Stryker Corporation (SYK) Q4 2014 Earnings Report, Transcript and Summary

Welcome to Stryker's Fourth Quarter 2014 Earnings Conference Call. My name is Cuba and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session and one follow-up question. [Operator Instructions] This conference call is being recorded for replay purposes. Before we begin, I'd like to remind you that discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also the discussions will include certain non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed sir.

Good afternoon, everyone and welcome to Stryker's fourth quarter 2014 earnings call. Joining me today are Bill Jellison, our CFO; and Katherine Owen, Vice President of Strategy and Investor Relations. Following my opening comments, Katherine will provide an update on our M&A activity. Bill will then offer details on our quarterly reports, before turning to question and answers. Our topline performance in Q4 reflected our ongoing goal to grow organic sales at the high end of MedTech. With both the fourth quarter and full year revenue increasing close to 6%, excluding the impact of FX and acquisitions, we maintained strong sales momentum and delivered results at the high end of our initial expectations of 4.5% to 6% growth. Q4 results were impacted by one less selling day, which negatively impacted sales by approximately 1%. Somewhat to prior quarters, our diversified revenue base remains a key advantage as all three business segments; Orthopedics, MedSurg, and Neurotechnology and Spine, again delivered positive year-over-year gains. In the U.S., Orthopedics, which is up against very tough comparisons from 2013 registered over 7% growth. Trauma and extremities including foot and ankle continued it's impressive multi-year track record with healthy double-digit growth. Hips once again posted strong results while knees came in flat. Turning to MAKO, we're gaining considerable momentum with the sale of 20 robots in the quarter, up from eight in Q3 and the highest level of quarterly units ever achieved. Q4 also represented the highest MAKO procedure volume increasing double-digits year-over-year. Katherine will provide additional details regarding the number of key milestones for MAKO that we're targeting in 2015. U.S. MedSurg had a standout quarter led by impressive organic growth for both instruments and medical. Continued gains for Neptune, our strengthening hospital CapEx environment and strong sales force execution drove these results. Our U.S. Neurotechnology businesses continued their momentum with double-digit growth, which more than offset some softness in our core spine business. Coming off a strong Q3 of this year and strong comps from Q4 of last year, our international businesses grew nearly 4% in constant currency. Our challenges in Japan, which began in Q2 with a difficult ERP implementation continued and were acute in hips and knees. Our other divisions had good performances and we are particularly pleased with our results in China and sustained growth in Europe. Gross margin came in slightly above Q3 levels, reflecting similar trends we experienced throughout the year, including pricing headwinds, the negative effect of mix and foreign exchange, while also reflecting ongoing improvements in cost of goods sold. We remain focused on reducing operating cost with SG&A as a percentage of sales decreasing by 140 basis points year-over-year. R&D increased the year-over-year both in absolute dollars and as a percentage of sales, underscoring our ongoing commitment to innovation, both internal development and acquisitions, the benefits of which are apparent in out topline performance. Looking ahead to 2015, we are well positioned to continue our growth. The new European regional headquarters coupled with our just launched transatlantic operating model will set the stage for multiyear improvement in our growth profile in Western Europe and while some emerging markets have been more challenging, we remain bullish on growth prospects in China and India. Headroom remain most notably a significant negative foreign exchange impact on EPS of $0.30 a share based on current rates. However with a strong topline, ongoing reductions and operating cost and a healthy balance sheet and cash flow, we're well positioned to optimize shareholder value. For 2015, we're targeting organic sales growth of 4.5% to 6% with adjusted EPS in the range of $4.90 to $5.10 a share, up 4% to 8%. Excluding the impact of core foreign currency, our underlying EPS growth would be in the range of 10% to 14%. Given the heightened volatility and foreign exchange rates, we will update these impacts each quarter throughout the year. With that, I'll now turn the call over to Katherine.

Thanks Kevin. The focus of my comments today will be on providing an update on the performance of our recent key acquisitions. In early January, we completed our most recent acquisition of privately held CHG hospital beds, which show a series of innovative, low height hospital beds and related accessories in markets across Canada, the U.S. and U.K. The low height design helps reduce the risk of patient falls that are related to entering and exiting hospital beds. Amongst CHG's innovative offerings is the recently launched Spirit One bed, which is an expandable low-height bariatric bed for the acute care segment. With this acquisition we're able to expand medical offerings of products that enhance the quality of care for both patients and healthcare professionals by helping to prevent patient related injuries resulting from a fall from a hospital bed. Turning to MAKO, as Kevin mentioned, we're excited about the increasing momentum we're experiencing. In late 2014 we submitted the 510-K application for our total knee on the MAKO robot and continue to target 2015 for FDA clearance. Given the necessary training and education post approval, we assume any revenue contribution from this indication will be somewhat limited in 2015, we expect to see a more meaningful ramp in 2016. Beyond the total knee, we're targeting Q2 for a limited release of our cement less uni knee on the robot and we're also preparing to launch Stryker's hip power brands including our highly successful accolade hip on the robot this year as well as our X3 poly bearings. In summary, the teams have made tremendous progress on the pipeline over the past 12 months and going forward, we're well positioned to drive adoption and leverage the considerable breadth of Stryker's reconstructive sales and marketing presence. Lastly I'll provide a few comments on one of our most recent acquisitions, Small Bone Innovations, which we acquired in August of last year. We continue to be pleased with the progress we're making with sales tracking well against our plan. We've conducted extensive training over the past six months, which will continue into the first quarter and it includes the entire SBI portfolio of products. The STAR Ankle is an important addition to our foot and ankle portfolio and with our dedicated sales force, we expect to see continued strong momentum in 2015. With that, I will now turn the call over to Bill.

Thanks Katherine. Sales growth was 6.1% in the fourth quarter including a negative 2.6% impact from FX translation. Constant currency sales growth was 8.6% which includes organic growth of 5.5%. Sales growth for the full year was 7.3% with organic growth of 5.8%, acquisition growth of 2.5% and a negative 1% impact from FX translation. EPF on a GAAP basis for the fourth quarter were $0.67 per share versus $1.01 per share last year in the fourth quarter, while adjusted earnings per share were $1.44 per share in the quarter versus $1.29 per share in the quarter of last year. This quarter’s EPS includes negative impact of approximately $0.06 from FX or $0.02 to $0.03per share worse than the prevailing Fx rates that we signaled on our third quarter earnings call. Foreign exchange rates were very volatile during the fourth quarter and the Japanese Yen, Australian Dollar, the Euro and any other currencies continue to weaken against the dollar. Earnings per share on a GAAP basis for the full year of 2014 were $1.34 versus $2.63 last year while adjusted earnings per share were $4.73 versus $4.49 per share last year. CapEx negatively impacted the full year results by approximately $0.14 per share. The most significant non-GAAP adjustments in the quarter included charge of approximately $116 million net of approximately $179 million of insurance recoveries received associated with the voluntary recalls of Rejuvenate and ABG II. The adjustment also included an additional tax expense associated with the transfer of intellectual properties of the Netherlands from some of our other European locations. The charges for the Rejuvenate matter may increase or decrease over time and as additional facts become available and assumptions become more refined. Looking at sales in the fourth quarter, our organic growth rate of 5.5% was comprised of a positive 7.4% from volume and mix, while price negatively impacted sales by 2% points. Acquisitions added 3.1% while FX added a negative 2.6% in the overall sales for the quarter. Looking at our segments, Orthopedics represented 42% of our sales in the quarter. Sales of Orthopedic products were up 1.7% as reported and grew 4.5% at constant currency and increased 1.8% organically. US Orthopedics sales grew 7.3% in the quarter. Trauma and Extremities once again had another solid quarter with sales in the U.S. increasing 18.7% and mid-single digit in international markets with approximately 25% growth in our U.S. foot and ankle business excluding the impact from the acquisition of SBI, as we continue to have great success in an expanding market. U.S. hips continued to increase its strong performance and grew 4.5% in the fourth quarter while U.S. knees were flat and internationally sales were down 5% in hips and reflect in knees in constant currency as negative pricing and operational performance in Japan and comps were tougher within the period. Next, our MedSurg segment represented approximately 40% of our sales in the quarter. Total MedSurg sales increased 12.1% as-reported and 14.1% in constant currency and increased 9.4% organically. These results benefited from double-digit growth in our instruments business, as we continued our strong performance across our product lines and reestablished clear market leadership with the Neptune product back on the market this year. These are on a like-to-like comparison with Neptune as we re-launched the product in the first quarter of 2014. We also had upper teen growth in endoscopy, driven by recent acquisitions. Medical also had a strong mid-teen organic and constant currency growth this quarter as the hospital capital market is picking up and we are driving excellent sales execution. Our final segment Neurotechnology and Spine, which represents 18% of our sales in the quarter, increased 3.9% as reported and 7% in constant currency with 6.3% organic growth. Growth in this segment was led by double-digit growth in our Neurotechnology businesses and IVS while spinal implant sales decreased slightly. And looking at our operational performance, gross margins on an adjusted basis in the fourth quarter of 2014 were nearly flat sequentially at 66.1%. This compares to 66.3% in the same quarter last year. The decline in the margin rates in the quarter resulted both from negative product mix and negative price pressures. Our mix was negative in this quarter due to the impact of recent acquisitions and strong sales of our MedSurg products. These products have a lower gross margin rate than the company average. Pricing was down 2% in the quarter and also 2% for the full year. Pricing pressure remains challenging and is expected to be down approximately 2% for the company moving forward. Margins were also negatively impacted from foreign exchange movements compared to last year. Research and development expenses were 5.8% of sales, slightly higher than last year in the quarter and this is a 10% increase in R&D spending over last year, while still nicely leveraging our overall operating expenses in the period. Selling, general and administrative costs on an adjusted basis expenses were $857 million or 32.7% of sales in the quarter versus 34% in the prior year period. Strong sales growth and our cost improvement efforts delivered over a four percentage point of operational expense leverage in both the quarter and in the full year. Operating margins on an adjusted basis were 27.5% in the fourth quarter of 2014 compared to 26.% in the fourth quarter of 2013. The rate was positively impacted by operational improvements and solid improvements in operating expense leverage partially offset by lower pricing, acquisition and product mix and foreign exchange rates in the quarter. Our reported tax rate for the fourth quarter was 43.6%, while our adjusted effective tax rate was 22.6%. This compares to a 24.2% adjusted effective tax rate in the fourth quarter last year. As we mentioned earlier, we have officially opened our new European headquarters in Amsterdam. Last year, we transferred intellectual property from other countries within Europe to the Netherlands and also made decisions to repatriate nearly $2 billion from Europe to the US. Most of those funds will be transferred to the US in the back half of 2015. These actions triggered a tax expense between both in the third and fourth quarter of this year. The cash outflows repayment of this tax will be fully paid out in the first half of 2.15. The transfer of the intellectual property provides us more flexibility in managing our operations in the future and aligns the ownership with where our primary European leadership team will be located. Looking at the balance sheet, we ended the quarter with $5 billion of cash and marketable securities. We also had $4 billion of debt on the balance sheet at the end of the quarter. And from an asset management standpoint, accounts receivable days ended the fourth quarter at 54 or one day better than the fourth quarter of last year or of 2013 and Days in inventory finished the quarter at 160 days, which was a eight day increase compared to 152 days in the fourth quarter last year due to acquisitions and some higher inventory in some of our international locations. Turning to cash flow, our cash from operations in 2014 was $1.8 billion which was similar to 2013. Capital expenditures were $233 million in 2014 compared to $195 million in 2013. Share repurchases, we still have over $500 million available for share repurchase under a current authorization as approximately $100 of share repurchases were made at 2014 but no additional shares were repurchased in the fourth quarter. As we look to 2015, our sales guidance includes constant currency growth of 5.5% to 7% with organic sales growth in the range of 4.5% to 6%. The foreign exchange rates hold near current levels. We expect net sales in the first quarter and full year of 2015 to be negatively impacted by approximately 3% to 4% points. Each quarter had the same number of selling days in 2015 as in 2014. Pricing pressure will continue and is expected to be lower by approximately 2% for the company moving forward consistent with the pricing environment we experienced throughout 2014. We expect our full year adjusted effective tax rate in 2015 will be closer to 20% or over two full percentage points lower than in 2014. As mentioned previously, we plan on reinvesting approximately half of our tax savings associated with European Regional Head Quarters. These additional investments will be to support our new structure within Europe and to supplement our selling and marketing activities. Please also note that the renewal of the tax extenders for 2015 is reflected in our projected tax rate and our earnings guidance for the full year. However, we do not have any benefit planned in our first quarter guidance and we don’t expect them to be approved until late in the year. If the extenders are not approved and made effective again this year, it will negatively impact our earnings guidance for the full year by approximately $0.05 per share. Capital expenditures are expected to be slightly over $300 million in 2015 and as we continue to invest in our operations and IT infrastructure and assuming there are no debt increases for acquisitions or significant share repurchases, we would expect net interest expense to run approximately $30 million for quarter on an average for 2015. Based on the current FX rates, we would expect 2015 to be negatively impacted by approximately $0.30 per share for the full year and approximately $0.08 for the quarter -- the first quarter. This is higher than we have shared a few weeks ago as the Euro has weakened further by nearly four to five percentage points and the Swiss Franc suddenly strengthened approximately 15% after it decoupled its currency sealing from the Euro recently. This negative impact is largely driven by the translational component of FX which we do not hedge. The transactional impact of FX on earnings is being offset by both natural and real hedges which we continue to layer into our operations. And finally, 2015 adjusted net earnings per share are expected to be in the range of $4.90 to $5.10 with adjusted net earnings per share in the range of $1.05 to $1.10 for the first quarter of 2015. Thanks for your support and we’d be glad to answer any questions that you may have at this time.

Great. Thank you. We will now begin the question-and-answer session. [Operator instructions] And your first question comes from the line of Mike Weinstein from JPMorgan. Please go ahead with your question.

Thank you. Can you hear me okay?

Yeah we can.

Okay perfect. Let me start with a balance sheet question and for those who weren’t at the conference couple of weeks ago, we had talked about the comments that Stryker put in the press release on the preliminary 4Q numbers about utilizing the balance sheet. In the fourth quarter, the company didn’t buyback any stock. Can you just talk about just kind of current thoughts on A; why didn’t you buyback any stock in the fourth quarter? And could you just give us some more of your thoughts relative to the use of the balance sheet in 2015 just building off the comments you made a couple of weeks back?

Yeah Mike. So this is Kevin. So what I would tell you on that is what I have been consistently saying which is the first priority for cash is for acquisitions and obviously the timing of acquisitions is unpredictable. And that if those acquisitions don’t materialize in a reasonable period of time, then we would be open to larger share buybacks. So right now, we are pursuing the acquisition deal flow and we'll see what happens.

Okay and the -- is the plan -- so the plan for now, don’t buyback any stock until you have a better read on the M&A environment and depending on how it plays out, then you would start to buy back stock, but ultimately the goal is the thought process at least is to end the year with a balance sheet that has more leverage than it does going into the year?

Maybe I will chime in with a couple of comments. There is really no change from our expectations from prior years as Kevin said, M&A is the primary use, in any given year we assume something in the $400 million range in terms of share repurchases and I think that should be the assumption around expectations at the start of this year given what we know. And then if the deal flow doesn’t keep pace as Kevin mentioned before, we would be open to larger buybacks, but as a going in assumption what’s reflected in our range is the normal something in that $400 million-ish vicinity in terms of normal year buybacks. It will vary quarter-to-quarter for a variety of reasons, but that should be a good assumption that’s reflected in the range we put out.

Katherine, the comment from the press release and from a couple of weeks back relative to exiting 2015 with a different balance sheet and the company entered 2015. That still holds the idea that the company does have a different view than Stryker had historically on utilizing the balance sheet?

Yeah Mike. What I’d say, we didn’t put a specific timeframe. In the press release we didn’t say exiting 2015, but what we did say is we acknowledge the strength of our balance sheet and that we do plan to put our money to work. So while we weren’t specific in timing, we do say that over a reasonable period of time, we will not stay at the kind of balance sheet position that we are in right now and it's possible for me to put a precise date on that, given the timing of our deal flows, but the statement was put in there for a reason. And the reason the statement was put in there is to acknowledge the strength of the balance sheet and that we do plan to put it to work, but we were not specific in terms of whether that will be over a six month, nine months, 12 months period of time.

Thank you. Our next question is going to come from David Lewis from Morgan Stanley. Please go ahead David.

Good afternoon. Kevin, I think the one issue in the quarter is lot of strength in a lot of different segments but U.S. recon and obviously O.U.S. Japan you talked about but it wasn’t clear in the U.S. what specifically is pressuring hips and knees. It looks like the price was stable sequentially. Many of your competitors also dealt with more challenging comps. Was there anything specific you can point us to in U.S. subsidies, which could have driven the incremental comp adjusted deceleration? And in your assumptions in 2015 can you give us a sense of what that assumes in terms of this strong CapEx business? Does it also assume a recon here in the U.S. in the first half of '15?

Yeah, so David. What I’d say is we certainly had very strong comps from the prior year right. We have are plus 10% in the U.S. in hips, we were plus 8% in the U.S. in knees, but we haven’t seen all of our competitors report yet. So I’d really want to wait to see how everybody else reports before we determine how our results stack up versus all of the competition. I would say we didn’t notice the same kind of spike in the fourth quarter of 2014 as we noticed in the fourth quarter of 2013. And so normally, what we see over a six-month period is you'll start to see a big spike and then you see a drop off. So we will see what happens over the course of the first quarter this year, but I would think with the spike being not as dramatic that we won’t see quite as much of a drop off this quarter, but we still believe we're doing well in the market with knees. We've been holding our own over the last couple of years and don’t anticipate that anything major has changed there. And as it relates to the CapEx environment, certainly we had a fantastic fourth quarter of last year across all of our MedSurg businesses and medical in particular had a very, very strong jump towards the end of the year. We're seeing a better environment overall. We're also executing very, very well in the field. So we do expect continued strong momentum in MedSurg in 2015.

Thank you. And now our next question is going to come from Bob Hopkins from Bank of America. Please go ahead with your question.

Thanks very much. Can you hear me okay?

Yes, we can Bob.

Great, good afternoon. So just to follow up on Mike’s question on basically the guidance and the balance sheet, so you're guiding to $4.90 to $5.10 and Katherine, I think you said that assumes a normalized $400 million in buyback. So is it sort of a logical conclusion here that if there are no larger deals, then it’s likely that you’d have a larger buyback which would put upward pressure on this EPS range that you're providing today?

I think Bob that the assumption that $300 million to $400 million that’s the normal walking around in any given year level of buybacks and exactly if the pace of acquisitions isn’t such that it’s keeping up with the cash flow we generate, we would be open to doing larger buybacks. There is a lot of variables that go into what could impact the upper or lower end of our range and obviously FX is probably the biggest one but clearly just isolating that to the degree that buybacks are larger and that would be reflected towards the upper end of the range.

Okay. And then one follow-up for Bill, could you just walk me through the comment that your guidance here is assuming that you'll drive 10% to 14% underlying EPS growth obviously ex the currency impact. So I guess a little over 5% of that is from revenue growth, 2% from tax rate, a little bit from buyback, how much underlying operating margin leverage are you assuming in 2015 in this guidance?

Sure actually Bob within a current year guidance, we don’t give operational income related guidance. I think that what we have said in the past is that we do drive to get operating leverage in the 20 to 30 basis points or so per year, on an average, at least over a two or three year period of time. Keep in mind that we also mentioned earlier this year and also just now on the call as far as that we are planning to reinvest some of the dollars associated with the tax improvements in the rate side of equation back into some of the expense categories. So you probably won’t see as much leverage overall within the operating income side as we would normally be driving especially in the expense category.

Thank you. Go ahead.

So I was just going to add Bob, on the EPS line, the 10% to 14% improvement is clearly a strong underlying performance on earnings per share and the tax benefit is about 1.5. So if you assume that the $0.07 is reinvested, it's about 1.5% improvement. So even if you take the 1.5 out, it’s still growing EPS significantly faster than our top line in 2015.

Thank you. Our next question is going to come from Kristen Stewart from Deutsche Bank. Please go ahead with your question.

Hi thanks for taking the question. I was wondering if you could just go over again the international performance within the orthopedic business. I know you commented on Japan, but maybe if you could help us just understand how quickly it will take to turn that around and just remind us again the breakout of what Europe did relative to Japan in the quarter?

Yeah so Kristen just a high level I’d say, Japan is certainly the biggest market that we have internationally and we mentioned on past two calls that we had an ERP system that didn’t go very well. That system is now stabilized. That’s the good news. The bad news is that while we're going through our challenges especially in the hip and knee market which has instruments and sets and where system reliability is extremely important. We certainly lost market share and we now need to regain that market share and just because our system is fixed, the business is not going back to us automatically. So we have to re-earn that business. I would think that we will start to see that improve beginning in the second quarter of next year. I would say Europe overall continues to perform well slightly pacing with growth and slightly pacing above the market. In any given quarter, you can see variations between our capital equipment and our implants and we don't sort of break down every single country and regions between implants in capital, but I’d say that the biggest reason for that sluggishness in recon and particularly in hips is Japan. And that’s a market that historically has been very reliable for us and where we have very strong market share, but certainly it has been a drag in the second half of this year and particularly in the fourth quarter and we're going to turn that around. So I would assume by the end of '15, we will be back but it’s -- like we saw in Europe. It took us a little bit of time. This one unfortunately was a bit self-inflected. I expected that I have a new CIO and a new leadership team in our information technology group. The CIO was hired at the end of May and he has added four new leaders to his team. So I am a lot more optimistic about future ERP implementations but this one certainly has been challenging and had a knock-on effect of losing market share.

So just to make sure I understood, you said that Japan is going to continue to be a drag. This year we won’t see improvement until the second quarter of 2016?

No 2015.

'15, okay.

We'll start to see improvement by the end of 2015 -- by the second quarter of '15.

Okay.

But it won’t get fully back I don't think towards the end of the year.

Okay. Thank you.

Thank you. Our next question is going to come from Raj Denhoy from Jefferies. Please go ahead with your question.

Hi thank you. I wondered if I could ask you a bit about the Mako performance in the quarter. You may be highlighted the 20 orders that you placed. I am curious maybe you can offer in terms of where are those replaced, what’s driving that demand? And then secondly as you prepare to launch the -- or get approval and launch the knee product in the U.S., when might we see some data in terms of some of the performance attributes of that product?

Yeah I will take that and we weren’t really pleased. Obviously we had some integration challenges earlier in the year and -- but we worked through a lot of those and being able to really leverage the breadth of our sales and marketing infrastructure. I won’t be specific about which locations and where we placed the 20 robots. I would say though the teams have done a great job of making sure when they do place a robot, it’s in a facility that has a clear surge and champion and that really is key to ensuring that the utilization rates and the procedure volume is consistent with the expectations when we place that. So they're in the right locations and we will continue to drive that strategy going forward. In terms of clinical data, there is -- we will have data at AOS. There is a number of studies that have been done but it will take time. The early adopters will be less focused on longer term follow-up studies, but we're investing a lot in clinical data and understanding importance to driving long-term wide-scale adoption.

If I could ask, maybe one follow-up on that? In terms of -- I think you highlighted that when you looked at the investments you made in various areas. Maker really was your investment in orthopedics or has been to date in kind of orthopedics and I am -- I guess I am curious about how you view that investment? Is this really where you're seeing the future of orthopedics developing over time or do you still think there is a role for sort of the old way of doing orthopedics as well?

Well, we’ve made a number of bets in various sizes within orthopedics if you look at SBI and foot and ankle for trauma in extremities which falls under that umbrella but in terms of the largest bet, yes clearly MAKO is a big bet. We're in the enviable position and given our balance sheet and our cash generation, we can continue to do the tucking deals which tend to be the majority of our M&A, but make these bigger bets. We really believe it is going to revolutionize how orthopedic surgery, reconstructive surgery is performed. We think the total knee, which we filed for in late 2014 is by far the biggest market opportunity and it is a big bet. We believe we can drive meaningful market share gains, which has really never been done on a sustained basis in the reconstructive market. So it’s a clear bet on the direction that the industry is going to go and the benefit that we can bring to patients, to surgeons and to the overall healthcare systems with the technology that we got with the robot.

Thank you. Our next question is going to come from Jason Wittes from Brean Capital. Please go ahead.

Hi. Thank you very much. So last week, I attended a podiatric meeting and I was very surprised at how well you guys have been doing in building out large contract with hospitals, especially in the foot and ankle business, but also amongst trauma and extremities. So I guess, I just wanted to kind of get a better sense of your strategy here. Should we assume that when you're looking at those areas, those are areas that you look at as right for hospital contracting and some type of bundling? Is that kind of the right way to think about it?

We'll, we shifted our focus about three years ago to moving towards full account conversions, which is frankly something that wasn’t possible. Five, six years ago we didn’t have the product portfolio to be able to do like a complete account conversion and so we would have niche products in different hospitals around the country and that shift and focus to total account conversion took us a little bit of time, but it’s not working. So we're providing the service, we have all the products in our portfolio either through primarily internal development, but also supplemented by acquisitions where we can actually run the entire trauma service center and service line of a hospital. And then obviously foot and ankle, there is a presence within the hospital, but there is also podiatric surgeons that are operating outside of a hospital. So we have a dedicated team that sells outside the hospital and we have our existing trauma and extremities sales force that’s selling inside the hospital. So we are very pleased with the -- obviously the performance. The market share we've been gaining over the past five years, steady growth as well as getting into a new market and growing our sales in foot and ankle where people were not using implants before. So it’s been a great experience over the past few years to watch the foot and ankle business grow. With the SBI acquisition, we've also acquired some upper extremity products that look very exciting and I think that’s the market that we see as right for growth as well and we will be piloting some specialized sales people in the upper extremities area and we look to grow that going forward.

Thank you. Our next question is going to come from Derrick Sung from Sanford Bernstein. Please go ahead with your question.

Hi good afternoon. Thanks for taking my question. Kevin, I was wondering if I could first get your thoughts on a few aspects around the consolidation that’s happening across the industry namely in the near term, are you seeing any potential advantages from the disruptions with the potential -- upcoming consolidations from one of your large competitors. Longer term, how do you see the price environment evolving with consolidation in the industry and do you see room for further consolidation beyond where we are at today?

Yeah so I am not going to talk about further consolidation, but what I would say is every time there is an acquisition in the space, there is disruption. So we certainly saw that with a few [some] [ph]. We saw disruption and many of our competitors as well as us were able to capitalize on that. I think with the upcoming mergers in the environment, there will be disruptions. We haven’t seen it yet. I think once the acquisition happens, you will see some sort of disruption. We plan for that ourselves and we do acquisitions. We did the SBI acquisition we planned for a certain level of disruption. We experienced some disruption of our own when we did the MAKO integration. So integrations will always create some form of disruption. It tends not to be long term in nature, but certainly something that we look to capitalize upon as any competitors of ours would have mergers or acquisitions in their space.

And what about the pricing environment? Do you expect that to change at all with the consolidation that we're seeing?

Yeah what I would rather sort of step back and look at across all industries. When you see consolidation, generally you tend to see a moderating of your price impact. So that will have to play itself out, but normally in any other market when you see the number of competitors reducing, you do tend to see and in our case, obviously a market that has rapid price erosion, you would imagine that that would start to moderate over time.

Thank you. Our next question is going to come from David Roman from Goldman Sachs. Please go ahead with your question.

Thank you and good afternoon everybody. I want to start with a question for Kevin. You did talk quite a bit about some of the trend internationally. You referenced the Europe experience and now what’s going on in Japan, but maybe you could just talk about more broadly your ex U.S. strategy that sort of looking at your business compared to the peers. International does represent a smaller percentage of total and given some of the fits and starts in that business, are you undertaking more of a broader review of how international is being run and what gives you confidence in the sustainability of a turnaround in those franchises?

Yeah so for us, emerging markets represent 8% of our sales and still does now and obviously, even with strong U.S. dollar, which is driving up its share of our overall sales. In that, we had strong growth in emerging markets, strong double digit growth. China continues to be a fantastic market both the premium segment as well as the lower price segment. Those lower price segment products we're going to be launching in India, which had very good growth, but albeit at a small market. So I would say within emerging markets, China and India are going to be two areas that we're going to focus very heavily on and that’s from a position of strength. Where we're weaker are in some of the other markets like Russia and Turkey and Brazil and frankly all of Latin America where we've historically had a much lower market share. We were starting to invest and obviously you’ve seen what’s happening in those markets. It’s actually not a bad time not to have a huge presence in Russia and Turkey and some of these markets. So we're not going to be hit as hard as some other companies. I think we're going to delay those investments until the market gets a little bit more healthy. Europe, we're obviously really focused on Europe and we're investing. We’ve created a reporting structure that has sales and marketing organizations of Western Europe reporting into our divisions that are based in the U.S. and I think that change is dramatic. It’s going to drive focus. It's going to drive specialization and our market shares in Western Europe are far below where they are in other markets. So Japan to me, this is an anomaly. This is a market that we've historically been very, very strong and same as Australia. It's a very strong market that had another great year in 2014. Challenge is there, you have foreign exchanges working heavily against us and obviously, Bill talked about the magnitude of foreign exchange impact in 2015 but this is not doing complete overhaul of international. We're dialing back in some of the emerging markets, continuing to invest very heavily in China and India, focusing on Western Europe, which I have talked about for the last three years and actually accelerating that impact with this transatlantic model that we're launching. Japan was an unpredicted and it’s a business of our size with the breadth that we have, things sometimes go wrong. So this was a case where we put an ERP system in it. It didn't go well. It uncovered some other problems, which actually changed some of the leadership in Japan to turn around -- things don't always go smoothly. So I wish, I could tell you something, but it's not that the strategy was wrong in Japan. We had these types of strong business in Japan for many, many years. We just hit a speed bump and we have to get back on track.

Okay. That's our perspective and for Bill, one clarification, I am not sure I heard you correctly. I think you said in your prepared remarks $30 million of net interest per quarter, but that would be materially higher than what you've been running, was that right and if so why? And then secondly on CapEx that $300 million number for 2015, is that the new run rate or is there something specific going on in 2015 that boost that number above the normalized trend?

Sure, so first on the CapEx side of the equation, we actually stated that even already last year in advance, so it's going into this year. We actually didn't spend that same level. Some of that got carried over already into 2015. We are planning on spending a little bit heavier on an ongoing basis here for a number of reasons as we talked about both reinvesting in some of the IT technology base throughout the organization as well as just covering the faster growth of the organic growth side of our business that we've got and then investing in those businesses around the world. So one, I think that that's relatively consistent. We should be actually spending at a higher CapEx level as we mentioned more consistently moving forward over the next, three, four, five years. If you talk about the interest expense side, we actually were running pretty close to that same similar level throughout most of 2014. There is actually some adjustments for a couple of different things that have taken place within different periods, but that's pretty much what our average run rate has been throughout this year or throughout the 14 year and as we move into '15, it should run at a similar level.

Thank you. Our next question is going to come from Mike Matson from Needham & Company. Please go ahead with your question.

Thanks. Just a question on the hedging program that you're implementing, I am just wondering is this sort of a moving target? In another words, as the currencies keep moving pretty sharply does that sort of push out the point at which you would be fully hedged?

No. so the program that we talked about before, the layered hedging as for transactional related hedges and as we mentioned before a hedging program ultimately mitigates or minimizes some of that volatility in the risk in any specific period. It doesn’t eliminate the risk. So if rates went down and stayed down, you're ultimately going to see the impact of those as you continue to move forward. We generally have for our transactional base about six different quarters that are hedged at any point in time and it's a rolling hedge program. So you're in essence getting the average of those six quarters in your transactional related purchases, but we're really getting the full impact each quarter of any other translational side. So as we've earnings in a specific country, each quarter those earnings get translated at whatever the current rates are and so you'll see that level of impact, but our layered hedging is pretty much in place and should continue to be in place as we move forward.

Okay. And then just with the MedSurg business growing so much faster than your other businesses, I was just wondering if you could remind us what the impact -- what impact that has on your gross and operating margins for the company overall? I seem to remember that it has a negative impact on your gross margin, but at the operating line, it's not all that different from the other businesses?

Yes, so we've not given specific feedback on any of our divisions or groups, but I think directionally that's absolutely correct. So our margin rates within our broader base MedSurg Group are lower and actually that is one of the negative mixes that we talked about as MedSurg has been obviously growing much quicker than some of our businesses, especially during 2014. And from an overall operating income perspective, all of our businesses perform extremely well within the broader base environment, but some do have slightly lower rates, but just not to the same degree. So in categories like MedSurg while margins would be low -- gross margins would be lower, you would also be having some level of lower expenses to support that maybe our orthopedic group we have.

Thank you. Our next question is going to come from Bruce Nudell from Credit Suisse. Please go ahead with your question.

Hi, thanks so much. Kevin could you talk briefly in your view about the importance of cement less knee especially in the younger population, is that going to be enabled by the robot and if you're able to get a cement less knee, does that have intrinsic cost of goods advantages?

Yes, so we did launch a cement less knee with a 3D printed to their base plate about a year ago or started to see that perform very, very well and the 3D printing manufacturing enabled a very poor structure, which adheres to the bone very effectively and we launched it very sort of slowly with the limited launch last year. That's gaining steam and as you all know, the cement is used in most keens whereas hips are cement less as it occur in the United States. We do think that's going to be important for the future. The robot will make it even easier, but we already have a product on the market right now that we're trying to push and we're going to push that more aggressively in 2015. But if the robot will enhance that and enable that longer term, then we do believe that, that is going to become a big part of the market. It has obviously taken longer than it has in hips, but that's something that we see of being important in the future. Also for the robot, I think the team pertaining for knee where you keep the ACL intact. I think that could become a very big part of the market. It's obviously tiny today and will take years to play out, it's starting to prove that, but again that's extremely hard procedure and really will not be able to be done very effectively and consistently without the use of a robot. So there is a lot of reasons why we make that on MAKO, it's not just to be able to put in the existing procedures the same way they're being put into today, but also being able to develop these new procedures as you've just outlined.

And could you just elaborate a little bit on the transatlantic approach to U.S. and European sales and like just some of the nuts and bolts aspects that you think will be impactful?

Yes, so we have let's call it eight divisions and we have a number of business units underneath those divisions. So each one of those divisions is going to have a Vice President and General Manager in Europe that will have their sales and marketing people in all the big countries reporting to them directly. And how that affects the nuts and bolts is in the past we didn't have that business focused on Europe. So you had sales reps selling a wide bag of products that weren’t very focused and the management team when they looked up their organizational chart, they didn't necessarily know that business to the same degree of the specialization and had the same support whether it's marketing materials, training, access to head office. Now that's going to be in a tight organizational alignment and we spent a whole year preparing for this. So during the year, when Europe hit their number this year and really did perform very well, the country managers weren’t sure what their job is going to be? Were they going to be one of these General Managers or going to stay at the country level. So it's been a whole year preparing for this and establishing these eight key roles. In Western Europe, we still have country managers. The one of the mistakes we had made in prior -- in our prior iteration was taking away the prominence of the Country Manager role. We still have that role very much in place. It's a play out and supportive role and to make sure that the things are going well in the country and the key account role with hospitals and with surgeons, but what is going to drive the specialization focus and we've seen in every market where we have specialized sales forces we win. It's a straight formula. It's a truism whether it's in Australia, it's in Canada, obviously the United States and we just never got into that stage in Western Europe and we never get to that stage if you just have the country budgets the old way we did it before. Now that we've emerged those divisions, so the person who is our President of let's call it hips and knees, our Field President of hips and knees, you have a P&L that includes Western Europe and the United States. And when you have that office P&L you have a lot more flexibility with your dollars, because you've bigger marketing budgets, you've bigger R&D budgets, you can move money around and so if you see an exciting opportunity in the U.K. or an exciting opportunity to invest in France, you can balance that against opportunities that exist in the United States and you can move resources more tangibly. It also used to take us -- lot of amount of time to get sort of launches and training aligned between Europe and the United States that will be facilitated. So part of the investment obviously is creating these eight roles. Putting them all in Amsterdam, having a state of the art center in Amsterdam where we can actually train surgeons, these are investments that we just haven't made in Western Europe historically and that's one of the reasons why we've just never moved the dial. We've been trying for 10 plus years and we've changed the leadership multiple times to change the organizational structures within Europe multiple times and we haven't been able to change the dial. So this for us obviously will be a leading Western Europe. He made the first really big improvement over the last two years to get us back on a let's call it market performance or slightly better, but to take the next leap and gain significant market share, this only can be enabled with a dedicated focus across business units. So while out of time, when most companies are leading away from Western Europe, we're leaning in Western Europe and it's just because of our current market share position, which is far below what it is in many other countries in the world. So whether you're excited about it, it's going to take obviously a number of years to play out, but obviously his idea is still involved and he is still the head of Europe and he is fully supportive of this initiative and really believes that we're doing it the right way.

Thank you. Our next question is going to come from Joanne Wuensch from BMO Capital Markets. Please go ahead with your question.

Hi, can you hear me okay?

Yes we can.

Yes we can.

Terrific. Thank you. We've been talking about capital purchases to be increasing about the level almost since we started talking about the raw material. What you saw in the fourth quarter, do you think that's a sustainable level and do you think it's just sort of a fourth quarter yearend push? Are we finally starting to see more patient call the need for more capital equipment?

Hi Joanne. I think it's a little tough to know if it's more patient is a function of ACA. We started to see this improvement in the third quarter. Clearly the trend continued into the fourth quarter. Whether hospitals are through the biggest part of their IT investments that they've been making over the last few years or at some manifestation, the increased patients tied to ACA, it's really difficult to get that level of granularity or for just taking market share. What I can tell you is that teams are executing really well and we're seeing a clear strengthening in those businesses that we believe is sustainable and we feel pretty optimistic about the momentum that we're going to have for 2015, but I think it's a little difficult to be able to say it's a function of ACA of increased patient demand without a little bit more time under our belt.

Okay. Thank you. And a follow-up what should we be looking for at AAOS this year?

Well we have a number of things going on including booth tours and clearly MAKO is going to have a big presence there with all the milestones that we talked about upcoming this year and then we will be highlighting a number of products across the portfolio, not just within reconstructive, but trauma, extremities, the SBI ankle, the additions that we made with PIVOT COALESCE. So there will be a lot of products that's out there, but obviously MAKO does get a lot of attention.

Terrific. Thank you so much.

Thank you. And our next question is going to come from William Plovanic out of Canaccord Genuity. Please go ahead with your question.

Great. Thanks. Good evening. I just want to check my math. Looking at the knee business, assuming that you had MAKO, you didn't get much for MAKO in the fourth quarter of '13, I think it seems like the U.S. knee business really slowed down, down maybe 4% to 5% by my math, if you strip out MAKO, may be I am off on that. Just wondering if you could comment on that at all?

Yes so, obviously we had a very, very strong fourth quarter last year. It was up 8% and then this year if you strip out MAKO, I think you're little high in your math, but yes, we were slightly down this year. If you exclude the MAKO, we don't obviously parse that out precisely, but yes, we were down slightly, but overall if you look over the two year period, I think, we're still tracking pretty consistently. Again, not everybody has reported yet, but we also didn't benefit and I think there is a temporary benefit if you launch a new product. We saw that with our Accolade II. If you get them priced with the mix advantages for about a one or two year period, we haven't been getting that since our system isn’t a new system to get some of those temporary benefits. But certainly from a customer standpoint, we don't feel reducing really any market share at all and that's been a pretty consistent position that we've had for the last three years.

Okay. And then a follow-up is one of the comments was that there was one less selling day in the quarter. I think that's unique to you and I am just curious, was there actually one less day or was it how vacation sold during the quarter and holidays. I think when you say one less selling days, wondering if you could just quantify that and if it was U.S. only, O.U.S. globally, that's it. Thank you.

Obviously we have with all the different countries and we do our math within Stryker based on holidays and in last year we had about one extra day in the first, one less day in the second, one extra day in the third, one less day in the fourth and every quarter we called out whether it was an extra day or less a day and then we give you their organic growth. You can see, it's really -- clearly see our organic growth over the full period. The third quarter we also had big, big numbers. We called out one extra day and said we had one extra percent. It's just based on how out calendars are lined up in different parts of the world. In '15 I am very pleased to say that we're not going to have any quarters with extra days or less days. It's not something I enjoy talking about. It's kind of a frustrating thing, but it's just based on the way the calendar was laid out '14 versus '13. Fortunately in '15, the calendar lines up the same as it does in '14. So we won't be talking about this for the next year, but we were pretty transparent, over the full year, there was no difference in days. In 2014, days were the same as '13. It's just the way the holidays fell and we had one extra day in the first, one less in the second, one extra in the third, one less in the fourth.

Thank you. Our next question is going to come from Larry Biegelsen from Wells Fargo. Please go ahead with your question or comment.

Hey thanks for fitting me in. two clarification questions, one real question. I just wanted to confirm that the first knee that you're going to launch from the MAKO system total knee is going to be Triathlon you mentioned earlier by [Crusher] [ph] retaining knees. Second clarification question, emerging markets grew double-digits, I heard you say earlier, could you give us the exact growth rate on a constant currency basis. Thanks.

Yes, we're targeting with our 510-K submission to launch the total MAKO with our Triathlon system in 2015. We don't break out the specific emerging market country growth if that was the second part of your question.

Okay. And then for my real question, your Neurotech businesses accelerated this quarter, can you talk about the potential benefit from the MR Clean study, which you mentioned in the past as being important for that and have you seen an impact from that yet, thanks?

I wouldn't say that we've seen an impact from the MR Clean study. clearly, we're really excited about it and the potential it can have longer term as we start to build the necessary clinical data to help drive adoption to help further educate and position this to the benefit for this treatment of ischemic stroke. But that's going to take time. It's a very positive first step, but there is a lot of market development work that still has to happen including referrals and education and more peer review data, but certainly we're really pleased with it and that group will continue to build on that momentum.

Yes we obviously had strong double-digit growth across all of our three Neurotech businesses and neurovascular in particular has been gaining market share for the last couple of years in the hemorrhagic segment and MR Clean would potentially open up the ischemic segment of the market and would build upon an already very strong growing business. So we've been really excited about the Neurotech businesses and both give us access to our new market. It may take some time, but it can certainly grow because as you know there are more ischemic strokes to non-hemorrhagic. So it will take some time in the market. We estimate it's probably about $100 market right now. Could become a market somewhere between the $500 and $1 billion over time.

Thank you. Our next question is going to come from Richard Newitter from Leerink Swann. Please go ahead with your question. Richard, please go ahead, your line is open.

Hey, sorry. Thanks for taking the question. I had a quick question on the -- so I appreciate that the fourth quarter has a tough comp as it differ us to the industry, from the results referred so far, and your year-over-year growth rate in U.S. knees if your remaining competitors were to report something better and it does appear that you lost share, can you maybe -- first I want to understand why that might be. And then in the first quarter of '15 you should have an easier comp, so all comp adjusted, is there any reason why you shouldn’t be growing a lot in the market once comps are taken out of equation?

Yes, I would just reiterate the fact that on the knee side, we were up against very tough comps, actually for both hips and knees, the 10% and 8% growth that we talked about with Q4 of '13 being exceptionally strong seasonality effect that we didn't see this year. So the biggest factor where the comps and as Kevin also mentioned, we're not seeing the same mix benefit given the fact that Triathlon is not a new system. We do not believe we're losing market share in volumes and as we go forward, particularly with the anticipated launch of the MAKO total knee, we feel really good about our competitive position. So clearly Q4 had some challenges, Q1 we wouldn't expect the same level fall off given again it wasn’t a strong Q4 seasonality. Weather is a wild card, I can tell you right now there weren’t a lot of surgeries happening in Boston and there won't be happening tomorrow either, but we did have severe weather last year. We're just going to have to wait and see how the rest of the quarter plays out as it relates to the year-over-year comparison from a weather perspective.

Great. Thanks and just quickly I know you guys have a reverse shoulder and limited launch I think that's correct, can you give us an update on what you see there for the contribution in '15?

Yes so the product is performing extremely well. We had a limited launch and we're going to be rolling that out more extensively in 2015. It's obviously a lot of competitors in the market, so I would call it a measured launch and I don't think we will be able to grab the market share as quickly as we had certainly in areas like foot and ankle. But we're looking at sort of a total, the reverse shoulder as well as the upper extremities products that we've acquired through SBI and we're looking at how we want to attack other extremities and we have a couple of pilots planned. I would think by the middle of the year, I would be able to give you a much better idea on how I think the growth profile will be. I think it's still early days for us. As you know, we've been a little bit late in the shoulder market. It's an exciting market. We believe we have very good products now and we're going to start to put that to work. We just want to be careful that we invest the right way and that we get a good return on our investment. Again it's not a new market. This market already exist, but we now feel like we've got a competitive offering, which clearly not the case two, three, four years ago.

Thank you. Our next question is going to come from Ben Andrew from William Blair. Please go ahead with your question.

All right. Good afternoon. I was hoping to get some thoughts on the MAKO performance in the quarter on the run rate basis. Should we look at that placement rate and extend that through '15 as you all roll it out with additional versions of the product and at what point does that become a significant piece of your domestic knee business? Obviously you can't separate the two anymore. But how should we think about that in terms of the timing. Thank you.

I am sorry, okay. Okay. I'll take that question, sorry, we're having a audio problem here. So obviously with the launch of the Total Knee and the launch of our Stryker hip products on the robot. The robot is going to start to gain a lot more adoption and then our primary end points are going to also be placed on the robot. So the increased run rate works with the existing products, with the MAKO products. Our plan is to have as many robots as possible all over the country and that all of our end plants will be placed using the robot as many as possible. It's going to take a long, long time for that to happen. So standard instrumentation and standard implants are going to be put in by the majority of surgeons, but our goal is really to increase that run rate, increase the adoption. It's going to be a lot easier for hospitals to afford a robot when they know that they can put other products on it and the implants from a company like Stryker that implants that they know and that they're comfortable with. And so yes, you're going to see it increasingly take up more and more of our business and we shouldn’t think of it as a separate business like separate from our existing core business, that's clearly the strategy and it's going to get messy to analyze through say '15, '16 and then it's really going to become part of our normal business. It's such a disruptive play that frankly predicting exactly the cadence of the robots, we do expect to sell a lot more robots in 2015. There is some seasonality to it. So obviously the first quarter, you shouldn't it to be more than the fourth quarter. The fourth quarter will always be the highest quarter. That's kind of how hospitals buy their capital. We see that with our other MedSurg businesses but we do plan on having a full array of products on the robot, so that the robot will be a lot more meaningful and should consumer much more of our overall volume.

Great. Thank you.

Thank you. Our next question is going to come from Joshua Jennings from Cowen & Co. Please go ahead with your question.

Hi, thanks a lot. I just wanted to start quickly on the U.S. knee business and one of your competitors has implemented a strategy of selling reconstructive joints direct to U.S. hospitals at a meaningful discount. You didn't call it out as a competitive headwind in the quarter, but was there any impact in 4Q and can you share your thoughts on the potential impact in '15 and beyond in terms of dynamics of the U.S. market?

Yes, Josh, we have not seen any impact from the -- we're well aware of -- this attempt and it's something that's been tried previously and we didn't see an impact then either and as we look ahead to 2015, it's not something that we were factoring in. Obviously we pay attention and we don't want to just make assumptions, but so far we've seen zero impact from it.

Great. And as a quick follow-up on the spine division, we had a few positive pre-announcements from some small cap pure spine players earlier this month. Can you talk about your expectations for the U.S. spine market growth in '15 in terms of acceleration stability or deceleration from '14 levels? And now you've seen 4Q results and are you comfortable with the strategy in play for Stryker to regain share and accelerate growth in that specific unit? Thanks a lot.

Yes, so certainly the spine market has gone through a lot price challenges over the past four, five years, but innovation has been rewarded. I think the market is trying to turn and we're seeing a positive trend in the market overall. We're really excited about our spine business. Obviously we had some challenges at the beginning of this year and overall the results certainly from a profit standpoint were solid. Sales standpoint were not fantastic but I'm very excited about 2015. The CoAlign acquisition is a fabulous product. We've also launched some other memory invasive products in a lot of areas that have been a little bit weak for us. We have a new R&D leader that started over a year ago that has really nice looking pipeline. We have a new general manager, a new head of marketing. So the management team that we have at Spine is fantastic. I went to the spine meeting -- sales meeting earlier this year. I can say the momentum there is better than it's been in many, many years because they have a nice flow of innovative products that you can still gain good price and growth with as we've seen with some of the spine-only companies. So I think we're in much better position now than we have been over the past couple of years in spine. In fact the market is trying to look better. So it's a space I am excited about. We have a team in offence that should enjoy significant success in 2015 and the years ahead.

Thank you. [Operator Instructions] Our next question is coming from Jeff Johnson from Robert W. Baird. Please go ahead with your question.

Thank you. Good evening, guys. Just one quick follow-up or not even a follow-up, just one clarifying question, on the R&D side, I know you don't guide line item guidance on things like R&D but in the last few years kind of growing R&D 2X the rate of sales have done faster, is that how we should think about the company going forward here over the next few years. We think that maybe some of the MAKO investments start to drop off, maybe some of the Neurotec studies in clinical trial cost start to fall off, but I would like to hear maybe if R&D should keep growing at that rate going forward?

Yes Jeff, this is Bill. So as far as R&D is concerned, as you know we've increased our overall R&D spend as a percent of sales throughout this year. In fact the whole year ended up about 40 basis points higher kind of north of 6% and I think that you should expect that it's probably in that kind of slightly north of 6% range moving forward. I say it's going to be more consistently growing kind of at our broader base sales level, maybe slightly faster, but not at the level that you saw in 2014 as far as from a growth perspective, but as a percent of sales perspective that's probably reasonable.

Got it. That's helpful. Thanks guys.

Thank you. And at this time, we have no further questions. I will now turn the conference over to Mr. Kevin Lobo for any closing remarks.

So thank you all for joining our call. Our conference call for the first quarter 2015 results will be held on April 21, thank you.