史賽克 (SYK) 2015 Q4 法說會逐字稿

Welcome to the fourth-quarter 2015 Stryker earnings call. My name is Adrienne, and I'll 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-comparative 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 would now like to call over Mr. Kevin Lobo, Chairman and Chief Executive Officer. You may proceed, sir.

Good afternoon, everyone, and welcome to Stryker's fourth-quarter 2015 earnings call. Joining me today are Bill Jellison, our CFO; Katherine Owen, Vice President of Strategy and Investor Relations; and Glenn Boehnlein, who will be taking over for Bill on April 1. Following my opening comments, Katherine will provide an update on MAKO, while the Bill will offer more details on our quarterly results, before turning to questions and answers.

With a 6.4% increase in organic sales in Q4, we continue to deliver on our goal of driving top line growth at the high end of med tech. This marks the 11th consecutive quarter where Stryker delivered 5% or better organic sales growth, demonstrating strong consistency over time.

Our diversified sales footprint has once again proven to be a key component of our growth strategy, as all of our segments, Orthopaedics, MedSurg, and Neurotechnology and Spine posted good results in the quarter. These performances underscore the strength of our sales and marketing execution, and our innovation engine, which is characterized by healthy R&D investment, and a focused and disciplined M&A effort.

Approximately 70% of our sales are derived from our US businesses, which once again led growth, posting an impressive gain of approximately 8%. I am also pleased with the growing momentum out of Europe, including strong Q4 results, benefiting from the shift to the Trans-Atlantic Operating Model at the beginning of 2015. We are building on the success as we start 2016 with Canada rolling into the model, and the other regions now reporting to our Group Presidents, Tim Scannell and David Floyd.

Our international growth of roughly 4% in constant currency was once again impacted by soft performances in China and Brazil. However, as you've seen, we have demonstrated the ability to offset isolated geographic softness through strength in our larger markets.

Turning to earnings, our adjusted EPS for Q4 of $1.56 is at the high end of our revised range of $1.53 to $1.56, primarily driven by the strong top line. The balance of the P&L came in as expected, which Bill will cover in his section. Looking ahead to 2016, we expect our sales momentum to continue, and are targeting organic sales growth for the year of 5% to 6%. This takes into account expected softness in emerging markets for a good portion of the year.

In addition, the two year suspension of the med device tax provides us with the opportunity to bolster investments that will help drive sales growth and innovation, as we plan to invest at the majority of this temporary benefit. We also continuing on our path toward driving greater cost efficiencies, which is a multi-year opportunity. Over the past year, we have been focused on identifying and prioritizing the key target areas for cost reduction within our organization.

As we shift into 2016, we are moving towards project implementation under the leadership of Group President, Lonny Carpenter. We have identified significant areas of savings centered around optimizing our plant network, rationalizing our product lines, professionally analyzing our indirect procurement in a similar manner as we have done with direct materials, moving to a common ERP system, and driving more shared services. Given our history of decentralization, there is considerable opportunity ahead of us in this program.

We believe a methodical and deliberate approach to these efforts will allow us to preserve Stryker's competitive differentiation in the area of sales, marketing, R&D, and business development, while helping to ensure we are consistently delivering P&L leverage. This is reflected in our 2016 adjusted EPS range of $5.50 to $5.70 a share. This is an increase of approximately 7.5% to 11.5% versus 2015, and includes a negative foreign exchange impact of $0.12 to $0.13 a share.

Finally, I'd like to take a moment to extend my thanks and appreciation to Bill Jellison, who has announced his plans to retire following an impressive 36-year career, the last three of which have been with Stryker. Bill was able to quickly move toward implementing a layered hedging program, which has proven to be successful at mitigating our transactional FX exposure. In addition, he helped execute on a number of acquisitions, facilitated the establishment of our European Regional Headquarters, that's enabled significant savings, and has also helped to shape our comprehensive cost reduction program.

These accomplishments have meaningfully contributed to our success, and were achieved while enabling our internal talent pool to develop, including Glenn Boehnlein, who has been promoted to CFO effective April 1. Glenn has been with Stryker in various financial leadership roles since 2003, most recently serving as Group CFO for the MedSurg and Neurotechnology group. This group represents roughly half the Company, and has been a consistent force behind our strong results.

I am confident in Glenn's ability, in coordination with our broader financial organization, to help build on our strong momentum. Before turning the call over to Katherine, I've asked Glenn to make a few comments. Glenn?

Thanks, Kevin. I appreciate the comments and the support, but I also want to thank Bill for his leadership of the finance organization over the past few years, and for his commitment to helping ensure a smooth transition, as I take on new responsibilities.

It's a very exciting time at Stryker, and I'm thrilled to be part of such a great organization, with so many talented and dedicated people. I'm also looking forward to meeting many of our shareholders and analysts at the various events going forward. And with that, I'll turn the call back over to Katherine.

Thanks, Glenn. The focus of my comments today will be to provide an update on MAKO. 2015 was a year of building momentum for MAKO's robotic assisted surgery as we continued to leverage our considerable sales and marketing infrastructure, to help drive sales. We are particularly pleased with the increased demand of the hip indication, which has been augmented by combining the robotic technology with our proven portfolio of Stryker hip systems.

The combination enables surgeons use a best-in-class hip implant, with a long-term proven clinical history on a robotic assisted platform, which helps drive consistency, enhance surgeon and patient experience, and we believe over time clinically demonstrated benefits. In total, we sold 31 robots globally in the quarter, 24 of which were in the US, which represents a solid ramp from the start of the year, and a significant jump year-over-year from 20 in the fourth quarter of 2014.

For 2016, we are focused on continue to drive adoption with our current indications, which we believe offers considerable opportunity to drive ongoing robot placements. We are also excited about the potential for the Total Knee indication, with our flagship Triathlon system. This year, our efforts will be centered around gaining user experience with key opinion leaders, to help ensure an optimal rollout as we look to full commercial release in 2017. We believe the commercial launch, which will be aided by podium presentations from the early users group, will be in place as we head into next year. With that, I'll turn the call over to Bill.

Thanks, Kathryn. I'd like to start out by saying I've enjoyed working with Kevin and everyone at Stryker, especially the entire finance organization, who have made significant contributions over the last few years, helping the Company deliver on its financial results. Coming to Stryker was a strong cultural fit and personal fit, from the first week that I joined the Company.

We ended 2015 at the high end of both our initial sales and earnings guidance, that we set at the beginning of the year. As we look at 2016, and set our initial guidance, I'm confident that our sales momentum, strong product portfolio and pipeline, and the cost-containment initiatives we're driving, position us well for the future. I look forward to ensuring a smooth transition with Glenn, and entering another stage of my life. I will continue to engage actively in many of my passions, travel with my family and friends, and explore additional Board opportunities. I want to thank all of you for your support.

So turning to our financial performance, sales grew 3.7% in the quarter, including a negative 3.2% impact from foreign currency translation. Constant currency sales growth was 7%, which includes organic growth of 6.4%. GAAP EPS for the quarter was $1.38 per share, versus $0.68 last year in the fourth quarter, while adjusted earnings per share were $1.56 a share for the quarter, versus $1.44 per share in the fourth quarter last year.

This quarter's EPS includes negative impacts of roughly $0.04 per share from foreign exchange, which was in line with our guidance. Most currency exchange rates against the US dollar continue to be weaker than last year in the same period. The weaker euro and Swiss franc, along with our layered hedging program, helped to mitigate some of the impact in the quarter, as many of our products are manufactured in Europe, which helps improve our gross margin rates in the period.

However, a significant weakening in foreign currency rates in emerging markets and the continued weakness of the Japanese yen, Australian dollar, and Canadian dollar, where we have minimal manufacturing, negatively impacted our gross margins and operating results in those regions. The most significant non-GAAP adjustment in the quarter were amortization, restructuring charges, and a net reduction in the charge associated with the voluntary recall of the Rejuvenate ABG II modular hip stem, as we resolved some insurance matters in the quarter, which more than offset the additional charge in the period.

As I have mentioned previously, the charges we have recorded related to the Rejuvenate and ABG II recall, represent the minimum of the range of probable loss to resolve this manner, and the charges may increase or decrease over time, as additional facts become available and our assumptions more refined. In the fourth quarter, our organic growth rate was 6.4%, including 8.1% growth in unit volumes and mix, with a price negatively impacting sales by 1.7%.

Acquisitions added 0.6%, while FX had a negative 3.2% impact due to significant weakness in both the Japanese yen and the Australian dollar, compared to the same period last year. Full-year 2015 constant currency sales growth were 7%, and organic growth was 6.1%.

Looking at our segments, Orthopaedics represented 42% of our sales in the quarter, and sales of orthopaedic products grew 3.3% as reported, and 7.1% in constant currency. US orthopaedic sales grew 9.7% in the quarter. Trauma and extremities had another excellent quarter in the US with sales increasing 13.6%, led by strong growth in foot and ankle, which again grew approximately 20% for both the fourth quarter and full year.

US hips and knees continued their strong performance of 6.4%, and 9.1% organic growth respectively in the quarter. Knee sales were bolstered by increased adoption of recent titanium 3-D printed products.

Our international orthopaedic business grew 2.4% in constant currency, as sales growth continued to be negatively impacted by weakness in China and Brazil. However, our international knee business grew 5.5% in constant currency in the quarter. Finally, we sold 31 MAKO units in the quarter, and 72 units in the full year.

Next, our MedSurg segment represented approximately 40% of our total sales, and sales of MedSurg products grew 3% as reported, and 5.6% in constant currency. These results were led by growth in our instruments and medical business, both of which had strong mid single-digit percentage growth in constant currency.

Endoscopy also posted mid-single digit percentage growth in constant currency in the period, on the back of our new camera offering, which was launched in December. All three of these large MedSurg businesses continued to manage pricing decisions effectively, with modest price declines of less than 0.5% for the year.

Our final segment, Neurotechnology and Spine, represented 18% of sales and delivered another good quarter. Sales of neurotechnology and spine products grew 6.5% as reported, and 9.9% in constant currency. Growth in this segment was led by our neurotechnology business, which had double-digit growth in the high teens in constant currency in the fourth quarter, and grew high teens in the US.

Spine sales had mid-single digit percentage growth in constant currency in the period, and had high single-digit growth in the US. This marks our third consecutive quarter of strong growth in US spine. Spine also has a new 3-D printed interbody device launching in 2016, which we believe will be a very exciting product for the market, helping us to continue this positive trend.

In looking at our operational performance, gross margin as a percent of sales on an adjusted basis in the fourth quarter was 67.2%, compared to 65.8% in the fourth quarter last year. When compared to the same period last year, the rate was positively impacted by solid operational improvements, product mix, and FX rates, despite the negative FX impact on earnings per share.

Price had a negative impact, as pricing was lower by 1.7% in the period. Our gross margin as a percentage of sales was 66.5%, or 50 basis points higher than last year.

Research and development expenses increased by 20 basis points to 6% of sales in the fourth quarter, compared to 5.8% in the same period last year. On an adjusted basis, selling, general, and administrative expenses represented 33.7% of sales in the fourth quarter, compared to 32.4% in the same period last year.

As expected, these expenses were higher for the year as we increased spending to support the cost structure of our European Regional Headquarters in Amsterdam, and our Trans-Atlantic Operating Model. We are confident in our ability to leverage these expenses in 2016, as we continue to drive a number of key cost initiatives, even as we reinvest some of the savings from the suspension of the medical device tax.

Operating margin as a percentage of sales on an adjusted basis were 27.4% in the fourth quarter compared to 27.6% in the same period last year. The full-year adjusted operating margin rate was 24.9%, nearly flat compared to last year. During the year, we invested in our European Regional Headquarters, and in the establishment of our Trans-Atlantic Operating Model, which reduced of the stronger operating margins for the year.

Other expense in the fourth quarter was $36 million. This increase in expense resulted primarily from higher net interest expense due to increased borrowings, and foreign currency exchange transactional losses in the fourth quarter. This is generally consistent with the run rate for this category.

Our reported tax rate for the fourth quarter was 14.7%, while the adjusted effective tax rate was 16.6% for the fourth quarter, compared to 22.6% in the same period last year. The fourth-quarter effective tax rate benefited from the renewal of the tax extenders, which was contemplated in our guidance. The full-year adjusted effective tax rate was 17.3%, compared to 22.3% last year, as we realized the benefits from our global tax structure and European Regional Headquarters in Amsterdam.

Looking at the balance sheet, we ended the quarter with $4.1 billion of cash and marketable securities, approximately 50% of it now held in the US. We also had $4 billion of debt on the balance sheet at the end of the quarter.

From an asset management standpoint, accounts receivable days ended the quarter at 55, relatively unchanged from last year. Days of inventory finished the quarter at 165 which was an increase of five days compared to last year.

Turning to cash flow, our cash flow from operations for 2015 were $900 million, compared to $1.8 billion last year. But as previously mentioned, we made significant payments earlier this year associated with our Rejuvenate and ABG II recall settlement of $1.2 billion, most of which occurred in the third quarter. Approximately 50% of the funding of the Rejuvenate liability is being sourced from OUS cash.

We also repatriated a total of $1.8 billion in 2015, including approximately $1.1 billion in the fourth quarter. Capital expenditures were $270 million in 2015, compared to $233 million last year.

Finally, regarding share repurchases in 2015, we repurchased approximately $700 million of our common stock, or approximately 7.5 million shares on an average price of approximately $94.67. We have authorization for another $1.9 billion available for repurchase under our current authorization.

Based on our strong performance in 2015, and assessment of the current economic and market conditions, we are projecting constant currency and organic sales growth in a range of 5% to 6% for 2016, and expect to be at the low end of that range in the first quarter, as we are still anticipating impacts of market conditions in the emerging markets, especially China and Brazil. If foreign currency exchange rates hold near current levels, we anticipate net sales will be negatively impacted by approximately 1% for 2016. We also expect continued unfavorable price reductions of 1.5% to 2%, consistent with the pricing environment experienced in 2015. Due to the suspension of that the med tech tax, we will also provide some additional visibility to our projected margin rate for 2016.

Both gross margin and operating income margins are projected to be at least 50 basis points higher in 2016, in total. The benefit from the suspension of the med tech tax will directly benefit our gross profit rate; however, R&D will run slightly higher in 2016, and our SG&A rate will only show modest improvement for the full year, as we expect to reinvest the majority of the benefit we receive into this area, offsetting much of our cost reductions in 2016. As such are gross margin rate improvements will be the driver of our operating margin rate in 2016.

We expect our full-year adjusted effective tax rate in 2016 will continue to be approximately 17% to 17.5%. Capital expenditures are expected to be $400 million to $450 million in 2016, as we continue to invest in our operations and IT infrastructure to support future growth.

Based on the current foreign exchange rates, we expect 2016 to be negatively impacted by approximately $0.12 to $0.13 for the full year, and approximately $0.03 for the first quarter. This negative impact is largely driven by the translational component of foreign exchange, which we do not hedge.

The transactional impact of foreign exchange on earnings is being offset somewhat by both natural and real hedges, which we continue to layer into our operations. Finally, our guidance for adjusted net earnings per diluted share in 2016 is $5.50 to $5.70 for the full year, and $1.17 to $1.22 for the first quarter.

Thanks for your support, and we'd be glad to answer any questions that you may have at this time.

(Operator Instructions)

Bob Hopkins, Bank of America.

So first, Bill, sorry to see you move on, but good luck with the next chapter. So I'd be remiss if I didn't ask a follow-up question on this announcement. And maybe the way to phrase the question, Bill, is -- and for Kevin and Katherine, you have been talking about M&A for some time, and I'm just curious if this CFO transition suggests any change in strategy or maybe suggests that mid- or larger deals less likely until after this transition is complete? Just curious how this could affect strategy and/or the outlook for M&A, and thanks. And again, congrats, Bill, for the decision.

Thanks, Bob. Look, I would tell you right now the Company is in very good shape. You can see the way we are performing. This is an internal transition with somebody who is inside our Company, so this is not like we are -- signaling any shift in strategy.

I would tell you we been very consistent on capital allocation since I've been in the job and even before, that our approach is to favor M&A first, then dividends, and then share buyback. So there's absolutely zero change to our operating mode, and I'm expecting a very smooth transition. You can see that we have a whole quarter of overlap. And Bill is still going to be around in this community and available to help us as needed, so I would tell you that you should expect more of the same from Stryker, and this should be a very seamless change.

All right. Thank you for that. And then as a quick follow-up also, Kevin, from a big picture perspective, I was wondering if you could give us your sense for the outlook for hospital capital spending in 2016. What are you seeing from hospitals, are you expecting any changes? Just wanted to get a sense for your view on the 2016 outlook for CapEx, especially since you're launching some new products into the market right now.

Thanks, Bob. Look, we see the market very stable for capital equipment. You can see the fourth quarter we had very strong performances on MAKO, selling capital, that's large capital. We also have a lot of small capital. Our instruments division did very well in the fourth quarter. So we look at the market as being very stable. We're just embarking upon a launch of our new camera, the 1588, within endoscopy. They had a nice start in the month of December and their orders look quite healthy going into the year. So we're not seeing really any change, a very stable capital market.

Mike Weinstein, JPMorgan.

Thanks for taking the question. And good evening, everybody. And Bill, my sentiments as well, thanks for all your help, and enjoy your time away from Stryker. Let me ask a couple of questions.

So one question is the 5% to 6% constant currency guidance for 2016. Obviously, you have by and large been running above that. Can you just tell us what you have baked in there for the emerging market performance, because obviously you are still assuming a challenging emerging market environment for the year. Just want to get some sensitivities around it.

Yes, Mike, in terms of emerging markets, which is in that 7% to 8% of our total sales in China and Brazil are the biggest components, although we have been seeing nice growth in markets outside of that. We've assumed those markets remain challenging for the better part of the year. China, as well as Brazil are difficult to predict, given the macro issues surrounding them. We do benefit from easier comparisons as we get to the back half of the year, but we assume the overall market there continues to be a bit of a challenge.

Yes, Mike, I would say the emerging markets for us we had similar performance in the fourth quarter as we did in the third quarter. So we are slightly negative in terms of growth in our emerging markets. China of course being the biggest drag, and for Stryker, we have a capital equipment business, especially the endoscopy division, that is quite big in China, and so that has a bit more of an impact than the disposables or implants on Stryker.

So we're expecting that to continue to be difficult, and that will be a drag. And it's early in the year, so we're setting our guidance from 5% to 6%. As you saw last year, we moved our guidance up during the year. If these conditions don't -- are not as severe, you can expect they would do the same. It doesn't change our outlook on our business. We feel very good about our business, but it's very early in the year, and we know that those markets are going to be challenged, and we're just baking in some caution around those markets.

Understood. So let me just two quick follow-ups relative to the guidance. So one, you started to talk about the cost transformation initiatives in greater detail in San Francisco. And in the 2016 guidance, you're basically assuming no SG&A leverage, and that's part of it. You're talking about reinvesting back in the business with the benefit of the med tech tax helping the gross margin line.

So can you just talk a little bit about where you're going to incrementally invest, if that will show up in SG&A, or will it all show up in R&D? And then, second, the acceleration of the share buyback, and acceleration maybe is not the right term, but you bought back more stock than you have been buying back in the fourth quarter. Can you just talk a little bit about what is in your 2016 guidance for capital deployment?

Yes. So a couple different questions there. The first one associated with the margin rates and also the SG&A area.

We do expect some modest level of improvement still in the broader operating expense category, but the reinvestment is primarily taking place in both areas, probably about maybe 20 basis points or so of an impact on the R&D related side, and the remainder in the SG&A area. I'd say that with the cost initiatives that we've got in place, that you would have seen obviously better leverage there, but with the reinvestment, that will slow that down at least at this year. But we should still be showing obviously some very solid growth margin rate improvement, and we should be getting good drop-through still into the operating income line for that.

As it relates to the buybacks, yes, we did jump that up to about $700 million in this year. As you can see our cash has continued to stay very strong. We were able to bring back some additional cash. We have about $2 billion here in the US at this point.

And as far as our guidance is concerned, you should expect that, we commented before that we've got the authorization out there, we expected to complete that over a two to three-year period of time, barring any sizable acquisitions. And hopefully, as Kevin mentioned, acquisitions are absolutely still our first and foremost attention within that space, and we expect to be very active as we move forward. But those are all based on timing situations, right? So -- but that is still our number one focus.

Rick Wise, Stifel.

Maybe, Kevin to start, my first question would be on the operating margin outlook. Obviously, you're exiting 2015 at 27.4%. Maybe just comment, if you would, on your aspirational goals here. Is it 30%? Is it 35%? Over the next two to four, or three to five years, just talk about the magnitude and the durability of this seemingly long-tailed opportunity.

So Rick, look, we only give guidance for one year, right? So we provide you guidance this year which shows some pretty meaningful leverage on the EPS line. Coming off the year we just delivered leverage, and we didn't have that $0.12 to $0.13 a share of negative FX we'd be giving in the 10% to 14% range. So that's pretty meaningful leverage on a sales of 5% to 6%.

So you should expect us to continue to drive meaningful leverage, that's the goal of the cost program. We've said before, there's significant opportunities in the hundreds of millions of dollars and as we get, drive those savings, we'll obviously, if there's greater opportunities to invest, we'll invest some of those dollars, and some of those dollars will fall to the bottom line. So -- but I don't have a magical number, and I think it also depends on, as the years progress, what types of deals that we do, and how that affects our margin profile. So I think each year, you'll expect us to give the kind of guidance we're giving you this year. Nice robust organic growth, and a nice amount of leverage to the bottom line, and I think I'll just leave it at that.

Okay. And Katherine, maybe for you on MAKO, can you give us a little more color on your comments? You talked about increased the demand for the hip indication. It seems to me you've placed a few more systems than we expected. Can you talk about the placements, and the utilization, and maybe where you are in the rollout for the new indications and software? Thank you.

Sure. I think it really is reflective of being completed year two of the acquisition, so working through the integration, and really helping the combined sales forces to optimize their education around the features and benefits of our hip system on the robotic assisted platform, and getting out there and really detailing those benefits. It's a nice mix of both existing Stryker customers, but also new accounts, that we are able to get into with the robots. So we are really pleased with the placement, as well as having a number of them outside the US.

I would really just emphasize 2016 is about really working to make sure we're optimally set up for full commercial launch in 2017, for the Total Knee so we're not expecting any real impact from that next year. We have a lot of work to do to optimize the training protocol. We're going to work with key opinion leaders, both on the robotic side as well as KOLs with our Triathlon system, to make sure were meshing those observational studies to really fine-tune the training protocol.

We then have to train our own sales force, do the upgrades of the system. So there's a lot of work to be done to make sure, when we go to full commercial launch, we are set to really optimize that, and have a presence at the podium. So we'll continue to drive placements with the existing indications for 2016, while doing the necessary groundwork to really ensure we're in a great position in 2017, to take full advantage of the Total Knee indication.

David Roman, Goldman Sachs.

I wanted just to start with some of the investment spending that you're committing to through the P&L. Over the past several years, you've been very consistent with investing in your business, both SG&A and R&D which has obviously produced this very nice top line growth rate. But as you look forward, as you continue to invest in the business, do you see opportunities to enhance the top line growth rate beyond what you're performing today, and where are the most attractive areas of investment for you?

Well, I can tell you that I get a chance to travel around to all our divisions over the course of the year, and I've yet to meet an R&D leader that has enough money to spend on new products. So I would say that all the divisions have opportunities. There's clearly some areas that we would focus on a little bit more than others. So you've seen our spine business really start to turn, based on focused investments in R&D. We've had three great quarters in a row in the US. We still have to take a lot of those products outside the US, but I would say that would be an area where organic development and spending is really paying off for us, so you could expect more in that area.

Sports medicine for us as a business that's growing very fast. It's relatively small within Stryker. That's also an area of interest. Neurotechnology, as well as extremities.

I would say, pick those four right off the top of my head, but I would tell you we have a long list, and if my other Division Presidents are listening on the call, I know that they are preparing ideas for me, as well. And we'll obviously look at all the ideas, and determine which ones we think can really provide value for us. We're not going to just spent for the sake of spending. In a company as big as Stryker is, with the decentralized focus, we are seeing that innovation delivers.

And I cited one example of 3-D printing, where I think we're seeing it have an impact on two different divisions of Stryker, our knee business as well as spine, and we have a huge line-up of other divisions with ideas and prototypes to get into 3-D printed titanium products. So I would say those are the top of mind areas of focus, but all the divisions are lining up, and we'll be very selective as we march through that, and we'll share more as the year unfolds.

Okay. That's very helpful. And then on the capital spending side, the $400 million to $450 million, even at the high end of the range it would be almost a doubling from where you were, I think in 2014. Could you maybe just help us go into a little bit of detail on where those CapEx dollars are going, how much of that are the 2016 isolated in nature, and what the implications of this additional CapEx are to the rest of the business down the road?

Sure. I'd say that there's a -- beyond just supporting the operations and the higher growth level that we've got in the Company, there is a couple areas of specific investment. One is on, in the ERP transformational area, which is strengthening our global ERPs on a worldwide basis and reducing the numbers that we have, so we're more on a consistent common system there. The second one is, actually we're building a brand-new state-of-the-art of 3-D printing manufacturing facility this year, as well too. So we're spending some dollars, I think in some key potential growth areas for us, and we really want to take advantage of that this year, is a little bit of a blip in comparison to what that normal CapEx would be.

David Lewis, Morgan Stanley.

Just a couple questions. One, Kevin, just to start out with the ortho market, I wonder if you could just comment on 2015, if you think about the underlying momentum in the market and your share position, how much relative share that you may or may not have taken in 2015 and how those dynamics in your mind compare to the outlook you'd see for 2016, both in terms of how the market's going to perform, and how you see share shaking out?

Thank you for the question. Obviously not everybody is finished reporting yet, so we don't have all the final results for 2015. We feel very good about the performance across our portfolio. Certainly, hips has been an area of strength for us for the past four years.

But we're very encouraged by what we're seeing in knees, as knees have started to pick up, and we've historically traded the last three, four years, been in line with the market or maybe slightly below, and I think we're going to start to see a bit of overperformance there behind innovation and launching new products. So we feel good about our position in those two.

Trauma, of course, as you know, has been a standout for us for about four years, and we continue to launch new products, and we continue to grow very well. So to us, the market seems very stable. We like our position in each of the categories. If you include spine within your definition of orthopaedics, I would say that was an area that had been more troubled for us, but we feel we're on a very good path now.

So across the portfolio, and I just had a chance to spend time with the sales meetings for orthopaedics and spine, I can tell you that they feel very good about our competitive position. And in a market that seems very stable, so I think we'll see more of the same in terms of volume growth, and we like our competitive position.

Okay. Thanks Kevin, and just two quick ones. One, just Katherine, just thinking about MAKO for a second, I mean, now you're selling world systems than target MAKO ever did, and I wonder, are you seeing any pushback on ASPs for the system around $1 million?

And in light of one of your competitors acquiring another competitor specifically in robotics, do you expect to see some ASP pressure in 2016 or 2017? And then Bill, just, you have sparked my interest on the 3-D printing facility. Is this a facility that will be capable of doing 3-D printed full Total Knee and hips, or is this more derivative products through the orthopaedics process? Thank you.

Yes. On the capital side, obviously, that's always going to be a conversation. You don't sell $1 million capital easily, but I will tell you, we are selling $1 million capital, so those robots are sold, they are not placed. I think what we're doing is really leveraging the ability to offer different models, and we talked about our flex financial. So giving customers the ability to outright purchase or lease, depending on their needs, and I think that's helping.

It's really, I think, the difference between when MAKO was standalone, is we have a very large selling organization, that over the last two years has really come to understand the features and the benefits, and the value proposition has only improved, going from a knee then to a hip, then to a hip with our hip systems on it, and now knowing a Total Knee will be coming I think helps in that sales processes as well, but we are selling those robots, and I don't anticipate that changing in 2016 related to any competition that might be out there.

Yes, and the second part of your question was around 3-D printing. So we had launched over the past few years, we have started with part of our knees system to enable cementless knee, so typical baseplate, we have, this past year in the middle of the year launched revision cones with geometry that can only be made with the 3-D printing. We have a patella that we have launched that's 3-D printed, and now, we're just about to launch a 3-D printed titanium interbody device for spine.

So all of the products we've launched thus far that are 3-D printed are all innovative new products, in the case of the spine product and the cementless product. It allows for bony ingrowth, because they're porous materials, and getting very good feedback from our customers. For the foreseeable future, at least the next three, four years or so, our focus is really on innovative new products, and not replacing our existing products with 3-D printed products. The pipeline of innovative, new geometries that can't be made without 3-D printing is the area of focus, so it's not about trying to replace our products and drive down costs. Over time, 10 years from now, that could be the case, but in the near into the midterm, it's really focused on innovative new products.

Kristen Stewart, Deutsche Bank.

So Bill, I'll reiterate definitely congratulations on your retirement, and we definitely will miss you. So just a question more strategically. I was just wondering if you feel good about the three main buckets that you have them and whether or not, Kevin, you feel like there's any need to expand beyond that, and get into any other white spaces at this point?

Yes. Now, Kristen, I'm going to be consistent with what I've been saying the past couple of years, and our strategy is to stay within these three segments. We like our position in these three segments. We want to continue, if you look at all of our acquisitions, they have strengthened each of our businesses that we're currently in, and every year we do a white space assessment, and the white space assessment is not as attractive as staying within our segments.

There are a significant number of targets within our segments. I know we only completed two deals, it was a little of a quieter year in 2015, but I can tell you the activity level was no different in 2015, with a lot of deals being discussed. And so I would expect us to continue along our current strategy, and don't expect us to suddenly jump into a white space.

Okay, and then just with respect to the Neurotech area, are there any notable clinical activities coming up, or trial readouts, or can you speak to any new product pipelines that we should be aware of? That could help drive growth?

Well, yes.

Obviously, it's been growing really well. But can you sustain it?

Thanks, Kristin. We love this business, and I would say our coiling and the ischemic stroke, we're in great shape, and we're growing very well in those two categories. The one area for Stryker that is a slight gap is the flow diverting stent segment. We are selling that outside the US, but we don't yet have US approval. We are process of just completing up our trial, and we'll be submitting for that, but we still have some time before that gets approved. That's the one area we're not in, so we're driving this terrific growth without being in that one segment in the United States. So that's an ongoing process, we'll update you more towards the end of this year, in terms of when that will come to market.

Jason Wittes, Brean Capital.

It sounds like we should view the Total Knee coming out next year as a transformational product. If I look into this year, can you maybe highlight the products that we should be focused on, that will really drive that growth this year?

I would really look at it as across-the-board, very typical Stryker fashion, where it's a more singles and doubles, whether it's endo launching their new 1588 camera, or MAKO continuing to drive indications like hip with the new Stryker brands we talked about, or spine with their new products that are coming out, 3-D printed. So it's really a story about those incremental innovative new products. Usually no one on its own is a growth driver, it's the totality of that offering that really allows us to sustain that organic growth at the high end of med tech.

Clearly, next year we're set up for some more impactful products, when you think about MAKO and the Total Knee, and expecting to be on a clear trajectory of taking meaningful market share is where we work our way through 2017. Ischemic is one more of those more transformational opportunities. There's a lot of market development that still needs to take place there, around the patient path referral systems, hospital, intra-hospital transfers.

So we talked about that being a multi-year process, we're clearly seeing some very good growth rates, but off a still small base. But I would really think about this year as a typical Stryker story, we've got a lot of products, a lot of momentum, dedicated sales force with a specialty focus that's really helping to drive that 5% to 6% growth we're targeting.

Okay, very helpful. And then just a quick follow-up for MAKO. Can you give us a sense of how many of these new placements are to existing accounts, and how many things are de novo?

Yes. We haven't broken out -- of the 31, we haven't broken out. I would tell you that it is a combination of both existing Stryker customers, as well as new customers, where we haven't had any type of meaningful presence. So we haven't given it with more granularity than that, but there is a nice mix.

Great. Thank you.

Matt Miksic, UBS.

Super job on the numbers, it looks like, and I'll pass along my congratulations and farewell to Bill. We will also miss you. So on MAKO, just a couple of maybe broader questions, on how you're positioning the platform.

Robotics has been a market development project, for a while. Oftentimes dealing with surgeons and helping them get more comfortable with using the technology, and maybe changing the way surgery is done over the long term. But at what point does this become, or has it already become, an opportunity to drive better contracting for you across your implant lines? Greater share or utilization, multi-line contracting, driven by the merits of the system and the technology. And I have a couple quick follow-ups.

So Matt, I would say, look, we're still in the early stages. Stryker hip brands are now just available recently, and we haven't launched the Total Knee yet. So I think those are the big applications, and to say that is impacting contracting yet, I would say it's too early for that. Once this becomes a more mature business, which will take a couple of years, then I think obviously having a system that the surgeons are having a great experience and they enjoy it and they want to use the products, it really does provide us with a great differentiation, which will -- and differentiation will show up in many different ways, including potentially in contracting. But we are a ways from that yet. We have a lot of work to do in the next couple of years, to really gain more broad adoption of the technology.

And another on the same topic here. Katherine, someone asked earlier about hips, and what's changing and now you're improving in performance there. Put that in perspective, I remember when hips came out, and when you first acquired the system, it wasn't generally thought to be really where the bang for the buck was, with the robot, and I guess what's changing? Is application get a lot easier? Is people getting -- are they proving out the benefits of the hip? I mean, what's driving uptake in -- against what was historically viewed as like a -- not the greatest application for the robot.

Okay. So I'll take this question, so I'll tell you the first iterations of the hip software were a little bit clunky, and it requires quite a bit more registration time to register -- you have to register in the software system, so that's just an extra step that some of the surgeons were a little bit frustrated with. Over time, both prior to our acquisition and subsequent to our acquisition, we've made some enhancements to the software to make it a little bit more user-friendly. That's been one factor for sure.

I think the most compelling factor is showing the surgeons in the pre and post x-rays that they put the hip exactly where they want to put it, and I think even though surgeons that had some hesitations, when they see the pre- and post x-rays, they're just -- it's a very compelling visual for them, to understand, before, they weren't doing that. They weren't able to get that same type of consistency, and that's starting to resonate with a lot of surgeons.

And now being able to put our implants, in addition, with easier to use software and to get that outcome, it's like all things that change right? Change doesn't occur to everybody at the same time. Some people are early adopters, some people frankly will never adopt. They'll just be set in their ways. But what we're seeing is the middle of the bell curve is starting to shift its mindset, and frankly the more that robotics is talked about in the community at large, we find that actually a very positive thing, because we really believe we have a terrific system, and we are obviously continuing to invest in that system going forward.

Joanne Wuensch, BMO Capital Markets.

I had two questions, the first one has to do with 3-D printing. We became quite aware about a couple of years ago. Now you are definitely doing a bigger focus on that.

What does it take for a 3-D printed, call it, hip or knee, to become more mainstream? Is it manufacturing? Is it clinical data? How should we think about this evolving?

Well, it's a long answer, Joanne. The reason I pause is to get into all the technology on 3-D printing would take a long time. The quick summary is that 3-D printing metal is very different than the way you think about 3-D printing plastic, having it on a desk in an office, and cranking out 3D printed products.

So metal is much more complicated. It's explosive. It requires a lot of extra programming. You just don't buy a machine, and off to the races. It's a lot more complicated than that.

And so we spent a lot of time, we've been working on this for many, many years, so we had a lot of know-how on how to program the machines and optimize the machines. And so there's a lot of factors that go into it, to be able to create and different types of machines work better for smaller products than larger products. So, it's difficult for me to just summarize in a short time.

I would just say that it's more complicated than plastics or other things that you read about in the mainstream press. And that's why for us, our focus is much more on innovative new products, and not necessarily replacing total systems. That'll be many, many, many years ahead of us.

That's very helpful. As a follow-up, what should we expect at the upcoming AAOS? Thank you.

Joanne, I think it will be typical to prior years. Clearly, there's going to be a big focus on around MAKO as we think about uni knee as well as hip. It's too early in our initial commercial launch activities to have a big focus on user feedback from Total Knees, although I'm sure there'll be a lot of surgeon presence around that, as they're looking to get educated on the features and benefits. And we'll have a tour of the booth as we've done previously, to highlight new products across all the businesses from trauma, foot, and ankle, spine et cetera, and we'll also have an opportunity while we're there to sit down and meet with management and have an open Q&A forum.

Raj Denhoy, Jefferies.

Wondered if I could ask a question about the CJR, CCJR program that's rolling out. I think you have been pretty clear, as all the companies have, that you don't think it's going to have much impact on pricing, and it's probably going to be focused on the post-acute care which pretty much mirrors what we are hearing as well. But my question is really around how Stryker interfaces with that model. In your performance solutions business, you were involved in some of the bundled payment initiatives before. Is there an opportunity for you to perhaps benefit from the CJR program as it rolls out?

Yes. We agree with your comments. We don't think it's going to have a meaningful impact. We have seen in the past with some of the prior programs, it really does drive a focus on post-acute, and patients that are discharged right to rehab, given the high cost there.

We do have a small business, our Stryker Performance Solutions, that we think can help work with hospitals, to help make them aware of the data, so they can have a sense of what best-in-class is and where some of the cost benefits they can realize, whether it's around infection rates, transfusions, et cetera. So it's not a huge part of our business, but it is one that provides insights and does help them, as they think about their overall cost structure.

But clearly, we continue to believe, based on everything we have seen, that is going to be post-acute care. We haven't seen any meaningful change at all in price between those trial areas, as it relates to implant pricing. And really the cost savings that they can realize, focusing on rehab really do dwarf anything else at this point in time.

Right. Maybe just as a follow-up, but if you think about that service offering, if that's the way you describe it, which performance solutions certainly does some of, as you think about the next several years, do you envision that service component becoming a bigger part of the business, offering not just implants to hospitals but perhaps something a bit broader?

Yes. I mean, that division is continuing to focus on that. It's not a huge part of our Company. I think we see the CCJR as a terrific example and opportunity for us to grow that business, but it's not at a scale at which I really want to start highlighting it.

I would tell you a year from now, I think we will have a much better idea of the scope of CCJR, and whether that can become a broader business for us. So services is not something new to Stryker. A lot of our MedSurg business provides services to hospitals. We have people in the hospital that our customers pay for, to make sure that all their uptime is working on their equipment.

So we're not against services at all, but we don't like to get out in front of ourselves. Let's see how this year unfolds, and if the business becomes something that could be scalable, then we'll talk about it a lot more. But right now, it's a small part -- I agree with you, that CCJR does provide an exciting opportunity for that business, but it's a very small part of Stryker.

Larry Biegelsen, Wells Fargo.

Starting, I wanted to just start with M&A. About a year ago, Kevin, you said you expected to put the balance sheet to work, and I just wanted to confirm that's still the case. And I'm asking, because obviously you have been relatively quiet on the acquisition front over the past 6 to 12 months, which is atypical. So is there any reason you haven't pulled the trigger on more deals? And I have one follow-up. Thanks.

Sure, I would tell you that just look, deal timing is just inherently unpredictable. There is absolutely no change in the statement I made before. I still intend to put the balance sheet to work. The reason we got the extra share buyback approval level was just in case deals don't get over the line, or drag on for extended periods of time, we would start to step up the buybacks.

But you should expect this to continue to be a very active acquirer, but you've seen in the past, right? Some times, some years there's one or two deals, and other years, you see many more deals. So our level of activity hasn't changed. I still see many exciting prospects out there. And so, we're staying the course with the existing strategy.

And then, earlier you said that in Q1, you would expect to be at the low end of the 5% to 6%, I think, constant currency growth rate, because of what you're seeing in emerging markets. And so -- but you expect emerging markets to be relatively weak throughout 2016, I believe.

So my question is, does getting the growth rate up above the low end of the range, does that depend upon an improvement in emerging markets? And if not, how do you get that growth rate up? Thanks for taking the questions.

Yes. I would just comment that if you look at the cadence of quarters last year, we had some difficult comparisons in the first quarter, as it related to emerging markets, more of the pressure, particularly in China, unfolded as the year went on. We're going to have easier comps in the back half of the year. We tend to have a seasonally stronger second half of the year, particularly as it relates to the fourth quarter. So it's more just reflective of how our quarters tend to play out in some of the year-over-year comparisons.

Glenn Novarro, RBC Capital.

Kevin, your US hip and knee business had a strong fourth quarter, up 6% and 9% respectively. Did you see in the fourth quarter the US orthopaedic market accelerate, or pick up a bit? Or do you think that was more share capture from Zimmer, given the integration between Zimmer and Biomet? And then I had a follow-up question on robotics.

Yes. So look, until we see everybody report, it's really difficult for me to say how much of it is the market versus competitive share capture. The knee number, we're very encouraged about. We tend to believe our knee improvement is more driven by the new products, the revision cones, and more uptake of our cementless knee offering. So we believe that's more of the issue than let's call it sales force disruptions or any other factors that are occurring at other companies. It's more about our innovation.

When I talk to our field, the sense I'm getting is a very stable market, so it wasn't -- a few years ago, we saw this big seasonal fourth quarter lift. Now, we're seeing a typical fourth quarter. This December was more or less typical, it's more active, but it was more active a year ago, too. So we're not seeing -- we didn't see anything or major in terms, from quarter-to-quarter, you do sometimes see slight upticks or downticks, but until they report, it's going to be difficult for me to comment, but I think you had a second question?

Yes. Katherine, in your prepared remarks, you talked about with the MAKO system, podium presentations in 2016. So can you describe what type of presentations? I'm assuming these are clinical trials, so what type of trials, and when can we see these trials being presented? Thank you.

Yes, my comments were that we're going to do observational studies in 2016, so really looking at key opinion leaders who have extensive experience with robotics, to understand how we can fine-tune the training protocol, and optimize the rollout. We're also going to be doing observational studies with key opinion leaders, who have a lot of familiarity with the Triathlon system, so we can mesh those two data sets and really put us in a position to have a presence at the podiums in 2017, not 2016.

So we think combining the full commercial launch, and being in a position in 2017 for those initial users, those key opinion leaders to talk about their experience, and how they were able to optimize both the robot as well as our Triathlon, will help drive the adoption. We're going to continue to collect additional clinical data, but that is going to take a number of years. This is really focused on observational studies to help optimize the training protocol.

Mike Matson, Needham & Company.

I guess I just wanted to start with the new camera at the endoscopy business. How does this compare to prior models? Is it more of an incremental improvement, and just in terms of the impact on the growth rate there, do you expect that to be more of a step change, or more of a ramp in terms of the growth in endoscopy? And then I have one follow-up.

So no, this 1588, so each time we have a new version and we call it, the last one was 1488 as you know, and now we're calling it 1588, AIM is the name of it. I would say it's meaningfully better. Certainly 1488 had terrific resolution, but we've improved the backlighting and some of the image clarity for certain procedures like ENT, that -- so our product works well in a wide variety of procedures, but there are certain procedures where the lighting just wasn't quite as optimized, and we made some nice enhancements there. So across the range of procedures, surgeons are all going to have a delightful experience, whereas in the past, it was not necessarily across every specialty. So that's the first thing.

The second thing is we have ICG built into our light source, which we've never had before. So with the press of a button, you can light up the organs, just I'm sure you're familiar with ICG, with the competitive product out there. But this is not, doesn't require an extra piece of capital, it's built right into the existing light source. Easy for the surgeons to use, which is wonderful.

It also includes another product for GYN that lights up parts of the anatomy, so it's really a safe surgery launch. It enables safe surgery with enhanced visualization. And we just launched it in December, so we don't have a huge amount of sales yet, but I would say the early clinical feedback has been very positive. So I do expect endoscopy to have a better year in 2016 than they did in 2015.

Okay, thanks. And just with regard to this big ERP project that you have, what's the execution risk there that something gets -- some balls get dropped, in terms of the inventory levels, and things like that, and causing an impact on your overall results for the Company? Thanks.

Yes. So like with any system of implementation there's always some degree of risk. We're being very thoughtful and careful about how we go about the project. We're staffing -- we're putting our best people on it, they're in a dedicated workspace. And in fact, my former Head of HR, who also has run businesses, is going to be leading the business component of that. And I appointed a new Head of HR.

That sent a terrific signal through the organization of the kind of commitment we're making. It will be a measured launch, so it will take a number of years before complete, and we're starting off with our instruments division, and we're going to continue -- we have a steady march planned, we have an IT leader who is partnering with the business leader who was previously -- had a previous large med tech company doing exactly this kind of implementation over the past few years. So we believe it's all about challenge, staffing the right people who know our business, and we're going to do our best obviously to mitigate the risk.

We had a painful experience in Japan a couple of years ago. I can tell you the approach to this project is radically different to the approach we used in that project, and so we feel we'll be in good shape. And it's not a big bang launch. We're going to do division by division, region by region, and there'll be a steady cadence. So even if something does start to wobble a little bit, it should have very, very little impact.

Matt Taylor, Barclays Bank.

I was just wondering if you could follow up on some of those comments on 3-D printing. And just talk about the materiality of the contributions in the quarter, and what your expect now that you're going to be investing more in this new plant? How big is it, and how material could that be?

Yes. So for the moment, these are innovative products that are adding, I would call it, incremental growth. It's not the core growth. The core growth is our big systems, right? Our Triathlon, our Accolade, that's where the core amount of our sales comes from. But this gives a little extra boost to, and puts a little bit of jump in our sales force step. Gives them something new to talk to their customer about.

So as an example, our revision business lagged, our market share lagged our primary business in knees, by about 5 or 6 market share points. So even in a Stryker-friendly account, sometimes they would go to a competitor to do the revision procedure. Now that we have what we consider best-in-class revision cones, not only do we keep that business, that surgeon stays with Stryker, we gain that sales, but they now have something that they can go talk to a competitive surgeon about. So I would say it's not a huge contributor, but it's an extra shot in the arm.

So with robotics and 3-D printing, we believe we have the lead on both of those areas. And those are things we can talk about, that differentiate us from our competition. So again, not -- even today, robotics is not a huge component of our growth, or our actual dollar sales, but we believe they are the ones that are causing that extra piece of growth, and a different view of Stryker for the future. Over time, I expect robotics and 3-D printing to take on a more important portion of our overall sales. And they'll be sustainable and sticky, if we have something that the competition doesn't have.

Okay. Great. And just one question on the Trans-Atlantic Model. It seems like you're making some progress there. Can you talk about where you are and how much that's helped to improve some of the OUS results, and where you think that could go?

Yes. So look, Europe has exceeded my expectations. We had a really -- our international growth doesn't look fantastic, so you don't see it, but Europe had a mid single-digit growth year, and it improved progressively from the first quarter to the fourth quarter.

So that kind of uptake is frankly ahead of where I expected it to be. It's been masked a little bit because of the sluggishness out of China, so that has dampened our international sales, but it's been a really great success. I'm excited about what I'm seeing from across our businesses in Europe. Some of the divisions it took off faster than others, like trauma, extremities and endoscopy took off really quickly, and now I'm starting to see some nice uptake in instruments and spine, towards both the end of the year.

So more to come in Europe. We made a number of investments over the course of the year. Those investments are now taking hold, and I think you'll start to see Europe become a division that delivers better top line and starts to deliver some leverage going forward.

We've added Canada, and so those are now directly managed. A division President has direct P&L accountability for Canada, the US, and Europe. The other regions we haven't yet folded into the model, but by eliminating the Group President of international role, we now have them reporting directly to our business group presidents, so it just increases speed and connectivity from our regions to come straight to a Group President.

Over time, we'll see whether those countries will roll into this model, but we don't want to run too fast to fully integrate complete global business units, especially with markets like China that are so different, or Japan. But we are very pleased with the progress so far. Taking out that position was nothing about cost reduction. That was 100% just to increase speed and connectivity of those countries to our businesses.

Matt Keeler, Credit Suisse.

Just two quick ones. First on hips outside the US, you highlighted the drag from emerging markets, but your knee growth actually picked up pretty nicely. So I'm just wondering if there was a much more pronounced impact from that emerging markets drag on the hips relative to knees, and if there were any other factors that impacted your hip business outside the US?

No. Nothing particular. You see this from quarter to quarter, and sometimes you'll hips jump. In the case of hips, Canada as an example, there was a hip tender that we lost, so that accounted for some of the hip growth.

There is not one overriding factor, it's just a story by story, country by country, and we see this from quarter to quarter. Sometimes you'll see knee, our business is not as big outside the US, so you do see a little bit more volatility in our numbers, whether it's hip, knee, spine. Once those businesses get larger you should expect that there will be less volatility.

Great. Thanks. And then just lastly, instruments growth was pretty strong in the quarter, but I think you have highlighted that business is later on in its product cycle. So just wondering if you think the level of growth we saw in the fourth quarter, if that's sustainable going forward, and what are some of the products to watch where you may be a little bit later on in that product cycle?

Yes. So the power tools is the product that we refer to as being late in the cycle. The System 7 power tools, which is probably the biggest single product category within instruments, but instruments has a lot of other products. So they have Neptune, they have -- they're launching a new Signature line of drills. We actually report that as part of the neurotech, but it's run by our instruments division.

But yes, they have the sponge counter, as well. Patient safety company that we acquired, so these are different kinds of businesses that can drive growth. It's a little less predictable than power tools, so I think we are very excited by how they finished the year. They finished the year very, very strong and we think that they'll have a good year, but being longer in the cycle, sometimes we do see them tailing off a little bit. So but I would expect to a year that's similar to the year they had this year overall.

Rich Newitter, Leerink Partners.

Kevin, I was hoping just to get some comments on spine. You characterize the market as stable, and you're clearly seeing some nice uptick in the growth rates there. You have some new product launches. So my question really is, has there been a change, or can you give us your updated thoughts on how you view external versus internal investments in this division, for you, now that things seem to be on better footing?

Yes. So I'm really excited by what we're doing organically. So we have retooled our R&D organization, some of our marketing organization over the past few years, and this business is hitting its stride, and we're launching more and more new products, we're getting into MIS, which was an area that we were softer in before, if you look back three, four years ago. And so it's great to see the organic growth.

Organic growth obviously is much more financially attractive, than going out and spending a lot of money on companies. Over time, I do want this to become a bigger division, and I think you'll likely see a combination of both organic and acquisitions, but it's always better to have a strong organic business. And so I do not feel at all that I need to do an acquisition because of the strength, and what we've started to build internally, but that's something that will likely happen over time.

Okay. Thanks and then just on extremities, again, your foot and ankle growth, I think you said it was 20%. This business continues to truck along. Any comments on the end markets versus potential share gains that we might have seen in the quarter, and specifically, are you seeing any disruption from recent M&A in the field? Thanks.

Yes, I would just say these are markets that continue to be very healthy, growing double digits. We do believe we're taking market share, we've got a dedicated sales focus there, some great products. I wouldn't call out any disruption that we're seeing in the marketplace. I think it just continues to be really good execution in a market that has favorable underlying growth dynamics.

Josh Jennings, Cowen and Company.

Kevin, I just wanted, hoping you could touch on pricing. I think recently you had some public commentary about some potential moderation in the pricing headwinds that you have historically been experiencing. Any comment in terms of assumptions for pricing headwinds within guidance, and then any outlook for pricing, particularly in Orthopaedics?

Yes. So we saw for the full year, our price did moderate somewhat from the prior year, and there was a lot of concern as we exited, if you remember, as we were exiting 2014, there was a lot of concern that pricing was going to accelerate in 2015. In fact, it hasn't. It actually moderated a little bit.

But it's modest, right? The moderation is very modest, and in our guidance, we suggest that the price will be between 1.5% to 2%, and so I would say it's a stable market. We continue to have price pressure, it's not going away, but we don't see any accelerators to that price pressure, and that's why we feel it's going to be pretty stable going into 2016.

Great, and then just one follow-up on MAKO. We haven't heard much over the last year on the uni knee product, any commentary there, in terms of how it's contributing to growth in your knee franchise? And just overall growth for that product line? Thanks a lot.

Thanks. Obviously the uni market, when it's put in the context of overall Stryker, it's a very small part of the overall business. And I would say it's a steady contributor, but there's nothing remarkable to say about it. It's a good business, but it's a very small part of our overall knee.

Were you talking Josh, specifically for MAKO? For MAKO, it's the first indication, and they're continuing to drive uptake for that as well as with hip, and as we get additional indications, I think it helped -- it does help drive adoption, and some consumers were not interested in just the uni, but as we get more indications, they are starting to adopt for that, as well as the other.

Yes but I'm just trying to interpret, sorry that Josh got cut off, just interpret that the growth, the 9% in the US, that spike in growth, it really wasn't driven by MAKO or unis. That's driven more by the broader knee business.

Matthew O'Brien, Piper Jaffray.

Just quickly on MAKO again, the number of systems replaced internationally accelerated here in Q4. Was there anything that you can call out as far as maybe a little bit of a tipping point in terms of interest in the robotics system OUS, and maybe that could be an even more meaningful contributor here in 2016?

No, it's still the lion's share of the focus on the revenue is coming from the US. We did place more systems outside the US, and we'll continue to focus on those opportunities, particularly places like Australia and certain other markets. But the bulk of the revenue stream has been, and will likely continue, at least near-term, to be US.

Yes, it tends to be a country by country thing, so Australia had a terrific year in robot sales. I think within Europe, we're going to see, certain countries are going to adopt MAKO much more quickly than other countries. So I think each year you'll see the international volume starting to increase, but it might be Italy this year. It might be the UK next year, over the next few years. But again, to Katherine's point, the market that's the most important by far is going to be the US market.

Okay and then just a follow up a little bit on Rich's question, a little more broadly on trauma and extremities. I think we saw some acceleration here in Q4 beyond what we've seen over the last several quarters, and I'm just -- I'm curious if that acceleration was specific to any couple of products or geographies around particularly the US, and if that level of growth is something that you think is sustainable here in 2016?

Well, I think you've seen our trauma business in the US. It's been four years of really terrific growth, so that to me is sustainable, when you're growing at that level. So we're very, very pleased. We've rounded out our portfolio completely, and so that enables us to do complete hospital conversions, something that was impossible at Stryker five, six years ago.

Europe really picked up quickly, so as we move to the Trans-Atlantic Model I was very encouraged by our trauma success in Europe. We have been not been nearly as successful in Europe as we have been in the United States, and we do now have the same products, which are all improved. So I think I expect more commercial success in Europe as well as Japan.

Now, some of those products take a little longer to get approved in Japan, so I think that once those products start to arrive, we'll start to see more of an uptake in Japan as well, but I would say, we're very good position in that business. We have a very, very strong leadership team, and we expect to continue to have success in trauma and extremities.

Jeff Johnson, Robert Baird.

Bill, just want to say, best wishes. I was looking back this afternoon, I think it's been 14 years that you and I have overlapped, so thanks for all the conversations, all the help over that time. And so Kevin, just wanted to ask one question and one follow-up question here, just on the phasing or maybe gating of some of the med tech tax savings. Is there going to be any timing differential between the med tech tax savings start coming in, and influencing the cost of goods line, versus when you start reinvesting those dollars back into SG&A and R&D? Should those match-up pretty evenly on the P&L, or just how to think about the gating throughout this year?

I think that's fair to say, Jeff, and thanks a lot for your comments. I think that on the cost of goods sold category, obviously that'll start right off in the beginning of the year. Our investments as we are targeting right now, moving again through 2016, we would also expect to be doing that reinvestment pretty much consistently throughout the year.

Yes.

That's all I have. Sorry.

It' going to be clean from the beginning of the year, from the beginning of this year to 2017. Starts immediately, there is no lag effect, which I think that happened prior with a different company. So for us it's clean. You'll see it cleanly in the two years.

Got it. Thank you.

Steve Lichtman, Oppenheimer.

I actually just have one follow-up on ERP. You talk about the investment on the capital side. Are there any P&L impacts that we should expect over the next couple of years, as you start to implement ERP, and when do you anticipate the system being fully in place?

So a couple different questions again there. So on the ERP side of the equation, from an investment perspective, we won't see the first implementations really for about another year and a half or so, and then those will be rolled out over the next few years after that. As far as the cost side of the equation goes, we would not expect that to be a big blip once we get to the stabilized level that we've got in 2016 here.

But moving forward, and in fact, if anything, as those systems are implemented, we would expect some of the benefits. Plus with the CTG initiatives that we've got kicked off, those will continue to roll in at different points, throughout different years. We do have multi-hundreds of millions of dollars targeted for that. Keep in mind as well, that we have price downs in the $150 million to $200 million range that we need to be working to offset. And then as far as the impacts associated with the investments, again, that should be pretty consistent, as we're moving forward beyond 2016. Yes, just to add to that, I would say we do have some expense that will be hitting our P&L, but we are absorbing that within the guidance that we have provided to you.

Got it. Thanks. That's all I had. Thanks.

Kaila Krum, William Blair.

Just a couple quick ones for me. First, I mean, clearly you all are still emphasizing M&A as a key priority here, and I'm just curious if you can touch on how or if those conversations have changed tone, just with some of the valuation pullbacks, specifically that we have seen in recent weeks?

Yes, I would say that short of time period doesn't have an impact, and as Kevin articulated, we continue to be focused on M&A. Externally, there's going to be periods where it looks more or less active, depending on timing. Internally, the teams have never been busier and there's no change in the strategy, and the recent market disruption is what it is.

Okay. And then, I guess just a follow-up on an earlier question, just around whether or not there is this potential for longer-term growth rates to accelerate? And then just pairing that with your earlier comments about MAKO and the likelihood that 2016 is more of a set up year for 2017. Is it fair to assume that overall top line growth could modestly accelerate heading into 2017 from 2016 levels?

It's always our goal to grow sales at the high end of med tech, and certainly, we've got some nice opportunities between ischemic and MAKO, and they're going to be in the early stages next year. So probably premature to start to push towards higher growth rates than this year, but we feel really good with what we've set up for this year, and hopefully can build on that in 2017.

I think we're going to learn a lot, so I think towards the end of this year, we'll be able to share more of the two additional platforms, both MAKO and ischemic stroke. Those are the ones that I think we can provide, let's call them change of trajectories and growth for the Company. Now whether that happens in 2017 or 2018 or 2019, they're new platforms, so it's not easy to predict. But I think we'll learn a lot over the course of this year and certainly be able to share more with you when we provide our guidance in the following year.

We have no further questions at this time. I will now turn the conference call over to Mr. Kevin Lobo for any closing remarks.

Thank you all for joining our call. Our conference call for the first-quarter 2016 results will be held on April 20. Thank you.

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