is sort of a full year amount, I believe.

And your next audio question is from the line of Matt Taylor from Barclays.

A quick one first on Vidacare. As you said, it's -- it really seems like another LMA sales deal. But just -- can we talk about like the company's capital allocation strategy in terms of, I guess, new acquisitions on kind of the larger scale. Now you've done 2 bigger deals over the past 2 or so years? What can we expect going forward? Can we expect smaller deals or just lesser deals? Just kind of curious on that.

So for 2014, I'm going to say it's unlikely that we would do another Vidacare or LMA-sized acquisition. The only caveat I would give to that is acquisitions tend to be somewhat opportunistic. We probably wouldn't have done Vidacare as soon as we did, except we're -- we had been following this properly for some period of time and the time seemed right for them to think about selling it. So we don't necessarily have an acquisition of that size planned. It's possible. I think the more likely scenario is you're going to see a continuation of some of these smaller-technology and smaller-product acquisitions, late-stage technology acquisitions. We're just going through the process, actually, of revisiting what our capital allocation strategy is going to emerge for 2014 and 2015. And again, I think we'll be able to provide some additional insight at the analyst meeting in December.

Thanks, guys. That's helpful. And just a quick follow-up on Asia, if I could. So just trying to understand everything there with the puts and takes. I mean, last quarter, you spoke about the clip[ph] applicator and you have focus of that -- on that, wait on results a little bit. This quarter, there was some talk about the distributor negotiations that are going on. But if we look at like the rest of the business, from how LMA's done there to pricing, it's really overall growth rate. Things really seem to be going well. So how should we just think about the Asia business going forward?

Yes, I think we're going to see more of the same. If not, a modest uptick.

And your next question comes from the line of Anthony Petrone from Jefferies Group.

A couple on Vidacare. Maybe, Benson, can you share the margin profile of that business? Without LMA, certainly that was gross margin accretive. Wondering what the gross margins are on the Vidacare business. And then even further down the P&L, how that plays out at the operating line. Specifically, what is their R&D level? Does that work to increase the overall R&D of the company?

Yes, so the gross margins are 85%. Until we actually close the transaction, we're not ready to go into some of the operational synergies that might occur. And Vidacare's current P&L would be certainly substantially different as a result of integrating the sales organizations.

That's helpful. Maybe -- one of the features of LMA was that it had a big international presence, and so that actually helps at the tax level. It seems that Vidacare is possibly more U.S.-focused. So maybe what is the geographic mix of Vidacare's revenues and how does that play out at the tax line?

About 2/3 of their revenue currently is in the United States, and about 1/3 of it is -- I'm giving you rough numbers here, about 1/3 of it is outside the United States. They have really just begun the process of taking over their dealer -- their international dealer operations into more of a direct posture. We actually expect that the international sales provide a robust opportunity for improved revenue growth over the next couple of years. They just recently were awarded clearance for the product in Japan. They're going through the process of getting some reimbursement and acceptance -- clinical acceptance in the product. They're about halfway through the process of getting it licensed and approved in China. So I mean, one of the things I think we really bring to the picture is a very sophisticated international operation that can take advantage of the product's capabilities in markets they have not yet penetrated.

And then with regard to the tax rate. Just given where the revenues are generated and U.S. tax codes, you should be probably thinking around a 35 percentage-type tax rate. So right now, we don't have significant tax planning benefits that we're able to realize.

Sure. And maybe switching topics, Benson, to GPO volumes. I think you had a comment last quarter that volumes unexpectedly fell at some of the larger GPOs, and they were looking at sort of a negative 3% utilization rate. I'm just wondering if there's an update on those trends.

Yes, so the latest conversations I've had with a variety of providers and GPOs, I would say, and just to echo my remarks in my script, that it appears that there's not continuing erosion. I would say that it looks, from our vantage point at this point, that there's what I would describe as stabilization in office visits and in hospital procedures. We are seeing considerable cost reduction efforts on the part of certainly our -- some of our largest customers. So I think they are -- I think that there's a growing concern about what the actual impact of the Affordable Care Act is going to be in terms of what's the mix of patients they're going to see, are they all Medicaid patients. And I think they are, at least, preparing for continued cost pressure in the United States. As we move to Europe, I think we're seeing, again, the erosion appears to have stopped. And I would say, our viewpoint for 2014 is a modest uptick in Europe.

Sir, you have no further questions at this time. [Operator Instructions] Your next question is from the line of Jim Sidoti of Sidoti & Company. James Sidoti - Sidoti & Company, LLC: I understand you don't want to go into too much detail on the synergies after you complete the acquisition. But can you just tell me what the size of the sales force is now at Vidacare?

Yes, I think we're going to hold the line and keep any discussion about synergies and integration until after the closing. And in fairness, we're just having our first integration meetings with the folks at Vidacare and are approaching this with a bit of an open mind in terms of what this is going to look like. We've been very impressed with the folks that we've met at Vidacare, and are interested in capitalizing on their talent pool as much as we possibly can. James Sidoti - Sidoti & Company, LLC: All right. Maybe I'll ask it another way. Do they have the whole country covered right now with their current sales force?

Yes. Yes. James Sidoti - Sidoti & Company, LLC: Okay. And then, just another bookkeeping question. There was a reversal charge, some contingent income. I assume that's from a previous acquisition. Can you just tell me which one that was?

Yes, it's related to the Hotspur acquisition.

There are no further questions. [Operator Instructions] And have you have another question from Anthony Petrone from Jefferies Group.

Just a follow-up on -- Benson. Maybe you announced last year at analyst day a number of restructuring activities. One was around the centralization of distribution efforts in North America. Those were designed to drive margin expansion into 2014, 2015. Maybe just an update there on where you stand on some of those initiatives and when we should start to see margin expansion from those efforts.

So we began shipping out of the North American Distribution Center, really, earlier this year. Nearly all of the product was transferred to that location during the third quarter. We did -- we expect this to be back in the black by the fourth quarter. Actually, we expected it to back in the black by the third quarter. We did have some additional temporary labor expenses that were responsible for some of the -- what we described earlier as kind of onetime events affecting our gross margin. Those appear to be behind us. I think we will see a -- the full year benefit of that in 2014. So that's slightly behind in terms of the timing. And -- but we are, I think, overall, really pleased with the whole transition from 3 into 1 distribution centers. And I forget, was there another part to that question?

And now, I would like to turn the call over to Jake Elguicze for closing remarks.

Thanks, operator, and thanks to everyone that joined us for the call today. This concludes the Teleflex Incorporated Third Quarter 2013 Earnings Conference Call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.