Teleflex Incorporated (TFX) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2014 Teleflex Incorporated Earnings Conference Call. My name is Allison and I'm your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I'd now like to turn the call over to Jake Elguicze, Treasurer and Vice President of Investor Relations. Please proceed, sir.

Good morning, everyone, and welcome to the Teleflex Incorporated Third Quarter 2014 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, pass code 14097601. 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 up 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 speak with you once again. Similar to prior calls, I'll start with an overview of the company's results and discuss some highlights. Moving on to performance during the first half of the year, we, as a management team, were once again quite pleased with results the company generated in the third quarter. Organic revenue growth improved both year-over-year and sequentially, primarily led by an improvement in domestic markets, the acquisitions of Vidacare and Mayo continue to positively contribute to our results and the company further expanded its operating margin. Combined, these items led to significant earnings per share and further position the company toward the achievement of our longer-term financial goals by the end of 2015. With that as a broad overview, let's review our third quarter results in more detail. Revenue in the third quarter exceeded our expectations and totaled $457.2 million. This represents an increase of 10.5% versus the prior year on an as-reported basis and 10.2% versus the prior year on a constant-currency basis. Our better-than-expected revenue in the third quarter resulted from the overperformance of Vidacare, our ability to continue to generate higher revenue from improvements in average selling prices, increased sales of existing products resulting from share gains and, we believe, a slight improvement in end-market utilization rates. And while we continue to be encouraged by some of the improvements we have seen recently in terms of the U.S. market, we believe it's still too early to call this a trend. Revenue growth in the quarter was somewhat tempered by a decline in year-over-year sales volume of existing products within our Asian segment. Some of the lower volume in Asia relates to a transition of a portion of our Asian business from a distributor to a direct model. This particular distributor has been selling off their existing inventory, and we have not been restocking the dealer. We expect this to continue through at least part of the fourth quarter, at which point we'll start selling direct to their customers and see a reversal. Regarding China. We believe the slowdown in their overall economy is slowing down the growth rate in hospital procedures. We are seeing some indications that some distributors are holding additional inventory. Inventory adjustments to reconcile with slower growth are likely to dampen fourth quarter revenue growth over the prior year period. I want to point out, we are still -- we still expect China to be one of the fastest growing markets over the next several years, but I expect that the future rate of growth will not be as robust as in the past few years. Turning to adjusted earnings per share. Third quarter 2014 adjusted EPS was $1.57. That compares to third quarter 2013 adjusted EPS of $1.33 or an increase of 18%. Similar to prior quarters, the improvement in year-over-year adjusted earnings resulted from higher volumes, continued improvements in average selling prices and a favorable mix of higher gross margin sales. In addition, we continue to generate increased leverage through the income statement from a lower adjusted tax rate when compared to the third quarter of 2013. These improvements were in spite of higher planned year-over-year operating expenses resulting from the Vidacare and Mayo acquisitions. Moving on to our 2014 guidance. Based on the company's performance during the first 9 months of 2014 and our outlook for the fourth quarter, we are increasing our full year constant currency revenue growth range from 7% to 9%, to 7.5% to 9%. We are also increasing our full year adjusted EPS guidance range from $5.45 to $5.60 per share to a range of $5.60 to $5.70 per share. Regarding our revenue guidance, we are taking a cautious approach as we exit the year. During the third quarter, we did see an improvement in the U.S. market and continued stabilization of European markets. However, as I stated earlier, we are monitoring our Asian business closely. In many Asian countries, we go through several layers of various distributors and it can be difficult to get accurate sell-through information. Since we are still in the process of trying to gather additional information, we decided to take a more modest approach in raising our guidance than might seem appropriate given our overperformance in the last several quarters. From an EPS perspective, given the strong performance in the third quarter, we feel more comfortable in further raising our EPS guidance range. As I stated on last quarter's earnings conference call, we intend to increase spending against certain higher-growth and higher-margin products as we exit the year with the hopes that pulling forward the spending into 2014 will lead accelerated growth in 2015 and beyond. In addition, based on current foreign exchange rates, we expect foreign currency to be a headwind during the fourth quarter. Finally, we do not anticipate the same level of tax benefit to occur in the fourth quarter that occurred in the third quarter. All of the previously mentioned items lead us to conclude that our earnings for the full year will likely be between $5.60 and $5.70 per share. And during his prepared remarks, Tom will discuss some of the puts and takes between our third quarter adjusted earnings per share performance and what we expect to occur in the fourth quarter. Next, I'd like to discuss third quarter volumes, pricing, GPO and IDN contract awards and new product introductions in more detail. During the third quarter, sales volumes in core products improved and contributed approximately 190 basis points of revenue growth. This growth was stronger than initially expected and occurred across a wide range of our businesses, including OEM, Vascular and Surgical North America and European segments. Turning to pricing. During the third quarter, the average selling prices of our products once again expanded when compared against the prior year. This past quarter, the improvement in the average selling prices of products contributed approximately 111 basis points of revenue growth and resulted from a combination of distributor-to-direct conversions as well as core product price increases. From a segment perspective, we saw price improvements highest in Asia and as expected, this was primarily due to distributor conversions. This was followed by improvements in pricing we were able to generate in our North American Surgical and European segments. Continuing the trend from the first half of the year, these price improvements were somewhat offset by a decline in the average selling prices of some of our OEM product offerings. Moving on to new product introductions. During the third quarter, new products contributed approximately 78 basis points of revenue growth. While this was below our original expectations, revenue growth from new products was up modestly on a sequential basis during the quarter as we continued to see nice growth coming from our ArrowADVANTAGE5 PICC, LMA Supreme and European ASK CVC Kit Procedures [ph]. ISO-Gard is taking longer to work its way through hospital approval committees. While it protects the recovery room nurses from dangerous exhaled anesthesia gas levels, it is an additional expense for hospitals. We're receiving good support from nursing organizations and expect, over time, this will become a standard practice. Shifting gears, the third quarter of 2014 saw a continued expansion of contractual agreements between Teleflex and our GPO and IDN partners. During this past quarter, Teleflex won a total of 12 agreements, 8 of these agreements were new and included product categories like dialysis, laryngoscopes and pain management. Next, I'd like to update you on Vidacare. Vidacare contributed approximately $22 million of revenue and 5.3% or a little over half of Teleflex's constant currency revenue growth. This represents the strongest quarter yet of Vidacare product sales, and if you were to compare these results to the third quarter of 2013, it would show that Vidacare's revenues increased approximately 24% on an as-reported basis. In addition, during the quarter, we had 2 positive product announcements regarding Vidacare. The first was the 510(k) clearance was received for restated indications for use of the EZ-IO Vascular Access System. The EZ-IO is now indicated to include the distal femur for pediatric patients. We pursued this indication expansion because of input we received from clinicians, and we believe this opens up a new growth opportunity for us. The second positive development occurred in early September when the EZ-IO Vascular Access System reached a new growth milestone by surpassing 3 million needles sold. Achievement of this milestone demonstrates that the intraosseous access is gaining further acceptance in emergency and difficult vascular access situations. I'd like to point out that during the fourth quarter, we'll reach the anniversary of the acquisition of Vidacare and it will no longer appear as acquired growth. Based on its current trajectory, we remain comfortable that Vidacare could add approximately 1% of additional organic revenue growth for Teleflex in 2015. Moving on, I'd like to update you on another positive development as it relates to a prior acquisition. During the third quarter, the company was awarded a $2.1 million research grant from the U.S. Army's telemedicine and advanced research center to support research and development of a surface modified nail that combines the Semprus Sustain Technology with antimicrobial technology. An additional $2.5 million in funding for the project may be provided under the award at the Army's discretion. This award builds upon an initial grant awarded to Semprus in 2011 to develop the world's first orthopedic devices designed to reduce biofilm formation. We're pleased to be able to partner with the U.S. Army to develop a solution to an unmet need in orthopedic injuries. And finally, let me briefly update you on the acquisition of Mayo Healthcare. Acquired in February, the integration of this Australian distributor is on schedule and the business continues to perform quite well. During the third quarter, Mayo contributed approximately $6.5 million or 156 basis points of Teleflex's constant currency revenue growth. Approximately 2/3 of the revenue growth came in the form of additional volume, while 1/3 came in the form of price increases. That completes my prepared remarks. For planning purposes, I would like to let you know that we plan to provide our fiscal year 2015 guidance in February in conjunction with our year-end 2014 earnings release. It is our belief that waiting until February to provide guidance will allow us to have additional visibility into general global economic conditions and foreign currency exchange rates, as well as other events that may influence our 2015 guidance. Finally, I would like to inform you that we plan on having an Analyst Day event in late spring. This event will allow us an opportunity to provide longer-term goals and objectives as well as an update on the strategic initiatives that will play a key role in the achievement of those goals and objectives. Part of this discussion will include an update on our 2014 facility restructuring program, which continues to progress well in its initial phases. During his prepared remarks, Tom will provide you a more detailed review of the process we've made in this area, as well as a review of our financial results during the quarter and guidance for the remainder of 2014. Tom?

Thanks, Benson, and good morning, everyone. During the third quarter, revenues were $457.2 million, which represents an increase of 10.2% on a constant-currency basis. Approximately 5.3% of constant currency revenue growth was related to Vidacare, with the remaining 4.9% of growth coming from distributor-to-direct conversions, an increase in core product volumes, core product price increases and revenues from new product introductions. Turning to gross profit. For the third quarter, adjusted gross profit was $238.1 million versus $205.8 million in the prior year quarter. Adjusted gross margin increased 234 basis points to 52.1%. The increase in adjusted gross margin was primarily due to Vidacare and distributor conversions, with product pricing and product mix also making a positive contribution. Further gross margin gains were limited by higher-than-anticipated manufacturing costs. Turning next to adjusted operating margin. For the third quarter, the adjusted operating margin increased 133 basis points to 21.7%. The year-over-year improvement was the outcome of the gross margin gain, offset by additional SG&A expenses associated with the Vidacare and Mayo businesses and increased sales commission and bonus costs associated with the higher level of revenues. Moving next to our adjusted tax rate. For the third quarter of 2014, the adjusted tax rate was 18.8%, a reduction of 500 basis points from year-ago levels. The improvement in the tax rate was a result of benefits realized from tax planning initiatives and a favorable shift in the mix of income to jurisdictions with lower tax rates. On the bottom line, third quarter adjusted earnings per share came in at $1.57 or an increase of 18%. Additionally, we continue to leverage the growth in earnings to drive operating cash flow. The first 9 months of 2014, cash flow from operations reached $208.8 million, representing an increase of 54% versus the comparable period of 2013. The improvement in cash flow generation was largely due to the growth in earnings, improved working capital and reduced pension contributions. At the end of the third quarter, cash on the balance sheet was $286 million, with $62 million in the U.S. Leverage, as reported per our credit facility definition, stood at approximately 2.74x. Combining our current cash balance with strong cash flow generation and availability under our credit facility, we are well positioned to fund business operations and to pursue strategic opportunities. Next, let's turn to review of segment revenue results. Vascular North America third quarter revenue increased 16.1% to $63.8 million. The increase in Vascular revenue was largely due to the addition of Vidacare and higher sales of both new and existing product offerings. Anesthesia/Respiratory in North America third quarter revenue increased 1.8% to $54.7 million. The growth this quarter reverses the year-over-year revenue declines this segment experienced in the first half 2014 and was a result of improving volume trends for existing products, new product introductions and price increases. Surgical North America third quarter revenue increased 6.2% to $36.1 million. The increase in Surgical revenue was due to higher sales of existing products and an increase in average selling prices. EMEA third quarter revenue was up 5.6% totaling $141.2 million. The increase in EMEA revenue was due to Vidacare product sales, higher sales of existing products, introduction of new products and price increases. As was mentioned earlier, revenue in Asia was softer this quarter versus what we have experienced recently. For the quarter, constant currency revenue increased 11.8% to $62 million. Quarterly increase in Asia revenue was primarily due to the acquisition of Mayo Healthcare and price increases, with new product gains and Vidacare also adding to quarterly growth. The area where Asia has slowed versus recent quarters is in volume trends for existing products, particularly in Japan, where we are managing through a key distributor transition. Turning next to OEM. Revenue in the third quarter increased 15.9% to $39.2 million. The increase in OEM revenue was due to higher sales of existing products, in particular, sutures, and the introduction of new products. This was somewhat offset by a decline in average selling prices on select new business. And lastly, our other product revenue for the quarter was up 22.3%, totaling $60.2 million. The increase in other revenue was largely due to Vidacare sales that fall under our specialty business call point. During the third quarter, the Latin American business, which also falls under our other segment, was down slightly year-over-year as a result of soft business in Brazil and a tough year-over-year comparable in Venezuela. Next, I'd like to provide you with an update regarding our manufacturing footprint restructuring plan. Since our last earnings conference call, we have made progress on the initial phases of our facility restructuring initiatives. We have now provided notice to employees at our Mountain View, California location that we'll be closing the facility and shifting production to our Czech Republic location. We have also secured additional space at a key receiving site in Mexico and expect to begin production transfers later this quarter. From a financial standpoint, we continue to estimate that the company will incur aggregate pretax charges in connection with the plan of approximately $42 million to $53 million, of which approximately $32 million to $40 million will result in future cash outlays. In addition, we continue to estimate that the aggregate capital expenditures associated with this program will be approximately $24 million to $30 million, and that we will achieve annualized savings of approximately $28 million to $35 million once the plan is fully implemented. We continue to expect to realize plan-related savings beginning in 2015, and we expect that the plan will be substantially completed by the end of 2017. However, as we have gotten more precise on the timing of specific initiatives, we are updating our estimates for 2014. We now expect that the company will incur approximately $15 million to $17 million of the aforementioned pretax charges in 2014, of which approximately $5 million to $7 million will result in cash outlays. We also expect 2014 capital expenditures associated with the plan to be in the range of $8 million to $10 million. Finally, we expect 2014 pretax expenses, which will not be added back when calculating adjusted earnings per share, to be in the range of $4 million to $5 million, down slightly from our prior range of $5 million to $6 million. In summary, we continue to expect that total project spending and savings targets are in the same ranges as previously provided. Where there is some potential variability is in the timing, and that is what you are seeing with the revised 2014 project spending outlook. Next, I'd like to provide you with an update regarding our full year 2014 financial outlook. As we began the year, we had advised that we are taking a conservative view on first half revenue, given uncertainties surrounding how volumes would be impacted by the rollout of the Affordable Care Act and the soft European economy. As it turns out, our Q1 volumes were soft, down 150 basis points. However, volumes have since improved, achieving an increase of 110 basis points in Q2, and an increase of 190 basis points in Q3. Given the improving volume trend, coupled with above-planned performance on the Vidacare and Mayo acquisitions, we now feel confident to again adjust upwards our financial guidance. As such, we are increasing our 2014 outlook for constant currency revenue growth to a range of between 7.5% and 9%. This is an increase from our prior constant currency revenue guidance of between 7% and 9%. We are also increasing our 2014 GAAP or reported revenue growth expectations to also be in a range of 7.5% to 9%. In coming up with the GAAP revenue expectation, we assume that the current U.S. dollar-euro exchange rate will remain in its current trading range for the balance of the fourth quarter. We transact approximately 30% of our business in euros, therefore, the translation impact of a move in the currency can have a meaningful impact on our reported financial results. Based on this expectation for the euro, we project foreign currency translation to be a headwind to revenue of approximately 3% for the fourth quarter. Now turning to adjusted gross margin. We continue to project adjusted gross margin to increase by 240 to 290 basis points over 2013 levels, and to be in a range of between 52% and 52.5% for the year. However, we currently expect to be toward the lower end of the range, largely due to $4 million to $5 million of expense associated with the footprint consolidation project, which was not contemplated in our original gross margin guidance and will not be added back when calculating adjusted gross margin. Moving on to adjusted operating margin. For the full year of 2014, we continue to expect adjusted operating margin, excluding intangible amortization expense, to increase by approximately 100 basis points to a range of 20% to 21%. As we stated on prior earnings conference calls, we anticipate that further gains in adjusted operating margin will be tempered by investments to support our distributor-to-direct strategy and the addition of Vidacare. Moving on to taxes. We expect our adjusted tax rate in the fourth quarter to be slightly better than our September year-to-date adjusted tax rate of 21.7%. This is an improvement from our prior guidance, which called for a full year 2014 adjusted tax rate of 22.5% to 23.5%. And finally, on the bottom line. As a result of the company's performance during the third quarter and our outlook for the fourth quarter, we are increasing our full year adjusted earnings per share guidance from the previous range of $5.45 to $5.60 per share, to an updated range of $5.60 to $5.70 per share. Despite today's increase in full year earnings guidance, our outlook implies a sequential decline in our adjusted earnings per share from the third quarter to the fourth quarter. There are a few reasons that I can point to for the sequential decline. First is the impact of foreign currency translation. We are currently projecting that foreign currency translation will be a headwind to the fourth quarter earnings versus a tailwind in the third quarter. For the fourth quarter, we estimate the resulting sequential earnings impact to be a negative $0.08 to $0.10. Second, our fourth quarter tax rate is expected to show improvement over the year-to-date tax rate. We do not expect to replicate the tax rate realized in the third quarter. As a result, we are expecting that the tax rate will be a sequential headwind of approximately $0.05. Additionally, we had a couple of one-off expense benefits during the third quarter that we do not expect to reoccur. We also expect additional dilution related to the convertible notes. And finally, as previously discussed, we have plans to make additional investments in the fourth quarter in support of select high-growth or strategic opportunities. And now, in closing. We continue to build a financial model that contains a portfolio of earnings-accretive strategies, aside from reliance on top line growth. We believe such an approach will allow us to somewhat insulate our results from macroeconomic influences beyond our control and will allow us to continue to deliver strong earnings growth regardless of the economic climate. Some of the strategies that have worked well this year include: the conversion of select distributors to a direct sales model, which has enabled us to increase revenues and to recapture operating margins; a continued focused to identify opportunities to selectively implement product pricing strategies; channel investments for select high-growth opportunities, including Asia and Vidacare; investments in manufacturing automation and cost improvement programs; expanded use of shared service centers to reduce overhead and back-office costs; portfolio [ph] leveraging our tax-efficient principle towards [ph] structure; and the acquisition of Vidacare, which is providing multiple benefits, including a structure that enables the tax-efficient repatriation of foreign cash and has added a portfolio of 80-plus gross margin products that have been growing year-over-year at a rate of over 20%. We continue to be excited to be in a position of both increasing our 2014 financial guidance and having the financial flexibility to be able to invest behind some of our higher-margin, high-growth opportunities. We believe that these actions can help position the company positively for 2015 and beyond. That concludes my prepared remarks, and I'll now turn the call back over to the operator for questions. Operator?

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

Benson, I appreciate your comments about the fourth quarter, specifically. I think generally very clear. Just on the low end of guidance for the fourth quarter, that's a more material step than what we expect. Can you just talk about the factors that would bring the low end guidance into perspective in addition to the commentary you've already provided? And I had a couple of follow-ups.

So I think if we took the most conservative view possible, not the most likely view, but the most conservative view possible, it brings us with the risk of being below 8%. Typically, we've done this in half percentage increments, so the next increment below that is 7.5%. It's not the most likely scenario, but we didn't want to be in the position where we gave our guidance now and had to adjust it further in the year if those most conservative potentials turn into realities.

Okay. And then maybe just 2 other quick ones. The first question is just in terms of next year's guidance, and I appreciate we're not going to get that for several months now, but maybe some sort of broad macro guideposts you could provide, specifically around, and for Tom, tax, and the ability to get the 55% gross margins by the end of '15. And then Benson, maybe for you, just given what you've seen here in 2014, the ability to get to a mid-single-digit type organic growth progression. And then just one more and I'll jump back in queue.

Okay. Well, as mentioned, we do intend to give specific guidance as we release our fourth quarter earnings. But just in terms of general, on tax, we had made a commitment to get to 23% on an adjusted basis for 2014 and to be able to carry that rate forward into the future. As we look at where we are this year, we're a bit ahead of that. Some of that is due to some discreet items that we won't be able to replicate. But as I look at that 23%, we feel pretty good about that number, and our goal is to try and bring it down from that. So I would think that 23% would be the higher end and we're working obviously to try and get closer to where we are this year. But again, this year's got some discreet items in it. As for the 55%, our commitment all along has been to achieve 55% as we exit 2015. You heard a bit about the facility footprint project is underway and moving forward, so we feel good about its progress to date. We have a number of other actions that will help us to get to that 55%, we feel good about those plans. So if anything, the discussion about 55% is, one, about timing, not necessarily getting there. So if there were any comment that I'd leave you with is, we feel good about the 55%, we feel good about our ability to get there and perhaps further, the question could be on the variability of when exactly that date occurs. Now we'll give more specific guidance on that as we get into our earnings release for the fourth quarter and providing the guidance. But essentially, we feel pretty good about that 55% right now.

So just, I think, commenting on at least the way, internally, we look at our existing organic growth rate, it's probably more favorable than just using some arithmetic. We're looking at our volume growth, which is now at about 190 basis points, new product growth. I'm going to label it's probably likely to be between 80 and 100 basis points for the year. We think there are some potential to uptick that in 2015 based on our product rollout calendar. Although all the Vidacare revenue this year is counted as acquired growth, a percentage of that is, in fact, organic growth, and so that will go into our organic growth rate starting in December of this year. And then we're going to see a constant stream of dealer-to-direct activities. So this year, for example, we're getting some benefit from Australia, but we're also getting some negatives as a result of the dealer-to-direct transition in Japan. So when we net those out, I would say that we're -- and taking all those things cumulatively, we're between that 4.5% and 5% organic growth rate as we stand today.

Great. Well I know it's early, I appreciate all that feedback. And just maybe one last one, Benson. The message last quarter was we see some SG&A upside, we're going to reinvest that back to certain products, specifically Vidacare and very strong growth from Vidacare. The other pipeline, excluding -- other pipeline products, excluding Vidacare, took a small step forward but clearly is a little below expectations for the year. Is there not some opportunity to reinvest some of this incremental upside into some of the other pipeline products, x Vidacare. And maybe just talk to us about some of the factors that have weighed on the progression of the other Vidacare pipeline programs in '14, and I'll jump back in queue.

Yes, so the short answer to your question is, yes. We are quite excited about the launch of our Eon product line, which is the mini laparoscopic line of instrumentations. We actually thought we were going to launch that in Europe in the fourth quarter. And a leading institution in the United States asked us to delay it until first quarter when we had U.S. approvals so they could be the global launch of the product, but that is certainly consuming some resources as we prepare to launch that product. I mentioned ISO-Gard, that's going to continue to take some investment in channeling that nurse organization enthusiasm for the product into hospital conversions. So we're really not short on opportunities. I think, one of the issues is, when we decided to pull the trigger, midway -- it was almost midway through the third quarter when we had our second quarter earnings call, it just takes a little time to get those in place, and we weren't able to see the benefit of any of that additional spending in the third quarter.

The next question comes from the line of Larry Keusch from Raymond James. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Benson and Tom, I just want to come back to make sure I'm understanding the gating issues associated with the restructuring. It certainly sounds like, Tom, that you guys remain confident in your ability to hit the 55% gross margin, but perhaps the ability to get there exiting the fourth quarter in 2015 maybe now a bit in question. And so, I guess, I just want to understand, what exactly are the moving parts, and make sure I'm interpreting that correctly. And then I've got one other one.

So let me just jump in on the first part. We certainly did not mean to imply that it's in question. I think we have always said that as this project progresses, there is a possibility that we delay closing a facility because of supply issues, et cetera, that's just part of the risk and that if there's any risk to us, it is in timing, not in actually getting to the 55% number. So we really haven't changed our thinking about that, and if it seemed like there was an inference to that point, let's correct that. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay. And Tom, on the -- so what's changing out there relative to -- it sounds like you're going to take some expenses this year perhaps that you are not anticipating. So again, if you could just walk us through that, it will be really helpful.

Actually it's going to be less, not more.

Are you talking about the footprint project now? Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Yes.

Yes, so essentially what we've outlined now is spending this year -- there's a couple adjustments, none of them that significant, but we are just providing an update as to where our current spending is. So if you like, I can walk you through where we were and where we are now. So capital, initially, we had talked about $10 million to $15 million in the year, we now estimate that to be in the range of $8 million to $10 million. In terms of the restructuring -- restructuring-related expenses, we had previously discussed $22 million to $23 million, we're now expecting $15 million to $17 million. And then other operating expenses, previously were $5 million to $6 million, we now see those as $4 million to $5 million. So just getting back on the point on timing, as we laid out the initial expectations, those are the numbers that we thought we would initially spend. We've now gotten closer to the actual projects and what's going to be involved, and we've got more fine-tuned numbers. And so some of that will be coming forth in the first quarter versus in December of this year. So again, we don't expect any change to the total cost of the entire project. We don't expect any change to the total savings estimate. However, there is a bit of a timing shift here. And again, I wouldn't read too much into that timing shift other than just a refinement of the estimates. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay, perfect. And then the last question is, again, just from a high level, you guys have been very effective in obtaining price increases through a variety of means over the last 3 years across virtually all your geographies. But again, could you help us think about that and maybe perhaps help set expectations for how we should be thinking that -- about those abilities to drive price increases as we move forward into 2015?

So obviously, this year, a percentage of what is recorded as price increases comes from dealer-to-direct conversions. We are certainly going to see that continue on through the next several years. It's also responsible for part of our planned margin improvements over those next several years as well. I think we have been positively surprised at our ability to continue to get some non-distributed direct or core pricing up. And I think, in several occasions, we talked in the past about the fact that one of the things that we feel best about is instilling that pricing discipline within our businesses, where they are on the alert for those opportunities to be able to raise prices in certain markets in certain products. So we had been kind of reluctant to not put a longer-term goal out there as we did a couple of years ago, but I think we're still going to continue to see benefits from both those things, dealer-to-direct conversions and also just that inherent pricing discipline now.

The next question comes from the line of Dave Turkaly from JMP Securities.

Just 2 quick detail ones, and then a follow-up. So for fourth quarter, just to check the math, the EPS range is $1.29 to $1.39. And then secondly, quickly, was there any impact from extra day or less day in this quarter?

No, that would be a fourth quarter event.

So the math is good, and just the days were flat with last year in the third quarter?

Yes.

Correct.

Okay. And then -- and so when we look at the second quarter, we had sort of an uptick in European utilization. And then in this quarter, it seems like your 3 kind of North American businesses all saw a nice sequential uptick and then we had sort of this new news in Asia, but it's kind of a small part of your mix. I guess, as we're looking ahead, how long do you think this drag kind of lasts? And then are we expecting sort of -- should we expect that business flattish sequentially as we look forward or down 5% to 10%? I guess any sort of color there because it seems like the majority of what you have is actually improving this year.

So I think just overall, our longer-term view of Asia, China, in particular, is that it's still going to be a growth opportunity and we still see that as an area of investment for us. I think the larger point we're just trying to make here, that I don't think that the growth rates that have been typical out of China for the past 5 years are likely to continue at that same robust number. But I would still say our longer-term expectation is that China grows somewhere between 6% and 8% in our product categories, which still makes it one of the healthiest growers around the world, and we continue to make investments there. The situation in Japan is a very much more time-sensitive kind of thing. We stopped selling to the distributor a couple of months ago, he's selling off his inventory, as I mentioned in my remarks. That process will be concluded sometime in mid-November, we estimate, and then we'll start to sell those hospitals directly. So we'll see a pretty dramatic recovery to Japan as soon as he's out of inventory.

Okay. So overall, it doesn't seem like we're going to be looking at declines, but just maybe slower, I mean, even in this quarter, it was still a decent growth number, just not as robust as it once was.

Correct.

The next question comes from Jason Wittes from Brean Capital.

So a couple of questions here. First off, within Anesthesia, the percentage growth numbers did improve, but you also mentioned that ISO-Gard was off to a slower start than you anticipated. Is that just a case of easy comps or is there some fundamental changes there that we should be aware of in that business?

The easy comps for the Anesthesia/Respiratory business begin in fourth quarter. We had a GPO loss 1 year ago that has been negatively impacting their sales for that entire period. I think that expires -- or 1 year anniversary in the fourth quarter. ISO-Gard is, I would just say, is a product I still have a lot of confidence in. It's a very different sell, it's not a clinical sell, it's almost a workers' safety issue sell, and we are thinking more and more about what we need to do to support that process and try and expedite it. But in the economic climate in the hospital space, it tends to get tied up into these economic value committees in hospitals, which meet slowly and make decisions slowly.

Okay, helpful, I see. Also, you mentioned for last year some excitement. You mentioned ISO-Gard, but you also mentioned Eon will be launched in the first quarter. My understanding was that's going to take some time to sort of develop into the market. There's, I assume, some -- a fair amount of training to be done, et cetera. But -- so should we be thinking that, that will be a driver next year or is that just potential upside next year?

I would characterize it at this point as potential upside for next year. Our expectation is, is that after the launch in the first quarter in the U.S., we're going to be -- roll it out to a limited market release to make sure that the training and educational programs we put together are, in fact, adequate to get physicians comfortable with using it. I would say, though, I continue to be really optimistic about physician interest in this product line, and we continue to anticipate to make other investments to kind of broaden that out.

Okay. Great. And then just a general question on FX. You mentioned the impact this quarter, which will be more pronounced than the -- earlier this year. But should we start to think about that and how that might impact next year? Should it -- do you have any comments on kind of how you think FX shapes out next year and how we should be thinking about it when modeling?

So our thought is -- might not help you much in that area, our thought is there's a lot of volatility going on in currency. Just this week, the euro bounced around quite a bit, and that's one of the reasons why we think we're better served giving guidance time to our fourth quarter earnings release. Having a clear idea of what it's at least likely to look like, and then also understand whatever other mitigating strategies we've been able to put into place to counter that. But I would tell you, every year, we look at what the top 50 banks think is going to happen to the euro next year and the only consistent thing that's happened is they've been wrong each of those 4 years. So we sympathize with your effort to try and pin that down.

Fair enough. I appreciate the color. Just on hedging itself. What kind of hedging do you have in place now and what kind of hedging could you put in place to change that over the next few months if you had to?

Well, we largely think about hedging as a way to protect economically versus from an accounting standpoint. So we're largely hedging transactions where we're transacting in other currencies. We do not currently hedge against translational impact or the accounting impact of translating our foreign books to U.S. dollars. And as we look at that, the cost and other associated complexity of that, we concluded that's not a path we're going to go down. So we're going to continue to be exposed to that translational impact. The currency that impacts us the most, as mentioned, is the euro, just given the relative size of that in our business model. And as Benson mentioned, we've seen currency go up and we've seen it go down, and so some years we'll have a benefit, some years it could be a detriment. And our plan is to continue to build out that financial model with many different earnings drivers so that in those years where it looks like it's going to be a detriment, we've got some other opportunities to pull out of the bag to offset that currency impact. So that's how we're thinking about it. But largely, we try and control the pure economic risk, if you will.

The next question comes from Matt Taylor from Barclays.

I just wanted to clarify your comments on Asia because you talked about it a lot in the prepared comments. So I guess, can you kind of cast out the timing of what you expect here over the next few periods in terms of -- I guess, the biggest impacts are apparently China and Japan. You called that out as a major reason for being more conservative on 4Q guidance, so I guess I just wanted to understand how you've seen things changing either through third quarter or here, to-date, up to the call, and whether if there's anything to be concerned about there?

Yes, so actually, I would put it in the positive column, and here's why I think that -- we do not want to let our distributors get into a situation where they have bloated inventories. The way that most, at least, Chinese, distributors work and also in other parts of Asia, is they tend to make a commitment to buy a certain amount of inventory for a year period. That works well when the markets perform with their expectations. This year, I think, the overall markets are performing below what they thought the growth rate was going to be. And to the extent that, that's true, and to the extent that there is additional inventory in our distributors, we'd rather see that play through in the fourth quarter this year than go into 2015 with any extra inventory in those distributors. So -- and I think part of that is we're in a good position to be able to take care of that, and it's generally how we prefer to operate with our distributors. If there's any lack of clarity is, we don't always know exactly what their sell-through is but we're in the process of having conversations with our majors distributors now as they are contemplating what their fourth quarter orders are.

Okay. And then on FX, I appreciate that nobody has a crystal ball, but you did call out about $0.08 to $0.10 in the fourth quarter. If things don't change much, is that about what you expect at least through the first few periods next year too?

Well, you've got to look at the relative exchange rates in those quarters, so are you -- the $0.08 to $0.10 was relative to where we were in Q3, sequentially, where we're going to be in Q4. So you'd have to look at all the relative exchange rates for those quarters to make that assessment. And I just don't have that information readily available.

Okay. Good. And then I guess for next year, can you talk a little bit about pricing, in general? So I know that there's going to be more direct-to-distributor conversions, maybe a little bit stronger new product cadence. But in general, how do you expect pricing to trend next year for the company as it's been, this year, a pretty good driver of continued growth?

I think, in very general terms, that we're likely to see next year what we're seeing this year.

The next question comes from the line of Raj Denhoy from Jefferies.

Anthony for Raj here. Just a couple on APAC and then shift over to Vidacare and similar items. But in APAC, again, can you remind us how many distributors you have in the region? How many distributors you specifically have in Japan? And are there more opportunities in Japan to go direct over time into 2015? And how do think that would impact your business there?

So I think that the opportunity in Japan is largely going to be completed with the result of the current effort. We still use a layer of subdistributors in Japan and our intention is not to go beyond what I would sort of describe that master distributor, in Japan. So for the most part, Japan will be up and running as we anticipated, should be by the end of this year. China, we have a series of different distributors, some of that is the result of acquisitions that we've recently made. China has a very complex web of distributors, and depending on where in China you want to distribute, whether it's in that main core of hospitals or whether it's in more rural areas, we make different distribution decisions. So that's a little hard to answer and the fact is if we added up all our distributors we'd probably have hundreds of distributors in China that distribute Teleflex products. Our efforts right now in terms of inventory conversations is limited to the few large distributors that we have.

That's very helpful. And then maybe shifting over to Vidacare. Can you give us an idea of where the majority of growth is coming from when you look at the 3 products, Intraosseous, EZ-IO and OnControl? And then as we look out into 2015, what are the opportunities, specifically, across that portfolio, or is it more geographic expansion into other countries that will continue to benefit the Vidacare portfolio?

So first of all, the EZ-IO product is the Intraosseous product. So we really have 2 products, and both of them are doing extremely well and above our expectations. OnControl right now is a little bit more growth-centered in the U.S. EZ-IO, we're seeing growth in every geography where it's positioned. The opportunities over the next couple of years really relate to additional usage in difficult to stick patients, which we're getting increasing acceptance of from the clinician community. That principally relates to expanded use in hospital settings. We also are launching the product in Japan and in China and have approval in both of those countries to start launching it, so that -- there's certainly an element of geographic expansion to it. But I would say, we remain bullish for lots of reasons about the future for Vidacare over the next 5 years. We still see it as a growth product looking out that far.

Great. And the last one for me is, maybe just an update on the Intuitive alliance you announced a few quarters ago for the da Vinci Xi. I believe you're supplying trocars and ports, so is there anything on that front that you can provide an update on?

So I mean, really, our ability to grow that business is -- in that particular setting, has a lot to do with the acceptance of the Intuitive product. We're happy to see that, that is, I think, showing some improvement, and we value that partnership with them.

The next question comes from the line of Matthew Mishan from KeyBanc.

I think first for me is, I think last year you saw a budget flush in Europe at the end of the year. I'm just curious, what are you -- how you're looking at that this year? And are you baking in a tough comp there in the fourth quarter for Europe?

So it's a more typical pattern than an atypical pattern. Last year, we were concerned with a lot of emphasis to cut health care spending as a result of a weakened economy. We were concerned as to whether or not we'd actually see that typical pattern develop. This year, I would say, while there's certainly still some economic uncertainty in Europe, it hasn't translated into a lot of efforts to cut health care spending. So we are less concerned about that not happening this year than we were last year.

Okay. And I apologize if I missed this, I missed the early part of the call, but I think you mentioned some one-off expense benefits that you didn't expect to recur. Just if you could, what were those and quantify them?

Sure. Well I wouldn't say that there was anything significant in particular that we incurred, but we did pick up some benefits related to a fringe on insurance and some other miscellaneous costs, and collectively, they were a benefit during the quarter that we don't expect to reoccur. We also have some seasonality in the fourth quarter related to just how our various conferences are timed, so we've got some higher-level expense in the fourth quarter as a result of that. So I wouldn't be able to point to anything individually that's fairly significant. It was rather a collection of smaller items that had an impact positively in the third quarter, and likewise, we've got some seasonality in the fourth quarter that would shift the other direction.

All right. And then just lastly, on the PICC side, you're able to make various claims against -- with antimicrobial, antithrombogenic, that Bard can't make now. I was just curious if you've been able to make some inroads there, if the competitive dynamics have kind of changed?

So our PICC line is one of our faster-growing product lines on a percentage basis. I think that both those issues, occlusion rates and infection rates, are becoming much more serious topics of conversation in hospitals for a variety of reasons, particularly now having to report those infection rates is driving that concern. So our PICC business was up 22% on a year-over-year comparison this quarter, and we expect that to continue to improve as we're able to marry that technology up with a built-in stylet to take advantage of our targeting position as well. So we're encouraged with our PICC progress.

The next question comes from Chris Cooley from Stephens.

Most of my questions have been addressed, but maybe just quickly, Benson, when you think about moving forward towards 2015, and I realize we're not giving guidance yet, and you look at where you're realizing the bulk of the growth from some of these acquisitions, and then, of course, the conversion, do you focus more on established businesses relative to maybe product lines that you had the opportunity to acquire in the past? I'm just trying to think about if there's any kind of change in the company's M&A strategy or acquisition strategy going forward. Because when you look at the growth in the quarter, admittedly, you did get a healthy 78 bps from new products, but the real driver here, of course, Vidacare and Mayo, and so I'm just trying to think about that as I look out into 2015 and beyond.

Yes, so in terms of our general acquisition strategy, Chris, it remains the same. We are interested in dealer-direct conversions, we still have an interest in late-stage technology acquisitions as a way to augment our internal R&D efforts. And when it comes to more major acquisitions like Vidacare and LMA, we're looking for those opportunities that first of all, provide us higher gross margins than our existing product lines so we can get a margin benefit from them. We're looking for products that have a higher growth rate than our existing organic growth rate and we're looking for products that we think we can really command a significant leading position in that product category: products that are well protected by patents, product that have good brand names associated with them. And that's because we think those products are going to fair the best in the health care environment over the next couple of years as the cost implications of demographics really start to kick in. So that has served us well and our sort of general theory is that if something is working really well, do more of it.

The next question comes from Richard Newitter from Leerink Partners.

This is Ravi actually in for Rich. Question regarding the commentary on the U.S. market, you noted some improvement. Just wondering what do you see going forward? Is there a potential for a potential acceleration here?

So I think I would still describe it as having some ambiguity. We're encouraged by some of the reports and conversations we're having with providers. A big part of their increase seems to be coming more from outpatient and emergency room visits than necessarily acute-care procedures. However, in those product lines that we have that are most affected by acute-care procedures, we saw some accelerating growth. So fourth quarter usually turns out to be a really important trend line for us. We should see a -- and normally see a pretty good pickup in activity in U.S. hospitals in the fourth quarter. So we're hopeful that, that's going to happen, but -- and it's one of the factors that we want to have a better understanding of as we put together our final plans for 2015.

Great. And then one more. Just in terms of the fourth quarter. Are we looking at the same number of selling days or is there going to be 1 fewer or 1 more?

One more day.

The next question comes from Matthew O'Brien from William Blair. Matthew O'Brien - William Blair & Company L.L.C., Research Division: Just to tease out the EPS commentary for Q4 a little bit, because I think that will be the focus of a lot of investors today. I think, Tom, you mentioned some additional dilution, specifically in Q4 associated with the convert and an additional spend most likely for Vidacare or some of the faster-growth higher-margin areas incrementally in Q4. Can you just quantify the impact? Is it a couple of pennies or even less than that?

Well, as we look at the sequential shift, there's a couple of significant factors. So we've called out the FX impact of $0.08 to $0.10. Talked about tax in the range of $0.05. We think the share impact is $0.02. And as far as the incremental investments, we've got a number of programs put in the plan. Again, that's the same comment that we made earlier. We expect to spend it all, the question, if anything, is timing. And that's why the range in our guidance just depending on how much of that we actually get implemented during the fourth quarter. So I don't have a specific number on those additional investments that I'm be willing to quote. Matthew O'Brien - William Blair & Company L.L.C., Research Division: Sure. So just to understand it a little bit better. I mean the midpoint of the range I think is like $1.34, if you add back $0.09 for FX and maybe $0.02 to $0.03 for the shares. And then for some additional spend, we're talking about something closer to, organically, $1.46, $1.47. That seem like reasonable math?

I couldn't argue with the math. Matthew O'Brien - William Blair & Company L.L.C., Research Division: Okay. And then just heading over to the M&A side of things. I know it's a big part of the strategy going forward. I'm sure the landscape is still pretty fruitful, but has anything changed on the valuation side of things just given how things are trending, generally speaking, within med tech land as far as some of the consolidation goes?

So I think the size and type and ownership of the kinds of properties we're looking at haven't been influenced much yet. I think also, I would just point out that we tend to go after targets where we're the most logical buyer and can usually offer more than certainly a private equity company or even another strategic company because we have quite a bit of natural synergy. So we haven't seen that trend as much in the size of companies we're looking at versus some of the other larger acquisitions, which might have additional tax benefits, et cetera.

So you have no questions at this time. [Operator Instructions] No further questions. I would now like to turn the call over to Jake Elguicze for closing remarks.

Thanks, operator, and thanks, everyone, for joining us on the call this morning. This concludes the Teleflex Incorporated Third Quarter 2014 Earnings Conference Call. Have a good day.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Have a good day.