Good day, ladies and gentlemen, and welcome to the Q1 2014 Teleflex Incorporated Earnings Conference Call. My name is Steve, and I'll be your operator for today. [Operator Instructions] And now, I would like to turn the call over to Jake Elguicze, Treasurer and Vice President of Investor Relations. Please proceed, sir.

Thank you, and good morning, everyone, and welcome to the Teleflex Incorporated First Quarter 2014 Earnings Conference Call. The press release and slides to accompany this call are available on our website at www.teleflex.com. And 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 11286884. 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. It's a pleasure to be with you once again. And similar to other calls, I'll begin with an overview of the company's results and discuss some highlights. So to begin with, I'm happy to advise you that both first quarter revenue and first quarter adjusted earnings per share exceeded our expectations. Revenue in the first quarter totaled $438.5 million. This represents an increase of 6.5% versus the prior year on an as-reported basis and 6% versus the prior year on a constant currency basis. The better-than-expected as-reported revenue performance in the quarter versus our initial expectations resulted from foreign exchange favorability, as well as from the overperformance of both our recently completed Mayo and Vidacare acquisitions. As you may recall, when we last provided an update in February, we indicated that we expected core volumes could be soft in the first quarter as a result of uncertainty associated with the implementation of the Affordable Care Act, as well as certain other circumstances unique to Teleflex. As such, Teleflex planned its 2014 revenue cadence in a more cautious manner than in 2013. With the first quarter now behind us, I'm pleased to say that this appears to have been a prudent thing to do as the combined impact of volume, new product introductions and pricing was in line with our initial expectations. When comparing first quarter to results for the prior year period, our constant currency revenue growth was largely due to the contributions of Vidacare and Mayo, as well as the introduction of new products to the market and an improvement in the average selling prices of products as compared to the prior year period. We do expect our non-Vidacare volume to continue to ramp up during the remaining 3 quarters. Turning to adjusted…

Thanks, Benson, and good morning, everyone. As a headline, Teleflex had a solid first quarter. Revenues slightly exceeded our expectations, adjusted gross margins and adjusted operating margins both showed improvement from year-ago levels and adjusted earnings per share increased over 15% from the prior year first quarter. For the quarter, revenues were $438.5 million which represents an increase of 6% on a constant currency basis. When taking into consideration the impact of foreign exchange, revenues for the first quarter increased 6.5% versus the first quarter of 2013. The growth in constant currency revenue is largely attributable to the acquisitions of Vidacare and Mayo Healthcare, our Australian distributor. In addition, new products added 78 basis points of growth, and core product pricing contributed 56 basis points of growth. Total pricing, including the margin recaptured via the Mayo distributor-to-direct conversion, totaled 108 basis a point -- or 108 points for the quarter. Volume for the quarter decreased 147 basis points and can be attributed to one fewer shipping day in EMEA, a tough Respiratory comparable and a couple of one-off Teleflex Pacific issues that occurred during the quarter. For the quarter, we estimate normalized revenues to be in a range of about 3.5% to 4%, and we arrived at that estimate by excluding the base Vidacare revenue and making adjustments for the shipping day and other one-off items. Turning now to gross profit. For the first quarter, adjusted gross profit was $221.2 million versus $201.1 million in the prior year quarter. Adjusted gross margin increased 161 basis points to 50.4%. The increase in adjusted gross margin was primarily due to the Vidacare acquisition and increased pricing. Further gross margin gains were limited by soft sales of Surgical products and select manufacturing costs, including costs associated with the decision to delay the planned…

[Operator Instructions] Please stand by from your first question which comes from the line of David Lewis from Morgan Stanley.

I just want to start off with the restructuring, guys, whether it's Benson or for Tom. So at first blush, the restructuring announcement is -- represents about 200 basis points of margin expansion, maybe a little lower than we were expecting. So I guess 2-part question. The first thing is, how do we get from your margins today, based on this restructuring, to get to 55% fourth quarter margins? Is that conservatism in this outlook, or is it simply you feel better about the underlying GMs of the core business?

So we still expect to exit this year at between 52% and 52.5% of gross margin. Some of those things that are contributing to that will spill over into 2015 and provide an additional pump -- an additional bump, excuse me. And then the -- there's a fairly substantial amount of the overall gross margin improvement that will actually hit by the end of 2015. So the combination of those events gets us over that 55% target level. And it was -- first of all, we certainly felt a sense of obligation to do what we could to get above that stated target level. Improvement in other areas in our gross margin has allowed us to take a more conservative cadence to some of the additional manufacturing opportunities in front of us. So it's a combination of some things going better. And I'll cite Vidacare as an example, which contributes significantly to our gross margin improvement that's allowing us to take a little bit more conservative view and -- to the timing of some of these manufacturing moves. But a majority of what we've announced in the restructuring will hit us by the time we exit 2015.

Okay. And then the other message that didn't seem to be relatively clear in this call was this notion of perhaps this is a broader restructuring and these numbers could prove conservative. So it sounds like to the extent we're going to see conservatism to the initial restructuring announcement, we're going to see that upside more in 2016 and beyond than 2015?

So that's exactly the message we're trying to deliver, and that's the point we're trying to make.

So just to kind of add on to what Benson said, as we look to move from this year, say we're exiting at the 52.5% rate, what's going to drive us towards that margin by the end of 2015 is some of those footprint savings we'll realize in '15. As Benson mentioned, we also have some pretty strong growth for Vidacare. It's a very high-margin business. That, coupled with international growth, which is growing faster and higher margin, will help drive us as well. We also have another distributor-to-direct conversion scheduled for the fourth quarter of this year. We'll then realize that full year benefit. And we're going to look for more of those opportunities in 2015 as well. We also have quite a few cost-improvement programs scheduled for this year. And as we look to move from where we are in gross margin today to where we're going to exit the year, those cost-improvement programs are going to deliver a lot of movement. And what we're going to see in 2015 is the full year benefit of those programs. And so we'll continue to look for opportunities outside of footprint. We've got opportunities such as material substitution and other projects that we're looking at as well. So we've got a lot of action that's going to help us get there by the end of 2015. That includes part of the footprint. But then the footprint also delivers some pretty significant benefits in '16 and '17 as well.

And your next question is from the line of Dave Turkaly from JMP Securities.

Just to follow up there on the restructuring side. I'm glad to hear that if we're not done in '15, we can continue through '18. But would you be willing to give us today with this plan a reminder of the footprint that you have in terms of facilities? And could you, not specifically name which ones, but at least give us some color as to how many are impacted by what you announced today?

So that would -- that's, I think, gets us to a position that's beyond what we're able to communicate until we have conversations with our employees about the specific sites.

Okay, fair enough. And then as a follow-up -- I guess I can't help asking for some detail around this Intuitive Surgical announcement. I take it that'll be a part of your OEM. But I guess if you could give us any color on what you see that -- how you see that contributing. I know it wasn't specifically mentioned as a driver ahead, but any details there would be appreciated.

So actually, that's a relationship that exists between our Surgical division directly with Intuitive. It's not through our OEM group. They have been working, I think, quite successfully with Intuitive over the past several years. Obviously, the internal projections that we have are based on Intuitive's assumption about what this is -- what their new robot is going to do in the market. And we would feel more comfortable having Intuitive state those numbers publicly than us.

And your next question comes from the line of Larry Keusch from Raymond James. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: I just want to come back on the restructuring and make sure I'm understanding this correctly. So again, on the math, it looks like you're just below 200 basis points of operating margin expansion through the restructuring savings. And I had been under the impression that you guys are articulating restructuring benefits that were at least north of 250 basis points and maybe over 300 basis points. So I'm just trying to reconcile what was said earlier and make sure I understood that versus what we're seeing today.

So that's a good point. Let me clarify to the extent that I can. We've essentially made considerable progress from a goal to get to 55% to a plan to get there, which has given a lot more clarity to the specific details. If you look solely at the opportunity we believe we have in front of us, in terms of footprint consolidation, it's in the range that we're talking about. But not all of that is included in the current phase that we have. And we are taking this, the whole look at footprint consolidation, relatively cautiously because not only it needs to be done, but it needs to be done right so they don't have supply chain interruptions, et cetera. So we have moderated our initial phase of this to the extent that we think is prudent and what we can get done based on other things happening in our gross margin, which will still get us over that 55% goal. And as I mentioned in my comments, expect to provide more clarity of what the quantification around the overall margin improvement numbers going to look like by the time we get to 2018. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay. And so just so -- again, so I understand it and then I have just one other question. So the -- what you're essentially saying is there could be other opportunities as we move out in time. And along with that, I would just want to understand the $35 million, this cost savings that you guys are talking about. Does that -- is that contemplated to all drop to the bottom line or does that get reinvested?

No, that would be savings that would be dropping to the bottom line. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay. And just a thought on, again, there's potential other opportunities for restructuring as you move forward.

Yes.

And your next question is from the line of Jason Wittes from Brean Capital.

Just wanted to ask about organic growth this quarter. My math has it slowly flat to negative. I may be off on that. But also, I think if I look at your guidance for the year, it seems like you're backing off a little bit. And I think part of that has to do with your comments about reinvesting or pushing more investment towards Vidacare. Could you just help us out with the numbers and sort of how you're thinking about that?

So I'm not sure precisely that we're backing off. But we are -- as I mentioned in my comments, we are really pleased with the customer reception that Vidacare is getting. And it is quickly occupying the space of our fastest-growing, highest gross margin product. We want to make sure we capitalize that opportunity fully. This is nested in sales divisions that have other products to sell. But we think it's the right strategic move, certainly short term, to have the focus on that product, which means -- and can result in some lesser selling time on some other products. So I think we're trying to paint the picture that while we expect some overperformance in Vidacare, we might -- this might come at the expense of some of our additional product lines. It's -- I would say it's hard to calibrate exactly what that might look like. We still have some, I think, conservatism built into our numbers based on continuing uncertainty around the Affordable Care Act. All that notwithstanding, there are some unique Teleflex circumstances in a respiratory therapy business, for example, that are going to have much more favorable comparisons in the second half. So all those changes in terms of organic growth rate still lead us to believe that our non-Vidacare growth is going to be in the 3.8% to 4% number by the end of the year.

Okay, that's fair. I don't mean to put words in your mouth there. Also -- go ahead, sir.

To put a little more color on it, so if we look at components of growth that we talked about for the year, and we broke it down into 5 different buckets, if you look at kind of what we're getting from pricing, about 110 basis points, that's on the upper end, middle to upper end of the range we talked about for the year. M&A, excluding Vidacare, which would be Mayo, Ultimate and some others, is also trending kind of within the range, around the positive side of the range. Vidacare, as mentioned, is trending favorably. So as you look at those 3, all trending favorably to above where we expected. As we started the year, volume in new products, it was our expectation that it would be on the lower end of the range and that we would see new products building through the year as those new product introductions gained momentum. So while we're a little bit south of our midpoint of our guidance for the year, we expected that. And same thing with volume. As we look at volume, that was below the full year range. But again, we expected that. And the things that will help turn that around is, we mentioned, shipping days. So we've had a -- one fewer shipping day in the first quarter, we expect to pick that up in the back half of the year. Benson mentioned the Respiratory comps, we had a couple of one-off issues that really will correct themselves in the second quarter and otherwise. And in addition, we've got some drivers that will help us in the back half of the year, including getting the full year benefit of the Mayo acquisition, which happened midway through the first quarter and so you didn't get the full benefit of that growth. And then we're looking for one more distributor-to-direct conversion later in the year. So we've got a number of actions that should help that growth as the year progresses. So hopefully, [indiscernible] additional color.

Great. I understand that. And one just quick follow-up. You got a lot of questions about the restructuring plan announced. I think just in terms of thinking about it, you guys have generally said you've had a long-term goal of 55% gross margins by the end of '15. And I assume this is sort of part of that. In addition, you've also said that you expect further leverage beyond that. Those are comments that you've made in the past. If I -- if we were thinking about this restructuring plans, is the right way to think about it, this is really just a more formalization of those goals? And then secondly, as part of that, is most of that improvement going to come from gross margins, or is there also some SG&A in there?

So the first half of your question, I'll take. And I think that's a pretty good way to phrase it. The only additional comment I would make to that is, and we've said this many times also, that we don't see 55% as the end goal for us. And we see pretty clear opportunities to get beyond that over the next several years beyond then, and we're committed to do that. In terms of some SG&A expenses, depends on where the gross margin improvement is coming from. Vidacare, for example, carries some higher SG&A expenses in order for us to move that product line forward than what it is. Most of the gross margin improvement that comes directly from operations has pretty close to a 1:1 fall-through ratio to our operating margins.

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

So I guess I just want to make sure that I'm clear, because there's been a couple of different questions on the restructuring plan. So in terms of your goal, I guess, on the 55% and beyond, you're saying this is more of a formalization versus something that's really truly incremental. So layering on the midpoint $47 million in op margin savings is not necessarily the right way to think about it for the near term. So I guess that's question one. And then question two is just as you rationalize your footprint here, can you give us a sense, and qualitatively, as to where this puts you from a longer-term perspective? Meaning, is this phase one of multiple phases of basically moving to lower-cost jurisdictions? So could we see another plan through 2021 that has the same kind of savings on top of it?

So we are more likely to try and provide a bit of a shorter-term view in terms of where we expect margins -- what we expect margins to do in '16, '17 and '18. That will encompass, I think, a fairly substantial amount of the margin improvement that comes from operations activities. We might not realize all the savings by the end of '18. Sometimes the actual savings are pushed out somewhat by registration times in foreign governments, et cetera. So we won't realize all those savings by 2018, but I think we can certainly provide some margin guidance in terms of where we expect to be there. It's really not possible, though, for us to talk about the specifics around additional phases. As similar to phase one, until those are approved by the Board of Directors, we're not able to get into much detail about what that looks like. And that's sort of the same boat we've been in for the past couple of years with even discussing phase -- the phase one that's been approved now. We're able to get -- communicate that we think there's good savings potential out there beyond 2015.

Understood. And I guess could you just clarify as to what you're really seeing that's new today versus what you've communicated in the past?

Yes. So, Matt, this is Jake. I would say that, I think, to your point, we had talked about opportunities to expand our gross and our operating margins, and we had talked about how a piece of that is going to come from facility footprint rationalization. And this would be essentially the formalization of a part of that operating margin and gross margin expansion.

Okay. And then just a follow-up. I mean, so you're a company that had talked about guidance for this year and been cautious for the first half because of ACA. Can you give us a little more color as to how volumes have been shaping up relative to your expectations and whether you've seen any change from the beginning of the year until now in terms of how that may be impacting your business?

So our current thinking comes from some recent conversations we've had from some heads of some major health care systems that continue to report slower volume -- slower procedural volume this year than last year. There is, I think, a degree of ambiguity about whether or not those are likely to turn around in the next few months or not. Their physician office visits continue to look negative compared to last year, but they're getting better. They're less negative than they were in the beginning of the year. I would say our own projections for 2014 don't include much in the way of improvement in procedural volumes. Most of our improvement is going to come from other things, comparables, shipping days, et cetera. So we have not counted heavily on this -- on procedural volumes improving in the U.S. as part of our forecast process.

And your next question come from the line of Matthew Mishan from KeyBanc.

Just to follow up on the guidance as well. In my mind -- like interest and shares outstanding seem to be a couple of moving pieces, but they seem to offset each other. But the 3 moving pieces which you can identify as conservative with your guidance, I was hoping you could address it. I guess the developed markets being flat, you talked about the U.S. But what about Europe? Vidacare seems like that's coming in ahead of your expectations now. And also, I think you have, on a currency assumption, a euro of $1.30. That's at $1.39 now. What are the offsets to some of that?

I'll turn it over to Tom, but you enumerated them pretty well.

Yes. So as we look at currency, we are assuming that the euro-U.S. dollar does trend down a little bit. And so we initially put together a plan at $1.30 for the year. We've now got that in at $1.32 balance of the year. So if, in fact, it does stay -- that exchange rate's been bouncing around $1.37 to now $1.39 now over the last couple of months. But if we're to stay at that rate, we would have some upside there. But then you touched on the puts and takes. We've got additional costs hitting our P&L from the restructuring program we just spoke about. That's $5 million to $6 million. We've got additional dilution from the warrants. And again, that's subject to where the stock price goes. But right now, we're assuming, given the move up in the first quarter, that there's going to be additional $0.05 of dilution associated with that. We did have a nice Q1 profit performance that exceeded our internal expectations. And combine that with the interest expense savings, all of those kind of wash out to a breakeven. But then again, depending on where currency plays out, we could see some benefit there. We'll also watch for additional tax planning opportunities, which we're always looking for opportunities to drive that rate lower. So we think we've got a number of actions to continue to drive earnings this year, and we're going to watch real closely on some of the execution items we've got. To deliver the back half of the year, we've got some execution ahead of us. We've got to drive a number of cost-improvement programs in manufacturing, and that will take our gross margins up fairly significantly. And we also have to get the volume growth out of new products that we're counting on. So as we think about those items outside of the 4 I enumerated in my prepared remarks, we got some pluses on currency, maybe some pluses on taxes, maybe some risks elsewhere. And so we think it's a pretty well-balanced financial forecast for the balance of the year.

And, Matt, you had a question about Europe. Europe actually performed very well this quarter. Their constant currency growth rate was kind of in that 2.5% level, and that's despite really having the -- a negative shipping day for Europe in there. Asia grew well over 20%. And I think we mentioned in our prepared remarks that Latin America grew in the solid double-digit range. So I think all pretty strong performances there.

And then last question for me. Should we read anything into you moving the cardiac group into Other? And did that group benefit from a new -- the new award with Novation that you talked about towards the end of last year?

So the group is benefiting from the agreement with Novation, yes. It's just relative to their global size in comparison to our other business segments that led to us combining them together.

And your next question is from the line of Matthew O'Brien from William Blair.

It's Kaila in for Matt. Just to piggyback off of the restructuring questions. And I know you don't want to get into too much detail, but we're just trying to get a sense for, if longer term, there's any reason structurally that Teleflex can get closer to that 60% gross margin that some of your peers deliver today.

So let me rephrase the question to say that there are structural opportunities for us to take advantage of, I believe, that would get us closer to 60%. There are other things, I think, that we also need to do to help in that process. And I think our goal certainly is more in line with -- to look like more like other medical device companies than what Teleflex had looked like historically. I would say -- we're coming from 44%. We've made a lot of progress to date. And I think we have a clearer line of sight of where some of those opportunities now than we had even just a few years ago.

Great. And then one of your competitors recently discussed new product introductions that compete with VasoNova. And we're just curious if you have any commentary there, any changes in that competitive landscape that you're seeing and just your confidence in your market position with that product.

So it's -- we have not -- we have not had any direct customer feedback about the comparative nature of how that system works. So it's a little too soon to comment. I would say we continue to see strong interest in the VasoNova technology. And it's not simply the system itself. It's the fact that there's an antimicrobial anti-thrombogenic PICC that can be used with it. We're working to make those systems more compatible. And we continue to expect to make additional gains in that market over the next couple of years.

And your next question is from the line of Korosh Saba from Stephens Inc.

Just one more question on the restructuring. Just looking at this year and your ability to, I guess, kind of build a buffer inventory, whether that's going to happen, kind of how you see that impacting margins as we go throughout the year.

So in connection with this move, we do anticipate the need to build a little bit of a buffer of inventory. So that's going to happen through the next number of months and quarters. We don't estimate it to be a significant build-up. Part of this strategy involves some redundant manufacturing that reduces the need for all of the inventory carry to be through -- to production. So we don't see that having a major impact on margins for the year. If anything, we'll see some benefit as we more fully utilize our plants. But again, this isn't a significant portion of our total inventory build for the year.

And your next question is from the line of Richard Newitter of Leerink Partners.

Just wanted to ask, you might have said it earlier, did you say anything on pricing and what that was by region on your opening remarks?

I believe we did. We had essentially favorable pricing in Asia and in Europe. Asia was largely distributor-to-direct pricing improvements. We saw some favorable pricing in Europe. The Australia distributor, obviously, contributed to pricing. But overall, our non-distributor pricing, I think, came in right around 58 basis points. So we're continuing to see a bit better performance in price increases on core products than we had expected a little bit -- than we had expected going into the year.

Yes, and that's correct. So the big drivers of that pricing, obviously, are the distributor-to-direct and then the regions Benson mentioned, Asia, EMEA. We had some strength in Latin America. LMA had a little bit of favorable pricing, as did Surgical OEM have a little bit negative pricing due to some competitive reasons. But the big driver again, Asia and EMEA, and that being largely driven by distributor-to-direct.

Great. And then, Benson, just -- earlier, just on that question about potentially line of sight to -- and more in line with med tech or peer group 60% gross margin. Can you give us a sense -- if you were to take advantage and capitalize on the opportunities that would potentially get you there, what level -- is there a certain level of sales growth or organic sales growth that you would need to achieve there? Or is that still kind of delinked from a dependence on achieving sales growth acceleration?

So we still believe that the current number that is out there about our likely core volume growth being in the 3% to 5% range is a good number to think about over the next couple of years. For the most part, the gross margin improvement opportunities that we have are not overly dependent on those revenue volumes, but revenue helps. So to the extent that we're able to achieve the higher end of that goal, there's some added benefit that comes from that.

Okay. So likely, to get beyond the 55% targets that are -- you have officially put out there and formalized today, some level of organic growth acceleration likely would be beyond what you've stated. It would likely be necessary to get you even above that -- the 55% level?

So no. And what I'm trying to say is we certainly see opportunity to get above 55% that's not particularly revenue-driven. We also think there's an opportunity to get some improvement from revenue. And a lot of it comes actually from the mix. All the new products that we're talking about that we've been introducing to the marketplace have much higher gross margins than our average product portfolio. So the extent that they take a larger portion of our revenue number, they're a big help. So to that extent, there's some revenue contribution that's going to come from the mix of new products entering into the scenario. The number of things that potentially can contribute to gross margin improvement are -- actually, it's a pretty good list. It's mix, it's acquisitions, it's a number of different variables. We've tried to take a conservative view in terms of thinking where we can be at by 2018 and are looking forward to being able to share more details about what that goal looks like and where the elements are. But it's not particularly revenue dependent.

Got it. And then just lastly on your Intuitive Surgical collaboration that you announced this morning. Is -- are there any particular procedures that the product is specifically used in?

So I -- it would really be any of the procedures that their new robot would be used in, Rich.

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

Maybe a follow-up on Intuitive. Can you maybe provide a little bit more detail on that contract from the standpoint of Teleflex? Are you exclusive for troll course [ph] and ports on the Xi [ph]? And maybe what are the economics behind that alliance? Are those products going to be gross margin accretive to Teleflex? And then a few follow-ups.

So, Anthony, from a Teleflex standpoint, obviously, they're a great partner to be with and someone that we've worked with over the last few years, and they've been a tremendous benefit. I think we -- my understanding is that I believe that it is exclusive. And from a margin standpoint, I mean, our -- I think we've talked in the past, our Surgical business tends to have some of the highest gross margins in all of Teleflex. So continuing to generate opportunities like this with a partner like Intuitive can only help Teleflex.

That's helpful. And then going to -- turning to restructuring. Maybe a different way to ask this is, this quarter, the company put up 18.8% adjusted operating margin. The longer-term goal is 25%. So the restructuring announced today gets you close to 200 basis points of improvement. I'm just wondering, how do you close the gap from an operating standpoint, how much of it is from additional restructuring, how much of it is from mix? And is this target contingent upon doing perhaps other deals? And then one last question after that.

So our current operating margin goals that we have attached to our gross margin goals, and there's -- we obviously has -- have recently changed the way we're calculating our adjusted operating margins to exclude intangible assets. But -- so I'm going to back, I'm going to predate that. What we suggested was is that a 55% operating -- excuse me, gross margin should generate somewhere between a 21% and 22% adjusted operating margin. That number has moved up as we've -- we calibrated it to include the intangible expense number. But essentially, we're in that same place where we were in terms of what we think the pull-through is going to be. And it -- and those numbers do not include assumptions from future acquisitions, other than some modest improvements in dealer-direct conversions. They don't include another LMA or don't include another Vidacare as part of our calculation to get there.

So if you just think about the adjusted gross margin for the quarter coming in at 50.4% and the operating margin at 18.9%, as you start to think about the movement of gross margin, that adds 5 points of margin, which we essentially assume will flow through to operating margin. And so that will take you up to the 24% range. We're also expecting -- as the business grows -- right now, we're making some investments in the SG&A lines to support various growth initiatives, to support our distributor-to-direct, to support investments in China sales force. And we expect those to taper off. And so we're going to expect to see some leverage in our SG&A expenses as the years go on, and that will help us continue to drive that operating margin even higher. So essentially, the big move is the increase in gross profit falling through to the operating line.

That's helpful. And last one for me is you did some repatriation of cash here in the quarter that allowed you to pay down some debt. So maybe just an update on can you repatriate additional funds and where is the company as it stands from a covenant standpoint and be able -- and being able to do deals similar to, say, Vidacare and LMA.

Well, certainly, as we looked at the integration of Vidacare, really what we are attempting to do is to integrate Vidacare from both a legal entity and an IT management perspective. And in connection with that, we identified a structure that was efficient in terms of our ability to manage and maximize the value of Vidacare. And some of the unique characteristics of both Vidacare and that integration led to this repatriation. So is the opportunity available in the future? Potentially. But there's some pretty unique circumstances associated with this. So we would not count on that as something definitive, but we'll continue to look for those opportunities as they present themselves. In terms of the -- what the impact on the leverage is, this obviously takes down the amount of debt we've got outstanding. Jake, do you have the latest?

Yes. So at the end of 2013, our leverage under our revolving credit facility was about 3.6x. At the end of the first quarter, it was closer to 3.5x. If you pro forma the delevering, we're around that 2.8x-type mark. So additional flexibility has been created as a result of the delevering.

[Operator Instructions] And we do have a question from the line of Larry Keusch from Raymond James. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Yes. Just a quick follow-up. I think, if I have my numbers right, when you initially acquired Vidacare, you were talking about 2014 sales in the $68 million to $72 million range. You did just over $20 million in the first quarter. So how do we think about -- I know you said things are running a bit ahead. But how do we think about that range of $68 million to $72 million now? I mean, should we really be thinking about this annualized closer to $80 million for this year?

So there were some military orders in the first, which we're excluding from our run rate, and looking at those as a onetime item because they're very hard to predict. So we wouldn't encourage you just to take the first quarter numbers and multiply it by 4. That being said, we're pretty enthusiastic about the reception that this product is getting, and we're going to, I think, as I said in my comments, do more to push it. However, the caution there is that may come at the expense of some other slower growth, lower gross margin products. So we would be careful about adding all that increased potential on top of our -- just on top of our revenue guidance. But I think the way we feel about dollar for dollar, we'd rather sell a Vidacare dollar than we'd rather sell most other things in our product line. So that's -- that is what is encouraging us to make this shift in resource allocations.

There are no further questions. And I would now like to turn the call back over to Jake Elguicze for closing remarks.

Thanks, operator, and thanks, everyone, who joined us for the call today. This concludes the Teleflex Incorporated First Quarter 2014 Earnings Conference Call. Have a good day.