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Operator
Good day and thank you for standing by. I would like to welcome you to the Teleflex Incorporated 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jake Elgoes, Treasurer and Vice President of Investor Relations. Please go ahead, sir.
Jake Elgoes
Good morning, everyone, and welcome to the Teleflex Incorporated First Quarter 2021 Earnings Conference Call. The press release and slides to accompany this call are available on our website at www.teleflex.com. As a reminder, this call will be available on our website and a replay will be available by dialing 800-585-8367 or for international calls, 416-621-4642, passcode 6194708. Participating on today's call are Liam Kelly, Chairman, 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 FTC, including our Form 10-K, which can be accessed on our website. During this conference call, you will hear management make statements regarding intra-quarter business performance. Management is providing the commentary to provide the investment community with additional insights concerning trends, and these disclosures may not occur in subsequent quarters. With that, I'd like to now turn the call over to Liam. Thank you, Jake, and good morning, everyone.
Liam Kelly
It's a pleasure to speak with you today. We are delighted with our first quarter performance, which exceeded the expectations we provided to the investment community on our Q4 call in February and reflected improvements in underlying revenue trends for the product categories most impacted by the postponement of deferrable procedures, most notably interventional urology, interventional access, and surgical. Quarter one revenue was $633.9 million, which was down 2.6% as compared to the prior year period on a constant currency basis, driven by continued COVID-19 headwinds. Adjusting for the two less selling days we had during the first quarter of 2021 as compared to the first quarter of 2020, quarter one constant currency growth was modestly positive at approximately 0.1%. which marks the third consecutive quarter of improving growth rates and a return to days adjusted constant currency growth for the first time since the beginning of the COVID pandemic in the second quarter of 2020. From an earnings per share perspective, our adjusted earnings per share of $2.87 also significantly exceeded the expectations we provided to the street. This reflects the recovery we saw in monthly procedures as we moved throughout the quarter, coupled with prudent operating expense management. Lastly, during the first quarter of 2021, we committed to a new restructuring plan designed to streamline various business functions. At Teleflex, we value continuous improvement and continue to execute on new opportunities to improve the efficiency and cost effectiveness of our business. Turning now to a more detailed review of our first quarter results. As I mentioned, quarter one revenue declined 2.6% on a constant currency basis. The decline in revenue was primarily due to lingering COVID-19 headwinds coupled with the impact of two fewer selling days in the quarter compared to the prior year period. When adjusting for selling days, we have experienced positive day sales adjusted contributions from vascular, anesthesia, surgical, and interventional urology, offset by declines in interventional OEM and our other segment. From a margin perspective, we generated adjusted gross and operating margins of 59.4% and 27.5% respectively. This translated into a year-over-year increase of 210 basis points at the gross margin line and 190 basis points at the operating margin line. We were encouraged by our gross and operating margin performance, which demonstrated the ability of our business to generate significant leverage despite the impacts of lingering COVID headwinds on our revenue line. In fact, we continue to show significant leverage across the P&L, as we generated the highest adjusted gross and operating margins since becoming a pure play medical device company. Quarter one adjusted earnings per share was $2.87, up 5.5% year over year, and well ahead of the expectations we provided the streets on our quarter four call. Overall, I am very happy with our first quarter financial performance. which demonstrates the resiliency of the diversified global product portfolio that we have built, while also reflecting progress towards our longer-term margin aspirations. Turning now to a deeper look at revenue results. I will begin with a review of our reportable segment revenues, and unless otherwise noted, the growth rates I will refer to are on a constant currency basis. The Americas delivered revenues of $375.5 million in the first quarter, which represents growth of 4.7% or 8.3% on a day sales adjusted basis. Growth in the quarter was driven by strength in vascular, anesthesia, surgical, and interventional urology on a day's adjusted basis. EMEA reported revenues of $141.2 million. representing a 16.9% decline or 14.4% on a day's adjusted basis. EMEA was impacted by a difficult year-over-year comparable, as the prior year period saw a bolus of ordering ahead of the initial COVID surge, as well as a higher level of COVID-related restrictions and elective procedure deferrals that occurred during the first quarter of 2021. Turning to Asia, revenues totaled $63.7 million, which represents 10.3% growth, with no selling day impact in this region. Importantly, we saw solid double-digit recovery in China, along with double-digit growth in India and Korea. This more than offset declines in Japan and Australia. As we anticipated, the Americas and Asia continue to recover more quickly than Europe. And lastly, our OEM business reported revenues of $53.5 million, which represents a 17.1% decline on a constant currency basis or 16.3% decline adjusted for selling days. As anticipated, our OEM business continues to see a lagged impact related to COVID recovery. Investors familiar with Teleflex would be aware that our OEM business supplies device companies with complex catheters and surgical sutures. And the first quarter impact reflects reduced orders from these customers whose business is tied to non-emergent procedures. As it relates to the acquisition of HPC, we are pleased that the integration has been completed and we have additional capacity coming online over the next two months, which should help drive growth in the second half of the year. Let's now move to a discussion of our revenues by global product category. Consistent with my prior comments regarding our reportable segments, commentary on global product category growth will also be on a constant currency basis, with color provided for selling day adjustments as well. starting with vascular access. Quarter one revenue increased by 5.8% to $164 million, or 9.3% adjusted for selling days, as we had strong contributions from central venous catheters, EZIO, and PIC product lines. Moving to interventional access. First quarter revenue was $96.2 million, which is lower than the prior year by 6.4%. When adjusting for selling days, the year-over-year decline was 3.8%. The decrease was largely due to the delay in the recovery of certain non-emergent procedures due to COVID. The decline was somewhat offset by increases in Manta large bore closure revenue, which grew approximately 30% globally adjusted for selling days. Turning to anesthesia. Quarter 1 revenue was $84.9 million, which represents growth of 7% or 9.9% adjusted for selling days. The revenue growth was due to solid performance of ZMedica, which performed better than anticipated, partly offset by lower sales of laryngeal masks and regional anesthesia products. Shifting to surgical, revenue was $80.4 million, representing 2.3% growth or 4.7% adjusted for selling days, driven by sales of our polymer ligation clips and instruments, partly offset by chest drainage and metal ligation decline. Now to interventional urology. Quarter one revenue was $73.4 million, which was a decline of 1.3%. When adjusting for selling days, the Urolip product grew approximately 1.9%. During the quarter, we continued to see cancelled procedures negatively impact growth as COVID case counts surged in January and February. However, as the quarter progressed, we were very encouraged by the strong double-digit growth that occurred in March. The strong growth trends that occurred for Eurolift in March continued during April as we continued to see improvements in our average daily sales trends. Importantly, Our average daily sales in April were, for the first time, back to pre-COVID daily rates on a consistent basis. We continue to view UroLift as one of the first procedures to be performed as the environment is starting to improve again. We also trained 115 new urologists in quarter one and are well on track to achieving our annual target of training between 450 and 500 new urologists during 2021. And finally, our other category, which consists of our respiratory and neurology care products, declined by 15.3% or 12.6% adjusted for selling days, totaling $81.7 million. The decline reflects headwinds to elective procedures as well as difficult comps from the prior year related to COVID ordering in EMEA. That completes my comments on quarter one revenue performance. turning to some clinical and commercial updates. I wanted to provide an update on our direct-to-consumer efforts for Eurolift. On the strength of a successful 2020 campaign, where we doubled awareness for Eurolift in the targeted population of men with BPH, and, as planned, we have decided to increase our investment in 2021 and run a national campaign for the full year. For this year's campaign, we are optimizing our network selection, refreshing the ads, and working in conjunction with social media campaigns to augment the overall impact. We continue to view DTC as a multi-year catalyst for Eurolift in the United States, as we are still in the early innings of market adoption and patient awareness. Indeed, UroLift is leading the way in BPH and this is the first time in recent years that a BPH brand is reaching patients directly in a meaningful way. Turning to UroLift 2, we continue to make progress with our controlled launch and we remain on track for a more fulsome rollout beginning in the second half of 2021. We remain confident that conversions to the UroLift 2 will continue over time, and we continue to expect to generate significant margin expansion as the revenue base is fully converted. As it relates to the Urolift ATC device, the launch continues to go very well, as we've completed multiple case days, and urologists find the use of the device to be intuitive, and they seem to appreciate that the device makes it easier to perform procedures with obstructive median loads. Regarding Japan, we remain on track for reimbursement decision in 2021 and view the approximate $2 billion addressable market as an incremental growth driver that will be a positive catalyst for the foreseeable future. And we continue to work towards commercialization in France. We anticipate performing our first cases during the second quarter. With multiple catalysts in place across key geographies, including the US and Japan, we remain confident that Duralift will become a robust global franchise addressing a significant multi-billion dollar opportunity. Lastly, before turning the call over to Tom, I would like to provide clinical updates highlighting two recent published studies with our Interventional Access Business Unit. The MARVEL Real-World Study was recently published in December of 2020. This study tracked 500 patients across 10 centers globally who underwent transferable large-bore percutaneous procedures. Primary endpoints of time to hemostasis was a median of 50 seconds, while the primary endpoint of the major vascular complication rate related to the manta axis site was in line with the safe manta IDE pivotal trial. the study concluded that Manta was a safe and effective device for large-bore access closure under real-world conditions. In addition to the registry study I just highlighted, a separate meta-analysis was published in February of 2021. This pooled analysis examined data for nearly 900 patients, drawing from the CE-MARC and SAFE pivotal trial, as well as the MARVEL registry study, Key findings included a high technical success rate, rapid hemostasis, and low complication rates. In this study, median time to hemostasis was 31 seconds. Overall, we continue to invest in clinical and commercial catalysts that will help to sustain our upper single-digit revenue growth aspirations for this strategic business unit in a normalized environment. That completes my prepared remarks. Now I would like to turn the call over to Tom for a more detailed review of our first quarter financial results. Tom?
Urolip
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 margin was the highest since Teleflex became a pure play medical device company, totaling 59.4%, or an increase of 210 basis points versus the prior year period. The increase in gross margin was primarily attributable to product mix, M&A, and restructuring benefits, which were partially offset by foreign exchange headwinds. Similarly, first quarter adjusted operating margin of 27.5% was also the highest since Teleflex became a pure play metal device company, and represented an increase of 190 basis points versus the prior year period. The increase was driven largely by the gross margin improvement, partially offset by normalization of compensation expense accruals. Continuing down the P&L, for the quarter, net interest expense totaled $16.1 million, which is a slight increase from $14.9 million in the prior year period, reflecting higher average debt outstanding. Post-core close, we issued a notice of redemption to holders of our outstanding $400 million aggregate principal amount of four and seven-eighths senior notes due in 2026. We plan to fund the redemption using available borrowings under our revolving credit agreement. Moving to taxes. For the first quarter, our adjusted tax rate was 13.9%, which is up 140 basis points as compared to the prior year period. The year-over-year increase in our adjusted tax rate is primarily due to less benefit from stock-based compensation as compared to the prior year period. At the bottom line, first quarter adjusted earnings per share increased 5.5% to $2.87. Included in this result is an estimated positive impact from foreign exchange of approximately 13 cents. Now I'd like to highlight another restructuring program that we recently announced. During the first quarter of 2021, we committed to a restructuring plan designed to streamline various business functions. We estimate that we will incur aggregate pre-tax restructuring charges between $7 million and $9 million, consisting primarily of termination benefits and between $3 million and $4 million in restructuring-related charges. We expect to begin realizing plan-related savings in 2021 with total annual pre-tax savings of between $13 million and $16 million once the plan is fully implemented. To summarize all of our ongoing restructuring and cost-saving programs, the total remaining pre-tax savings across all current active programs are expected to be between $53 million and $67 million. Further details of the programs are available in the appendix to the earnings presentation. Approximately half of the remaining savings are expected to be realized during 2021 and 2022, with the bulk realized by 2024. As such, we have good line of sight to non-revenue-dependent margin expansion for the foreseeable future. Turning to select balance sheet and cash flow highlights. For the first quarter of 2021, cash flow from operations totaled $110.8 million, as compared to $11.5 million net use of cash in the prior year period, or a year-over-year increase of $122.3 million. The year-over-year increase was driven by lower contingent consideration payments, lower payroll and benefit-related payments, and higher accounts receivable collections as compared to the prior year. Overall, the balance sheet remains in good shape. the end of the first quarter our cash balance was 324.6 million and during the quarter we paid down 100 million in debt and our net leverage at quarter end was approximately 2.9 times subsequent to quarter end we repaid an additional 25 million in revolver borrowings moving on to guidance starting with our revenue expectation for 2021 We now expect constant currency revenue growth between 8.5% and 9.75% as compared to 2020. This compares to our initial guidance, which called for constant currency revenue growth between 8% and 9.5%. The increase in guidance reflects our confidence in the business, including first quarter results, which were better than we anticipated. We expect our interventional urology, interventional, surgical, and anesthesia product offerings to be key contributors to our constant currency revenue growth during 2021. Additionally, we continue to expect our interventional neurology business will increase at least 30% over 2020 levels. The midpoint of our constant currency guidance range also assumes approximately 2.5% contribution from the acquisition of ZMedica. Turning to currency. We continue to expect foreign exchange rates will be a tailwind to revenue growth of approximately 2%. And as a result, we now expect our as reported revenue to increase between 10.5% and 11.75% over 2020. This would equate to a dollar range of between $2,804,000,000 and $2,835,000,000. Turning next to gross margin. During 2021, we now anticipate adjusted gross margin to increase between 155 and 255 basis points to a range of between 58 and a quarter and 59 and a quarter. And this is an increase of 25 basis points versus our prior forecast. We expect gross margin expansion to be driven primarily by a favorable mix of high margin products, including interventional urology, interventional access, and surgical. Also contributing are benefits from manufacturing productivity improvement programs, benefits from previously announced footprint restructuring programs, and the acquisition of ZMedica. Year-over-year gross margin expansion is expected to be somewhat offset by inflation. Turning to adjusted operating margin, we continue to expect that adjusted operating margin will increase between 110 and 210 basis points to a range of between 26% and 27%. The increase in adjusted operating margin will largely come from the gross margin line, partially offset by normalization of spending associated with items including management compensation, commissions, targeted headcount additions, and the potential for further strategic investments in support of key growth drivers such as Eurolift and Manta. Continuing down the P&L, we now expect interest expense to range between $61 and $63 million. This compares to our initial guide, which called for interest expense of between $63 and $65 million. The reduction in interest expense is primarily due to faster than originally anticipated debt reductions, coupled with lower than expected LIBOR rates. The early retirement of the 2026 notes was always part of our full-year interest expense assumptions. Moving to taxes, we now expect our adjusted rate will be in the range of between 13% and 13.5%. or a 50 basis point reduction versus our prior guidance. Considering all of these elements, we are pleased to be able to raise our adjusted EPS outlook to between $12.65 and $12.85 for an expected increase of between 18.6% and 20.4%. Lastly, while it is not our normal practice to provide quarterly financial guidance, Given the ongoing situation with COVID, I would like to provide some color regarding what we expect to occur in the second quarter of the year. At the midpoint of our new guidance ranges, during the second quarter of 2021, we expect to realize approximately 24.5% of full-year reported revenue and approximately 22.5% of our full-year adjusted earnings per share. Our outlook is predicated on the assumption that COVID will continue to cause disruption during the first half of the year. And that concludes my prepared remarks. I would like to turn the call back to Liam for closing commentary.
Liam Kelly
Liam? Thank you, Tom. In closing, I would highlight our three key takeaways from the quarter. First, we delivered a strong first quarter with top and bottom line performance better than our expectations. Second, we announced another restructuring program that reflects our organizational efforts for continuous improvement. This action also contributes to our confidence in long-term margin expansion efforts. And third, we raised our revenue and adjusted earnings per share guidance, reflecting a strong quarter one and our outlook for the remainder of the year. I would like to finish by thanking the entire Teleflex team around the world who have worked tirelessly through the pandemic. As we begin to come out the other side of COVID, we will continue to meet our commitments to our patients, clinicians, communities, and, of course, our shareholders. That concludes my preferred remarks. Now I would like to turn the call back to the operator for Q&A.
Operator
Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Richard Newiter with SVD Learning.
Urolip
Thanks for the color on the trends on UroList. Maybe just to start off there. So you mentioned that you've returned to pre-COVID UroList or interventional urology growth levels. I'm just curious, is that, you know, you had different growth rates in the first half of 2020, 40%, and then it rose to 50%, and in the first quarter of 2020, it was about 20%. Which kind of of those growth trajectories should we use as a reference point for the early trends that you're citing here in 2K?
Liam Kelly
Yeah, Rich, thank you very much for the question. We are quoting the trends in 2020 pre-COVID. On a days adjusted basis in Q1 2020, even with the impact of COVID in the last few days or the last week of March, we grew approximately 26 plus percent in the prior year. So we are very encouraged by the trends that we saw in the month of April. So at different times through the impact of COVID as we got into November last year, Rich, we did see days that we got back to a pre-COVID level on an average daily sales basis. But we have not seen the consistency where it remains for a sequential number of weeks until the month of April. And that is very, very encouraging to us. And I will say, and the other data point I think is worth looking at is if you compare Eurolift growth in this Q1 of 2021 and you compare that back to Q1 of 2019, that is approximately 30%. So we're very pleased to be able to reiterate our full year expectation for Eurolift of plus 30% growth and the trends that we've seen in the last few weeks of March, but more importantly, in the first few weeks of April, have given us the confidence that we will definitely be able to reiterate that long-term or that full-year guidance.
Urolip
Thanks for that caller.
Anthony Patron
Maybe just two follow-ups on your list there. You know, I know there's been some management changes in the organization.
Urolip
The head of the president of Eurolift, as expected, and pieces of the timing you said in the past, retired at the end of the year. Can you just talk a little bit about that? I think ultimately it would help just to hear If there's anything potentially changing with the way you're viewing the market, the direct consumer initiatives, management changes that may be impacting the business, or if this is just purely COVID that led to the still sluggish trend in the first quarter.
Liam Kelly
Yeah, so I wouldn't call the trend sluggish in the first quarter. Let's not forget, in January and February, COVID was much more severe than it was in the fourth quarter. And for us to be able to deliver a growth of approximately 2% in Q1, consistent with Q4, I would see that as an achievement. Another little bit of color I would give you, Rich, is that in the first two months, January and February, we had a decline of approximately minus 8% for Eurolift. And in the month of March, it was positive north of 30% in absolute growth year over year in the month of March. And we continued, as I said earlier, to see that improving trend as we went into April. So we feel really positive about Europe. Nothing has changed in the end markets and we're still very positive. As anticipated, the president of the business unit did leave at the end of the year, but we have an industry veteran coming in to take over that business unit. And the core team is still there. Our turnover in that business unit is significantly less than our turnover in any other part of Teleflex. and Teleflex turnover is well below industry averages. I've said it many times, Rich, you just can't beat culture, and our people will stay within Teleflex because of the culture and because of the significant opportunities within there. So no significant changes within the organization below the president level.
Urolip
Thank you very much, and I appreciate it.
Liam Kelly
Thanks, Rich.
Operator
And your next question comes from the line of Cecilia Furlong with Morgan Stanley.
Cecilia Furlong
Great. Thanks for taking our questions. I guess I did want to continue with your list. You talked about ex US expansion into France, as well as Japan coming online in the back half of this year, I guess, just as we're thinking about guidance and recovery from COVID. Can you talk a little bit about just what you're expecting from the US market recovery from the DTC campaign as that flows in? and then kind of just layering that on it. As you look at gross margin impact from Euro 2 rolling out, just would love your thoughts on kind of the cadence to the year.
Liam Kelly
Okay. So, again, we've, again, reiterated our plus 30% growth for Eurolift in the year. And regarding the growth in France and Japan, we see those as incremental growths to our normalized growth levels for Eurolift. We see that the growth and the recovery in Eurolift is going to be really a U.S. phenomenon this year, and we would advise the investment community to focus on the U.S. market. We will generate some revenue in Japan, but we have a mandated registration study to complete and gather some data. So I would really see Japan ramp, and France ramp for that matter, as really being a 2022 story where you see the incremental revenue really start to gain momentum. And as I said earlier, I would see that as an incremental growth driver into the future. With regards to the UL2, We still expect that we will have the key North American market pretty much converted by the end of 2022. And we will have an uptick in our gross margins of fourfold percentage points, which will account for about 40 basis points for Teleflex in our entirety. Regarding DTC, we are very encouraged by what we saw last year with our DTC campaign. And as I said in my prepared remarks, we are planning to run the DTC campaign for a full year. Because of some of the learnings that we've made during that time, We're doubling the spend, but we're more than doubling the number of impressions we anticipate making. So we expect to make about 125% plus additional impressions with the campaign in 2021 as compared to 2020. We are also very encouraged by the number of patients that engage with the urologist and encouraged by the appointment levels that we see being generated out of that. So we are investing more heavily behind DTC by rolling it out for a full year in 2021 compared to 2020. And in a recovering COVID environment, There are many patients that we have put under the care of a urologist through the DTC campaign that should turn into procedures now that people feel more confident to go back in and get procedures done in the back half of this year, 2021. Great.
Cecilia Furlong
Thank you for the color. And I guess I wanted to just see, on ZMedica, you talked about Q1 performance slightly ahead of your expectations. Can you just talk a little bit about how that integration effort has gone so far and really just how you're looking at that initial $60 to $70 million you called out at the time of the acquisition. And thank you.
Liam Kelly
Thank you. Yes, so the integration is going exceptionally well. The ZMedica team are very welcome to the Teleflex family. We are seeing no turnover within our identified retention pool. We have approximately 21 work streams in the integration, and we're about 35% completed already. Regarding the $60 to $70 million and the $0.21 to $0.26 in earnings guide that we gave, we feel we're very comfortably within that 60 to 70 million and that the product is doing better than we would have anticipated right out of the gate. So we're really happy with how things are going with ZMedica.
Operator
Great. Thank you.
Liam Kelly
Cheers.
Operator
And your next question comes from the line of Matt Taylor with UBS.
Matt Taylor
Hi, guys. Thanks for taking the question. So I wanted to circle back on your list and ask one about New versus existing surgeons. Do you have any insight into the trends that you're seeing? Are you seeing that the surgeons who have used Urolith in the past are showing same store growth still? Or how much of your growth is coming from each of those buckets?
Liam Kelly
So traditionally, about two-thirds of our growth comes from existing and a third comes from new users. We haven't seen any significant change in that. As we got to the fourth quarter and this continued within the first, we're seeing the average number of procedures being done by urologists holding pretty firmly, and that's quite encouraging. One thing that we did see in the first quarter, and during COVID, we saw the percentage shift out of the hospital to the ASC and the office in the midst of COVID. And we saw a few percentage points swing. We've actually seen some of that swing back into the hospital as patients now feel more confident going back into the hospital and getting the cases done. So we're very encouraged by that because Our procedure is done in all sites of service. It's done in the hospital, the ASC, and the office. And as we see all of those sites of service begin to come back, as we did in the first few weeks of April, the trends are really encouraging for your lit, Matt.
Matt Taylor
Okay, great. Obviously, the April data points are positive, but Is your hypothesis that you're going to kind of continue to see those levels through the quarter, or do you think that you could actually see some momentum acceleration? I mean, are your customers or your sales force telling you that there's a funnel from those canceled procedures in Q1 that are going to start to bounce back as more people get vaccinated?
Liam Kelly
Well, we know what the canceled procedures were, Matt, in the first quarter, and we know what they were in the second quarter. So we've taken the baseline cancellations of 2019, and we had the data on the additional cancellations. And cancellations in the first quarter were higher than the fourth quarter, as we'd expect, because COVID was more aggressive, and we hit record peaks in January and February in particular. So we had 850 cases, which would equate to around 4 million in the fourth quarter, and we had just shy of 920 cases. in the first quarter. So it's over $4 million of cancelled procedures over the base rate. So those cancelled procedures, one would imagine, will come back at some stage as people feel more confident in coming back and having them done. So we're feeling really good about Eurolift as it is right there. And of course, as we said earlier, we've got the incremental growth drivers then coming in later into the year and into 2022, such as Japan, France and other geographies.
Matt Taylor
Awesome. Thanks a lot for those data points. Thanks, man. Thanks, mom.
Operator
Your next question comes from the line of Larry Cush with Raymond James.
Urolip
Good morning. Thanks. Liam, just hoping to level set a little bit on Japan. Maybe you can, I certainly heard the messaging of, you know, you do have this post-market study that you had to get done. You're not expecting a lot of revenue this year. But again, just trying to think through sort of what happens with clearance for the UL2 and then kind of sequentially what happens with reimbursement. Maybe just walk us through kind of how you're thinking about the timelines there.
Liam Kelly
Yes, Larry. So we've got all the documentation prepared and submitted to the authorities. Sorry, we will have them submitted very soon to the authorities. The reimbursement team will meet, and they meet once a quarter. So we will have them in in time for the June meeting. Whether they review them in the June meeting, we do not know. But if they don't review it and give a decision in June, they'll give a decision in September. So that's the gating point, Larry, as to when we will get a decision on the reimbursement in Japan. As soon as we get that decision, we will begin to do procedures to comply to the PMDA-mandated study that we have to do. We've already had the team on the ground. We've got the market development specialists on the ground. We've already begun to recruit additional sales individuals on the ground in anticipation of getting that reimbursement decision. And Japan has an advantage over what we had to do in the United States insofar as that it's a single-payer market. So once we get reimbursement, we have reimbursement across all sites through the entirety of Japan. And I think then we would see the revenue in Japan ramp as we go through 2020 and beyond. And again, I'll reiterate what I said. We see this as an addition to the normalized growth levels of Eurolift over and above what we've seen in predominantly the United States. Okay.
Urolip
I do have a question for Tom, but I just want to clarify one thing, Liam. So are you saying that you haven't filed yet for the regulatory clearance, and then you have to get that done before the reimbursement meeting, or does this happen all in parallel?
Liam Kelly
Excuse me. No, we have regulatory clearance already, Larry. Pardon me. Okay. I was talking about reimbursement submission.
Urolip
Got it. Okay, perfect. And then I guess for Tom... You know, look, certainly on the gross margin side, Tom, you are bumping up against, you know, kind of your targets in the pre-COVID LRP. Again, just wanted to think about or have you maybe address a little bit about how you think about the sustainability of the gross margin after what we saw in the first quarter. And then secondarily to that question on the restructuring aspect, Again, you highlighted the pre-tax savings that you have in front of you over the next several years. Should we be thinking about that as really all dropping to the bottom line, or would you consider actually investing some of the restructuring savings to fuel growth? Okay. Well, starting with the sustainability of the gross margin, so as we've talked about previously, what's really driving our gross margin are are two things, primarily mix. And, you know, I would say that, uh, your lift being the greatest driver, we also have the addition of ZMedica this year. And so as we continue to see, you know, your lift and other high margin, um, product offerings continued outpace, uh, the rest of the business, you know, we're going to continue to see margin expansion for this year and into the future. Now, with regard to the other piece of restructuring programs, um, you know, as mentioned, we do have a couple of years, uh, outlined already of programs that are out there, and, you know, we expect to realize some significant savings. And if you do the math on that, you know, that's close to, you know, two basis points of margin expansion right there. As we think about, you know, do we drop this through? You know, I think, you know, from our perspective, we're going to continue to, you know, evaluate what are the options to kind of look at opportunities to enhance growth with further investment behind our high-market brands, such as, you know, Urolift, ZMedica, Manta, as well as considering, you know, what level of profitability increase we've got. So, you know, we've got the opportunity to continue to drive meaningful top line growth, meaningful margin expansion, and that's going to translate to meaningful earnings per share growth. And we'll continue to evaluate, you know, what are the opportunities to invest further to accelerate that top line even more. Okay. Terrific. Thanks, guys. Appreciate it. Thanks, Art.
Operator
Your next question comes from the line of Matthew Machain with KeyBank.
Urolip
Hey, thank you very much for taking the questions. Hey, Tom, just back to the gross margin.
Tom
I mean, if mix is really what's driving a lot of the improvement, just sequentially, ZMedica, Urolift are all moving higher. Sales are moving higher. Probably the mix of COVID-related products move a little bit lower.
Urolip
Why would the gross margins decline from here in 2Q, 3Q, and 4Q with increasing sales, and what's upsetting that? Well, I would first say that in the first quarter, we had an incredibly clean quarter from a performance standpoint in manufacturing. And then also to the point you've raised, as we look at the recovery in the back half of the year, I should say in the first quarter, both EMEA and OEM had about 17% constant currency declines in revenue. As we look to the back half of the year, we expect both of those businesses to move into positive territory, and that's going to have an adverse impact on our mix. And that will partially offset some of the higher growth from Gear Lift and other high-margin brands. Now, obviously, we're waiting to see how the recovery plays out over the next couple of weeks and months. And hopefully, you know, as we continue through the year, we continue to see favorability in the gross margin line. Okay, excellent. On the OEM side, when does that inventory normalize versus where customer activity is?
Liam Kelly
So, Matt, it should lag about a quarter. So you should expect to see a beginning in quarter two recovery, and then in the back half of the year you should definitely see it start to pick up. So it'll lag by about a quarter. So my expectation would be that OEM results in Q2 will be better than they were clearly in this quarter, and then you'll get into positive countries, get into the back half of the year. And OEM for the full year should grow in that mid-single-digit growth rate overall.
Urolip
Okay, excellent. And just back to Tom. So free cash flow was excellent in the first quarter.
Tom
How should we be thinking about free cash flow in 2021?
Urolip
And have we reached the point now that we're going to see that inflection in free cash flow that you were talking about back in like 2018, 2019? Yeah, so the way I'd look at free cash flow is that, you know, we'd expect it to be growing kind of in line with earnings growth in the 20% range. A couple things going on in 2021. First of all, we're going to see an increase from net income. We'll also see an increase as a result of less contingent consideration payments. We spent about a little under $80 million last year, and we expect that to be significantly less this year. However, last year, we also closed out the year with a very, very strong collection cycle where our our DSOs were down considerably from our historical average. And this year, we've planned it to be closer to our historical average. To the extent we continue to see favorable trends and collections, we could see more than that 20% growth in free cash flow that I cited. Thank you very much.
Operator
And your next question comes from the line of Matt O'Brien with Piper Sandler.
Urolip
Hi, guys. Good morning. This is Drew on for Matt. I think, I think maybe I know the answer to this question. But I just want to ask about the competitive landscape for your list. You know, you have Boston talking about good progress with its resume product yesterday. I believe you have Olympus also rolling out a new practice base. You know, anything new with those technologies? And are you seeing any shifts of utilization within the market?
Liam Kelly
So we're seeing no changes in the marketplace. I think that year-over-year growth in this environment is a tough one to call because you don't know what happened in the prior year with some of these companies. So I can tell you last quarter, one teleplex in our entirety, we grew 5.5% on a day-adjusted basis. And if you look at our growth in Teleflex in our entirety in 2019, constant currency days adjusted, we grew 5.8% over 2019. So we feel that the momentum swing is really moving favorably for us. And we also see no changes in the end markets. You know, at the end of the day, it all comes down to patient outcomes. no sexual dysfunction, will the man have to wear a catheter, and revision rates for Eurolift that are comparable to the gold standard tarp. And, of course, don't forget that the man has a choice with Eurolift where they get the procedure done. Do they want to go to a hospital, an ASC, or an office? With some of these other technologies, they're restricted as to where they can have the procedure done. So no change in the end market, and I can categorically tell you we have lost no customer to any competitor.
Anthony Patron
Okay. That's obviously great to hear. And congrats on the strong performance with Manta. I believe you mentioned 30% plus growth. Maybe you could just kind of help us by framing where that number was relative to the estimates and then, you know, relative to the penetration targets you laid out a couple of quarters ago.
Urolip
Thank you.
Liam Kelly
So we're very pleased with the growth. You're corrected with 30% growth within the quarter, which is very encouraging. It is in line with our trajectory, even given the worsening situation with COVID in January and February. And we expect to continue to see that momentum build as we go through the remainder of the year. And we do believe we will get to our 8% plus penetration by the end of the year. So Mantis is performing very much in line with our expectations, and we're very encouraged by it.
Urolip
Thank you.
Liam Kelly
Thank you.
Operator
Your next question comes from the line of Anthony Patron with Jefferies.
Anthony Patron
Thanks, and good morning. Maybe one on UroLift and a couple of regional questions. One on UroLift is just maybe the competitive dynamic, I guess, both versus existing alternative devices. Also, Scientific spoke a bit about Resume on their call. They also saw increasing volumes in March. So just an update on competitive dynamics and getting into new sites would be the first question. And maybe a second quick one on EMEA. Maybe Liam just touched more broadly on EMEA, obviously lagged in the quarter. COVID is still somewhat heightened. They're opening up. So maybe just thoughts on when we'll see a reversal in EMEA broadly. And then one quick follow-up. Thank you.
Liam Kelly
Yeah, Anthony, thank you. So, yeah, the growth that we saw in March for Eurolift was north of 30% over the prior year. So we're really encouraged by that. And we're also, as I said earlier, encouraged by the momentum that we saw going into April, where we saw a continued sequential improvement in our average daily sales going into April, getting higher. back above our pre-COVID levels for the first time. I mean, that's a big watershed moment for us, Anthony, as you can appreciate. We haven't been consistently back above pre-COVID levels for an entire year now. And so the team is absolutely fired up out there in driving that. Regarding your question on EMEA, EMEA was, as expected, There's a few dynamics going on there. Last year, EMEA received a positive $8 million COVID order in the prior year quarter. So they had that tough comp. And as we all know, the rollout of the vaccine in Europe is not going as well as it is in the United States. And I think that the increasing cases in COVID in January and February and well into March within Europe was pretty strong. Lots of lockdowns still going on. Now, having said that, the month of April in EMEA has also been somewhat encouraging. So I would expect EMEA to have a much better second quarter than it did a first quarter. And it would be remiss of me not to mention APAC. You know, APAC, Anthony, grew over 10% on a day-adjusted basis in the quarter. from a minus 7% in quarter four. So that was a tremendous swing for us, and China had a really, really strong first quarter as we see procedures begin to come back in that key geography for us. So that's some of the regional color, Anthony, for EMEA, but also APAC.
Anthony Patron
Very helpful. I wonder if I could just sneak in. We'll be on easy class. Maybe just a quick update there and a recap of, the opportunity maybe starting with military and then broadly as you roll that out, should we still be thinking about that as addressing $100 million, Tam, over time? Thanks again.
Liam Kelly
Yes, you're absolutely correct. Easy Plus addresses $100 million, Tam, $25 million in the military, $75 million in the civilian. As we all know, we're going to begin in the military market to help us develop this product. Very encouraging science from the FDA. We got a letter from the FDA following our BLA submission stating that the application was sufficiently complete to begin substantive review, and the BLA was assigned priority review classification, which indicates that they're going to – it is on a fast-track BLA. Very collaborative. We're getting questions back, which is what we would expect. The team is answering them. So very, very collaborative over and back. And we would anticipate normal approval would point to the fourth quarter. So as they move through this, we'll keep the investment community updated.
Anthony Patron
Thank you much.
Liam Kelly
Thanks, Anthony.
Operator
And your next question comes from the line of Mike Mattson with Needham & Company.
Tom
Hi, thanks for taking my questions. So, you know, there's so much focus here from investors on acquired products like Urolift and Manta. I almost feel a little sorry for your R&D team there, but I was wondering if there was any internally developed new products that you're excited about that we should be aware of?
Liam Kelly
Yeah, Mike, and don't feel too sorry for our R&D team. They're doing a tremendous job internally for us. So, you know, we have a number of new products that we are excited about being developed internally. Within the anesthesia group, we have the Polaris, which is a laryngoscope, a handle and blade system that we're getting really good traction on. Within the The vascular business, we have Project Phoenix, which is a new ergo pack that is gaining tremendous traction right now for us within the group. Within the interventional group, we have the Watson Guidewire, which is a two-in-one combination product that will be launched later in the week that we're very encouraged by. And, of course, the AC3 continues to gain tremendous traction as And we had a really strong quarter with that product in particular in China as we start to roll that out in that geography, having gained approval for it. So across the board, we've got a lot of products coming through the R&D group. And we've been quite successful in augmenting our revenue growth from new products to the positive over the last number of years. A few years ago, we used to generate 1% in new revenue growth from new products, and we've moved that up to 1.5% to 2% over the past number of years. And the other thing I'd point out, and it's not related to your question on new products, but we have also had positive pricing within the quarter. So I think that we're very encouraged by our ability to increase our prices even in this tough environment, and that's a positive sign for us also.
Tom
Okay, thanks. Didn't mean to imply that they weren't doing their job. You know, investors are focusing on some of the external stuff. And I wanted to give them a chance for you to talk a little bit about some of the internal stuff. And then, I guess... Just on Manta, so Manta, I mean, look, 30% growth. I don't want to take anything away from that. That's obviously really good. But at the same time, I mean, the clinical data on this thing is pretty outstanding. So what is the pushback that you get? I mean, is it just price? It just seems like a no-brainer to use this thing to me. And if it's price, I mean, do any of the trials – have any kind of economic data in them, or do you have any trials planned to collect any kind of economic data to kind of help with the VAC committees and things like that?
Liam Kelly
So getting through the VAC committee has not been an issue for us, Mike, with the Manta product. In the first quarter, we're really happy with the 30%. The issue we have is COVID in the first quarter, quite frankly, in gaining access. because it's difficult to gain access to the hospitals, especially in January and February. Now, I know we're sitting here in April, and January and February seemed like a long time ago. But don't forget, we were getting 250,000 cases a day in January and February. They were much worse than November and December. So it was very difficult for us to get sales representatives, clinical experts out there into the marketplace showing the product. And I would anticipate that we'll continue to see that ramp now as more people are getting vaccinated and our access to the hospital will be much better.
Tom
Okay, great. Thank you.
Operator
And you do have a follow-up question from the line of Richard Newitter with SVB Lear Inc.
Urolip
hi just just wanted to follow up uh it it there may be some confusion just around the the commentary with respect to pre-covered euro lift growth rates liam can you just clarify you've thrown around i think greater than 30 in april what's that relative to is that relative to 20 april 2020 or is that relative to april 2019.
Liam Kelly
That was relative to, so the 30% was in March, and it was relative to the March of 2020, Rich. The 30% that I quoted was for the quarter, and that was compared to 2019. So we grew 30% in March compared to March of 2020, and in In the whole quarter one of 2021, we grew 30% over 2019. As we went into April, our average daily sales got back to average daily sales levels we have not seen consistently since January and February of 2020 before we headed into COVID.
Urolip
Okay. And my understanding was that January and February of 2020 were exceptionally strong. I mean, well north of 30%.
Liam Kelly
Yeah, our growth in January and February, from my memory, we were about 35-ish percent or something like that, Rich.
Urolip
Okay. Thank you very much.
Operator
And your next question comes from the line of Shagan Singh with Wells Fargo. Ms. Singh, your line is open.
Singh
Hi, sorry, can you hear me?
Liam Kelly
We can hear you, Shigun.
Singh
Great. Thank you for taking the question. So just in looking at pre-COVID years, Q2 sales is typically 6% over Q1. EPS is about 16% higher. And I think your Q2 guidance contemplates sequential growth of 9% and EPS flat at the midpoint. So I was just wondering if you could talk to that for Q2 versus Q1. And then, you know, just looking at growth on a stacked two-year basis, it appears pretty similar, you know, for Q2 versus what you're contemplating for the second half. So, you know, should we view it, you know, as conservative? And then that brings me to my final question, which is with respect to backlog. How are you thinking about it? I think we're increasingly hearing that we should expect more of a steady flow at elevated levels versus a catch-up, if you will, over a one or two-quarter period. So any commentary on that would be helpful. Thank you.
Liam Kelly
Yeah, I'll start with the backlog, and I'll address the conservatism, and I'll let Tom get into the specifics of the guide in the quarters as to where it would be. But I would say that you will see acceleration in revenue dollars and you'll see acceleration in adjusted earnings per share as you get through the quarter. I think we should start there as we continue to expect the recovery to continue. It's really difficult for us to forecast or identify the backlog, and it is – It is difficult for us to build that into any forecast because we don't know what type of capacity that's going to be there within the hospital system or outside of the hospital system for us to get there. We do expect, though, that backlog should get burned through as you get later into the year. and that would be our expectation. With regard to whether the guide... So the guide would be roughly... And I'm talking... trying to pitch it towards the middle here, Chagun. So it should be about $690 million and about $2.90 in earnings per share at the midpoint in both of the guides that we gave in relation to that. Now, regarding conservatism or not, I think we continue to see some increases. in COVID cases in places like India and Japan. We see America recovering. We think we'll see OEM continue to get better in the second quarter, as we will with EMEA. And we do believe that there could be opportunities for us there in the second quarter, but we would prefer to lean more to the conservative than the aggressive at this stage, just giving... There's a few variants around there, so we would prefer to lean in that direction. And if recovery continues within the Q2, we think that we should be in a good position to take advantage of that, would be our thinking. Just to be absolutely clear, that $690 million would be up from what we did this quarter, which was around $634. So it would see significant sequential improvement on an absolute dollar basis on revenue, Shazam.
Urolip
And then as it relates to earnings, I think Liam pointed out that we expect to see sequential acceleration in earnings per share. Also, we expect to see sequential improvement in adjusted earnings per share versus prior year. When we take a look at, if you go back two years, I think we had a really strong Q1. The growth rate isn't as strong in the back half of the year. A couple things to understand as we look at the first quarter of 2021. I had pointed out earlier that we had a really clean first quarter from a manufacturing performance standpoint. And while we're very encouraged by that performance, we're not quite ready to extrapolate that to a full year upside to that level. Additionally, I mentioned that EMEA and OEM were down in the first quarter in terms of revenue growth, and we expect them to recover and turn into positive territory for the back half of the year. And both of those business segments carry a lower gross margin than average. And I'd also say that in the first quarter, we had a really, really significant beat in operating expenses, and part of that was due to savings from travel and perhaps slower hiring than expected, but the vast majority of it was due to deferred projects, so projects that we had expected to get going in the first quarter that we eventually delayed just given COVID and other reasons. Now, we do expect to make those up in the back half of the year, so some of that OPEX saving and upside from the first quarter we expect to be included in the rest of the year's spend. So hopefully that helps give you some color as to, you know, what's going on from an earnings standpoint and why the first quarter just looks so fantastic, even when you benchmark against two years ago.
Singh
That's helpful. Thank you so much for taking the question.
Urolip
Thank you, Shagun.
Operator
And your next question comes from the line of David Herkley with JNP.
David Herkley
morning, I saw I'd been bouncing around a little this morning, but I just wanted to ask one quick one for Tom. I think you mentioned what's sort of a hot topic of late in general, but inflation. And I was just curious as to what specifically you're referring to and if there's any input that we should be aware of that may be undergoing some sort of a pricing increase as we think about the rest of this year. Thanks a lot.
Urolip
Sure. Well, I would say that... We are seeing inflation that's a little bit higher in 2021 than what we've seen historically. A lot of it was anticipated and included in our original plan. Our current projections reflect what we see as the current environment. I'd say the areas where we're seeing inflation is in some material, in particular resin, polyethylene, polypropylene, polystyrene are all well above 10% inflation rates. But overall, you know, materials, we're seeing it at sub-2% inflation growth rate. I would say that, you know, select labor markets, we've got some inflation going on in Malaysia that would be pushing up around 5%. But overall, I would say that, you know, total direct and indirect labor is sub-5% in terms of inflation. The other area that we are seeing heightened inflation rates is in our freight industry. In particular, our sea freight is up significantly, where it's up 20% this year. And I think if you follow what's going on, there just isn't capacity. So collectively, as we look at all of the different inflation components in manufacturing, we're up around 3% for the years is our current expectation. That's up about a full point versus what we've seen historically. And, again, that's fully reflected in our current projections.
Liam Kelly
And, Dave, I would just add to that, and I mentioned it a little earlier, we anticipated seeing some of this inflation. So we took some actions over it. About a year ago we started taking some actions on some of our pricing initiatives, and that started to come through in this first quarter. And pure pricing in this first quarter, we were positive about 20 basic points. So we're quite encouraged by that. We anticipated this, and we immediately began to plan to have an offset. So modest price increases in some of our more selective areas of business.
David Herkley
Thank you very much.
Operator
I would now like to turn the conference back over to Jake Elguiz for closing remarks.
Jake Elgoes
Thank you, Operator, and thank you to everyone that joined us on the call today. This concludes the Teleplex Incorporated webinar. first quarter 2021 earnings conference call. Have a nice day.
Operator
Ladies and gentlemen, thank you for participating. You may now disconnect your line.
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