史賽克 (SYK) 2014 Q4 法說會逐字稿

Welcome to Stryker's fourth-quarter 2014 earnings conference call. My name is Bakeba and I will be your operator for today's call.

(Operator Instructions)

This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the Company's most recent filings with the SEC.

Also the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K, filed today with the SEC.

I will now turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed, sir.

Good afternoon, everyone, and welcome to Stryker's fourth-quarter 2014 earnings call. Joining me today are Bill Jellison, our CFO; and Katherine Owen, Vice President of Strategy and Investor Relations. Following my opening comments, Katherine will provide an update on our M&A activity. Bill will then offer details on our quarterly results, before turning to question and answers.

Our top-line performance in Q4 reflected our ongoing goal to grow organic sales at the high end of med tech. With both the fourth-quarter and full-year revenue increasing close to 6%, excluding the impact of FX and acquisitions, we maintained strong sales momentum and delivered results at the high end of our initial expectations of 4.5% to 6% growth. Q4 results were impacted by one less selling day, which negatively impacted sales by approximately 1%.

Similar to prior quarters, our diversified revenue base remains a key advantage, as all three business segments, Orthopaedics, MedSurg, and Neurotechnology and Spine, again delivered positive year-over-year gains. In the US, orthopaedics, which is up against very tough comparisons from 2013, registered over 7% growth. Trauma in extremities, including foot and ankle, continued its impressive multi-year track record, with healthy double-digit growth. Hips once again posted strong results, while knees came in flat.

Turning to MAKO, we are gaining considerable momentum, with the sale of 20 robots in the quarter, up from 8 in Q3, and the highest level of quarterly units ever achieved. Q4 also represented the highest MAKO procedure volume, increasing double digits year-over-year. Katherine will provide additional details regarding a number of key milestones for MAKO that we are targeting in 2015.

US MedSurg had a standout quarter, led by impressive organic growth for both instruments and medical. Continued gains for Neptune, a strengthening hostile CapEx environment, and strong sales force execution drove these results. Our US neurotechnology businesses continued their momentum, with double-digit growth, which more than offset some softness in our core spine business.

Coming off a strong Q3 of this year and strong comps from Q4 of last year, our international businesses grew nearly 4% in constant currency. Our challenges in Japan, which began in Q2 with a difficult ERP implementation, continued, and were most acute in hips and knees. Our other divisions had good performances, and we are particularly pleased with our results in China, and sustained growth in Europe.

Gross margin came in slightly above Q3 levels, reflecting similar trends we experienced throughout the year, including pricing headwinds, the negative effect of mix and foreign exchange, while also reflecting ongoing improvements in cost of goods sold. We remain focused on reducing operating costs, with SG&A as a percentage of sales decreasing by 140 basis points year-over-year. R&D increased year-over-year, both in absolute dollars and as a percentage of sales, underscoring our ongoing commitment to innovation, both internal development and acquisitions, the benefits of which are apparent in our top-line performance.

Looking ahead to 2015, we are well-positioned to continue our growth. The new European regional headquarters, coupled with our just-launched transatlantic operating model, will set the stage for multi-year improvement in our growth profile in Western Europe. And while some emerging markets have been more challenging, we remain bullish on growth prospects in China and India.

Headwinds remained, most notably a significant negative foreign exchange impact on EPS of $0.30 a share, based on the current rates. However, with a strong top line, ongoing reductions in operating costs, and a healthy balance sheet and cash flow, we are well-positioned to optimize shareholder value.

For 2015, we are targeting organic sales growth of 4.5% to 6%, with adjusted EPS in a range of $4.90 to $5.10 a share, up 4% to 8%. Excluding the impact of foreign currency, our underlying EPS growth would be in a range of 10% to 14%. Given the height and volatility of foreign exchange rates, we will update these impacts each quarter throughout the year. With that, I will now turn the call over to Katherine.

Thanks, Kevin. The focus of my comments today will be on providing an update on the performance of our recent key acquisitions.

In early January, we completed our most recent acquisition of privately held CHG Hospital Beds, which held a series of innovative low-height hospital beds and related accessories in markets across Canada, the US and UK. The low-height design helps reduce the risk of patient falls that are related to entering and exiting hospital beds.

Among CHG's innovative offerings is a recently launched Spirit One bed, which is an expandable, low-height Bariatric bed for the acute-care segment. With this acquisition, we are able to expand medical's offerings for products that enhance the quality of care to both patients and healthcare professions by helping to prevent patient-related injuries resulting from a fall from a hospital bed.

Turning to MAKO, as Kevin mentioned, we are excited about the increasing momentum we are experiencing. In late 2014, we submitted the 510(k) application for our total knee on the MAKO robot, and continue to target 2015 for FDA clearance. Given the necessary training and education post-approval, we assume any revenue contribution from this indication will be somewhat limited in 2015. We expect to see a more meaningful ramp in 2016.

Beyond the total knee, we are targeting Q2 for a limited release of our cementless uni knee on the robot. And we are also preparing to launch Stryker's hip power brand, including our highly successful Accolade Hip, on the robot this year, as well as our X3 poly bearings. In summary, the teams have made tremendous progress on the pipeline over the past 12 months. And going forward, we are well-positioned to drive adoption and leverage the considerable breadth of Stryker's reconstructive sales and marketing presence.

Lastly, I will provide a few comments on one of our most recent acquisitions, Small Bone Innovations, which we acquired in August of last year. We continue to be pleased with the progress we are making, with sales tracking well-against our plan. We have conducted extensive training over the last six months, which will continue into the first quarter, and it includes the entire SBI portfolio of products. The STAR Ankle is an important addition to our foot and ankle portfolio. And with our dedicated sales force, we expect to see continued strong momentum in 2015.

With that, I will now turn the call over to Bill.

Thanks, Katherine. Sales growth was 6.1% in the fourth quarter, including a negative 2.6% impact from FX translation. Constant currency sales growth was 8.6%, which includes organic growth of 5.5%. Sales growth for the full year was 7.3%, with organic growth of 5.8%, acquisition growth of 2.5%, and a negative 1% impact from FX translation.

EPS on a GAAP basis for the fourth quarter was $0.67 per share versus $1.01 per share last year in the fourth quarter. While adjusted earnings per share were $1.44 per share for the quarter versus $1.29 per share in the quarter of last year.

This quarter's EPS includes negative impacts of approximately $0.06 from FX, or $0.02 to $0.03 per share worse than the prevailing FX rates that we signaled on our third-quarter earnings call. Foreign exchange rates were very volatile during the fourth quarter, and the Japanese yen, Australian dollar, the euro and many other currencies continued to weaken against the dollar.

Earnings per share on a GAAP basis for the full year of 2014 were $1.34 versus $2.63 last year, while adjusted earnings per share were $4.73 versus $4.49 per share last year. FX negatively impacted of the full-year results by approximately $0.14 per share.

The most significant non-GAAP adjustments in the quarter include the charge of approximately $116 million net of approximately $179 million of insurance recoveries received, associated with the voluntary recalls of Rejuvenate and the ABG II. The adjustment also included an additional tax expense associated with the transfer of intellectual property to the Netherlands from some of our other European locations. The charges for the Rejuvenate matter may increase or decrease over time as additional facts become available and assumptions become more refined.

Looking at sales in the fourth quarter, our organic growth of 5.5% was comprised of a positive 7.4% from volume and mix, while price negatively impacted sales by 2 percentage points. Acquisitions added 3.1%, while FX added a negative 2.6% in the overall sales for the quarter.

Looking at our segments, Orthopaedics represented 42% of our sales in the quarter. Sales of orthopedic products were up 1.7% as reported, and grew 4.5% constant currency, and increased 1.8% organically.

US orthopaedic sales grew 7.3% in the quarter. Trauma and extremities once again had another solid quarter, with sales in the US increasing 18.7%, and mid-single digit in international markets. With approximately 25% growth in our US foot and ankle business, excluding the impact from the acquisition of SBI, as we continue to have great success in an expanding market.

US hip continued to increase its strong performance, and grew 4.5% in the fourth quarter, while US knees were flat. And Internationally, sales were down 5% in hips, and were flat in knees in constant currency, as negative pricing and operational performance in Japan and comps were tougher within the period.

Next, our MedSurg segment represented approximately 40% of our sales in the quarter. Total MedSurg sales increased 12.1% as reported, and 14.1% in constant currency, and increased 9.4% organically. These results benefited from double-digit growth in our instruments business, as we continued our strong performance across our product lines and re-established clear market leadership, with the Neptune product back on the market this year. This is the last like-comparison with Neptune, as we re-launched the product in the first quarter of 2014.

We also had upper-teen growth in endoscopy, driven by recent acquisitions. Medical also had strong mid-teen organic and constant currency growth this quarter, as the hospital capital market is picking up and we are driving excellent sales execution.

Our final segment, Neurotechnology and Spine, which represents 18% of our sales in the quarter, increased 3.9% as reported and 7% in constant currency, with 6.3% organic growth. Growth in this segment was led by double-digit growth in our neurotechnology businesses in IVS, while spinal implant sales decreased slightly.

In looking at our operational performance, gross margins on an adjusted basis in the fourth quarter of 2014 were nearly flat sequentially, at 66.1%. This compares to 66.3% in the same quarter last year. The decline in the margin rate in the quarter resulted both from negative product mix and negative price pressures. Our mix was negative in this quarter due to the impact of recent acquisitions and strong sales of our MedSurg products. These products have a lower gross margin rate than the Company average.

Pricing was down 2% in the quarter, and also 2% for the full year. Pricing pressure remains challenging, and is expected to be down approximately 2% for the Company moving forward. Margins were also negatively impacted from foreign exchange movements, compared to last year.

Research and development expenses were up 5.8% of sales, slightly higher than last year in the quarter. And this is a 10% increase in R&D spending over last year, while still nicely leveraging our overall operating expenses in the period.

Selling, general, and administrative costs on an adjusted basis -- expenses were $857 million or 32.7% of sales in the quarter versus 34% in the prior-year period. Strong sales growth and our cost improvement efforts delivered over a full percentage point of operational expense leverage in both the quarter and in the full year.

Operating margins on an adjusted basis were 27.5% in the fourth quarter of 2014, compared to 26.7% in the fourth quarter of 2013. The rate was positively impacted by operational improvements and solid improvements in the operating expense leverage, partially offset by lower pricing, acquisition, and product mix, and foreign exchange rates in the quarter.

Our reported tax rate for the fourth quarter was 43.6%, while our adjusted effective tax rate was 22.6%. This compares to a 24.2% adjusted effective tax rate in the fourth quarter last year.

As we mentioned earlier, we have officially opened our new European headquarters in Amsterdam. Last year, we transferred intellectual property from other countries within Europe to the Netherlands, and also made decisions to repatriate nearly $2 billion from Europe to the US. Most of those funds will be transferred to the US in the back half of 2015.

These actions triggered a tax expense, which we booked in the third and fourth quarter of this year. The cash outflows for payment of this tax will be fully paid out in the first half of 2015. The transfer of the intellectual property provides us more flexibility in managing our operations in the future, and aligns the ownership with where our primary European leadership team will be located.

Looking at the balance sheet, we ended the quarter with $5 billion of cash and marketable securities. We also had $4 billion of debt on the balance sheet at the end of the quarter. And from an asset management standpoint, accounts receivable days ended the fourth quarter at 54, or one day better than the fourth quarter of last year, or of 2013. And days in inventory finished the quarter at 160 days, which was an 8-day increase compared to 152 days in the fourth quarter of last year, due to acquisitions and some higher inventory in some of our international locations.

Turning to cash flow, our cash from operations in 2014 was $1.8 billion, which was similar to 2013. Capital expenditures were $233 million in 2014, compared to $195 million in 2013. Share repurchases -- we still have over $500 million available for share repurchase under our current on authorization, as approximately $100 million of share repurchases were made in 2014, but no additional shares were repurchased in the fourth quarter.

As we look to 2015, our sales guidance includes constant currency growth of 5.5% to 7%, with organic sales growth in the range of 4.5% to 6%. If foreign exchange rates hold near current levels, we expect net sales in the first quarter and full year of 2015 to be negatively impacted by approximately 3 to 4 percentage points. Each quarter has the same number of selling days in 2015 as in 2014.

Pricing pressure will continue, and is expected to be lower by approximately 2% for the Company moving forward, consistent with the pricing environment we experienced throughout 2014. We expect our full-year adjusted effective tax rate in 2015 will be closer to 20%, or over 2 full percentage points lower than in 2014. As mentioned previously, we plan on reinvesting approximately half of our tax savings associated with the European regional headquarters. These additional investments will be to support our new structure within Europe, and to supplement our selling and marketing activities.

Please also note that the renewal of the tax extenders for 2015 is reflected in our projected tax rate and our earnings guidance for the full year. However, we do not have any benefit planned in our first quarter guidance, and we don't expect them to be approved until late in the year. If the extenders are not approved and made effective again this year, it will negatively impact our earnings guidance for the full year by approximately $0.05 per share.

Capital expenditures are expected to be slightly over $300 million in 2015, as we continue to invest in our operations and IT infrastructure. And assuming there are no debt increases for acquisitions or significant share repurchases, we would expect net interest expense to run approximately $30 million per quarter, on average, for 2015.

Based on the current FX rates, we would expect 2015 to be negatively impacted by approximately $0.30 per share for the full year, and approximately $0.08 for the first quarter. This is higher than we've shared a few weeks ago, as the euro has weakened further by nearly 4 to 5 percentage points, and the Swiss franc suddenly strengthened approximately 15% after it decoupled is currency ceiling from the euro recently. This negative impact is largely driven by the translational component of FX, which we do not hedge. The transactional impact of FX on earnings is being offset by both natural and real hedges, which we continue to layer into our operations.

And finally, 2015 adjusted net earnings per share are expected to be in the range of $4.90 to $5.10, with adjusted net earnings per share in the range of $1.05 to $1.10 for the first quarter of 2015. Thanks for your support, and we'd be glad to answer any questions that you may have at this time.

(Operator Instructions)

Mike Weinstein, JPMorgan.

Thank you. Can you hear me okay?

Yes, we can.

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

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

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

Yes. Maybe I'll chime in with a couple of comments. There's really no change from our expectations from prior years. As Kevin said, M&A is the primary use. In any given year, we assume something in the $400 million range in terms of share repurchases. I think that should be the assumption around expectations at the start of this year, given what we know. And then if the deal flow doesn't keep pace, as Kevin mentioned before, we would be open to larger buybacks.

But as a going-in assumption, what's reflected in our range is the normal something in that $400 million-ish vicinity, in terms of normal year buybacks. It'll vary quarter to quarter for a variety of reasons, but that should be a good assumption that's reflected in the range we put out.

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

Yes, Mike, what I've said is, we didn't put in a specific timeframe; in the press release, we didn't say -- exiting 2015. What we did say is, we acknowledged the strength of our balance sheet, and that we do plan to put our money to work. So while we weren't specific in timing it, we do say that over a reasonable period of time, we will not stay at the balance sheet position that we're in right now.

It's impossible for me to put a precise date on that, given the timing of our deal flows. But the statement was put in there for a reason. And the reason the statement was put in there was to acknowledge the strength of the balance sheet, and that we do plan to put it to work. But we were not specific in terms of whether that'll be over a 6-month, 9 months, 12 months period of time.

David Lewis, Morgan Stanley.

Good afternoon. Kevin, I think the one issue in the quarter is a lot of strength in a lot of different segments, but US recon and obviously OUS-Japan you talked about. But it wasn't clear in the US what specifically was pressuring hips and knees. It looks like price was stable sequentially. Many of your competitors also dealt with more challenging comps. Was there anything specific you can point us to in US hips and knees which could have driven the incremental comp-adjusted deceleration?

And in your assumptions in 2015, can you give us a sense of what that assumes in terms of the strong CapEx business? Does it also assume a recon recovery here in the US in the first half of 2015?

Yes. David, what I'd say is, we certainly had very strong comps from the prior year, right? We were plus-10% in the US in hips. We were plus-8% in the US in knees. And we haven't seen all of our competitors report yet. So I really want to wait to see how everybody else reports before we determine how our results stack up versus all of the competition.

I would say we didn't notice the same kind of spike in the fourth quarter of 2014 as we noticed in the fourth quarter of 2013. And so normally what we see over a six months period, is you'll start to see a big spike, and then you see a drop off. So we'll see what happens over the course of the first quarter of this year, but I would think with the spike being not as dramatic, that we won't see quite as much of a drop-off this quarter. But we still believe we're doing well in the market with knees; we've been holding our own over the last couple of years, and don't anticipate that anything major has changed there.

And as it relates to the CapEx environment, certainly we had a fantastic fourth quarter of last year across all of our MedSurg businesses. And medical, in particular, had a very strong jump towards the end of the year. We're seeing a better environment overall. We're also executing very well in the field. So we do expect continued strong momentum in MedSurg in 2015.

Bob Hopkins, Bank of America.

Thanks very much. Can you hear me okay?

Yes, we can, Bob.

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

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

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

Sure. So actually, Bob, within a current-year guidance, we don't give operational income-related guidance. I think that what we have said in the past is that we do drive to get operating leverage in the 20 to 30 basis points or so per year, on average, at least over a two- or three-year period of time.

Keep in mind that we also mentioned earlier this year and also just now the call, as far as that we are planning to re-invest some of the dollars associated with the tax improvement in the rate side of the equation, back into some of the expense categories. So you probably won't see as much leverage overall within the operating income side as we would normally be driving, especially in the expense category.

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

Kristen Stewart, Deutsche Bank.

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

Yes. So Kristin, just on a high level, I'd say Japan is certainly the biggest market that we have internationally. And we have mentioned on the past two calls that we had an ERP system it that didn't go very well. That system is now stabilized. That's the good news.

The bad news is that while we are going through our challenges, especially in the hip and knee market, which has instruments and stats and where system reliability is extremely important, we certainly lost market share. We now need to regain that market share. Just because our system is fixed, this isn't going to come back to us automatically, so we have to re-earn that business. I would think that we'll start to see that improve beginning in the second quarter of next year.

I would say Europe overall continues to perform well, a light pacing of referrals and slightly pacing above the market. In any given quarter, you can see variations between our capital equipment and our implants. And we don't break down every single country and region between implants and capital. But I'd say that the biggest region for the sluggishness in recon, and particularly in hips, is Japan. And that's a market that historically has been very reliable for us, and we have very strong market share, but certainly has been a drag in the second half of this year, and particularly in the fourth quarter. We're going to need to turn that around.

So I would assume by the end of 2015, we'll be back. But like we saw in Europe, it took us a little bit of time. This one, unfortunately, was a bit self-inflicted. I'm excited that I have a new CIO and a new leadership team in our information technology group. A CIO was hired at the end of May, and he has added four new leaders to his team, so I'm a lot more optimistic about future ERP implementations. But this one certainly has been challenging, and had a knock-on effect of losing market share.

Just to make sure I understood, you said that Japan is going to continue to be a drag this year. We won't see improvement until the second quarter of 2016?

No, 2015.

2015, okay.

We'll start to see improvement by the end of 2015 -- by the second quarter of 2015. But it won't get fully back, I don't think, towards the end of the year.

Okay, thank you.

Raj Denhoy, Jefferies.

Hi, thank you. I wonder if I could ask a bit about the MAKO performance in the quarter? You highlighted the 20 orders that you placed. I'm curious of anything you can offer in terms of where those were placed and what's driving that demand.

And then secondly, as you prepare to launch the -- or get approval and then launch the new product in the US, when might we see some data in terms of some of the performance attributes of that product?

Yes, I'll take that. We were really pleased. Obviously we had some integration challenges earlier in the year. But we've worked through a lot of those, in being able to really leverage the breadth of our sales and marketing infrastructure.

I won't be specific about which locations and where we placed the 20 robots. I would say, though, that teams have done a great job of making sure when they do place a robot, it's in a facility that has a clear surgeon champion. And that really is key to ensuring that the utilization rates and the procedure volume is consistent with the expectations when we place that. So, they're in the right locations, and we'll continue to drive that strategy going forward.

In terms of clinical data, there is -- we'll have data at AOS. There's a number of studies that have been done, but it will take time. The early adopters will be less focused on longer-term follow-up studies. But we're investing a lot in clinical data and understand the importance to driving long-term, wide-scale adoption.

If I could ask one follow-up on that, in terms of -- I think you highlighted that when you looked at the investments you've made in various areas, MAKO really was your investment in orthopaedics, or has been to date, in core orthopaedics. I'm curious about how you view that investment. I mean, is this really where you're seeing the future of orthopaedics developing over time? Or do you still think there's a role for the old way of doing orthopaedics as well?

Well, we've made a number of beds in various sizes within orthopaedics, if you look at SBI and foot and ankle for trauma and extremities, which falls under that umbrella. But in terms of the largest bet, yes, clearly MAKO is a big bet. We're in the enviable position that, given our balance sheet and our cash generation, we can continue to do the tuck-in deals, which tend to be the majority of our M&A, but make these bigger bets.

We really believe it is going to revolutionize how orthopedic surgery, reconstructive surgery, is performed. We think the total knee, which we filed for in late 2014, is by far the biggest market opportunity, and it is a big bet. We believe we can drive meaningful market share gains, which has really never been done on a sustained basis in the reconstructive market. So it's a clear bet on the direction that the industry is going to go and the benefit that we can bring to patients, to surgeons and to the overall healthcare system, with the technology that we've got with the robot.

Jason Wittes, Brean Capital.

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

Well, we shifted our focus about three years ago to moving towards full-account conversions, which is frankly something that wasn't possible five, six years ago. We didn't have the product portfolio to be able to do a complete account conversion. And so we would have niche products in different hospitals around the country. And that shift in focus to total account conversions took us a little bit of time, but it's now working.

So we're providing the service, we have all the products in our portfolio, either through primarily internal development, but also supplemented by acquisitions, where we can actually run the entire trauma service center and service line of a hospital. And obviously, foot and ankle -- there's a presence within the hospital, but there's also podiatric surgeons that are operating outside of the hospital. So we have a dedicated team that sells outside the hospital, and we have our existing trauma and extremities sales force that's selling inside the hospital.

We're very pleased with the -- obviously, the performance. The market share we've been gaining over the past five years -- steady growth. As well as getting into a new market and growing our sales in foot and ankle, where people were not using implants before. It's been a great experience over the past few years to watch the foot and ankle business grow. With the SBI acquisition, we've also acquired some upper extremity products that look very exciting, and I think that's a market that we see as ripe for growth as well. We'll be piloting some specialized sales people in the upper extremities area, and look to grow that going forward.

Derrick Sung, Sanford Bernstein.

Hi, good afternoon. Thanks for taking my question. Kevin, I was wondering if I could, first, get your thoughts on a few aspects around the consolidation that's happening across the industry. Namely, in the near-term, are you seeing any potential advantages from the disruptions with potential -- upcoming consolidation from one of your large competitors?

Longer-term, how do you see the price environment evolving with consolidation in the industry? And do you see room for further consolidation beyond where we're at today?

I'm not going to talk about further consolidation, but what I would say is, every time there is an acquisition in this space, there is disruption. We certainly saw that with the [Houston] case, we saw disruption. And many of our competitors, as well as us, were able to capitalize on that.

I think with the upcoming mergers environment, there will be disruption. We haven't seen it yet. I think once the acquisition happens, you'll see some sort of disruption. We plan for that ourselves when we do acquisitions. When we did the SBI acquisition, we planned for a certain level of disruption. We experienced some disruption of our own when we did the MAKO integration.

So integrations will always create some form of disruption. It tends not to be long-term in nature, but certainly something that we'll look to capitalize upon, as any competitor of ours would have mergers or acquisitions in their space.

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

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

Dave Roman, Goldman Sachs.

Thank you, and good afternoon, everybody. I wanted to start with a question for Kevin. You did talk quite a bit about some of the trend internationally. You referenced the Europe experience and now what's going on in Japan. But maybe you could just talk more broadly your ex US strategy? That if you look at your business compared to the peers', international does represent a smaller percentage of total.

Given some of the fits and starts in that business, are you undertaking more of a broader review of how international is being run? And what gives you confidence in the sustainability of a turnaround in those franchises?

For us, emerging markets represents 8% of our sales, and still does now. And obviously, even with the strong US dollar, which is driving up its share of our overall sales in that, we had strong growth in emerging markets, strong double-digit growth.

China continues to be a fantastic market -- both the premium segment, as well as the lower-priced segment. Those lower-priced segment products, we're going to be launching in India, which had good growth, but is albeit a small market. So I would say within emerging markets, China and India are going to be two areas that we are going to focus very heavily on, and that's from a position of strength.

Where we're weaker are in some of the other markets, like Russia and Turkey and Brazil, and frankly, all of Latin America, where we've historically had a much lower market share. We were starting to invest, and obviously you've seen what's happening in those markets. It's actually not a bad time not to have a huge presence in Russia and Turkey and some of these markets. So we're not going to be hit as hard as some other companies. I think we're going to delay those investments until the market gets a little bit more healthy.

Europe -- we're obviously really focused on Europe. We're investing, we've created a reporting structure that has a sales and marketing organization with Western Europe reporting into our divisions that are based in the US. I think that change is dramatic. It's going to drive focus, it's going to drive specialization. Our market shares in Western Europe are far below where they are in other markets.

So Japan, to me -- this is an anomaly. This is a market that we've historically been very strong in. Same as Australia, is a very strong market that had another great year in 2014. The challenge is, there, you have foreign exchange that's working heavily against us. And obviously, Bill talked to you about the magnitude of the foreign exchange impact in 2015.

But this is not a -- we're not doing a complete overhaul of international. We're dialing back in some of the emerging markets, continuing to invest very heavily in China and India, and focusing on Western Europe, which I've talked about for the last three years. And actually accelerating that impact with this transatlantic model that we're launching. Japan was an unpredicted -- it's a business of our size, with the breadth that we have, things sometimes go wrong. So this was a case where we put an ERP system in; it didn't go well. It then covered some other problems. We've actually changed some of the leadership in Japan to turn that around.

Things don't always go smoothly. So I wish I could tell you something. But it's not that the strategy was wrong in Japan. We had a strong business in Japan for many years. We just hit a speed bump, and we have to get back on track.

Okay, that's helpful perspective. And for Bill, one clarification; I'm not sure I heard you correctly. I think you said in your prepared remarks $30 million of net interest per quarter, but that would be materially higher than what you've been running. Was that right? And if so, why?

And then secondly, on CapEx, that $300 million number for 2015 -- is that the new run rate? Or is there something specific going on in 2015 that boosts that number above the normalized trend?

Sure. So first, on the campus side of the equation, we actually stated that, even already last year in advance of us going into this year. We actually didn't spend at that same level; some of that got carried over already into 2015. We are planning on spending a little bit heavier on an ongoing basis here, for a number of reasons, as we talked about. Both re-investing in some of the IT technology base throughout the organization, as well as just covering the faster growth of the organic growth side of our business that we've got, and investing in those businesses around the world.

So, one, I think that, that's relatively consistent. We should be actually spending at a higher CapEx level, as we mentioned, more consistently moving forward over the next three, four, five years. If you talk about the interest expense side, we actually were running pretty close to that same similar level throughout most of 2014. There's actually some adjustments for a couple different things that have taken place within different periods, but that's pretty much what our average run rate has been throughout this year -- or throughout the 2014 year. And as we move into the 2015, it should run at a similar level.

Mike Matson, Needham and Company.

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

No. So the program that we talked about before, the layered hedging, is for transactional-related hedges. And as we mentioned before, a hedging program ultimately mitigates or minimizes some of that volatility in the risk in any specific period. It doesn't eliminate the risk. So if rates went down and stayed down, you're ultimately going to see the impact of those as you continue to move forward.

We generally have, for our transactional base, about six different quarters that are hedged at any point in time. And it's a rolling hedge program, so you're in essence getting the average of those six quarters in your transactional-related purchases. But we're really getting the full impact each quarter of any of the translational side. So as we have earnings in a specific country, each quarter those earnings get translated at whatever the current rates are, and so you'll see that level of impact. But our layered hedging is pretty much in place and should continue to be in place as we move forward.

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

Yes. So we've not given specific feedback on any of our divisions or groups, but I think directionally, that's absolutely correct. So our margin rates within our broader-based MedSurg group are lower, and actually that is one of the negative mixes that we've talked about as MedSurg has been obviously growing much quicker than some of our other businesses, especially during 2014.

And from an overall operating income perspective, all of our businesses perform extremely well within the broader-based environment. But some do have slightly lower rates, but just not to the same degree. So in categories like a MedSurg, while the gross margins would be lower, you would also be having some level of lower expenses to support that than our orthopedic group would have.

Bruce Nudell, Credit Suisse.

Hi, thanks so much. Kevin, could you talk briefly in your view about the importance of cementless knees, especially in the younger population? Is that going to be enabled by the robot? And if you were able to get a cementless knee, does that have intrinsic cost-of-goods advantages?

Yes. We did launch a cementless knee with a 3-D-printed tibial baseplate about a year ago, and we're starting to see that perform very well. The 3-D printing manufacturer enabled a very core structure which adheres to the bone very effectively. And we launched it very slowly, but a limited launch last year. That's gaining steam.

As you all know, the cement is used in most knees, whereas hips are cementless, particularly in the United States. We do think that's going to be important for the future. The robot will make it even easier. But we already have a product on the market right now that we're trying to push, and we're going to push that more aggressively in 2015. But the robot will enhance that and enable that longer-term. And we do believe that, that is going to become a big part of the market. It's obviously taken longer than it has in hips, but that's something that we see being important in the future.

Also for the robot, I think the bi-cruciate retaining knee, where you keep the ACL intact, I think that could become a very big part of the market. It's obviously tiny today, and it will take years to play out, studies to prove that. But again, that's an extremely hard procedure to do and really will not be able to be done very effectively and consistently without the use of a robot.

So there's a lot of reasons why we made the bet on MAKO. It's not just to be able to put in the existing procedures the same way they are being put in today, but also to be able to develop these new procedures as you just outlined.

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

Yes. We have -- let's call it eight divisions. And we have a number of business units underneath those divisions. Each one of those divisions is going to have a vice president and general manager in Europe, that will have the sales and marketing people in all the big countries reporting to them directly.

And how that affects the nuts and bolts is, in the past, we didn't have that business focus in Europe. You had sales reps selling a wide bag of products that weren't very focused. And the management team, when they looked up the organizational chart, they didn't necessarily know that business, to the same degree of specialization. And have the same support, whether it's marketing materials, training, access to head office.

Now that's going to be in a tight organizational alignment. We spent a whole year preparing for this. So during the year, when Europe hit their number this year and really did perform very well, the country management weren't sure what their job was going to be -- were they going to be one of these vice president general managers, were they going to stay at the country level? So we spent a whole year preparing for this and establishing these eight key roles in Western Europe.

We still have country managers -- one of the mistakes we had made in a prior iteration was taking away the prominence of the country manager role. We still have that role very much in place, to play a supportive role and to make sure that things are going well within the country, and key account role with hospitals and with surgeons.

But what it's going to drive is a specialization focus. And we've seen in every market -- where we have specialized sales forces, we win. It's a Stryker formula; it's a truism, whether it's in Australia, it's in Canada, obviously in the United States. And we've just never gotten to that stage in Western Europe. And we'll never get to that stage if you just have country budgets the old way we did it before.

Now that we've merged those divisions -- so the person who is the president of -- let's call it hips and knees -- if you're the president of hips and knees, you have a P&L that includes Western Europe and the United States. And when you have the head-office P&L, you have a lot more flexibility with your dollars. Because you have bigger marketing budgets, you have bigger R&D budgets, you can move money around.

And so if you see an exciting opportunity in the UK, or an exciting opportunity to invest in France, you can balance that against opportunities that exist in the United States and you can move resources more comfortably. It also use to take us an inordinate amount of time to get launches and training alliance between Europe and the United States. That will be facilitated.

So part of the investment obviously is creating these eight roles, putting them all in Amsterdam, having a state-of-the-art center in Amsterdam, where we can actually train surgeons. These are investments that we just haven't made in Western Europe, historically. And that's one of the reasons why we just never moved the dial. We've been trying for 10-plus years. And we've changed its leadership multiple times. We've changed organizational structures within Europe multiple times. And we haven't been able to change the dial.

So this, for us -- obviously it was [Ah-vee-ay] leading Western Europe -- he made the first really big improvement over the last two years, to get us back on a -- let's call it, market performance, or slightly better. But to take the next leap and gain significant market share, it's only going to be enabled with a dedicated focus across business units.

At a time when most companies are leaning away from Western Europe, we're leaning in, in Western Europe. And it's just because of our current market share position, which is far below what it is in many other countries in the world. So we're very excited about it. It's going to take obviously a number of years to play out. But obviously Ah-vee-ay is still involved, and he is still the head of Europe, and he's fully supportive of this initiative and really believes that we're doing it the right way.

Joanne Wuensch, BMO Capital Markets.

Hi. Can you hear me okay?

Yes, we can.

Terrific, thank you. You've been talking about capital purchases to be increasing at the hospital level almost since we started talking about Obamacare. What you saw in the fourth quarter, do you think that's a sustainable level? And to do you think it's just a fourth-quarter, year-end push? Or are we finally starting to see more patients feel the need for more capital equipment?

Hi, Joanne. I think it's a little tough to know if it's more patients as a function of ACA. We started to see this improvement in the third quarter. Clearly, the trend continued into the fourth quarter. Whether hospitals are through the biggest part of their IT investments that they've been making over the last few years or it's some manifestation of increased patients tied to ACA, it's really difficult to get that level of granularity. Or if we're just taking market share.

What I can tell you is, the teams are executing really well, and we're seeing a clear strengthening in those businesses, that we believe is sustainable. And we feel pretty optimistic about the momentum that we're going to have for 2015. But I think it's a little difficult to be able to say it's a function of ACA or increased patient demand, without a little bit more time under our belt.

Okay, thank you. And as a follow-up, what looking for at AALS this year?

Well, we'll have a number of things going on, including booth tours. And clearly, MAKO is going to have a big presence there, with all the milestones that we talked about upcoming this year. And then we'll be highlighting a number of products across the portfolio -- not just within reconstructive, but trauma, extremities, the SBI ankle, the additions that we made with Pivot [co-aligns]. So there'll be a lot of products throughout there, but obviously MAKO does get a lot of attention.

Terrific. Thank you so much.

William Plovanic, Canaccord Genuity.

Great, thanks. Good evening. I just wanted to check my math. Looking at the knee business, assuming that you had MAKO -- you didn't get much from MAKO in the fourth quarter of 2013. It seems like the US knee business really slowed down, I mean down maybe 4% to 5% by my math, if you strip out MAKO. Maybe I'm off on that. I'm just wondering if you could comment on that at all.

Yes. Obviously we had a very strong fourth quarter last year. It was up 8%. And then this year, if you strip out MAKO. I think you're a little high in your math. But yes, we were slightly down this year, if you exclude the MAKO. We don't obviously parse that out precisely. But yes, we were down slightly. But overall, if you look over the two-year period, I think we're still tracking pretty consistently. Again, not everybody has reported yet.

But we also didn't benefit -- and I think there is a temporary benefit if you launch a new product. We saw that with our Accolade II. You do get some price and some mix advantages for a one- or two-year period. We haven't been getting that, since our system isn't a new system, to get some of those temporary benefits. But certainly from a customer standpoint, we don't feel we're losing really any market share at all. And that's been a pretty consistent position that we've had for the last three years.

Okay. And then a follow-up is, one of the comments was that there was one less selling day in the quarter. I think that's unique to you. And I'm just curious, was there actually one less day, or was it how vacations fell during the quarter? I mean, holidays? When you say one less selling day, I was wondering if you could just quantify that, and if it was US only, OUS, globally? That's it. Thank you.

Obviously we have all the different countries, and we do our math within Stryker based on holidays. And last year, we had one extra day in the first and one less day in the second, one extra day in the third, one less day in the fourth. Every quarter we called out whether it was an extra day or less a day. And then we give you the organic growth. You can really clearly see organic growth over the full period. So third quarter, we obviously had big numbers. We called out one extra day and said we had one extra percent. It's just based on how our calendars are lined up in different parts of the world.

In 2015, I'm very pleased to say that we're not going to have any quarters with extra days or less days in it. It's not something I enjoy talking about. It's kind of a frustrating thing. But it's just based on the way the calendar was laid out in 2014 versus 2013. Fortunately, in 2015, the calendar lines up the same as it does in 2014. So we won't be talking about this for the next year.

But we are pretty transparent. Over the full year, there was no difference in days. In 2014, days were the same as 2013. It's just the way the holidays fell, and we had one extra day in the first, one less in the second, one extra in the third, one less in the fourth.

Larry Biegelsen, Wells Fargo.

Thanks for fitting me. Two clarification questions; one real question. I just want to confirm that the first knee that you're going to launch from the MAKO system, total knee, is going to be Triathlon. You mentioned earlier bi-cruciate retaining knees. Second clarification question -- emerging markets grew double digits, I thought I heard you say earlier. Could you give us the exact growth rate on a constant currency basis? Thanks.

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

Okay. And then for my real question. Your neuro-tech business accelerated this quarter. Can you talk about the potential benefit from the MR CLEAN study, which you've mentioned in the past as being important for that? Have you seen an impact from that yet? Thanks.

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

Yes. I mean, obviously that strong double-digit growth across all of our three neuro-tech businesses -- and neurovascular, in particular, has been gaining market share for the last couple of years in the hemorrhagic segment. MR CLEAN will potentially open up the ischemic segment of the market. And we're built upon an already very strong growing business. So we've been really excited about the neuro-tech business, and this will give us access to a new market. It may take some time, but it can certainly grow. Because as you know, there are more ischemic strokes then there are hemorrhagics.

So it will take some time to market. We estimate it's probably about a $100 million market right now. It could become a market somewhere between $500 million and $1 billion over time.

Richard Newitter, Leerink Partners.

Hi, thanks for taking the question. I had a quick question on these -- so I appreciated that the fourth quarter had a tough comp, as it did for the rest of the industry. From the results we've heard so far, a negative year-over-year growth rate in the US knees. If your remaining competitors were to report something better, and it does appear that you lost share, could you try to help us understand why that might be? I mean, in the first quarter of 2015, you should have an easier comp. So [all our sync will comp adjusted]. Is there any reason why you shouldn't be growing along with the market once comps are taken out of the equation?

Yes, I would just reiterate the fact that on the knee side, we were up against very tough comps. Actually for both hips and knees, the 10% and 8% growth that we talked about, with Q4 of 2013 being exceptionally strong, had the seasonality effect that we didn't see this year. So the biggest factor were the comps.

And as Kevin also mentioned, we are not seeing the same mix benefit, given the factor that Triathlon is not a new knee system. We do not believe we're losing market share in volumes. As we go forward, particularly with the anticipated launch of the MAKO total knee, we feel really good about our competitive position.

So clearly, Q4 had some challenges. Q1, we wouldn't expect the same level of fall-off, given, again, it wasn't as strong a Q4 seasonality. Weather is a wild card, I can tell you right now, there weren't a lot of surgeries happening in Boston today, and they won't be happening in tomorrow either. But we did have severe weather last year. We're just going to have to wait and see how the rest of the quarter plays out, as it relates to the year-over-year comparisons from a weather perspective.

Great, thanks. And then, Kevin, just quickly -- I know you guys have a reverse shoulder and limited launch. I think that's correct. Can you give us an update on what you see there for the contribution in 2015?

Yes. The product is performing extremely well. We had a limited launch, and we're going to be rolling that out more extensively in 2015. There's obviously a lot of competitors in the market, so it's -- I would call it a measured launch.

And I don't think we'll be able to grab market share as quickly as we have certainly in areas like foot and ankle. But we are looking at the total -- the reverse shoulder, as well as the upper extremities products that we've acquired through SBI. We're looking at how we want to attack upper extremities, and we have a couple of pilots planned. I would think by the middle of the year, I'll be able to give you a much better idea on how I think the growth profile will go. It's still early days for us.

As you know, we've been a little bit late in the shoulder market. It's an exciting market. We believe we have very good products now, and we are going to start to put that to work. We just want to be careful that we invest the right way and that we get a good return on our investment. Again, it's not a new market; this market already exists. But we now feel like we've got a competitive offering, which clearly was not the case two, three, four years ago.

Ben Andrew, William Blair.

Good afternoon. Was hoping to get some thoughts on the MAKO performance in the quarter on the run rate basis. Should we look at that placement rate and extend that through 2015, as you all roll it out with additional versions of the product? And at what point does that become a significant piece of your domestic knee business? Obviously you can't separate the two any more. How should we think about that, and the timing? Thanks.

Okay, I'll take that question. Sorry, we're having an audio problem here. Obviously with the launch of the total knee and the launch of our Stryker hip products on the robot, the robot's going to start to gain a lot more adoption. And then our primary implants are going to also be placed on the robots. So the increased run rate was with the existing products, with the MAKO products.

Our plan is to have as many robots is possible all over the country. And that all of our implants will be placed using the robot, or as many as possible. It's going to take a long time for that to happen. So standard instrumentation and standard implants are going to be put in by the majority of surgeons, but our goal is really to increase that run rate, increase the adoption. It's going to be a lot easier for hospitals to afford a robot when they know that they can put up their products on it. Implants from a Company like Stryker, implants that they know and that they're comfortable with.

And so, yes, you're going to see it increasingly take up more and more of our business. And we shouldn't think of it as a separate business -- separate from our existing core business, because over time, it should replace the core business. That's clearly the strategy. It's going to get messy to analyze through 2015, 2016. And then it's really going to become part of our normal business.

It's such a disruptive play, that, frankly, predicting exactly the cadence of the robots --we do expect to sell a lot more robots in 2015. There is some seasonality to it, so obviously the first quarter, you shouldn't expected it to be more than the fourth quarter. The fourth quarter will always be the highest quarter. That's how hospitals buy their capital equipment and dental. We see that with our other MedSurg businesses. But we do plan on having a full array of products on the robot, so that the robot will be a lot more meaningful and should consume much more of our overall volume.

Great, thank you.

Josh Jennings, Cowen and Company.

Hi, thanks a lot. I just wanted to start quickly on the US knee business. One of your competitors has implemented a strategy of selling reconstructed joints direct to US hospitals at a meaningful discount. You didn't call that out as a competitive headwind in the quarter. But was there any impact in 4Q? And can you share your thoughts on the potential impact in 2015 and beyond in terms of the dynamics of the US market?

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

Great. And then just a quick follow-up on the spine division. You've had a few positive pre-announcements from small-cap pure spine players earlier in this month. Can you talk about your expectations for the US spine market growth in 2015 in terms of acceleration stability or deceleration from 2014 levels? And now that you've seen 4Q results and digested them, are you comfortable with the strategy and play for Stryker to regain share and accelerate growth in that specific unit? Thanks a lot.

Yes. Certainly the spine market has gone through a lot of price challenges over the past four or five years, but innovation is being rewarded. I think the market is starting to turn and we're seeing a positive trend in the market overall. We're really excited about our spine business. Obviously we had some challenges at the beginning of this year, and overall, the results, certainly from a profit standpoint, were solid -- sales standpoint, were not fantastic.

But I'm very excited about 2015. The [colin] acquisition is a fabulous product. We've also launched some other [amenia] base of products, and that was an area that had been a little bit weak for us. We have a new R&D leader that started over a year ago, that has a really nice looking pipeline. We have a new general manager, a new head of marketing. So the management team that we have now at spine is fantastic. I went to the spine meeting sales meeting earlier this year. I can tell you, the momentum there is better than it's been in many years.

We have a nice flow of innovative products that you can still gain good price and growth with, as we've seen with some of the spine-only companies. So I think we're in much better position now than we have been over the past couple of years in spine. And frankly, the market is starting to look better. So it's a space I'm excited about. We have a team and a offense that should enjoy significant success in 2015 and the years ahead.

(Operator Instructions)

Jeff Johnson, Robert W Baird.

Thank you. Good evening, guys. Just one quick follow up. Or, not even a follow-up, just one clarifying question. On the R&D side, I know you don't guide line item guidance on things like R&D, but the last few years, growing R&D 2X the rate of sales and comp faster. Is that how we should think about the Company going forward here over the next two years? We'd think that maybe some of the MAKO investments start to drop off, maybe some of the neuro-tech studies and clinical trial costs start to fall off. But I'd like to hear if R&D should keep growing at that rate going forward.

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

All right, that's helpful. Thanks, guys.

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

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

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.