Integra Lifesciences Holdings Corp (IART) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Integra LifeSciences fourth quarter 2010 conference call. As a reminder, today's call is being recorded. At this time I will turn the call over to Ms. Angela Steinway, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for the Integra LifeSciences fourth quarter 2010 earnings release conference call. Joining me today are Stuart Essig, Chief Executive Officer; Jack Henneman, Chief Financial Officer; and Pete Arduini, President and Chief Operating Officer.

Earlier this morning we issued a press release announcing our fourth-quarter financial results. This release is available on our website in the press release section under Investor Relations. During this call, we will review these financial results and provide our forward-looking guidance for 2011.

At the conclusion of our prepared remarks, we will take questions from the telephone audience. Though we will try to keep the call to one hour, we would like to continue our tradition of answering all of your questions. As a courtesy to all, so that we may accommodate a large number of requests, please limit yourself to one question and one follow-up during the Q&A period. If you do have additional questions please rejoin the queue.

This presentation is open to the general public and can be heard through telephone access or through a live webcast. A replay of the conference call will be accessible starting about one hour after the conclusion of the live event. Access to the telephonic replay is available through March 10, 2011, by dialing 719-457-0820, access code 2097741.

Additionally, a webcast replay will be archived on the Investor Relations page of our website. Today's call is a proprietary presentation of Integra LifeSciences Holdings Corporation and is being recorded by Integra. No recording, reproduction, transcript, transmission or distribution of today's presentation is permitted without Integra's consent.

Because the content of this call is time sensitive, the information provided is accurate only as of the date of this live broadcast, February 24, 2011. Certain statements made during this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Among others, statements concerning management's expectations of future financial results, new product launches, regulatory approval and market acceptance of these new products, future development programs, and potential business acquisitions, are forward-looking.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted results. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements whether as a result of new information, future events, or otherwise. For a discussion of such risks and uncertainties, please refer to the risk factors included in Item 1A of Integra's annual report on Form 10-K for the year ended December 31, 2010, and to information contained in our subsequent filings with the Securities and Exchange Commission.

Certain non-GAAP financial measures are disclosed in this presentation. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is provided in the press release we issued this morning. Additionally, in this press release and in the current report on Form 8-K that we filed this morning, we provide explanations for why management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding Integra's financial condition and results of operations, and the reasons for which Integra's management uses the non-GAAP financial measures.

I will now turn the call over to Stuart.

Thank you, Angela. In 2010, our Company outperformed many of our peers, achieving the high end of our revenue guidance range and exceeding our earnings per share guidance. We credit the year's success to solid performances in each of our revenue categories, highlighting the benefits of our diversified business. We are excited about our opportunities heading into 2011 with a business that will benefit from the improving economy and the expected strength of our extremities products in Latin America and Asia-Pacific regions.

Total revenue during the fourth quarter of 2010 increased to a record $194 million, up 6% as reported and 7% on a constant currency basis. Our fourth-quarter results reflect the consistent contribution of internal growth to our financial performance. We believe we exceeded the constant currency growth of most of our competitors in 2010, taking share in many markets.

Orthopedics, which includes products sold to foot, hand, spine and orthopedic surgeons, represented approximately 38% of Integra's overall revenue during the fourth quarter and increased 8% to $74 million over the prior year period. Extremity reconstruction, which is the largest component of our orthopedics category, posted double-digit growth. Substantial strength in the US was tempered by modest growth in Europe. Sales were particularly strong in skin, upper extremity, mid foot and hind foot product lines.

Spine and OrthoBiologics sales were up slightly. Strength in US sales of our Integra Mozaik and Evo3 product lines drove growth in this category. Private label revenue is down slightly versus the prior-year period, as anticipated.

Neurosurgery revenues grew 9% to $74 million, representing approximately 38% of Integra's overall revenue. Sales of capital products in the US, including ultrasonic tissue ablation, cranial stabilization, and stereotaxy product lines, again drove the growth in this category. European sales were down, reducing the overall growth number.

Instruments accounted for 24% of our overall revenue in the fourth quarter. Instrument revenue of $46 million decreased 2% from the same period last year. Instrument sales were up sequentially as both hospital and alternate site sales improved over the third quarter, but hospital sales were down versus the prior year.

Sales in the fourth quarter of 2009 were particularly strong because of the rebound in hospital sales and a strong performance outside the US in that quarter. Consolidated international sales accounted for 24% of revenue in the fourth quarter.

International revenue increased 1% as reported and 4% on a constant currency basis. Austerity measures in Europe continued to pressure sales there. Another strong performance in other parts of the world offset this weakness.

Integra had a good fourth quarter and an excellent year. Nice execution by our sales organizations, the diversity of our revenue base, and improvement in the US economy contributed to Integra's revenue performance. We expect these strengths, coupled with the investments that we have made in the business, to sustain our ability to achieve our goals in 2011 and beyond.

Now I will turn the call over to Pete to discuss some operational highlights.

Thank you, Stuart. First of all, I am delighted to have joined Integra at such an exciting time. We have great potential as an organization and I look forward to contributing to our growth and geographic expansion.

Extremity reconstruction grew by double digits again in the fourth quarter. Several factors drove sales. Our skin products, along with several new product introductions earlier in the year, including new hardware in OrthoBiologic products, all performed very well. Additionally, new sales representatives are increasing their productivity and contributing to the growth of this platform. We expect to add about 20 new reps this year to support our growth.

For spine and OrthoBiologics, the fourth quarter was the first quarter post earn-out, and the first in which our spine and OrthoBiologic products have been integrated, reporting to Brian Larkin. This should drive better coordination within the business.

As Stuart said, we grew slightly versus prior year. Even though the category was up, the market remains challenging, including pricing pressure, and the impact, both positive and negative, of our integration efforts in the area. Hardware pricing remains down versus prior year, while OrthoBiologics pricing was up due to new products.

We're introducing new spine products through our dealer network, adding new dealers and increasingly managing them for greater accountability. During the fourth quarter, we received CE clearance to sell our Integra Mozaik products into the European markets. This new approval will provide us with the opportunity to enter into new markets where country-specific regulations inhibited, and sometimes prevented, our human bone graft substitutes from being sold.

We recently opened our new facility in Medina, Ohio, near Akron, which will serve as the primary location of our spine hardware business. In doing so, we consolidated our footprint in this location from four facilities and significantly expanded our operations to allow for expected growth.

The new facility contains a state-of-the-art prototype shop, which will allow us to meet the growing demands of our product development team and customers. We are also putting the resources, budget, and personnel in place to optimize surgeon and distributor education efforts. The new facility will also have significantly expanded training facilities, which will accommodate programs for both our internal associates and our customers.

Moving on to neurosurgery, we had a strong quarter led by a rebound in capital sales and increased demand for new products. Once again our tissue ablation and cranial stabilization platforms were the two main contributors to growth in the quarter. In 2009, we launched a new tissue ablation system, the CUSA NXT, into a very difficult climate for capital equipment. The product has since gained traction and we are upgrading our market-leading installed base of tissue ablation systems.

The cranial stabilization product line also had a good quarter, helped by the launch of the XR2 Radiolucent Cranial Stabilization system and our increase in our overall surgical headrest line. Neurosurgery has not been characterized by pricing pressure in the way many segments, such as orthopedics, have been. Finally, Europe remains a particular challenge going into 2011 and we expect little growth in our European neurosurgery business this year.

Turning to instruments. Although we reported a slight decline in sales this quarter versus prior year, we are pleased with the performance of the product lines, and remain confident in both our market share position and the underlying market trends. Domestic demand remains stable.

We are the most diverse and multifaceted instrument company, reaching both the acute care and alternate site markets. Our surgical headlights and table-mounted retractors distinguish us from other instrument competitors because we offer a broader portfolio of products and services. These product lines are strong contributors to both operating profit and cash flow.

We are expanding our regenerative medicine manufacturing operations which we expect to open in 2012. Overall, we will have a greater, more efficient capacity for our regenerative medicine products. Particularly in skin and wound products which have grown from $10 million to over $50 million in the past six years.

In addition to closing Akron, we closed two instrument facilities in the fourth quarter and integrated them into existing operations. We took a charge of slightly more than $1 million during the fourth quarter in conjunction with these site closure activities and expect to take a similar charge in the first quarter.

Now I'd like to turn the call over to Jack for a review of our financial results.

Thank you, Pete. On top of the strong revenue performance, we were pleased with the profitability of the Company in the fourth quarter and full year of 2010. In addition to walking through the elements of our P&L, I will provide guidance on the line items. Stuart will then discuss our overall outlook for revenue and earnings.

We reported GAAP net income of approximately $19 million or $0.63 per diluted share for the fourth quarter. When adjusted for acquisition related expenses, other special charges, and intangible asset amortization, net income was $24 million or $0.80 per diluted share.

In this quarter, foreign exchange had an unfavorable impact on revenues of $1 million versus the same quarter in 2009. Foreign exchange had an unfavorable impact on full-year 2010 revenues of a little less than $1 million. If exchange rates stay where they have been, the impact of currency on revenues in the first quarter should be negligible and the impact of currency on revenues for the full year should be positive by approximately $4.5 million.

Gross margin on total revenue in the fourth quarter was 63%, down from the prior year period. Roughly half attributable to planned engineering expenses associated with manufacturing improvement projects, including the expansion of our regenerative medicine facility, and the other half to unplanned manufacturing expenses. That said, domestic pricing was not a particular factor this quarter. Fourth quarter gross margin was flat for the third quarter.

We expect our GAAP gross margin to improve 50 basis points in 2011 with the bulk of that improvement coming in the second half of the year. We expect the majority of this improvement to our margin to result from more efficient manufacturing operations, and the balance of the improvement from product mix and better inventory management. Longer-term, we still anticipate improvement in our corporate gross margin of 75 basis points a year primarily because of our expectations for revenue growth and operational efficiencies, including from site consolidations and sales mix.

Research and development expenses in the fourth quarter increased slightly from the prior year to $13 million or about 7% of sales. We are targeting spending of 6.5% to 7% of total revenue on research and development in 2011. Selling, general and administrative expenses in the fourth quarter increased from the prior year to $83 million or 42.5% of revenue. The increase resulted mainly from the $2.2 million special charge in conjunction with the hiring of our new Chief Operating Officer, $1.7 million of special charges related to our ERP system implementation that are running through the P&L, and increased head count.

In addition our ongoing investment in our global ERP is expanding. We expect to incur approximately $14 million in special charges from this project during 2011. Excluding all special charges, we target future selling, general and administrative expenses at between 40% and 42% of revenue.

The fourth quarter we earned $41.5 million in adjusted EBITDA and $46 million in adjusted EBITDA excluding stock-based compensation; reported a $200,000 increase in net interest expense to $5 million for the fourth quarter, resulting primarily from the higher interest rate on our new credit facility. We expect to record a little over $5 million in total interest expense per quarter during 2011.

The Company recorded $350,000 of other income during the quarter. We recommend modeling this at zero for 2011.

Our income tax expense was $600,000, reflecting an effective tax rate of 3.3% for the quarter. The implied tax rate on our adjusted net income during the quarter was 25.3%. For the full year 2010, our GAAP effective tax rate was 20% and our adjusted effective tax rate was 25.3%. For 2011 we expect our tax rates will be about 20% on a reported basis and 26% on an adjusted basis.

We expect weighted average share count for 2011 to be approximately 30 million shares.

During the quarter we recorded depreciation of $6 million and amortization of intangible assets of $4 million, including $1.5 million in cost of product revenue. For the full year of 2011, we expect depreciation of approximately $22 million and amortization of approximately $17 million. Approximately $6 million of the amortization will be included in cost of product revenue for the year.

We expect the quarterly impact of share-based compensation expense in 2011 to be approximately $4 million or $0.07 to $0.08 per diluted share. Fourth quarter, we generated $28.5 million of cash flow from operations, and we spent about $18 million on capital expenditures. In 2011, we expect to spend approximately $45 million to $50 million on capital expenditures.

At the end of the quarter, we had $129 million of cash, outstanding borrowings of $148 million under our term loan, $100 million under our revolving credit facility, and $165 million in convertible notes outstanding. Accounts receivable days and inventory days were relatively flat versus the prior year and prior quarter.

Now I will hand the call over to Stuart.

Thank you, Jack. For 2011, we are providing annual revenue and GAAP and adjusted EPS guidance. We expect to recognize between $765 million and $780 million in revenue in the full year 2011. This revenue guidance assumes constant -- current exchange rates or 4% to 6% constant currency revenue growth for 2011.

Within this guidance range, we are anticipating orthopedics to grow approximately 6% to 8%, neurosurgery 4% to 6%, and instruments 2% to 4%. We also expect that our 2011 revenue growth will be tempered by continued underperformance in Europe. The Company expects GAAP earnings per diluted share between $1.97 and $2.12 and adjusted earnings per diluted share between $2.87 and $3.02.

In the absence of any future acquisitions, we anticipate a quarterly progression in our earnings throughout the year that is consistent with our historical seasonality. Thus, we anticipate first-quarter 2011 revenue to be sequentially lower than Q4 by about 7% to 8%, or roughly 4% to 5% above the level we reported in Q1 last year.

Further, since the revenue impact has a disproportionate effect on the bottom line and because period expenses are much less variable by quarter than revenue, we expect our adjusted earnings per share in the first quarter of 2011 to increase by approximately 6% over prior year, or to be roughly $0.13 to $0.14 below Q4.

Original guidance for 2010 was $2.60 to $2.75. We achieved the high end of that range even without the tax windfall in the fourth quarter. Our 2011 guidance invests this improvement in our tax rate in projects to make the Company more profitable in the future and also accommodates our more conservative gross margin expectations and the higher interest rate on our bank loan.

We will still have growth and leverage over our 2010 plan. Beyond 2011, and for modeling purposes, we would suggest 6% to 8% constant currency revenue growth and an adjusted earnings per share growth roughly 50% higher than revenue growth. Further, the investments we plan to make in our business during 2011 give us confidence in our ability to accelerate our growth profile in 2012 and beyond.

In summary, we are pleased with our business's consistent, robust performance throughout 2010. Longer-term, we are confident that we have the potential to sustain and improve upon this growth, both on the top and bottom lines. We expect our near-term investments to help realize that potential. With our strong cash flow, we hope to add to our internal growth through acquisitions and strategic alliances.

We look forward to meeting with investors in the coming weeks. In March, we will be presenting at several investment conferences including the Citi Global Healthcare Conference, the RBC Capital Markets Healthcare Conference, the Raymond James Institutional Investors Conference, and the Barclays Capital Global Healthcare Conference.

Additionally, we will be attending the American Association of Neurological Surgeons annual meeting which will take place April 11 through 13 in Denver, Colorado. Please contact Angela if you would like to set up a meeting.

Now we will be happy to answer all of your questions. As a reminder, in an effort to keep this call to an hour, please do limit yourself to one question and one follow-up. Rejoin the queue if you have more questions. Operator, you may now turn the call over to our participants.

(Operator Instructions) Matt Miksic with Piper Jaffray.

Hi, good morning. Thanks for taking our questions. So one on the guidance, Stuart. In the first quarter and for the year, it was -- I realize you gave a preliminary number; the numbers that you have given us for the top line kind of bracket that, but maybe just a touch on the low side.

You mentioned Europe. It sounds like maybe orthopedics, you're expecting things to grow a little bit more slowly. Is there a tone of caution or some risks that you see that you are waiting to play out?

Okay. Thanks for the question, and let me expand on our comments around the guidance.

First, our guidance that we presented is consistent with the tone and enthusiasm of our investor meeting in November. We want to have the guidance bracket where the Street was in November, and I think the revenue guidance does that. I think the earnings guidance is in line with what we said in November, but the Street number had drifted up in the last quarter, and our business plan was built around the ability to meet or exceed the guidance that we provided at the investor meeting.

We're not presenting a tone of caution, certainly not relative to what we presented at the November meeting, although I think caution is in order. I would say our US business continues to outperform, and we have deliberately called out what we see going on in Europe, not just for Integra but for other companies, which is austerity measures, a general sense of conservativism, an unwillingness to purchase capital. And so we guided toward our European neuro business being down next year, which is a relatively new phenomenon, although our extremity reconstruction business continues to grow over there and will help in that regard.

I'd also point out that the growing importance of our Asia-Pacific business is making up for the under-performance of the European business. So net-net, I think we have been consistent for about a year that we want to give cautious guidance. The world around us does not look better today than it did a month ago and I think it is wise to maintain caution.

That's fair and then clear. I'm referring to maybe the orthopedics, you had given some long-term growth of I think it was 10% to 12% for orthopedics and the numbers that you just talked about were a touch lower than that. Is that just the nature of the current environment and the long-term growth remains as you described before?

Yes, good point, and I didn't answer that question, so let me try. First of all, our extremities business, both in the US and around the world, remains very robust. There's really no change in the substantial out-performance of that business. We continue to be very bullish on that for 2011 and, based on what we know now, beyond that time.

We are modeling for 2011 private label to be essentially flat, spine and OrthoBiologics to be mid-single-digit growth, and extremities to be double-digit growth. And so when you look at the mix of those businesses, for what we will then report in that revenue category, for 2011 we think a prudent number is 6% to 8%.

That being said, as we go toward 2012, we are expecting that extremities business to be a bigger and bigger part of our overall franchise. We're investing substantially. Pete talked about adding 20 more reps in the US. We're adding a substantial number of reps in Europe, as well as Asia and Latin America. And so as that business continues to grow as a proportion of Integra, we expect out-performance longer term versus that 6% to 8%.

You'll note that our long-term guidance beyond 2011 is in excess of the 2011, and I think that is reflective of both our confidence in our strategy, as well as some hope that by 2012 the US and international markets have stabilized and begun to improve. I know from our internal planning, we are not modeling a substantial improvement in the US or world economy in 2011.

That's helpful. One follow-up just for Peter and for you, Stu, is now that, Peter, you have been there for long enough, I think, to start to maybe uncover some -- discover some things that you didn't know coming in. And maybe, Stuart, Peter has been there long enough to start to highlight things and drive some value coming out of his prior experience at Baxter. Anything that you can call out that -- anything you can call out like that would be interesting to hear about.

One thing I learned is I can't answer for Peter, but that was your third question. Let's go to the next guy, and I guarantee you Pete will give a reflection of his impression of the business during this call.

Next question.

Amit Bhalla with Citi.

Hi, good morning. Stu, I wanted to ask you a couple questions, a couple quick ones, starting with neuro. Last quarter you talked about the strength in some of the neuro capital based on pent-up demand. So I'm wondering, the performance in this quarter, are you still seeing pent-up demand loosening or do you think of this as true demand playing out in the neuro segment?

It was better than we expected. We've been careful not to talk about it being, quote, pent-up demand, but more of a general improvement in the capital environment. That definitely was reflected in the fourth quarter.

And candidly, we thought the third quarter was not pent-up demand, it was just a more improved environment. Given how well we did in the US in the fourth quarter, I think it was a bit of pent-up demand; hence, our more cautious guidance for next year.

A lot of the improvement in the fourth quarter came from capital, in particular in the US. And so if you think about our overall guidance for 2011, it's a mixture of continued strong performance in the US, but a more conservative view of Europe.

Okay. And Stuart, on the OrthoBiologics side, you've talked quite a bit about some of the dealer network improvements that you guys are undertaking. Can you comment on the progress in the quarter? And also talk a little bit about what percentage of your dealers are now carrying both spine hardware and OrthoBio. Thanks.

Okay, just a few comments. First of all, we are now fully engaged in managing the spine and OrthoBiologics business with some consistent and comprehensive leadership. We talked about that in our call.

Furthermore, I think we have completed the process of moving well more than 80% of our hardware dealers to carrying OrthoBiologics of Integra. And indeed their strong performance is part of what has driven the particularly good performance of Mozaik and Evo3 in the fourth quarter, and that is reflective of their commitment to working with us in carrying the full line. So I would say that statistic is about as good as it's going to get. I'm sure we will gain additional dealers, but I would consider that process complete and, hence, why we didn't really choose to report on it in the script.

I think we have clarity on how to manage the entire group. You'll note from Pete's comments there are some goods and bads in the integration. Net-net, when you look across the whole business, we were delighted to be up sequentially and up year-over-year in that division. And I think what we tried to present in our forward-looking guidance was cautious enthusiasm about the integrated spine business.

We continue to take the point of view most of the performance in that business will be based on our own execution. And I think our commentary about mid-single digits reflects continued improvement in the first half of the year and then, hopefully, even better performance in the back half of the year.

Chris Pasquale with JPMorgan.

Hello, how are you. Stuart, you talked a little bit about the issues in Europe. Can you just give us any color on which businesses you think are being most impacted by that dynamic?

Sure. All of our businesses in Europe are being impacted by austerity, but I'll repeat the script comments because they were interspersed in the paragraphs. Our European extremity and reconstruction business is growing, but slower than in the US. Our neuro business next year we are forecasting down slightly based predominantly on a tougher capital environment in Europe.

And our spine business is going through a transition as we have, I think, done a good job in the fourth quarter of dealing with some of the issues of deregistration of human-derived products. And we were delighted to have CE Mark approval of Mozaik, which took a very long time in Europe, which will be much easier for European distributors to accept. And therefore, we expect some acceleration throughout 2011 as we are able to replace what is perceived in Europe as human products versus synthetic products.

Okay, that's helpful. And can you give us any sense of whether that's something that you think is getting worse still, or as we start to anniversary some of the comps as we move through this year that that piece of your business, the European piece, should stabilize?

I don't think it's unstable, but we are modeling what we said, which is modest growth in the extremities business and down in neuro. It's not down dramatically in neuro, but we're not used to or enthusiastic about any of our businesses being down.

Okay, thanks.

Raj Denhoy with Jefferies.

Hi, good morning, guys. Wonder if I could just ask again on the guidance front, it's been asked a lot, but the question remains that you are sticking with your 6% to 8% long-term top-line growth. But here in 2011 we don't expect to see it, and it sounds like, if I'm hearing you correctly, it's all about Europe. Is that correct? Is that the way we should be thinking about it?

No, it's not all about Europe. I think if you look at our guidance for the year, it brackets 4% to 6% constant currency growth, it's reflective of tougher comparisons in the back half of the year versus this year, and it's reflective of caution in Europe. I think what you are also seeing is a return to normalcy of our various businesses with instruments now growing again, and orthopedics growing somewhat more slowly than prior years.

I think that's, to some extent, reflective of the private label business, to some extent reflective of the spine business. And I think for many companies, including Integra, 2009 and 2010 had some dramatic ups and downs quarter-to-quarter, and I think what you're seeing, in our guidance at least, is a little bit of reversion to normalcy in the guidance.

I would also point out we have served our investors well in the last 18 months by providing cautious guidance where we feel we have appropriate balance in our ability to meet or exceed the targets. We have given consistent guidance for quite a few quarters now, and what we are really doing is resisting the upward pressure in the Street numbers because of our out-performance in Q3 and Q4. If you reflect on our guidance for 2010 and our guidance for 2011, it's pretty consistently 6%.

No, I think that's fair, but I guess I'm sort of just trying to think about it longer term, because if I'm not mistaken, I believe at the analyst meeting you guys did talk about long-term growth of 6% to 8% from your business. And it sounds like you're still sticking with that. Once we get through this period here in 2011, for all the reasons you just described, that returning to that 6% to 8% number is what you are thinking, right?

Raj, this is Jack. Yes, when we go through our businesses, we see a huge amount of opportunity. And that includes the opportunity over the long term for bringing our international business, especially in neuro, to similar market shares as in the US; that's a huge opportunity. The extremities business has been growing on all cylinders, firing on all cylinders, and every year that's off a bigger base so the aggregate impact is better.

We feel very good as a substantive matter about our opportunities in this company over the next three to five years; that's not the issue. But we know, also, that we have got areas around the Company where, either because of macro issues or our own decisions to make changes in what we are doing, that we are going to temper our expectations in 2011 a little bit versus the three- to five-year opportunity.

You know -- and then I will let us take another question. I would point out, as you reflect upon each of our different revenue categories, even with the more cautious guidance that we have provided in 2011, we are taking share and we are giving numbers that I think beat our competition pretty substantially.

No, I think that's fair. I just wanted to make sure we had it correct. And then as long as Jack was there just one quickly on the gross margin. You mentioned that half of the fall down versus the previous year was because of unplanned manufacturing variances, and I'm curious if there is any more you can provide around that.

As I think many people who have been following the Company a long time know, we do a lot of manufacturing in this Company in a lot of plants. We have, I would say, for most of this year performed essentially flat on our gross margin, less than we probably would've hoped a year ago when we were making our forecast. And what we are doing really here is bringing our gross margin guidance down a little bit to reflect the reality that we have seen, somewhat more modest expectations.

Long term, again, we believe we have substantial opportunities to make improvements in the gross margin, which we reflect in our higher aspirations for annual growth 2012 and beyond. That's a function of the investments we are making, considerable investments we're making in new manufacturing for our regenerative medicine products, systems improvements, and no doubt long-term continuation of plant consolidations and that kind of thing, which we have done more or less annually for some time.

I'd add part of what we did as we set the 2011 expectations is our own attempt with our new logo to limit uncertainty. Our gross margin was actually flat in the fourth quarter versus the third quarter, and we think the right comparison is the sequential one. As we gave the guidance the next year we took a more modest view of the gross margin improvement at 0.5%, and we were able to accommodate that more cautious view with our now more bullish view on our tax guidance.

Net-net, we feel good about next year, and I think there's a little less risk in the EPS number because we are taking a little less aggressive view on what we will do with gross margin. And we have really achieved a lot in our tax rate through the efforts of our finance and other organizations.

Great, thank you.

Patrick Clingan with Lazard Capital Markets.

Good morning, you all. Thanks you for taking the questions. First question I wanted to ask was just on the neuro business. It sounds like the US capital side came through pretty well in the quarter. Just wanted to get a sense for where you are with your existing installed base with the CUSA NXT in terms of what percent you had currently upgraded to the newer version.

We haven't given out specific numbers, but I can assure you it's not a significant percent. Keep in mind, we have very high market share in this category, and we have been in the business, either ourselves or before we bought it, Tyco, for many, many years. And so the installed base is several thousand of these devices around the world. So it will take a long time to cannibalize that.

That being said, the NXTs perform well. It's a nice product, it's an upgrade. We think it's better than anything any competitors have and it's better than the prior generation.

If you're looking for an upside in the 2009 challenging year is we had a year to work out a lot of the kinks in the NXT during the product launch. So as you went into 2010, when there were people actually with money to buy it, we had a really good product that was well oiled.

Great. And then just on the first quarter, wanted to get a sense -- if you reduced fourth-quarter numbers by 7% to 8%, you get to about 3.5% to 4.5% growth year-over-year. Wanted to just get a sense if there's any particular reason why the first quarter would be weak on a year-over-year basis relative to the full-year guidance.

Yes, we were pretty specific in our guidance for both revenue and earnings per share target for Q1. It is, indeed, reflective of a somewhat steeper growth curve than where the Street was, and so we wanted to level set that or set the right tone for the new year.

A couple factors impact the overall year and I will rattle through them. First, we had a very front-end loaded private label year last year. If you recall or look through the scripts, we were real strong in Q1 and Q2, and as we said in Q4, we were down. So that has the impact in the next year, assuming more normal purchases by our large company partners, meaning slower growth in the first half of the year and a little faster growth in the second half of the year. So that's part one.

Part two, as we thought about our guidance for next year, we took a more cautious tone in our spine and OrthoBiologics business in terms of what we would be able to achieve in terms of growth overall and also in the first half of the year. So that's a little back-end loaded.

Finally, we have added quite a few people in our extremities business, both in the US, Europe, and Rest of World. They came on-board throughout 2010 but certainly more in the back half of the year, and then we are adding quite a few in the first half of the year. That, again, creates a little bit more of a see-saw in next year's numbers.

In my opinion, we are micromanaging these numbers a bit. It's not a meaningful difference, but it's enough that I don't want to have a situation where we guide to numbers in Q1 that are challenging to meet or exceed. So we felt it was best.

My recollection is -- we do this every year -- the Street is always a little ahead of us on Q1 and we have to push it down a little bit. I think we did the same thing last year. We had a strong Q4. I'd like to make sure we are positioned well for next year.

Great, thanks for taking the questions.

Jayson Bedford with Raymond James.

Good morning. I will just keep a couple quickies. You talked about the investments you made in 2010 and how that will benefit 2011. Outside of the increased sales force on the extremities side, can you maybe just talk about the key investments you made in 2010 that will help 2011?

Sure. I will start, and maybe Pete can give his -- this might be a good time for Pete to give some of his perspectives.

Certainly on the sales side, we added quite a few heads and quite a bit of dollars against the US and really the whole world, extremity and recon business. If you put it in context, if you add 50 reps when you do the fully-loaded analysis, it's about $8 million to $10 million run rate on an annual basis of comp and expenses and the related costs. So that's a significant spend in the P&L.

The other thing we have done, and it's been significant, is in our R&D line we show a significant investment in regulatory, medical, clinical and economics. You've heard this from other companies; the headcount required to bring products to market and the expense required in terms of clinical activity is quite significant.

I don't have a number at my fingertip, but I would venture to guess we have added 30 to 50 regulatory people over the last 18 months around the Company, as well as medical directors for every one of our divisions. These are all people costs and they get built into next year's costs.

Clearly, also, we have to anticipate in our R&D line significantly more clinical activity. And I would mention in our R&D line, we are accommodating now a full year in 2011 of our clinical trial for Integra's skin for wounds.

In G&A, there's really two major drivers -- one we call out as special charges, one we don't -- but they are both related to information systems. As we have gotten to be a bigger company, the need to integrate our systems is significant. We have a major program, which we are really into the second year of, of a system-wide Oracle ERP implementation. And that is a significant spend that is reported in our GAAP G&A, both in 2010 and 2011.

We've also expanded our IS platform to better support the field with sales automation, salesforce data availability, the ability to better manage consignment. These are all investments that should improve both salesforce effectiveness as well as our better ability to control excess and obsolete inventory in consignment.

And then, finally, up on the gross margin line, Jack and Pete talked a little bit about our investment in plant engineering. That's a big ramp-up really in 2010. It's not a significant additional amount in 2011, but what it does do is give us a group of people who will be focused full-time on improving efficiency in the plants, completing the construction of our regenerative medicine facility and other capacity improvements, and also continuing our activities in reducing the number of plants around the Company.

Yes, and I think, Jayson, playing off Stuart's comments, I will touch a little bit more maybe on some of the product lines that my first 100 days have spent a lot of time looking at.

We have a lot of nice broader franchises that we have invested in and continue to invest in, such as in the instruments world. Everything from our headlight franchise, which has been successful, and we have new generations in the works as different tools and also instruments, particularly in our Ruggles line, which ties in, as you know, with our neurosurgery business. Also in the alternate site area in instruments, bringing over our regenerative products in the collagen line has added a nice area for us, investment focus, and that's particularly focused on the oral surgery markets.

We talked a little bit about neuro already and CUSA, particularly in that opportunity to continue to upgrade our selector line, but one of the other areas that has been growing is in this MAYFIELD cranial stabilization line, which I think has been, as many of you know, a leadership product line that we have invested in.

One of the big challenges our surgeons have with the products tends to be the ability, now using more imaging technology, to actually see through the fixation devices. And so the new product is radiolucent, which means you can shoot x-ray through it and utilize it, and that's been driving the growth as these new image-guided surgery procedures have been growing. That's been a nice adder to continue, as well.

Obviously, the DuraGen Plus products and our investments there for dura repair, and also our shunt products, which we've put resources and focus behind. They represent innovative designs, even though they have been in the market for many years. We've also done some things to really focus the smart valve technology that we have on those.

Extremities, as Stuart mentioned, has been doing quite well, driven by this mid and hind foot portfolio of products. Our skin sales have been driven by a lot of our flowable wound matrix products and our sheets. Also, we have benefited from, on the metals side, some of the unique internal fixation systems that we have had. So those investments will obviously continue.

And we introduced -- I think we spoke about in late '09 and benefited in '10 and forward on our HALLU-LOCK system, which really is a system that, we believe, gives the surgeon an optimal kind of positioning for the screws, as well as the plating systems. And this is something that we see growth moving forward.

We spoke a little bit about our upper extremities business as well. The growth of our in-force tendon augmentation products, which I believe we rolled out really in the second half last year and spoke to you about, has been picking up and having a lot of good discussion with our surgeons. In the reconstruction area the investment in R&D and new products, particularly in hardware and the combination of biologics for the extremities reconstruction business, will continue.

And then in Ortho, obviously, we have had a broader portfolio of hardware and biologics as well, our minimally invasive systems that are out there. Also on the OrthoBiologics side, our introduction of Evo3, which is our third-generation DMB matrix, doing well and growing, particularly in our spine markets. And then also investments in some new platform products, particularly in hardware, coming out in 2011. So we have got a lot of things that over a two-, three-year window we've invested in and now we're starting to see more and more positive momentum coming out of those investments on the product side.

Okay, great, that's very helpful. And just as a quick follow-up, you highlighted Latin America, Asia-Pac as growth drivers. And I apologize if this is in your filings, but how big are those segments? And then what is the growth profile from these geographies? Thanks.

When you think about our o-US business -- and we will be filing our 10-K later today, which has a lot more granular detail. Our o-US business is about 25%. It's about half Europe and half Rest of World. To put it in context, our Asia-Pacific business was up year-over-year -- what was it, Jerry -- 24%.

Great, thank you.

David Lewis with Morgan Stanley.

Good morning, it's Steve Beuchaw in for David. I thought we might try to touch on a couple of different topics. In the total ankle market you are clearly well-positioned in the US. I believe you're number one here. I wonder if you might give us a view on the importance of reimbursement to the total ankle market.

We've seen a couple of developments there over the last few months. Were these meaningful hurdles that needed to be cleared? Are these potentially positive catalysts for that market?

Okay, so let me talk about our total ankle. Outside the United States, we believe we have the leading total ankle franchise, a three-piece total ankle that competes very directly with the STAR total ankle that was recently approved in the United States.

We have plans to introduce a two-piece total ankle in the United States and eventually bring the three-piece ankle to the US. But to clarify, we have no sales of ankle in the US today. Our two-piece ankle is, at a minimum, a couple of years away and our three-piece ankle would require a multi-year PMA trial.

Reimbursement is starting to look good for total ankles in the US, in particular with some of the commentary around the STAR ankle getting reimbursement approval from a number of insurers. So while we would rather be the guy with the three-piece ankle getting that reimbursement, it's still a good thing that the STAR ankle has gotten the reimbursement and will be building a market for total ankles in the US.

But the STAR is the only three-piece total ankle in the US. Outside the US, our Integra ankle, we believe, is the leading ankle and is growing quickly outside the US. Unfortunately, the regulatory path is tortuous in the US for three-piece total ankles and the cost of bringing that to market in the US is significant.

That being said, if there's a glass half-full of the STAR being approved before our product, is it will take a few years to build that market in the US, and we think we have a very competitive ankle to eventually bring to the US.

I will mention on the two-piece, we have done a lot of work on that product, and indeed we are optimistic about the design for that product. What is unfortunate is that the regulatory environment has changed dramatically since we started on that project. And so as quickly as we had hoped to bring it to market, the bar has been raised for what the clinical and other activities would be required to bring to market, even a two-piece ankle in the US.

I should point out, we are far along in the project. We have had discussions with FDA, so this is not an early stage program. But we stopped talking about a timeline about six months ago because we felt the rules had changed a bit and we have to clarify what it will take to bring a two-piece to market now in the US.

Thanks, very helpful. One more broad, conceptual question. Last year at NAS we got the sense that your momentum in spine was a bit stronger than we appreciated as a function of some product breadth points and the evolving dynamics of the market.

I wonder, being just a few days out of AAOS, if you might share your perspective on what the key learnings were at the meeting there. Are there things, perhaps, that we haven't been talking about here on the call or that we might be missing that you picked up at AAOS that you think we should be thinking about more specifically? Thanks, Stu.

My impression was that in 2010 it was sheer panic on Wall Street as to what was happening with the spine business, with people even questioning why anyone would want to be in the spine business. I think that was really an over-reaction and over-statement.

It's a really excellent business, but the dynamics are very different than they were three or four years ago. Indeed, I think the spine business plays to our strength as a serial acquirer and a company able to deal with a consolidating market with contracting gross margins.

I would point out that the gross margins that we have in our spine business today, and that's both on the metal and OrthoBiologics side, are well in excess of our instrument business, and in many cases in excess of our neuro business. So spine and OrthoBiologics, even with year-over-year decreases in pricing, is good for Integra.

We're very committed to spine and OrthoBiologics, we've had our challenges on integration, and we intend during 2011 to put those behind us. That being said, we are very committed to the market. And where we have been for a while, in particular in OrthoBiologics, we've added a lot of new products and we've demonstrated the ability to be a very differentiated player.

I'd point out that your comment that you made about the breadth of our product line is right. We're really the only player with such a broad OrthoBiologic product line to add to a very full metal product line. And I think, as we go into 2011, if we are able to tuck a few acquisitions in, as well as some of the new product activity that we have got, it will be a contributor.

That being said, we think it is appropriate, particularly given that we have struggled a bit in this category, to have that mid-single-digit guidance for 2011. I can tell you there's not a person in that division who believes their objectives is mid-single digits.

Thank you, again.

I will just comment, as well, to Stuart's -- this is Peter Arduini speaking. For attending some of my first spine meetings and broader orthopedics meetings, I think, again, from a demographic standpoint, this is still a very, very ripe business. And when you take a look at it at the long run, I am excited about what the potential of the overall spine market can be.

I think just playing off a couple of Stuart's comments, coming from the background I come from, the acquisition opportunities that can plug in, be tuck-ins, be synergistic to the platform that we have already built are quite broad. I was very impressed with that opportunity versus other markets, obviously, within healthcare. And clearly the margin mix component and our opportunity about how we go to market, particularly in the United States, with direct and dealers, but also leveraging GPO contracts and working with IDN partners, which we believe is going to be more of an evolving aspect in how transactions take place in that marketplace.

David Toung with Argus Research.

Hello, Stuart, hello, Pete. Coming off your point about GPOs, I want to get your view. My understanding is that some hospitals have turned to GPOs to set pricing on the spine market, spine implants. They're focusing specifically on spine because it's an area where there's a lot of vendors, and the GPOs are led by HCA, and the payers, the private payers are going along with that pricing. I guess they call it capitated pricing. Can you give us your view of how you are -- as you said, your advantages in this market, because of your strengths and your strategy in terms of acquisitions?

I would say, David, I think just broadly relative to the whole approach with GPOs and the dynamics that are going on, in many cases because these are physician select items, they haven't moved in that direction near as much. As more of those options become available, you get physicians that will say -- I can live with three or four of these -- hence, with capitation, with all the pressure in healthcare, administration and the doctors working together want to do the right things and say -- we could live with two or three of these products. My background, my experience working in a lot of scenarios with integrated delivery systems, as well as GPOs says that you can accommodate both. I think coming up with the right disease state focus so that we can offer complete lines or areas to solve, whether it be in deformity, other areas within orthopedics, becomes very important for us to offer that.

The other part of that, then, is really working on the relationships with the C suites, and showing that our solutions, one, are as cost effective as other alternatives that are out in the market, and by working with us jointly, via how we purchase, how decisions are made, how we integrate our data together, I think we can bring some more interesting opportunities forward. This hasn't traditionally been an approach in this space, but I think it's one that is on the horizon. And we are making investments within our US organization to actually broaden that capability in our GPO team.

Just a few specific comments to follow-up on Pete. One, during 2011 we are going to bring into play a national account group for the whole Company. It's something we haven't had in the past, where we have account executives responsible for relationships with C-suites with our largest customers. That's a program for this year, and it will give us a chance to do what the larger companies do, which is really look across product lines, figure out where we have strength in a hospital, and where we are missing, and be able to offer a hospital-specific contract that allows us to sell the full line of products that we have across our various product categories. If we are really strong in instruments in a hospital, but we don't have any spine business, can we present a value proposition to the hospital. That's point one.

Point two is, on the GPO front, I think we talked on prior calls about our very significant success in OrthoBiologics, taking business from smaller companies and driving that through to GPO arrangements that we've signed. We have GPO relationships for our OrthoBiologics with virtually every major GPO organization, and most of the smaller competitors do not. We see some potential to do that in metal. And we would expect, given our footprint, and being on our way to a $1 billion revenue company, that we are going to be one of the guys who hospitals keep on the list, and smaller companies are going to be forced out as they go from 30 vendors in a hospital to five, six, seven or eight.

Great, thanks for the detail, Stuart and Pete. Thank you.

Robert Goldman with CL King.

Thanks, good morning. Two are financial questions. I apologize on the first one if I missed the answer. On the adjusted tax rate, the decline year-over-year, what was the reason for that again?

The adjusted tax rate for '10 versus '09, or '11 versus '10, Bob? What are you asking?

For the fourth quarter versus the fourth quarter.

The main reason was the big changes in the tax law that showed up, the R&D tax credit, the leading consideration there. In addition, we had a number of one-timers that come through as you do the end of the year work that resulted in benefits. That's just how they happened to line up this year. That's what resulted in the big change in the GAAP tax rate. And then what we tried to do on the call is give you a very specific number, which is our best forecast right now for the adjusted tax rate for 2011. I think, just so everyone gets it, it was 26% for modeling purposes.

Okay. And the second question, and I know this has been asked in different ways a few times; it goes back to gross margin. There's a lot of good reasons to expect gross margin to go up, as you are projecting or maybe even more than you are projecting in the next few years. But in the fourth quarter, year-on-year it was down. And that's despite a mix shift away from capital expenditures. I think it was asked before, but I confess I still don't fully understand why the gross margin year-on-year went down despite the mix shift.

Okay. As we said in the script, we think that the best way to look at the gross margin is sequentially. In that respect, we were essentially the same as in third quarter. And taking into account 2010 and how we did over the course of 2010, we gave you what we thought was guidance on the gross margin line that we would accomplish. That's just the same as we have been trying to do with all of the other aspects of our guidance. We want to give consistent guidance that we will accomplish, and that's what we've been doing.

Now, a year ago we had strong gross margin in Q4. This year, the pattern through the year was a lower gross margin. As we've said, some of that was planned. We've been pushing incremental expense through that gets booked into cost of goods for a number of things we are doing to, we believe, in the long-term the aspiration is to improve performance.

And in addition, we have had some unplanned expenses. We have not executed as well as we should, and that is a topic of, I don't know, you could call it irritation around here. We are certainly making it a top priority in the coming year. And we are addressing that in both large and small ways. The large ways include the huge amount we are spending to build a new modern computer-controlled, state-of-the-art facility for regenerative medicine, which we've talked now about for several quarters. And in the small ways, we are making inventory planning and management a top priority, which we have every reason to believe will result in lower E&R reserves and that kind of thing that also hit cost of goods sold.

I think the encouraging thing is we had stability in gross margin in the fourth quarter versus the third quarter, we are modeling modest improvement in the first half of next year, and stronger improvement in the back half of next year. 0.5% improvement seems a lot more achievable, and we are enthusiastic about these investments that we've made, which in the long run will improve the overall performance of our operating facilities.

The final point, which we did say in the script, but just so people get it, it is not a function of pricing.

Okay, thank you.

From Canaccord Genuity, Bill Plovanic.

Great, thank you, congratulations on a good quarter, guys. I just had a few simple questions. One, I know the K is coming out, but, Jack, did you give us what the US revenue number was, or how much US grew year-over-year for the quarter?

We did not give that number yet. We will grab it, the regional specific number. It grew 7.5%.

Okay, so that has continued to grow high-single digits through the year. And then --

That was the number for the quarter. That's what you asked for? Okay.

Yes, that's what I asked for. I think that gets us for high-single digits for the year. And then just, I know you don't give these numbers out that often, but just the rep number for -- where do we sit with the extremities business, maybe domestically from a distribution standpoint, and then globally, as well?

The rep number -- you're talking about the number of sales reps?

Yes, for the extremity business.

The field force for the extremities business right now stands in the high 130s.

Okay. And that's all direct, right?

Yes.

And that is US or global?

That is in the US. That includes both the reps, it also includes the management, and we have field support people and that kind of stuff. That's the total count right now.

Okay. And then just lastly on the acquisition strategy, I think you talked about it a little, Stuart, in spine. We could start to see some small tuck-ins maybe in spine, or -- if we had to point to one of your businesses that you are likely to bolt some products on to, which should we be focused on in 2011?

I think probably the highest likelihood is spine. We have projects in spine, extremities, instruments and neurosurgery. The toughest one is neuro because our markets, we're such a big presence there, but we are absolutely committed to finding acquisitions for each of our different divisions.

I would also point out that outside the US, we have a very active program. We are looking for smaller acquisitions in some of the developing markets. We're looking to buy our dealers in various markets, so we can have more direct presence. We have plans to establish new businesses in some of the developing markets, either through acquisition or through building our own subsidiaries.

And I would say the deal pipeline is as good as I remember it. I think we're finally at the point in the new year where sellers' expectations have moderated. The availability of capital to Integra is excellent, and our machine, as it were, is intact. So I am optimistic that this year we will execute on a number of acquisitions.

And then, do you have any constraints with -- I don't know if you have a lot of cash sitting o-US or anything of that nature?

This is Jack. Yes, we do have cash o-US. It's not a constraint, given our tremendous access to capital in the US. Obviously, that money in Europe is available to us, or it's actually not just in Europe, but o-US money is available to us for o-US acquisitions, which is something that we are interested in, as well, and have done in the past, I think as you know. But yes, we have some money over there that is only available for uses outside the US unless we come up with a different plan.

Given our typical deal size, Bill, we're not really constrained by the availability under our revolver. We obviously will maintain our deal discipline and look to pay reasonable prices. That's probably the greatest constraint on our execution, not the availability of financing.

Okay, great, thanks. That's all I had.

Steve Lichtman with Oppenheimer.

Hello, Stu. One question on spine. What is the biggest focus now post-[Haken], in terms of integrating the spine business into the broader Integra, and getting synergies with the rest of the segments, particularly neuro?

In terms of the spine business, the focus has been on making sure that our dealers carry both the metal and the OrthoBiologics products, that they sell across our full line, and that we provide them with the appropriate support, clinical support and new products. And I think we're well on our way to doing that.

On the neuro front, we have, I would say, limited interaction between our neuro team and our spine team. They certainly can act to bird-dog for one another, and they don't have any cross-commissioning. And I think that's part of what Pete was talking about in terms of building a better corporate-account focus, so that we can deliver a common front to customers and provide some direction for the sales teams that are calling on the same account, maybe in the same hospital but don't always coordinate.

I would also point out our new branding campaign, the Integra Limit Uncertainty campaign. A big part of that is to raise awareness in hospitals of the sheer quantity of things that they purchase from Integra, and how relevant we are to them as a vendor. I think this is improving over time, but we still have a long way to go where hospitals appreciate the value proposition that Integra brings across our various product lines. So raising that awareness, the combined presentation at the major spine meetings between our neuro groups and our spine groups, better collaboration with national accounts, et cetera, will all lead to more synergies there.

And then just lastly on spine, in terms of the distribution, are you happy with the size of the salesforce there? Do there need to be any adds, particularly on the spine side?

When you think of spine, remember, it's all distribution. We have, I believe, doubled our regional management force to provide better and more focused leadership for the distributors, but that's not a big number of people. In terms of distribution, we have excellent distribution, although in many markets we may be covering a state with a distributor that has four or five people. And so part of what we've been doing is try to look on a, perhaps a county by county or hospital by hospital basis, rather than giving a distributor a full state, which was something that we previously had years ago.

Okay, thanks, Stu.

Bruce Jackson with Morgan Joseph.

I wanted to get some clarification on the clinical and regulatory status of the ankle implants in the US. With the two-piece and the three-piece, have you started the clinical trials yet, or do you have any plans to start the clinical trials?

No, on, have we started. We don't yet have any plan to begin the three-piece. That's consistent with what we've said since we acquired the business five or six years ago. And on the two-piece, we are now in discussions with FDA and with our own advisers as to what a clinical plan would look like. Clearly -- well, nothing is clear -- we do not believe it requires a two-armed multi-center study on the scale of what you would need in a PMA. But it is unclear what kind of animal experimental and human data will be required.

Okay, that's very helpful, thank you.

Glenn Novarro with RBC Capital Markets.

Two questions on spine. In 4Q, you said spine was up slightly. I'm assuming Biologics was up double-digits and hardware down 5% or 10%. Could you confirm that? And if my math is right, and hardware was down, let's just call it 5%, you are calling for flat growth in 2011. Is that flat growth, which is an improvement, is that just a function of better execution, less pricing pressure? Any commentary would be helpful. Thanks.

As you aptly noted Glenn, we are now moving to present our numbers as spine and OrthoBiologics; it reflects the integration of the business post the earn-out. We are going to resist providing the level of detail that we provided during the earn-out. Overall, we're not really trying to drive metal versus OrthoBiologics, we are trying to drive the total number. So our overall spine and OrthoBiologics business grew sequentially, and over prior year, and that's about as much detail as we want to provide. I think we were also clear that the OrthoBiologics products drove the growth.

Okay. How about just this one last follow-up then. So you're calling for hardware growth, because I think that's what you did say for '11 as being flat. Can you at least say, is that going to be an improvement over 2010?

I am hesitating because I am wishing not to get into that level of detail. We expect the overall business to be up mid-single digits for 2011 versus 2010. I think you're probably too pessimistic about our performance in 2010, though. How is that for help?

Okay, all right. Okay, fair enough, thank you.

Gentlemen, we have no further questions at this time.

Thank you, all, and we look forward to continuing to report on our business at the upcoming conferences, as well as we hope we will see some of you at the AANS. Thank you.

Ladies and gentlemen, that does conclude today's conference; we thank you for your participation.