泰利福醫療 (TFX) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Teleflex Incorporated earnings conference call. My name is Chris and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to our host for today, Mr. Jake Elguicze, VP of Investor Relations. Please proceed.

Thank you, and good morning, everyone. The press release and slides to accompany this call are available on our website at www.Teleflex.com. And as a reminder, this call will be available on our website and a replay will be available by dialing 888-286-8010 or, for international calls, 617-801-6888, passcode 40498357.

Participating on today's call are Jeff Black, Teleflex Chairman and Chief Executive Officer, and Randy Meier, Teleflex Executive Vice President and Chief Financial Officer. Jeff and Randy will make brief prepared remarks, and then we will open up the call to questions.

Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined on slide two. 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 our filing with the SEC, including our Form 10-K, which can be accessed on our website.

Also note that when we discuss core revenue growth, this represents revenues that are currency neutral and excludes revenues attributable to acquisitions and divestitures in the comparable period. And finally, when we discussed adjusted cash earnings per share, that is defined as adjusted earnings per share plus intangible amortization expense.

That said, I'd like to now turn the call over to Jeff.

Thanks, Jake. Good morning, everyone. We're pleased to have you join us this morning as we report our results for the first quarter of 2010.

Building on our strong operational performance from 2009, we are reporting another solid quarter as we start 2010. Although total Company core revenue was down 3% versus the prior-year period, our medical business continued to deliver sales growth for many of its product families, and excluding the impact of the IV tubing product recall that we announced in February of this year, our medical business achieved core revenue growth of 2%. This is consistent with our core revenue growth that we achieved in the fourth quarter of 2009 and in line with the expectations that we had for the first quarter of 2010 at the time we provided our guidance in January.

And continuing the margin expansion that we have driven for the past few years, our first-quarter 2010 results showed further expansion of both our consolidated adjusted gross and operating margins. This was once again led by our medical segment.

Adjusted gross margins were up 240 basis points over 2009, and adjusted segment operating margins were 16.2%, an increase of 160 basis points from the prior year. Gross margin expansion was led by the lower raw material and manufacturing costs in both medical and commercial segments and the continued higher mix of revenues coming from our medical segment.

These items more than offset the temporary decline in our aerospace segment gross margins, which I will discuss in more detail in a few minutes.

Operating margins in our medical business remain very strong and were 21.4%. This represents a 50 basis-point improvement over the first quarter of 2009 and a 20 basis-point improvement sequentially. Operating margins in our aerospace segment were down 220 basis points, while operating margins in our commercial segment were up 220 basis points.

Turning to earnings per share, adjusted EPS was $0.90 in the quarter, up 27% over the prior year, while our adjusted cash EPS was $1.17 in the quarter, up 19% over the prior year. We continue to be extremely pleased with our ability to generate such strong and consistent EPS growth.

Finally, we had another good cash flow quarter, generating GAAP cash flow from continuing operations of approximately $32 million. Excluding the impact of one-time items that affect comps, we generated $22.5 million of cash flow from continuing operations, a significant improvement from the use of cash of $7.6 million in the first quarter of 2009.

Now, let me walk you through some of the segment results. Medical segment revenues in the first quarter increased 3% to approximately $344 million, compared to approximately $335 million in the prior year. The increase in revenue was attributed to 3% favorable impact of foreign currency translation.

Medical core revenue growth was flat for the quarter; however, as I mentioned earlier, many product lines experienced very positive growth.

Critical Care sales grew 1% on a core basis. This was led by a higher-margin central venous catheter, renal access, and PICC product growth. PICC in particular, at approximately 9% on a core basis and growth through our PICC products, were the strongest in the North American region.

Turning to anesthesia, core revenue growth in the quarter was driven by our regional anesthesia product offerings, which grew approximately 10%. In addition, toward the end of the quarter we launched the first convertible endotracheal tube for subglottic secretion suctioning, the ISIS. This innovative new product has been recently added to several of our major GPO agreements, and we expect it to contribute to the future growth of our anesthesia product portfolio.

In respiratory, core revenues were up approximately 8% with particular strength in North America and Asia and Latin American markets. Despite a weak flu season in the first quarter of 2010, respiratory sales were aided by the fact that we did not see the distributor destocking that occurred in the first quarter of 2009.

In urology, core revenues were up approximately 4% with growth coming from all regions in both our intermittent and Foley product offerings.

Unfortunately, much of the positive news in critical care that I just mentioned was offset by the voluntary product recall of our IV tubing product that we initiated during the quarter. We are working diligently to get this product line back on the market as soon as possible.

Moving to surgical, sales were down 4% on a constant-currency basis, led by reduced general instrument and closure device sales. This decline is surgical sales is consistent with our initial outlook for 2010, and we continue to believe that our surgical product sales will rebound in the second half of 2010.

In cardiac care, sales were up 11% on a constant-currency basis versus 2009. First-quarter 2010 results compare favorably to the prior year, primarily because the first-quarter 2009 results were adversely affected by sales credits issued to customers in connection with the voluntary recall of a certain intra-aortic balloon-pump catheters.

Lastly, from a topline perspective, OEM sales were up 2% on a constant-currency basis compared to the first quarter of 2009. This increase in sales was due to continued strength in our specialty products, somewhat offset by reduced orthopedic product sales.

Turning to operating profit, adjusted operating profit was $73.5 million for the quarter, compared to $70 million in the prior-year quarter. The operating profit improvement was due to improved sales mix, lower manufacturing and raw material costs, lower spending on FDA remediation, and the favorable impact of a weaker U.S. dollar as compared to the prior-year period.

This was somewhat offset by increased spending in both research and development and sales and marketing activities as we continue to position ourselves for sustainable, profitable growth.

Adjusted segment operating margins for the first quarter of 2010 were 21.4%, up 50 basis points compared to the prior year.

Now I'd like to spend a little time discussing some of the new products that we're introducing during the quarter and some of the upcoming launches for the remainder of 2010.

During the first quarter of 2010, we introduced several new products that are very innovative and new to the market. I previously mentioned the ISIS endotracheal tube. This product features an integrated suction port and separate suction line. Now clinicians do not have to choose which tube is for the patient at the time of intubation.

When needed, the suction tube attaches via a secure-locking connection. Both connection ports can be sealed upon disconnection, reducing the risk of cross-contamination when not in use. This design allows for the use of one endotracheal tube to meet the needs of patients requiring both short- and long-term ventilation.

In surgical, we recently launched our new Deklene max suture. This is a specialty cardiovascular suture product targeted for the North American market. Initial feedback that we've received from surgeons regarding this product's ease have been very favorable.

And in respiratory, we launched a new high-efficiency particulate filter that is combined with a heat and moisture exchanger. This product is initially focused to the European market, and it's just another example of Teleflex targeting the elimination of ventilator-associated pneumonia and providing a suite of ventilation management solutions that promote both patient safety and maximizing the clinician efficiency.

Moving to some of the products that we expect to launch during the remainder of 2010, in vascular access we continue to expect our antimicrobial-coated PICC will launch later this year. We have submitted this product to the FDA for the 510(k) approval and are currently awaiting feedback. This product will initially be targeted to the North American market, and we expect it to continue to allow us to capture additional PICC market share.

In anesthesia, we plan to launch two new endotracheal tubes, the CrystalClear Plus and the TrachFlex Plus, both of which will be targeted initially to the European market.

And finally, I've been saying for some time now that our new product pipeline needs to be a combination of both internal R&D efforts, as well as licensing and distribution agreements. Late last year, we signed a distribution agreement with Access Scientific. They are the makers of the PICC WAND, a device which enables clinicians to insert a peelable sheath for PICC or midline catheter placement using the new Accelerated Seldinger Technique. During the first quarter, they received FDA clearance, and we expect to begin selling the product in the North American market by the late second quarter.

And before I close out our discussion with the medical segment, I'd like to provide you a brief update on where we stand with the FDA and the Arrow corporate warning letter. At the end of 2009, the FDA began the reinspections of the former Arrow facilities covered under the warning letter. During the first quarter, the FDA completed those inspections.

As a result of those reinspections, the FDA has issued certain written observations. We've responded in writing to those observations and we continue to communicate with the FDA regarding resolution of all outstanding issues. We continue to believe that we have substantially remediated the issues raised in the corporate warning letter through the corrective actions taken to date, and that we have responded thoroughly and comprehensively to each of the observations resulting from the reinspections. Nonetheless, the FDA process is continuing.

With that, let me move onto our aerospace segment. Aerospace revenues for the first quarter were disappointing and came in at $36.9 million, down 16% compared to the first quarter of 2009. This was due to a decline in core revenues of 20%, offset by a favorable currency impact of 4%.

Higher sales of wide-body cargo-handling systems to OEMs and increases in actuation product sales were more than offset by lower cargo system sales for aftermarket conversions, lower sales of narrow-body cargo-handling systems, lower demand for cargo containers, and reduced sales of cargo systems spares and repair components. The year-on-year reduction of the higher-margin spare and repair revenues was largely due to the timing of a contract renewal with one of our larger customers, which was not completed until late in the first quarter.

And although the core revenues for the quarter did not meet our initial expectations, we believe that results for the remainder of the year will rebound from these first-quarter lows. Both wide-body and spare and repair aftermarket sales are expected to improve for the remainder of the year as compared to prior-year levels.

However, we are currently not anticipating a recovery in our cargo container business as airlines continue to delay capital spending in this area.

Turning to operating profit, aerospace operating profit decreased to $1.7 million, or 4.7% of revenues, from $3.0 million, or 6.9%, in the first quarter of 2009, principally due to the reduced sales of higher-margin spares. This was somewhat offset by the increased sales of higher-margin actuation product and the full-year impact of cost-reduction efforts that were put in place during the course of 2009.

Similar to our expectations for future revenue, we currently expect operating margins to improve substantially over the remainder of 2010 and we continue to expect operating margins for the full year to be in the low double-digit range.

Moving onto commercial, revenues for the segment in the quarter were at $56.1 million, compared to $61.6 million in the prior year. Core revenues declined 6%, and the divestiture of an unprofitable marine product line negatively impacted revenues by 4%. Foreign currency impacted this segment positively by 1% during the quarter.

The decline in core revenue for this segment resulted from a decrease in demand for rigging service products, as the oil and gas and construction and material handling markets continue to be weak. The decline we saw in rigging was somewhat offset by increased sales of marine products to OEM manufacturers and improved marine aftermarket component sales.

Commercial segment operating profit for the quarter were $3.1 million, as compared to $2 million in the prior-year quarter. Operating margins were 5.5% in the quarter, compared to 3.3% in the first quarter of 2009. The improvement was due to the improved marine volumes and the full-year benefit we received in the quarter of cost-reduction initiatives that were put in place during the course of 2009. This was somewhat offset by the significant decline in rigging services volume.

With that, I'd like to turn the call over to Randy for a little more detail on our financials.

Thanks, Jeff. Revenues for the first quarter were $436.5 million, down 1% over the first quarter of last year, principally due to the core revenue declines in our aerospace and commercial segments. This was somewhat offset by the positive impact of foreign currency.

Adjusted gross profit and margins for the quarter were $197.6 million, or 45.3%. This compares to $188.9 million, or 42.9%, in the prior-year quarter, an improvement of approximately $9 million, or 240 basis points.

Gross profit as a percentage of revenues increased in both medical and commercial segment, due mainly to lower raw material and manufacturing costs. Gross profit as a percentage of revenues decreased in the aerospace segment due to lower sales volume of cargo containers and the shift in sales mix away from higher-margin spare and repair aftermarket sales that Jeff mentioned earlier.

Adjusted operating expenses for the quarter were $126.9 million, or 29.1% of sales, compared to $124.5 million, or 28.3%, in the prior-year quarter. The increase in operating expenses was principally due to our continued investment in our medical R&D and sales and marketing functions. This was somewhat offset by reduced corporate spending, synergies achieved from the Arrow integration, and lower spending on the FDA remediation efforts.

Adjusted operating income was $70.6 million, up approximately 10% from $64.4 million in 2009. Adjusted operating margins of 16.2% reflect an increase of 160 basis points compared to last year.

Pretax special charges in the first quarter of 2010 were down significantly and totaled $0.5 million, as compared to $5.7 million in the prior year. This costs related to expenses associated with the Arrow integration program.

Operating income on a GAAP basis was $70.2 million, up approximately 20% from the prior-year quarter, primarily due to items I referred to above as well as the large year-over-year reduction in special charges that were incurred.

Net interest expense in the first quarter of 2010 was $18.8 million, compared to $25.2 million in the prior quarter. The decline of net interest expense is due to the reduction of approximately $280 million in average outstanding debt.

Taxes on income from continuing operations increased to $15.4 million, as compared to $8.9 million in the prior-year quarter. The effective income tax rate in the first quarter of 2010 was 30% and in line with our expectations, as compared to 26.6% in the first quarter of 2009. The increase in the effective tax rate is due to a larger inclusion of foreign income in the United States and an increase in discrete tax charges in 2010 as compared to 2009. These increases were in part offset by a larger benefit from reduced foreign taxes.

And finally, GAAP income and earnings per share from continuing operations attributable to common shareholders was $35.6 million, or $0.89 per diluted share, as compared to $24.4 million, or $0.61, in the prior-year period.

Slide 13 provides a reconciliation of our continuing operations, GAAP income, and diluted earnings per share attributable to the common shareholder to adjusted comp -- adjusted income and diluted earnings per share. Excluding special items, income from continuing operations was $36 million, or $0.90 per diluted share, compared with $28.1 million, or $0.71 per diluted share in 2009, a per-share increase of 27%.

Now let's review our cash flow performance for the quarter. Building on a final three quarters of 2009, cash flow was once again solid in the first quarter of 2010. For the first quarter of 2010, GAAP operating cash flow from continuing operations was $32.2 million, as compared to a use of cash of $7.6 million in the prior-year period. On an adjusted basis, first-quarter 2010 cash flow was approximately $22.5 million.

The adjustment made to GAAP cash flow amount relate to the $49.4 million tax refund that the Company received in the first quarter of 2010, offset by the $39.7 million impact resulting from the adoption of ASC 860 relating to asset securitization.

That said, I would like to turn to our 2010 guidance. We are currently projecting full-year 2010 revenues of approximately $1.9 billion. This compares to our prior guidance that we would slightly exceed nine point two billion -- or, excuse me, $1.92 billion. The primary reasons for this decline are due to the strengthening of the dollar in relation to the Euro; the sale of our SSI surgical services business, which we divested in February; the negative impact of the IV tubing recall in our medical business; and a reduced estimates on the low-margin cargo container sales in our aerospace segment.

Moving to gross margins, we previously did not provide guidance for gross margins. Our current guidance assumes gross margins in the 45% range for 2010. From an operating margin standpoint, we continue to believe that our consolidated company operating margins will be between 16% and 17%, and that our effective tax rate will be approximately 30% for 2010.

Despite the negative impact of a stronger U.S. dollar from when we initially provided our outlook in January, we are reiterating our adjusted earnings per share guidance from continuing operations of $4.10 to $4.25, and our adjusted cash earnings per share from continuing operations range of $5.22 to $5.37 per share.

And finally, we are reiterating our adjusted cash flow from continuing operations guidance of $275 million to $280 million.

Moving quickly to our segment guidance, in our medical segment we are currently predicting revenues of approximately $1.47 billion in 2010. This compares to our initial expectation that we would exceed $1.5 billion. Once again, the change here is due to the strengthening dollar in relation to the Euro, the sale of SSI, and the IV tubing recall.

From an operating-margin standpoint, we continue to expect that medical margins will be approximately 22%.

In aerospace, we continue to expect our operating margins to be in the low double-digit range, but we are slightly lowering our topline expectations for this segment due to the reduced estimates of our low-margin cargo container sales I mentioned earlier.

Finally, moving to commercial, our current estimates remain unchanged from our initial guidance. We continue to expect revenue in the $230 million to $240 million range and operating margins in the upper single-digit range.

With that, I would like to turn the call back over to the operator for questions. Operator?

(Operator Instructions) Lawrence Keusch, Morgan Keegan & Co., Inc..

Jeff, the comments around the FDA, it sounds like you guys are making good progress there and have responded to the observations that they had. I think back at the time when you guys provided the fourth-quarter guidance and were kind of looking out through 2010, you'd sort of indicated that you thought this would be resolved by midyear. I just wanted to take your temperature on kind of where you think things are at this point?

Yes, I think we've done everything, and now it's really in the FDA's hands. And as much as I'd like to be a predictor, I think my history on predicting our FDA remediation has not been good. But I would say I think we feel very comfortable that we've provided them information and we're continuing to have a dialogue. How long it takes for them to come back -- I think we would still hope that by midyear, maybe late second quarter, that we would have some resolution of some type.

And then, as it relates to the macro environment within medical, could you perhaps expand a little bit on sort of what you're seeing with procedure growth and how's the pricing environment? I think you guys had originally talked about pricing being plus to minus 1%. Any sort of big-picture thoughts on how things are going would be great.

I can tell you more on the pricing, Larry, as I think we still feel very comfortable with our plus or minus 1%, but I can tell you the conversations on pricing have definitely heightened, especially with the healthcare reform bill passing.

So I think we still feel very comfortable it's plus or minus 1%. The procedures, again, we've seen a stable level of procedures, but we haven't seen that move one way or the other, so.

Okay, so procedures sort of -- and in your suture business, does that provide you any sort of leading indicator at all?

No, because it's really specialty cardiovascular, so there are clearly other alternatives, and if you get to that point, that is kind of the last step, I would say. I'm not sure that is a great indicator.

Okay, and then just two quick ones for Randy, if I could. Randy, on the aerospace margin, if I heard you correctly, I think you were suggesting low double digits for the year, which would, I guess, imply somewhere around mid-double digits for the remainder of the year. I just wanted to make sure I'm understanding that correctly and kind of what gets us there.

And then, the second question I'll just ask is I think you had sort of targeted your net debt to somewhere around $940 million for the year. You're almost there. So, again, thinking about what you do with cash, whether acquisitions are still top of the list, or more deleveraging, how should we think about that?

Let me touch on the aerospace. I think Jeff alluded to we had some deferred business out of the first quarter, so I think when we were looking at some of our margins moving ahead, we would expect the balance of the year to be slightly ahead of where the first quarter was. So I think your estimate of that low double-digit range is still good, and I think as that business recovers, we still feel pretty bullish about where that business is going this year and next. So I've think your question or the way you -- is probably right on the money.

In terms of our cash generation, again we continue to generate a tremendous amount of cash here. We do have -- within our targets, we would get down to our net debt levels this year. So, we'll free up some cash flow for, I think, some very targeted investments, both in technologies and in-licensing efforts that Jeff had alluded to. Certainly we'll consider some manageable acquisitions, but I also think there is some internal investments in terms of capital expenditures that we'll look at for the balance of the year as well.

So I don't think anything -- see anything dramatic on the horizon. I think we are going to keep working on managing our balance sheet, bringing in new technologies, and leveraging the existing infrastructure.

Great. Thanks very much, guys.

Dave Turkaly, Susquehanna Financial Group/SIG.

Thanks, and thanks for all the detail. In terms of -- I might have missed this, but did you talk about R&D at all for medical or consolidated basis for the rest of 2010?

We did not, but I think at this point -- I think we're still at a point where we're investing in it, and so I think this year, we're talking about Q1 I think was up about $10 million.

Q1 R&D for the total company was somewhere right around $10 million, and that was up probably around $2 million to $3 million from Q1 2009.

One of the things we decided to do in the first quarter, and I was probably remiss not including it in my remarks, is we have decided to break out R&D in terms of our income statement so that we can start giving folks a little more visibility to that on a going-forward basis.

So as you'll see, we were up from -- to a little less than $10 million this year from $7.5 million next year. I think this is consistent with kind of the guidance that the Company has been talking about over the last couple of years in terms of incrementally increasing its focus on R&D to generate new products and improve overall topline growth out in the future years. So, hopefully this will provide a little bit more insight into where we're going.

Great. And then, I know you mentioned on the gross margin side about the lower cost and the higher medical mix. Do we still have opportunities with plant consolidations or anything else? The 45%, I think, might be a record for you guys in terms of what you reported, and to guide to that, to stay sustained during the year despite having some potential revenue weakness or FX impact seems aggressive or impressive, however you want to phrase it, but I guess you're comfortable with that, ex any consolidations?

Yes. I think you can actually see in our outlook that we're saying 45% gross margins is what we would expect for the year, and Dave, I don't think that takes into account any additional consolidations. I think we've been pretty clear that until we get through the FDA, we are not looking to do further consolidations, but clearly there are improvement processes that we can put in place both from a cost and from an indirect that should be able to help our gross margins going forward. So, I think you are right. I think that is the highest gross margins we've had, at least in my career, but we still see the opportunity for expansion there.

Thanks a lot.

[Patrick Koongen], Lazard.

First question I had is, I know you don't give quarterly guidance and your numbers came in on the revenue line a little bit below what the street consensus numbers expected. I just wanted to get a sense, given the recall, whether or not you guys feel like you are about where you thought you would be on the topline at this point in the year?

I've think we're pretty comfortable, if you look at that we had to sort of back out some impact of the recall in terms of some of the revenue loss in the first quarter, plus a small impact from 2009. So I think, as Jeff outlined in his segment, most of the segments are doing pretty well. We've launched a few products in the first quarter. We've got a reasonable lineup in the second quarter.

Our overall growth rate for the year was in that 3% range for medical. So, net of the recall, we were up about 2%. So I think we are comfortable with where we are at this point, although I think, as you know, longer term we are looking to improve the topline growth to mid-single digit sustainability, as we've talked about from time to time.

And then, maybe thinking about the critical care business a little more specifically, you guys talked about a number of things that went well in the quarter, positive growth. You mentioned anesthesia and PICCs around the 10% growth rate. Could you maybe help us identify what you think are the best opportunities for incremental growth out of that segment over the balance of the year?

I think clearly on vascular with some of the new products, whether it be the PICC WAND, whether it be the antimicrobial PICC, or some of the other products that we're picking out, we believe we're gaining momentum especially in the PICC, and actually our CBC continues to do fairly well.

So, I think in vascular, if you look at where we're spending R&D dollars, we have a fair amount allocated towards vascular. But the anesthesia, I think, is now starting to pay off of putting a dedicated sales force in there who, in the past, used to be -- you'd have your critical care guys also calling on anesthesia. So I think having a more focused sales approach, and then continuing to provide them some innovative products like the ISIS, I think will continue to give us opportunity to grow that segment.

Now, granted, it's coming off of a low base, but we still see that as the anesthesia and the vascular as very good markets and where we're spending a fair amount of our R&D resources.

And then, last question for me is I know you're guiding to 45% gross margins for the balance of the year. Your revenue guidance suggests a considerable step up in a quarterly run rate from this level. So I just wanted to try to understand more broadly whether the step up in revenue and the flat or no incremental upside to the gross margin guidance, if that is driven by the less favorable mix with more aerospace and commercial in there in the back half of the year, or if there is anything else going on?

I think we've got a couple of things going on in terms of the revenue mix for the rest of the year. One, I think we have all three of the businesses that expect to do slightly better.

I think that the seasonality of our marine business certainly picks up in the second and third quarter. Obviously, as we indicated, we have -- we are still fairly bullish on our aerospace business. That should continue to pick up momentum as the year progresses.

And then, as I'm sure you know, there is a certain amount of seasonality to the medical business. We have pretty good second and third, but usually the fourth quarter ends up coming through.

So, well, you know, I think we would prefer to have a little bit more evened-out revenue, just to help out and not have such a back-end loaded kind of situation, I think, but the seasonality of all of our businesses do lend itself to a little bit more of a back-end loaded year than a front-end year. So I think we're still very comfortable with where our revenue projections are right now.

And really, other than currency, I think really the only two adjustments we made is just one for our cargo business and the other one was really the adjustment relative to our recall. So we're still comfortable overall with the growth of all three of the businesses.

Great. Thanks for taking the questions.

(Operator Instructions) Jim Lucas, Janney Montgomery Scott.

Thanks for taking a question from the old industrial guy on the call. A couple of questions here. Could you give a little bit more color in terms of your approach to business development now, particularly how you're thinking about M&A and where the pipeline stands currently?

Well, clearly, I think we have multiple approaches. I think we've talked about licensing and technology, so I think that's a big part of our -- and now, it -- again, we've got both our BD guys working there as well as our R&D guys.

I think it's -- again, we're focused on infection prevention, and I think the more we're out there doing these clinical educations, I think the more we're finding opportunities with doctors who are saying I have an idea. So I think that's going to continue to be a path for us to augment our own internal R&D.

And I think our concern on the BD side, where we're externally looking, is there's clearly some deals out there. I've think I've been pretty clear that we would like to get through the FDA warning letter and have some clarity to that before we would do anything of any real size.

So, I've talked about licensing, products, where we're doing some extensions. We do have a -- I mean, I think we know where we want to grow in our M&A activity, and clearly I've think we've demonstrated even in our medical portfolio that if we don't find that we have a sustainable or a growth market position, that we're willing to make a divestiture as we did with SSI in the first quarter. So, as always, it is a multiple-pronged approach, and I think it's one that we're continuing to work the markets.

Thank you for that color. Randy, I just wanted to ask what your initial impressions are now that you've got a full quarter under the belt. Just wanted to get your take on joining the Company.

Jeff is sitting here, so (multiple speakers) I'm enthusiastic about being here and life couldn't be better.

No, it's been a terrific transition. I've spent a lot of time going back and forth to -- as we moved east, but the family's moved out here now. I've gotten settled in a bit. Been very impressed with how the Company's made the transition with -- in terms of having new leadership over on the financial side. I'm looking forward to working with Jeff to build the Company. So, I think I've enjoyed the first 90 or 100 days or so, and I'm looking forward to the future.

Okay. Final question, not to beat the proverbial horse here, but on aerospace, what exactly gives you confidence that those margins are going to come back as quickly as what you think they're going to? Is it a mix issue? Is it internal operational improvements? Just wondering where the confidence to get to that double-digit rate comes from.

It really is a mix of the two that you talked about. Clearly, the spares is something that we saw very few spares in the first quarter. You know those are high margin.

We do have a forecast going forward, so we would expect that the last three-quarters of the year should be very strong in spares sales, which should help move margin. And clearly, I think even though we have taken a fair amount of cost out of the aerospace business, if you look at our aerospace now it's a three-legged horse where you've got the cargo systems, you have the actuator, and then you have the container business.

I think we've been pretty clear the container business has had its struggles. The other two businesses are doing well, and we actually see some momentum, and I think clearly we think our mix will become much better between Boeing and Airbus. So I think we see the market stabilizing and, quite frankly, I think the spares really do help us get confidence in that our margins should be where we have forecasted them.

Okay, thanks for the color.

Paul Mammola, Sidoti & Company.

Jeff, do you have a sense of what inventory is like at the distribution level right now? Would you say that they're more normal, or at three to four weeks of supply, where I think there were at more of one to two weeks about a year ago?

I think at least we've seen stabilization, and I'm not sure if that's in the three to four -- I know it's not in the one to two, so it's probably somewhere between that and the four to six they have. So you're probably not too far off, but we haven't seen -- again, if you remember this time last year, there was just -- nobody was taking anything into distribution. That clearly impacted both our inventory and our quarter. So we've not seen a huge change there, and I guess we really don't anticipate either it ramping up or dropping off significantly going through the remainder of the year.

Okay, that's fair. And I think we're all trying to wrap our arms around gross margin going up from where we're all at, and EPS being where it is. Is there anything meaningful coming back at the SG&A line? In terms of costs?

Maybe I'm misunderstanding your question. You've got -- are you saying that as we -- gross profit margins come back from the higher levels, are we going to offset it with improved SG&A?

Well, you have more gross profit dollars flowing through now. I think -- I would assume we're all at 43% or so at the gross margin line, and then EPS is staying the same, so that means there's got to be some costs eating those extra gross profit dollars. Some of it could be R&D, but then I'm just trying to get a sense if there is actually some extra cost in the G&A line, again, taking up some of those gross profit dollars.

As we've indicated, we want to make some incremental investment in both our front end of our business in terms of sales and marketing, as well as the R&D efforts that we've talked about. So, I think some of that gross profit will be -- improvement will be offset by some incremental spending.

But again, as we continue to expand our business geographically and look at bringing on new products, I think that would be consistent with the direction we want to go and improve the ability to get to higher levels of revenue growth.

That's helpful.

I think the other thing you're seeing is, remember, we didn't really start to put a dedicated anesthesia sales force in place until the very back end of last year. So you will see an improvement and cost of adding to that sales force, and as you can see we feel pretty good. It's a good investment from what we've seen early on, and we would just hope to continue to see that expand.

Okay, that's helpful. That make sense, then. Jeff, you've seen the cycles in terms of marine, I'm sure, over a number of years. Are you comfortable at this point saying that business has probably bottomed? And, secondly, do you think the commercial cost structure is where it needs to be or is there more to do?

Wow, you're taking me back too many years of my life. I would tell you that we -- the industry has typically gone through the boom and bust, and clearly the last two years has been a real challenge for the industry, both in terms of rationalization at both the OEM level and the dealer level.

I would tell you that I would -- my take on it is I think the industry had to ramp up fairly quickly in the first and second quarter that you're going to see, and I think it's because there has been, again, interest rates staying low. I think you're seeing some demand, but I also would tell you that a lot of it was that the distribution channel and the number of boats were dramatically depleted over the last 18 months, and I think the marine guys have been fairly conservative in getting it ramped back up.

But, for us, it's really the first two quarters where you really will find out what the season is going to be, and then, clearly, our aftermarket business will kick in in the back half of the year. So I think I've been pretty clear as I think the number of boats expected is in the 120,000 to 130,000 boats, and just to put it into perspective, five years ago globally it was 420,000 boats. So, it's a new industry and I think they're trying to deal with the basis of just lower revenue.

And then, your second question is do I still think there's cost opportunities to be taken out of the commercial? I would tell you that I actually feel pretty good that we're at a good base, and I'm not sure we could consolidate a lot of facilities. We've taken a lot of SG&A. Again, we want to be positioned with the right technology to, when the markets come back, to ensure that we're going to create the value there. So I actually feel fairly comfortable on the commercial side.

(Operator Instructions) Anthony Petrone, Jefferies & Company.

Good morning. Thank you for taking my questions. I'm going to start -- I have three questions. I'm going to give them with critical care, just to go into margins in a little bit more detail. Can you give us an idea from the new products you announce here, the vascular assess products, what the pricing will be on those? How much margin is reflected in the guidance that you've released this morning?

And then, a follow-up there would be the ERP implementation expansion that you've been implementing for the past several quarters. Is that complete now and does that reflect that 21.4% operating margin in the quarter and the guidance?

We don't give a lot of specific pricing information about a product, although suffice it to say as some of these products -- the newer products come out, they are at the higher end of our operating margin range within their category. So, we do feel that they will provide, again, some incremental improvement to the overall performance, but also add a lot to the portfolios of the salesmen as they go in and talk to the various hospitals or segments of the business.

In terms of the ERP implementation, we've been going through a variety of implementations over the last number of years. We continue to expand the SAP platform and how that is utilized throughout the organization, and I would expect that to continue for a number of years to come as we continue to reap the benefits of the original implementation a few years back. So, that is an ongoing project and we continue to see the utility of it.

One from a market question standpoint here, in terms of GPO customers in the quarter, and it relates to Paul's question about inventories, are you seeing any changing patterns there? And have you seen any impact from the Medicare market basket update for hospitals? I believe the first reduction of 25 basis points was effective April 1 here. I don't know if you've seen any changes in the channels from that at this point.

As Jeff indicated, we're pleased with our performance in the first quarter. It is in line with our expectations.

We haven't seen a lot of dramatic changes from inventory levels or how buying groups are pulling from that inventory. So we haven't seen a lot of different changes, at least at where we operate yet, so we continue to be fairly positive about the remainder of the year.

And last on aerospace, I know Telair Cargo had a contract with Airbus 350, and there was some production commitments in that contract. Is that contract begun at this point or are you still waiting on that to begin?

It's not even begun yet, and again, if you would ask me to prognosticate when it will start, I would defer that not do that. But I think it's 2011 probably at best, and maybe 2012. So if you look at it, we're still spending engineering dollars on the preparation of our systems, but we have not seen any revenue associated, nor would we expect any this year and maybe some next year, but we wouldn't think it would be a lot next year, either.

Thank you, guys.

(Operator Instructions) Lawrence Keusch.

Just a couple of other quick ones for you. Jeff, on the infection-control PICC, I think you said that you were expecting to launch that later this year after you had filed -- and that you had filed the 510(k). I was just going back and looking at my notes, and it looked like you'd sort of been looking at a mid- to late summer launch. I just wanted to see if there is actually any change there or is that still the right time to be thinking about? And on that product, what are your expectations, because it's my understanding that infections surrounding PICCs actually aren't that high, so I just wanted to get a sense of what you're thinking for that specific product?

I think the timing is still probably late summer, Larry, and regarding the propensity of infections from PICC, I don't really think they're well measured would be the response that I think we've had.

I will tell you that in speaking to many of our customers, some of their hesitancy of using some of our PICC products have been that they really want to see the ARROWgard Blue Plus on there, and I think that really does provide them a differentiated product and does provide them some infection prevention capability that I don't think they can get from any other PICCs today.

So I would tell you even as we bring that product to market, we're going to have to do a fair amount of work. But our goal is there's a lot of GPO PICC contracts coming up the back end of this year, and next year is we need to have that product out. We need to get some market acceptance. We need to do some clinical work with it to really demonstrate the efficacy of it, and I think that has been our intent all along.

If, for some reason, that the launch moves slightly out, that might impact us some, but again, from a revenue standpoint we did not have a huge amount in this year just because of the uncertainty, both on the launch and, more importantly, of how quickly we can get some penetration.

Great. And then, two other ones. Is the recall on the IV sets -- is that impact now behind us? In other words, is that contained to the first quarter, or is there anything else we should be thinking about on a go-forward basis?

And I guess for Randy, quickly, as I think about the 2000 and guidance, I guess also in there is the SSI divestitures you've talked about. There is obviously a more negative FX environment out there, and I'm wondering, Randy, if you can just help quantify what negative impacts those would have because that might help us understand sort of the positive contributions on the core businesses.

With regard to the recall, we'll probably still have some impact year over year in the second quarter, just because it's lost revenue. But we still believe that we'll be able to recover that, and the market share we had in that area, as we move into the second half of the year. So, not a lot of costs are going to be involved in it in the second quarter, but we've got -- we're working on a solution. We continue to move forward.

So, again, it's more of just a lost revenue opportunity would be the impact in the second quarter. We'll begin to see moving -- or we hope to be back into the market by the tail end of the second quarter, moving into the third quarter. So, again, I think we'll move ahead from the recall in a fairly reasonable fashion.

In terms of our FX, overall I think, like most folks, with the strengthening of the dollar in the first quarter and the outlook for slightly weaker Euro throughout the remainder of this year, it will cause a little bit of headwind for us. We do think we can overcome most of that, so I don't think it's going to have a significant impact, but I think overall maybe in sort of the nickel, maybe a little bit more than that for the full year as we look ahead.

And then, the SSI divestiture was probably, what, $0.03 or so?

A little bit higher than that. For the full year, it was about $0.05. That was part of the revenue adjustment that we brought down.

Again, here again, I think we're very comfortable with the earnings guidance that we gave in the $4.10 to $4.25 range, so even with some of the offsets there in terms of the loss of the IV revenue, that the sale of the SSI, and some of the negative FX [run], we still feel fairly comfortable that we'll be in that range.

Thanks for the clarification.

I would like to now turn the call back over to Mr. Elguicze. Please proceed.

Thank you, Operator. And thank you for joining us today. That concludes the Teleflex Inc. first-quarter 2010 earnings conference call.

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