泰利福醫療 (TFX) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2012, Teleflex Incorporated, earnings conference call. My name is Stephanie, and I'll be your coordinator today. At this time, all participants are in a listen only mode. Following the prepared remarks there will be a question and answer session.

(Operator Instructions)

I would now like to turn the presentation over to the host of today, Mr. Jake Elguicze, Treasurer and Vice President of Investor Relations. Please proceed.

Thank you, operator, and good morning everyone and welcome to the third quarter 2012, Teleflex Incorporated, earnings conference call. The press release and slides to accompany this call, are available on our website at www.teleflex.com. As a reminder this call will be available on our website, and a replay will be available by dialing 888-286-8010 or for international calls, 617-801-6888, passcode 77519595.

Participating on today's call are Benson Smith, Chairman, President and Chief Executive Officer and Thomas Powell, Senior Vice President and Chief Financial Officer. Benson and Tom will make brief prepared remarks, and then we'll open up the call to questions.

Before we begin I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events, outlined on slide 4. We wish to caution you that such statements are in fact forward-looking in nature, and are subject to risks and uncertainties and actual events or results may differ materially. The factors that could cause actual events, results or events to differ materially include, but are not limited to, factors made in our press release today, as well as our filing with the SEC. Including our Form 10K which can be accessed on our website.

In addition, during the third quarter of 2012, due to changes in the Company's management and internal reporting structure, the Company's Latin American operations were moved from the Asia and Latin America segment, into the North American segment. As a result of this change, the North American segment is now referred to as the Americas segment, and the Asia and Latin America segment is now referred to as the Asia segment. With that, I'd like to now turn the call over to Benson.

Thanks, Jake and good morning everyone. On today's call I'll begin with an overview of the results for the third quarter and discuss some strategic highlights. Then Tom will provide you with a more detailed review of our third quarter financial performance, including details of our product line and our geographic revenue mix, and then finally our outlook for the remainder of 2012. He will then turn the call back to me for some closing remarks. So let's begin with our financial highlights.

Building upon the solid performance from the first half of the year, the third quarter of 2012 was another strong quarter for Teleflex, with revenues reaching $368.1 million. This represents an increase of 1.5% versus the prior year quarter, on an as reported basis. However when you exclude the impact of foreign currency fluctuations, sales increased 6.2%, versus the third quarter of 2011. During this past quarter, we once again achieved constant currency sales growth across all of our geographic regions, as well as in all of our strategic business unit franchises. Turning to gross and adjusted operating margins, they were 49.1% and 16.5% respectively. This represents a year-over-year improvement of 70 basis points at the gross margin line, but a decline of 50 basis points on the operating margin line.

And although Tom will go through the financial results in more detail in his prepared remarks, I want to add that these amounts were in line with our expectations, and the guidance we provided on our last earnings conference call. The year-over-year decline in adjusted operating margins, were a result of the four late stage technology acquisitions that we closed during the second quarter of this year. Had we not done these acquisitions, our adjusted operating margins would have approached 17.7%. And finally, adjusted earnings per share for the third quarter of 2012 was $1.04, an increase of 4% over the prior year period. Now let's move to some of the strategic highlights for the quarter.

Beginning with pricing, I am pleased to be able to report that during the third quarter the average selling prices of our products continued to grow. This quarter, our ability to raise prices contributed 120 basis points of revenue growth, marking the fifth consecutive quarter that the Company has been able to drive positive pricing. I am certain that all of you who are listening to this call realize this is no small achievement, considering the macro environment that we operate in. And due to a faster than originally anticipated improvement in Europe, the contributions we have seen to date continue to exceed our full year 2012 pricing expectations. For the third quarter in a row, European pricing has been positive. This time, generating 47 basis points of growth. In addition to Europe, we had positive pricing in the Asian markets of 329 basis points, as well as positive pricing in the America's market, of 114 basis points.

While our OEM business added approximately 270 basis points of positive pricing, and while our ability to increase prices over the next few years is clearly important, our future success is also dependent on the development of a robust product pipeline. While we still have work to do in that area, we continue to make strides each and every quarter. Aided by the contribution of the recently completed Semprus, Hotspur, Axiom and [EFX], acquisitions this past quarter, spending on R&D initiatives was up 20%, versus the third quarter of 2011 reaching 4% of revenue. And while it's easy to spend money on R&D initiatives, our focused efforts are paying off in the form of newly introduced products, that clinicians and hospitals find value in.

This past quarter, sales of newly introduced products contributed 150 basis points towards our top line growth. This is up sequentially by 56 basis points, just from the second quarter of this year. And before I move on to discuss our recently completed acquisition of LMA International, I would like to spend a few minutes telling you about some of the recent achievements on the product development front that we are particularly excited about. First, we are quite enthusiastic about the opportunities for our Semprus sustained surface modification technology, which we believe will be valuable on a number of Teleflex medical devices, and provide additional OEM capability. This technology uses a long lasting polymer, designed to reduce the attachment of platelets and blood proteins at the surface of the medical device, including the internal Lumens of even very small diameter catheters, and it provides a long lasting natural lubricity.

This combination results in significant benefits to the patient, the caregiver and the healthcare system from a clinical, as well as economic perspective. During the third quarter, we received CE certification to market the Semprus pick, with the Semprus sustained technology to the European Union. In addition to the CE certification, the Semprus team was recently awarded the initial phase of a $2.3 million research grant from the US Army Telemedicine and Advanced Technology Research Center. This award will support research and development of a surface modified endotracheal tube, that combines Semprus' non-filing sustained technology with the delivery of antimicrobial's.

It also builds upon an initial $1 million United States Army grant awarded to Semprus awarded in 2011, to develop the world's first orthopedic devices, designed to reduce biofilm formation. With the combined materials approach of Semprus sustained surface technology, and anti-microbial drug release, we expect to reduce or eliminate adherent bacteria which should significantly reduce the incidents of ventilator associated pneumonia. This should also lead to a decrease in the use of antibiotics and the decrease in the use of antibiotic resistant strains of bacteria.

In addition to some exciting things happening with Semprus, we continue to be very encouraged with the adoption of our VasoNova VPS device. During the quarter, another 12 accounts closed their trials and chose this device to use as their targeting system. And in mid September, we received 510k clearance from the FDA to market our pressure injectable arrow pick, pre-loaded with the VPS Stylet. This pre-loaded option improves clinician ease of use for vascular navigation and catheter tip positioning, and as a result, we are already seeing additional sales of our pick devises. We also have some very positive developments in other areas of our product portfolio. This past quarter, our surgical team introduced a full line of access devises, including a broad offering of bladeless access ports as well as the EFx Endo Facial Closure System. The early indications from our surgical business unit, is that the launch of the EFx system has got quite well, and is already being used in over 70 hospitals, and more than 3,000 procedures.

And finally, in the area of anesthesia product development, during the third quarter, we received 510k approval for our Arrow FlexBlock continuous peripheral nerve block catheter. Which is intended for clinicians who use ultrasound guidance when placing continuous peripheral nerve block catheters. In addition, we launched our new Arrow FlexTip Plus multi-port epidural catheter, as well as our new Arrow SureBlock spinal anesthesia collection. All the above mentioned items strengthen our regional anesthesia product offering. And something that will certainly strengthen the airway management portion of our anesthesia franchise is our recently completed acquisition of LMA. I am pleased to report that on October 23, we closed on the LMA acquisition. LMA and certain of its affiliates that we acquired, are the global market leaders in laryngeal masks.

Revenues during 2011, were approximately $132 million, and during the course of 2012, LMA's revenue growth rates were in line with our longer term revenue growth aspirations for all of Teleflex, which were in the 5% to 7% range. This acquisition provides us with a market share leading series of products, with gross margins in excess of our longer term corporate wide goal of 55%. It also provides us with access to key clinical call points, both domestically and internationally, and it further strengthens our relationships with the United States GPOs. The acquisition was funded through the use of cash that we had on our balance sheet, predominantly outside of the US. As a result, we expect this acquisition to be immediately accretive in the area of $0.03 to $0.04 in the fourth quarter of 2012, and between $0.35 to $0.40 in 2013. We also expect additional earnings accretion associated with this acquisition in 2014 and 2015.

Currently, we expect LMA to contribute an additional $0.10 to $0.15 per year in '14 and '15, on top of what we expected in 2013. 2013 earnings accretion is expected to be driven largely by synergies, which we expect to receive in the area of North American operations, and consolidation of certain LMA corporate functions. In 2014, we expect the additional earnings accretion to be generated from distributor to direct conversions, particularly in Europe, followed by manufacturing consolidations and refinements in 2015.

We will experience some tax dyssynergy. LMA historically had a very low tax rate, and we do not currently anticipate being able to maintain as low a tax rate as they did when they were a separate entity. This tax dyssynergy is already contemplated in the earnings estimates for LMA that I just referred to. In addition to completing the LMA acquisition, we also finalized the divestiture of our OEM orthopedic business. Divesting this business is consistent with our strategy of achieving a higher, more predictable revenue growth, and gross and operating margins. The remaining portion of our OEM business has been doing quite well, and we plan on focus on expanding its leadership positions and custom extrusion, catheters, and other medical devises.

You may recall that in our second quarter earnings conference call, I announced that we began to take steps to reduce our operational footprint. The first step in this process was the consolidation of three US based distribution centers, to one centrally based location. I'm happy to say that we opened our new distribution center in Olive Branch, Mississippi, and have already begun shipping. I also mentioned on the last quarterly earnings call that this was just the first step. During this past quarter, we also announced the planned closure and relocation of operations of a manufacturing facility in Mount Holly, New Jersey. This will also lead to improved operating efficiencies, and will help expand our future gross and operating margins. We do not take these decisions lightly, as it impacts our employees. And we would like to take a moment to thank the employees based in Mount Holly for their service.

And before I turn the call over to Tom, I would like to briefly review our accomplishments this past quarter from GPO and IDN perspective. During the third quarter, Teleflex was awarded five GPO contracts. Of those GPO awards, two were brand new, including a VasoNova VPS vascular award with Novation, as well as a respiratory award with Premier. On the IDN front this past quarter, Teleflex was awarded two new contracts. One with the IDN SCM alliance in Florida, as well as another with the IDN in Lomalinda, California. As I've stated on prior earnings calls, these types of contracts will help position Teleflex to achieve sustainable and profitable growth in the future. ¶ With that, I will now turn the call over to Tom and he can walk you through our most recent quarterly financial performance in more detail. Tom?

Thanks Benson and good morning everyone. Revenues for the third quarter were $368.1 million, up 1.5% on an as reported basis. When adjusting for currency fluctuations, revenue grew at 6.2%. Growth in constant currency revenue is largely due to higher volumes, which contribute approximately 3.5% of growth. Sales of recently introduced products, which contributed another 1.5% of growth, and price increases, which contributed another 1.2%. Turning to gross profit and margins they were $180.6 million or 49.1% in the third quarter of 2012. This compares to $175.6 million or 48.4% in the prior year quarter. The increase in the three month period is primarily due to selective price increases in all segments, and lower manufacturing costs in North America.

Moving to adjusted operating expenses. Adjusted selling, general and administrative expenses were $105 million during the quarter, up from $101.6 million last year. The current year amount is adjusted to exclude acquisition related costs, including a $7.6 million loss on foreign currency, foreign exchange contracts, which were established to hedge the LMA purchase price and $2.3 million in other transaction related costs. The increase in adjusted SG&A for the quarter was largely due to approximately $2.6 million of incremental amortization and operating expenses associated with the four late stage technology acquisitions completed in the second quarter of this year. And approximately $1.9 million of higher selling costs, driven by increased revenues and the support of new product introductions.

Turning to R&D, in the quarter, research and development spending was $14.8 million up from $12.3 million last year. A higher level of R&D spending principally reflects R&D costs associated with the four late stage technology acquisitions and to a lesser degree, increased investments related to vascular access products in North America. The increase in SG&A and R&D were partly offset by favorable foreign currency exchange rates, which caused the reduction in operating expenses of approximately $4.2 million. For the third quarter, adjusted operating margins were 16.5%, a decrease of 50 basis points versus the prior year quarter. The decline in adjusted operating margin was largely due to additional amortization and operating expense associated with the four late stage technology acquisitions, completed in the second quarter of 2012.

Now given the number of acquisition related costs in the quarter, let me summarize their impact on operating margin. As reported, operating margin is 13.5%. Excluding the impact of the currency forward contract and transaction related costs, adjusted operating margin was 16.5%. If we were to further exclude the incremental operating expense from the four late stage technology acquisitions, adjusted operating margin would be approximately 17.7%, representing a nice improvement over recent quarterly adjusted margins.

Moving to interest. third quarter net interest expense was $18.2 million a decrease of approximately $700,000. The decrease in interest expense is due to a reduction of approximately $26 million in average debt outstanding, and lower interest rates on debt. Turning to taxes. The GAAP tax expense this quarter was $7.2 million. This compares to $10.1 million in the third quarter of 2011. And finally adjusted earnings per share for the third quarter was $1.04, an increase of approximately 4% versus the prior year.

Now let's move to a more detailed review of our constant currency product, and geographic revenue results. Critical care revenue was $244.1 million up 4.5% on a constant currency basis. During the quarter, respiratory sales increased 9.4%, urology sales increased 6.5%, while anesthesia and vascular access sales increased 4.3% and 2.1% respectively. Moving to surgical. Revenue was $69.6 million up 10.1% on a constant currency basis. Growth in surgical products was primarily the result of increased sales of ligation, closure and general surgical instrument products. This was partially offset by a decline in the sale of chest drainage products.

Turning to cardiac, revenue was $17.2 million up 1.6% on a constant currency basis. The increase in cardiac revenues was primarily due to higher sales of intra aortic balloon pumps, partially offset by decline in sales of balloon catheters. And lastly OEM revenues for the quarter were $36.9 million up 13%. The increase in OEM revenues was due to higher volume, higher capacity as a result of plant expansions, new products, and price increases. Now I'll walk you through our top line performance from a geographic perspective.

As Jake mentioned at the start of the call, during the third quarter of 2012, due to changes in the Company's management and internal reporting structure, the Company's Latin American operations were moved from the Asia and Latin America segment into the North American segment. As a result of this change, the North American segment is now referred to as the Americas segment and the Asia and Latin America segment is now referred to as the Asia segment. Revenue in Americas segment was $169.7 million, up 1.7% on a constant currency basis. The increase was primarily due to new products and price increases. This was partly offset by lower volumes.

One item impact from lower volumes was the result of a strike in Brazil by the Brazilian governments equivalent department of the United States FDA. As a result of this strike, our ability to import products into Brazil was limited. The strike has now been resolved, and as a result, we have resumed shipments to Brazil.

Moving to Europe. Sales were $116 million up 3.1% on a constant currency basis. The increase in revenue in this part of the world was primarily due to higher volumes, new products and selective price increases. In the Asian Markets, sales were $45.5 million, up 32.1%. The increase here was due to higher volumes, particularly in China and Singapore as well as price increases. And before I turn the call over to Benson for some closing remarks, I'd like to provide you with an update regarding our full year 2012 financial outlook.

With nine months of actual performance behind us, as well as the completion of the LMA acquisition, we are updating our constant currency revenue growth, and adjusted earnings per share assumptions for 2012. We now expect our constant currency revenue growth rate to be between 6% and 7%. This compares to our prior expectations which called for constant currency revenue growth between 4% and 6%. Our current assumptions include approximately 1% of additional full year revenue growth coming from LMA. For comparative purposes, if we were to exclude the contribution we expect from LMA for the last two months of the year, our base business revenue projection remains at the higher end of the revenue -- or the range previously communicated.

In addition, I also want to point out that during the fourth quarter of 2012, we will have five less shipping days as compared to the fourth quarter of 2011. You may recall we had the offsetting benefit of extra shipping days in the first quarter of 2012. And as far as adjusted earnings per share, we are narrowing our range from our previous guidance of $4.25 to $4.45 per share, to our updated guidance of $4.35 to $4.40 per share. We are quite pleased with our ability to maintain earnings guidance within the upper end of the range provided at the beginning of the year, given a number of negative earnings impacts encountered during the year.

As we stated in our last earnings conference call, the strength of our underlying operations and the tax benefit we received in the second quarter, have allowed us to offset significant foreign currency headwinds, additional unplanned operating expense from the investment in four late stage technology acquisitions, and the removal of about $0.13 per share associated with the orthopedics business. Finally, I should note that our current guidance projections are based upon an assumed US dollar to Euro exchange rate of approximately $1.25, for the balance of the year. Additionally, we have not yet had the ability to assess the impact hurricane Sandy will have on hospital surgical procedures and our business. With that I'd like to turn the call over to Benson for some closing remarks.

Thanks, Tom. So in closing I would like to say that our senior leadership team is pleased with Teleflex performance for the first nine months of 2012. I do want to take a moment to thank our employees around the world for their continued hard work and dedication. As a result, each of our franchises and geographic regions continue to perform well, and we are continuing the process of creating a platform that will allow for consistent, sustainable and profitable revenue growth and margin expansion for many years to come.

That concludes the formal prepared remarks section of the presentation. With that, I would like to turn the call back to the operator for questions. Operator?

(Operator Instructions)

Matt Taylor with Barclays.

I just had two quick ones. One was now you've closed LMA, you've put out some pretty juicy targets in terms of the expectations for synergies over the next couple years. Is there anything that's changed since you held the last call in terms of how you think those synergies may progress, or where they may come from or anything in general that has changed in terms of your targets there?

So the brief answer is really no. We are in the obviously initial stages of implementing the programs that are necessary to get the synergies in 2013, and our look at it right now is exactly what we anticipated.

Great and you continue to do well on the pricing front, especially in Europe in a difficult environment. Just curious as you look out over the next couple years certainly you have a little bit of runway left to go to hit your ultimate goal. And was just curious as to how you view those efforts evolving as you start to lap some of these gains that you've made?

So our original plan was not to try and take all of the pricing differential in one fell swoop, but to split it out over several years, that strategy from everything we can see appears to be working, and I would say working a little better than we had anticipated when we first laid it out. So based on everything we can see right now Matt, we continue to expect those pricing gains to materialize between the 250 basis points and 300 basis points getting us to our High Five goals.

Okay, thank you very much guys.

Jonathan Palmer with CLSA.

Maybe Benson, can you just elaborate a little bit on LMA and what you have to do over the next three to six months, and then maybe one year plus to really integrate the assets fully into your business?

So the initial phase this year really is consolidating the LMA sales and marketing organization within the United States, with our own anesthesia sales and marketing business unit. We are going through a process of looking at the best performers in, from each Company as we reassign people to sales territories. We expect to have some left over personnel, if you would, from that process, and we are then looking to fill any additional vacancies we have throughout our selling organization in the United States. To try and accommodate as much of the folks from our two organizations as we possibly can. That process is pretty well under way in terms of the planning part of that process.

The additional element for 2013 is really the consolidation of the aspects of LMA, which were necessary to run a public Company, and again that will relatively quickly be compressed into our international business unit structure. We deliberately are holding off the move from dealer to direct organizations for a year. We want to get well calibrated in terms of the contributions that the dealers are making. We do have some basic assumptions about what that's going to look like, but we are proceeding in a very methodical way in terms of making the actual plan distributor by distributor. Our key here really is to keep as much of the business momentum going as possible.

The third area is -- and this is a bit longer range, but LMA had been using essentially an outside manufacturer, we have been engaged in very active discussions with them about their efforts to try and reduce the cost of the products being manufactured. They already had some aggressive programs under way. We are in the short term, tied to some longer term contracts that were entered into, but we expect to see some significant cost improvements in the year 2015. So there's a staged approach to how we're going about this. I think that the plans are well developed for the 2013 synergy targets, and at this point, we fully anticipate to hit those targets in 2013.

Appreciate the color, and then two quick ones for Tom. You mentioned the five-selling day impact in the fourth quarter. Could you maybe just give a gander in terms of what the percentage impact is going to be and maybe a range there?

Yes, I think when we spoke about it in the first quarter, that was a six-day impact largely because it was an extra day in the year and we estimated that to be in the range of 5% as a result of being less -- we're expecting this to be about 4% impact for the quarter.

That's very helpful and then I apologize if you mentioned this already, but at some point are you going to release restated results for all of the various divestitures and restatements of the segments?

Yes, so Jonathan, this is Jake. I think that as we move forward here with the filing certainly of our 10-K, we will issue the restated multi year Americas segment information. Given the fact that we just made a change here in this quarter moving Latin America from the Asia and Latin American segment to the -- now a newly defined Americas segment, we should have some historical financials out there, and probably in conjunction with the filing of our 10-K.

Great, thanks for taking my questions.

Lawrence Keusch with Raymond James.

You know, the first question if you could just if you exclude price, just help us understand your thoughts around the current dynamics for utilization demand in Europe and the US?

So I think it's fair to say that we see some uncertainty in some particular European markets at this point. Nevertheless, our constant currency growth in Europe for the quarter was 3.5%. It was right in line with what our expectations were, and as you know, the summer months in Europe are typically somewhat slower than the rest of the year. So, it doesn't seem to be having a material effect on our own business lines.

I would say as we move to the United States, again we don't see the same negative impact that some of our competitors have reported. However, I think we are of the impression that there is a bit of a slowdown in procedures. Usually that plays itself out in more acute patients showing up at the hospital a few months down the road, but almost across the board we saw positive results in the US. So, again it's hard to say whether we're just not seeing the results from the slowdown in procedures, or it's masked by share gain in some of these product categories, but it's clearly not having the same impact on us that it's having on others.

Okay, terrific and then two for Tom. On the convert, just can you bring us up to speed on again how we should think about potential dilution going forward? And ways that you might help mitigate some of that and then the second part of the question is I just want to make sure I'm understanding this. In terms of the adjusted earnings per share, you mentioned some forward FX hedge associated with the LMA acquisition -- and again I just want to make sure I understand what exactly that was for?

Okay, well why don't I start with the forward hedge. So essentially, when we entered into the agreement to purchase LMA, we wanted to take the variability out of the cash used to consummate the transaction so we entered into forward currency contracts to lock in the Sing dollars in US dollars required to finish the deal. As a result of that, when the contracts closed out in fact the euro had appreciated over that period of time, resulting in a loss on those hedges. So we essentially entered them for the economic reason of taking the variability out and establishing the level of cash and ended up with an accounting charge associated with the hedge.

Okay.

If that helps answer that, and then with regard to the dilution from the converts. There's a -- perhaps the best way to think about this is, just at various stock prices, what the potential dilution would be. So, for instance on a $70 stock price the dilution would be about 810,000 additional shares or 2%. And at $75 a potential dilution of 3%, so that's the estimate of dilution. In terms of ways to mitigate that, one of the benefits of the convert is in fact that while there is addition dilution, there's also a benefit from achieving a lower interest rate all along the way. We have not taken any other steps beyond that to actually go back and buyback shares or do anything else to offset the converts dilution at this point in time.

Okay, but -- and that's helpful, and just to finish that out. So, you can buyback stock if you chose to do so particularly if the share price moved in excess of $75 and the dilution I think starts to get larger as you move up towards $100. Also it's important to note that -- and I want to just make sure I'm right on this, because that again -- this is obviously not a cash flow dilutive event it's a reported EPS dilutive event.

That's correct.

Okay, perfect. Thank you very much.

David Lewis, Morgan Stanley.

Hello, this is actually John Demchak in for David. Had a quick follow up on LMA. First of all I have appreciated all of the detail about the synergies and timings that you guys stated on the call, but was wondering if you could give us a little more color in some of the assumptions that might be embedded in those. Particularly in the amount of synergies that you might be expecting it driving, like COGS and SG&A and also any tax synergies?

So to repeat myself a bit, the primary cost savings in the US really comes from the consolidation of what are now two separate business entities into one entity into the United States. And the combination of two sales forces into a single sales force. While that single sales force will be a little larger than our current sales force, it will certainly be smaller than the combined headcount for the two independent sales forces right now. So the primary savings in the US really comes from a reduced headcount associated with the number of people in the sales organization.

Okay, very helpful, and then another strategic one, regarding acquisitions as well. When you look at acquisitions that you may be targeting going forward. Do you expect them to be more in line with the larger, mature company like LMA or more the late stage technologies that we probably were expecting more of like HotSpur and Semprus? Any color there would be great.

So just to remind the listeners of progress to date, we've done four acquisitions this year that we would put into the late stage technology bucket and one in the larger revenue enhancement category. I think that ratio is about the right capital allocation strategy for us. It is a bit dependent on what's available and how good of a fit what's available is within our product portfolio.

We are more driven by buying things that meet some particular algorithms we had set up, than necessarily a set number every year or a set dollar value. We're fortunate now in the sense that there's a lot of activity going on in this late stage technology field. So we're quite busy there, and I think we're fortunate in the sense that LMA really just hit all of the right bells for us -- overseas cash an existing area of strong business interest for us, a lot of synergies, and a global market share. So the hard work here isn't deciding we would like to do more of these. It's actually digging them out and finding them.

Understood and one quick last one, as I look at pricing and how its trended over the past, almost two years. It looked like you had an initial ramp up to about the 800 basis point level, starting in 2012, and then now you've been more steady in the 100 basis point to 130 basis point positive pricing. Is this the level that we should expect going forward, or do you think there could be another incremental step up or alternatively, do you expect it to maybe step down and settle at a little lower of a pace?

So again our plan here was to take an incremental approach to this. We are convinced at this stage that, that approach is working and therefore it's the right one, so we're not making an effort to try and ramp up pricing beyond the levels. I mentioned on the call that our current performance is a little bit north of our expectations, but certainly in the general area of what we expected to see. So, I think more of the same is what's baked into our 2013 assumptions.

Thank you. Very helpful.

Richard Newitter, Leerink Swann.

I just wanted to go back to -- I know you gave a little bit of color around the Asia Pacific performance but that was a very strong number, 32%. I think you were trending in the 10% to 11% in the prior quarter. Can you just maybe tell us a little bit more about what's happening in that region and how you achieved such a high level of growth this quarter?

So the quarter-by-quarter comparisons are a little bit difficult to interpret. We did have some events last year as we opened up an Asian distribution center that had some impact on our ability to ship products. So the comparison from one quarter to another quarter I think gives you a bit of a misleading sense of our trend improvements from second quarter to third quarter this year. However, we are focusing I think more attention and more resources, on growth in that area, even though the general economy of China may be slowing, it's not impacting their growth in the healthcare segment at this point in time. And so part of that increase is really just from continued resource expenditure and growth in the region.

Okay, that's helpful, thanks. Then I think Benson, earlier you had mentioned utilization environment maybe you're incrementally more cautious but impacting Teleflex, maybe a little bit less given share gains. Where do you think the share gains are occurring the most and offsetting potential utilization issues? Can you identify that? Is it the surgical division? Is it more in vascular access?

So we are seeing very good response in vascular access to the VasoNova positioning system. That has not done a lot to move the share needle so far. Now we have expectations as we move into 2013 and 2014 that these early conversions will start to make a much more quantifiable difference, as we really start to see a repeatable order pattern develop.

In the area of surgery, we are continuing to see good acceptance in our ligation products. That is -- certainly continues to grow and by all indications, the -- particularly the dollar share of the market, our shares increasing there. In respiratory therapy we had good gains this year. That has a little bit to do with the comparison to the flu season from one year to the other, but we have gained a number of GPO contracts in the area of respiratory therapy. So that is certainly helping us with share gains in that product category as well.

Okay, and then maybe if I could just get one last one in there on Europe, on pricing in particular. Any trends or feedback by region, specifically where there's strength versus others that are allowing you to exceed your original expectations? Where's the surprise to the upside coming from for you?

Well, I think a lot of the original presumptions we had in Europe were driven by overall market assessments. Not just by us but really by a host of competitors and participants in the European market who reported very -- in many cases, sluggish sales growth to no sales growth, and in many cases negative pricing trends. When we started this effort to improve our pricing, our negative pricing in Europe was almost about 100 basis points a year in the decline. So we were cautious about what to expect out of that region. We applied the same discipline and strategy that we did in other parts of the globe.

We just, I think, were internally much more cautious about expecting what the ramp of that might look like because it's a very bid driven economy in general. And we just thought it was going to be harder to move the needle in pricing in the right direction. So, this occurred about really two quarters faster into positive territory than we originally planned, but essentially we're employing the same strategy there that we are in the rest of the world.

Thank you very much.

Chris Cooley, Stephens.

If we could, Benson could you maybe just walk us through LMA in the past. What you see there that you can help to drive growth north of that 5% range going forward, as they already have about 85% share with the laryngeal mask segment? Help us think about maybe geographic expansion, pricing, new products, and how those contribute to growth? And then I just had another quick follow-up, thanks much.

So I'm going to break that up into two kinds of questions and one is geographic expansion. There, certainly China is the single biggest opportunity from a market size and just the original substitution of an LMA type product for an endotracheal tube in shorter duration general anesthesia procedures. We actually spent a lot of time looking at what we thought was going to be the development of those products in China prior to making the acquisition, and see that as the principal area for geographic expansion. The other expansion really relates to the continued use of LMA masks to replace endotracheal tubes in surgical procedures of longer duration. There has been some reluctance in the United States, for example, to go as far as other countries.

In the UK, for example, they use an LMA type product in about 50% of the cases. In the United States it's about 35% of the cases. This is driven about -- around some concerns about regurgitation during a longer procedure, and a lot of the development efforts in the LMA product line are really to address those concerns, and minimize the risks associated with its use in longer procedures.

We are quite confident that if those developments meet our expectations, we'll be met with an enthusiastic audience because LMAs solve a lot of problems that are created by endotracheal tubes. So we certainly see some benefit in trying to get to the same usage rates even with the current product line that we see in the UK for example. But I think more of your expectation is around addressing some of those user concerns or issues with some improvements to the product line.

Okay, super and then just as a quick follow-up in the past, in particular as you referenced your domestic business -- or your Americas business now, you had discussed the contribution from both GPOs and IDNs as a percentage of volume in that growth rate. Could you just update us as we think about the Americas in terms of the contribution maybe in the aggregate from both GPOs and IDNs combined, and also where you are in terms of contract wins year-to-date? Thank you so much.

So we're going to dig out the number, I think, of contract wins year-to-date. Our current level of sales in the United States is about 50% of our volume, goes through GPO contracts. That has grown a little bit as we have gotten more and more awards in the US, but not substantially different from what we reported on last quarter. The last numbers we looked at showed that our growth rate within that segment of products for the United States was around 6%, which was at least a full 2 percentage points greater than our average growth rate in non-GPO kinds of products.

And again I don't have that specific breakdown yet for third quarter, but we would expect a continuation of that trend as our GPO awards have only increased from one quarter to the another. Relative to total number of GPO contracts this year --.

Chris from a GPO perspective on a year-to-date basis, we've won 17 awards through the end of the third quarter. That includes the five additional awards that we won in the third quarter alone from an IDN perspective, we've won 14 awards on a year-to-date basis, through the third quarter. And again, that includes the two additional awards that we won in the third quarter.

Thanks so much Jake.

Jim Sidoti, Sidoti & Company.

First of all how did you make out with the storm and how do you expect that to affect operations going forward?

Thanks for asking, our corporate headquarters are in Limerick, and we obviously have two other locations, one in Redding and one in Mount Holly that were within the path of the storm. As far as we understand right now, we did not experience any significant damage to any of our property, and we have no reports of any of our employees that were injured. We do have a number of people that had their power interrupted at their homes, we still have some difficulties, people just commuting to work because of trees down in the roadways and some of those issues.

Manufacturing was interrupted at the Mount Holly facility and the Redding facility for a full day, yesterday at 2.30 manufacturing resumed at Redding and I don't have the immediate details of the resumption in manufacturing in Mount Holly. At this point, we would expect the biggest impact likely to come from the delay of procedures and hospitals within the New York, New Jersey area -- just trying to get back up and running and deal with their current patient populations. There is within that community that we're looking at about 29 what we would call, major healthcare facilities, that look like there will have some impact. I would say that's 29 out of what we consider to be 1,000 similar major institutions in the United States, so we expect that their procedure rates will be slow for the next several weeks as they regroup.

I'm glad to hear everybody is okay and I can relate to power and commuting issues but all in all, I think we're all pretty lucky.

Yes, we felt that way. It was a lot less impact full here than just a state over.

Right. So now the guidance for revenue for 2012, does that include the contribution from LMA in the last couple months of the year?

Yes, it does.

So I'm not sure what you broke out of the first quarter because of the divestiture. Can you just give us a range assuming currency stays where it is today where you think revenue will land for the fourth quarter?

In terms of dollars or in terms of percentage?

Dollars.

So typically we don't give quarter-to-quarter revenue projections, we are anticipating with -- again, with LMA that the year will end up between that 6% and 7%. LMA constitutes about 1% of that and we were -- our previous range was 4% to 6% and without LMA and we are still are estimating that we're going to be at the higher end of that range on a constant currency basis for growth.

Let me ask it another way. What was the revenue in the first quarter excluding the divestiture?

First quarter 2012 revenues were right at $380 million.

And that's without the OEM divestiture?

That's correct. That's first quarter 2012.

And then the second quarter you broke that out because it was a discontinued operation I believe?

Correct.

Okay, all right, great. And R&D, it seems like it's ticked up a little bit in the quarter and will tick up because of the recent technology acquisitions. Where do you expect that to fall? Can you give us a range in the fourth quarter and 2013 just as a percentage?

Most of those acquisitions which contribute to that were completed in the second quarter, so the third quarter expenditure represents a pretty good approximation of what the fourth quarter is going to look like.

And then unless there's additional deals around that level in 2013?

Correct.

And then just last question. Have you gotten anymore clarification on how to account for the medical device tax? Do you expect that to kick in at the beginning of the year or do you think there's any chance that gets pushed back a couple quarters?

So at this point, we are planning on it being implemented January 1. There is -- I was just at a CEO meeting for healthcare executives about this a couple weeks ago. There is some increased awareness of the consequences that this tax is going to have in the Senate right now. There are some states that have very significant medical device concentrations in them. New Jersey, Massachusetts, California which normally have Democratic Senators. There seems to be some favorable movement in at least recognizing the consequences of this, and some people are of the opinion that they may seriously take up the bill that the House has already voted on.

From our perspective, we have to prepare for the worst, and at this point as we look at the impact on 2013, should it go into effect for the full year which again we're planning on, will be about $0.25 a share to us.

Okay, and I'm sorry where will that go on the P & L, do you know?

That will go into operating expense.

As part of SG&A?

Yes.

Okay. Thank you.

(Operator Instructions)

Anthony Petrone, Jefferies Group.

Just a couple on LMA. Can you provide us again with the geographic revenue mix currently, and then you've alluded to that shifting going out over the next few years. If you bring that down to the P&L what the tax benefit is to Teleflex today -- assuming that most of the revenues are generated overseas?

The revenue mix largely mirrors Teleflex's revenue mix with about 50% of their sales in the US, and about 50% of their sales outside the US. We, because of the Asian markets we expect the ex-US segment at least over the first year or two, to grow a little faster than the US segment. We expect some shift in that as new products enter into the picture that we think will have more of a home and applicability in the US market.

So does this result in a favorable tax benefit if we look towards 2013 or is it just a similar tax structure we have today?

As we look towards 2013 our expectation is that the tax impact on adjusted EPS is actually a benefit, and we expect that to be somewhere in the low 20% range. So that would be a benefit versus where we are currently running as a Company excluding LMA.

Okay, and then one strategic question for LMA, if I may. You have the price increase campaign going on across the portfolio and LMA certainly has a large share of the airway management marketing with laryngeal masks. But it sounds like the approach here is to expand that share beyond the 35% of applicable procedures. Does the price increase strategy that you have with the remaining portfolio play into the LMA assets that you acquired?

Not nearly as much so. LMA is already the premium pricer in the market segment. Most of the growth that we expect will come from upgraded versions of the product as opposed to pricing.

Right, okay thanks.

With no further questions in queue I'll turn the call over back to Mr. Jake Elguicze for closing remarks. Please proceed.

Thank you, operator. Thanks, everyone for joining us today. I'd also like to remind everyone that Teleflex will be holding an Analyst Day on December 13, in New York City at the New York Palace Hotel. The event will begin at 8.00 AM and will last approximately four hours and we hope that many of you who follow Teleflex will be able to attend. And thanks again for joining us this morning. This concludes the Teleflex Incorporated third quarter earnings conference call.

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