Hello. And welcome to the Halyard Health Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I now would like to turn the conference over to David Crawford, Vice President of Investor Relations. Mr. Crawford, Please go ahead.

Good morning, everyone and thanks for joining us. It's my pleasure to welcome you to the Halyard Health fourth quarter earnings conference call. With me this morning are Joe Woody, CEO and Steve Voskuil, Senior Vice President and CFO. Joe will begin with a brief review of our financial performance outlook for the business, provide an update on our S&IP divestiture and outline our 2018 priorities. Then Steve will review our results and provide additional details on our financial performance and planning assumptions for 2018. We'll finish the call with a Q&A session. A presentation for today's call is available on the Investors section of our website, halyardhealth.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance, economic conditions, and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and our prior filings with the SEC. Additionally, we will be referring to adjusted results and outlook; both exclude certain items described in this morning's press release. The press release has further information on these adjustments and reconciliations to comparable GAAP financial measures. Now, I'll turn the call over to Joe.

Thanks, Dave. Good morning everyone and thank you for your interest in Halyard Health. Let me start by saying that 2017 was a strong year for us, and I'm proud of our team's accomplishments and execution. Our results demonstrate our continued momentum as we delivered a record quarter of organic growth in medical devices, with solid performance across all categories. Additionally, we increased the number of product launches, and at the same time delivered earnings above plan. We achieved all of this while executing our transformation into a focused medical device company with the announcement of the sale of our surgical and infection prevention business. We began 2018 building on our strong 2017 performance. For the third consecutive year, we have increased our organic growth rate for the medical device business, moving from 1% in 2014 to 5% in 2017. Medical device sales grew over 8% in the fourth quarter and we earned $0.73 adjusted diluted earnings per share, enabling us to achieve full year earnings ahead of our guidance. For the full year, medical device sales increased 8% to $612 million, up from $566 million in the prior year, driven by 5% organic growth and 3% growth from our CORPAK acquisition. A number of drivers contributed to this strong performance including the growing demand for our non-opioid pain solutions like COOLIEF and ON-Q, the continued growth of our CORPAK business, and the successful conversion of a GPO contract for oral care. We expect these trends to continue in 2018, giving us further confidence in our growth prospects over the near and long-term. Over the past several months, I alongside our management team, Board of Directors and strategic advisors have conducted a comprehensive review of our portfolio. We've developed a dual-track growth strategy consisting of both organic and inorganic opportunities…

Thanks, Joe, and good morning, everyone. First, let me also comment on how pleased I'm with the work and results our teams delivered in 2017, and particularly pleased, with our continued medical device top-line momentum, our disciplined cost management and strong cash flow. Before we go into a more detailed overview of the numbers, I'd like to reiterate as we stated in our press release this morning, that due to the S&IP divestiture process, the results of the S&IP business are treated as discontinued operations, and the medical device business as continuing operations. As a result, we are required to allocate shared cost previously allocated to S&IP entirely to the medical device business. These costs previously allocated to S&IP totaled $30 million and $116 million for the quarter and for the year respectively. In 2016, these costs were $33 million and $114 million respectively. With that, Halyard delivered another strong quarter, as med device sales increased 8% to $166 million. Overall, total sales increased 4% to $428 million. We saw acceleration in medical device sales across all product categories. Surgical pain sales increased driven by solid demand for ON-Q in North America. Also, the shift-in timing of IV infusion sales to a key distributor, which we discussed on our second quarter earnings call, contributed one point of growth. Interventional pain continued to be our fastest growing category due to our outreach efforts, to raise patient awareness, and increase the adoption of COOLIEF relief. And finally, last year's oral care contract conversion continue to lift respiratory health sales. The continued top-line momentum in the medical device business drove a 17% increase in operating profit to $39 million, compared to the fourth quarter of last year. For the quarter, adjusted EBITDA was $64 million, compared to $51 million in the prior year.…

Thank you. We will now begin the question-and-answer session. [Operator Instruction] And the first question comes from Larry Keusch with Raymond James.

Thanks, good morning guys. I guess two questions here, first, I just want to touch upon one of the growth drivers for 2018 in the medical device business which is COOLIEF, could sort of talk about, what you anticipate the growth drivers to be there and sort of the activities around expanding usage within OA knee indication, I guess reimbursement if you could read that in as well?

Thanks, Larry, this is Joe Woody. There are couple of ways that we are driving growth in COOLIEF, one is to remind everyone the reimbursement stays in the hospital setting primarily with the pain management physicians, although orthopedic surgeons are very interested because of the outcomes in the product and in some cases are driving patients. So, we are working to drive patients to the sites, that's proving very effective. And then we're also working on expediting better reimbursement in orthopedic office or sports medicine or an outpatient clinic and that requires time and it does require things like lobbying and studies, and we are initiating some studies as an example, against Hyaluronic Acid and really anywhere we feel we need to prove that data. That said, the growth trajectory of that business is sort of increased toward the end of the year, and we talked about that earlier, the investment that we were putting in, and we have actually said on these calls we are in sort of 450 to 500 hospitals. There are many more hospitals in the U.S. that we can get into, we are selling capital really each month that drives the growth in that business. And I do believe that once we get the reimbursement right for outpatient setting, and I said this at JP Morgan, this allows for us to then enter a several hundred million dollar market. If you think Hyaluronic Acid just as one treatment for osteoarthritis, that's close to $1 billion market in the U.S. We are working on mechanism of action and going to be sharing data and we believe in some cases that we can get up to two years of pain relief, and if you compare this to steroids or you compare this to HA, it's a far better outcome. But again that does take some time with the payers.

Yes, all I would add is, it seems like every time, this time of year we are talking about additional investment behind COOLIEF, and that's clearly the case again. We’ve got investment on the front end in terms of reimbursement specialists to help grease the gears of that process and help customers. We’ve got investment in front end sales. As Joe said, we're going to invest more in medical education and clinical, of course clinical doesn't necessarily payback in 2018, but laying the seeds not only for strong 2018, but beyond.

Okay, terrific. And then just one other one, and I guess, it's sort of two part question is, how should we think about the free cash flow generation for the standalone medical device business. So said in another way, if you've got this $101 million for this year on the combined basis, how do we begin to think about free cash flow for next year? And then you obviously reiterated the dis-synergy number of $15 million to $20 million, you also talked about the cost savings number of $30 million to $40 million, maybe Steve at a high level, help us think about those moving pieces, once you get rid of the S&IP business for 2018?

Sure, Steve is going to handle it, but I'll just say one of the good things for us is that more than half of our cash generation is from medical devices. So I think it does set us up pretty well, but Steve do you want to take Larry through that.

Yes, I think we have - we are lucky that this is a very cash generative business on the device side, we saw it this year, we saw last year and it's increased every year. So going forward, especially we give earnings guidance a little bit later, we'll give some more perspective on cash flow. For 2018, it will be caught by a couple of things and we will have more separation costs, cash costs that will impact that, there will also be some capital that we'll deploy for the IT transformation, both of those unusual, but will impact cash flow for 2018. But going forward, again very cash generative business, margins have continued to increase and sales growth has continued to grow. So we are very optimistic on a longer picture on cash flow. On the $15 million to $20 million and the $30 million to $40 million I would say, no change from our prior understanding, we still believe in 2018 we are going to be left with $15 million to $20 million of stranded costs that we'll have to absorb on the remaining business. And if you saw in the press release and the commentary that talk about the $116 million of allocated costs, that have previously gone to S&IP that $15 million to $20 million you can think about is the rump of that portion that doesn't go away in the first year. And we are as committed as ever to getting not only that costs out, but then ultimately driving a total of $30 million to $40 million of cost savings over the next couple of years. A portion of that, as we've talked about in the past will come on the back of the IT transformation, some direct IT and some indirect back office costs that follow, as well as some organizational design changes. So you probably saw the 8-K that we did in December to sort of lay the leading edge of some of that order design work that will be happening as well. So I think no change, but very committed on getting those costs out.

And just the gating of that $15 million to $20 million through the remainder of 2018, once the S&IP business is gone is it sort of ratable or does it pickup, I would assume picks up towards the back end of the year?

Yes, Larry, we will try to give a little more picture on that when we guide that probably does ramp up in the back half a bit, if you had a normal fourth quarter OpEx spending, this year we actually spend quite light or light to our plan on OpEx in back half, but if you - you kind of normalize that we typically spend a bit more in the last quarter and on that basis alone is probably a little - it's a little more back end weighted than front end weighted.

Okay, terrific. Thanks guys.

Thank you.

Thank you. And the next question comes from Rick Wise with Stifel.

Good morning, everybody. Let me start off if I could with the guidance and the base, lot moving numbers here, maybe I will direct this Joe to Steve first. I appreciate you're going to give us more guidance post the close of S&IP, but just for the sake of putting some framework around the new color [ph] outlook, it'd be great if you could help us wrap our arms around the base business, earnings power and make sure we are thinking apples to apples, I mean, I couldn't - come out there is several ways, what is the apples to apples 2017 base you'd have us think about 2018 framing 2018. But say it differently, would you have us just take the med device profit of $155 million net off the $116 million in S&IP overhead, add back depreciation. So something like a mid-40s base before the $15 million, $20 million into synergies. Lot of moving piece to hear, and I appreciate you don't have all the answers, but it'd great if you could just get us all at the same time on some kind of more solid ground here as we head into the year and set up our model.

Yes, I know and I have to say it is complicated this quarter, I think we said the accounting was going to post some challenges and certainly it does as you look through the press release. We've tried to provide some color to help that understanding, but appreciate the challenges. If you think about the Med device - so we've got the top-line at that side. If you think about the med device margins maybe you look at the Q4 segment results at the end of the press release we include a table to give some picture of what the med device segment's margin would look like. If you kind of use that as a starting point, you factor in that there are some adjusting items that are not included in that segment margin. You factor in that the synergies that we talked about for 2018 that will give a picture on the impact on margins for 2018. And then probably a couple of other adjustments, you adjust that in 2018, we're going to have some growth in the business obviously. We're also going to have some more normalized level of spend, again quarter four was light from an OpEx standpoint and so normalized 2018 for that. And then as Joe said, we're going to have some investments for growth in 2018 in the areas we talked about. And I think as you kind of frame it up with those adjustments, it will start to give you a picture what the 2018 margin is can look like for as the med device remain co-business. And we can probably talk in more detail about that offline, but I think that's the framework. So again, overall, for 2017, as we look out on apples-to-apples a solid quarter, margins well in the med device business, accretion in those margins over the course of the year so another year of margin accretion there. So from our standpoint on an apples-to-apples basis for the quarter very strong performance by med devices.

The only thing I would add. Just I think a lot of people are going to have this question and we talked a little bit about ourselves yesterday and we will be filing an 8-K once we have the close of the transaction in early Q2 with LMI. In our next call we are planning to talk much more broadly about this. And I just would point people to the competency that we do have in improving EPS, there have been a lot of things here, I've been pleasantly surprised with frankly like distribution synergies and manufacturing efficiencies are watching how this thing went after the synergy on CORPAK, and we've got good momentum. So this is not a bad new story, it does not reflect our confidence at all. And we clearly understand our job and value creation and increasing our top and bottom-line. And just getting the clarity and really having a tighter very clear communication to investors.

Yes. The - if I could turn Joe to your comments on M&A. You clearly are signaling and much of the same you have in this month, that you're active - this is a key aspect of the year and years ahead. A couple of questions specifically, do you think should we expect or hope and I know you can't commit, but should we expect or hope you're going to do deal, do you expect and hope you're going to do deal or deals in 2018? Are you that active? And maybe I'm over listening to your language, but you said something about a wider lens that's I don't know maybe that's new to me or I'm reacting to it. Is that new wider lens in terms of size or in target types? Or does that suggest more transformative deals? Any incremental color would be great, Joe. Thanks.

I mean, I can tell you my personal goal is to do two transactions in 2018. And I do believe that we have a capability to do that. And on the last call we talked about the fact that if there is small deals you can manage it differently. If there was more of mid-size deals like we have to integrate straight away with all the work we will be having in terms of closing LMI and delivering on the TSAs. You can imagine that the M&A team was very intently focused on the S&IP divestiture and that's still ongoing as we negotiate and close out the TSAs, although I'd say the bulk of those are all the way through. But they're now disbursed all over the world, and we're actively involved in sort of 10 or 15 different companies that we're looking at and deciding which ones we are going to go deeper in. It's always hard to call the timing on these things, but I would also point investors to the recent hire John Tushar from Teleflex who are in their surgical business and also has an M&A background having an executive on the commercial and strategic side for the franchise that they can link I think is going to help us expedite some of that. So I was confident and have to put in a personal goal for myself. And I do think we have the bandwidth to do it. And if that Lynn's [ph] comment is more oriented we did a very deep exercise with our Board, had it validated out through a third party on the entire med device landscape and looked at where we thought we could win in pain and we've talked about orthopedic pain and healing at the JP Morgan Conference because 60% of what we do in ON-Q is around orthopedic surgeons and we're looking to expand that and then obviously the eventual movement more to sportsmen as an orthopedic in COOLIEF. And then in chronic care I think we can still be additive where there's a CORPAK type of acquisitions, but then also there's some transformative thing in the minimally invasive area happening around there. So we have a very focused effort there and I'm confident we'll get there, I'm happy to be in this position frankly to have good organic growth and an ability to execute M&A.

Thank you so much.

Thank you. And the next question comes from Matthew Mishan with KeyBanc.

Yes, good morning and thank you for taking the questions, and thank you for being gracious in answering these questions, I think a bunch of us were asking in different ways just trying to understand what the base of the business is going into 2018. And I just want to make sure I'm understanding it right there's a certain amount of cost with that that are currently allocated to S&IP and then you have a cost base on the corporate side. I just want to make sure I'm thinking about that corporate cost of like $72 million, $75 million in corporate cost you have, those are completely staying with Halyard Health and not coming back and then some of the cost that you've already allocated to S&IP are actually coming back to Halyard Health and OMI is not necessarily taking all of those. And the piece of those corporate costs are higher than the $15 million to $20 million of just synergies you're talking about because that's net of restructuring. And then how much of the restructuring the $30 million to $40 million of the restructuring that you said over the next three years is eaten up in that net number in that net to synergy number this year?

Okay, I'm going to try to taking those in order, but if I miss one you circle back on me. Starting with your corporate cost question fundamentally that's right, the corporate cost for now are going to be absorbed by the med device business. Now clearly a big part of our cost takeout strategy is targeting corporate cost and we've talked in the past that actually the largest component of our corporate cost is actually IT. And so to the extent for example we're going after IT transformation and cost savings that also benefits corporate. But in year one, the right way to start thinking about if I think we talked about on the last call is assume those corporate costs go to the med device segment and remain Co. [ph]. On the $116 million of allocated cost again the way to think about those are a lot of - some of those go away naturally so included in allocated costs there for example our storage and handling cost for S&IP well when S&IP goes away those costs go away. Likewise things like IT usage with that many employees, facilities, last task and devices leaving that costs goes down naturally. Then there's also a component where as part of key assays and cost sharing agreements with OMI in year one and in some times year two, some of those costs we shared with OMI. So we may bear the burden but we're going to shift large portion of those costs to OMI. When you go through all of those you're left with that $15 million to $20 million of net dis-synergies out of that number that you have to absorb in the med device business again in 2018. Then the cost savings of $30 million to $40 million really is targeted both taking costs out of corporate and eliminating that ramp up dis-synergies that's left from the allocated costs, so we're really targeting both of those areas. Many inside as we talked in the past it's IT transformation, it's organization designed, it's supply chain optimization and distribution efficiency. So it's a fast kit of initiatives, all of which by the way are underway already. And so this is not a wait and see all of those are projects with leaders happening already. So I'll pause I don't know if that's going to get out the essence of the questions.

No, I think it does. I think I fully understand the three or four moving pieces there and how to get to the right number. So I really appreciate that Steve. And then how sustainable you're talking about some acceleration in COOLIEF into the fourth quarter. Is that not sustainable as you go through 2018 what kind of tailwind do you think that would mean to your organic revenue growth?

Yes, so I don't - I think COOLIEF will continue to progress, even with the reimbursement frame that we've now in the hospital, because there are thousands of hospitals in the U.S. that will be targets for us, and again we're in sort of 500 of them and we're increasing that every month. So that's very positive. And then I do think in the longer term - mid and longer term as reimbursement we are able to work with commercial payers, but also get a better reimbursement, revenue in the orthopaedic office and the outpatient setting. Then you'll see a lot of Orthopaedic surgeons and sports medicine surgeons that would normally be focused on surgeries looking to do this for a day in their office. But they're so impressed with the results that they're actually referring patients to the hospitals that have these OE condition. So, we think that we've got a good growth runway on that business for a number of years. And frankly, the same with ON-Q and in the pain segment anyway, and that's because orthopaedic surgeons are really taking a look at ON-Q again and trying to get the patient up within 24 hours for totally our product is really excellent for that, the duration of our product is strong, and they're getting great result. So, that's why we're focusing more on a surgeon focus there. Although we obviously do calling the physiologist, the surgeons are the ones that are really looking really closely at how they can get a rehab quickly to their patient and really make sure their patients are not utilizing or over utilizing opioids.

Okay. And last question for me, on the OMI deal, the cost of oil is now like a low-to-mid 60s, kind of how was rising oil and material prices, potentially accounted for in the deal model? And was there any contingency against that to protect the OMI?

Yes, I'll take that one. The oil prices polymer prices move around, they were up a little bit in the fourth quarter may have seen that a little bit in the results. There is no deal adjustment mechanism and I think I announced that we know how OMI builds their model, that's really up to them. But I'm sure, they took assumptions on some range of outcomes around commodities and currencies, just like we would do when we were planning for that business.

Thank you very much.

Thank you.

Thank you. [Operator Instructions] And the next question comes from Chris Cooley with Stephens.

Good morning, and appreciate you taking the questions. Just a couple for me, maybe Steve, if you could start, go back to the fourth quarter and look at the volume growth, there 9% on the device business which is the strongest. And I look back at the model on organic basis and several years and up pretty nicely. I appreciate the colour that you gave there the 100 bps, from the timing on the distributor side, but, still if we just kind of look at the run rate, there's about 300 to 400 basis points of greater growth there. And I just want to come to that and then reconcile that with the 4% to 6% guide on a constant currency basis for the coming year? Maybe if you could just talk to some other puts and takes there a little bit more colour on what you saw in the fourth quarter and why that does or does not translate to 2018? Then I've got a quick follow-up.

Yes, we're happy to Chris. And I'll start and Joe could probably add some color. But fourth quarter was fantastic, we've been calling a big fourth quarter all year, I think when we were sitting at the mid-year mark with 3% organic, we needed a big fourth quarter to be able to deliver the guidance and we had a lot of confidence we would get there. And you mentioned already some of the key drivers, but the O&E approval by the FDA was a big factor. We've been selling hard against that approval, and have more plans to do so in 2018, again on the back of additional investment and some build out capability that we need to do. But that was a factor, certainly moving the IDPs from the second quarter into the fourth quarter, as you said at that point to the fourth quarter performance. We're still getting some benefits from oral care, we will begin to lapse that in the first and second quarters of 2018, but from a fourth quarter standpoint that was still additive to the year and has ramped up well. And then I guess like just last point is all businesses did well, we're kind of calling out COOLIEF, but all the businesses on the device side had a strong performance. And again not surprised by that, we needed that in the plan, and as we look to 2018, I think it's recognized okay you are going to start to lap oral care, you're going to have - IV is going to probably drop off again from the kind of level you saw in the fourth quarter and there'll be some normalizing of things, but I'll turn it Joe.

Yes, I mean, thanks Chris, and the only thing I would add, is that we do have a bit of seasonality to our business and you can look at that historically, but frankly ON-Q, COOLIEF and CORPAK as well, still have legs in terms of penetration and growth, and we have talked on a couple of calls, that for the past seven months, Steve and I have been personally spending three hours a week with commercial teams and work with them on sales operations and cheering their customers and changing a little bit about the way that we're getting penetration into existing accounts or same-store sales would be one way to look at it directing patients. And I think that continues in the fourth quarter, Steve hit on IV order and oral care, was a benefit that sort of one-time and this not going to see that again, as you go into the first half of 2018. But then longer term which I think is important I do think this area still have room to grow and with John Tushar coming in and me having the ability in Q2 to transition a lot of the U.S. commercial over to him, I am going to be putting my attention on the international part of our business, which frankly is an opportunity as we move into 2019. As you would expect a lot of companies, U.S. companies of this size the attention on international can be better and it will be. And so that's sort of the mid and long-term along with that reimbursement of COOLIEF. And you had a follow-up I think, Chris.

Yeah, I appreciate the color, thanks so much. Just to summarize what I think I heard you guys say, the 4% to 6% is kind of historically what the company has guided and clearly with the heighten focus and the positive momentum you are very comfortable in that kind of historic 4% to 6% range, which you said here is the early bar on growth for med device, am I hearing you correctly.

That's correct, we are very comfortable.

Perfect. And then just moving forward maybe two quick housekeeping follow-ups, one on the tax rate Steve, you guys were always really patriotic and doing your best to pay as much as you could and it's nice to see that come down, but still a little bit higher than I think what we were seeing on some of your peers out there. Post spin of S&IP just maybe thoughts as to where that effective tax rate could go overtime? And then I feel obligated to ask a margin question as well, so just help us a little bit about the IT costs spend, I know you have been balancing three, four systems I believe at this point in time, how quickly can you consolidate? And then how does that play into overall just better cost savings, working capital management? Thanks so much.

Sure, would be happy to. So, on the tax rate side obviously as you pointed out very patriotic and we are happy to be just slightly less patriotic going forward. Big impact for us, as we go forward, we still have some tax planning opportunity, as you can imagine we have landscape of opportunities we would have talked about, if we didn't have tax reform a number of those are no longer relevant, but some still are. And the way we organize our Mexican manufacturing operations and so forth. So we have got some work to do, we still think there is some room on tax rate to bring that down further, we will give probably some more guidance as we maybe tighten that range as the year progresses. From the margin side, maybe on IT, but again we have talked about this a little bit in the past, we believe that is probably again bearing in mind the contacts here we have to have a new IT systems so that's high costs model that we operate today as that moves on to OMI we need to have a new IT system. And so we expect to be putting that system in place really starting around now, we're just finishing the last stages of planning, a detailed time lining around that work, we believe it's going to be about 18 to 24 months process, we're going to want to move as fast as we can to get to the back side of that, but also do in a way that manages the risk as we recognize an ERM transition is have to be managed very carefully. When we get to the back of that, there'll be significant savings in at least two areas, one is direct IT costs that we've…

Thank you.

Thank you. And our next question comes from Jonathan Demchick with Morgan Stanley.

Hello, this is Jon. Thank you so much for taking the time, just one quick question, I've been hovering a little bit between calls, so I apologize if I missed this, but you kind of talk about the $30 million and $116 million for the quarter and the year respectively that was I guess no longer allocated in S&IP, but previously was, are these costs that we think following the divestiture they just go away right none of those costs specially get kind of added back and then on top of that is what we get the dis-synergies number. I know we've probably tackled this number of times, but I just wanted to make sure that I understood that correctly.

Yes, no problem, Jon, we talked about a little bit before, but I am happy to just walk through it again. So, we're think about the $116 million that's currently allocated, when the transaction gets completed a number of those cost go away naturally. So for example, inside there are storage and handling cost for S&IP, when S&IP goes away we will not be incurring storage and handling cost for that anymore. So that will scale down naturally. Also some IT costs as you can imagine less people, less facilities, like devices, less laptops all of that will scale down naturally as well. And then we have organizations inside, so we were taking deliberately taking some cost out of that group as a part of the order redesign that we talk about or released the 8-K in the fourth quarter. And then the fourth component is we have some costs sharing arrangement so for some costs that don't go away immediately we are sharing those costs to support through TSAs or cost sharing arrangements to share those costs with OMI. When you goal the role of those elements you are left with the dis-synergies of $15 million to $20 million that we have talked about in the past. So, think about those remaining dis-synergies that's what's left after you've gone through those other steps for 2018.

Okay. So at the midpoint basically we were talking this $116 million number becomes $16 million something like that?

$15 million to $20 million that's right.

Yes, okay, perfect. Thank you. And then the second question I had was more on I guess the device profit for the quarter, first off is it safe to assume that when we look at the prior quarters of the year versus the current quarter that we are still on an the apples-to-apples comparison for just the device unit profit that you guys are reporting. And then I guess the second part of that would be if you could just maybe help me understand the bridge lower that it kind of took in 4Q, and the expectations for where it should be heading into next year? Thank you.

Sure, yes. To answer your first question, yes. So if you look at the fourth quarter apples-to-apples with the previous three quarters there is no change underneath that and again hopefully the table at the back of the press release helps you with that, but it is apples-to-apples. On the margin over the course of the year obviously in every year we have some volatility and device margins quarter-to-quarter I think one of the biggest drivers here if you look at R&D spending we had order of magnitude $7 million of R&D spending for the first quarter and we did about $13 million in the fourth quarter, and that has a bearing on how that med device operating margin plays out that's probably the biggest piece inside there that moves quarter-to-quarter. We had a pretty big R&D spending in the fourth quarter which had closed out projects and such things through. So that's the biggest driver fourth quarter.

Understood, thank you very much.

Thanks.

Thank you. [Operator Instruction] Okay, and there is nothing else at the present, I would like to return the call to Mr. Woody for any closing comments.

Thank you. Look I would like to thank very buddy for the continued interest in Halyard Health. As you can tell we are very excited about the opportunities ahead in our business, over the next couple of weeks we are going to present the Raymond James Institutional Conference on March 6th, and the Barclays Global Healthcare Conference on March 14th, for everyone interested information about how to access these presentations can be found on the investor relations section of our website halyardhealth.com. So, thanks everyone, and have a great week.

Thank you. The conference is now concluded. Thank you for attending today's presentation, you may now disconnect.