泰利福醫療 (TFX) 2016 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Teleflex Q4 2016 earnings conference call.

(Operator Instructions)

As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Mr. Jake Elguicze, Treasurer and Vice President of Investor Relations. You may begin.

Thank you, operator. Good morning, everyone, and welcome to the Teleflex Incorporated fourth-quarter 2016 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 855-859-2056 or for international calls 404-537-3406 passcode 65576607.

Participating on today's call are Benson Smith, Chairman and Chief Executive Officer; Liam Kelly, President and Chief Operating Officer; and Thomas Powell, Executive Vice President and Chief Financial Officer. Benson, Liam and Tom will provide prepared remarks, and then we will open up the call to Q&A.

Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in our slide. 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 said, I'd like to now turn the call over to Benson.

Thank you, Jake, and good morning, everyone. To begin, I'd like to start the call by saying that we are quite pleased with our financial performance during the fourth quarter as our business rebounded nicely from Q3 and we achieved results that exceeded the high end of our most recently provided constant-currency revenue growth and cash flow from operations guidance ranges. While achieving adjusted earnings-per-share at the top of our most recently provided guidance range.

In fact, during the fourth quarter we saw stabilization in our end markets, and at 6.9% generated our highest constant-currency revenue growth since the fourth quarter of last year. This was no small feat as the fourth quarter of 2015 was a huge quarter for Teleflex and presented us with a very difficult comparable.

Strong constant currency revenue growth rates were achieved within each of our product areas in geographies, and that even includes Latin America, which has faced significant headwinds leading up to this most recent quarter. As we exit the year, thanks in part to the investments we have been making in our product portfolio, I feel confident about the state of our base business and believe that we are well-positioned to build upon our base business constant-currency revenue performance in 2017.

Turning to profitability, during the fourth quarter we generated adjusted operating margin of 25%, which was up 130 basis points versus Q4 of 2015 and an all-time high in adjusted earnings-per-share reaching $2.13. While from a full-year perspective, we were able to leverage as reported revenue growth up 3.2% into adjusted earnings-per-share of $7.34, an increase of 16% as compared to 2015. Similar to my comments regarding revenue, we see 2017 as yet another year in which Teleflex can leverage its base business income statement through a combination of revenue and non-revenue dependent actions, further expanding adjusted gross margins and operating margins as well as adjusted earnings per share.

All of my comments regarding our base business will be aided greatly by the recently completed acquisition of Vascular Solutions. We were excited to close this transaction earlier than we initially anticipated, which will allow us to begin integration activity sooner and we will realize approximately 10.5 months worth of contribution from Vascular Solutions' high growth and high-margin product offerings in 2017. I'd like to take this opportunity to welcome the employees of Vascular Solutions into the Teleflex family. We are certainly looking forward to the contributions you will make in the future.

Before I turn the call over to Liam, I would like to briefly discuss an announcement that we made this morning regarding my future at Teleflex. Earlier today, we issued a press release announcing my intention to retire as Chief Executive Officer effective December 31, 2017. I've had the pleasure to serve as Teleflex Board member since 2005 and as the Company CEO since 2011.

During my time as CEO we accomplished a great deal, completing the transformation of a once slow growth multi-industry company into a pure play medical device company capable of consistent annual revenue growth and significant margin expansion. As I look ahead, I feel that the end of 2017 is the right time for me to retire as CEO. Our product portfolio is the most robust it's ever been with several products launching that have significant market potential. Our margin expansion initiatives are well underway, and the Company has the ability to expand gross and operating margins for several years to come. The integration of Vascular Solutions will be well underway by the end of this year.

I also feel that the management bench trench at Teleflex is very deep, led by the man who will take my place as CEO, Liam Kelly. Liam has been instrumental in the success that Teleflex has had over the past six years, and I am pleased that he will succeed me.

That being said, Liam, you won't be able to get rid of me that easily as I do plan on running for another three-year Board term with Teleflex. If elected in May, I will continue to serve as Teleflex Chairman of the Board.

That completes my prepared remarks. At this time I would like to turn the call over to Liam.

Thank you, Benson. Good morning, everyone. I greatly appreciate the confidence that you and the Board have in me, and I look forward to continuing to execute upon our strategy in the years to come.

Turning now to a review of the quarter. As we have been saying for the past several months, we expect the distributer ordering patterns to normalize as we moved through 2016. And I'm pleased to report that this occurred as we exited the year. In fact, we saw robust distributor orders in conjunction with an uptick in the flu season whose severity was ahead of 2015 levels and represents a more normalized flu season.

This, combined with stronger new product sales and share gains, led to our fourth-quarter 2016 constant currency revenue growth up 6.9%. This was also aided, in part, by the one additional selling day we had in quarter four, which we estimate contributed approximately 1%. The primary driver of revenue growth this quarter came from increased sales volume of existing products, which contributed approximately 4.5%. We experienced positive constant currency existing product growth across all our product areas. However, it was largest within our OEM, EMEA, vascular and anesthesia franchises.

Moving to new products. The positive revenue contribution trends we have seen for the past several quarters once again continued in quarter four, this time contributing approximately 1.6% of constant currency growth. This represents the highest constant currency revenue growth contribution stemming from new products yet and positions us well for 2017 as many products which were launched during 2016 are gaining traction.

From a geographic perspective, new product revenue growth was again led by our North American businesses. While from a product line standpoint, new product sales were particularly strong within our surgical, vascular and anesthesia product lines. Surgical and new product sales were driven by increased utilization of products used in robotic procedures, further penetration of our EFX offering as well as an increase in the amount of percutaneous laparoscopy products sold, such as Percuvance and MiniLap.

Vascular new product revenues increases were attributed to sales of our pre-loaded, antimicrobial and antithrombogenic VPS PICCs. While in anesthesia, the growth is primarily due to increased sales of our LMA unique products with silicon and the Rusch TruLite laryngoscope.

The next largest driver of revenue growth in the quarter was the contribution from acquisitions, which increased 0.4% versus the prior year. This was primarily due to a small OEM acquisition that we made in the third quarter. Finally, during Q4, we saw another nice uptick in the average selling price of our products, which drove revenue higher by another 40 basis points. This was primarily due to increases in our surgical and Asia reporting segments.

Next, I would like to provide some additional color surrounding our segment and product -related constant currency revenue growth drivers. Vascular North America fourth quarter revenue increased 5.9% to $95.7 million. The increase in vascular revenue was largely due to sales of Vidacare EZ-IO and OnControl devices as well as increased CVC sales.

Moving to anesthesia North America, fourth-quarter revenue was $54.9 million up 8.5% versus the prior-year period. Growth in this segment was driven by increased sales of Vidacare EZ-IO, atomization and airway management devices.

And because I know the investment community continues to be interested in this statistic, the Vidacare product lines continue to perform exceedingly well, growing approximately 22% globally on a constant currency basis during the quarter. The performance in Q4 resulted in global Vidacare revenue growth of approximately 21% for the full year.

Turning to our surgical North America business, its revenue increased a healthy 12.2% to $48.3 million. The increase within surgical is primarily attributable to higher sales of access ports, chest drainage products and polymer ligation clips. Shifting to our overseas businesses, EMEA revenues continued their positive trajectory, expanding 3% on a constant currency basis to $135.7 million.

The improvement in European revenue was largely the result of increased urology, interventional, vascular, and respiratory product sales. The growth in the region was somewhat offset by lower sales of cardio products as we continued to work through a backorder in that product category.

Moving to Asia, our fourth-quarter revenue increased 5.4% to $73 million. This includes China growth which exceeded 5% in the quarter. China continues to be an important area of growth for Teleflex, and we have decided to permanently exit our relationship with our former master distributor of vascular and cardiac products in China and instead distribute these products though alternative third party sub-distributors.

While Tom will take you through the financial impacts this will have on our 2017 results in a few moments, I'd like to point out, while this initiative may be slightly dilutive to our 2017 revenue and adjusted earnings per share as our former distributor sells through its remaining inventory and we increased our direct sales presence in the area, we believe this move will allow us to improve margins, get closer to the end users of our products and gain better control of the sales channel.

Turning to OEM, during the fourth quarter, revenue increased 20% to $45.3 million and was primarily due to higher sales of catheters and performance fiber products as well as a small acquisition closed in late quarter three. Lastly, fourth quarter revenue for the businesses within our all other category was up 5.5% totaling $61 million. Growth here is primarily attributable to sales of additional respiratory therapy products as well as a return to positive growth within our Latin American business.

Next, I would like to briefly update you on additional GPO and IDN agreements that we received during the quarter as well as some recently received regulatory approvals. During the fourth quarter, we won four new agreements and extended another 18. Of the agreements won and extended in Q4, eight were sole source in nature and cover a variety of pinnacle areas, including our laryngeal mask, laryngoscopes, humidification, CVCs, PICCs and arterial product offerings.

While, on a full-year basis, we won a total of 105 agreements, 50 of which were brand-new awards and 59 of which were sole source awards. Similar to my comments regarding the positive trends that we've seen as we progressed through the year in terms of new product revenue contributing to our constant currency revenue growth rate, the GPO and IDN awards that were won in 2016 will position us nicely in 2017 and beyond.

Moving next to regulatory approvals. During the quarter, we received 510(k) clearance for the Arrow VPS Rhythm Device and optional TipTracker technology. This device expands Teleflex's catheter tip navigation and placement portfolio to now include familiar ECG only technology for the elimination of confirmatory chest x-rays. This device may be used with a broad range of catheter types and brands and when paired with the single use TipTracker stylet for insertion of tip catheters, the arrow VPS rhythm device provides real time visual navigation.

In addition to VPS Rhythm, we also launched the LMA Gastro Airway with Cuff Pilot Technology. LMA and Teleflex were pioneers in the laryngeal mask space, and this product is no different as it is the first laryngeal mask designed specifically to facilitate esophageal access and promote airway controls during endoscopic procedures. It also features a cuff pressure indicator that constantly monitors cuff pressure detecting changes resulting from fluctuations in temperature, nitrous oxide levels, and movements within the airway. In addition, it also has an integral bite lock to reduce the potential for damage to the endoscope helping to avoid costly repairs.

It is exactly products like these two that I just mentioned that will allow Teleflex to continue to expand the revenue growth that we generate coming from new product introductions. As this chart depicts, since 2013 we've introduced 88 new products and line extensions to the market. This includes 25 in 2016 alone.

In many cases, it takes time for new products to gain traction in the marketplace. Since 2014, when we generated 0.9% of revenue growth from new product introductions, we have seen an acceleration in total company constant currency growth stemming from new products reaching 1.3% in 2016. This revenue growth is predominantly being driven by the North American market where we typically launch a product first.

Within North America new product revenue growth has accelerated from 0.4% in 2014 to 2% in 2016. If there is anything that we learned from 2016, it was that when planning for new product revenue growth contributions we need to take into account the time that hospital value analysis committees can take as part of the process. As such, despite the fact that revenue growth within North America expanded significantly from 2015 to 2016, we are taking a more conservative approach when setting the revenue growth rate associated with new products that comprise our 2017 constant currency revenue guidance range.

During 2017 we expect additional new product revenue growth to be driven by the likes of percutaneous solutions including Percuvance and MiniLap, the VPS Chlorag ard plus, the VPS Rhythm, the Autocat 3 and the LMA Protector, just to name a few. And finally, before I turn the call over to Tom, I would like to share with you some thoughts on the recently completed acquisition of Vascular Solutions. On Friday, February 17, we completed the acquisition of Vascular Solutions, and, as Benson said earlier, we did so ahead of our initial expectations.

We are extremely pleased to have acquired Vascular Solutions as it represents a significant step forward in our strategy. Vascular solutions is a truly unique company with differentiated technologies that serve the coronary and peripheral vascular markets, and we see this acquisition as very complementary. The combination of Vascular Solutions and Teleflex significantly advances our offering of vascular and interventional solutions as we are adding over 90 proprietary products and services that are sold to interventional cardiologists, radiologists, electrophysiologists and vein specialists.

Combined, the new company will offer more than 150 cardiac, vascular and interventional products globally. This acquisition also accelerates Teleflex's sales growth trajectory and provides a significant sales channel opportunity. As we said back in December when we announced the transaction, Vascular Solutions has consistently generated greater than 10% revenue growth per year over the last decade, and this acquisition positions Teleflex to have a larger presence in fast-growing markets.

In addition, we expect to capitalize on Teleflex's significant international infrastructure to drive further penetration outside of the US of Vascular Solutions product. Another reason we are excited about acquiring Vascular Solutions is it's robust R&D pipeline. These products are differentiated, high growth and high margin products that have demonstrable clinical benefits that address complex interventions, radial artery catheterizations and embolization procedures, all areas of clinical practice the Teleflex knows a lot about.

And finally, this acquisition has a compelling financial profile that substantially improved Teleflex's revenue growth, margins earnings and cash flow generation capabilities for the years to come. We expect that this transaction will contribute between 8.5% to 9% of constant currency revenue growth during 2017 and that it will be accretive to adjusted earnings-per-share in 2017 by $0.20 to $0.25.

This includes the impact of incremental interest expense associated with financing the transaction. Importantly, this transaction meets all of the M&A objectives we've been talking about for the last several years which include a product portfolio that fits into our existing strategic business unit franchise and call point, thereby, allowing for synergy generation, products that provide a superior clinical benefit to existing alternatives and a cost-benefit to hospitals, long product lifecycle is a benefit from patent protection and the ability to further improve our financial profile.

This acquisition also bolsters our leadership and management team with the additions of key members of the Vascular Solutions leadership team who will be instrumental in continuing to drive the business forward. That takes me to the end of my prepared remarks. At this time I would like to turn the call over to Tom for him to review our financial results for the fourth quarter and to provide our initial guidance for 2017. Tom.

Thanks, Liam, and good morning everyone. Given the previous discussion of the Company's revenue growth drivers, I will begin my prepared remarks with gross profit. But before I do I like to reinforce the point that Teleflex delivered very solid 2016 financial results despite softer than expected revenue growth.

For the year, we grew adjusted net income by over 18%, and cash flow from operations increased by 35%. We also achieved or exceeded each of the non-revenue financial metrics outlined at the beginning of the year. The combination of manufacturing productivity programs, mix management and pricing increased the gross margin by 140 basis points to 54.1%.

Tight control over OpEx spending and the deferral of the medical device tax provided for an increase to the operating margin of 260 basis points to 24.1%. We attribute approximately 70 basis points of the increase to the deferral of the medical device tax. Strong financial results allowed us to raise adjusted EPS guidance on three occasions throughout the year with full-year EPS of $7.34 coming in at the upper end of our most recently provided guidance range.

Finally, during 2016 we announced two additional restructuring programs that will yield further savings beginning in 2017. Turning now to fourth quarter results, for the quarter adjusted gross profit of $276.7 million versus $262.2 million in the prior-year quarter. Adjusted gross margin was 53.8% representing a 30 basis point decrease when compared to the prior-year period.

For the quarter we realized benefits from new products, pricing and manufacturing productivity initiative, however unfavorable foreign exchange rates reduced gross margin by approximately 70 basis points. Adjusted operating margin improved by 130 basis points to 25%. The year-over-year improvement was largely the outcome of continued tight control of discretionary overhead spending and the deferral of the medical device excise tax.

Foreign currency had an unfavorable impact of approximately 50 basis points. Adjusted income from continuing operations before interest and taxes increased by 11.9% in the fourth quarter. For the quarter, adjusted net interest expense increased to approximately $11.7 million from $10.2 million reflecting the impact of the issuance of the 4.875% senior unsecured notes last May.

Also in the quarter, the adjusted tax rate was 16.5% versus 13.6% in the prior-year quarter. On the bottom line, fourth quarter adjusted earnings-per-share was $2.13 or an increase of 6%. The rate of increase versus 2015 was dampened by a tough tax rate comparable, the increase in interest expense and unfavorable foreign exchange. Turning now to select balance sheet and cash flow highlights.

For the year, cash provided by operations was $411 million or an increase of 35% over the prior-year. The increase was primarily the outcome of improved operating results, improved working capital management and reduction in tax payments. At year-end, cash on hand totaled approximately $544 million and pre Vascular Solutions leverage stood at approximately two times.

If you were to pro forma the Vascular Solutions acquisition into our results, our Q4 leverage ratio would have been approximately 3.57 times. That completes my comments on 2016. Now I'll moved to 2017 guidance. Beginning with revenue, for 2017 we expect constant currency revenue growth of between 12.5% and 14%.

Included in our revenue guidance is the assumption that our base business grows between 4% and 5% on a constant currency basis. Base business constant currency revenue growth is expected to be driven by a core product volume increase of between 1.8% and 2.4%. New products are expected to deliver between 1.4% and 1.6% of growth.

This compares to growth of 1.3% in 2016. Net pricing in our core business is expected to be up year-over-year by 50 to 60 basis points. Improvements are primarily due to our decision to eliminate our former master distributor in China coupled with modest pricing improvements on existing products.

For the base business, we project previously completed M&A to contribute between 30 and 40 basis points of revenue growth in 2017. This is comprised solely of the OEM acquisitions that we completed last September. Finally, it is our expectation that Vascular Solutions will contribute between 8.5% and 9% of total constant currency revenue growth.

This represents Teleflex owning Vascular Solutions for approximately 10.5 months during 2017. Given its track record of consistently growing annual revenues 10% or more, we anticipate that when Vascular Solutions rolls into our organic growth statistics, it could add approximately 1% per year towards Teleflex's overall revenue growth rates.

Lastly our assumption is that FX will create a 2.5% headwind, and as a result we expect as reported revenue to increase by 10% to 11.5%. Based on our currency assumptions this translate to an as reported revenue range of $2.055 billion to $2.083 billion. The stronger US dollar relative to the euro is the primary driver of the 2.5% foreign exchange headwind impacting our as reported revenue in 2017.

And for 2017 planning purposes we assumed a euro to US dollar exchange-rate of $1.04 which closely approximates today's spot rates. Turning next to gross margin, for 2017, we expect to be able to continue the positive momentum that we've had over the past several years when it comes to the expansion of our adjusted gross margin.

During 2017, we anticipate that adjusted gross margin will increase another 130 to 190 basis points to a range around 55.4% to 56%. These gains are expected to be the primary -- to be primarily driven by annual cost improvement programs, benefits from our previously announced 2014 and 2016 restructuring programs, favorable product mix, improved pricing and the acquisition of Vascular Solutions.

Of the expected 130 to 190 basis points of annual margin gain approximately 100 to 140 basis points is attributed to the Teleflex base business while Vascular Solutions is expected to add between 30 and 50 basis points. Gains in this area will be somewhat offset by the negative impact from FX which we estimate to be approximately 30 basis points.

Moving to adjusted operating margin, we anticipate that our adjusted operating margin will increase by approximately 150 to 220 basis points to a range of between 25.6% and 26.3% in 2017. Gains from gross margin will be the principal driver of the increase; however, we will look to further accelerate those gains through a combination of SG&A cost control programs and the restructuring program announced in September of 2016 that had a focus on operating expense savings.

These actions will provide improved flow-through from gross margin to operating margin while also providing us flexibility to further invest in R&D initiatives with both our vascular and surgical businesses as well as to selectively invest in sales force capabilities to support the introductions of new products and the CHina go direct. Of the expected 150 to 250 basis points from adjusted operating margin gains, approximately 110 to 170 basis points is being sourced by the Teleflex base business while Vascular Solutions is expected to add between 40 to 50 basis points.

Finally, similar to gross margin, it is our expectation that FX will be a headwind of approximately 30 basis points on the operating margin line. That takes me to our preliminary adjusted earnings-per-share Outlook for 2017. This slide serves as a bridge from our full-year 2016 adjusted EPS to our full-year 2017 adjusted EPS Outlook beginning with 2016 adjusted EPS of $7.34.

From an operating standpoint, in 2017 we project our base business will add approximately $1.12 to $1.17 per share or growth of approximately 15% to 16%. Inherent in this earning range is the expectation that our 2017 base business adjusted tax rate will be in the range of 16.5% and 17.5%.

20 basis points of the improvement in the tax rate versus 2016 can be attributed to the new accounting treatment for excess tax benefits from stock plans. In arriving at the 20 basis point rate impact we have only considered the vesting of restricted stock as all of the factors necessary to value the windfall benefit from stock options are not even determined in advance, and we will provide transparency on this item during the course of the year.

The balance of the improvement in our tax rate is the result of a combination benefits we saw in our fourth-quarter earnings mix that we expect to continue into 2017 and distinct sustainable planning opportunities that we have identified. Of note we expect that the inclusion of Vascular Solutions will increase the consolidated Teleflex 2017 adjusted tax rate by 50 basis points to a range of 17% to 18%.

Moving to the next item, in 2017 we have plans to eliminate our master distributor of vascular and cardiac products in China which will create a transition year earnings headwind of $0.12 to $0.15. Next, as a result of the 4.875 % senior unsecured note offering completed in May 2016 interest expense on the core Teleflex operations is expected to be a headwind of between $0.08 and $0.09.

Moving onto share count, our current estimate is for adjusted weighted average shares to increase to approximately 46.3 million to 46.4 million for the full year of 2017. As a result of the share increase our earnings per share growth will be reduced by an estimated $0.11 to $0.12 per share.

And turning to FX, based on our current estimates we expect foreign exchange will create an adjusted earnings-per-share headwind of approximately $0.30. And finally, we expect Vascular Solutions acquisition to contribute between $0.20 and $0.25 to adjusted earnings-per-share for 2017.

This earnings range assumes the full interest expense burden of financing the transaction at an average rate of approximately 4.2%. In aggregate, our outlook for 2017 adjusted earnings-per-share is $8 to $8.15 representing growth of between 9% and 11% versus 2016. And while it is not our practice to provide specific quarterly guidance, I did want to highlight some considerations regarding variability between our 2017 quarterly expectations.

Overall, we expect revenue growth rates will be high in Q1 largely due to the first quarter having five additional shipping days as compared to the prior year period and the partial quarter addition of Vascular Solutions. We estimate the five additional days will increase revenue growth by approximately 5%. We will then have one fewer selling day in the second quarter and five fewer selling days in the fourth quarter.

Overall, we will have one fewer selling day in 2017 as compared to 2016. With that being said, despite the five additional selling days in Q1, we expect the first quarter of the year to be the lowest in terms of actual dollar amount of revenue ported. In part, this is due to the fact that we have only a partial quarter of Vascular Solutions revenue in our results.

And we move throughout the remainder of the year, we anticipate that revenue dollars grow substantially from Q1 to Q2, reduce slightly from Q2 to Q3 thanks to the normal European slowdowns, and then accelerate again from Q3 to Q4. While from an adjusted earnings-per-share standpoint for 2017, we expect a quarterly EPS seasonalization to closely approximate the seasonalization of EPS we experienced in 2016.

That concludes my prepared remarks. At this time I'd like to turn the call back over to the operator for questions. Operator.

(Operator Instructions)

Larry Keusch, Raymond James.

Okay, thanks, good morning everyone. Two questions for you, I'm just wondering if you could come back a little bit to the 4% to 5% organic growth. And again, just help us think through what kind of drivers are the drivers of that growth rate given some of the challenges that you had in 2016 achieving your initial Outlook.

Okay, Larry, it's Liam here. I'll take that one. As we outlined in the call, from a volume perspective 1.8% to 2.4% we're accelerating new products from the 1.3% that we finished 2016 to a 1.42% to 1.6% range. And as we said during the call, we see that being somewhat conservative, but we are contemplating that we will get through these value analysis committees in particular with products that we launch during 2016.

We have accretion on our pricing from 0.4% in 2016 to the range of 0.5% to 0.6%. That's being driven by a positive base pricing but also with the actions that we're taking with our China distributor adding some pricing there, and of course [Cartica] adds 30 to 40 basis points. A few macro impacts and of course Vascular Solutions then on top of that due to go from 4% to 5% to 12.5% to 14% on a constant currency basis.

Then there are a few macro factors though, the headwinds that we saw as we said previously within Latin America, we expected that to be behind us as we entered Q4, and I'm happy to report, Larry, that Latin America had a robust Q4 growing in the region of about 8%. We also anticipate a recovery in EMEA next year. On a full-year basis this year EMEA grew by about 1.1%, Larry; and in the latter half of the year in Q3 EMEA grew by over 2% and with an extra billing day in Q4 grew by 3%. So we've got a reasonable trajectory within EMEA to get us there.

And of course, our key North American market, Larry, we expect to see robust growth as we have seen aided by those new products that I mentioned earlier.

Okay, that's perfect. And then just one other one, for Tom, I think I caught this correctly in the release, but it looks like there was an impairment charge for Semperus, I believe which was in the fourth quarter, so A, is that correct and if it is could you take me through what the deal was there?

Okay, so that is correct. So the financial impact is an impairment charge offset by a deferred tax liability, those two net to about $26 million. We also then reduced contingent consideration payments as well. Kind of the background there is, Teleflex as a company is always working on a number of products in this case, you know, looking for coatings that reduced anti-thrombogenic and have antimicrobial properties.

What we found, Larry, is that we've got other technologies in our portfolio that are showing a lot of promise on both of those fronts. Semperus was more focused on the anti-thrombogenic, and so we made the decision to focus our resources on that other coating technology that we think shows more promise. And so that's the background on the decision.

I just add to that little bit, Larry, that hospitals are now being penalized for the last 18 months on their infection scores on PICCs, and we believe that as Tom said, an antithrombogenic and antimicrobial solution is really where the market is moving. And we have some better solutions that we're working on internally that addresses both. Semperus was clearly an anti-adherence technology so therefore had an impact on thrombis but not on infection rates colonization.

And just lastly, when could we potentially see any new product introductions with the newer technology that you are referencing?

So we're working on some technology that will be slated for a 2019, 2020 release at this stage Larry.

Okay, perfect, thanks guys appreciate it. Thank you.

DaveTurkaly, JMP Securities.

Congrats, Liam, and, Benson, I know you're staying around, but I think we knew this was eventually going to occur. I guess just at a high level, I'd love to get your thoughts on the margin expansions the way that we've seen over the last several years and obviously we see the guidance for 2017. But should we still anticipate that you might be able to do 100 to 200 basis points moving forward and sort of any color that you can give us in sort of long-term gross or operating margin levels now that you have Vascular Solutions in the portfolio as well?

Sure, we have consistently presented that 350 to 400 basis points as a conservative goal for the end of 2018. As you know we did not include the potential margin improvement from acquisitions such as Vascular Solutions in that total, nor did we include our China direct program in that, so I would say of the view we would [divot] to that is that those two events would be additive to that 350 to 400 basis points goal.

Our current thinking at this point given the fact that, that 350 to 400 basis points contains a number of different programs, is to have an analyst meeting sometime during the course of this year; I think September now is looking like the most likely date where we can go into more details and I think give you much more definitive viewpoint in terms of what 2018 is really going to look like.

At this point the assumption that you should be making is that those two elements are additive and at that point also, I think we want to go beyond what 2018 is going to look like and give you a couple of years forward moving picture as well because just including the various programs we have many of them won't have been completed by 2018. But I would say a margin expansion remains a very, very strong opportunity for us for the next three to four years.

Great and then just one quick follow-up, I know the PICC medical deal was not a large one but just curious as to how that sits in with Vidacare. I know it grew well in the quarter but is it similar, is a complementary, how exactly will those two, how will you sell those two in the market?

So, it is quite complementary, and it actually brings a broader range of portfolio products as well, so pain commercialized trauma and resuscitation products, as well as frontline [drawsius] products. They are the Intraosseous product of choice predominantly with the military. We also have a strong relationship with the military but this just adds an additional portfolio to Teleflex. We don't expect it to have any significant impact on revenue or earnings during 2017, but it also brings some valuable IT that will help to support the EZ-IO product into the future; and I would say, David, it still needs shareholder approval before it closes, just bear that in mind.

Great thanks a lot. Thank you.

Brooks West, Piper Jeffrey.

Great, good morning and congratulations to you, Benson and Liam both. I wanted to start with China if I could, you gave some good detail on the earnings impact, but I'm wondering if you could quantify any revenue impact with that transition that we should expect in 2017, and then is this something that you can do in a year, or is this something that is going to linger on for some time? And I guess last question there is just give us a sense of the scale of your China business.

Okay, so there's a lot in there, so I'll try to grab them one at a time. The distributor will sell through what inventory that they have during the year. It will have an impact on our revenue line. At the moment we estimate that to about 30 basis points which includes within our volume guidance that we gave.

The impact thereafter, it becomes accretive in 2018, 2019, and 2020. During 2017 you will also see that we have additional pricing as a result of this. So we lose volume, we lose earnings, but we do pick up some modest pricing in the region of about, let's call it, 30 or 40 basis points of additional pricing as a result of it. But we anticipate that as the distributor sells through their inventory we will put in our sales organization into the Chinese market, our overall business in Asia or in China is in the region of about $85 million, Brooks, and this represents us at between $26 million and $30 million for Teleflex in 2016.

Okay, so thanks for that Liam, and it sounds like you can execute this in one year, and you're confident that this will become accretive and 2018 is that the way to think about it?

That is the way to think about it will be accretive in 2018 and 2019, Brooks.

Okay perfect. Then, Tom, I had one for you, follow-up on just gross margin this quarter you mentioned FX was a headwind but even backing that out, I think, you're a little bit light of our model, and I'm just curious is that product mix or can you comment and help us understand Q4 and I guess bridging that in the improvement we should see in 2017, thanks.

Sure so the fourth quarter margin was on the lower side of what we put up this year. I think the biggest impact is we saw about a 70 basis point negative impact coming from FX throughout the -- or I should say through the first three quarters of the year we had seen some very moderate positive impact on gross margin from currency. But the fourth-quarter impact erased all those gains so that was a big shift in the trend line. And then you also recall our decision to delay the transfer of the wet kit. We discussed earlier in the year. That would have an impact in the fourth quarter as well.

And in addition there was some mix. We had unusually strong growth in our OEM respiratory business units, as well as the Latin American region, and these collectively are our lowest margins region and business unit. So that was a mix impact as well. As we think about this going forward, and obviously, we thought about our longer-term mix and have modeled that into 2017. In any quarter you can have peaks and valleys in pipelines. We don't expect that these three pipelines will necessarily cause a mix issue going forward for us.

We will have to see on the impact from currency. As mentioned in our guidance we have anticipated there will be an FX impact, and that's in our assumptions. And we expect to be able to work through the wet kit transfer issue in the coming quarters and put that behind us. So I don't see this as having a long-term impact for us as a result of these three items.

Great, thank you. Thank you.

Matt Taylor, Barclays your line is open.

Hello, this is actually Ian in for Matt. Okay, great. I want to ask on the acquisition of Vascular Solutions, what is the blue sky scenario? In other words what of the things that could go better than expected that could lead to upside from the scenario you laid out?

So it's Liam here. Vascular Solutions have traditionally been quite aggressive with product launches, and you will see that they just launched the TrapLiner which is an extension of their core GuideLiner product. So of their, call it, $170 million per year about $50 million comes from this GuideLiner product. The TrapLiner was initially thought to cannibalized a larger portion of the GuideLiner. Having done some of the clinical work in Canada and in Europe, the feedback from the clinicians is that it will be used in conjunction -- more in conjunction with the GuideLiner so the cannibalization rates will be slightly lower, so that is a potential for upside.

In the longer term, I think with the new products, being freeze dried plasma could be a significant opportunity in the future. We had a strong military call point in the product that will be close to that [call] point. The proposed we have with Ping strengthens that call point into the military, so we think that will be a creative. And their top line sales growth will be reinforced by our international channel, and we think that the potential for some further upside perhaps in the future.

Okay, that's helpful. I wanted to follow-up with another question on the launch of Percuvance see if you have a little bit more detail there, just in terms of at this stage with the feedback has been like and how it is progressing through the value analysis committees?

So, again, the feedback is a resoundingly positive, we have put the product portfolio of percutaneous solutions which is Percuvance and MiniLap into the hands of our full sales force now and put more resources behind it. In the US we have 24 hospitals using it up to 36 that have been through the back through quarter four which is a 68% [hit] rate which is consistent with our success rate going through VACs. We have 35 trials on-going in North America and 60 on-going globally. We're still very enthusiastic about the product. Feedback from the customers and surgeons continues to be resoundingly positive, and we're just working through the value analysis committee through this year and what we expect to see as we get through those is the revenue to ramp through the year and to have more of an impact in [2018].

Great thank you.

Thank you.

Anthony Petrone, Jefferies.

Thanks and good morning. Congratulations also Liam and Benson, congratulations to you both. Just a couple questions on Vascular Solutions and a follow-up maybe on tax, the $0.20 to $0.25 for 2017, I'm wondering what the margin profile for those revenues are considered in that guidance and what percentage of the $40 million to $45 million target by 2019 in cost synergies is baked into that number?

So, I'll cover the margin side so it's accretive to our overall margin. Now there will be some adjustments as we walk through Vascular Solutions. They count certain expenses below the line that we would've counted in gross margins but their gross margins have been in the 66% range as they have reported them.

From the point of view of synergy, clearly we just closed this a week ago, we're working through that. Clearly we have a plan there, but we don't anticipate significant synergies in 2017, but obviously that will ramp as we get through 2018 and 2019, and I think we're pretty consistent by 2019, we will generate between $40 million and $45 million in synergies from this transaction.

Great and then a follow-up just on vascular would be, if we look at the growth profile prior to the deal being announced, the turnpike catheters within their portfolio were really experiencing hypergrowth. I'm just wondering where that product cycle is, how long do expect that to sort of maintain at that level? And then the follow-up for Tom, on tax guidance would be, what is sort of baked in there for potential reform later this year, just given the proposals that we're seeing. And as of this morning they're expecting that to be presented before the August recess, so anything on tax guidance would be helpful.

I'll address Turnpike, so, the Turnpike product we're very excited by it. We love the growth profile of it. We love the margin profile of the Turnpike product. The growth of the Turnpike in Q4 was almost 200%, albeit on a relatively small base. We see this as an additional opportunity in the hands of Teleflex, because a lot of their distribution channel overseas or some of their distribution channels overseas at least, does not sell the Turnpike.

They sell a competitive product that they had taken on board as a distributor would prior to the launch of Turnpike. So we actually see the lifecycle of that in the early stages of lifecycle for the Turnpike with many years of accretive growth to come for Teleflex and accelerated by what we can do with our channel overseas.

And on a tax rate, our approach in planning for 2017 was to develop our plan based on the prevailing or the current tax codes out there for the US and abroad. We have not yet factored in any potential revisions and so what we will wait to do, is see what is actually coming out in terms of legislation, and once that becomes clearer we will make an assessment of the impact and provide updates. But we thought it was premature right now to incorporate any conceptual proposals into the financial plans.

This is Benson. I spent a bit of time in Washington two weeks ago and I would say while there's a lot of enthusiasm to get something out there relative to the tax reform, there is still a lot of disagreement under the surface in terms of what that really looks like. So I think the approach wait-and-see is important. There can be a lot of negotiation between now and some final proposal.

That's helpful, thank you. Thank you.

Matt Mishan, KeyBank.

Hey good morning, everyone. Just a follow-up on the tax discussion. Tom, in 2014 you were able to repatriate some cash following Vidacare, do you think you have the same opportunity to do that following Vascular Solutions, and then how are you kind of balancing the need to issue high-yield with potential tax reform?

That's something that we're obviously watching very closely as we talked about the whole Vascular Solutions acquisition. We initially funded that on a revolver and bank term loan, and we're going to opportunistically look to see if there is an opportunity to turn that out high-yield. The extent that either the current administration creates a repatriation opportunity or we are able to create one ourselves internally, would cause us to reassess that financing strategy, because obviously we have over $500 million in cash sitting OUS, and that could help us to delever and perhaps take an alternative path. We're working through the question on repatriation, I guess, by ourselves and we'll have to wait to see what happens with the current administration as far as that. So we are watching it closely, obviously.

Okay perfect, and then I'm just trying to understand the sustainability of the North American surgical results. I think you have an expectation for a ramp in Percuvance. Are we talking like single digit millions in 2017, or are we getting up to double digit millions, and then could you remind us your exposure to the Intuitive robotics platform?

Okay, so it's Liam here again. So, within percutaneous you have Percuvance and MiniLap, so they both address that category of percutaneous solutions. We don't normally give specific guidance for individual product categories, but as a set area we expect it to ramp and to be accretive to our new product revenue that we will ramp up during 2017.

On the Intuitive side, we do sell a range of products to Intuitive that our [trocar] is predominantly better sold as part of their platform, and that generates approximately 30 to 40 basis points and growth to our revenue globally.

We don't see that, that growth would compromise the Percuvance opportunity in any significant way.

Correct.

All right, thank you very much guys.

Sure.

Thank you

(Operator Instructions)

And I am showing no further questions at this time. I'd like to turn the call back to Mr. Jake Elguicze's for any closing remarks.

Thanks, operator, and thanks everyone that joined us on the call today. This concludes the Teleflex Incorporated fourth-quarter 2016 earnings conference call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.