Teleflex Inc

NYSE:TFX

Earnings Call Transcript 2017-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2017 Teleflex Incorporated Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Jake Elguicze, Treasurer and Vice President of Investor Relations. Sir, you may begin.

[Jake Elguicze, executive]

Good morning, everyone, and welcome to the Teleflex Incorporated Fourth Quarter 2017 Earnings Conference Call. The press release and slides to accompany this call are available on our website at www.teleflex.com. And as a reminder, this call will be available on our website and a replay will be available by dialing [phone] or for international calls [phone], passcode 6373419.

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. I would also like to point out that following the company's acquisition of Vascular Solutions, the company commenced an integration program under which it is combining the Vascular Solutions business with some of its legacy businesses. Specifically, the company is combining the Vascular Solutions North American business with the company's Interventional Access business, which formally was part of the Vascular North America operating segment. And the company's cardiac business, which formally was a separate operating segment included in our All Other category for purposes of segment reporting. These businesses are now in the company's Interventional North America operating segment. Additionally, the company is combining the Vascular Solutions businesses in Europe, Asia and Latin America with the company's legacy businesses in their respective locations. And these Vascular Solutions businesses are now part of the EMEA, Asia and Latin America operating segments, respectively. As a result of the operating segment changes, the company has the following 7 reportable segments: Vascular North America, Interventional North America, Anesthesia North America, Surgical North America, Europe, Middle East and Africa, Asia and Original Equipment and Development Services, or OEM. In connection with the presentation of segment information, we will continue to present certain operating segments, which now include interventional neurology North America and respiratory North America as well as Latin America in the All Other category because they are not material. All prior comparative periods presented in the presentation have been restated to reflect these changes. In addition, we have also included restated quarterly and annual 2016 and 2017 revenue information as well as restated annual 2015 revenue information on our website under the Investor Relations section.

With that said, I'd like to now turn the call over to Liam.

[Liam Kelly, executive]

Thank you, and good morning, everyone. In beginning, I would like to start by saying that during 2017, Teleflex achieved very positive results. These include driving additional operating leverage from our various restructuring initiatives, increasing our adjusted earnings per share guidance range on 3 occasions, ultimately achieving adjusted earnings per share at the very top end of our most recent provided range and completing 2 large acquisitions that has transformed the company's constant-currency revenue growth profile. And speaking of these acquisitions, our most recent acquisition, NeoTract, exceeded our prior expectations reaching $39 million of revenue for the fourth quarter and $125 million for the full year 2017. It translates into revenue growth of 121% for the quarter and 149% for the year. And as we look forward, we at the management team are enthusiastic about what we can accomplish and what we have accomplished over the past few years and that the company is well positioned for success in 2018 and beyond.

Turning to an overview of the fourth quarter. We saw strength from revenue growth associated with new products, which is a continuation of the trend we saw all year. In addition, during quarter 4, we saw strong shipping day adjusted constant-currency revenue growth within our higher-margin Vascular North America and Interventional North America segments. However, due to some temporary softness, our consolidated revenues in the fourth quarter were modestly lower than what we expected when we last provided guidance in early November. The delta versus our expectations primarily occurred due to 2 items, and it is our belief that they are both transitory in nature.

First, within EMEA, we saw lower-than-normal revenue growth, in part, due to distributor conversions associated with our Vascular Solutions product line. During the fourth quarter, we completed several distributor conversions and in advance of completing these distributor acquisitions, the distributors did not purchase the typical amount of products that they normally would have had there not been a pending acquisition. I'm pleased to report that because we completed these distributor conversions in 2017, we expect an acceleration in revenue growth in Vascular Solutions product lines within EMEA during 2018.

Second, during the quarter, we saw reduced orders from certain U.S.-based distributors, which impacted some of our North American-based strategic business units. It is our belief that this is a timing issue and the primary business units that were impacted were our North America Anesthesia and respiratory segments. This is something that we've experienced previously and in the past, distributors replenish inventory levels rather quickly. It is our expectation that this will once again occur during 2018.

Turning to M&A. As many of you are already well aware, our 2 recently completed scale acquisitions will significantly improve our future organic revenue growth rates and that is expected to begin in 2018. I've already spoken a bit about Vascular Solutions and the benefit we expect to receive in 2018 because of our ability to complete certain distributor conversions in late 2017. That, however, isn't the only growth driver in 2018 for Vascular Solutions, as we also expect to see an acceleration in new product growth.

Moving to NeoTract. As I previously mentioned, it was a real highlight for us this quarter as it reached approximately $39 million in revenue. This was considerably better than our internal expectations, which calls for revenue of between $28.5 million and $33.5 million. The quarter 4 performance coupled with the recently received FDA clearance for expanded indications for the UroLift System as well as NeoTract's ability to obtain additional covered lives through private payer insurance coverage gives us further confidence in our -- in their ability to drive significant revenue growth for many years to come.

Lastly, we continue to deliver solid margin and adjusted earnings per share expansion in the quarter as we increased our adjusted gross margin by about 270 basis points, our adjusted operating margin by 40 basis points and our adjusted earnings per share by 14.6%. As Teleflex' new CEO, I want to emphasize that Teleflex is well positioned to drive consistent constant-currency revenue growth and that our longer-term margin expansion objectives remain fully intact.

With that as an overview, let's now look at quarter 4 and full year 2017 results in a bit more detail. Fourth quarter 2017 revenues of $595.1 million, an increase of 15.8% on an as-reported basis and 12.6% on a constant-currency basis. As you will see momentarily, the constant-currency revenue growth in the quarter was due to acquisitions of both Vascular Solutions and NeoTract, while our base business fell a bit short for the reasons I mentioned earlier.

Despite this, we were still able to achieve fourth quarter 2017 adjusted earnings per share of $2.44, which is an increase of 14.6% versus the prior year period. On a full year basis, revenue reached $2.146 billion and were up 14.9% on an as-reported basis and 14.1% on a constant-currency basis. From an earnings standpoint, we delivered adjusted earnings per share of $8.40, which was at the high end of our most recently increased guidance range and an increase of 14.4% versus the prior year. It is also much better than our initial 2017 guidance range, which calls for adjusted earnings per share of between $8 and $8.15.

Next, as is our practice, I would like to take you through the components of our quarter 4 revenue growth. For the consolidated company, fourth quarter 2017 constant-currency revenue grew 12.6%. Beginning with the components of organic revenue growth during quarter 4, we saw organic constant-currency revenue growth, excluding the impact of shipping days, expand by approximately 1.8%. This consisted of revenue growth from new products adding 2% and positive pricing adding about 70 basis points, while legacy product volumes were down about 90 basis points. In addition, during the quarter, we had 5 fewer shipping days and this caused a headwind to revenue growth of approximately 5%.

Moving to the contribution we received from acquisitions during the quarter. Vascular Solutions added about 8%, NeoTract added 7.4% and other M&A added another 40 basis points.

Next, I would like to provide some additional color surrounding our segment and product-related constant-currency revenue growth drivers. Vascular North America fourth quarter revenue increased 0.3% on a constant-currency basis to $80.7 million. If you were to normalize for the shipping day impact, Vascular constant-currency revenues increased approximately 8%. The increase in shipping day adjusted Vascular revenues was largely due to higher sales volumes of existing products, an increase in new product sales and price increases. And as we think about 2018, it is our belief that this segment will grow constant-currency revenues in a similar manner to what was achieved in 2017.

Moving to one of our newly created segments, Interventional North America fourth quarter revenue was $61.7 million. This was an increase of approximately 177% on a constant-currency basis. Normalizing for shipping days, interventional constant-currency revenue improved by almost 185%. The increase is largely the result of the addition of Vascular Solutions, coupled with continued growth from the Vidacare OnControl bone marrow product line as well as the increased Intra-Aortic catheters and pump sales. And while we obviously won't see constant-currency revenue growth rates in 2018 as high as what was achieved in 2017 since we lapped the acquisition of Vascular Solutions, we expect our interventional North America business to grow double-digits on a constant-currency basis during 2018.

Turning to Anesthesia North America. Fourth quarter revenue was $49.9 million, which was down 9.4% on a constant-currency basis versus the prior year period. Excluding the impact of shipping days, Anesthesia constant-currency revenue was down approximately 2%. The decline in shipping days adjusted on Anesthesia revenue was due to lower sales volume of existing products, in part because of the distributor ordering pattern issue I referenced earlier, this was somewhat offset by an increase in revenue generated from the Pyng acquisition as well as an increase in new product sales. In 2018, we would expect our anesthesia business to show a modest improvement in constant-currency revenue growth as compared to the levels achieved in 2017.

Shifting to our Surgical North America business. Its revenue decreased 9.8% on a constant-currency basis to $43.7 million. Adjusted for shipping days, Surgical constant-currency revenue declined about 2%. The decline in shipping day adjusted revenue is primarily due to the decision we made to exit a lower-margin product in the third quarter of 2017. As we look forward into 2018, it is our current expectation that our Surgical business continues to report negative constant-currency revenue growth in the first half of the year because of the difficult comparison resulting from the elimination of the lower-margin product line. However, comps eased in the second half of 2018, thereby causing full year Surgical constant-currency revenue growth in 2018 to be flat to 2017. Included in our count for 2018 Surgical revenue is that we will need to file an additional 510(k) associated with our Percuvance product line, and that we will be reintroducing the Percuvance product line to the market in the fourth quarter of 2018. We do not expect any material revenue associated with this product in 2018. However, we continue to believe that this product offering will be a growth driver in the future. Surgeons' enthusiasm for the product continues to be high, and we believe that will continue through the 510(k) filing period.

Moving to our overseas operations. Fourth quarter EMEA revenues were down 2% on a constant-currency basis to $143.6 million. Normalizing for shipping days, EMEA constant-currency revenue increased approximately 4%. This was the result of revenues generated from acquired businesses and new product sales. As I previously stated, we expect the Vascular Solutions distributor headwinds to turn to tailwinds in 2018, and it is our current thought that EMEA constant-currency revenues will show improvement in 2018 as compared to the constant-currency revenue growth rate achieved in 2017.

Turning to Asia. Our fourth quarter revenue increased 4.5% on a constant-currency basis to $78.8 million. The shipping day phenomena that impacted our North American and European operations did not have a significant impact within Asia. As such, constant-currency revenue growth within Asia was primarily due to the benefit received from acquired businesses and price increases. I'm pleased to report that China grew 10.4% on a constant-currency basis in quarter 4, continuing the positive momentum from quarter 3. During 2018, we would expect the constant-currency revenue growth rate within Asia to be slightly better than the full year 2017 constant-currency revenue growth rate. In fact, this is because of our decision to go direct within China. As you may recall, taking our business direct within China caused a headwind to growth during the first half of 2017 as compared to the first half of 2016. This became a tailwind for Teleflex during the second half of 2017, and we expect this to continue in 2018 as well.

Next I'd like to brief you on our OEM segment. During the fourth quarter, revenue was relatively flat at $46 million. This was primarily due to the fewer shipping days. And if you were to normalize for that, constant-currency revenues would have improved by about 2%. And lastly, fourth quarter revenues for the businesses within our All Other category was up 67% on a constant-currency basis, totaling $90.7 million. Growth here is primarily attributable to the acquisition of NeoTract, and I would like to now provide you a more detailed update on it.

Teleflex completed the acquisition of NeoTract on the first day of the fourth quarter and as such, received an entire quarter's worth of NeoTract's result in 2017. I am pleased to say that the integration of this acquisition remains on schedule, that the legacy management team remains intact and that we have not experienced any regrettable sales force turnover. In fact, employee engagement remains very high and we remain committed to investing behind this business to ensure their hyper growth revenue trajectory continues in the future.

During 2017, NeoTract revenues reached $125.5 million, which is an increase of 149% year-over-year. The 2017 revenue performance was also better than our initial expectations when we announced the acquisition, which calls for revenues of between $115 million to $120 million. As we look forward into 2018, we expect NeoTract revenue will grow at least 40% over 2017, while we continue to think that it will be breakeven at an adjusted earnings per share line in 2018. After 2018, we continue to expect significant revenue and adjusted earnings per share accretion including adding between $0.35 to $0.40 of adjusted earnings per share in 2019.

In order to continue NeoTract's high-growth trajectory in 2018, we have a very focused commercial strategy. The core of that strategy is driving utilization in existing accounts, or as we like to say, going deep. We believe there remains a significant opportunity to drive growth by treating more of the BPH patients each urologist actively manages. This strategy clearly delivered results in 2017, and in 2018, the emphasis on going deeply will be even stronger.

Next is to methodically begin driving the adoption of UroLift into the early majority segment of the market. We believe UroLift has the clinical data, wide physician recognition and patient demand to begin penetrating this large portion of the overall market. And lastly, with the recent positive coverage decision from United, UroLift has now reached approximately 220 million covered lives in the United States. Our commercial team is focused on making practices aware of this broad patient access to UroLift further facilitating adoption of this product.

In addition to the items I just discussed regarding how we are going to grow the NeoTract business in 2018, I am pleased to say that we recently received 510(k) clearance for changes to the IFU for both the first and second generation UroLift devices. This 510(k) clearance includes the removal of the obstructive median lobe contraindication that previously existed on the devices. The addition of a median lobe indication, as well as lowering of the minimum age of men who would get the UroLift procedure to men 45 and older, as compared to previous IFU which stated that the minimum age was 50 and older. Given that the treatment of patients who have median lobe can be different than those that do not, we intend to embark upon a methodical sales training process during 2018. As such, we don't expect to see an increase in UroLift sales revenue associated with the receipt of this 510(k). However, the removal of the contraindication should be another catalyst for revenue growth in the future.

Lastly, before I turn the presentation over to Tom, I'd like to give you an update on another significant market opportunity that we also recently received some good news on. For those of you who may not be familiar with it, RePlas is a lyophilized fresh frozen plasma product that was originally developed by biological scientists at Vascular Solutions and is now being developed in collaboration with the U.S. Army. When Vascular Solutions was a standalone public company, it sized the potential market at approximately $100 million, and we agree with that assessment. Following Teleflex' acquisition of Vascular Solutions in May of 2017, we commenced a Phase I clinical study to assess safety and tolerability. Following the completion of the Phase I study, which is expected to occur around mid-2018, we initially anticipated that we would need to do a second clinical trial and that we would not be able to commercialize the product until late 2020. However, 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 of 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 and accelerated Biologics' license application approval pathway and confirms that an efficacy study is required post-approval. We continue to dialogue with the FDA and it is our current hope that we will be able to launch earlier than our initial expectations, which calls for a launch date of late 2020. We will continue to inform the investment community as to when we'll be able to launch RePlas as we learn more from the FDA. But to date, our conversations have been quite positive and we are excited about the opportunity to get this valuable product into the hands of the U.S. Military as soon as possible.

That takes me to the end of my prepared remarks. Now I'd like to turn the call over to Tom for a review of our financial results for the fourth quarter and our initial financial guidance for 2018. Tom?

[Thomas Powell, executive]

Well 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 $336.3 million versus $276.7 million in the prior year quarter. Adjusted gross margin was 56.5%, a 270 basis point increase when compared to the prior year period. The expansion in adjusted gross margin was largely due to an increase in sales of higher-margin products and the acquisitions of Vascular Solutions and NeoTract, which are accretive to gross margin. Adjusted operating margin improved 40 basis points to 25.4%. The improvement was related to the gross margin flow-through, somewhat offset by the addition of NeoTract, which operates at a higher OpEx cost structure. Adjusted net interest expense increased to $23.5 million from $11.7 million in the prior year quarter. The increase reflects the impact of the additional borrowings to finance the acquisitions of Vascular Solutions and NeoTract.

Turning to our adjusted tax rate. For the quarter, it was 10.9%, which compares to the prior year period rate of 16.5%. On a GAAP basis, the fourth quarter tax rate was 163.6% reflecting $107.9 million of tax expense recorded in connection with the Tax Cuts and Jobs Act. $107.9 million tax expense reflects both a $46.1 million net tax benefit resulting from the reassessment and revaluation of deferred tax balances, and the tax expense of $154 million for the onetime toll charge on a deemed repatriation of undistributed foreign earnings. We intend to pay the one-time toll charge over the 8-year period described by the TCJA. I do want to point out that the net $107.9 million charge has been provisionally calculated and will be subject to further confirmation.

Moving to the bottom line. Fourth quarter adjusted earnings per share increased 14.6% to $2.44.

Turning now to select balance sheet and cash flow highlights. During 2017, cash flow from operations totaled $426 million, or an increase of 4% over the prior year. The increase was primarily the outcome of improved operating results, partially offset by a tax refund received in 2016 that did not reoccur in 2017. Finally, during the quarter, our gross debt balances remained constant and our leverage for our credit facility definition stood at 3.57x.

And that completes my comments on the fourth quarter. Now I'll move to 2018 guidance. Leading first with the revenue. For 2018, we expect total constant-currency revenue growth of between 12% and 13%. Included in this estimate is an assumption that our organic constant-currency revenue growth is between 5% and 5.5%. This represents an improvement from the 3.2% of organic growth that we achieved in 2017 and this acceleration can be attributed to a few items.

First, the headwinds we experienced during 2017 associated with our distributor conversions in China and Europe are expected to become tailwinds for 2018. Additionally, during 2018, we have 1 additional shipping day. And finally, we anticipate that the combination of Vascular Solutions and NeoTract will add approximately 1.5% to our organic growth rates. This reflects 10.5 months of contributions from Vascular Solutions and 3 months from NeoTract. And as a reference point for 2018, if our organic constant-currency growth were to be calculated assuming a full 12-month of organic growth for both NeoTract and Vascular Solutions, then the pro forma 2018 organic growth rate would be in the range of 7% to 7.5%, or 200 basis points higher.

Turning next to M&A. We project previously completed acquisitions to contribute between 7% and 7.5% of revenue growth in 2018. This is largely comprised of Vascular Solutions and NeoTract with a very modest amount coming from Pyng and Airway Medics. Lastly, our assumption is that FX will create a 2% tailwind and as a result, we expect as-reported revenue to increase by 14% to 15%. Based on our currency assumptions, this translates to an as-reported revenue range of $2,447,000,000 to $2,468,000,000. A stronger Euro relative to the U.S. dollar is the primary driver of the projected 2% foreign exchange tailwind projected for 2018. And for 2018 planning purposes, we had assumed a Euro to U.S. dollar exchange rate of $1.18, which approximated the spot rate at the time we established our 2018 financial plan.

Turning next to gross margin. During 2018, we anticipate that adjusted gross margin will increase by 170 to 220 basis points to a range of 57.5% to 58%. Of the expected 170 to 220 basis point increase, approximately 125 to 150 basis points is attributed to NeoTract and Vascular Solutions. And the remainder is attributed to operations cost improvement programs and benefits from our previously announced restructuring programs. And this is net of inflation.

Moving to adjusted operating margin. We anticipate that our adjusted operating margin will increase by approximately 100 to 140 basis points to a range of between 26.1% and 26.5% in 2018. Gains in gross margin will be the principal driver of the increase, which will be muted somewhat by the addition of NeoTract, which carries a higher OpEx cost structure.

And that takes me to our preliminary adjusted earnings per share outlook for 2018. And this slide serves as a bridge from our full year 2017 adjusted EPS to our full year 2018 adjusted EPS outlook beginning with 2017 adjusted EPS of $8.40. From an operating standpoint, in 2018, we project our business will add approximately $1.61 to $1.71 per share, or growth of approximately 19% to 20%. This will be primarily driven by positive revenue and mix, the continued reduction of manufacturing costs as well as positive contribution from acquisitions.

Turning to FX. Based on our current estimates, we expect foreign exchange will create an adjusted earnings per share tailwind of approximately $0.26.

Moving to taxes. During 2018, we project that our adjusted tax rate will be between 15% and 16%. That would mean our taxes could range from a headwind of approximately $0.07 to a tailwind of approximately $0.03. Our estimate is that adjusted weighted average shares will increase by approximately 500,000 shares to 46.9 million for full year 2018, which is diluted by $0.10 per share. And finally, we expect that interest expense will be approximately $109 million and a headwind of approximately $0.55 per share in 2018. Our interest expense for 2018 reflect no changes to our current capital structure, however, we are forecasting additional rate hikes during 2018 that will impact our revolver undrawn, which are floating rate instruments. In total, our outlook for 2018 adjusted earnings per share is $9.55 to $9.75, representing growth of between 13.7% and 16.1% versus 2017.

Given the recently enacted Tax Cuts and Jobs Act, I'd like to provide a little more color surrounding our current expectation for how the TCJA will impact our adjusted tax rate going forward. As the initial House and Senate drafts of tax reform began circulating in late 2017, our initial assessment was that tax reform would negatively impact the future adjusted tax rate. However, once the regs for TCJA were published, our initial assessment was that the impact would likely be neutral for the tax rate going forward. However, now that we've had more time to assess the specifics, we now expect tax reform to provide a modest benefit to our 2018 adjusted tax rate. Combining the benefit of a modestly reduced tax rate with improved access to offshore cash is a positive outcome for Teleflex and certainly a better outcome than was envisioned just a couple of months ago. And while it's not our practice to provide specific quarterly guidance, I did now want to highlight some considerations regarding variability between our 2018 quarterly expectations.

During 2018, we expect that the percentage of revenue generated each quarter will mirror the quarterly percentages achieved in 2017 when we achieved approximately 23% of our full year revenue during the first quarter, approximately 25% in both the second and third quarter with the remainder in the fourth quarter. For the first quarter, we have 1 fewer shipping day in 2018 versus 2017. We will then get the benefit of 1 additional shipping day in each of quarters 2 and 4, while there's no change in the number of shipping days during the third quarter. Overall, we'll have 1 additional shipping day in 2018 as compared to 2017. And from an adjusted earnings perspective, we also expect that the cadence of our quarterly earnings will closely resemble the percentages attained in 2017 with about 45% of our full year 2018 earnings generated during the first half of the year and about 55% generated in the second half. And specifically for the first quarter of 2018, adjusted EPS growth is projected to be in the mid to high-single digits.

I'd like to close by saying that during 2017, Teleflex delivered numerous positive outcomes. We completed the acquisitions of NeoTract and Vidacare, which will serve to accelerate our future revenue growth and margin expansion profile. The China and Vascular Solutions distributor conversions are largely complete, placing the revenue headwinds behind us and positioning us for growth in 2018. Also in 2017, we raised adjusted earnings per share guidance on each of the first, second and third quarters and we achieved the upper end of our most recently provided adjusted EPS guidance range.

As we look towards 2018, we are guiding to constant-currency revenue growth of 12% to 13% and organic growth of 5% to 5.5%. Gross margin is expected to expand by an additional 170 to 220 basis points due to the outcome of the recent acquisitions and ongoing operations productivity initiatives. On the bottom line, we expect another year with adjusted EPS growth in the mid-teens. And as a final thought, we have scheduled an Analyst Day for May 11 in New York City and we will share with you a longer term financial outlook and we'll provide strategic updates on key businesses and product offerings.

And that concludes my prepared remarks. At this time, I'd like to turn the call back to Liam for some closing comments.

[Liam Kelly, executive]

Thank you, Tom. In closing, while we had some transitory issues that impacted our fourth quarter results, we feel very good about our full year 2017 performance and remain confident about what Teleflex can accomplish in 2018.

Let me briefly recap some of the drivers in 2018 as we see them. First, our 2 scale acquisitions are transforming our organic growth profile. NeoTract is poised to continue driving adoption of UroLift and delivering rapid revenue growth, and Vascular Solutions is poised to accelerate momentum in the business with tailwinds from our go-directs in Europe. Next, we see double-digit growth in our interventional North America segment and accelerated growth over 2017 growth rate in both our Asia and EMEA segments. And lastly, new products are expected to continue building leadership positions in key niche markets and take share in others. Overall, we believe we are in a great position to deliver a meaningful improvement to our organic constant currency revenue growth rate demonstrated by our guidance of 5% to 5.5% for the full year. When you combine that with our adjusted EPS guidance of approximately 50% at the midpoint, we believe that makes a very compelling 2018.

That completes my remarks. I would like to turn the call over to the operator to begin the Q&A session.

[Operator]

[Operator Instructions] And our first question comes from the line of David Lewis with Morgan Stanley.

[David Lewis, analyst]

Liam, I want to start on organic growth for a second. The company's had a lot of successes but organic growth progression has not been one of them. So as new CEO, a 2-part question. What can you do to break this cycle? And as I think about 2018 expectations, our sense is you have 5% to 5.5% underlying. Maybe that's 3.5% to 4% in the core, 1 point from VSI, maybe 0.5 point from NeoTract, but why should investors believe those are appropriately risk-adjusted here to start the year? And then I have a quick follow up for Tom.

[Liam Kelly, executive]

Okay. Well, let me start with the first part of your question, how do we address this. I think, David, what happened in the fourth quarter we see it as predominately transitory. Really, our full year guidance calls for a total constant-currency growth of 14.25%, 14.75%. Within our full year performance for sure, there are puts and takes. NeoTract performed better than expectation as did our smaller M&A and new products continue to show progress. VSI and the core business underperformed modestly due to 2, and I again say they are transitory events. All in all, our final result was 14.1% constant-currency growth, which is approximately $7.5 million of a shortfall in the middle of our guidance range. In its entirety, David, we're talking about 30 to 40 basis points on a full year basis. And really, the drivers of the shortfall were continued de-stocking by the VSI distributors, and also despite a really strong flu season, we did see distributors in the United States buy less inventory. Both of these, as I said, are one-time and transitory in nature, and we have seen in the past when U.S. distributors destock, they normally normalize their stocking levels in subsequent quarters. So it's a factor of having 50% or so of your North American business going through distributors. Now to address your question on the full year and bridging to 2018. The components of our organic constant-currency growth are as follows. We're guiding to 12% to 13%. So if we remove M&A of 7% to 7.5%, our true organic growth is 5% to 5.5%. Vascular Solutions and NeoTract contribute 1.5% to that organic growth, resulting in an organic growth of 3.5% to 4% from our core business. Now our growth in 2017, David, was 3.2%. We have an additional billing day in 2018, which should add 30 basis points and that gets me to the lower end of my range. Headwinds and tailwinds combined, like Surgical North America try to go direct and China go-directs and positive pricing from our go-directs, really make me feel very comfortable with the guidance range and our ability to achieve it. I would also like to point out that the onetime impact in quarter 4 revenue have not altered our thinking on 2018 revenue, and I really remain very positive on that. And a real highlight for me, I think, was the over-performance of NeoTract. And I've often said, David, that not all growth is equal and I continue with that hypothesis. The growth that we delivered and the areas of out-performance were our higher-margin categories such as NeoTract, our Vascular business, new Interventional North America with Vidacare, including Intraosseous delivering, again, over $20 million. So I think that the future for 2018 looks relatively bright. When you peel back the elements of our organic growth, I feel it's quite deliverable.

[David Lewis, analyst]

Okay, Liam. That was very clear. And then Tom, just thinking about 2018. The real surprise obviously is tax, and there was all the maturations these last 2 months. So if I think about the tax, a couple of questions. One, I feel like in the margin with the tax guidance, the '18 earnings guidance seems conservative. So can you talk about the level of reinvestment of some of these tax savings given how late in the year they occurred? And then this rate you talked about for 2018, is that the rate we can think about for this business for the foreseeable future?

[Thomas Powell, executive]

Okay. So, David, as you point out, we do see this tax reform being a nice benefit for us versus our initial expectations. As we think about 2018, as Teleflex has become a more complex organization as a result of recent acquisitions and growth, there are some investment areas that we want to put some money towards to continue to build on our capabilities. We think a number of these are investments that will serve us well into the future. So we are reinvesting some of that tax savings. As far as the rate going forward, we've got a couple of things going on. First of all, as more and more of our income is generated from some of the recent acquisitions, that could put some unfavorable mix in our tax rate as a result of having more U.S.-based income. Now with that being said, we're in the early stages of assessing the recent tax reform regulations, and it's our expectation that we'll continue to work through those regulations in the coming months to try and identify additional areas for planning. So as we think about the rate, I think it's a good baseline to start with, with the expectation that mix will be unfavorable in the coming years given more income in the U.S., but we'll look to find opportunities to offset that with future tax planning ideas.

[Operator]

And our next question comes from the line of Larry Keusch with Raymond James.

[Lawrence Keusch, analyst]

Liam, I just wanted to circle back on the distributors. I mean, I think the one thing that's going to be bothersome to folks today is obviously the 90 basis point decline in the core volume. So again, as you look at your businesses that were impacted by the distributor ordering patterns, I guess, the question is, why do you really think that occurred? And do you have any insights as we sit here on February 22 as to kind of what those distributors are now doing?

[Liam Kelly, executive]

Thanks, Larry. So why it occurred given that we have such a strong flu season is just the timing as when these distributors would stock up for that flu season. The encouraging thing for me, Larry, is that we do have a very strong flu season. It's predominantly impacted our anesthesia and our respiratory businesses in the fourth quarter. Our expectation is that as it did previously, it will come back in 2018. And we do see a positivity in the first month of 2018, early in the quarter. So I'm buoyed by that quite frankly, Larry. And other thing that we did look at in quarter 4 was to assess our end customer volumes, to ensure that there was no loss of share in any of these segments. So what we found was that our end customer volumes with the tracings, demonstrated a solid 5% end customer demand. So, in my mind, Larry, it almost inevitably has to normalize through the early part of 2018.

[Lawrence Keusch, analyst]

Okay, very good. And then just 2 other questions. So on NeoTract, I guess, there, when do you expect to launch the second generation device? And, really, why do you not anticipate any real revenue generation from the removal of the median lobe contraindication? And then the other question is on RePlas, I understand that you met with the FDA now in January, and they said that your trial can come post-approval. So what happens as you understand today, what's the sort of pathway to getting this on to the market? And would it only be available for military use until you complete that other trial?

[Liam Kelly, executive]

Okay. So I'll start with RePlas, Larry. We did meet with the FDA in early January. The meeting was very positive, I would say, first of all. Secondly, we are still waiting for absolute clarity, as to what that requirement is to get approval, and what that approval would mean. So our anticipation is that the first clinical study would be sufficient with additional bench testing to get approval, and that should accelerate having RePlas in the market from late 2020 to earlier than that. We are still waiting for more clarity from the FDA, whether that will mean just military approval or general approval. Personally, Larry, I think it's unlikely that they would go for a specific approval for military because it would be hard to put a wall around it and to stop leakage of the product into other areas, in my view. But I still have to wait for the FDA to come back. We will have the update on this, and we should have more clarity by the time we get to our Investor Day in March. Your second question was around the median lobe. And around the median lobe, I think that clinicians, as they use the UroLift product, can make their own determination as to whether this is used for a median lobe. Obviously, we cannot promote it for that application. And secondly, there is a significant amount of training that we need to do in order to prepare our sales force to be prepared to promote this product for the median lobe. That's going to take us a number of quarters, and that's why we expect the revenue pick up from this to be a little bit later. In my mind, Larry, one thing that it does remove is an advantage some of our competitors have that they can talk to physicians and say, our product is applicable to median lobe and lateral lobes, so I think that will help our sales force out there in the marketplace. Your last -- and I'm taking them in reverse order, Larry, I apologize. Your first, but I'm addressing last, is the launch of UroLift 2. And we're still in premarket studies with that, Larry. We will update as soon as we have that completed. We may want to consider given that we've got to train the force -- sales force on the median lobe, just delaying that a little bit but we'll assess that as we go through. We don't want to overburden the sales force. I want to have them selling this product because it's such a rapidly growing product and we have, as we said, plus 40% growth planned in -- at least 40% growth planned for 2018 for NeoTract.

[Operator]

And our next question comes from the line of Richard Newitter with Leerink Partners.

[Richard Newitter, analyst]

Liam, just going back to the timing of the kind of the U.S. distributor orders that you said you have confidence coming back. And a follow-up, you said that the flu and the impact it's having on the ordering, that was one of the kind of the main reasons that gives you -- that's what gives you confidence it's going to come back early in 2018. I guess compared to the situations that you've experienced when this has occurred in the past, was it also the flu, or was it something else? I'm just trying to make sure I understand what's the path to prologue here?

[Liam Kelly, executive]

Yes, they are linked but not absolutely. So a strong flu facilitates the burn off of the inventory that they preorder. What happened in quarter 4, Rich, was we anticipated the normal buy-in that happens for the flu. We experienced it in our Vascular business but in our respiratory and anesthesia business, it didn't happen. The flu is very strong, so that is why I'm pretty confident that the buy-in will happen in 2018 and be burned off because the flu season is actually -- is more prevalent than last year. It's a stronger flu than last year. And therefore, I would anticipate that we would see this recovery in 2018 as distributors restock. The end customer demand, as I said that we've seen in quarter 4, would substantiate that and the early signs in January would also substantiate that.

[Richard Newitter, analyst]

Okay. And just to be clear, though, you think that will come back in the early part of the year, like it's a first half phenomena? Or it's something that kind of gets spread out through '18? I'm just trying to make sure we're getting our models right here as we think of the quarter.

[Liam Kelly, executive]

So you would anticipate seeing the recovery in the first half. And what we will be watching closely is the normal destocking in quarter 3, because they normal destock in quarter 3 for inventory they didn't burn through. So it may have -- it may take us through 3 quarters to materialize, Rich.

[Richard Newitter, analyst]

Okay. Just another one on Percuvance. I think you made some comments. What, if anything, is contemplated in 2018 guidance? And can you highlight some of the Vascular new product releases that you're looking forward to?

[Liam Kelly, executive]

Okay. So again, I'll start with Percuvance. As I said in my remarks, Rich, we have -- we anticipate to be back in the market following the 510(k) in quarter 4. So therefore, we don't have a revenue planned in 2018. We're looking forward to getting back in the market, surgeon enthusiasm is still very, very strong for the product. Regarding the Vascular new products, we're still very encouraged by our new PICC portfolio with our positioning system, our Medline catheter that has obviously got our coating technology on it to help prevent infections, and those -- and our Endurance product. So we have a good bowl of new products coming through our Vascular business that is helping to buoy the solid revenue that we see within Vascular in quarter 4, and that we anticipate in 2018 and beyond. And Vascular is one of our stronger margin business units. So having solid growth there, back to my hypothesis on not-all-growth-is-equal, I think will be very encouraging for us.

[Richard Newitter, analyst]

Okay. One just last one, UroLift, I appreciate that you're not committing to when precisely that UroLift is due -- is going to come out. But what are the main features here that you think this is going to add? And then anything we should be thinking about on the gross margin side when it does launch?

[Liam Kelly, executive]

So I'll start with the gross margin and then I'll go back to the features, Rich. So the gross margin, we anticipate -- the current gross margin is in the low-70s. We think that once we have fully cannibalized the business potential, to move it into the high-70s. And then regarding the features. A few of the features are really around ease of use. So the new product is easier to use. There's also less waste. And when you consider that the amount of the procedures that are done in the doctors' offices are -- [indiscernible] in the doctors' offices are roughly around 60%. Having a large volume of waste is a problem for them and this will make it a lot easier for them. For Teleflex, it will help us comply with some of our green initiatives. But also for the customer, it will mean less waste in the procedure, less product to be on the shelf and the product is actually easier for them to use. And it should help them in positioning the system, easier when they are delivering the implant.

[Operator]

And our next question comes from the line of Matt Taylor with Barclays.

[Matthew Taylor, analyst]

So wanted to follow up on some of the components of organic growth that you've been talking about here. If we look at the 5% to 5.5% and consider that you're getting 1.5% from Vascular and NeoTract, can you talk about the shift from headwind to tailwind of distributor conversions, how much that adds? And then in terms of the comeback on easy comps with the distributors in the U.S., how much does that add in the kind of the base of 3.5% to 4%?

[Liam Kelly, executive]

Okay. So the -- as I said earlier, when I was talking about our guidance, our total mix versus the midrange of our guidance was approximately $7.5 million. Less than half of that came from the North American distributors. More than half came from the EMEA destocking. So that amount will probably help you. As I look to the guidance and the headwinds and the tailwinds, the tailwinds, we had said that the headwinds for the China go-direct was approximately 20 basis points in the year 2017. So we would expect that to come back in 2018. The exit of the Surgical business is approximately $8 million to $9 million in the first half of the year. So that's why you'll see Surgical come back much stronger in the second half of the year. And then the distributor go-directs, which would be seen in pricing, and that will have a better return for us than the Surgical destocking, is probably the best way for me to put it. So you can see why I'm fairly comfortable with the guidance range that I put out there today.

[Matthew Taylor, analyst]

Yes. And want to follow up on Percuvance, you made some comments there. But generally, before you would talk about that as the biggest organic opportunity for the company. Is that still your view given some of the delays that we've had here? Or do you think that the ultimate contribution could be lower?

[Liam Kelly, executive]

First of all, I clearly made those comments before we acquired NeoTract regarding the biggest organic growth opportunities. We still see the market potential for that in the $300 million. There's a lot of pent-up demand for the product, a lot of enthusiasm for surgeons. And we look forward to getting back into the marketplace. And once we do get back, we will reassess the growth trajectory for it. Quite frankly, I think that we were so early in the adoption curve for surgeons, I don't see this having a longer term impact on Percuvance and our percutaneous offering in the longer term. The important thing for me is to get back with a very solid product that works, and then build the market a little bit like what we did -- what we're doing with NeoTract today. I would say that the strongest growth opportunity for Teleflex in the next number of years is really NeoTract, given that -- the growth profile of that asset and given the fact that it closed much stronger than we expected in quarter 4. And even with that strong close, obviously that helps the jump off point. We haven't changed our hypothesis that it should grow by at least 40% in 2018, so therefore, I think in 2018, '19 and '20 and beyond, that will still be one of the fastest-growing organic assets in the Teleflex portfolio for a number of years to come. And I base that on the fact that just exclusively in the United States, we've done $125.5 million in 2017 in an addressable market of about $6 billion. We've only begun to penetrate the urologists, we're at the very early stages of that, and we've just now got 220 million lives covered. We're almost at the stage where we have full coverage throughout the United States.

[Operator]

And our next question comes from the line of Matthew O'Brien with Piper Jaffray.

[Matthew O'Brien, analyst]

Liam, not to push too hard here, but the 2-year stack growth of NeoTract actually accelerated in Q4. So clearly, there's a lot of momentum here. I'd love to hear exactly what drove some of that acceleration you saw in Q4, again on a 2-year stack, so adjusting for the seasonality already. But then the 40% outlook for the business, it's a pretty meaningful deceleration given what you're doing. I get bigger numbers. But why would it just be 40% against given how much momentum that we're seeing?

[Liam Kelly, executive]

Yes, and we see that momentum as well, and we are very encouraged by it, Matt. The way we look at this is, we have now trained and converted many of the early adopters for this technology. We're now moving to the early majority. We believe, and perhaps we're being conservative in our view, but we believe that going deep rather than going wide, as we move this early majority, may potentially take a little bit longer to convert that part of the market. But it's a much bigger segment of the market. And once we do begin to convert it, we see the potential to accelerate that within the future. So that's the view that we have today. That's the view of the NeoTract's management team and it's consistent with what they would've pursued themselves as a private company before the acquisition. And that's part of the reason we left it as a standalone business unit, to bring that expertise to bear. And we believe that perhaps it may be somewhat conservative given what we see in the growth rate, but right now, once we start to see a trajectory on that early majority, we think that is an appropriate guidance of at least 40% for 2018.

[Matthew O'Brien, analyst]

Okay, that's very fair. And then as a follow-up question, just on the gross margin range, it's kind of broad range, 170 to 220 basis points of improvement. So can you just give us a sense for what gets you to the low end of that range versus what gets you to the high end of that range?

[Liam Kelly, executive]

I'm going to actually ask Tom to cover that.

[Thomas Powell, executive]

Yes. So with any given year, mix certainly plays a factor and this year, we've got a pretty high-growth profile going on with NeoTract. I'd say to push us to the upper end of the range, you're looking for stronger growth in some of the higher-margin products above planned levels. I wouldn't say that necessarily there's anything that we envision right now that's going to cause us to not be headed right towards the middle of that range. So nothing extraordinary that would need to occur to get there. And again, to the get to the upper end of the range, it's more growth in the higher mix products -- or the higher-margin products, excuse me.

[Operator]

And our next question comes from the line of Anthony Petrone with Jefferies.

[Anthony Petrone, analyst]

Maybe a couple questions just on the quarter again, distributor as it relates to flu and then a few on NeoTract. Just on looking ahead to second quarter, third quarter, when you do actually get a restocking from distributors, just given that the extent of flu this year, do you think that, that restocking event will be up year-over-year? And then on NeoTract, I know the strategy here is to go deeper. Can you give us a sense of average utilization today of urologists that are UroLift users maybe on a monthly basis? And where potentially that can go over time?

[Liam Kelly, executive]

Sure. I will start with the distributors. And what we would anticipate is to see in the first half, given the strong flu, some pick up within our anesthesia, potentially Vascular and respiratory businesses. The really telling point for us will be in quarter 3 where there's normally a destocking. If it burns off the inventory, which with the flu season that we're having, I would anticipate that, that would occur, we would anticipate seeing a smaller destocking in quarter 3. And then again, you're right back into the following flu season for the restocking in quarter 4, so would be dependent on what the flu looks like in quarter 4. Regarding the customer -- the NeoTract question, pardon me, what we see is that coming from existing customers in 2017, 63% of the revenue growth came from existing customers in 2017. And in order to support this business, we have continued to invest within the sales channel. And I know that we were anticipating in having a full sales organization of consultants and associates of approximately 70. We actually went above that at the end of the year for that group of people. So we continue to invest behind it to drive and accelerate that top line growth. But to answer your specific question, 63% of the growth was coming from existing customers who -- in 2017.

[Operator]

Our next question comes from the line of Kristen Stewart with Deutsche Bank.

[Kristen Stewart, analyst]

Can you guys hear me now?

[Liam Kelly, executive]

Yes.

[Kristen Stewart, analyst]

Thanks for taking my question. I was wondering if you could give us what exactly you're expecting from NeoTract in terms of the sales, because I'm a bit surprised that given the strong momentum that you're seeing in the fourth quarter, why you're not seeing any level of accretion on the bottom line? I would've expected maybe a little bit more like maybe $0.05 to $0.10, or $0.10 to $0.15 of accretion, just given the higher numbers you're seeing in fourth quarter. And it would've struck me as a little bit higher than you would've expected at the time of the acquisition as well. Why isn't NeoTract at least modestly accretive for 2018? Is it just reinvestments that you're doing?

[Liam Kelly, executive]

I'll start and then I'll pass it to Tom who can give you a much more detail on the components of the NeoTract P&L. But in essence, the OpEx is much higher in this business to drive the revenue growth. The leverage for NeoTract really starts to kick in, in 2019 and beyond. And as we have said in the past, that we expect $0.35 to $0.40 of EPS accretion in 2019. And Kristen, that's a function of the continued top line growth and then you start to get leverage within the P&L based on the top line growth and the percent of OpEx required to run this business as a percent, decreases. And that's why you start to get the leverage. So the growth that we expect on the top line, at least 40%, if we took it at 40%, it would be approximately $50 million of growth, but we are investing behind this asset. We're doing registrations in Japan, we're gaining more clinical data, we're recruiting clinical educators, we're training on the median lobe, we're adding to the sales force in order to continue the hyper growth that we've seen. And I'll ask Tom to add any other color that he would like.

[Thomas Powell, executive]

Sure. Well, Kristen, as we think about it, initially, our expectation was growth of approximately 40% for 2018. Now based on the strength, we're thinking it's at least 40%. So to the extent that we do see those revenues growing at a higher level than initially expected, we should expect to see a little bit of an EPS accretion coming through. But right now, again, we're not modeling that higher level of growth. So our guidance is based on that 40% level.

[Kristen Stewart, analyst]

And I guess just with all the potential growth opportunities, is it your view that if NeoTract continues to be better than expected, would you be likely to reinvest it in all these opportunities? Or would you let that flow to the bottom line? How should we think about that?

[Liam Kelly, executive]

So we've already, actually, even in quarter 4, accelerated investments within the sales organization to drive the top line growth. We're so early in the adoption curve, we would obviously, at the time, make an assessment. But I'm inclined to continue to invest in a productive sales channel driving a low-70s gross margin product. But we would be thoughtful on that, and take a balanced approach to delivering shareholder return and securing the long-term growth of the NeoTract portfolio.

[Operator]

And our next question comes from the line of Dave Turkaly with JMP Securities.

[David Turkaly, analyst]

I just wanted to talk about Percuvance just quickly again. Is this the same issue -- like I know you said the 510(k), you expect it in 4Q '18. But did something additional happen in the quarter, any product reworking? Or is this still the same initial thing that happened late last year?

[Liam Kelly, executive]

Nothing new, David. This is ongoing. When I spoke in quarter 3, I was not anticipating having to refile a 510(k). And that's largely what's changed our thinking is the fact that we have to refile the 510(k), which means pulling together significant dossiers and doing a filing to the FDA.

[David Turkaly, analyst]

Great. And then on NeoTract. I wonder if you could just give us an update on sort of the sales force size there, and maybe if there is sort of a plan in terms of how many you plan to -- how many new folks you plan to hire and sort of what you think they can do from a productivity standpoint when they're fully ramped?

[Liam Kelly, executive]

Yet, so I go back to the history, in 2015, there were approximately 50 sales reps. At the end of the year, between urology consultants and associates, we actually thought we'd end up at 70, we went modestly over 70. We continue to see that cadence of adds in reps and associates in 2018 to drive the growth.

[Operator]

And our next question comes from the line of Matthew Mishan with KeyBanc.

[Matt Mishan, analyst]

First off, just on Vascular Solutions. If you have the numbers, year-over-year, what was the growth in Vascular Solutions for the quarter and for 2017? And then why would there be -- why would a shortfall from distributor conversions be a surprise to you? I mean, you've kind of done this before?

[Liam Kelly, executive]

We have done it before. And when we have done it before, Matt, we have been dealing with Teleflex contracts. In this instance, we were dealing with Vascular contracts, which added some additional complexity, unfortunately, and caused a bigger impact than we were expecting. Turning to the VSI growth, and almost all of the headwinds from VSI has been in EMEA because of these go-directs. So I'm going to give you a number without EMEA for the global growth on a full year basis, Matt, which is probably a better indicator than doing that. That is 10%. And the other comment I would make is that the Interventional North American business that we have merged with VSI, also grew about 12% organically in 2017. So -- and that is being sold by the same sales organization that sells VSI. So that's why we're reasonably confident on the double-digit growth -- we've got the go-dir -- in 2018. We've got the go-directs became a tailwind, we've got a motivated sales force. Excluding EMEA, the overall business is growing in that double-digit range. And once we have the EMEA transitory issues behind us, we think that we're set up for success in 2018 and beyond.

[Matt Mishan, analyst]

Okay, great. That's helpful. And then just 2 more. First on the freeze-dried plasma, with the accelerated approval pathway. How quickly can you ramp manufacturing of RePlas? And last on the tax rate. What have you accounted for with stock option accounting this year?

[Liam Kelly, executive]

Okay, so with freeze-dried, we have enough capacity, we believe, to supply the military demand over the next 4 to 5 years. So as we bring on commercial demand, and this is dependent on the FDA clearance, we should have enough capacity to carry us through 2.5 to 3 years, or in that ballpark. We will constantly assess that as we roll the product out. But I think we have enough capacity, Matt, and it's not something we're concerned about in the near to medium term. And on the tax rate, I'll ask Tom.

[Thomas Powell, executive]

Yes, and then with regards to the windfall in the tax rate. So certainly, last year, a new addition in terms of the change in the accounting. So we monitored how that went throughout the year. And as we put together our plan for this year, we included in it an estimate, both for the restricted shares that are vesting -- or the restrictions lasting, as well as an estimate for stock options. And that's based on historical exercises as well as just looking at the number of options out there and available. So in 2018, the level is slightly elevated from what we saw in 2017 and that's been included into our tax rate.

[Operator]

[Operator Instructions] And our next question comes from the line of Mike Matson with Needham & Company.

[Michael Matson, analyst]

Tom, I think you said you expect mid to high single digit EPS growth in the first quarter. Did I hear that correctly? And why is that lower than kind of the guidance for the full year, if I did hear it correctly?

[Thomas Powell, executive]

Well, first of all, you did hear it correctly. And I'd say that with any given quarter, there's variability, and that's why we manage to a full year number. Now as we specifically look at the first quarter, a couple of things going on. First of all, there's 1 fewer shipping day in the quarter. And then as you start to look at the seasonalization of both NeoTract and Vascular Solutions' operating profit, you start to see some good acceleration sequentially quarter in, quarter out. So what we're seeing is more and more growth as the year progresses, so obviously, Q1 having the least. Additionally, when you look at the interest expense headwind for the year, there's a $0.55 headwind. And if you look by quarter, the greatest headwind is in the first quarter, about $0.20 of that $0.55. Just given how we put debt in the last year to finance the acquisitions, we've got more of a headwind until we start to anniversary those debt issuances. Now I will say that in the first quarter, it's being benefited by having a full quarter of Vascular Solutions, where last year it had half. So those are some of the big moving pieces. In addition, last year was pretty busy year and as a result, people were distracted from a number of projects. They're starting out the year with a lot of enthusiasm and getting a lot of projects up and running. So those would be the key factors that I would point to.

[Michael Matson, analyst]

Okay. And then just one more on -- with regard to RePlas. I seem to remember with Vascular Solutions that it was somewhat expected to be somewhat dilutive to the gross margin. But there wasn't really expected to be a lot on sales and marketing expense of the drop through -- or the incremental operating margin on that. Those sales are expected to be pretty high. I think your gross margins are lower than Vascular Solutions was as a standalone. But just curious, is that still the case that the incremental OpEx on this particular product is pretty low, and that the drop-through of the sales would be pretty high?

[Liam Kelly, executive]

So, Mike, it's Liam here. So normally, you would expect a lower OpEx on any sales that you sell in -- especially into a military call point just because of their structure. And we already have a channel into the EMS sector because of our Vidacare portfolio. So that should also help. We haven't finalized pricing for the product yet, so it's really hard for me to comment on gross margins. We're very focused on getting the accelerated pathway and the approval. And then we will -- once we have that, we will enter into negotiations on what the price points for this product will be.

[Operator]

And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Jake Elguicze for any closing remarks.

[Jake Elguicze, executive]

Thanks, operator, and thanks to everyone for joining us on the call today. This concludes the Teleflex Incorporated Fourth Quarter 2017 Earnings Conference Call. Have a nice day.

[Operator]

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