泰利福醫療 (TFX) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Teleflex Incorporated Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jake Elguicze, Treasurer and Vice President of Investor Relations. Sir, you may begin.

Good morning, everyone, and welcome to the Teleflex Incorporated First Quarter 2017 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 12639722.

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'll open up the call to Q&A.

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 in our slides. 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 referenced in our press release today as well as our filings 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.

Thank you, Jake, and good morning, everyone. To begin, I would like to start the call by saying that we are quite pleased with our Q1 results. Following a solid fourth quarter performance to end 2016, Teleflex is off to a strong start in 2017.

In the first quarter, revenues grew by 14.8% on an as-reported basis and 16% on a constant currency basis. This includes the contribution from Vascular Solutions' product lines, which added meaningfully during our partial quarter of ownership, accounting approximately 5% of our constant currency revenue growth and delivering approximately $0.03 to our adjusted earnings per share.

I'm happy to say that Vascular Solutions’ revenue and adjusted earnings per share performance during the quarter was in line with our initial expectations, and that integration activities are well under way and continue to be on track. Turning to our base business. During the quarter, top line growth was broad-based and covered several of our operating segments. We continue to see stability within our end markets, good global utilization of many of our products, and positive momentum and revenue generated from newly introduced products to the market. Additionally, the flu season in the fourth quarter of 2016 and the first quarter of 2017 was more normalized, and we do not currently expect the same distributor ordering pattern dynamics in 2017 that negatively impacted our business in '16.

Finally, during the first quarter, we continued to make progress on our distributor conversion within China. Turning to profitability. During the first quarter of 2017, we generated adjusted gross and operating margin growth of 110 and 100 basis points, respectively. The margin performance in the quarter was modestly better than our internal expectation and gives us confidence in our ability to achieve our full year 2017 guidance targets. The additional operating leverage generated in Q1 translated into adjusted earnings per share of $1.80, which is an increase of 18.4% versus the first quarter of 2016. Given the good start to 2017, we are reaffirming both our full year as reported in constant currency revenue growth ranges and slightly increasing our full year adjusted earnings per share guidance range.

And while Tom will go through this in more detail during his prepared remarks, the decision to increase our full year adjusted earnings per share range is primarily due to moderate operational benefits that were achieved in Q1 as compared to internal expectations; the acquisition of Pyng Medical, which closed in April and was not in our original adjusted earnings per share estimates; and a larger-than-anticipated tax benefit that occurred in the first quarter associated with stock compensation tax benefit accounting change.

In closing, Teleflex is on track to either meet or exceed the original 2017 financial targets that we provided the investment community a few months ago. And we continue to believe that 2017 will be yet another year in which we can leverage our income statement through a combination of revenue- and nonrevenue-dependent actions, whether expanding adjusted gross and operating margins and adjusted earnings per share.

That completes my prepared remarks. I'd like to turn the call over to Liam.

Thank you, Benson, and good morning, everyone. For the consolidated company, first quarter 2017 constant currency revenues grew 16%. This includes positive sales volumes of existing products, which contributed 7.8%. These sales volumes were aided by 5 additional selling days during the first quarter, and if you were to normalize for results for the additional selling days, our constant currency revenue growth from core product volumes would have been approximately 1.8%. We estimate that the additional days added about 6% this quarter. The main reason the billing days had a larger impact in quarter 1 versus the fourth quarter of 2016 is the result of a smaller denominator. Quarter 1 revenues were lower than quarter 4.

Our decision to go-direct within China resulted in our former master distributor of Vascular and cardiac goods to no longer purchase products. As we have said in our last earnings call, we view these sales headwinds in China to be temporary in nature and not indicative of our longer-term growth potential in that country. And we anticipate a return to positive revenue growth during the second half of 2017. In fact, we've continued to make progress in adding to our direct sales presence in that area and believe that over the longer term, we'll be -- we will be able to improve margin, get closer to the end users of our products and gain better control of the sales channel.

Turning to revenue growth coming from recently completed acquisitions. During the quarter, M&A contributed approximately 5.8% of constant currency revenue growth. Of this amount, Vascular Solutions added about 5.1% while Cartika, an OEM business we acquired in September of last year, added about 70 basis points. And while we did not own Vascular Solutions for the entire first quarter, one of the reasons we acquired the company was because of their ability to consistently generate double-digit revenue growth. And they did not disappoint in quarter 1, growing approximately 13% in the first quarter of 2017 as compared to the prior year periods. Growth in Vascular Solutions was primarily due to increased sales of our Turnpike, GuideLiner and micro-introducer kit products.

Moving to new products. The positive revenue trend we have seen for the past several quarters once again continued in quarter 1, this time, contributing approximately 1.8% 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 continue to gain traction.

From a geographic perspective, new product revenue growth was once again led by our North American businesses. But from a product line standpoint, new product sales were particularly strong within our Surgical, Vascular and Anesthesia product lines. Surgical new product sales were driven by increased utilization of products used in robotic procedures and a further penetration of our EFx offering. Vascular new product revenues increases are attributable to further penetration of our infection control with orientation antimicrobial and antithrombogenic VPS PICCs while in Anesthesia, the growth is primarily due to increased sales of our LMA Unique product silicon and the Rusch TruLite laryngoscope.

And finally, during quarter 1, we saw continued improvement in the average selling prices of our products, which drove revenue higher by another 60 basis points. This was primarily due to increases in our Vascular, Surgical and Asia reporting segments. In summary, if you were to compare the first quarter components of constant currency revenue growth excluding the shipping day impact and Vascular Solutions to our full year 4% to 5% guidance range, you will see that they compare favorably.

Excluding the impact of the additional shipping days, core product volumes grew 1.8% and was within our full year guidance range. Pricing grew 0.6% and was also within our full year guidance range while new products and Cartika added 1.8% and 0.7%, respectively, and were above our full year guidance range.

Next, I would like to provide some additional color surrounding our segment- and product-related constant currency revenue growth drivers during the first quarter.

Vascular North America first quarter revenue increased 14.8% to $93.8 million. The increase in Vascular revenue was largely due to higher sales volumes of Vidacare EZ-IO and OnControl devices, increased sales of infection control called CVCs and PICCs as well as from the impact of the increase in the number of selling days within the quarter.

Moving to Anesthesia North America. First quarter revenue was $48.2 million, up 4.7% versus the prior year period. Growth in this segment occurred within Vidacare EZ-IO, atomization and airway management devices and was the results of additional selling days in the quarter.

Turning to our Surgical North America business. Its revenue increased 17.7% to $46 million. The increase within Surgical is primarily attributable to higher sales volume of access ports, ligation clips and chest drainage products. Growth in this business was also aided by the additional selling days in the quarter.

Shifting to our overseas operations. EMEA revenues continued their positive trajectory, growing 10.9% on a constant currency basis to $130.7 million. The improvement in Europe revenues was largely the result of the increased number of selling days. However, if you were to normalize their results for the selling day impact, we estimate that EMEA revenues still grew approximately 3%.

Moving to Asia. Our first quarter revenue decreased 0.4% to $49 million. The decrease here is primarily due to sales volumes being negatively impacted by our distributor to direct sales conversion in China. As I mentioned earlier, we currently expect a return to positive revenue growth within Asia during the second half of 2017.

Turning to OEM. During the first quarter, revenue increased 28.4% to $43.3 million and was primarily due to higher sales of catheter and performance fiber products as well as the Cartika acquisition.

And lastly, first quarter revenue for the businesses within our All Other category was up 45%, totaling $76.9 million. Growth here is primarily attributable to the acquisition of Vascular Solutions as well as sales of additional cardiac intra-aortic balloon products. I would also like to point out that Vidacare product sales continue at a very good pace, growing globally 23% on a constant currency basis in quarter 1 2017 as compared to the prior year period.

And as has been our customary practice, I would like to next briefly update you on the state of the GPO and IDN awards as well as some recently received regulatory approvals and product launches. Adding to the success we realized in 2016, during the first quarter of 2017, we won an additional 14 new GPO and IDN agreements and extended 16 others. Of the agreements won and extended in quarter 1, 16 were sole source in nature and cover a wide variety of clinical areas, including our laryngeal mask, ligation clips, midline catheters, laryngoscopes, CVC catheters, humidification devices, PICCs and arterial product offering.

I point this out because it further supports our ability to generate positive broad-based revenue growth within clinical practice areas that are not overly susceptible to extreme cost pressures or elective procedure downturns.

Moving next to some recent product introductions and regulatory approvals which we've received. I mentioned earlier that one of the reasons we acquired Vascular Solutions was because of their ability to consistently generate double-digit revenue growth rates. Well, another reason we acquired them was their robust product pipeline. In fact, the last -- the next 3 products I'm going to talk to you about are Vascular Solution products while the fourth is a new cardiac balloon pump that we are bringing to market.

Starting with the Spectre Guidewire. We recently received 510(k) clearance and began U.S. commercial launch of this product, which is designed for premium performance in coronary and peripheral interventions and has enhanced trackability and torque control. The device is a guidewire available in multiple lengths and has both a distal hydrophilic coating and a proximal PTFE coating. Approximately 70% of the guidewire used in percutaneous coronary interventions, or PCI, are considered workhorse guidewires and are used to deliver catheters, balloons, stents and other diagnostic and therapeutic devices. As such, it is our belief that the Spectre Guidewire will be applicable to the majority of PCIs.

Turning next to Twin-Pass Torque Dual Access Catheter. This product also received FDA 510(k) clearance and was launched both domestically and internationally. This catheter contains both a rapid-exchange lumen and an over-the-wire lumen. The beauty of this product is that with the guidewire deployed through the rapid-exchange lumen, the over-the-wire lumen can be used for guidewire exchange, subsequent delivery of a second guidewire or balloon injection to a desired distal vessel segment. It is a product that is designed for procedures that call for delivery of 2 interventional guidewires from a single catheter in clinical situations where catheter delivery and control are paramount.

Turning to the TrapLiner. This is the third new Vascular Solutions product that received FDA 510(k) clearance during the quarter. This product's design is similar in nature to Vascular Solutions' popular GuideLiner extension catheter, but it has the added feature of an integrated balloon for trapping a standard guidewire. It can be used as an alternative method to the trapping technique that requires the use of a PTCA balloon to exchange an existing over-the-wire catheter while maintaining guidewire position and is most commonly used in complex interventional procedures.

Lastly, from a new product standpoint, I would like to call your attention to the Arrow AC3 intra-aortic balloon pump or IABP. This device helps a weakened heart pump blood and can deliver IABP therapy to a broad range of patients, even those not previously considered candidates for IABP therapy. Clinicians can use this pump on patients with severe arrhythmias or with heart rates as high as 200 beats per minute. It has a third-generation autopilot mode, which uses proprietary algorithms, which helps address key clinical challenges and simplifies the delivery of IABP therapy.

Each of the new products I spoke about this morning continue to advance our product offerings within the interventional space, and we are quite enthusiastic about their potential and view them as nice revenue growth engines of the future.

Moving next to an acquisition update. I'm pleased to report that we continue to put capital to work, completing the acquisition of Pyng Medical in April. Pyng's product portfolio includes a variety of innovative lifesaving tools, including intraosseous infusion, pelvic stabilization, hemorrhage control and emergency airway management devices. This accretive, all-cash transaction further enhances Teleflex's product offering to the military and civilian trauma markets and builds upon our previously completed acquisitions in the emergency medicine field, most notably LMA and Vidacare.

And as Benson stated in his prepared remarks, this acquisition was not included when we provided our initial 2017 financial outlook, and it is expected to contribute in a very modest positive way to our revenue and adjusted earnings per share during the remainder of 2017. We welcome the Pyng employees to the Teleflex family and look forward to their contributions in the future.

Lastly, before I turn the call over to Tom, I would like to provide you with an update on the various restructuring efforts under way at the company. As most of you are aware, Teleflex is committed to driving nonrevenue-dependent leverage throughout the income statement. And as such, during the first quarter, we announced 2 new restructuring programs. The first program relates to the integration of Vascular Solutions operations into our operations. We initiated this program in quarter 1 and expect it to be substantially completed by the end of the second quarter 2018.

We estimate that we will incur pretax restructuring charges of between $6 million and $7.5 million related to termination benefits, employee relocation and outplacement costs. Additionally, we expect to incur between $2.5 million to $3 million of restructuring-related charges, consisting primarily of retention bonuses offered to certain employees. All of the aforementioned costs will result in future cash outlays and will be added back when we calculate adjusted earnings per share. We began realizing synergies associated with this program during the first quarter of 2017 and expect to achieve annualized pretax synergies of between $20 million to $25 million once the program is fully implemented.

I would like to point out that we continue to believe that we can achieve annual pretax synergies of between $40 million to $45 million related to Vascular Solutions by the year 2019. The second restructuring program that we committed to during the quarter related to the centralization of certain administrative functions within Europe. This program will commence in the second quarter of 2017 and is expected to be substantially completed by the end of 2018. We estimate that we will record pretax restructuring charges of between $7.1 million to $8.5 million, almost all of which constitute termination benefits and all of which will result in future cash outlays.

Similar to my comments regarding the cost incurred as a result of the Vascular Solutions restructuring program, all of the aforementioned costs associated with the European restructuring plan will be added back when we calculate adjusted earnings per share. With the European program, we expect to achieve annualized pretax savings of between $2.7 million and $3.3 million once the program is fully implemented. And we expect to begin realizing savings during the first quarter of 2018.

In addition to the restructuring programs that I just mentioned that we initiated during 2017, we have other ongoing restructuring programs related to consolidation of our manufacturing operations as well as programs designed to improve operating efficiencies and reduce cost. We've been receiving feedback from the investment community that they would like us to summarize all of these restructuring programs in one place, and we are attempting to do that here. It is very important to understand that this chart simply represents the restructuring initiatives that had been approved and that are currently under way at the company and their respective costs and synergies. This does not include additional savings that we anticipate to generate that come in the form of annual cost improvement program, material substitution initiatives, improved pricing or potential future restructuring program.

These expected savings would be additive to the amount shown here, and it is our intention at our Analyst Day later this year to provide a comprehensive summary of all our expected savings over a forward-looking multiyear period. That being said, our announced restructuring program indicates that we expect to incur between $104 million to $125 million of total charges by the time that these programs are complete and that as of December 31, 2016, we incurred approximately $63 million of those costs.

Turning to anticipated savings. We expect that we will generate between $80 million to $96 million of annualized pretax synergies by the time these programs are complete and that through December 31, 2016, we achieved $31 million of these annualized pretax savings. This leaves us with between $49 million and $65 million of additional annual pretax synergies yet to be realized. And it is our belief that we will realize substantially all of these estimated annual pretax savings and synergies by December 31, 2019.

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 first quarter and provide our updated guidance for 2017. Tom?

Thanks, Liam, and good morning, everyone. Given the previous discussion of the company's revenue growth drivers, I'll begin my prepared remarks with gross profit. But before I do, I'd like to reinforce that the company is off to a good start in 2017.

On a constant currency basis, revenues were slightly better than our internal Q1 estimates due to broad-based strength across most of our strategic business units. While currency headwinds were more moderate than we had initially expected, we realized expansion of both gross and operating margins versus prior year levels. Financial leverage was good, with 21.1% adjusted net income growth being generated from 14.8% as reported revenue growth. Cash flow from operations generation was also strong and increased 36% versus the prior year period. Given the performance in Q1 and our outlook for the remainder of the year, we are raising our adjusted earnings per share guidance by $0.05 on the bottom end and $0.08 on the top end of the range.

Turning now to first quarter results. For the quarter, adjusted gross profit was $267.1 million versus $227.8 million in the prior year quarter. Adjusted gross margin was 54.7%, representing a 90 basis point sequential increase from the fourth quarter of 2016 or a 110 basis point increase when compared to the prior year quarter. 110 basis point increase versus prior year was sourced as follows: 60 basis points from the base business, 35 basis points from Vascular Solutions and 15 basis points from foreign exchange. Versus prior year, adjusted OpEx spending grew by 15.4%, reflecting the inclusion of Vascular Solutions' OpEx, R&D investment for new products and expenses associated with the 5 extra selling days during the period.

Adjusted operating margin improved by 100 basis points to 23.4%. The year-over-year improvement was sourced as follows: 100 basis points from the base business, 10 basis points from Vascular Solutions and a headwind of 10 basis points from foreign exchange. Of note, we expect Vascular Solutions to become increasingly accretive to the operating margin as the integration program progresses.

Continuing down the income statement. Adjusted net interest expense increased to $15.1 million from $10.2 million in the prior year quarter. The increase reflects the impact of the additional borrowings under our credit facility to finance the acquisition of Vascular Solutions and the impact of the issuance of the 4 7/8% senior unsecured notes last May.

For the quarter, our adjusted tax rate was 16.1% versus 19% in the prior year. The year-over-year decline in our adjusted tax rate can be attributed to the new accounting treatment for excess tax benefits from stock plans, which provided a favorable tax benefit of $3.4 million or $0.07 in the quarter. If you were to exclude this benefit, our adjusted tax rate for the quarter would have been approximately 19.5%. From the bottom line, adjusted earnings per share increased 18.4% from $1.52 in the first quarter of 2016 to $1.80 in the first quarter of 2017. Of the $0.28 increase in adjusted earnings per share, base operations added $0.33, Vascular Solutions added $0.03 and taxes added a year-over-year benefit of $0.07. Partially offsetting these gains were headwinds from interest expense of $0.09, weighted average shares of $0.04 and foreign exchange of $0.02.

Turning now to select balance sheet and cash flow highlights. During the first quarter, cash flow from operations was $91 million or an increase of 36% over the prior year. The increase was primarily the outcome of improved operating results and working capital management. At the end of Q1, cash on hand totaled $689 million and leverage stood at 3.54x. That completes my comments on the first quarter.

Now I'll move to 2017 guidance updates. Beginning with revenue. For 2017, we are reaffirming our full year constant currency revenue growth guidance range of 12.5% to 14%. We continue to assume that our base business will grow 4% to 5% and that Vascular Solutions will add 8.5% to 9% to total growth. We also continue to expect as-reported revenue to increase by 10% to 11.5%. And based on our currency assumptions, this translates to an as-reported revenue dollar range of between $2,055,000,000 to $2,083,000,000. We're also reaffirming both our previously provided adjusted gross margin guidance range of 55.4% to 56% and our adjusted operating margin guidance range of 25.6% to 26.3%.

Our full year 2017 adjusted tax rate guidance remains unchanged at 17% to 18%, although given the windfall tax benefit realized in Q1, we now expect the year to average in the mid to lower end of that range. On the bottom line, our outlook for 2017 adjusted earnings per share has improved to a range of $8.05 to $8.23, up from our previous outlook of $8 to $8.15. The increase in our adjusted earnings per share guidance is primarily due to larger-than-expected tax windfall benefit and a modest improvement in base business operations. And while it's not our practice to provide specific quarterly financial guidance, for modeling purposes, I did want to highlight some considerations regarding variability between our 2017 quarterly expectations, with a particular focus on the second quarter year-over-year growth rate.

The first point I'd make is that there's 1 less selling day in the second quarter of 2017. The next point is that the second quarter has a tough comp as the second quarter of 2016 posted strong operating performance with adjusted earnings per share growth of 33% and the highest adjusted gross and operating margins of any quarter during 2016. As a result, it is our expectation that in the second quarter of 2017 versus the second quarter of 2016, we'll see tempered revenue growth due to 1 less selling day, modest gross margin expansion and flattish EPS growth due to tough comp. For the third and fourth quarters versus prior year, the comps are more typical, and as a result, we expect meaningful year-over-year margin expansion and EPS growth for these quarters.

While second quarter growth rates may appear soft as a result of the tough comparable, we do expect continued improvements in operating performance. In the second quarter, we project a sequential improvement in adjusted EPS and also in adjusted gross and operating margins versus the first quarter of the year. In fact, we expect sequentially improving adjusted margins and EPS for each of the second, third and fourth quarters of 2017. The sequential quarterly improvements are attributed to increasing synergies from the Vascular Solutions integration, improved mix, additional operations productivity and footprint savings and increase revenues and margins in the China go-direct during the second half of the year.

Other considerations for the second quarter include the fact that we will incur a full quarter’s worth of interest associated with the financing of the Vascular Solutions acquisition. Additionally, during second quarter, we incurred the expense burden of the sales and support infrastructure needed for the Chinese distributor to direct conversion. However, it will take time to clear the channel and acquire distributor's inventory, so the expense burden will occur before the ramp-up in revenues. And in closing, we are very pleased with the start of the year, revenue growth came in ahead of expectations and the upside was broad-based. New products are also running slightly ahead of expectations. Margin expansion is tracking well, foreign exchange rates are trending favorably and the integration of Vascular Solutions is on track.

And that concludes my prepared remarks. At this time, I'd like to turn the call back to the operator for questions. Operator?

(Operator Instructions) Our first question comes from Matt Taylor from Barclays.

So I guess, the first question I had was -- can you help us understand how you're thinking about the earnings guidance raise? Whether you're coming ahead in Q1, helped a little bit by tax here? Things are going well at the start of the year. Surprised to see you not raise a little bit more. What are you thinking about in terms of different risks throughout the year? You're getting a little bit of a lift from FX. Just want to understand that a little bit better.

Sure, why don't I take that? So as we looked at the first quarter, we did have a benefit from the windfall tax of about $0.07. We also had a couple of pennies as a result of the over-performance in revenue that flowed through the bottom line. So we did see a nice start to the year on both revenue and EPS. As we thought about the guidance, we took a look at FX and in the quarter, while we had some translational benefits, they did not flow -- the revenue upside didn't flow through the bottom line, largely because of an offsetting transactional downside. So we didn't see the FX benefits flow through in any EPS generation. So as we think about the balance of the year, we want to work through the next couple of quarters and make certain that we've got funding available for any investments that we need and make sure that we've got sufficient resources for the integration of Vascular Solutions and thought that the upside from taxes and the slight benefits from operations with the flow-through was an additional upside to our guidance. As we get further into the year, we'll take a look at how currency is trending. Right now, since the French elections, we saw a nice move with the euro strengthening. That will tend to help us. And should that continue, we could see some favorability there. We also look to see how our operations plays out before we would consider a higher raise on our EPS guidance.

Okay. And I thought it was encouraging to see the pickup in the contribution from new products. So I was hoping you could just give us a point or 2 on what really drove that. And maybe touch on the contributions that you're expecting from these new acquisitions.

Okay. So Matt, it's Liam here. I'll take that. With regards to new products, it was pretty broad-based. And we're encouraged by that, quite frankly. We did see a nice pickup in our VPS PICC offering with the preloaded PICC that we had, obviously, launched late last year. And of course, the ongoing focus of our PICC customers on the infection prevention and thrombus prevention is critically important to us. Because they've moved away -- starting to move away from -- and they have to report infections now on PICCs. So therefore, they're acutely aware that a coated PICC is saving the hospital funding. The other areas that we saw a pickup was in the surgical group and our EFx, within our Anesthesia group and the LMA product family, in particular, on the LMA Unique with silicon. Percuvance continues to ramp during the year. It's not a significant contributor yet, but it will ramp during the year. And also, within our respiratory group on some of the humidification products. So it was pretty broad-based, Matt. And that's a very encouraging for us because across all of our business units, we're seeing a pickup.

Okay. And then on the acquisition, can you talk about those?

Yes. So Pyng was the acquisition that we announced, and it's going to have a modest revenue contribution. We expect that Pyng will contribute about 20 basis points thereabout to our top line, $3.9 million in revenue. Obviously, Cartika contributed 70 basis points in the quarter. Just remember, Matt, that we closed Cartika in September of last year, so you will see a stronger contribution Q1, 2 and then trail off 3 and 4. So we're still comfortable in our guidance for completed acquisitions.

And our next question comes from Larry Keusch from Raymond James.

Liam, you obviously mentioned the Vidacare growth in the quarter, which I think you said was 23%. Very impressive. Could you just walk us through where you're seeing the growth, both in applications and perhaps geographies?

Yes. So we continue to see solid growth within the EZ-IO and OnControl, Larry. Just to give you a basis point, the EZ-IO grew at over 20% globally and the OnControl grew above 35% globally. So we're very encouraged by that. Again, Larry, it was pretty broad-based. We had a strong European performance. We closed the last ambulance service within the U.K., which obviously helped, and we continued to expand within Europe. On the domestic side, we continue to see hospital adoption of the EZ-IO as an emergency device for vascular access, and clearly, the new sepsis guidelines are also helping us, Larry, where it's indicated now for use for sepsis patients, and that's, obviously, helping clinicians make that good decision to use an EZ-IO in the acute environment for sepsis patients. So again, Larry, pretty broad-based, very solid in Europe and continued solid growth in the domestic market.

Okay, perfect. And then 2 other ones. Maybe you've owned Vascular now for, I guess, just under 3 months. So any observations from you guys relative to what you're seeing there? What may be a little bit better? What may need a little bit work? And then just quickly for Tom. Are you maintaining the $1.04 assumption for the euro? Or have you changed that at this point?

Okay, I'll cover the Vascular Solutions piece first. So Larry, we're very positive on the integration of Vascular Solutions. We have now consolidated the sales organizations. We saw very robust growth in quarter 1 in the -- with Vascular Solutions, 13% growth over prior year. And as I said during my prepared remarks, that's one of the reasons we bought this company, but before that, consolidated growth. They're hitting their time lines on new products. So we had 3 new products in Vascular Solutions launched in the quarter. That's very encouraging. I'm glad to report, Larry, no surprises as of yet with the Vascular Solutions integration. And we continue to monitor it very, very closely, but very encouraged so far.

And then with regard to the foreign exchange, so just by way of background, when we locked in the rates for our plan in early January, the euro was trading at $1.04, and that's the rate we selected. By the time we gave guidance, I think it's a little over $1.05 at the end of February. And then following the French elections, it's risen up now to $1.09, so we see a lot of movement in the rates. The way we're thinking about it is, right now, we have not changed an assumption in our projections to move it each time we get a different change in the spot, I think, would be a little bit hectic for us and trying to communicate that to everyone else. So we left it steady at $1.04. Should the rates stay where they are right now, we would expect to see some benefit on revenue as well as earnings. But as we saw in the first quarter, there can be offsets. So we had a translational benefit largely from the euro in Q1. So we saw about a $5 million pickup in revenue. However, we didn't see any EPS benefit because there was a transactional offset that offset the translational EPS benefit. So for right now, we're keeping in our projections that $1.04 rate. We recognize rates can move very quickly in both directions and just haven’t updated based on today's rate.

And our next question comes from David Lewis from Morgan Stanley.

This is actually Scott Wang filling in for David. I guess, a couple of quick ones for me. Tom, just looking at organic growth, organic growth by our math kind of slowed this quarter on a comp-adjusted basis, and you are kind of facing the easiest comp of the year. Can you help us think through the underlying drivers 4Q to 1Q on organic growth? And what gives you confidence that growth can accelerate in the back half?

Scott, I might take that. It's Liam here, if you don't mind. So if you look back on a year-over-year basis, so our growth last year was 1.1%. Although, there were some billing days, if you normalize for billing days, it was about 3.3%. If you exclude any previously included M&As, the growth in this quarter was 4.2%. So we've actually shown that quarter -- Q1 last year over Q1 this year, actually nice progression. In relation to our guidance, our guidance is 4% to 5%. And it did include previously included M&As. And if you take that metric in the 4% to 5% range, we're actually at 4.9% of the top end of that range. So Scott, we're quite encouraged by the first quarter performance on the revenue line. What lets us to believe that it will continue into -- towards the latter half of the year, as we said in our prepared remarks, we had a dealer-to-direct in China. So therefore, that impacted our Q1 revenues in the region of about $2.5 million. So as we get -- and that will continue through Q2, but then once we get into Q3 and Q4, that distributor will have burnt off their inventory and we will be dealing directly with those customers and shipping products. That's why we expect to see somewhat of a pickup in the H2 from core volume.

So that distributor-to-direct conversion is accountable for about 50 to 60 basis points of revenue in the first quarter. If you add that to the 180 of volume, that puts you, call it, 230. Which compares favorably to last year's average, which was just over 200. So we actually -- the first quarter once you adjust for that is a slight tick up, but to your point, the comp wasn't that difficult, so.

Got it. And then one more for me. Surgical performance improved quite substantially, and I was wondering if you can share Percuvance feedback from SAGES, and what your updated expectations are for the impacts from that on growth over the next kind of 2 years.

So SAGES was a very positive meeting for us, as it always is. The update on Percuvance is that within the quarter, we went through 11 new VACs in the quarter. 3 were rejected, 8 have resulted in purchases. So we continue to see the adoption. It continues to be surgeon by surgeon, Scott. And -- but we're still encouraged by the performance of the product, and we haven't changed our estimations in line with that. As we said, next year, it will be -- percutaneous solutions will be 1% of our revenue and then as you get into 2019, it will contribute 1% of our growth, and we're consistent with that.

And our next question comes from Anthony Petrone from Jefferies.

Maybe just to go back, again, to the reconciliation on top line guidance, again. Just -- as we move through the second through fourth quarters here, just given the beat in the first quarter, earlier than expected to close on Vascular, new product seems to be doing well. There will be something more coming later this year and you had some small tuck-ins. I'm just kind of curious, the why not a raise on the top line guidance as well. And then I’ll have 2 follow-up questions.

Okay, Anthony. I'll take the revenue one. So we had Vascular Solutions closed when we gave guidance. So we had the timing of Vascular Solutions already built in to our guidance range of 8.5% to 9%. If you look at our guidance, we had volume, 1.8% to 2.4%, quarter 1 was 1.8%, new products, 1.4% to 1.6%. We were at 1.8%, so we were above the higher end of the guidance range. Pricing to 50 to 60 bps, we were at 60 bps. And previously included M&A, 30 to 40, and we're at 70 bps. So we're very encouraged by the first quarter, but don't forget that the previously included M&As, as I said to Matt in my previous comments, that was closed in September. So you would expect it would pick up in the first 2 quarters and then a little bit in quarter 3, but it won't be available in quarter 4. We are very encouraged by our performance in Q1. And as Tom said earlier, we just are being a little bit prudent. We want to see another couple of quarters and run our business and be a little bit prudent with regard to any raise we might want to make in the future.

That make sense. Maybe the follow-up would be on Vascular Solutions. Just -- in the synergy target, just -- how does the distributor direct conversions play into that, if at all? And what is sort of baked to the bottom line this year for distributor to direct to direct conversions for Vascular Solutions, specifically? And then I'll have one question about M&A.

So when we give the guidance of the $40 million to $45 million of synergies with Vascular Solutions, what we said was, in the first year, this year, what you would see is that mostly coming from OpEx synergies. Then, next year, 2018, you would see the dealer-to-direct conversions, I think, would be appropriate. And then following year, it would mostly come from operational efficiencies. So we have no go-direct built into our plan for 2017 and none executed today.

Excellent. And then last one for me would be just the largest deal announced a couple of weeks ago, Becton for Bard. Bard is a big competitor. Maybe just some thoughts around that transaction. On the positive end, is there a potential for gains? Should we see some dissynergies? On the headwind end, is there a risk to the combination of these 2 businesses should that deal close?

So this is Benson, Anthony. So actually, I think the overlap between us and Bard is significantly exaggerated. Our principal competitive product lines would then happen to be in the PICC area. We compete with them in some in the hemodialysis catheter area, but we continue to see really good growth in our PICC line. In the U.S., it's largely driven by the antimicrobial and antithrombogenic coating and by the positioning systems we have. We don't expect that to change at all as a result of BD owning Bard. I think that there's some reason to believe that there could be some disruption in the marketplace overall. But again, our overlapping product lines with Bard are actually minimal. So we don't see it affecting us negatively at all. We do think that Bard was one of the companies that occasionally showed up competing for product lines that we were interested in on the acquisition front. We think those are way too small amount for BD to give much consideration to. So kind of, eliminates, we think, a competitor in acquisition space that we operate in.

And I'll just add to that. Just in the quarter we just closed, we saw our PICC sales growing at about the 25% range. So we're continuing to be really encouraged by the progress that we make in that one area that we compete with Bard in actually taking share. And that goes back to the earlier comment that I made that hospitals are now really focused on infection and thrombus prevention, and we are the only company with a coated catheter that happens to prevent both.

And our next question comes from Mike Matson from Needham & Company.

Tom, I was just wondering if you could maybe -- if you had some idea how much the extra selling days contributed operating leverage in the quarter?

So in terms of the selling days, we estimate it was right around 6 points of revenue growth. And then in terms of GP, it's a little more difficult to fully estimate down to the bottom line, but in terms of GP, around $15 million in the quarter. And then you could assume that we'd get somewhere around $8 million to $9 million on the bottom line.

Okay. And then the 13% growth at Vascular Solutions, was there -- did they benefit from the extra selling days? Or just given it was only a partial quarter, I guess, they wouldn't have.

Yes, this is Liam here. No, they're -- the type of business they're in, they don't actually have any benefit to the billing days. So that is just a direct comparison year-over-year.

Okay. All right, and then finally, the 60 basis points of pricing, I think, you mentioned that some of that had come from the direct -- the transition to direct distribution in China. So can you tell us how much of that was from that move? And going forward, what is that impact look like? Is it going to be similar?

So the most of it came from our core business. So the majority of that pricing came from Vascular, Surgical and cardiac in North America. The contributions from Asia were through the distributor model, not coming really from the distributor-to-direct, incredibly modest. So I wouldn't point too much to that coming through yet, Mike. You're going to see that in Q3 and Q4. So that's when we'll be talking about the contribution on pricing in Q3 and Q4 from that distributor-to-direct.

And our next question comes from Dave Turkaly from JMP Securities.

Great. I was wondering as we sort of realize that this quarter was -- had a big impact from the days, we look at your segments. Is there anything new that you're seeing in terms of the growth profile? I was wondering if there might be any chance, realizing that Other is going to have Vascular Solutions. But other categories, is there a way to quantify or put a handle around sort of what you expect the growth to look like? Or at least maybe rank them in order in terms of how you think you're going to get to that top line growth profile for 2017.

So you're talking specifically, David, about the Other category?

Ex the Other. I mean, Other is going have Vascular in it. But like -- I mean, Vascular Solutions. So if we look at Vascular North America, Anesthesia North America, Surgical, Europe, obviously, EMEA with the big quarter. I was wondering if there's a way you could sort of put a, I don't know, range around so what you're anticipating any of those to do. Or maybe even just rank them, sort of, in order of what you think will grow the fastest.

So normally, David, what we expect is we expect our Vascular portfolio to grow pretty aggressive -- to grow in that high single digits. We expect cardiac division to grow in that high single digits. And then we would expect Surgical and Anesthesia to grow in the mid-single, perhaps, into the -- going into the higher single. And then for EMEA, we would expect those in the low single digits growth rate on an annualized basis. And Asia, once we realize the go-direct, we'd again expect that to be in the high singles.

I would add to that, David, I think our overview of the quarter is on a broad basin and a broad geography. Things were more robust than what we had thought. It's a continuing positive trend. Some of it comes from, I think, certainly no slowdown in utilization and some of it comes from just share gains. So I think we left the end of first quarter quite favorable about the underlying trends. Again, that -- almost throughout our business portfolio and throughout our geographies.

That's helpful. And as we look at the model, Vascular Solutions being in Other, you mentioned a bunch of new products on the call. I think 3 from them. Is it your intent to kind of include those -- show them as we move forward in that Other category with Vascular sales and not as part of sort of your new product growth, the 1.8% you reported this quarter?

Yes so, Dave, I think the intention is to report Vascular Solutions contribution this year and then any and all revenue associated with Vascular Solutions contribution this year in the All Other category. And then as we move forward, the different growth drivers beginning next year, if Vascular Solutions starts to have new products that come to market, we will then add any revenue growth into those buckets of new products or price or what have you.

And just to clarify, in the 1.8% that -- from contribution from new products, there's no Vascular Solutions in that. That's all core Teleflex growth accelerating off the back of last year.

And your next question comes from Richard Newitter from Leerink.

Benson, just a comment that you made earlier, answering someone’s question on the evolving kind of consolidation landscape. With Becton -- was an interesting, kind of, way to view Becton taking a prospective competitor or someone who could compete against buying assets against you. I guess, what's your approach to M&A for the next year, 1.5 years? You're digesting Vascular. You don't do large deals, really, through intervals greater than -- fewer than kind of 1 to 2 years. Just maybe give us a sense as what we could expect on capital deployment towards M&A.

So I think our viewpoint is that we're going to delever from this acquisition relatively quickly. Given that perspective, we have certainly not slowed down our appraisal and evaluation of opportunities that are out there. And I think it's going to be more driven by particular opportunities more so than anything else.

Okay, got it. And then just on China and emerging markets, given the scenario that you're kind of investing in a little bit more. Can you give us a sense, first of all, what the percentage of sales is today? Where do you kind of see this percentage going longer term, in the next 2, 3 years? And should we think that this is going to be a double-digit grower like it had been for Bard? And Bard's been having a lot of success with their PICC adoption in that category. I was wondering, kind of, if you think you'll be able to compete as effectively with them now, combined with Bard -- Becton invests an even stronger presence in China?

So China for us is about a -- last year was about an $81 million business, and it grew at about 7% in the entire year. Obviously, part of our growth rate was -- part of our go-direct strategy was to accelerate our growth rate. What we've seen is the business where we didn't have a master distributor, the business we control with ourselves, mainly surgical, LMA and Anesthesia, our growth rates at sales out were much higher. If you add back the impact of China into the Chinese growth rate, we grew there in the 3.5%, 4% range in this quarter, and we do see that accelerating into the latter half of the year. So we do expect China to be in that high-single, low double-digit range for us on an ongoing basis.

And our next question comes from Matthew Mishan from KeyBanc.

Could you guys give us an update on how you're looking at the long-term financing for Vascular Solutions? And kind of what's implied still in the guidance?

Sure. As we communicated at the last earnings call, our approach in thinking about that was to put into our financial assumptions, the assumption that we would look for more permanent long-term financing towards the midpoint of this year. Now with that being said, there are some developments ongoing in Washington with regard to tax reform, the potential for repatriation, and we're watching that closely. And should an ability to repatriate come up and that change our plans for the proposed high yield or other financing, we'd certainly let you know at that point in time. But right now, we have not made a definitive decision to postpone that in. As you know, we put that into our guidance as a midyear financing.

Do you need to see definitive progress on tax reform over the next 3 months for you to postpone doing that financing? Or is it -- like, what would you need to see to postpone it?

Well, what we're really waiting for or trying to identify is will an opportunity to emerge to allow us to bring back cash. We've got quite a bit of cash sitting overseas. And if events were promising or looked very promising, then we would continue to postpone that financing until something became definitive one way or the other. Right now, there just isn't enough information to make that definitive one way or another decision. But we'll continue to monitor. And if it is looking promising, we wouldn't put in that high yield or other long-term financing until a definitive outcome was determined.

Okay, got it. And then moving on. I know this is like a longer-term product for Vascular Solutions, but can you give us an update on where RePlas is at? Did it progress into clinical trials as expected?

Yes, it's Liam here. So we have just initiated the first clinical trial, and that is to determine the efficacy. We have a high degree of optimism that, that will be positive. Simply, because this procedure is available not in the way that we do it, but it is available in other parts of the world in a glass containment bottle. So we've a high level -- high degree of confidence that this would be successful. But it has begun.

(Operator Instructions) And I'm not showing any further questions at this moment. I would like to turn the call back to Jake Elguicze for any further remarks.

Thanks, operator. And thanks, everyone, for joining us on the call this morning. This concludes the Teleflex Incorporated First Quarter 2017 Earnings Conference Call.

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