泰利福醫療 (TFX) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the quarter four 2014 Teleflex Incorporated conference call. My name is Anna and I will be your operator for today.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would you now like to turn the call over to Jake Elguicze. Please proceed, sir.

Good morning everyone, and welcome to the Teleflex Incorporated fourth-quarter 2014 earnings conference call. The press release and slides to accompany this call are available on our website at www.teleflex.com. As a reminder, this call will be available on our website and a replay will be available by dialing 888-286-8010, or for international calls, 617-801-6888, pass code 82954645.

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

Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events, as outlined on slide 4. We wish to caution you that such statements are in fact forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially.

The factors that could cause actual results or events to differ materially include, but are not limited to factors made in our press release today, as well as our filings with the SEC, including our Form 10-K which can be accessed on our website. With that, I'd like to now turn the call over to Benson.

Thanks, Jake and good morning everyone. It's good to be able to speak with you once again. First let me begin by saying that we're extremely pleased with our results in the fourth quarter and for all of 2014 as well. We hit or exceeded every significant milestone we were targeting, with the exception of a slight miss to our gross margin targets in the fourth quarter. This miss was due to some discrete one time in nature events that will not affect our gross margins in 2015, nor our ability to hit our 55% number by the fourth quarter 2015.

Our strong finish to 2014 leaves us well positioned for excellent revenue growth and P&L leverage in 2015. While currency translations, particularly the Euro, will from an accounting perspective put pressure on our EPS growth, as strength of our underlying fundamentals will still allow us to deliver meaningful growth in our adjusted EPS. Tom and I will both go into more details during the course of our presentations.

Similar to past calls, I will start with an overview of the Company's results during our most recent quarter and discuss some highlights. As part of my prepared remarks, I will provide an update as to what we're seeing in terms of end markets, pricing initiatives, and new product introductions, as well as an update on the Vidacare and Mayo Healthcare acquisitions.

I will also touch on two recently completed acquisitions that we're quite excited about. The first being Mini-Lap Technologies and the second being a distributor acquisition in Korea. Finally, after a brief summary of our full-year accomplishments, I will turn the call over to Tom and he will go through our quarterly financial results in more detail, as well as provide our 2015 financial guidance.

With that as a broad overview, let's begin. The fourth quarter of 2014 was another very strong quarter for the Company, capping off what turned out to be an excellent 2014. Continuing a year-long trend, as reported revenue and adjusted earnings per share during the final quarter of 2014 once again exceeded our internal expectations. This was quite positive, especially when taking into consideration the precipitous decline in foreign currency exchange rates that occurred during the fourth quarter.

Despite the greater than anticipated headwind from foreign currency, revenue in the fourth quarter totaled $476 million. This represents an increase of 5.7% versus the prior year on an as reported basis, and 9% versus the prior year on a constant currency basis. Our better than expected revenue in the fourth quarter resulted from the performance of Vidacare, our ability to continue to generate higher revenue from improvements in average selling prices, increased sales of new and existing products, and market share gains.

I would like to point out that during the fourth quarter we lapsed the happens anniversary date of the Vidacare acquisition which occurred in December of 2013. As such, we only had two additional months of Vidacare revenue in the fourth quarter of 2014, as compared to the prior year. This is another example that points to the strength of our underlying base business and gives us confidence regarding our constant currency revenue growth expectations for 2015.

Revenue growth in the quarter, however, was somewhat tempered by a decline in year-over-year sales volume of existing products within our Asian segment. This was something that we signaled as a possibility on our last earnings conference call, and it resulted from the transition of a portion of our Asian business from a distributor to direct model in Japan, as well as inventory reductions from some distributors in China. These declines in China were not across the board and primarily impacted by our capital equipment intra-aortic balloon pump business. As we look forward to 2015, we expect that these issues will be behind us by the second quarter, at which point we expect our revenue growth in Asia to return to higher growth levels.

Turning to adjusted earnings per share. Fourth quarter of 2014 adjusted EPS was $1.43. That compares to fourth quarter of 2013 adjusted EPS of $1.36. Similar prior quarters in 2014, the improvement in year-over-year adjustment earnings resulted from higher volumes, continued improvements in average selling prices, and a favorable mix of higher gross margin sales.

In addition, we continued to generate increased leverage throughout the income statement from a lower adjusted tax rate when compared to the fourth quarter of 2013. In fact, fourth-quarter earnings would have been even higher had it not been for some expenses incurred at the gross margin line, that we believe to be nonrecurring in nature. These expenses total approximately $6 million and were primarily associated with the write-off of some inventory and cost related to our facility footprint restructuring initiative. Absent these expenses, adjusted gross margin for the fourth quarter would have been 52.3%.

As I said in my opening remarks, we do not expect these items to impact our ability to reach our 55% adjusted gross margin target by the time we exit 2015. In addition, our operating expenses in the fourth quarter were higher than levels seen in prior quarters. We managed our operating expenses tightly all year long and as you may recall on our last earnings conference call, we said that we plan to make some targeted investments in higher growth opportunities, and we did. We spent more on Vidacare, more on product registrations, and more on the preparation for the launch of our surgical microlaparoscopic product line.

As a side note, I would add that we received FDA approval for our microlaparoscopic product line faster than we had anticipated, and now expect the limited market release of the product before the end of the first quarter. These expenses were discrete in nature as opposed to reoccurring. Therefore, we expect our 2015 operating expenses as a percentage of revenue to be approximately 100 basis points lower than what occurred this past quarter.

Moving on to some other highlights. Sales volume of core products improved and contributed approximately 185 basis points of revenue growth. This growth was stronger than initially expected and occurred across a wide range of our businesses including our OEM, Surgical and Vascular North America and European segments. We currently view the European markets as stable and the US market as slightly positive and, therefore, attribute the majority of our core sales volume growth to market share gains.

Turning to pricing. During the fourth quarter, the average selling prices of our products once again expanded when compared to the prior year period. This past quarter, the improvement in average selling prices of products contributed approximately 151 basis points of revenue growth. These price increases resulted from a combination of distributor to direct conversions which added approximately 50 basis points, and core product price increases, which contributed approximately 100 basis points.

From a segment perspective, we once again saw price improvements highest in Asia, and as expected this was primarily due to distributor to direct conversions. This was followed by improvements in pricing we were able to generate in our North American and European segments, and most of the price improvements in North America were core product price improvements. And perhaps it goes without saying that we continue to be pleased with our ability to drive core product price improvement. Our underlying price improvements were actually better than they appear because we had to offset a decline in average selling prices of some of our OEM product offerings that were agreed to last year.

Moving to new product introductions. During the forth quarter, new products contributed approximately 89 basis points of revenue growth. Revenue growth attributed to new product introductions was the highest it has been in the fourth quarter since the fourth quarter of 2013, and further supports our belief that our R&D product development efforts are paying dividends.

New product growth this quarter was led by sales of our European ASK CDC kits, LMA SureSeal and Supreme devices and our Rusch Disposable LED Laryngoscope, and surgical product introductions stemming from our partnership with a large robotics provider. Shifting gears for a moment, the fourth quarter of 2014 also saw continued expansion of our contractual agreements between Teleflex and our GPO and IDN partners.

And during this past quarter, this resulted in Teleflex winning a total of 14 agreements. I'm happy to say that 11 of these agreements were new and included product categories like PICC, our VasaNova VPS system and some of our airway management products. These new agreements are playing an important role in our share gains in our core products. We view our ability to simultaneously gain share and raise prices in the US as a very good sign.

Next, I would like to update you on Vidacare. Vidacare contributed approximately $23 million of revenue, or about 3.5% of Teleflex's constant currency revenue growth. This represents the strongest quarter yet of Vidacare product sales and if you were to compare these results to fourth quarter of 2013, it would show that Vidacare's revenue increased approximately 16% on an as reported basis. On a full year basis, Vidacare product sales totaled approximately $87 million, well above our initial estimate which called for between $68 million to $72 million in sales.

We also received some good news from a regulatory perspective as relates to Vidacare, as during the quarter the OnControl powered bone biopsy system received FDA approval for new pediatric indication for use. We continue to believe that Vidacare product offerings will be an area of significant growth for the Company, and we intend to invest behind these products accordingly.

Next I'd like to provide you with a brief update on Mayo Healthcare. Similar to Vidacare, this 2014 acquisition also continues to perform quite well. During the fourth quarter, Mayo contributed approximately $7.3 million, or 162 basis points of Teleflex's constant currency revenue growth. Approximately 70% of the revenue growth came in the form of additional volume, while about 30% came in the form of price increases.

I would also like to point out that the integration of Mayo into the Teleflex operating platform continued, as during the fourth quarter we migrated Mayo onto our principal SAP platform. This integration occurred as planned.

Moving, on I would next like to provide you with an update on our VasoNova VPS system. The VPS vascular positioning system was an acquisition that Teleflex made back in 2011. The device combines ECG, doppler ultrasound, and software operating to accurately place catheter tips in the lower one-third of the SVC, and is clear to eliminate chest x-ray in adult patients when the blue bull's-eye on the device is achieved.

Recently, there was a peer reviewed article about the VPS system that showed the technology can reduce the improper positioning of central IV catheters. This article was published in the fall of 2014 issue of the Journal of the Association for Vascular Access. The catheter tip positioning project took place at James A. Haley Veterans Hospital in Tampa, Florida, and this article presents the largest cohort at one site of patient results in studies using the VPS system.

The article's data showed a 51% reduction in mal-positioned catheters when using VPS. We are quite pleased by the results from this study and expect that VPS revenue will accelerate in 2015. Moving on I would like to tell you about two recent acquisitions that should positively impact our 2015 results.

As many of you are already aware, Teleflex has been making investments into the area of microlaparoscopic access over the past 18 months or so. This started with the acquisition of Eon Surgical in mid 2013, and is continuing with the acquisition of Mini-Lap, which occurred this past December. Mini-Lap is a developer of next generation, minimally innovative surgical instruments whose transaction provides Teleflex a platform technology, additional marketed products that address various segments of the surgery market, as well as pipeline products.

It's our belief that Mini-Lap trocar-less entry improves surgical capability and patient outcome, and complements Teleflex percutaneous surgery platform. This was an all cash transaction, and is expected to positively contribute towards the Company's revenue and adjusted earnings per share in 2015.

Finally, before I provide you with a brief summary of our full-year 2014 performance, the next acquisition I would like to talk to you about this morning is Human Medics. Consistent with our strategy of becoming increasingly more direct in some key international markets we acquired Human Medics. Human Medics is a distributor based in he Korea that has sold Teleflex surgical and respiratory products since 2004. And similar to the acquisition of Mayo Healthcare, this acquisition establishes a direct sales organization in Korea and allows Teleflex to control the sale and distribution of our products.

It creates closer contact with end customers and is expected to expand our revenues and margins. This all cash transaction closed toward the end of January of 2015 and is also expected to positively impact the Company's revenue and adjusted earnings per share in 2015.

Finally, let me provide you with a brief summary of our full-year 2014 performance. As I said at the beginning of my prepared remarks, 2014 was an excellent year for Teleflex. The Company generated constant currency revenue growth of 8.8%, which was at the high end of the guidance range that we provided at our Analyst Day in December 2013. And we achieved adjusted earnings per share of $5.74, which was well above the initial guidance range we provided and it also exceeded the top end of our most recent guidance range, which called for earnings to be between $5.60 and $5.70 per share.

Other major accomplishments in 2014 included the successful integration and obtainment of synergies associated with the and Mayo Healthcare acquisitions. Productivity and efficiency improvements in how we service customers and the announcement of a facility restructuring initiative that remains on track and is expected to drive substantial operating leverage for our business over the next several years. As you will see in a few moments, despite a negative impact coming from foreign exchange, we expect this positive momentum to continue in 2015.

We anticipate being able to produce mid-single digit constant currency revenue growth rates, as well as generate significant operating leverage from our businesses, including exiting 2015 with an adjusted gross margin of 55%. In addition, we're committed to implementing operational measures to, in part mitigate the earnings impact from FX. These initiatives will be targeted in nature, as we do not believe it to be prudent to scale back on investment opportunities that might limit our longer term growth and strategic objectives.

That completes my prepared remarks. However, before I turn the call over to Tom, I do want to comment on the impact that FX will have on us in 2015. In most years, currency fluctuations tend to be relatively modest and are not a very big part of the story. That's not true this year. Through prior discussions with investors, we understand that there may be varying degrees of understanding about how currency affects us and varying degrees of importance that investors placed on FX.

Currency also affects companies quite differently. That's one of the reasons it's sometimes hard for investors to have a clear picture of what it means for one Company versus another. At Teleflex, currency primarily affects us in a translational way. As a result, we tend to think of currency as an accounting issue, more than a true economic issue.

From an accounting perspective, when we sell a product in Europe, we have to translate that revenue number in euros back to whatever the currency exchange rate is at the time to the US dollar. We also have to translate our earnings from euros back into dollars. This occurs on paper, but not in actuality. Consequently, the adjustments we make to revenue EPS for accounting purposes is different than hits we might take in our earnings per share for other reasons, such as over spending or lower gross margins. Those aren't merely accounting issues but very real economic issues.

On the flip side, it's also true that if we had a big gain in our reported EPS and most of it came from currency translation, there would also be more of an accounting issue than an economic issue. In our presentation today, we certainly want to be clear out about those accounting issues that will affect our P&L. We also want to be clear about the underlying fundamentals that are more than indicator of Teleflex's real progress. While FX will be a headwind to Teleflex's gross margin in 2015 by about 50 basis points, we still think that there are enough other drivers that will allow the Company to exit 2015 at 55% adjusted gross margin, and achieve our other strategic objectives. I would you now like to turn the call over to Tom for him to walk you through the financials. Tom?

Thanks, Benson and good morning everyone. During my prepared remarks, I will start with a review of fourth quarter results and then briefly review full year 2014, in the context of how our final results compared with the financial targets that we'd established at onset of the year. I will then close with our expectations for 2015.

Turning now to the quarter. During the fourth quarter, revenues were $476 million which represents an increase of 9% on a constant currency basis. Approximately 3.5% of constant currency revenue growth was related to Vidacare, with a remaining 5.5% of growth coming from an increase in core product volumes, core product price increases, revenues from new products and introductions, and distributor to direct conversions. Versus the third quarter, we experienced sequential increases in the growth rate of new products, price, and distributor conversions. Additionally, the strong base volume growth that we realized in the third quarter continued into the fourth quarter with 185 basis points of growth.

Vidacare performance continues to exceed expectations. However, as expected, Vidacare's impact on the total fourth quarter growth rate has moderated due to its December 2013 acquisition date, and the resulting inclusion of one month of revenue in the prior year comp. Excluding the impact of the Vidacare comp, Q4 marked yet another quarter of improving revenue trends, which will position us well as we start 2015.

Turning to gross profit. For the fourth quarter, adjusted gross profit was $243.1 million, versus $225.2 million in the prior year quarter. Adjusted gross margin increased 110 basis points to 51.1%. The increase in adjusted gross margin was primarily due to Vidacare and distributor conversions, with product pricing also making a positive contribution.

Fourth quarter gross margin was below expectations, due to approximately $6 million of run off issues such as costs associated with their facility footprint restructuring initiative, that were not added back when calculating non-GAAP earnings and isolated product registration code date issue, that did not provide sufficient shelf life for product destined for an international market. And inefficiencies in the startup of our of Australian 3PO warehouse, following the consolidation of a number of Australian distributors into a single, more efficient network. Had it not been for these items, adjusted gross margin for the fourth quarter would have been approximately 52.3%.

We also experienced pockets of unfavorable mix that adversely impacted the fourth quarter margin. The most significant mix impact came from very strong sales demand by our European indirect channel, and this channel carries a lower than average margin. Turning next to adjusted operating margin.

As you may recall, on our third quarter earnings conference call, we indicated that during the fourth quarter we were planning to increase investment to support select high growth and strategic opportunities. As was planned, during the quarter, we increased the level of sales and marketing spending to further leverage the Vidacare product offering, and to prepare for the launch of our surgical microlaparoscopic product line.

We also increased spending on in-season development projects as well as project registrations. As a result of the investments, fourth-quarter SG&A as a percentage of revenue was approximately 120 basis points higher than our year-to-date average. This increase, along with softer gross margin served to bring down the fourth quarter operating margin to 18.4%.

On a full-year basis, we were able to absorb the increased SG&A investment and the gross margin shortfall, while still achieving our original operating margin guidance of 20% to 21%. Looking to 2015, while we intend to continue to invest in support of Vidacare and other strategic opportunities, our 2015 financial plans also include offsetting SG&A cost actions. Therefore, we do not expect that SG&A will continue at this elevated level.

Moving next to our adjusted tax rate. For the fourth quarter 2014, the adjusted tax rate was 14.2%, a reduction of 700 basis points as compared to the prior year period. During 2014, we have benefited from a number of tax planning initiatives that serve to bring our full-year sustainable tax rate down to approximately 21.5%. Our fourth-quarter tax rate was further benefited by a positive shift in the mix of income to jurisdictions with lower tax rates and the reinstatement of the R&D tax credit for 2014. The full-year rate impact of these items was trued up in the fourth quarter, which caused an atypically large quarterly benefit.

On the bottom line, fourth-quarter adjusted earnings per share came in at $1.43, or an increase of 5.1%. Our full year EPS came in at $5.74, representing an increase of 14.1%, and $0.04 above the upper end of our guidance range of $5.60 to $5.70. In addition to strong revenue and earnings growth, we also achieved a $59 million or 26% increase in 2014 operating cash flow. For the year, cash flow from operations was approximately $290 million. The increase was primarily due to improved net income, increased accounts receivable collections in Spain, Portugal, Italy and Greece, and reduction in employee related benefit payments.

At the end of the year, cash on the balance sheet was $303 million, with $29 million in the United States. Leverage as per our credit facility definitions grew to approximately 2.7 times. Combining our current cash balance with strong cash flow generation and availability under our credit facility, we are well positioned to fund business operations and pursue additional strategic opportunities.

Now, let's turn to review of segment revenue and constant currency growth results. Vascular North America fourth-quarter revenue increased 10.2% to $68.7 million. The increase in Vascular revenue was largely due to the addition of Vidacare, and higher sales of existing product offerings. Anesthesia/Respiratory North America fourth-quarter revenue increased 0.7% to $58.2 million. The growth this quarter was the result of new product introductions, such as disposable laryngoscope products and sales of the ISO-Gard mask.

Surgical North America fourth-quarter revenue increased 9.7% to $40.8 million. The increase in Surgical revenue was due to higher sales of existing products and an increase in average selling prices. Avant's fourth-quarter revenue was up 8.9%, totaling $146.9 million. The increase in EMEA revenue was due to higher sales of existing products, Vidacare product sales, the introduction of new products and price increases.

Asia fourth-quarter revenue increased 10.9% to $63.6 million. The quarterly increase in Asia revenue was primarily due to the acquisition of Mayo Healthcare and price increases, with new product gains in Vidacare also adding to quarterly growth. This was somewhat offset by lower sales volume of existing products.

Turning to OEM. Revenue for the fourth quarter increased 4.8% to $35 million. The increase in OEM revenues to higher sales of existing products, in particular performance fibers and catheters. This was somewhat offset by a decline in the average selling prices on select products.

And lastly, our Other product revenue for the quarter was up 16.3% totaling $62.8 million. The increase in Other revenue was largely due to Vidacare sales that fall under our specialty business call point and strong volume gains from our Latin American market.

As we close out 2014, I'd like to take an opportunity to briefly review our 2014 performance, versus the select financial targets that we had communicated at the beginning of 2014. In doing so, we can both celebrate the successes and highlight the areas requiring additional management attention going forward. Overall we feel very good about 2014, as we delivered on all but one of the financial metrics that we outlined at our Analyst Day conference back in December 2013.

We achieved constant currency revenue growth at the upper end of our guidance range, delivered on our operating margin goal and exceeded expectations for our tax rate, adjusted earnings per share and cash flow from operations. Twice during the year we raised our adjusted earnings per share guidance. The one metric that we did not fully accomplish was gross margin, where we came in 50 basis points below our 2014 expectations.

As we look to the new year, we have well thought out financial plans and productivity initiatives in support of our 2015 gross margin targets. Recognizing that unexpected events and circumstances do arise, we continue to look for additional actions that will further solidify our plans and provide a further cushion toward the achievement of our 2015 gross margin goal. In 2015, we have also placed a heavy emphasis on SG&A cost control, which will provide for better leverage throughout our P&L, and will provide another means for creating meaningful margin expansion and shareholder value.

As we exit 2014, we feel that our core operations are performing at a high level and that we are well positioned to accomplish both our 2015 and our longer term strategic goals and objectives. Next, I'd like to provide you with an overview of 2015 financial guidance. As an introduction to our 2015 guidance, I'll provide an update on Teleflex's exposure to currency moves and key trading currencies.

By way of background, Teleflex aims to hedge its key transactional closures with an approach whereby we hedge the next four quarters at the level of 75%, 75%, 50%, and 25% of estimated transactional exposure. We do not hedge currency translation exposure, and approximately 50% of Teleflex's business is conducted in currencies other than the US dollar. The euro represents our largest exposure, and approximately one-third of Teleflex's revenue is conducted in this currency. We estimate that a $0.05 move in the US dollar, euro exchange rate will impact adjusted earnings per share by approximately $0.20. For planning purposes we have assumed a 2015 euro to dollar exchange rate of $1.13, versus the 2014 average of $1.33.

Our next largest exposures are with the Australian dollar, British pound, Canadian dollar, Chinese yuan and Japanese yen. Exposure to these currencies are limited by the fact that no more than 5% of Teleflex's total revenue is transacted in any one of these currencies. For 2015, we project that currency headwind arising from the combined impact of currency moves will reduce total reported revenue by approximately 6%, and will reduce 2015 EPS by approximately $0.82.

We also estimate that the relatively stronger US dollar will negatively impact gross margins by 50 basis points, and negatively impact operating margins by 100 basis points. These estimates are based on the current currency projections by bank economists for our key trading currencies.

Now moving into the specifics of our 2015 guidance. For 2015, we expect constant currency revenue growth of between 4% and 6%. This growth will be driven by continued Vidacare penetration, base volume growth in line with recent trends, a modest acceleration of new product introductions, very modest core product pricing, already completed distributor to direct conversions and contributions from the recent acquisitions of Mini-Lap Technologies. We'll go into more detail on revenue expectations a little bit later.

Turning to gross margin. We currently project 2015 adjusted gross margin to increase 150 to 250 basis points, and be in a range between 53% and 54% for the year. As previously discussed, we anticipate that we will exit 2015 with adjusted gross margin at 55%. Projected gross margin increase is largely due to manufacturing cost improvement and productivity initiatives, positive mix including a continued benefit from Vidacare, plus pricing and margin gains stemming from distributor to direct conversions and the acquisition of Mini-Lap. These gains will be somewhat offset by the unfavorable impact from foreign exchange, which we estimate to be approximately 50 basis points.

For 2015, we have made operating -- for 2015, we have made operating margin flow-through a top priority, and then built a 2015 financial plan that delivers a 200 to 250 basis point increase in operating margin, through a combination of gross margin gains and SG&A productivity. The SG&A productivity efforts allow us to not only drive margin gains, but to continue to fund both strategic investments in high margin, high growth opportunities such as Vidacare. We estimate that operating margin would have been approximately 100 basis points higher if it were not for foreign exchange headwinds. Similar to revenue, more detail will follow.

Moving on to taxes. As mentioned, during 2014 a number of tax planning initiatives served to bring our full-year sustainable tax rate down to approximately 21.5%. Additional nonrecurring benefits further reduced the 2014 adjusted tax rate to 19.9%. As we look to 2015, our tax rate jumping off point is at 21.5% sustainable rate achieved in 2014. We expect to show further improvement upon this rate stemming from the full realization of actions taking place during 2014 and a more favorable geographic mix of profits.

Our current projection is for 2015 tax rate in the range of 20% to 21%. And that takes me to our preliminary adjusted earnings per share outlook. For 2015, adjusted earnings is projected to be in a range between $6.10 and $6.35 per share, represents growth of between 6.3% and 10.6% when compared to 2014. We achieved this level of earnings despite an estimated $0.82 headwind from currency.

Turning now to a more in-depth discussion of the components of our revenue growth. For 2015, we are assuming growth in base business of volume of between 135 and 165 basis points. This base volume growth expectation assumes a continuation of the volume trends that we experienced during the second half of 2014, when third-quarter volume increased by 190 basis points and fourth-quarter volume increased by 185 basis points. New product introductions are expected to deliver between 75 and 125 basis points of growth, which represents a modestly strengthened pipeline versus the 87 basis points of growth that we achieved in 2014.

Approximately half of the projected new product revenue is attributed to products that have already been launched and have traction in the marketplace today. Additionally, we expect that Vidacare will contribute another 40 to 60 basis points of revenue growth. We continue to invest behind Vidacare, as we like its margin profile and we see continued revenue penetration opportunities both domestically and internationally.

Moving to our thoughts on pricing. Net pricing in our core business is expected to be flat to up 50 basis points. We continue to expect modest pricing opportunities will come from targeted markets and products. For 2015, we expect growth in our base business to increase between 2.5% and 4%, and by base business I mean growth before the impact of M&A and distributor conversions.

Our expectation is that the recent Mini-Lap acquisition will build momentum as the year progresses, contributing between 50 and 75 basis points to 2015 revenue growth. Distributor to direct conversions are expected to contribute between 100 and 125 basis points of growth. We expect the growth will be split 50/50 between pricing and third party sales. In total, constant currency revenue is projected to increase by 4% to 6% in 2015. And s a result of the stronger dollar, we expect a 2015 foreign currency headwind of approximately 6%.

Turning next to gross margin improvements. As we look to 2015, we expect four key items to accelerate the rate of adjusted gross margin expansion by another 150 to 250 basis points, to a range of 53% to 54%. First, we have queued up a slate of specifically identified manufacturing and operations efficiency programs that will increase 2015 gross margin by approximately 100 basis points. Additionally, we expect a 30 basis point improvement from the full-year impact of efficiency programs introduced in 2014.

We project that favorable product mix will add another 70 basis points to gross margin. Approximately one half of this gain is expected from Vidacare. Two distributor to direct conversions are expected to add another 70 basis points, and both distributor conversions have already taken place. Lastly, the recent acquisition of Mini-Lap is expected to yield an additional 10 basis points. These gross margin gains will be somewhat offset by foreign currency headwinds, which we currently anticipate being approximately 50 basis points.

Moving next to adjusted operating margin. We anticipate adjusted operating margin will increase by approximately 200 to 250 basis points to a range of between 22% and 22.5% for 2015. Gains from gross margin will be the principal driver of the increase. While we look to further accelerate those gains through a combination of actions, including aggressive planning of discretionary SG&A spending, the 2014 reorganization of our European country sales and marketing and finance organizations, and the reorganization of our North American Anesthesia and Respiratory sales forces which drove both improved customer focus, as well as expense productivity.

Productivity actions will provide meaningful flow-through on our gross margin to our operating margin, while also providing funding for strategic investments such as Vidacare marketing efforts, or operating infrastructure required to execute the distributor to direct strategy. That takes me to our preliminary adjusted earnings per share outlook for 2015. This slide serves to bridge from our full-year 2014 adjusted earnings per share results, to our full-year 2015 adjusted EPS outlook.

Beginning with the 2014 amount of $5.74. We project our base business will add approximately $1.10 to $1.30 per share. And distributor to direct conversions and recently completed M&A are expected to add another $0.25 to $0.30. That takes us to a subtotal of $7.09 to $7.34 per share, for a growth of between 23% and 28% before the impact of foreign exchange, changes in share count and interest expense.

We expect foreign exchange to impact our adjusted earnings per share negatively by approximately $0.82. Our current estimate is for adjusted weighted average shares to increase by approximately 600,000 shares, to be approximately $44 million for the full year 2015. As a result of these share increases, our earnings growth will be reduced by an estimated $0.09 per share.

Finally, as a result of permanently financing the acquisition of Vidacare through the issuance of senior unsecured notes in May of last year, interest expense will provide an unfavorable comparable through May 2015, and is expected to reduce 2015 adjusted earnings per share by approximately $0.08. As a result, our 2015 adjusted earnings per share outlook is expected to be between $6.10 and $6.35 per share, representing growth of between 6% and 11%, versus 2014.

While recognizing that is not our practice to provide specific quarterly guidance, I did want to highlight some considerations when thinking about the quarters. Overall we expect quarterly constant currency revenue growth to be fairly consistent throughout the year, with the second half growth averaging about 100 basis points stronger than the first half. We expect revenue growth to be stronger in the second half, due to the fourth quarter having one additional shipping day than the first quarter.

Additionally, we expect that the revenue benefit from previously completed distributor conversions and M&A, will increase as the year progresses. We also expect that EPS will be back end loaded for the reasons just outlined. In addition, during the second half we expect a greater earnings benefit from both the footprint consolidation initiative and actions taken to offset the negative earnings impact of the stronger US dollar.

Conceptually, we expect 2015 quarterly EPS seasonalization to fairly closely approximate 2013 EPS seasonalization. Although the 2015 seasonalization will be a little more heavily weighted towards Q4 and a little less weighted towards Q1, due to the shift in shipping days. 2014 had very strong Q2 and Q3 earnings results and a lesser Q4 result, and therefore would not be a good indicator of 2015 seasonalization. And that takes me to my closing remarks.

To summarize, we have built a compelling financial plan for 2015. We have worked hard to identify productivity initiatives, to offset the unfavorable currency impact without sacrificing investment in key strategic initiatives. Our plan achieves key stated financial targets, including sustainable constant currency revenue growth in the range of 5% to 150 to 250 basis point expansion of our gross margin and achievement of 55% gross margin as we exit 2015.

For 2015, we were very focused on driving meaningful flow-through to operating margin and we built a plan that delivers more than 80% flow-through of gross profit gains to operating profit gains. Our cash flow generation remains strong and we project 2015 cash flow from operations to exceed $300 million. Combining our strong cash flow with $300 million in existing cash on the balance sheet and a moderate leverage profile, positions us well to continue to invest for the future and build shareholder value.

That concludes my prepared remarks. I'll now turn the call back over to the operator for questions. Operator?

Thank you.

(Operator Instructions)

Your first question comes from Larry Keusch, Raymond James.

Hi. Good morning.

Good morning, Larry.

So I just wanted to touch on the gross margin expansion and perhaps, Tom, you can kind of help us go through this a little bit. But, as we dissect that improvement that you've outlined, one of the things I think I've been picking up from you guys is that the actual restructuring is a reasonably small portion of the gains that you get there. So, again, I just want to make sure I'm understanding the components and how should we be thinking about the impact of the actual restructuring program in 2015.

Okay. Well, you're right. So, as we think about 2015, we have a number of drivers queued up that are going to move us toward where we want to be. Restructuring, certainly, is one part -- or the footprint consolidation, as we also refer to it, is one part, but not everything. So, as we think about it, we talked about the combination of the footprint restructuring and operating efficiency programs delivering about 130 basis points of growth on a full-year basis.

The majority of that is actually coming from operating efficiency, and there's really two components to that. One is, a number of programs that we kicked off in 2014 and realized some of the benefits as we closed out the year. We're going to pick up more of that benefit as we go into 2015.

And, also, we have another slate of projects that are scheduled for 2015. So, those initiatives will drive the majority of that operations efficiency, footprint consolidation, we'll have some savings but we've got some one-time costs that we won't add back that will offset some of that. The majority of the footprint savings really kick in, in 2016 and 2017, and that's been kind of our plan all along.

In addition to the ops efficiency, we also are expecting to realize gains from both the acquisition of Mini-Lap as well as the [Goderex], and collectively they account for about 70 basis points of margin improvement. Those are already completed. So those are -- we're fairly confident on those. And then we're also expecting to get another 70 basis points coming out of mix. About half of that is coming from Vidacare and the continued growth coming from the investment we're placing in that product line.

So those are the kind of key legs to the growth story on margin. We also have got some benefits that come from oil pricing, although we're not expecting or not projecting perhaps as big a benefit as some others. So, as we think about it, it really comes down to driving the operations efficiency project that we've got queued up, as well as realizing the benefits from mix and the distributor conversions.

Okay. Terrific. And then, just one for Benson. I guess the balloon-pump business continues to present some challenges and has over the past couple of years. You again referenced it as having an impact this year -- or this quarter, I should say. So I guess the bigger picture question is, as you think about your portfolio and opportunities for rationalization, how do you think about the balloon-pump business and perhaps some of the lower-margin respiratory products that are in there as you think out over time?

I think one of the -- certainly one of my observations is that almost all segments of capital equipment in the medical device field are subject to a lot more unevenness and volatility, as capital budgets are often the first thing that are hit in tougher times for hospitals. So, it's -- one of the disadvantages is that it's always going to be lumpy compared to the rest of our businesses. Right now, as we sit here today, we're on the verge of introducing a new pump.

We do expect some improvement in the Chinese capital equipment marketplace. So I think we're more optimistic about the immediate future of that business. But, long range, we continue to evaluate whether we'd be best served to be more of a pure-play disposable business. I would say also that, relative to our respiratory therapy business, some of the issues that were driving poorer performance the last two years have been resolved. We're more optimistic in terms of the -- in terms of its performance in 2015, but I would say, from a longer-term, strategic view, it's not as good of a fit as some of our other businesses.

Great. Thanks very much. Appreciate it.

Your next question comes from the line of David Lewis, Morgan Stanley. Please proceed.

Good morning.

Good morning.

Tom, I wonder if we could just play a little game of reconciliation for 2015. I think obviously the key element of this call is a great ability to offset this FX pressure. So, relative to our model, it's about $0.40 of incremental FX pressure. It looks to me that a third to a half of that may be coming from better-than-expected tax. The other half of that, can you sort of walk us through what piece is shares, what piece is oil, and, perhaps, what piece -- or what is the impact of the Korea distributorship?

In terms of -- just so we're clear, when you say half of it's coming from tax, you mean going into 2015 relative to 2014?

That's right. So the tailwind from tax looks like it's maybe $0.10, $0.15, perhaps $0.20. I don't want to put words in your mouth. Just looking to get the pieces.

Let me just clarify what I talked about on the tax line. We had actually achieved a tax rate for the full year of about 19.9%, I think was the adjusted tax rate. And included in that were a number of one-time or nonrecurring benefits. So, once you strip those out, we are more in the 21.5%, 21.7% range, what we consider a normalized rate.

What I was talking about is that we're going to bring our tax rate down in 2015 from that normalized rate to a level of 20% to 21%. But recognize the actual rate we posted in 2014 was 19.9%. So, if anything, we're at parity, perhaps a little negative. We may get some benefit if they reinstate the R&D tax credit as we go into the next year.

But as we think about what's going to be driving 2015, we think about it in a number of buckets in terms of what's going to be driving those earnings. And so, as I think about it, I've got about a dollar's worth coming from what I'll consider to be kind of core and revenue related, and that's being kind of our core revenue growth of 3.2% mix and pricing. We're also picking up another $0.25 to $0.30 coming out of acquisitions and distributor-to-direct conversions. And then, operations, if I combine the impact of the footprint and the operations productivity, you're talking another $0.35 to $0.40.

And then we've got some pretty aggressive planning around the SG&A lines to make sure we're driving out of the budget as much of the discretionary spending as possible, as well as some restructuring of the EMEA country organizations last year that will provide a benefit into this year as we capture those savings. We also reorganized our Anesthesia & Respiratory sales forces to actually bring them closer to the customer and, in doing so, we were able to drive some efficiency there.

And then we've got some continued savings as we fully integrate Vidacare and the Australia distributors and Mayo, that will then add another $0.40 of earnings. So, as we think about it, there's number of drivers that are going to get us to that earnings level in 2015.

I would just add to that, David, that we have been, for the last several years, thinking that 2015 was the year we realized a lot of those leverage improvements in our P&L that we've been working on for the past several years. And, fortunately, they've come out even a little bit better than we expected in a year when we need it with the euro.

Okay. Very helpful. And then, just one question for Benson, another follow-up for Tom. I'll take the (inaudible) one. Tom, the extra selling day in the fourth quarter, was there an extra day and what was the impact of that? For Benson, Mini-Lap, obviously that's probably the biggest organic driver from a product pipeline perspective in 2015. Just kind of walk us through what you've seen by trialing, testing so far. What gives the confidence that you can get that gathering storm to potentially 75 bps in the back half of the year? Thank you.

I'll let Tom go first, then I'll pick up on Mini-Lap.

We estimate the extra selling day in the fourth quarter to be around 62 basis points related to revenue, and about $0.08 of earnings, if I recall the earnings impact.

So, I think, first of all, we have a high degree of confidence in terms of the contribution from Mini-Lap. This had been a product that had been distributed by another company. In terms of our revenue projections, they're really just based on what the existing market numbers are as we make that transition.

So, I would say that there's a low risk that we won't get the improvement from Mini-Lap. Our reason, besides the obvious economic one for this year -- though really it ties very, very nicely into our overall -- our percutaneous laparoscopic line and gives us some broader exposure, and we walk into the hospital already with some business in our pocket in that particular segment. So we think it will be a good assist in our launching of our micro-laparoscopic product line.

Great. Thank you very much.

Your next question comes from the line of David Turkaly, JMP Securities. Please go ahead.

Thanks. Just to kind of rehash some of your comments that European markets look stable and the US looks slightly positive, sounds like you're gaining some share in the US and raising prices as well. I guess as you look at 2015, where you're sitting today, versus how you felt kind of at the beginning of the last two years, would it be fair to say that you feel that the core business is improving and maybe even the end markets kind of globally are showing signs of improvement?

So I think the answer to that is, yes. Even in the area of China, where we had some slowdown. It was, again, primarily in the pump business, not in our disposable business. I had dinner earlier this week with the head of one of the largest hospital systems in Philadelphia, and while they're not seeing necessarily an uptick in in-patient procedure rates, they are seeing an uptick in acuity and that seems to be working in our favor. But also, we're making some significant inroads in share gains. So that's, I think, as much as anything, responsible for our increasing growth trends in our core products.

And then, just to clarify the earlier question. Obviously, the gross margin expansion this year, the impact of the facilities -- the three that you moved -- are really going to be more felt in 2016 and 2017, the operating efficiency and manufacturing productivity you're talking about, in 2015, is kind of incremental, exclusive of those impacts. Is that fair?

That is correct. And I would say, as you know, for some period of time, we've been talking about the fact that our gross margin improvement goals don't terminate in 2015; that we see some very good continuing runway in 2016, 2017, and 2018; and the particular restructuring program that's in place now really starts to kick in for us in a much bigger way in 2016 and 2017. So, that's absolutely correct. As we had been able to generate other improvements in our gross margins from acquisitions and from some other things, I would say that allowed us to put the relocation plans on a more conservative footing. And we have taken advantage of that and that's another reason why their -- the biggest gains will come in 2016 and 2017.

Thanks a lot.

Your next question comes from the line of Matt Taylor, Barclays. Please proceed.

Hi, good morning. Thanks for taking the question.

Good morning, Matt.

Good morning, Matt.

My first question is, you've been getting some benefit here and doing some additional distributor-to-direct conversions. I was wondering if you could just characterize the runway that you see there beyond 2015, and if we could see more kind of bigger transactions like this in 2015 and beyond.

I would say Mayo last year was probably a little bit bigger than what we would do normally. I think 2015 is going to be largely representative of what you could expect to see in that arena for the next couple of years and, again, every time we do a new acquisition like a Vidacare, it usually opens up the door for additional opportunities. But even setting that aside for a second, I think you're going to see the same sort of continuation over the next couple years as we continue to consolidate distributors.

Great. And then, organically, you've been making some investments in surgery and specifically micro-surgery and kind of have made another vet there. So I was curious as to how you see those products rolling out this year and what kind of contribution we could see, realizing this is kind of a new area for you.

So we have very conservative numbers in our plan for the roll-out of the microlaparoscopic line. We certainly didn't want to put a budget together that had a lot of risk in what's an unknown product. We will be, again, having a soft product launch beginning first quarter.

I think, actually, when we get to the Analyst Day, we'll have a much better insight in terms of what the adoption rate's going to look like and that will also determine the sales investment we put behind the product as well. So, it's a relatively conservative expectation this year. We're delighted that we're going to be able to put this roll-out into place faster than what we thought initially going into the year, but I think we'll have a lot more information and our plan is to spend some time on this, certainly at the Analyst meeting later in the spring.

Great. Thanks a lot.

Your next question comes from the line of Matt Mishan, KeyBanc. Please proceed.

Thank you for taking my questions.

You bet.

Sure.

First question is Vidacare. I believe you previously said that you thought it could do about 100 basis points of organic growth alone next year. It looks like in your guidance it's kind of 50 basis points. Has anything changed in regards to your expectations there?

Not really. I think, again, as we were putting together the overall revenue budget this year, we wanted to make sure that there was some conservatism built into most of the individual line items. We didn't want to end up with an unpleasant surprise of missing on the revenue and therefore be under even greater cost pressure. I would say it's more a matter of some conservatism. In fact, if anything, I think I'm personally more bullish on the opportunity that Vidacare has for us over the next couple of years than I was even a couple months ago.

And you mentioned share gains a couple times in the presentation. Where specifically are you guys gaining share?

So, our CBC business is taking an uptick. I think we've seen some improvements in our respiratory-therapy marketplace. In fact, for the most part, almost across the board in our US-based businesses, we've seen some improvements and, again, that's been helped enormously by 11 new GPO and IDN contracts that we closed just in the fourth quarter alone.

Okay. And the last question from me is, it's been I think 15 months since you've closed on Vidacare. What does the pipeline look like for a Vidacare, LMA-type acquisition?

I think the pipeline is good. We are seeing -- I would say that we are seeing continued pressure and difficulties on companies that are in that size range. It's hard for them to go global. It's hard for them to penetrate into GPOs. And we expect that to be a pretty good marketplace for us, really, over the next several years. So, we're picky about the things that we're looking at, but we certainly have -- I would characterize it as a robust target list.

Okay. Thank you and great quarter.

Thanks.

Your next question comes from the line of Jason Wittes, Brean Capital. Please proceed.

Hi. Thanks for taking the question. So wanted to ask about the Anesthesia/Respiratory business in North America. I think you've kind of mentioned that the performance has been a little bit under expectations, it's kind of running at flat to 1%. I guess I'd like to get your sense on what you think the normalized growth rate should be for that business?

And, secondly, as part of that, you'd also mentioned that you'd made some changes. I know that you've made some sales force changes, but also from what I spoke with you last, you talked about some clinical trial initiatives that you're going to take which also could help this business. Could you kind of just walk through that business for us?

So I'll separate those two businesses out and -- because we have, in fact, now separated those selling organizations and assigned separate management groups. Our Respiratory therapy business really is concentrated almost entirely in locations where we have group GPO or IDN contracts, and we felt we could manage that with, actually, a very small targeted sales force. Usually those conversions tend to be quite large in size and we're only going to actually have a few of them each year.

So we're approaching that with a much more targeted sales force. We do have some improved products out, in that product line. We've got a new humidifier that's very competitive. As I said, we've made some good inroads in some additional group contracts and we've been making some effort to improve gross margins in that area.

Anesthesia, this year, is going to be principally driven, I think, by some improvements in our laryngo -- excuse me, our LMA product line. We'll be launching the third-generation LMA device, called the Protector, during the course of 2015, and we will be capitalizing on an acquisition we made a couple of years ago, with their version of an all silicone, low-end LMA device with a pressure-cup indicator. And we've been marketing this product in Europe for the last couple of years and have really been pleased with their results of it and we'll be rolling that out into the United States.

We're also quite active in the disposable laryngoscope market, which is an emerging area that is really starting to take off for us. And we've seen some pretty good growth in our pain-pump business as we go into 2015. So, we're looking at 2015 as being, certainly, pretty optimistic about both of those product lines, compared to the last couple of years.

And where do you think normalized growth should be for those businesses?

I couldn't quite hear your question. I'm sorry.

I just wanted to get a sense of where you think normalized and/or market growth should be for those two businesses right now.

I would say they're probably a little lower than average and I would place it as 3% to 5% versus our 4% to 6% range for the rest of our product line. I would say again, we may be being more cautious than we need to be. We're very interested in seeing how the Protector is received in the US. The folks we've had trying it in non-US markets have been very, very enthusiastic about the product. So, I think we've got some conservatism built in there.

Okay. And if I look at your Vascular North American business, even if I strip out Vidacare, there's definitely growth there. I'm not sure how to take out for the extra month from Vidacare, but roughly it looks like something like around 2% to 3% for the remaining business. Again, my math could be slightly off. Could you gives us a sense of how fast your PICC line and your CBC lines are growing right now?

PICC lines are growing faster than CBC line, obviously, because we have more share. Jake, I'll turn this over to you.

Our PICC business this past quarter was up about 11% on a constant-currency basis.

Okay. And CBCs, roughly?

CBCs were also up kind of mid-single digits.

Okay. Great. And then, one final question. I think it was asked in a couple ways earlier but, in terms of the gross margin progression, how should we be thinking about it? I know that you -- I know a big component of that is a plant closure. But my understanding was that wouldn't come into effect until largely the fourth quarter. Is that the right way to think about it? Can you give us a little more color in terms of how the gross margin progresses in 2015?

I would say that, in quarter 1 and quarter 2, there's not a lot of big movement. We start to see many of these issues or opportunities start to kick in, really, in Q3, and then we're very close to where we need to be by Q3, and then some additional improvements in Q4. So it is modest improvements during the first half of the year and some significant improvements starting to kick in, in the beginning of the third quarter.

So you should expect to see a building gross margin as the year progresses, as a lot of these cost improvement programs are put into place and we start to realize those benefits. But to Benson's point, on the footprint, per se, you're going to get an added bump in the fourth quarter as we start to realize some of those benefits from that action. Kind of two different things happening. The cost improvements are ratable throughout the year and then, at the close, a bump from the footprint.

Very helpful. Thank you.

Your next question comes from the line of Richard Newitter, Leerink partners. Please proceed.

Hi. Thanks for squeezing me in. Just wanted to ask, on the -- you might have said this earlier, on the interest expense, that's an incremental kind of bad guy for 2015 relative to 2014, and on the shares, can you just go over what exactly that was again?

On the interest expense, I think our average interest rate is right around 5.1% is our assumption. And I think a good way to think about that is, if you take the third and the fourth quarter kind of spend rate, that's what you should expect to continue into 2015 because that will reflect the capital structure in place. And then, in terms of our shares, we're expecting about a 600,000 share increase, in part due to normal equity grants and whatnot, and in part due to the dilution associated with the converts. We're expecting that to be around $44 million, maybe $44.5 million, is the general range you should be thinking.

Okay. So it's related to the convert. And then, on the Mini-Lap, I think initially you said you're factoring in basically what the sales were from the prior distributor. But you also mentioned that there was something in the Mini-Lap pipeline that you found attractive. I was just wondering, is the pipeline just kind of more product-line extensions to the existing portfolio, or is there something in there that's maybe something that could be potentially more needle moving or category expanding? Maybe elaborate on that.

So, I would say our financial modeling of the acquisition, we tend not to put a lot of expectations around new product releases. I think that, from what we have seen in terms of the product pipeline, it has the potential to have very, very significant growth compared to the base of business that they have now. I'm not sure that it amounts to something that would in and of itself move the needle a whole lot for Teleflex. I think the biggest contribution from the line comes -- again, is really having a dedicated product line in this whole mini laparoscopic area with PERCUVANCE and with Mini-Lap, and it's part of the overall product roll-out strategy in that product line over the next year or two.

Okay. That's helpful commentary. And then, just lastly, just with respect to restructuring, you announced one last year and I know that you kind of left the door open for the potential for there to be restructuring 2.0 at some point. We're approaching the mid-year mark where you'll have your Analyst Day. Is that something that could potentially be in the cards in 2015? And does currency and the volatility we've seen in exchange rates in any way impact the timing or kind of rationale or reasoning behind announcing something like that? Thanks.

The answer to the last question is, not at all. These are moves that make sense regardless of what happens to currency, one way or the other. I certainly think it's our expectation at our April meeting to be able to talk, I think, in some more detail about what our gross margin expansion programs should look like from a number perspective between 2016, 2017, and 2018. It's an actual restructuring plan.

We're somewhat limited on commenting until we get Board approval. So I think our goal at the April meeting -- or at the May meeting has more to do with simply outlining the general areas where that improvement can come from, and what we think -- or where we think we're going to be by the end of 2018. And I would say to add to that, we continue to be quite bullish about our opportunity for gross margin expansion through that period.

Thank you.

Your next question comes from the line of Anthony [Perrone] from Jefferies Group. Please proceed.

Thanks a lot. Good morning. Maybe a couple --

Good morning, Anthony.

Good morning. Maybe on Mini-Lap, a follow-up there would just be to maybe give us a sense of the margin profile of that business versus the corporate average and what you're expecting for 2015.

So, I think it's a safe assumption that every acquired product we have has a considerably better profile than what we've been selling, and we're reluctant to do things that don't have a seven in front of them, at least.

And maybe just a follow-up there. It seems that these are lap instruments and you have the alliance with da Vinci. I don't think these would be compatible on the da Vinci system. Maybe just some comments on your broader outlook on minimally invasive surgeries, where you seem to have two angles here -- one is robotics, one is lap instruments. Maybe just to give us an idea of where you're seeing Teleflex's position, as it relates to minimally invasive surgery, broadly.

We continue to work, I think, very well and have an excellent relationship with Robotics Company. We view that kind of as a specialty opportunity for us which we wouldn't venture into on our own without that relationship. The mini-laparoscopic instruments is entirely different. That really is a Teleflex pure play.

As I mentioned earlier in the call, we are really looking forward to understanding the reaction and adoption rate that we can plan on. I want to be careful, at this point, in making sure we have enough initial customer experience before we start quantifying what that is. But, at its very minimal level, it would more than meet our expectations from the modeling we did and the acquisition model. I would say we characterize this as one of those product areas that could be a lot bigger than what we thought just a year ago.

That's helpful. Maybe to shift over to the APAC business. That was 13% of revenue through 2014. Just wondering what percent of that is South Korea and sort of what tailwind you get from the distributor acquisition in that region.

Just give us a second. We're just trying to dig up the data. I think it's about -- call it maybe about 4%, give or take.

$4 million?

$4 million.

Okay. And the last one from me is just on OnControl, the Vidacare, the label extension for pediatrics. How large is that potential market for that indication? Thanks again.

So, again, for most pediatric indications, the market per se is not really big. It serves as a really great entree, though, because there's not a good alternative solution for those pediatric patients. And I would sort of describe it as a great back door to get into the hospital and get clinicians familiar with it. It's probably going to show up more in terms of our ability to accelerate the growth of the rest of the OnControl line than necessarily as a discrete item.

Thanks a lot.

Your next question comes from the line of Chris Cooley, Stephens Incorporated. Please proceed.

Thank you. Appreciate you working me in here towards the end. Just two quick ones at this point from me. One maybe for Tom. Could you talk to us a little bit about the cash position there -- or maybe Tom and Benson there, when you think about it, most of that cash is domiciled O-US, as you provided. Should we think about future M&A predominantly being international in its focus, or any restrictions there that we should keep in mind? And then I have just one quick follow-up. Thanks.

I would say that it's always -- there's obvious -- there's an obvious advantage if the acquisition happens to be domiciled outside the US and we can use that cash for it. However, the bigger driver around our acquisition selection is, does it provide a clear clinical benefit, does it help the hospital with the cost profile, is it detectable, is it going to be a product that really has an almost competitiveless opportunity in the marketplace?

And the reason behind that strategy is, we think those are going to be the most protected kind of enclaves in an increasingly cost-concerned healthcare environment. So we certainly wouldn't walk away from an acquisition that was US-based that met those other criteria. All things being equal, absolutely, we'd rather put our cash to work overseas.

And we have been using that overseas cash for a number of these distributor conversions. So aside from something larger on the M&A front, as we look at these distributor conversions, there's a supply of cash to facilitate those.

Super. I realize the call's kind of long. Another quick one here. Just when we look at the constant currency revenue guidance for the year, 4% to 6%, which is down year over year versus the 8.8% in the prior year, and I realize in 2014 you benefited significantly from Vidacare. Help me think, though, just about -- I just want to make sure I got the math right here for 2015 -- what you're expecting in terms of just volume growth when we think about the components of that 4% to 6% for this year, how much of that is volume? Thanks.

So, if we think about it, this year we've got in our assumptions base volume growth of 135 to 165. Now, we're also taking Vidacare kind of out of the M&A world which it was last year, and that effectively will roll into our base volume. We're calling it out separately just so you can compare this year versus last. If I think about that base volume growth of 135 to 165, that continues a nice trend that we saw in base volumes as we closed out 2014.

We had been seeing volumes that were fairly negative across Europe and soft in North America in the early part of the year. As the second half came together, we saw a really nice strengthening of those base volumes in both North America and in Europe. And, as a result, we closed out the year with 190 basis points of volume growth in the third quarter and 185 in the fourth.

So as we look at 2015, we're assuming 135 to 165. Certainly our hope is that those trends of Q3 and Q4 continue at that level or higher. We think what we've got is in line with what we've been seeing in the marketplace. And, despite the softness in Asia, we still achieved those levels in Q3 and Q4.

If I could just maybe push on that a little bit more. So, still the 135 to 165, down versus the rate we saw in the second half, even though we have a number of incremental drivers coming in now here into 2015, so I'm assuming that's a bit of conservatism, much like we saw you guys provide us at the start of 2014 as well? Is that the best way to think about that?

That's the best way to think about it, yes.

Fair enough. Thanks so much.

You have no further questions at this time.

(Operator Instructions)

Operator, if there's no further questions I'll wrap up the call. Thanks to everyone for joining us today. This concludes the Teleflex Incorporated fourth-quarter 2014 earnings conference call. Have a good day.

Thank you for your participation in today's conference call. This does conclude the presentation. You may now disconnect. Good day.