Good day, ladies and gentlemen. Welcome to the Teleflex First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question and answer session, and instructions will follow at that time. If you require any assistance during today's call, you may press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jake Elguicze, Treasurer and Vice President of Investor Relations. Sir, you may begin.
Thank you, operator, good morning, everyone, and welcome to the Teleflex Incorporated First 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, a replay will be available by dialing 855-859-2056, or for international calls, 404-537-3406, passcode 2698233. 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, 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, 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 turn the call over to Liam.
Thank you, Jake, good morning, everyone. It is a pleasure to once again have an opportunity to speak with the investment community regarding Teleflex, I am pleased to report that we are off to a solid start in 2018. The results achieved in quarter one, along with our projections for the remainder of the year, allow us to reaffirm many of our previously provided financial guidance metrics, while also affording us an opportunity to increase a couple of others, including our full year adjusted EPS range. While Tom will go into more details on our full year EPS guidance range, I would like to take a moment to discuss our full year revenue guidance.
We are pleased to reaffirm our full year constant currency revenue guidance range of between 12% and 13%, as well as our full year organic constant currency revenue growth range of between 5% and 5.5%. I remain confident in our ability to achieve both of these ranges based on the anniversary of the surgical product line exit, combined with the easier European comparable in the second half of the year, as well as the NeoTract acquisition being counted as organic revenue in the fourth quarter. I'm also pleased to say that due to the favorable FX environment, we are raising our as-reported revenue growth guidance by 1% on both the low and high ends of the range.
I would also like to point out that we expect the percentage of revenue generated in quarters two and three to mirror the quarterly percentages achieved in 2017, when we achieved approximately 25% in both quarter two and quarter three, with the remainder generated in quarter four. Turning now to the first quarter and beginning with revenue. During quarter one, we generated as-reported revenue growth of approximately 20% and constant currency revenue growth of approximately 15%. The constant currency revenue growth increase was broad-based and represents a mixture of both improvement in the company's organic growth rate as well as the contributions received from the acquisitions of NeoTract and Vascular Solutions. Starting with the organic revenue growth drivers. During quarter one, we saw a recovery in distributor purchasing patterns that negatively impacted us during the fourth quarter of 2017.
You may recall that on our last earnings call, we stated that distributor buying can at times be uneven and that we expected inventory levels held at certain U.S.-based distributors to normalize during the first half of the year. Well, that is what happened in quarter one, and this helped accelerated our organic shipping day adjusted constant currency revenue growth rate to 3.1%. Other areas in which we saw good organic revenue growth were in the segments of Interventional North America, Vascular North America, and Asia Pacific. One segment, however, that experienced a decline in constant currency revenue growth was our surgical business, and this was largely attributable to our exit of certain low-growth, low-margin products beginning in the third quarter of 2017. Had we remained in these categories and revenue simply remained flat versus the year-ago period, our organic revenue growth would've been higher by approximately 60 basis points.
That said, we know that our exit from these products will have a positive long-term effect on our business. Turning to M&A, NeoTract continued its strong momentum as global revenue during the quarter totaled $42.3 million, which is an increase of approximately 87% versus the prior year period. We continue to see an increase in the adoption of the UroLift product, and we also continue to expand the number of covered lives from an insurance perspective, as we are now up to approximately $240 million. Thanks to the positive position issued recently by the Blue Cross Blue Shield Association. Lastly, as it relates to NeoTract, we recently published the results from a retrospective study which confirms the clinical results from our previously published five-year L.I.F.T. study. Moving to Vascular Solutions. During quarter one, revenues reached $47.7 million.
It is important to understand that we completed this acquisition in mid-February of last year. As such, only half a quarter of VSI revenue appeared within Teleflex's financial statements during the first quarter of 2017. If you were to compare the full three months of VSI revenue from the first quarter of 2017 to the first quarter of 2018, VSI revenue increased approximately 10% on a shipping day-adjusted basis. In addition to generating good year-over-year growth, VSI revenue growth performance in the quarter was also an improvement on a sequential basis. As a reference point, assuming our quarter one results included a full three months of organic growth for both NeoTract and Vascular Solutions, then our pro forma quarter one 2018 organic growth, adjusted for shipping days, would have been approximately 6.6%.
This clearly shows the power that both Vascular Solutions and NeoTract can have on Teleflex's organic constant currency revenue growth rate going forward. In addition to getting off in the right direction to begin the year from a revenue perspective, we also continue to deliver solid margin and adjusted earnings per share expansion in the quarter. As we increased our adjusted gross margin by about 190 basis points, our adjusted operating margin by 60 basis points, and our adjusted earnings per share by 19.4%. Finally, we recently initiated a new restructuring program, which should allow us to continue to drive non-revenue dependent margin expansion in the future. With that as an overview, let's now look at quarter one results in a bit more detail. First quarter 2018 revenue totaled $587.2 million and increased 14.6% on a constant currency basis. Beginning with the components of organic revenue growth.
During quarter one, we saw organic constant currency revenue growth of 1.8%. We had one fewer shipping day in the first quarter of 2018. This caused a headwind to revenue growth of approximately 1.3%. On a day adjusted basis, we estimate our organic constant currency revenue growth was approximately 3.1%. This day adjusted organic growth consisted of 1.6% from legacy product volumes, 1.5% from new products, and positive pricing adding about 60 basis points. These positive contributors to day adjusted organic constant currency growth were partially offset by the surgical product exit, which negatively impacted quarter one growth by about 60 basis points. Moving to the contribution we received from acquisitions. NeoTract added 8.3%. Vascular Solutions added 4.2%. Other M&A added another 30 basis points to our constant currency growth for the quarter.
Next, I would like to provide some additional details surrounding our segment and product-related constant currency revenue growth drivers. Vascular North America first quarter revenues increased 4.9% on a constant currency basis to $83 million. When normalizing for the shipping day impact, we estimate that Vascular revenues would have increased by 6.5%. The increase in Vascular constant currency revenues was all organic and was due to an increase in new product sales and higher sales volume of existing products during the quarter. During the quarter, PICC revenues were particularly strong, growing approximately 20% versus the first quarter of 2017. Moving to Interventional North America, first quarter revenue was $60.2 million, which is an increase of approximately 50.6% on a constant currency basis. The increase is primarily the result of the addition of Vascular Solutions.
When normalizing for the impact of M&A and shipping days, we estimate the organic revenue growth within our Interventional segment would have been 8%. Turning to Anesthesia North America. First quarter revenue was $50.6 million, which is an increase of 4.7% on a constant currency basis versus the prior year period. When normalizing for the impact of M&A and shipping days, we estimate that organic revenue growth within our Anesthesia segment would have been 4.4%. The improvement in Anesthesia revenue was due to an increase in new product sales and higher sales volume of existing products. Shifting to our Surgical North America business. Its revenue decreased 11.7% on a constant currency basis to $40.7 million. When normalizing for the shipping day impact, we estimate that Surgical revenues would have declined 10.2%.
The decrease in Surgical revenues was primarily due to our exit of a lower margin product line in the third quarter of 2017 that I referenced earlier. As we look forward into the remainder of 2018, we expect that our Surgical business will continue to report negative constant currency revenue growth for the second quarter of the year because of the difficult comparison. However, comps eased in the second half of 2018, thereby allowing for modest positive constant currency revenue growth in the second half of the year. Moving to our overseas operation. First quarter EMEA revenues were up 4.6% on a constant currency basis to $159.9 million. Within this growth rate, M&A contributed approximately 2.3%. When normalizing for the impact of M&A and shipping days, we estimate that organic revenue growth within this segment would have been 3.2%.
Turning to Asia, our first quarter revenue increased 9.1% on a constant currency basis to $58.2 million. Within this growth rate, M&A contributed approximately 3.5%. When normalizing for the impact of M&A, organic revenue growth within this segment was 5.6%. Shipping days did not have any impact on this segment. Organic growth in this segment was led by China, whose revenues expanded 26%. This was largely driven by an increase in volume following our decision to take our business direct last year. Next, I'd like to brief you on our OEM segment. During the first quarter, revenue was up approximately 2.9% on a constant currency basis and reached $45.8 million. When normalizing for the shipping day impact, we estimate that the increase in OEM revenues would have been 3.3%. The increase in OEM revenues was all organic and was due to higher sales volumes of existing products.
Lastly, first quarter revenues for the businesses within our all other category was up 85% on a constant currency basis, totaling $88.8 million. Growth here is primarily attributable to the acquisition of NeoTract and, to a lesser extent, respiratory product sales, which grew approximately 3.6%. That completes my comments on our segment revenue performance. I would now like to briefly update you on the status of GPO and IDN awards, as well as some recent clinical announcements. Beginning with GPO and IDN. During the first quarter, we won an additional nine new GPO and IDN agreements and extended six others. Of the agreements won and extended in quarter one, six were sole source in nature and covered a wide variety of clinical areas, including our CVC catheters, laryngeal masks, laryngoscopes, pain pumps, and humidification product offerings.
We are encouraged by our continued success in this area. It reinforces our view of the sustainability of our revenue generation. Next, I would like to provide you an update on two clinical studies that were recently published as well as an update on RePlas. The first clinical study involves NeoTract, and it is our belief that the data from this study further supports our thoughts that the UroLift System continues to prove itself as the new standard of care for men with enlarged prostates. On May 19th, we announced the results from the first analysis of a retrospective registry of more than 800 UroLift System procedures performed at seven centers in North America, Europe, and Australia. The study found that the UroLift System offers significant improvement in symptoms and quality of life through 24 months among patients in the real world, non-clinical setting.
With a 40% reduction in IPSS score at 24 months, results were consistent with the data from the randomized five-year L.I.F.T. study, which showed a highly tolerable, minimally invasive procedural experience, rapid reduction of symptoms after the procedure, and sustained improvement in quality of life scores, IPSS, and peak urinary flow rate while preserving sexual function. Additionally, the registry included patients in urinary retention who required a catheter to urinate prior to treatment. Of those with follow-up data, 96% could urinate without the use of a catheter within the first month following the UroLift procedure. The ability to get men in retention off a catheter is a big milestone in urology. We anticipate that the registry will continue to enroll additional sites. It is expected to increase to more than 2,000 patients.
The second study that I would like to talk to you about this morning involves the LMA Gastro. In the February edition of the British Journal of Anaesthesia, the LMA Gastro Airway with Cuff Pilot technology was affirmed to yield a high airway insertion success rate and endoscopy success rate when using in patients undergoing an endoscopic procedure. The prospective study, which involved 292 patients, sought to determine the efficacy of the LMA Gastro in patients undergoing upper endoscopy and concluded that the endoscope and LMA Gastro insertion success rate was 99%, thereby indicating efficacy. This is important because according to the 2009 study, more than 6.9 million upper endoscopies are performed in the U.S. each year. The use of moderate to deep sedation during endoscopy is a common practice.
Respiratory depression from sedative drugs and airway obstruction requiring intervention are known risks associated with these procedures, with studies demonstrating that in 11%-50% of cases, patients can become hypoxic. Today, many of these procedures are undertaken without an airway management device in place. The LMA Gastro is the first laryngeal mask specifically designed to enable clinicians to proactively manage their patient's airway by facilitating direct endoscopic access via the integrated channel. We continue to see an increase in the adoption of this product globally. We anticipate the findings of this independent study will further aid in the adoption of this product moving forward. Next, I would like to provide you with a brief update on RePlas.
As you may recall, in December of 2017, the FDA and the Department of Defense launched a joint program to expedite the approval of medical products that are intended to save lives in the U.S. military, including freeze-dried plasma. Members of our Vascular Solutions biologics group had a meeting with the FDA in early January, and the FDA confirmed an accelerated Biologics License Application approval pathway and confirmed that an efficacy study must be ongoing at the time of the licensure. Following this initial meeting, we met again with the FDA in early April. Like the first meeting, the most recent discussions went well and provided our team an opportunity to inform the FDA about our manufacturing process and validation plan. Following the meeting, there are no changes to our anticipated timeline for RePlas, and we continue to expect a BLA submission in early 2019.
Before I turn the call over to Tom, I'd like to share some details with you regarding another restructuring plan that was recently approved. Over the past several months, we have been evaluating opportunities to further improve our operating leverage, and the plan we announced today is designed to further enhance our competitive position. These types of announcements are never easy, and we only make these decisions after very careful consideration. It is our intention to speak with affected employees shortly. I realize that this may be an unsettling time for Teleflex employees as they hear the news of a new restructuring program. I would like to take a moment to thank all of the affected employees for their hard work and dedication and to share my commitment that we will treat you in a fair manner as we move through this process.
Like previous plans, our new effort is focused on the relocation of certain manufacturing operations to an existing lower-cost location, the outsourcing of certain distribution operations, and related workforce reductions at certain of the company's facilities. Importantly, this is not something that will happen overnight. Rather, we expect certain actions to commence in the second quarter of this year, and that these actions will be substantially completed by the end of 2024. From a financial standpoint, we estimate that we will incur aggregate pre-tax restructuring and restructuring-related charges in connection with the plan of between $102 million and $133 million, of which between $55 million and $72 million will be incurred in 2018. We currently expect that this plan will achieve annualized savings of between $25 million and $30 million once it is fully implemented, and that we will start realizing some very minor savings beginning in 2018.
Given that we have not yet had an opportunity to speak with the impacted individuals and sites, we will not be going into more specifics at this time. That takes me to the end of my prepared remarks. Now, I would like to turn the call over to Tom for a review of our financial results for the first quarter and our updated financial guidance for 2018. Tom?
Thanks, Liam. 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 $332.6 million, versus $267.1 million in the prior year quarter, or an increase of 24.5%. Adjusted gross margin was 56.6%, a 190-basis point increase when compared to the prior year period. The expansion in adjusted gross margin reflects the impacts of the acquisitions of Vascular Solutions and NeoTract, favorable fluctuations in foreign currency exchange rates, and the favorable impact of cost improvement initiatives. Adjusted operating margin improved 60 basis points to 24%. The improvement was related to the gross margin flow-through. However, this was partially offset by the inclusion of NeoTract, which currently operates at a higher OpEx cost structure. Adjusted net interest expense increased to $25.7 million, versus $15.1 million in the prior year quarter.
The increase reflects the impact of additional borrowings required to finance the acquisitions of Vascular Solutions and NeoTract. Turning to the adjusted tax rate. For the quarter, it was 12.8% versus 16.1% in the prior year period. The year-over-year decline is due to a larger tax windfall benefit this year versus last year and the impact of the recently enacted Tax Cuts and Jobs Act. Moving to the bottom line, first quarter adjusted earnings per share increased by 19.4% to $2.15. Clearly, first quarter adjusted EPS outperformed our prior expectation. The favorable result is attributed to the following factors. First, favorable exchange rates resulted in upside to revenue that flowed through to a modest EPS upside. Second, during the quarter, the tax windfall benefit from share-based compensation was favorable versus our original 2018 budget assumption. Third, we had favorable OpEx spending in the first quarter.
The favorability was in part due to better expense control and in part due to a rephasing of expense timing. Our 2018 operating margin guidance of 26.1%-26.5% had assumed a level of full-year spending, and we still expect that level of spending. However, the timing will play out a little bit differently versus our original expectation. Additionally, given the strong first-quarter earnings results, we now intend to spend a little bit more in OpEx on a full-year basis to accelerate future top-line growth. The additional spending would be to fund accelerated regulatory approval of RePlas following the favorable meeting with the FDA, to accelerate the timeline for UroLift regulatory filings in Asia, and to accelerate sales force hiring plans for NeoTract in the U.S.
If you exclude the favorable benefits from exchange rates, taxes, and expense timing, Q1 results were largely in line with our internal operational expectations. Turning now to select balance sheet and cash flow highlights. During the first quarter, cash flow from operations totaled $87 million, down approximately 4% over the prior year period. The decrease was primarily due to changes in working capital. Finally, during the quarter, our gross debt balance declined by approximately $18.5 million, reflecting modest term loan repayments, while leverage for our credit facility definition stood at 3.4 times. That completes my comments on the first quarter. I'll move to 2018 guidance updates. Beginning with revenue. For 2018, we are reaffirming our full-year constant currency revenue growth guidance range of between 12% and 13%. We continue to expect our organic revenue growth will be between 5% and 5.5%.
However, because of an improved outlook for foreign currency environment, we are raising our as-reported revenue growth guidance from a range of between 14% and 15% to a new range of between 15% and 16%. Based on our updated currency assumptions, this translates to an as-reported revenue range of between $2.468 billion and $2.490 billion. We are also reaffirming both our previously provided adjusted gross margin guidance range of 57.5%-58% and our adjusted operating margin guidance range of 26.1%-26.5%. Our full-year 2018 adjusted tax rate guidance range remains 15%-16%, although we now expect to be near the lower end of that range. On the bottom line, our outlook for 2018 adjusted earnings per share has improved by $0.15 per share to a range of between $9.70 and $9.90, up from our previous outlook of between $9.55 and $9.75.
The revised range represents adjusted EPS growth of between 15.5% and 17.9%. The increase in our adjusted earnings per share guidance is primarily due to improvements in our outlook for foreign currency, including the modest FX upside realized in the first quarter. On a GAAP basis, we have now included the estimated impact of the 2018 footprint realignment program. Accordingly, the GAAP EPS range has been revised to $5.45-$5.55 versus $7.10-$7.20 previously. To summarize, Teleflex is off to a good start in 2018. First quarter revenue and adjusted EPS were favorable versus our expectations. Margin expansion was in line with expectations, and the integrations of NeoTract and Vascular Solutions remain on schedule.
Lastly, we look forward to sharing our longer-term strategy and financial outlook with the investment community at our Analyst Day event, which will take place next week on May 11th in New York City. That concludes my prepared remarks. Now I'd like to turn the call back over to the operator for Q&A. Operator?
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please press star then one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Isaac Ro with Goldman Sachs. You may begin.
You're first. Mic on.
Hey, good morning. Thanks for taking the question. Just on UroLift, hoping you can put a little more detail on the magnitude of investment you're putting into the channel. I think you gave us a little bit there, but would appreciate, in dollar terms, how we should think through the next 12-24 months.
I think that as we see NeoTract perform exceptionally well, modestly ahead of our internal expectations, we see the opportunity to solidify the out year's growth. Our original plan, as you know, was to go from 15 in 2016 to 17 in 2017. We went above that in 2017, and we were expecting a similar cadence. We think that we will add in the region of five to seven additional salespeople in this year, even above our original plan.
To continue to accelerate the growth. The product is doing exceptionally well, I got to say. I spent a day in the field in the last two weeks viewing some cases myself. To see the impact on patients is quite significant. To see how enthusiastic urologists are to use this product, I also had a fair impact on me to see that. A lot of enthusiasm, and we're looking forward to having two urologists that are on Investor Day that are actually going to speak specifically to the UroLift on that day.
Got it. Just to follow up on the freeze-dried plasma, could you maybe remind us how you think about the size of the opportunity and what the margin impact would be once you get that business up at scale? Thank you.
Yes. We think that the overall market for freeze-dried plasma is approximately $100 million. About a quarter of that is in the military, and we'll obviously begin in the military segment, given that they have helped us to develop this product in doing the clinical studies. As I said in my prepared remarks, we now believe that the product will be ready for submission. We anticipate to get our piece done and get it submitted. The margins we haven't quantified yet. We're still in discussions with the military as to what the price point. Operator, I think we can take the next question.
Our next question comes from Lawrence Keusch with Raymond James. You may begin.
Oh, hi. Good morning, everyone. Liam, just to continue on with UroLift, you also talked about accelerating or I should say, investing additional dollars for Asia approval. Could you walk us through a little bit, what countries you're thinking there and sort of timelines to get there?
Thanks, Larry, and good morning. Yes. As you know, we've already submitted for Japan, and that's already within our sphere. We have a direct channel within Australia, which is also within our APAC region. The new regions that we're looking at, we're looking to accelerate our registrations in China, Singapore, and in Taiwan. We think that there are significant market opportunities there, and we would like to get the product registered earlier than our original expectations. Now, in some of these areas, it will take a longer period of time. Singapore and Hong Kong would be fairly quick. Larry, we should get registrations by the end of the year for those. The other geographies will take anything from one to two years.
One thing we're working with the CFDA is to investigate whether we can use the U.S. clinical data for the submission, and that's why we're trying to accelerate this process to get a clearer understanding as to whether we will need a Chinese clinical study or whether we can use the U.S. data.
Okay, perfect. Just on that, just to be clear on Japan, what's the thought there for timing? Then I just had two other quick questions.
Yeah, sure. We've submitted. The normal timing to get the shonin and registration is in the region of about 18 months, and then it'll take close to 18 months to get the reimbursement thereafter. That's the normal timeline we would expect, Larry. As we get updates, we'll keep the investment community informed.
Okay, perfect. Two other quick ones for you, maybe for Tom. If you could just talk about the revised gating on your spending, since it sounds like you had a little bit of an underspend in the 1Q. I guess back to Liam on the distributor restocking, you indicated that you had anticipated that to normalize in the first half. I'm just wondering how to think about the activity in the first quarter and what that may mean for the 2Q, and also if you could speak to any flu benefit in this quarter. Thank you.
I'll take the second question first, Tom, if you don't mind. I'm glad to report, Larry, that we did see the restocking. We got from the big three about a $3 million pickup, and as you know, it was about a $3.8 million destocking in the prior quarter. You could see that in particular in the growth rates within our anesthesia and respiratory business. The respiratory business grew by 3.6%, and the anesthesia business grew by 4.9%. We did see the rebound in those two businesses, and we also saw the restocking from distributors to the tune of about $3 million. Unfortunately, we see this from time to time with distributors buying patterns outside of our control, and again, we normally see it come back.
We did see a good strong flu season, Larry, and that I think is probably reflected in the growth of those businesses as well as the growth within our vascular business, which grew by 6.9%. All in all, I got to say, I'm really happy with the first quarter and the results that we achieved from our core businesses, the contributions of VSI, the contributions of NeoTract, and I think we're off to a real solid start for the year. Tom?
On the rephasing, as mentioned in the first quarter, part of the upside was due to just better expense management. Part of it was due to moving some spend out into subsequent quarters. Really the rationale was as these new opportunities to invest behind RePlas and NeoTract were emerging, we wanted to see how first quarter turned out to see how much we could afford to pull in and move forward. Thankfully, the first quarter results turned out pretty good. As you look at the balance of the year, you shouldn't assume there's any one quarter where the bolus of that spend is. In fact, it's a couple of million dollars that's actually being moved out, and part of the upside in OpEx in the first quarter will be used to fund some of these additional investments.
As mentioned, in the aggregate, we still expect to spend the same full-year amount that was in the plan, a little bit more given these investments that we've spoken about. Hopefully that helps, I wouldn't expect it to be a large increase in any one given quarter.
Okay, perfect. Thanks, guys.
Thank you. Our next question comes from David Lewis with Morgan Stanley. You may begin.
Hi. Good morning. This is Jayson Bedford in for David. Congrats on the quarter.
Thank you.
Organic growth for questions sequentially was encouraging. Can you talk about how you see the outlook from here?
Yeah, I think we expect to see an accelerating growth organically for our business. Our constant currency guidance is 5%-5.5%. Our constant currency days adjusted for the quarter was 3.1%. Within the 3.1%, we saw solid volume, good new product revenue, good pricing. I'm really, as I said earlier, pleased with the results. Again, our pro forma revenue growth in the quarter was 6.6% days adjusted. Now to get to our 5%-5.5%, from quarter two onwards, we will have a full quarter of VSI growth in our organic growth. In the second half of the year, we will largely anniversary the surgical exits, and in quarter four, as well as an extra billing day, NeoTract rolls off being counted as organic and will add, as we said before, 0.5% to our full-year revenue.
You should continue to see it increase ratably over the remainder of the year.
Got it. Very clear. Thank you. A quick follow-up. VSI also recovered this quarter. Can you talk about the recovery you saw and any underlying momentum you're seeing in the business in addition to the benefit from DTC conversions?
Yeah. You would see that in our positive pricing. We were very pleased with the results from our dealer to direct. We've executed very well on that, and our European team should get great credit for that. I've got to say, I was really pleased to see VSI come with a double-digit rate of adjusted growth rate. It came in at 10%. I would also expect that now as we begin to execute on the go direct, that we should see a modest improvement in VSI over the remainder of the year also.
Thank you.
Thank you. Our next question comes from Richard Newitter with Leerink Partners. You may begin.
Hi. Thanks for taking the questions. I have a couple. Maybe just on the restructuring, can you give us any sense as to the cadence of that $25 million-$30 million in pre-tax annual savings? When do you think we'll start to see that factoring into the P&L? I know through 2024 is the time period, but that's a long window. When will we start to see the lion's share of that benefit? On that, can you just maybe remind us of what's left on your existing restructuring? Thanks.
I'll ask Tom to cover that if you don't mind, Rich.
Yeah. We'll go into this in more detail next week at Analyst Day. It is a long-lived project, and you shouldn't expect to see the lion's share until kind of the early 2020s is when we'll start to see meaningful savings. There are some steps that have to be taken first, and that's the reason for the lengthy timeline. As for the other restructuring programs that are still outstanding, we had disclosed a total of $76 million-$90 million outstanding, and I would say that about half of that had been realized by the end of 2017. There's still meaningful savings out there on the existing programs, and the majority of that saving will be realized over the next couple of years, 2018, 2019, and 2020.
Okay. Thanks. That's helpful. Just going back to UroLift, very strong quarter for NeoTract again. I appreciate some of the investments coming up, but you have a competitor that just recently got acquired by a large med tech player, and I'm just curious about your thoughts on that technology as it kind of moves into the hands, again, of a company with bigger resources and clearly making an investment on the category. How does the increased investment potentially factor into that move, if at all? How do you see the market playing out? Any comparisons between the two technologies would be helpful. Thank you.
Rich, yeah, obviously we're aware of the acquisition NxThera by our competitor. I think what's probably underappreciated about Teleflex is the amount of sales force that we actually have globally within that urology call point. Teleflex would have in excess of 200 salespeople calling on that urologist on a daily basis. We have a dedicated sales team with the UroLift product, which is also calling predominantly on doctor's offices and ASCs, which is where the product is moving to. 60% of our revenues for NeoTract, Rich, are coming from outside of the hospital area. That really fits into what healthcare providers are trying to do. The BPH is a massive space, Rich. We never thought that we would be in the BPH space on our own, but what we are determined to do is make sure that UroLift is the standard of care.
Our view is that the patient outcomes will win out seven days a week and twice on Sundays. We feel that we have a much better patient outcome with our products. Our product is minimally invasive. Less than 20% of patients require a catheter. The results are immediate. We don't ablate any tissue. The next tier of product, every other technology ablates tissue, and if you burn and cut, therefore, naturally enough, you're going to have bleeding or swelling. Also, a big one for us is, and it's borne out by the clinical study I just spoke about, it's borne out by the L.I.F.T. study, zero sexual dysfunction. If you're actually cutting, you have a risk of sexual dysfunction, and the clinical papers bear that out. I think that we're really confident in our technology.
We never thought we'd be there in our own rig, but by gosh, we want to make sure that we're the number one, and we are the standard of care, and that's our goal.
Okay, thanks. Maybe just one last follow-up. Liam, you said that of the $3.8 million of distributor impact from the fourth quarter, you got back about $3 million in the first quarter. Does that mean that we should be thinking about just under $1 million coming back, hopefully, in the second quarter?
Yeah. Well, it normally comes backwards, so I don't see any reason that it wouldn't. It's not a big number on a full-year basis, but I would anticipate that we would see lengthy stocking at the end of quarter two and into quarter three. That would be my expectation, yes. I'm glad that the boldness of it came back in the first quarter, because that's what I expected.
Excellent. Thank you.
Thank you. Our next question comes from Brian Weinstein with William Blair. You may begin.
I wanted to first start with a higher-level question related to share gains. In the past, you guys have talked about approximately 125 basis points of growth coming from this source. Maybe you could update us on how this is tracking according to plan and provide some specific areas on where this has worked and maybe a few areas on where it's fallen short. Thanks.
Can you just clarify? Sorry, the line wasn't that clear, Brian. The 125 basis points coming from?
Share gains.
Share gains, we didn't make any statement about 125 basis points in share gains. Coming from which segment, Brian?
Yeah. We just had in our notes that over your longer-term plan, you're expecting some level of growth from share gains. Maybe as a more broader question, you could talk about what you're seeing in terms of these gains in specific segments.
Absolutely. I think that, and as I said during my prepared remarks, we see share gains in many areas of our business. One that's particularly encouraging for me is the PICC segment. We grew by over 20% in the key North American market, in the PICC segment, and we're very comfortable that we're taking shares there. I think in the interventional segment that grew by 8% in the quarter, we continue to see strength within our interventional business. In our anesthesia business, we saw a really solid rebound in our anesthesia business, and we continue to do well within our laryngeal mask, within our blades, and within our pain pump area of our business. Overseas, within the EMEA business, I think we're doing particularly well in our surgical business in Europe, where we don't have the impact of the exit from that lower margin, lower growth segment.
Obviously within China, as a result of our decision to go direct, we saw 26% growth in the quarter in China, and we also saw China and our Asia Pacific in general perform very well. There's some broad areas of where we see ourselves as taking nice share gains, Brian.
Great, thanks. Then secondly, more specific on the quarter, could you talk about trends in Latin America and some of the emerging markets? Thanks.
Yeah. I began giving some comments on Asia, and we saw a really solid rebound within Asia. The Latin American business traditionally has been a drag for us. We followed up 3% in the first quarter. We do see Latin America rebounding modestly. That's encouraging because, quite frankly, it had been a drag over the last two years, and we had seen either flat or negative growth over the past couple of years. As the oil-based economies show some improvement, as the currencies have started to stabilize, we're starting to see some encouraging signs there. And also in the Middle East and Russia, we've seen a modest rebound as well in those emerging segments. We're quite encouraged by the trends that we see there, Brian.
Thank you.
Thank you. Our next question comes from David Turkaly with JMP Securities. You may begin.
Good morning. Just to follow up on some of the PICC commentary you made. Just curious, on that market size today and where you stand, I think when you had a competitor that was public, they were the largest player, but I was curious if you're gaining share there still, maybe even against them. I know you had some antimicrobial, antithrombogenic products. I'm curious as to what % of your mix those are.
Okay, Dave. Of our catheters, over 90% of the catheters that we sell in our CVC area or in our PICC area are coated catheters. That is because the hospitals realized that an infection will cost them $43,000 to treat that patient, and they won't get reimbursed. Secondly, if they end up in the bottom tier from a hospital-acquired condition score, they get a lower reimbursement the following year. The overall PICC market in North America is around $340 million. Our share of that, we would be in the $35 million area, call it, on an annualized basis. We continue to take share gains there. Your question as to who we're taking it from, there's those two main competitors. There's C.R. Bard, as they were, and there's AngioDynamics. I think that we are in a really strong position with our coating.
We've got a good, better, best from a tip positioning technology. I think all in all, we're really happy with our portfolio. We're really happy that we have these unique coatings that differentiate us in the marketplace, and we continue to expect to take share gains over a multi-year period because of all of those factors.
Thanks for all that detail. I know there's been a lot of questions on UroLift, can you just remind us what rep productivity you think it is at scale? My last one would just be any update on Percuvance. Thanks a lot.
Well, I think from rep productivity, the one statistic that I love is that it takes a urology consultant rep about six to seven months to get up to $1 million in revenue in a new territory. As we add additional reps, of course, we don't have as many virgin territories as we had originally, we do see productivity improving. If you took our general pool of urology consultants, we're getting about $2 million now on average from each sales rep within that group. Our best reps are over the $3 million range. I said I was out in the field with a rep a couple of weeks ago. That sales rep did over $3 million last year, I think a really experienced salesperson and very successful.
The productivity from the reps, we continue to see it grow, we continue to see adoption of the product. Again, 87% growth in the quarter on NeoTract was very encouraging for us.
Thank you.
Thank you. Our next question comes from Anthony Petrone with Jefferies. You may begin.
Thanks. Maybe one for Tom, just on earnings guidance. There's a little bit of an FX benefit. We also have a little bit of restructuring coming in. Vascular is getting back a little bit in terms of overall growth, then we have NeoTract. Maybe just the components of earnings guidance, the adjusted earnings guidance going higher, where you see the most benefit from all of those drivers. Then I have two follow-up product questions. Thanks.
As we took a look at our results for the first quarter, really as mentioned, the operating results were largely in line with our expectations, with a couple of exceptions. Those exceptions being a favorable foreign exchange environment. The tax rate came in a little bit better, in part due to some favorable rates and in part due to the tax windfall. Then we spoke about the OpEx spend. Some of that was favorable, and some of that was a rephasing. As we look at the basis of the raise, really how we're thinking about it is initially when we started the year, we thought foreign exchange would be a tailwind of $0.26, and now we expect it to be a tailwind of $0.42. A $0.16 improvement there.
The tax rate, as mentioned, given the windfall and a little bit better rate, we now expect to be at the lower end of our range and about a 50 basis point improvement in taxes is worth, I think, about $0.06. You're up a little bit over $0.20. The OpEx really was a rephasing, we're not going to see any full-year benefit. In fact, we're going to do a little bit of investment above the full-year previous spend rate. That's how the upside from tax and windfall gets kind of carved back a little bit, and we're dropping through $0.15. It's really the potential FX as well as tax benefits that are driving the raise.
Well, I'll stay on this topic for a moment. As we look at the Analyst Day coming up next week, maybe frame the discussion in terms of the adjusted operating margin outlook. I guess my real question in there is, there's one variable that's a potential wild card, and that's RePlas. How do you consider now that we have a new restructuring program, new assets within the portfolio, NeoTract, Vascular, how do all of those sort of get factored in? In particular, without having guidance on RePlas, is there a scenario analysis that potentially you will run through with and without RePlas? Then one follow-up product question. Thanks.
On the revenue line, we'll go into that in more detail at our Analyst Day. It's only a week away. We give details on RePlas. We have a few, let me call them wild cards with potential upside for us in the longer term, and RePlas is one of them. Percuvance is another one that has potential there. We will give our guidance based on our portfolio, but with some commentary on what might assist us, I think is what you can expect to see, Anthony.
That's helpful. Last for me would be on NeoTract and NxThera, Boston Scientific taking out that asset. My understanding is that the reimbursement for NeoTract is quite a bit more favorable than NxThera. Maybe just a recap on the reimbursement and how it stands today. Thanks.
The situation, I believe, with the reimbursement for that device is that they have a provisional CPT code. The reimbursement rate will not be determined until early in 2019. Therefore, there is no comparable. I believe a different code had been used in the past, and I believe that they will no longer be using that code because the NxThera device wasn't technically that type of product. It's hard to make a comparable as to what their reimbursement is versus NeoTract. What I can tell you is that the NeoTract reimbursement is very favorable for the clinician and very favorable results for the patient. We'll know more in early 2019, and then I guess they would have to go through the process of bringing on all the private payers.
Just as a point of reference, that took us two and a half or three years, to bring on all the private payers, and we're still only up to 200. Now we're up to 240 million lives. We're very encouraged by that, but it took us three years to get to 240 million lives. I would imagine that Boston will have to follow a similar process than we did to bring on those payers.
Very helpful. Thank you.
Thank you. Our next question comes from Matthew Mishan with KeyBanc. You may begin.
Great. Thank you for squeezing me in. I just want to start with Asia. I think most of my questions have been asked. Do you think you have the product registration runway and the infrastructure in place, to the point where you can potentially sustain double-digit growth in that Asia segment moving forward? It's a little over 10% sales, and 10% growth would give you about 100 basis points of organic growth moving forward.
Our long-term goals for the Asia Pacific region is to get into the high single digits, low double digits. I think we've been pretty constant on that. With regard to our structure for registrations in the APAC region, we have significant resources to assist with our registrations, and we always have had. Quite frankly, Matt, you need that in order to be able to do the registrations because you got to move them into the languages and the CFDA. You got to work with them to define whether you need a clinical study, whether you don't need a clinical study, what the classification of the product is. Obviously, we continue to make additional investments into China.
We are this year making additional investments into Asia in general for the registration of the NeoTract product, because we want to make sure that we are well-positioned to take advantage of that opportunity in the future. It can take one to two years to get a registration in China. We're acting now to be prepared for two years' time. We're acting in Japan to be prepared for two or so years' time. Obviously, Hong Kong, Singapore should be easier. Some of the geographies do take a significant amount of time, and we will be looking then at Latin America in the future to see what our plan is to accelerate the registration there. One of the things that I think that Teleflex really brought to the table with the acquisition of NeoTract was that global footprint.
As we said at the time of the acquisition, we'd be working to leverage our global footprint to expand this technology into new markets, and that's exactly what we're doing.
Okay. Thanks, Liam. On NeoTract, I'm not sure you guys ever really provided a quarterly cadence of last year's results for it. Could you give us a sense of how it was phased through 1Q through 4Q last year so that we don't look at, say the 87% increase this year in the first quarter and ask why you didn't raise the guidance of 40% for the year?
I can. If you go from 1Q to 4Q. I know 4Q off the top of my head was $39 million. 3Q was about $34 million. 2Q was $30 million, and 1Q was about $23 million in the ballpark. Basically, that's the basis that we're using for the growth year-over-year. That's where you get your 87%. The growth rate, even over the prior quarter, was greater than 8%. We've been pretty consistent with the growth rate on NeoTract, and we continue to see that.
All right. Thank you very much.
Thank you. Our next question comes from Mike Matson with Needham & Company. You may begin.
Hi. Thanks for fitting me in. Just wanted to start with Vascular Solutions. You gave the sales number. Can you just remind us what that implied in terms of pro forma growth? Is the distributor conversion impact completely behind you now in that business?
Yeah. Thanks, Mike. I'll start with the distributor. It's completely behind us. We've executed on all of the distributor go direct in Europe. As I said in my prepared remarks, the growth rate was just over 10%. Again, we're very encouraged by the overall growth rate. It grew sequentially over quarter four. All of the metrics for VSI are very encouraging for us, and we're really enthusiastic about that asset.
Okay, thanks. Tom, just curious on your outlook for commodity costs. We're seeing oil prices increase, and there's talk of tariffs on metals and things like that. To what degree is that a factor in your cost of goods? At what point would you think that would start to translate into gross margin pressure, if at all?
Well, obviously, we're watching the situation too, with the costs of PVC and other components, and we do see some pluses and minuses. Right now, we're not seeing a major impact, a slight uptick in the inputs. Where we're seeing more of an impact is in some labor rates in some of our markets, Mexico and Czech Republic. We have moved to address compensation levels to the current market. Right now, the commodities haven't had a significant impact. We'll certainly watch that going forward. Labor has had some impact already.
Okay. Finally, can you just tell us selling days for the remainder of the year, whether you're up or down, versus prior year? Thanks. Per quarter. Thanks.
Yes. Quarter two, we've got plus one. Obviously we had one less in this quarter or in quarter one, and then in quarter four we're plus one again in quarter four, Mike.
Okay, great. Thanks a lot.
Thank you. Our next question comes from Matt O'Brien with Piper Jaffray. You may begin.
Thanks for taking the questions. This is Kevin on for Matt today, actually. I wanted to jump back to the revenue guidance for the year quickly, if we could. I just wanted to discuss why the team didn't choose to take it up slightly on an organic constant currency basis, just given the continued NeoTract strength. Is the company just being conservative here, and should we be modeling closer to the higher end of that range? It sounds like the components of that 5%-5.5% are unchanged, with NeoTract providing 50 basis points of growth and VSI at 100 basis points. Just wanted to talk through that decision process to not bring it up a little bit.
We feel very comfortable with our guidance range. I mean, our constant currency guidance range is 12%-13%. We took up a percent, obviously, for the impact of currency. NeoTract is running slightly ahead of our internal expectations after one quarter, and it is one quarter. We feel very comfortable in our guidance range. We think our core business had a good, solid start to the year at 3.1%. We think that we'll get a full quarter of VSI in quarter two. We will get an easier comparable in the latter half of the year with the surgical exit. Of course, we've got an extra [$1 million] there. All of that was in our guidance range, and we gave it at the beginning of the year. We anticipated getting a bounce back from the distributors in quarter one.
We anticipated VSI growing, rolling off, and all of the other factors. The performance of NeoTract is very encouraging, and it's one quarter. We're comfortable in our guidance range of 12%-13% at the end of the first quarter.
Okay. Thanks so much. Just one more for me. You guys have been right-sizing the organization and removing some slower growth, lower margin businesses, as you said. There seems to be some larger moving pieces now this year with integrating two large acquisitions and the new restructuring program. How do you think about that dynamic for managing the portfolio of some of those businesses? Is it going to be decreasing here in 2018 and something that we should look for a little bit later? How do you think about the dynamic?
With regard to integrating acquisitions, our structure is very beneficial in that regard. If you look at the two acquisitions we're integrating, Vascular Solutions is impacting the interventional business unit. The integration of NeoTract is we set it up as a standalone business unit, so it wouldn't cause disruption within the business. With regard to the restructurings, we have a number of restructurings programs that we've been running through in the last number of years. The phasing and the timing of this restructuring announcement is timed as a lot of those resources roll off from the existing restructuring programs to give us bandwidth to do further restructuring.
We do give a lot of thought to the company bandwidth, management bandwidth in our thought process around restructurings and integrations, and we feel that we have sufficient bandwidth to manage all of the projects that we have ongoing at the moment.
Thanks, Liam. That's helpful.
Cheers.
Thank you. Our next question comes from Kristen Stewart with Deutsche Bank. You may begin.
Hi. Good morning. Thanks for taking the question.
Good morning, Kristen.
I'm wondering if I missed this, but I think there was a question on Percuvance earlier. I don't know if you guys gave a response to that on where that stands.
Nothing has changed, Kristen. No, we didn't have a question earlier. I'm glad you brought it up, actually. We're currently on path to submit to the FDA in quarter three, and we are on track to get the product late in quarter four. We will do a 100-patient limited market release late in quarter four to validate all of the changes that we've made. We'll expect to see revenue beginning in 2019.
Okay, perfect. Speaking of 2019, just kind of can you give an update on NeoTract in terms of the accretion? It sounds like, just as you had mentioned before, I guess you guys still expect over 40% growth for the year. With the additional investments that you're making, does that change at all the accretion outlook in 2019?
I'll ask Tom to cover that one if you don't mind.
Yeah. The investments that we're making, really, we don't foresee being an expense burden overall to adversely impact the accretion in 2019. If anything, we should start to benefit from some acceleration in revenue quicker than was previously envisioned, given the sales force addition. You should not expect dilution from these investments. Rather, we think it's a longer-term upside.
Okay, is it upside relative to what you've modeled for the accretion in 2019? Or do you just feel more confident in reaching those goals? I think it was like $0.35-$0.40 or something like that.
Well, I think, as we get closer to 2019, we'll take the opportunity to provide guidance for 2019. We'll want to see, obviously, how this year plays out. We're clearly off to a good start in the first quarter. Revenues have come in well. That's afforded us some opportunity to kind of move some investments around. Before commenting specifically on 2019 guidance, we'd like to get a little bit further through this year and the progression of growth this year.
Okay, perfect. Thanks again for taking my questions.
Thank you.
Thank you.
Thank you. Our next question is a follow-up from Lawrence Keusch with Raymond James. You may begin.
Tom, I just want to pick your brain for a moment, again, on capital allocation. I guess this is also in part for Liam. Given the integration efforts that you have ongoing right now with Vascular Solutions and NeoTract, what's your ability or comfort to do some additional M&A? Also with your leverage ratio around 3.4 times, I guess, Tom again, the question there is, what do you think is a comfortable level for the company in this environment, given rising rates, et cetera?
I'll talk broadly. Then I'll pass it to Tom. As I said previously, Larry, our goal this year will be to de-lever. We are anticipating getting our leverage rate down to below three by the end of the year. We would like to get it down below three times leverage. As we all know, acquisitions are opportunistic, and as I've said many times, I didn't think that when we did Vidacare Corporation in 2013, it would be 2017 before we would do something like Vascular Solutions. I didn't think when we did Vascular Solutions that before the year was out, we'd be doing NeoTract. It is opportunistic. Our goal is to de-lever. Having said that, if an opportunistic and very attractive acquisition that was clearly within [audio distortion] we'd have a long, hard look at it.
I think I'd agree with Liam's sentiments as he's outlined. Certainly we'll have to incorporate the current rate environment into our financial analysis to see if any of these acquisitions meet our financial criteria as well as our strategic criteria. I wouldn't necessarily say that the rising rate environment would take us out of the marketplace.
Okay, terrific. Thanks, guys. See you next week.
Thanks.
Thank you. This concludes the question and answer session. I would now like to turn the conference back over to Jake Elguicze for closing remarks.
Thanks, operator, and thanks to everyone for joining the call today. This concludes the Teleflex Incorporated first quarter 2018 earnings conference call. Have a nice day.
Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.