Jake Elguicze - Teleflex, Inc. Liam J. Kelly - Teleflex, Inc. Thomas E. Powell - Teleflex, Inc..

David Ryan Lewis - Morgan Stanley & Co. LLC Richard Newitter - Leerink Partners LLC Lawrence Keusch - Raymond James & Associates, Inc. Anthony Petrone - Jefferies LLC Mike Matson - Needham & Co. LLC Matthew O'Brien - Piper Jaffray & Co. Brian David Weinstein - William Blair & Co. LLC David Turkaly - JMP Securities LLC Isaac Ro - Goldman Sachs & Co.

LLC Kristen Stewart - Barclays Investment Bank.

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Teleflex Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded.

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

Good morning, everyone, and welcome to the Teleflex Incorporated third quarter 2018 earnings conference call. The press release and slides to accompany this call are available on our website at www.teleflex.com.

As a reminder, this call will be available on our website and a replay will be available by dialing 855-859-2056 or, for International calls, 404-537-3406; passcode 8158978. Participating on today's call are Liam Kelly, President and Chief Executive Officer; and Thomas Powell, Executive Vice President and Chief Financial Officer.

Liam and Tom will provide prepared remarks and then we'll open up the call to Q&A. Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in our slides.

We wish to caution you that such statements are in fact forward-looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.

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

we also received 510(k) approval for Percuvance; we achieved positive results from our Phase 1 safety trial associated with RePlas; we acquired an innovative company in Essential Medical, which has their product focused on large bore closure that could be the first-to-market in the U.S.; and our two recently completed scale acquisitions NeoTract and Vascular Solutions continue to perform very well.

The combination of each of these items give us further confidence in our ability to achieve our previously provided 2019 through 2021 financial targets that we outlined at our Analyst Day this past May. Turning now to our performance in the quarter, our third quarter results were a solid start to the second half of the year.

During quarter three, revenue grew 14% on a reported basis and 15% on a constant currency basis. This growth was driven by a combination of continued excellent performance from our two recent scale acquisitions and a significant rebound in our organic constant currency revenue growth, which reached 5.6% for the quarter.

Included in the 5.6% growth rate is approximately 1% from increased sales of Vascular Solutions products and a contribution of 4.6% from legacy Teleflex product line. I point this out to highlight that the core Teleflex product lines can deliver 4% revenue growth and can continue to perform at that level in the future.

I am further encouraged by the step-up I saw in our North American tracings data, which is an excellent indicator of end-customer demand and, therefore, reaffirms our belief that the core business is performing well. During our second quarter conference call, we outlined a few events that we believed to be transient.

And I'm pleased to say that as we anticipated and expected, this proved to be the case. We also outlined the key drivers that we expected would accelerate our organic growth in the second half of the year.

I am also very pleased to report that, thanks to strong execution across nearly all our strategic business units and the anticipated shift of distributor orders from quarter two to quarter three, we delivered upon our organic constant currency revenue growth expectations for the quarter.

I also want to point out that we achieved this 5.6% organic constant currency revenue growth against our most difficult comparison of the year. Investors familiar with the Teleflex story will recall that in the third quarter of last year, organic constant currency revenue growth was 5%.

While we are obviously focused on continued execution in the fourth quarter, our year-to-date performance gives us confidence in our ability to achieve our full year organic constant currency revenue growth guidance of 5% to 5.5%, albeit we will most likely be at the low end of that range.

Turning to our recently completed scale acquisitions; UroLift continued its strong momentum, delivering $49 million in revenue, which is an increase of approximately 45% versus the prior year period.

Perhaps more impressive is that the Interventional Urology team delivered this growth while simultaneously overcoming a temporary supply issue that resulted from a proactive second quarter product recall that we noted on our last earnings call.

I am pleased to report that as of the end of quarter three, UroLift supply is now back to approximately 100%. I want to add my personal thanks to the entire Interventional Urology team who continue to execute at a very high level.

In addition to delivering strong top line results and getting past the recall, UroLift was also the subject of five real-world studies at an international urology conference during the quarter and the team continued to expand its leadership position as the BPH therapy with the largest body of clinical evidence supporting safety, efficacy and cost effectiveness.

Turning to Vascular Solutions, third quarter revenues reached $53.2 million globally, which represented growth of over 21% compared to the prior year period. Vascular Solutions world-wide revenue growth was robust in both North America and EMEA, which continues to benefit from distributor conversions we initiated in the second half of 2017.

We remain confident in the continued performance of VSI in the fourth quarter and we anticipate strong year-over-year revenue growth. Turning to some other key metrics; during the quarter, our adjusted gross and operating margins reached 57% and 26%, respectively.

And our various restructuring initiatives remain on track to achieve the synergy level we previously expected. Our performance this quarter translated into adjusted earnings per share of $2.52, which is an increase of 18.9% over third quarter 2017.

And despite foreign currency exchange rates being less favorable as compared to when we last provided guidance, we are raising our full year adjusted EPS guidance from a range of between $9.70 and $9.90 per share to a range of between $9.80 and $9.95 per share. With that as an overview, let's now look at quarter three revenue in more detail.

Third quarter 2018 revenue totaled $609.7 million, which is an increase of 15% on a constant currency basis. Beginning with the components of organic revenue growth; during Q3. We saw organic constant currency revenue growth of 5.6%.

The third quarter of 2018 had the same number of shipping days as Q3 last year, so there was no shipping day impact to our ongoing growth rate.

Our 5.6% organic growth consisted of 3.5% from legacy product volumes, excluding the impact of the surgical product line exit, 1.6% from new product introductions, and positive pricing adding about 70 basis points.

These positive contributors were partially offset by the surgical product exit which negatively impacts Q3 growth by about 20 basis points. Contribution from acquisitions during the quarter was 9.4%, nearly all of which was NeoTract.

And before I turn to a review of our segment performance, let me provide additional color as to why we expect our organic constant currency revenue growth to accelerate further in the fourth quarter. Using our year-to-date organic constant currency revenue growth of 3.7% as the starting point, we see the following drivers of acceleration in Q4.

First, as many of you know, the third quarter was the final quarter that NeoTract was reported in our M&A bucket and it will begin to contribute to our organic constant currency revenue growth rate starting in the fourth quarter and from that point forward.

We expect NeoTract to add approximately 3% to our fourth quarter organic constant currency revenue growth. We will also have the benefit of one additional shipping day in Q4 which will add approximately 1.3%.

In addition, we expect growth in our EMEA, Interventional Access, and Asia businesses to accelerate in quarter four, which we expect will add approximately 60 basis points. For the full year, this brings us to our expectation of organic constant currency revenue growth at the low end of our 5% to 5.5% range.

As we look longer term, we remain confident in our ability to deliver 6% to 7% organic constant currency revenue growth from 2019 through 2021.

This confidence is supported by increased investments behind NeoTract and Vascular Solutions to further support strong momentum in those businesses, deeper utilization of our legacy products, and accelerated momentum in growth from new products.

As a reference point, if you were to include the financial performance of both Vascular Solutions and NeoTract into our 2017 results, our pro forma growth rate through the first nine months of 2018 was approximately 6.6% and, for quarter three, it was approximately 8.2%.

Turning next to our revenue performance by segment; Vascular North America third quarter revenue increased 7.8% on a constant currency basis to $80.7 million, driven by the return of distributor orders and strong growth in both PICCs and EZ-IO.

Moving to Interventional North America, third quarter revenue was $66.7 million, which is an increase of approximately 9.9% on a constant currency basis. The increase here is primarily the result of higher sales of Vascular Solutions products as well as growth in OnControl.

Turning to Anesthesia North America, third quarter revenue was $53.2 million, which is an increase of 4.8% on a constant currency basis. Growth in this segment was driven by our airway and pain management product categories.

Shifting to our Surgical North America business, it reversed the negative trends in the past few quarters, increasing its revenue 4.6% on a constant currency basis to $42.5 million.

Surgical revenues were driven by instrument sales and an initial easing of supply constraints, partially offset by the exit of lower-margin product lines in the third quarter of 2017.

Despite the improvement in Surgical revenue in Q3, we continue to expect that Surgical revenue growth will be relatively flat in the second half of 2018 as compared to the second half of 2017. Moving to our overseas operations, third quarter EMEA revenues were up 2.9% on a constant currency basis to $139.6 million.

Growth in EMEA was largely driven by distributor conversions. Now to Asia; third quarter revenue increased 6.7% on a constant currency basis to $76.5 million. Growth in this segment was led by China whose revenues expanded approximately 14%. This was largely driven by an increase in volume following our decision to take the business direct last year.

Next, I'd like to brief you on our OEM segment. During the third quarter, revenue was up approximately 13.1% on a constant currency basis and reached $54.9 million. The increase in OEM revenues were due to higher sales volumes of existing products and acceleration in timing of revenue recognition resulting from the adoption of new accounting guidance.

And lastly, third quarter revenues for the businesses within our All Other category was up 103% on a constant currency basis, totaling $95.6 million. Growth here is primarily attributable to the acquisition of NeoTract and, to a lesser extent, our Latin American business which grew approximately 16%.

Also, during the quarter, we signed a total of 21 GPO and IDN agreements, of which two were new agreements. That completes my comments on Q3 revenue performance. Turning to a brief update on UroLift. During the quarter, UroLift was the subject of five studies that were presented at the World Congress of Urology 2018 annual meeting in Paris.

Let me summarize some of the important takeaways. First, a Real-World Experience study demonstrated once again that the clinical benefits and quality of life in the real-world were consistent with the five-year L.I.F.T study.

Another study on the impact of prostate size on clinical results showed that UroLift provides a statistically significant improvement in symptoms and quality of life for men with prostate smaller than 30 grams and larger than 80 grams. As a reminder, UroLift is indicated for prostates up to 80 grams.

But perhaps most impressive was the study on the UroLift device which was used on men in urinary retention. This study showed that 90% of men treated for acute urinary retention due to BPH became catheter free after treatment with UroLift.

We continue to invest in building a large body of clinical evidence supporting UroLift as the only treatment that provides rapid relief with low catheterization rate and the only therapy with a zero rate of new onset sexual dysfunction.

We believe high quality published clinical data, combined with our go deep commercial strategy and broad reimbursement will support our previously provided 2019 through 2021 revenue growth rate expectations for UroLift.

And for a final update on UroLift, we are very pleased to announce that, just yesterday, we received Shonin approval of the UroLift system to be marketed and distributed in Japan.

As a reminder, we estimate the market in Japan to include approximately 2.3 million men over the age of 50 with moderate to severe BPH symptoms who have seen a physician for their condition. Our plan to build a market for UroLift in Japan will follow a methodical process similar to how we built the U.S. market.

First, we will focus on obtaining reimbursement, which is typically a 12- to 18-month process in Japan. Once reimbursement is established, we will begin commercialization with academic centers to build strong initial clinical experience followed by full commercial launch.

At the same time, we will begin enrolling a PMDA mandated post-market clinical study using many of our initial implanting physicians. This study will provide us with another important tool that we believe will support more widespread, rapid physical adoption in Japan over the long term.

Turning now to an update on RePlas, our freeze-dried plasma product. During quarter three, we completed the Phase 1 safety trial of RePlas called FDP-1, the results of which were presented at AABB in mid-October.

The trial was a randomized, double-blinded, dose escalation study that measured certain biomarkers following infusion with RePlas Freeze-Dried Plasma versus fresh frozen plasma in healthy subjects. We are pleased to report that the data readout for the trial was very positive.

RePlas was shown to be well-tolerated in normal, healthy subjects with no serious adverse events or safety concerns. These results will support the final module of our BLA which we expect to submit in early 2019. Turning now to our most recent acquisition.

With the acquisition of Essential Medical on October 4th, we obtained the MANTA Vascular Closure Device. MANTA is a unique system specifically designed for closure of large bore arteriotomies, utilizing devices or sheaths ranging from 10-French to 18-French. Large bore arteriotomies are typically associated with procedures such as TEVAR and EVAR.

MANTA is currently approved in the EU and has seen rapid commercial adoption with over 8,100 procedures completed to-date. In its CE Mark study, MANTA achieved 94% hemostasis with a 1 to 2 minute deployment time and time to hemostasis of approximately 20 seconds, absorbing in the body fully within six months.

We believe there is a large, unmet need for large bore closure system and that MANTA could be the first to the U.S. market. Currently, many physicians improvise by stitching together multiple small bore closure systems. More importantly, complications associated with large bore closures are high.

According to a 2017 JAMA study, patients with bleeding complications in TEVAR and EVAR procedures stayed in the hospital three times longer, were twice as likely to die during their hospital stays, and cost an average of over $18,000 more as a result.

MANTA has demonstrated in its CE Mark study, a 2% major vascular complication rate, compared to a composite 7.5% major vascular complication rate associated with suture-mediated and surgical closure products as found in published literature. Our initial target market for MANTA would be TEVAR and EVAR.

We estimate the global addressable market for our MANTA technology in these two procedures will be approximately $200 million to $300 million. Following its anticipated FDA premarket approval in 2019, we plan to leverage our strong presence in interventional cardiology to accelerate adoption of this breakthrough technology worldwide.

Before turning the call over to Tom, I wanted to take a step back and highlight how our portfolio is positioned to drive durable long-term revenue growth, including both our currently marketed products as well as our pipeline.

First, both UroLift and UroLift 2 are expected to make significant growth contributions, and we continue to feel very confident about the momentum in that business.

Moving to our intraosseous products, we are deploying more sales and marketing resources into EZ-IO and OnControl as we believe there remains an opportunity to drive increased utilization of these products.

From a vascular access perspective, PICCs have been a growth contributor, and we continue to expect to gain additional market share in the future by leveraging our unique antimicrobial and antithrombogenic coatings, as well as our catheter navigation platform.

In our Anesthesia business, we expect our airway management solutions will drive organic growth. One significant driver of long-term growth is our platform of interventional cardiology products within our Interventional Access segment.

This includes Turnpike, TrapLiner and, our most recent addition, the Chocolate balloon catheter which we acquired from QT Vascular. Chocolate is designed for coronary angioplasty and has a unique design that allows for less trauma to the vessel wall during balloon expansion.

We expect Chocolate to generate a moderate amount of revenue through our Interventional sales force. Moving to our pipeline, I covered MANTA in depth and we continue to be excited about the long-term potential of both RePlas and Percuvance.

In fact, Percuvance recently received 510(k) approval from the FDA, and we continue to expect to do a full market release of that product during 2019. We are also increasing investments in R&D to support our expected acceleration in growth from new products over the 2019 to 2021 time period.

Some of our new products driving growth in Q3 include our Midline catheters, VPS Rhythm catheter navigation, and Gel-Block embolization.

Looking forward, one example of an R&D funded new product we expect to drive growth upon its expected launch in 2019 is the CleanSweep Closed Suction System designed to mechanically sweep the inner lumen of the endotracheal or tracheostomy tube.

CleanSweep has been shown in studies to remove 2.5 times more secretions than the leading competitor's standard closed suction catheter. As you can see, given the portfolio of both organically and inorganically developed products, we are well positioned to drive sustainable constant currency revenue growth for the foreseeable future.

That takes me to the end of my prepared remarks. At this time, I would like to turn the call over to Tom.

Tom?.

Thanks, Liam, and good morning, everyone. Given the previous discussion of the company's revenue performance, I'll begin at the gross profit line. For the quarter, adjusted gross profit was $347.3 million versus $298 million in the prior year quarter or an increase of 16.6%. Adjusted gross margin increased 130 basis points versus the prior year to 57%.

The expansion in adjusted gross margin reflects the planned impact of the acquisition of NeoTract and Vascular Solutions, efficiencies related to footprint consolidation programs and favorable pricing. However, the increase in gross margin was partially offset by unfavorable product mix and higher manufacturing costs.

For the quarter, adjusted operating profit was $158.7 million versus $140.8 million in the prior quarter, or an increase of 12.7%. Adjusted operating margin was 26%, a decrease of 30 basis points from the prior year. The decrease was related to a tough prior year comparable, the shortfall in gross margin and increased levels of R&D investment.

On a sequential basis, the third quarter adjusted operating margin of 26% was flat to the second quarter result of 26%. Moving down with P&L. Adjusted net interest expense increased to $26.9 million from $20.9 million in the prior year quarter.

The increase reflects the impact of additional borrowings required to finance the acquisitions of Vascular Solutions and NeoTract. For the quarter, the adjusted tax rate was 10.7% versus 18.1% in the prior year period.

The year-over-year decline reflects the impact of the recently enacted Tax Cuts and Jobs Act and a larger tax windfall benefit this year versus last year. On the bottom line, adjusted earnings per share increased 18.9% to $2.52. Turning now to select balance sheet and cash flow highlights.

Through the first nine months of the year, cash flow from operations totaled $302.9 million, down approximately 5% over the prior year. The decrease was primarily due to unfavorable working capital changes partially offset by favorable operating results.

The change in working capital is largely attributable to the factoring of Italian receivables in 2017, which did not reoccur in 2018, and increased 2018 tax payments. Finally, during the quarter, we repaid $80 million of debt and our leverage levels as defined in our credit facility stood at 3.18 times.

Next, I'll briefly cover our recently completed cross-currency swap transaction. On October 4, we executed cross-currency swaps to hedge the variability of exchange rate impacts between the U.S. dollar and the euro.

Due to the swap, we notionally exchanged $500 million at an interest rate of 4.625% or the euro equivalent of €433.9 million at an interest rate of 1.942%. These swaps are designated as net investment hedges and expire on October 4, 2023.

Given the differential coupons and assuming a euro to dollar exchange rate of approximately $1.15, we estimate an interest benefit of approximately $3 million in 2018 and $13 million on an annual basis. We anticipate this benefit will help to mitigate the interest expense impact of a rising interest rate environment on our variable rate debt.

And that completes my comments on the third quarter. Now, I'll move to an update on 2018 guidance. For revenue guidance, the only change we are making is to account for foreign exchange. Specifically, we now expect a full year favorable impact of 150 basis points compared to an expectation for 200 basis point impact in our prior year guidance.

We are reaffirming our full year constant currency revenue growth guidance range of between 12% and 13%. We continue to expect that our organic revenue growth will be between 5% and 5.5%, although, as Liam mentioned earlier, we expect to be at the low-end of that range.

We also expect constant currency revenue growth driven by M&A to be between 7% and 7.5%, but expect to be at the high end of that range.

Because of a less favorable currency environment since we last provided guidance, most notably the euro and the Chinese yuan, we are adjusting our as-reported revenue growth guidance from a range of between 14% and 15% to a range of between 13.5% and 14.5%.

Moving to margins, to reflect year-to-date performance trends and our expectation for the fourth quarter, we have lowered our previously provided adjusted gross margin guidance range of between 57.5% and 58% to a revised range of between 57% and 57.25%.

The gross margin adjustment is attributed to unfavorable product mix, including better-than-expected performance from our OEM business which carries a lower gross margin profile, modest dilution from recently announced acquisitions, tariffs related to our business in China, and higher expenses to address the NeoTract production and engineering issues.

We expect to offset approximately one-half of the gross margin impact through SG&A expense control and, thereby, partially mitigating the impact to operating margin. As a result, we are reducing our adjusted operating margin guidance to a range of between 25.8% and 26.1% from the previous range of between 26.1% and 26.5%.

Turning now to interest expense; we currently anticipate approximately $104 million in interest expense during 2018. The reduction from our prior expectation of $109 million is primarily the result of the recently completed cross-currency swaps and an accelerated reduction of debt outstanding. Turning to taxes.

We now expect our full year 2018 adjusted tax rate to be approximately 12.5% to 13%. This compares to our prior guidance which called for an adjusted tax rate of approximately 14.5%. On the bottom line, we are raising our outlook for 2018 adjusted earnings per share from a range of between $9.70 and $9.90 to a range of between $9.80 and $9.95.

The $0.075 increase in the midpoint of our adjusted earnings per share range is primarily due to our over-performance in the third quarter as compared to our prior expectations. And so, in closing, third quarter delivered solid constant currency and organic revenue growth, and we are very pleased with the outcome.

We're also pleased with third quarter adjusted EPS growth of 18.9%, year-to-date adjusted EPS growth of 19.8%, and the actions put in place to allow us to again raise our full year adjusted EPS guidance. We are disappointed by the need to adjust down 2018 margin guidance.

However, I would like to point out that the midpoint of our revised adjusted gross margin guidance still represents a year-over-year increase of 130 basis points. Additionally, many of the cited issues are transitory in nature and the key drivers of our multi-year margin expansion plan remain intact.

We continue to expect that NeoTract, Vascular Solutions and Vidacare will be major contributors to the margin expansion story because of their higher margin, higher growth profiles. We grow more confident in NeoTract as the business continues to exceed revenue and growth and profitability expectations.

Additionally, with the recent acquisition of Essential Medical, we now add another business with high margin, high growth potential into the portfolio.

The ongoing manufacturing footprint consolidation initiatives remain on track to deliver planned savings, and we have stepped up efforts to identify additional productivity opportunities within our manufacturing sites.

The multi-year financial plan outlined earlier this year at Analyst Day contemplated only modest contribution from new products such as RePlas and Percuvance. Recent clinical and regulatory developments provide encouragement that such products may contribute above previously projected levels.

Additionally, our multi-year guidance did not consider future acquisitions such as Essential Medical. In summary, we continue to focus our efforts and invest for sustainable top line and bottom line growth, and we remain enthusiastic regarding business prospects for the coming years. And that concludes my prepared remarks.

Now, I'd like to turn the call back over to the operator for Q&A..

Thank you. Our first question is from David Lewis with Morgan Stanley. Your line is open..

Good morning. Thanks for taking the questions. I thought you – very solid quarter, I thought that we'd think about next year a little bit here. So, two questions for Liam and Tom and then I had a quick follow-up. So, on growth, Liam, for you, organic revenue growth guidance for the fourth quarter implies 8% to 9% organic.

You talked about your LRP this call being 6% to 7%. So, is the right way to think about next year something between the midpoint of these ranges, 6.5% to 7.5%? And then, for Tom, I wonder if you could help us with some of the more volatile components of next year on earnings; FX, tariffs, tax, the impact of the debt swap.

How do these net out in your mind and how are you feeling about the profile for earnings next year relative to 2018? And I have one quick follow-up for Liam..

Hey, David. Thank you. So, regarding 2019 guidance, obviously, we'll provide that in February, not on this call. But you're right in your expectation of our fourth quarter growth. And as we outlined in the call, if you look at, through three quarters, our core organic growth was 3.7%. UroLift rolls off M&A in the fourth quarter; that will add 3%.

And the additional day will add about 1.3%. So, in my mind, that's simply math that gets us to that increased performance in the fourth quarter. And then, we have a general improvement in our underlying business based on what we saw within the third quarter and that should add about 60 basis points.

And again, we were able to reaffirm our full year constant currency guidance at 12% to 13% and the only adjustment we made, quite frankly, is for currency which is beyond our control. And then I'll let Tom answer the second part of your question..

Okay. Well, with regard to some of the more volatile components, as we think about some of the issues you outlined, tariffs for next year, we estimate currently to be about a $3 million full year impact. So certainly an impact but nothing that's insurmountable.

In terms of the tax rate, this year, we are benefiting from a very improved tax rate versus prior year largely due to two factors. The first is the Tax Cuts and Jobs Act and we expect for that benefit to continue into next year. The other is due to stock-based comp windfall benefit.

And that, as you can imagine, is less predictable if somewhat dependent upon how people choose to exercise equity and how some of the restricted shares vest. So, to be able to predict that right now would be difficult. We could have some better visibility as we get closer to the year.

On the tax front, there are a couple of things also that will cause the rate to perhaps have some upward pressure. The first is just the implementation of the swap and that will reduce our interest deduction and put some upward pressure. In addition, our mix has typically been skewing a little bit more North America based.

And in fact, with the growth of Vascular Solutions and NeoTract, we expect that to continue. But, overall, we expect our tax rate next year to be below where it was back in 2017. I'm not sure if it's going to get to the level we're seeing this year.

What other...?.

Currency.

Currency, Tom?.

Well, currency is fairly a headwind right now. I think the average for the year is probably going to end up somewhere around $1.17 to $1.18 relative to – that's on the euro – relative to where it's currently trading, which is more in the $1.14 range. So that could be a slight headwind for us as we get into the year.

But we'd have to see how the whole basket of other currencies are trending at year-end. So, certainly, there's some volatility as a result of FX movements this year; seems to have stabilized a little bit right now in kind of the $1.14 range..

Okay. And then, Liam, just a follow-up here on the pipeline; a couple of interesting updates, obviously, this quarter and talking more of the MANTA Device, obviously, Percuvance approval was nice and the RePlas data.

So, first question is on Percuvance, the opportunity you described for that business several years ago, do you still see that as the most appropriate opportunity for the size of that market? And how do we think about the contribution of some of these products next year in terms of their ability to get the full commercial launch, Percuvance, MANTA, obviously, RePlas is probably not a major factor.

But how should we be thinking about the contribution for MANTA and Percuvance next year? Thanks so much..

Yeah. Sure. So, we're at the early – I'll start with MANTA, David. So, we are currently going through PMA approval for the key North American market and that's really goose that has the potential to lay the golden egg if I can put it that way. It's the biggest market for large bore closure.

I would be very hopeful that by the time we get to 2019 guidance, that we would have very clear visibility on our PMA process and approval. If we do need a panel review, we could have approval in the first half of the year.

If we don't need a panel review – sorry – if we don't need a panel review, it would be in the first half of the year; if we do, it will be in the latter half of the year. And we'll know that for sure, I think, by February. Regarding Percuvance, I still think the market potential for this is in that $300 million range globally.

The sales team are very excited to get the product back into their hands. We're doing a limited market release late in Q4 now that we've gotten the approval, and we will start to roll the product out during 2019.

We want to assess the pent-up demand that was there and the momentum that we had built up when we removed the product from the marketplace, and at that time then we'll give a much clearer assessment as to what we expect in 2019, 2020 and 2021. But, clearly, it's a great starting point to get the 510(k). We're very excited about MANTA.

We think that will address a $200 million to $300 million market opportunity as I said in my prepared remarks, and that's looking at TEVAR and EVAR closure procedures. And we firmly believe that we will be first to market with this product.

This product is interesting because we've been talking to this company for four years, and as an organization, we had a decision whether to make or buy this. We were working on an internal development ourselves, and we decided that it's very complex to get a large bore closure device that works.

And it's very hard to get a large bore device that works yet venous stasis (39:17). And one of the added complications when you're in the cath lab is that you won't bring in the next patient until you're sure your hemostasis on the one that's on the table.

So we believe, and we got to prove this out with clinical data, but we believe we can make the cath labs more efficient and some of the anecdotal evidence we got from the Netherlands would tell us that they're getting an additional procedure through the cath lab as a result of using the MANTA large bore closure device..

Great. Thanks so much, Liam. Nice quarter..

Thanks, David..

Thank you. Our next question is from Richard Newitter with Leerink Partners. Your line is open..

Hi. Thanks for taking the questions and nice job on accelerating organic growth this quarter..

Thanks, Rich..

I wanted to ask a quick question on the OEM accounting changes.

What was the contribution from that to organic growth? Was it contemplated in your original guidance plan and can you talk about what kind of contribution that might have to 2019?.

Yeah. So, it was contemplated within our guidance, Rich. And OEM had an excellent performance from a volume perspective as well as some benefit from the new rev rec rules.

In any quarter, there are revenue puts and takes, and if I take them all into account, the puts and the takes including the OEM, we probably had a net positive of around 20 basis points net-net. So, the OEM gave us a positive. We didn't fully get through the disruption in the supply chain.

And the total impact within the quarter of the OEM, to answer your question directly, was about $3 million, Rich..

Okay, got it.

So, by my math, you still would've been above 5% backing that out, right?.

Absolutely. And if you – Rich, there's always puts and takes, as I said. So, if I take all the puts and all the takes, and if I take the $3 million positive from that, we didn't fully get through all of our supply disruptions. There's about $1 million there.

We got over $3 million, as I said, on the second quarter from distributor orders, most of it stuck – about $2.2 million of it stuck. So, you add it all up, it's about a 20-basis point impact..

Got it. And then just as we think of the kind of the puts and takes around gross margin as we head into next year, I appreciate you're not giving guidance, but it sounds like some of the items are beyond currency.

Just could you give us a sense for how we should be thinking about gross margin directionally relative to 2018? There still should clearly be upward bias even when you net out all the puts and the takes.

Is that a fair assumption?.

So, as Tom said – and I'll throw it to Tom, but I'll just make an opening. As Tom said in his comments, most of these were transitory in nature and our long term margin guidance, as we said, were ratable, and I think that nothing has changed in our restructuring programs, nothing has changed in the acceleration of mix coming from NeoTract and VSI.

As you can see, their performance is exceptional. But I'd get Tom go into more of the details I think..

Yeah. That's exactly it. So, as we looked at the items that impacted 2018, the majority of them are transitory. I would say that the tariffs will be one that are sticky. We quantified that currently at $3 million, but again, that's not something that will throw us off our longer-term track.

As we look at that long-term margin expansion, it's really predicated on a couple of key things. One are the restructuring programs that we put in place, and those programs are still right on track and delivering as expected.

It's also a margin expansion story based on some of our key product offerings such as NeoTract, Vascular Solutions, and even Vidacare.

And as we look at those businesses, we remain very, very confident in their performance and, in fact, pretty excited by some of the performance we've seen recently with NeoTract beating expectations and Vascular Solutions putting up double-digit growth consecutive quarters in a row.

So we're excited by the margin drivers from both a revenue and a cost standpoint. So, you should expect to see continued expansion next year and to the coming years..

Got it.

And maybe just one last one, I just want to be clear, so when – this quarter, in the third quarter, when you back out kind of all of the inorganic items, the actual kind of true organic growth even ex-Vascular Solutions which is organic, but even if you back out that contribution, the growth was somewhere in the 3.3% to 3.5% range, is that correct?.

So our organic growth rate was 5.6% and that includes about 1% from VSI. So, therefore, we're at 4.6% on a true organic basis for our core business within the quarter..

And there's about, call it, 80 basis points of taking Vascular Solutions direct from a pricing standpoint that's included then in the organic number..

Yeah..

Okay. That's really helpful. Thanks, guys..

Thank you. Our next question is from Larry Keusch with Raymond James. Your line is open..

Yeah. Hi. Good morning. I wanted to come back and touch on the core business, Liam, and really sort of understand how you guys are thinking about managing that business.

There's obviously been a lot of focus on whether that business can grow 4%, maybe it's more like 3% to 4%, but I'm really curious as to just, again, are you really trying to optimize the growth there or is 3% to 4% good enough and really the resources are really focusing on the growth drivers?.

they're all accretive to our gross margin and, therefore, they'll give us better leverage within our P&L. Coming back to your specific question on our core business, if you look at the core business within the quarter, it grew by 4.6%.

If you look at our guidance towards the end of the year, in the second half of the year, we should be very close to that 4% for our core business.

And as I've always said, if our core business does 4% – if it does a little bit less than 4%, we have enough levers within UroLift and within VSI to cover if it is slightly less than 4% to make us very comfortable in our 6% to 7% as an organic growth number over the multi-year period..

Okay. Perfect. And then two other ones.

Just on UroLift, what has to happen to push that really into sort of more of a frontline therapy position in the U.S.?.

Front line? Just repeat the last part, Larry. I'm sorry..

Yeah.

In the U.S., again, what has to happen or what could drive that device, that therapy into more of a first choice for a patient coming in with BPH symptoms versus medical therapy first and then moving into something like this?.

So, we think we're very close, Larry, to having this as the first line of care. All the clinical data shows that the real life experience is very close to L.I.F.T data, and that's very important, number one. The clinical outcomes data is very, very compelling.

The urinary retention that I mentioned is an important one because, previously, those men would wear a catheter for the remainder of their life; by using UroLift, now 90% of them don't wear a catheter. We also need to get greater penetration within the urologists. We're still very early in the penetration rate of urologists.

There's 12,000 urologists within the United States and we have a long way to go to penetrate those urologists. Once we have all of those trained, it will become the standard of care and the key number of urologists, those are less than 6,000 that treat 80% of BPH patients.

But we're going to continue, Larry, to go deep rather than wide to ensure this product is sticky and that it does become the standard of care for the treatment of BPH..

Okay. Perfect. And then last one just because you mentioned it. PICCs, maybe update us on the growth rate there.

And remind me again, if you are in China or not and, again, what do you see the growth drivers for PICCs?.

So our PICC growth was around 18% for the quarter, Larry, and we're really encouraged by that. We do not have our coated PICC yet registered within China. We're working on it. We have the clinical study underway to support our submission.

And we're looking forward to having that product on the market in the next – once we get clinical study done, thereafter, the submission should take 12 to 18 months, but we continue to take share within the key North American market, and it is because of our antimicrobial and antithrombogenic coating technology that reduces infections for the hospitals.

And now that they have to report them, they're very keen to adopt our technology..

Great. Thanks very much and very nice quarter..

Thanks, Larry..

Thank you. Our next question is from Raj Denhoy with Jefferies. Your line is open..

Thank you, guys. This is Anthony in for Raj. Actually just a question, Liam, can you repeat for the fourth quarter the moving parts on days to organic growth? And then I'll have a few follow-ups on UroLift. Thanks..

Yeah. So, in the fourth quarter, we have one additional day, Anthony, and that should add about 1.3%. And as I said earlier, that's simply a math problem having that additional day. And 2019 will have the same number of days as we had within 2018. And then, obviously, UroLift rolls into organic, that should add 3% within the quarter.

And general business improvement continuing as we've seen in quarter three should be the last pillar to get us to our full year guidance range..

And then just on UroLift, can you remind us a little bit on new physicians versus existing physicians, where your penetration is today more particularly on the latte, in existing physicians, and sort of where do you think that can go over the next two years?.

Yeah. So, our existing – I'll first start with how many we've trained. So we've trained over 1,700 of the 12,000 urologists in North America. Regarding the utilization within physicians, our average physician that we trained is doing an average of about four procedures a month.

Our highest adopting physicians are up into the teens with their adoption rate with some of them even going beyond the teen numbers. So we believe that's a nice move forward. So 97% of our revenues are coming from the existing physicians and we continue – and that's because of our strategy to continue to go deep rather than go wide.

And again, Anthony, it's about utilization and we continue to see that utilization rate improve as we go deeper within these physician practices..

And then a follow-up there would just be the landscape is heightened a little bit. You have Rezūm out there, UroLift list is out there; those are the two newest solutions. I'm just wondering is the market segmenting with these two solutions or are they going after sort of the same sort of patient sort of profiles. Thanks again. Good quarter..

Thank you, Anthony. So, obviously, both treatments are going after BPH patients. I think that our clinical data, and in particular, as it applies to sexual dysfunction, the reduction in catheter rate is critically important for men. And I'm speaking, Anthony, as a 52-year-old man myself. I personally would not want to wear a catheter.

I would not want to have any impact on sexual dysfunction. And where we're targeting taking our share from is from drug dropout. That's where our core market we believe is, not from the surgery market. I'm not really sure whether Rezūm is targeting at the TURP market and taking share in that smaller segment.

It does to me appear to be more, at least from my perspective, to be more of an ablative therapy compared to the other ablative therapies, whereas ours, we believe, is just a better solution; non-invasive, great clinical data, very fast recovery time, no catheter, no sexual dysfunction, so we still feel very confident that the clinical data will bear out in the long term..

Thanks again, guys..

Thanks, Anthony..

Thank you..

Thank you. Our next question is from Mike Matson with Needham & Company. Your line is open..

Good morning. Thanks for taking my questions. I guess I wanted to start with the China business. Your growth was 14%, which is good, but it is down a little from, I think, the 22% you did last quarter.

So, can you just give us an update there and then can you remind us when you'll start to lap kind of your move to the direct sales model there?.

Yes. And Mike, you absolutely nailed it there. That's exactly what we've done. We lapped the go-direct timeframe in quarter three. So that is why you would see a slight deceleration in the China growth from that go-direct. But, still, we're very, very happy with the performance.

We believe that we have done excellent execution on the go-direct of our vascular and cardiac business within China, and we continue to be encouraged by what we see within the growth within the key China market..

Okay. So, it's largely a comp issue then and not any kind of a slowdown....

Absolutely, Mike..

...in the economy or healthcare spending or anything like that..

No, no, we – even if there is a slight downturn in the general economy, I can't see it having that much impact on healthcare. The government is very focused on providing significant continued investment into healthcare.

And quite frankly, the people are demanding better healthcare and it's a pay for service and they're demanding better healthcare within there. And of course, we all know it's hard to determine what exactly is a slowdown in that geography with the data that comes out. But we haven't seen it in our business, Mike, to answer your question directly..

Okay. Thank you. And then just a couple of financial questions. So the 4.6% kind of legacy organic growth, you did have the shift of orders from Q2 to Q3.

So, are you able to quantify how much of that 4.6% was due to those orders that got moved from Q2 to Q3?.

I am because we have that data. So the uptick – initially, we got a bolus of orders in excess of $3 million, about $2.2 million of it was sticky to the quarter. And that was anticipated in our guidance as well, Mike..

Okay. Thanks. And then just the – Tom mentioned that you're raising your guidance despite the increased currency headwind.

So, can you quantify how much additional EPS headwind you're expecting at this point to the annual EPS versus what you were expecting, I guess, as of your last quarterly call?.

Are you referencing related to the change in currency?.

Yeah, exactly. Yeah.

How much more – or I guess I should say how much has it changed, because maybe you had a tailwind and it's just less of a tailwind now or maybe it's a headwind and it's more of a headwind now?.

Well, just for currency overall, on the revenue impact, it's still a tailwind for the year. We now estimate that tailwind to be about 150 basis points. It used to be an expectation of 200 basis points. So that's going to reduce our revenue obviously, and that has an impact to our third and fourth quarter earnings.

I would say that's kind of on the negative side. We also have some dilution from the recent acquisitions that's going to hit the fourth quarter, the incremental tariffs.

And on the positive side of the equation, we've got reduced interest expense as a result of the swap and a frankly strong third quarter earnings in part due to taxes and some other factors.

So, a number of pluses and minuses that kind of all come together to offset what our expectations are in the fourth quarter as to the pluses and minuses from currency and other factors..

Okay. That's helpful. Thank you..

Thanks, Mike..

Thank you. Our next question is from Matt O'Brien with Piper Jaffray. Your line is open..

Thanks for taking the question, guys. I wanted to push first a bit on the gross margin expansion. I know it was asked. Just two pieces.

One, it sounds like the restructuring is on track; can we just dive a bit in on what steps you've taken thus far with that and any early benefits you're seeing? And second, as we think about the bridge getting the company closer to the long-range plan of about 300 basis points by 2021, what piece between mix from acquisitions, restructuring, or core expansion/new products is the most important to get you there or, importantly, to bring you above that range?.

Okay. Well, let me just first touch on I think you asked about restructuring. And so, as we look at all the programs out there that we have in place, there are a number of programs underway including, frankly, the 2014, 2016 and 2018 footprint realignment programs, the integration of Vascular Solutions and OEM manufacturing project.

And if you combine all of these, the restructuring savings are in the range of $107 million to $127 million at the time they're fully completed. Now, what we talked about is through the end of 2017, we've realized $45 million of those savings, leaving another $62 million to $82 million for this year and through the completion of these projects.

And the way to think about that is we had talked about $25 million to $35 million being in the timeframe of 2019 to 2021 and then we obviously realize – we'll realize some this year and then that leaves the remainder for 2022 to 2025 timeframe.

So, the way to think about that remaining $62 million to $82 million of savings is probably a quarter of it this year, about 40% over the timeframe 2019 to 2021, and then the balance thereafter.

And how that plays into our longer-term gross margin objective is it's certainly a component, but as we look at the most important components of that 200 to 350 margin – or I should say basis point margin expansion through 2021, the biggest impact is really related to mix.

So the favorable benefit from NeoTract, Vascular Solutions, and other products such as our PICCs and Vidacare really are the largest component driving that margin expansion.

The restructuring program is certainly a component of it, and if you think about the numbers that I cited of $25 million to $35 million, that's about 100 basis points at the midpoint of that range. And again, I would say that mix will play a more important piece of the margin expansion story over that 2019-2021 timeframe..

Okay. Thanks so much. That's very helpful. And then the second one is on UroLift. The clinical work there has been really strong the past few months, both on the results front and the cadence. So I wanted to ask your thoughts on the investment specifically as it relates to competition there.

So, what is the latest on competition in the marketplace and are more investments needed in the channel or on the clinical front? Or are you pegging these efforts as expansionary in the marketplace thus far?.

So our view is that we will continue to do investment behind clinical data. I think I've spoken to the investment community about a study we just kicked off in France. That's going to assist our reimbursement within Europe. And we have never thought, Matt, that we would be alone in this large BPH market.

But I think we have the most robust clinical data out there in the market and that was borne out in this conference in Paris where we had five papers presented at the conference, which was more than any other technology in any area of men's health as far as I could see and also much more than any other – more papers for UroLift than any other BPH technology that's out there.

Now, I can assure you there's probably three skunkworks going on somewhere working on a treatment for BPH. I can also assure you, in the last 20 years, the graveyard is full of technologies that were supposed to address BPH and that UroLift is the first one that has come up with a unique methodology to treat BPH with the symptoms that we have.

So, you can expect to see a continued cadence in investment on further clinical data to support the UroLift and making it a frontline care for BPH..

Okay. Thanks. And you just don't – you don't think it's incremental due to that competition. It's just the same cadence that you would have expected..

Yeah. We have an internal plan for ongoing clinical data that was considered when we put out our three-year plan. So I wouldn't see any change to that required to do what we need to do with UroLift to make it the standard of care, Matt..

Okay. Perfect. Thank you so much..

Thank you. Our next question is from Brian Weinstein with William Blair. Your line is open..

Hey, guys. Thanks for taking the questions..

Good morning..

Obviously, a much better quarter this quarter and everybody seems pleased with it. But it has been a more variable year here. And as I think back over the last couple of years, it seems like it's more variable than what we've seen over the last couple of years.

And I'm just curious as to whether you guys have any strong feelings as to why there seems to be more variability in results. And specifically, Liam, when you were in the COO role, things seemed to be fairly stable. I don't think that you have filled that role in the organization.

Do you think that there's a need for a COO to come on in and help bring a little bit more stability, so that we don't have the ups and downs that we've seen this year?.

Well, Brian, I think that, consistently, if you look at on a full year basis, Teleflex has consistently performed. From 2014 to 2017, our average constant currency growth was 4%. And you know, Brian, this is almost like when you get a little bit older and you look back and you think every summer was a great summer.

In the reality, not every summer was a great summer. And even within Teleflex during that time, and thank you for complimenting me on my COO role, but even during that time, Brian, there were ebbs and flows. We had nuances within the quarter. But, as we saw this quarter, I always try to remind people with every ebb there is a flow.

And we saw that rebound very strongly within this quarter as well. We have made management changes by appointing a Head of North America to make sure that we have that consistent of performance. And I think that we don't give quarterly guidance, Brian, and Teleflex should be judged on how we do in an annual basis.

And consistently, we performed on an annual basis..

Okay. Great. Thanks for that. And then just my follow-up would be, you talked a little bit about some areas where you're may be winning some share. But can you talk just more broadly about categories where there are share wins and maybe some increased competition and some share losses? Thank you..

Yeah. Sure. So, I think I'll start with the share wins, for sure. I think that obviously PICCs is a nice area for us for share wins. Vidacare continues to perform very well and that's not really a share win, that's converting the market. Our Interventional business with the VSI portfolio continues to grow and take share.

And I'm really encouraged by what we're doing within Asia-Pacific. I'm not sure that I would categorize it as a share loss, but we do see tougher economic volatility, if I can put it that way, within EMEA where there's more pricing pressure within the market.

It's always kind of been there, but Europe continues to be a fairly price sensitive market for Teleflex and our portfolio there. And that's probably the area I'd point out where we see a little bit of additional competition..

Thank you..

Thank you. Our next question is from Dave Turkaly with JMP Securities. Your line is open..

Hey. Great. Thanks. Just really quickly, you just mentioned Vascular Solutions; obviously, 21% growth is a big number.

I'm just curious is there anything you'd point to driving that from a new product front or sales force or what would – and how sustainable do you think that is?.

So, within the 21%, obviously, for VSI, there is – the go-direct is counted within that. So that's a large portion. But, outside of that, we do see Turnpike as a product continue to drive significant growth within that portfolio. That's still growing in the 40% range.

We see the GuideLiner and TrapLiner doing an excellent job for us, and we'll continue to take share within that segment. And those would be two of the areas. And we've also launched new products around guidewires that are building momentum within the marketplace.

But we're incredibly pleased with VSI and the performance of VSI, and indeed, the performance of our overall Interventional business unit because, along with VSI, we're seeing a nice uptick on legacy products because of the additional sales force. And we didn't build sales synergies into our models, but I'm seeing that we are getting them..

Great. And then onto this Essential Medical, the MANTA. Based on the description in the picture there in the collagen component, it sounds like it's maybe similar to the old Angio-Seal Kensey Nash Terumo device, but maybe for a larger access. Just curious if that's the case and then would a good approximation of a domestic ASP be $200? Thanks so much..

So this is a different market segment. It is similar to that product that you've mentioned, but it's a very different market segment. And therefore, we believe it would attract a significantly higher ASP. Remember, Dave, that when they're closing these large bore closures, they're using two or three of these devices right now.

So it's an expensive closure system for them. They also have 7%, on average, complications, as I said in my prepared remarks. We can take those down to 2% in the clinical data that we demonstrated.

And as I also said earlier, we got to prove this, but what we have anecdotally seen in the Netherlands where we have significant penetration with this device is that they're actually able to make the cath lab more efficient.

Now, if you could get one more patient through that cath lab, all bets are off as to the price, because they won't even be talking about the price of the product because it just makes them more efficient. And of course, they will know that, for vascular complications, that patient is going to cost the hospital $18,000 to get that patient treated.

So, therefore, this will have a higher price point than the one you stated for sure..

That's great to hear. Thank you..

Thank you. Our next question is from Isaac Ro with Goldman Sachs. Your line is open..

Good morning, guys. Thank you. First question is on NeoTract. Just interested in some of the investments you're making in Japan, if you could maybe qualify and quantify what those mean for that part of the business..

Okay. And yet again, the investments in Japan were contemplated in our three-year guidance. So, to make that clear, we will begin by putting some clinical people on the ground to start develop the market.

The key here is to get our reimbursement, so we will work in the fourth quarter beginning and then in 2019 to bring the product to get some clinical exposure to it. And then we will obviously begin immediately going through the 12- to 18-month process to get reimbursement for the product.

We will then move to get those clinicians that we would have developed to do the clinical work for the post-market study that is required as part of our approval. But I got to tell you, we couldn't be more excited about getting this product Shonin approved. We believe that in using the same criteria to size the U.S.

market at about $6 billion, the Japanese market is about $2 billion, and the Interventional Urology team has done an excellent job. I would like to remind people, we only submitted this Shonin in Q1. This is an incredibly fast time line to get approval within the same calendar year. Internally, we were expecting it to take at least 12 months.

So, we couldn't be more pleased with the progress we're making there, and we will work to develop that market during 2019 in anticipation of reimbursement sometime thereafter..

Helpful. And then just a follow question on M&A. Obviously, if you listen to the earnings calls across the industry, most companies, if not all of them, are pretty active in looking for assets. So, you guys have been able to pull off a couple of pretty notable deals here that have already started to sort of change the growth profile of the company.

Can you talk a little bit more about where you're looking at the margin to find assets and valuations that make sense, and whether that be tied to a therapeutic category or somatic category or just size and scope? Just kind of curious how you're finding assets and kind of how we should think about pacing of deal flow over the next 12, 18 months..

Well, I think MANTA is an interesting example like that. We met with Greg and the entire team four years ago, and we had been building that relationship, watching their progress very closely. That's one example as to how we find assets. Obviously, another one is the banking world know that Teleflex is very acquisitive.

They know what we're looking for in the assets that we want. They know that we're very focused on interventional space, men's health, the vascular space and also anesthesia and surgical. So they will bring us assets as long as they know that it meets our growth criteria, our margin expansion criteria, and our leverage criteria.

As Tom outlined in his prepared remarks, we're now on a gross leverage down near to the low 3s. So that gives me encouragement that we also have the financial ability to do activity if we find the right assets. It's not lost on us in Teleflex that we're a different organization.

We will stick to our strategic criteria and we only get credit for the good acquisitions, not credit for acquisitions, full stop. So, we're very focused on finding the right assets and executing.

And I think it's become a core competence of this organization to find these assets, bring them into the Teleflex family and accelerate the growth thereafter by leveraging our global footprint..

Got it. Thank you, guys..

Cheers, Isaac..

Thank you..

Thank you. Our next question is from Kristen Stewart with Barclays. Your line is open..

Hey, guys. Thanks for taking my questions..

Hey, Kristen. Welcome back..

Hey, Kristen..

Thank you very much. It's good to be back. I just wanted to just kind of go over the EPS guidance both on a non-GAAP and a GAAP basis.

Am I kind of doing the math right that the change in the tax rate contributes about $0.20 to the full year?.

It would be the right calculation, yeah..

Okay. And then on the non-GAAP guidance or the regular GAAP guidance, that was reduced by $0.60. I was wondering if you could just talk to why some of the restructuring and acquisition integration charges are going to be more significant now relative to what you guys are expecting a quarter ago..

Okay. Well, there's a couple of things that play into that. One was a change in some of the contingent consideration payments. As we continue to see the performance of some of the acquisitions, we adjust the amount of contingent consideration to reflect that.

We also had an impairment during the quarter related to our Hotspur Technology which would roll into that. And then we had a restructuring program earlier this year that obviously had some impacts..

Okay. Perfect. And then, last question just on acquisitions and the accretion/dilution. NeoTract had always been thought of as $0.35 to $0.40 accretion for next year.

How is that looking and how should we just think about Essential Medical? Is that more dilutive next year from an earnings perspective or neutral?.

So, I'll start with Essential. Obviously, Essential is dilutive in the fourth quarter to our earnings which is partially reflected in Tom's comments around our full year guidance. Now, we will give guidance for Essential in February.

And the only reason I'm saying that, Kristen, is because it's very dependent on whether we need a panel review or not as I said a little earlier. And we will have greater line of sight on that when we come to give earnings guidance. Our expectation is that Essential will be dilutive in 2019 and then accretive thereafter.

And then your other question was around NeoTract. Yes, we're well on track to have NeoTract to deliver in line with our expectation of $0.35 to $0.40 in 2019..

Okay. Thanks very much, guys..

Thank you..

Thank you very much..

Thank you. And that does conclude our Q&A session for today. I'd like to turn the call back over to Mr. Jake Elguicze for any further remarks..

Thanks, operator. And thanks to everyone for joining us on the call today. This concludes the Teleflex Incorporated third quarter 2018 earnings conference call. Have a nice day..

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