Avanos Medical Inc (AVNS) 2014 Q4 法說會逐字稿

Good morning and welcome to the Halyard Health fourth-quarter and full-year 2014 earnings results conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Dave Crawford, Vice President of Investor Relations and Treasurer. Please go ahead.

Thanks Kate, and good morning everyone. It is my pleasure to welcome you to Halyard Health's fourth-quarter earnings conference call, our first earnings call as an independent company.

With me this morning are Robert Abernathy, Chairman and CEO; and Steve Voskuil, Senior Vice President and CFO. On today's call we'll begin with an update from Robert about our recent spin-off, next Steve will review our fourth-quarter and year-end 2014 results. And then Robert will provide his perspectives on our performance and our outlook for 2015. We'll finish with Q&A.

We have a presentation of today's materials in the investor section of our website www.HalyardHealth.com.

As a reminder our comments today contain forward-looking statements related to the Company, our expected performance, economic conditions, or our industry. No assurance can be given as to the future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements 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 Robert.

Thanks Dave, and good morning everyone. I appreciate your interest in Halyard Health.

Let me refer you to page 5 of the presentation deck. On October 31 we executed a smooth transition from Kimberly-Clark. This milestone positioned us to pursue our strategies and operating priorities including growing the business and delivering shareholder value.

In fact it's a very exciting time and Halyard Health. Over the past few months through our road shows, meetings, and conversations we have shared with you our strategic vision as an independent company and our intended growth plan. We'll return to these themes, strategies, and priorities during the call when we discuss our fourth-quarter results and 2015 outlook.

But first as background let's turn to page 6. For those of you who are still learning about us or who may be hearing the name Halyard for the first time, we're a $1.7 billion medical technology company with broad and diverse products that are sold in 100 countries around the world. Our mission is to address some of today's most pressing health issues including preventing healthcare associated infections, reducing the use of narcotics when eliminating pain, and helping speed patients move from surgery to recovery.

Our two operating segments, surgical and infection prevention, or S&IP, and medical devices address these needs. I'm thrilled to report that we executed the spin-off from Kimberly-Clark as planned with no business disruption for ourselves or our customers.

We have begun the transition to our new Halyard brand and we're on target with our repackaging plans. We recently moved into our new headquarters, bringing together all the teams in one location for the first time.

I'll tell you the energy and passion our teams have for Halyard's success feels like a start up, except we're already at $1.7 billion in net sales and solid cash flow. As we finish building out our teams we're enabling the exit of our Transition Services Agreements, or TSAs.

We've accomplished a lot in a short span of time, and Steve will provide details shortly. We finished strong in 2014.

We ended the year with $149 million in cash on our balance sheet, and we are on sound financial footing going forward. Our financial profile gives us the flexibility to efficiently execute our long-term growth strategy, including additional investments in R&D with a strategic focus toward medical devices, as well as to pursue tuck-in acquisitions as soon as 2016 to drive total shareholder return.

I'm pleased to say that we are exactly where we expected to be at this point in time. And we're now in a position to execute the short- and long-term plans we have shared with many of you previously.

With that introduction let me now turn it over to Steve who will discuss our fourth-quarter and year-end 2014 results. Steve?

Thank you, Robert, and welcome again to our fourth-quarter conference call. I will begin on slide 9.

Today I will review our fourth-quarter and full-year 2014 results. Then I'll turn the call back to Robert and he'll discuss our outlook for 2015 and our key planning assumptions.

First I'd like to remind everyone that our 2013 results and the results for the first 10 months of 2014 reflect the business as it existed when it was part of Kimberly-Clark. Included in 2014 are pre-spin costs associated with the execution of the spin-off as well as post-spin transactional costs. Additionally the comparison of Halyard's 2014 performance against the prior year will be impacted by significant differences in tax rate, interest expense, and the cost of being a stand-alone company for the last two months of 2014.

As Robert stated we are pleased with our progress since the spin-off. It was a busy quarter and we delivered solid results. In addition to planning and executing a smooth transition, we demonstrated the ability to efficiently operate the business during the course of 2014.

Let me start with a few headlines from our press release. Fourth-quarter sales increased 3% in constant currency from 2013. We had an adjusted operating margin of 17.6% for the quarter, up 250 basis points compared to prior year.

For the full year operating margin increased 200 basis points compared to 2013. Adjusted EBITDA was up 17% for the quarter and 11% for the year.

Now taking a more detailed look at our results for the fourth-quarter. Sales increased 2% to $439 million, up from $431 million a year ago. On a constant currency basis sales were up 3% as volume increased 4% and price declined 1%.

Exchange rates negatively impacted sales by 2%, or $7 million. Fourth-quarter adjusted gross margin was 37.1%, an increase of 100 basis points compared to prior year due to strong manufacturing cost savings.

In addition to the manufacturing cost savings, our improved performance for the quarter was also driven by lower selling and general and administrative expenses. As a result adjusted operating profit margin was 17.6% for the quarter, an increase of 250 basis points compared to prior year.

Looking at our performance on a segment basis, first S&IP net sales grew 2% in the quarter to $299 million but were up 6% from a constant currency standpoint as volume grew 5%. Performance was driven by a strong demand for facial protection and exam gloves in North America and EMEA; Europe, Middle East, and Africa.

Overall demand for these two categories was boosted by customers' response to an earlier start of the cold and flu season as well as preparing for potential pandemics. We estimate that approximately $13 million of our fourth-quarter S&IP sales were driven from customers preparing for potential pandemics. I was pleased by how fast our teams responded to the urgent need of our customers.

Price for the quarter was down 1% primarily in exam gloves and sterilization. Fourth-quarter S&IP operating profit increased 26%, driven by higher sales volumes, cost savings, and lower selling expenses related to our strategic headcount reduction at the end of 2013 and lower spending on G&A.

Turning to our second segment, medical devices. Sales for the quarter were down 3% to $128 million, which equated to a 2% decline on a constant currency basis. Lower volume, changes in pricing and mix, and currency each negatively impacted performance by 1%.

While volume growth in respiratory health was strong in all regions, surgical pain volume declined 5% primarily driven by competitive pressures in North America. In North America the competitive landscape in the surgical pain market continues to slow our performance in this category. To combat these activities our sales team continues to execute our direct marketing and physician education efforts which demonstrate the benefits and efficacy of our pain management portfolio in the wake of new FDA mandated marketing and promotional changes by a key competitor.

We plan to support these efforts with additional clinical studies supporting our ON-Q therapy. We remain confident that our sales volume will return to growth as more physicians seek non-narcotic pain therapies that have proven better outcomes for patients.

Operating profit for the quarter increased 26% to $28 million. Our performance was driven by lower selling expense and lower litigation fees related to chondrolysis.

In addition to S&IP and medical devices corporate sales, or sales to Kimberly-Clark, represent another source of revenue. In the quarter these sales represented primarily non-woven material sold to Kimberly-Clark through a supply agreement. We anticipate an end of these sales by the second quarter.

While they have been incremental to our top line, because of the nature of the agreement they were sold at low contracted margin. So as these sales unwind we anticipate a minimal impact to operating profit.

These sales totaled $12 million and $31 million for the fourth quarter and the year respectively. For 2013 they were $6 million in the fourth quarter and $25 million for the full year. Given the complexity of the spin and focus of our teams I am pleased with the results of our teams around the world.

Now a brief recap of our full-year 2014 results beginning on slide 13. Full-year 2014 sales of $1.7 billion were even with prior year. On a constant currency basis sales were also even.

Overall volume was up 2%, offset by 1% price loss and 1% drag from currency. For the year adjusted gross margin expanded 20 basis points to 36.7%.

Adjusted operating profit margin was 17.2% for 2014 and represented a 200 basis point increase from prior year. Our improved performance was driven by a reduction in selling expense and below-average spending on G&A.

Shifting to a look at our segments, first S&IP sales were down 1%. As we had anticipated our volume growth was offset by lower selling prices.

Volume for the year increased 1% as we had strong demand for facial protection in all regions with particular strength in North America in the fourth quarter and EMEA driven by the earliest start of the cold and flu season and preparing for potential pandemics. Sterilization volume also grew nicely as we continued to grow above market in international regions and we executed on our plan to shift customers to our recently launched Quick Check and Smart-Fold innovations.

Finally surgical drape and gown volume overall was up with strong performance in North America thanks in part to the launch of our new Aero Blue gown. This was partially offset by lower volume in EMEA as we decided not to make the price reductions necessary to retain customers who were already at margins well below our average. Exam glove volume declined because we made the decision in the previous year to strategically shed some low margin accounts.

Offsetting our volume growth in S&IP was an overall reduction in price. Price for sterilization, primarily in North America, was impacted by renewals of sterilization contracts with group purchasing organizations during 2013 and 2014 as we maintained sole-source contracts. Price also declined in exam gloves due to increased competition and a continued gradual decline in raw material costs.

For the year operating profit improved 10% to $166 million driven by manufacturing cost savings and lower selling and general administrative expenses related to our strategic headcount reduction last year. Overall it was a solid year for our S&IP business around the world, and I am pleased with the performance and the team's focus on managing costs.

Now switching to medical devices, our sales for the year increased 1% to $502 million, up from $499 million. For the year volume increased 2% which was partially offset by unfavorable pricing and mix.

Our fastest-growing category, interventional pain, showed strong growth in North America that was driven by sales of our cooled radiofrequency business branded as Coolief, which was up over 60% for the year. Volume increased in our digestive health and respiratory health categories in all regions with above market growth in our EMEA region.

Overall our surgical pain volume was down slightly as volume gains in North America were offset by a loss in volume in our EMEA region. Overall North America volume was up as gain in our infusion pumps segment more than offset the decline in our ON-Q segment due to competitive pressures.

Meanwhile the volume decline in EMEA was related to our home infusion pump business and the exit of a large distributor relationship during the year. Partially offsetting our volume growth were lower selling prices in North America for our respiratory health and digestive health categories, and in EMEA surgical pain where we offered incentives to accelerate our direct sales of home infusion pumps.

For the year operating profit increased 22% to $105 million driven primarily by lower legal costs associated with chondrolysis litigation, lower selling expenses, and reduced spelling on G&A. Partially offsetting these savings was a lower gross margin resulting primarily from a change in our surgical pain product mix.

Now at the enterprise level 2013 and 2014 tax rates were calculated primarily on a carve-out basis and therefore not reflective of Halyard's rate as a standalone company going forward. With that in mind, our 2015 adjusted effective tax rate is expected to be between 37% and 39%.

Our tax team is actively developing and evaluating opportunities for us to optimize our tax rate in the future. Adjusted diluted earnings per share for the quarter were $1.59 and $4.11 for the year, which includes after-tax intangible asset expense of $0.11 and $0.43 per share respectively.

Turning to slide 16 and our balance sheet and cash generation. For the quarter cash from operations was $41 million, down on a year-over-year basis. And for the year cash from operations was $148 million compared to $224 million in 2013. The decrease in cash flow is attributable to transition cost to execute the spin-off.

At year end we had $149 million of cash on hand. This reflects strong net sales in the fourth quarter as well as the advanced proceeds from the sale of one of our Thailand glove facilities, the timing of capital spending for spin related projects, and the timing of certain payments to Kimberly-Clark of approximately $20 million.

In summary in our first quarter as a publicly traded company we deliver top line growth, we generated strong operating cash flow, and we generated solid bottom-line growth all while executing our spin-off and building out our standalone capabilities. We are pleased with our 2014 performance and believe that we are well-positioned for 2015.

Now I'll turn the call back to Robert to discuss our 2015 outlook. Robert?

Thanks, Steve. Let me direct you to slide 18 of the presentation deck. As I look at 2015 we have three priorities; complete the separation from Kimberly-Clark, position Halyard for future growth in 2016 and beyond, and deliver shareholder value.

Let's talk about completing the separation. 2015 will be a year of establishing our base for the future with continued focus on building out our capabilities and improving our new processes.

As we establish our functional teams we need for TSA -- our need for TSAs will phase out and those agreements will unwind. Some already have at the end of January. Additionally we'll continue executing our rebranding and repackaging efforts, placing the Halyard name and logo on our well-known products.

The second priority I'd like to discuss is how we will position Halyard for future growth which includes growing top line by ramping up research, growing market share, and expanding our markets and geographies. We're focused on maximizing our performance in both segments, S&IP and medical devices.

A key to our growth strategy is our increased R&D investment. We will accelerate R&D by increasing spending by $7 million, or 20%, compared to 2014. This is consistent with our long-term plan to double R&D spend within the next four years.

In addition to organic growth, we look to the future to utilize our strong cash flow to pursue M&A. Our corporate development team is actively engaging and expanding our presence in the industry and developing our view of potential opportunities. Finally we'll be building out our plans to accelerate our growth in emerging markets, with a prioritization in China, India, and Brazil.

The third priority for 2015 is to deliver shareholder value. This will include continuing to generate strong cash flow by targeting a 10-day improvement in our cash conversion cycle.

We will also be developing action plans to reduce spending in areas like IT where our cost after the spin-off are higher than our peers. We will look to begin implementing these action plans in 2016, all while viewing capital allocation through the lens of total shareholder return.

Now let me walk you through our key planning assumptions which are listed on page 19. For the year we expect total net sales growth on a constant currency basis to be in the range of even to up 2% compared to 2014. Device sales are expected to increase by 2% to 4% compared to 2014 on a constant currency basis driven primarily by increased volume.

We expect S&IP's top line growth in the range of a decline of 1% to even compared to prior year on a constant currency basis. This is slightly lower than we had previously communicated as our fourth quarter included the pandemic preparation sales and we are not counting on that again in 2015. Our S&IP outlook includes the expectation that volume growth will be slightly higher than the 1% historical average, but will be offset by additional decline in pricing also above the negative 1% we have seen in the past.

On the bottom line we're targeting adjusted diluted earnings per share of $2.30 to $2.50 which includes approximately $0.34 after-tax intangible asset amortization expense. There are a number of moving parts in this EPS guidance, some headwinds and some tailwinds.

One headwind is foreign currency exchange rates which will negatively impact our sales by 2.5% to 3.5% for the year. We estimate a negative impact from exchange rates to our 2015 earnings of $10 million to $15 million.

And offsetting tailwind is the cost of oil-based commodities, primarily nitrile and polymer. While we anticipate the percentage decline in these prices will be less than the anticipated decline in oil prices, we should still see cost deflation of $25 million to $30 million in 2015.

As mentioned earlier we will be increasing our funding in R&D. For 2015 this investment is expected to be in the range of $30 million to $35 million to support our product innovation and product adjacency expansions. We anticipate spin related transitional cost to be in the range of $45 million to $55 million for 2015, and we continue to forecast the total amount for 2014, 2015, and 2016 to be in the range of $60 million to $75 million.

As Steve mentioned earlier our adjusted effective tax rate is expected to be in the range of 37% to 39%. With respect to capital allocation, capital investment for 2015 is expected to be in the range of $55 million to $60 million, slightly above our long-range target of approximately 3% of sales. This higher spending is driven by spin-related investments. Subject to Board approval and market conditions we plan to allocate $30 million to $35 million for share repurchases to offset potential dilution resulting from any compensation equity awards.

In conclusion I'm proud of what we accomplished in 2014. We completed the spin-off from Kimberly-Clark, we finished the year strong with fourth-quarter sales increasing 3% in constant currency, we had an adjusted operating margin of 17.6% for the quarter, up 250 basis points, and for the year adjusted operating margin increased 200 basis points. And adjusted EBITDA was up 17% for the quarter and 11% for the year.

Looking ahead to 2015 I'm excited about our ability to deliver on our three priorities, completing the separation, positioning Halyard for future growth in 2016 and beyond, and delivering shareholder value.

We'll now open the call for questions. Kate, we're ready for our first question.

Thank you.

(Operator Instructions)

David Lewis, Morgan Stanley

Good morning, David.

Good morning and thanks for all the detail this morning. Robert or Steve, just a few quick questions. The first is Robert, you talked about capital deployment.

You have a lot going on this year in terms of separating the businesses and reinvesting the businesses. What should we be thinking in terms of pursuit of external M&A in terms of use of the balance sheet?

As you think about back half of the year in terms of evaluating targets you'll be in a position frankly to execute on an external target. Maybe help us out with that timing.

And then for Steve maybe a sense of [steppo] costs. You kind of maintained your guidance as around a steppo cost.

There really are two components. One obviously being a significant IT spend, the second being the absorption costs.

Maybe just tell us in the first early days here in 2015 whether you're actually seeing those IT costs and absorption costs in the early part of the year and then how they'll scale across the year. And the maybe one quick follow up. Thank you.

I'll take the first one, David, on capital allocation. We're clearly pleased with the cash balance at the end of the year, $149 million on the balance sheet.

It clearly it signals that we have the financial flexibility to pursue our growth strategies including potential M&A. But we're still focused on getting off of the TSAs in 2015 and then being prepared in 2016 to start looking at strategic acquisitions to grow the business.

We did feel flexible enough this year to do stock buyback so that we could offset any dilution that would happen from equity awards that were given. So our strategy is as we've communicated before use the cash number one to grow the business, be prepared to start that in 2016; number two opportunistically use the cash for share buybacks and then look at other ways to utilize the cash in fueling debt reduction or potentially in the future looking at dividends

And on the organization side just to go -- as you said, David, we're broadly in line with what we expected from an organization build out cost and disk synergies. From a build out standpoint we're on track that we'll increase as the year goes on.

Most of the hiring is in place with the exception of some still in the IT area. And as we've talked about previously we're trying to orchestrate the dance between exiting TSAs at the earliest moment and building the internal capability at the same time.

From dissynergies standpoint I would say we've seen already the impact on distribution dissynergies, that was immediate and we're seeing that in the fourth quarter and in the 2015 plan. Other areas like purchasing scale have been masked a bit by commodity price volatilities.

We haven't seen that as clearly. But again our goal is to continue to build that capability internally in line with the plan we discussed so that we can exit the TSAs and eliminate that cost as soon as possible.

Okay, very helpful. And maybe one last question just in terms of [vax paralysis]. How should we think about the pacing of that business this year?

Obviously there was some pressure here in the fourth quarter with the FDA's decision a couple of days ago as it relates to one of your key competitors. How should we think about the road to recovery?

I guess the question I'm asking is how much ultimately will you ship with what's going on in the marketplace? How impacted was the business by [hospital] use since specifically femoral nerve block?

So just a question of should we expect a very rapid recovery in that business here in the first quarter? Or should we expect that business to recover more gradually across the quarters?

The question we've gotten a lot since the announcements last week about the peripheral nerve block indication not being approved. We did not build into our plan an expectation that the peripheral nerve block wouldn't be approved, so I think the forecast going forward for the business is to continue to see some recovery in sales.

We have our forecast going forward for medical devices showing that there's continued sluggishness in that business. We expect to return to growth over time. The key for us is to continue with the messaging that we've been talking about all along, about how our ON-Q products are the most effective in certain procedures and how that we are able to deliver long-term non-narcotic pain relief after surgical procedures.

Great. Thank you very much.

Thank you, David.

Dave Turkaly, JMP Securities.

Good morning, Dave.

Hey, good morning. I'm impressed with the guidance from the medical device side of 2% to 4% constant currency growth and the follow up on that last question.

I guess if you can maybe even tease out a little bit of what is driving that? I know in the quarter it was down 2% constant currency, but is it ON-Q or could you talk about maybe some of the other products, what you think will get you back to that kind of 2% to 4% for 2015

It does range across a number of our product categories and I'd say to start with I'll reiterate that our COOLIEF interventional pain radiofrequency growing 60% last year continues to show strong growth. We continue to be excited about the prospects of that new product that we launched last year.

That certainly contributes to part of the growth. We are expecting to have some return to growth within our surgical pain area across both the infusion side as well as the surgical pain elastomeric pump side.

We're continuously strong growth in international markets around our other product categories including respiratory care and digestive health. So we are very optimistic about that 2% to 4% range for medical devices to start to see us return from growth that was predominantly hit hard by our surgical pain business.

Great. And then on the S&IP side you mentioned strategic headcount reduction.

Quickly, was that the Thailand plant or is that something different? And the other thing I noticed was a loss of a low margin business in EMEA, and I was just curious as to what exactly that was?

Yes I'll talk about the strategic headcount first. There are a couple of parts, but the one we're mentioning here was that we took a sales force headcount reduction at the end of 2013.

That sales force headcount reduction allowed us to see benefits in our selling expense in 2014. So you saw that in the press release and you saw that in some of our comments earlier.

So that was specifically related to the sales count decrease. We did however close the Thailand plant.

That was approximately 3,000 employees -- headcount there. I shouldn't say we closed it, we actually sold it.

So those employees and that operation were shifted to the purchasing company. And we do see benefits related to that. We're thinking those overall operating profit benefits will be in the $6 million to $8 million range going forward, and we should see that benefit in 2015.

Great. And that loss of lower margin business in EMEA?

We did lose some low-margin business in EMEA.

That was primarily related to consolidating a couple customers in that market on the surgical team business.

Okay. And last one for me on the medical device operating margin side, obviously strong in the quarter. You mentioned there too reduced selling expense, admin and selling.

It was a $6 million increase year over year. I guess as you're looking forward or looking ahead are we going to see those kind of benefits, those size benefits follow through in 2015?

We do expect some of those benefits to follow through. What happened as we saw reduced sales within our surgical pain business we were able to opportunistically reduce the size of that sales force to more match the sales going forward.

We had really built that sales force out. It was larger than we needed for the current size, anticipating the growth. As we return to growth we'll probably want to see some expansion of that, but I think most of the savings that we saw there will continue into this year.

I think the other piece there, David, on the G&A side as we mentioned in the press release the chondrolysis litigation which was down quite a bit year on year. So from a reference point standpoint that was about $15 million in 2013, about $2 million in 2014. So from a G&A standpoint you see that flowing through.

Thank you so much

Thank you, David.

Kristen Stewart Deutsche Bank.

Hi, good morning. This is [Matt Philippi] for Kristen Stewart. Thanks for taking my question.

Good morning, Matt.

Good morning. My first is on the reconciliation to GAAP and these one-time charges for the pre-spin and post-spin.

Going forward how much of this pre-spin is actually going to be seen in the future? Or is it really just going to be the post-spin off costs?

And then I believe you previously stated that there was going to be roughly $60 million to $75 million in transaction or transition related costs. Is that still the case that is going to be roughly 80% now or, how were those costs still falling out? That would be helpful.

Sure. So taking the first question, the pre-spin costs are done. So we will continue to show an adjustment for post-spin transaction costs.

The total amount of those spent over 2014, 2015, and 2016 is the $60 million to $75 million that you are referencing and that remains our target range. For 2015 specifically we're saying $45 million to $55 million for that spending, and we remain on track to spend to that plan.

Okay. And then I guess a follow up on that one. It seems like I guess if you'd take the 80% of $70 million it would be a little bit higher, like 60%.

So were more of those costs seen in 2014, or do you think more of them to be backend loaded? And then I have one final follow up.

We definitely will have of most of them in 2015. So we started with November, December of 2014, the bulk will be incurred this year, and then there's just a relatively small tail left in 2016

Okay, great. And then just sort of over looking at the longer term view, I know you provided a little bit of guidance on your R&D and SG&A targets. When do you expect to provide an overview, a longer term maybe three to five year strategy and what you potentially see the Company transitioning to?

What we decided was that this year we're really establishing the base for the future. We look at 2015 as the year of getting off the Transition Service Agreements, investing in R&D to return to growth, and get our capabilities established for doing strategic M&A in 2016 and beyond.

We really think of this year as establishing the base for Halyard Health. Then going forward we would think about giving those longer-term guidance, say three-year guidance going forward, probably at this time next year after that base has been established.

Okay, great. Thanks.

Henry Reukauf of Deutsche Bank.

Good morning.

Good morning, Henry.

On the medical device side you gave some reasons for the increase in volumes. Just curious on price, I know it was down a bit.

Why won't the price weigh on your expectations for the overall constant currency growth in that segment this coming year? It's gone away?

Going forward we have not experienced significant price increase over the last three to five years in this category. In fact our historical average has been no price loss.

And so we have seen a little bit of fluctuation within 2014, but our projections going forward have volume sales lift of 2% to 4% with no offsetting price loss. We believe in our innovation technology. We'll continue to roll out product improvements.

I talked about COOLIEF just a moment ago. We continue to have product improvements in digestive health.

There's a new product expansion that we're rolling out now. We had product expansions with new features added to our closed suction catheters last year. And those features allow us to continue to maintain pricing or even in some cases get some price premium.

Okay. And then just two others.

One is can you give any sense on the layout for the EPS on a quarterly basis going forward? And then the last is what's the full thought for depreciation for the year?

We're not going to give quarterly guidance, but I would say that as we projected the year there are a few things that we could comment about. We did have the $13 million of pandemic preparedness sales in the fourth quarter of last year.

We think a lot of those sales will get reversed back as hospitals utilize that inventory that they built up. So we think some of that will happen earlier in the year than later in the year.

And then as we look at some of the other material costs for the year, we do anticipate the dollar strengthening during the year. So possibly the currency impact will be affected as the year moves along. And then in terms of our commodity cost, the benefits that we're seeing this year, we would anticipate later in the year some of the commodity cost increasing as oil prices start to moderate back.

And Matt, the second part of your question, depreciation amortization for the year $65 million to $70 million would be our estimate.

Does that answer it, Henry, for you?

It did. Thank you very much.

This concludes our question-and-answer session. I would now like to turn the conference back over to Robert Abernathy for any closing remarks

Thank you very much for your interest in Halyard Health. I'm personally excited about what we accomplished last year, and I look forward to executing our plan in 2015. Thanks everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.