Zimmer Biomet Holdings Inc (ZBH) 2013 Q4 法說會逐字稿

Good morning.

I would like to turn the call over to Bob Marshall, Vice President Investor Relations and Treasurer.

Mr. Marshall, you may begin your call.

Thanks Toni.

Good morning and welcome to Zimmer's fourth-quarter 2013 earnings conference call.

I'm here with our CEO, David Dvorak, and our CFO, Jim Crines.

Before we start, I'd like to remind you that our discussions during this call will include forward-looking statements.

Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties.

Please refer to our SEC filings for a detailed discussion of these risks and uncertainties.

Also, the discussions during this call will include certain non-GAAP financial measures.

Reconciliations of these measures to the most directly comparable GAAP financial measures are included within the earnings release, which is available on our website at investor.zimmer.com.

With that, I'll now the turn the call over to David.

Thank you, Bob.

Good morning everyone and welcome to our earnings call for the fourth quarter of 2013.

This morning I'll review our fourth-quarter and full-year 2013 financial results, including highlights from our performance.

Jim will then provide additional financial details, as well as our 2014 guidance.

I'll state all sales in constant currency terms and all earnings results on an adjusted basis.

Zimmer drove accelerating growth throughout 2013, fueled by the successful commercialization of innovative new solutions across our portfolio, from our flagship knee offering, Persona, the Personalized Knee System, to our differentiated Transposal Fluid Waste Management System, which enhances our presence in the OR suite.

Zimmer also delivered operating margin expansion through our operational excellence initiatives.

As part of that effort, the Company continued to make progress toward the achievement of excellence in our global quality infrastructure.

These process-driven improvements will promote design for manufacturability and become the platform for the leaner, more efficient, and effective manufacturing and distribution of our devices.

In 2013, we continued to follow a disciplined approach to capital deployment.

As part of our external development strategy, we enhanced our industry-leading portfolio with targeted complementary additions.

These have increased the competitiveness of our existing business and have supported our entry into adjacent musculoskeletal markets.

In line with our commitment to returning value to our stockholders, the Company paid out more than $850 million in 2013 in the form of cash dividends and share repurchases.

Our performance throughout the year was a validation of Zimmer's philosophy of growth through innovation and further bolstered our position as a global leader in healthcare, exclusively focused and fully diversified within musculoskeletal care.

As we look to 2014 and beyond, we're confident that the Company is well positioned for continued growth in the evolving global healthcare landscape through the ongoing development and commercialization of clinically relevant and innovative solutions.

Consolidated net sales for the fourth quarter were $1.24 billion, an increase of 6.6%, and our earnings per share were $1.66, an increase of 9.9% over the prior-year period.

Full-year sales for 2013 were $4.62 billion, an increase of 4.9% over 2012, and our earnings per share were $5.75, an increase of 8.5%.

Turning to global market conditions.

In the fourth quarter, musculoskeletal markets were healthy in the Americas and Asia-Pacific, while stabilizing in Europe, Middle East, and Africa.

Increased procedural demand, particularly in the United States, contributed to a strong performance in the quarter.

With respect to pricing, we experienced price pressure of negative 2.1% in the quarter, consistent with our expectations coming into the year.

I'd now like to comment on our sales performance in each of our geographic segments.

In the fourth quarter, Americas sales grew by 7.8% year over year, while Europe, Middle East, and Africa increased sales by 2%, and the Asia-Pacific region grew 9.8%.

Zimmer continued to benefit from focused sales execution, as well as the expanded roll-out of surgical instrument sets in support of new product launches and our entry into new market categories.

Turning now to the sales results of our product categories.

Our market-leading knee business increased sales in the fourth quarter by 9.7%, reflecting positive volume and mix of 12.1%, and negative price of 2.4%.

Our Americas segment grew sales by an exceptional 10.7%, while Europe, Middle East, and Africa increased sales by 7.2%, and the Asia-Pacific region delivered 10% growth compared with the previous year.

Throughout 2013, our performance in knees was bolstered by the ongoing commercial release of Persona, the Personalized Knee System.

Designed to offer patients an unprecedented level of fit, feel, and function, this next-generation total knee replacement has redefined the gold standard of care by marrying the unmatched fidelity of Zimmer's anatomical implant components with our suite of intelligent surgical instruments, including the iASSIST Surgical Guidance System, patient-specific instruments, and the eLIBRA soft tissue balancing system.

Persona also leverages Zimmer's proprietary advances in orthopaedic technologies, including Trabecular Metal technology, and Vivacit-E, our advanced vitamin E-infused bearing material.

In addition to impressive sales growth in 2013, the resoundingly positive clinical feedback from our customers continues to validate our bullish position for this truly differentiated knee replacement system.

As in previous quarters, the accelerated growth of our knee business was further strengthened by our expanding portfolio of early intervention and joint preservation treatments, including subchondroplasty and Gel-One.

These innovations serve the unmet needs of millions of patients and fit within our vision for offering the most personalized and appropriate therapies for every disease state and condition along the continuum of musculoskeletal care.

Turning to our hip business.

In the fourth quarter, we achieved sales growth of 2.9%, reflecting positive volume and mix of 5.3%, and negative price of 2.4%.

Sales increased by 4.5% in the Americas, decreased by 1% in Europe, Middle East, and Africa, and increased by 6% in the Asia-Pacific region.

As in the third quarter, a product mix favoring premium technology supported a solid performance in the Americas, including our proprietary Trabecular Metal technology and the Vivacit-E advanced bearing surface material.

We'll continue strengthening our global position in hips by bringing to market the most clinically relevant portfolio of patient-matched solutions to address the full spectrum of surgical philosophies.

By way of example, the continuum acetabular cup has become well respected within the surgeon community for addressing an unprecedented range of anatomy and bone quality.

We've also seen steady growth of the Avenir Hip System, which positions the Company to compete in the minimally invasive anterior supine surgeries, one of the fastest growing subsegments of the hip market.

Additionally, a number of products from our broader portfolio continued to enjoy steady growth, such as the M/L Taper and Fitmore Hip Stems.

Zimmer's strong clinical legacy and the industry-leading science backing these differentiated technologies support our confidence in the future growth of our hip business.

Our extremities business closed out 2013 with a solid 11% increase in sales, with results yet again driven by the sustained performance of our upper extremities portfolio.

The Trabecular Metal reverse shoulder continues to lead within its category with notable sales growth.

We're enthusiastic about the promising future of the patient-specific instrument shoulder system to enhance this offering with our advanced 3D visualization and personalized surgical planning software.

We also look forward to the broader release of the Nexel Total Elbow to further enhance our position in upper extremities.

As we build upon our success in extremities, the Company will remain focused on expanding our reach into new anatomical sites.

The Trabecular Metal Total Ankle replacement has enjoyed steadily increasing uptake since its introduction, and continues to receive excellent clinical feedback for its unique tissue-sparing surgical approach.

Moreover, the acquisition of Germany-based NORMED in the second quarter of 2013 has added new product offerings, as well as design capabilities to strengthen our lower extremity and total ankle portfolio.

Dental sales increased 1.9% for the fourth quarter, with Zimmer's differentiated portfolio of premium and value-based solutions delivering steady performances as certain dental markets continued to stabilize.

On the premium end of our portfolio we expect to see continued strong performances from our leading regenerative products and Trabecular Metal dental implants for which we're preparing to market new offerings in the aesthetic dental zone in 2014.

We're also optimistic about the continued expansion of our custom milled Zfx CAD/CAM Digital Dentistry Solutions.

Finally, as part of our expanding value proposition for an evolving global dental market, we look forward to the broader release of our P-I branded value-based offerings.

Turning to our trauma business.

Sales decreased by 1.2% in the fourth quarter.

Our results in the Americas and Europe, Middle East, and Africa regions were largely offset by a promising 15.2% sales increase in Asia-Pacific.

We're also encouraged by continuing steady sales for the Zimmer Natural Nail family and the NCB Periprosthetic Plating System.

Although our trauma business faced challenges in achieving sales growth comparable to previous quarters, we'll continue to focus our execution and expand our presence in key US markets, as well as in level one and two trauma centers.

Looking forward, our comprehensive trauma portfolio continues to expand with exciting new introductions for the hand and wrist market to increase our global competitiveness.

Zimmer's spine sales decreased by 1.9% in the quarter, compared to the prior year.

Our encouraging performance in certain overseas markets as well as the ongoing progress from recent product launches has increased our competitiveness as we prepare to recapture growth opportunities in 2014.

Our reinvigorated focus on our core fusion portfolio also continues to garner positive traction, with innovative offerings such as the TM Ardis and TM-S Interbody Fusion devices driving steady sales.

As part of our ongoing growth strategy in spine, we'll continue to leverage differentiated technologies to expand and enhance our portfolio.

In addition to the ongoing release of the APEX Spine System, which strengthens our ability to address degenerative deformity in complex spinal conditions, we also expect our introduction of the Lateral Interbody System to contribute a growing share of revenues in 2014.

This differentiated offering delivers a unique support mechanism above and below the spinal interbody, and marks our entry into one of the fastest growing subsegments of the spinal market.

Zimmer's surgical and other category delivered another outstanding quarter, increasing sales by 15.9%, with the Americas growing by 22.8% over the prior-year period.

Results from our Europe, Middle East, and Africa reflected a steady performance, and for another quarter, our legacy portfolio delivered solid growth in the Asia-Pacific region.

Our results in the surgical and other category continue to be led by impressive sales of our Transposal Fluid Waste Management System.

While we'll face challenging year-over-year sales comparisons throughout 2014, we're confident that this differentiated complete solution for the OR suite has a promising future.

We also saw strong performance from our legacy portfolio including sales of our bone cement products.

As we look to 2014, we expect continued contributions from across our broadened surgical portfolio.

Now I'd like to turn it over to Jim who will provide additional financial details as well as our 2014 guidance.

Thank you, David.

I will review our fourth-quarter performance in more detail and then provide additional information related to our 2014 sales and earnings guidance.

Our total revenues for the fourth quarter were $1.241 billion, a 6.6% constant currency increase compared to the fourth quarter of 2012.

Net currency impact for the quarter decreased revenues by 1.5% or $17 million.

The negative currency impact for the quarter related principally to our Japanese yen and Australian dollar denominated revenues, partially offset by positive currency translation associated with our euro-based revenues.

Our adjusted gross profit margin was 73.6% for the quarter.

The margin ratio declined 130 basis points compared to the fourth quarter of 2012.

In the fourth quarter, we recognized approximately 50 basis points of charges related to the Medical Device Tax.

Together with higher surgical product sales, inventory obsolescence, manufacturing related charges, and negative price, these factors outweighed foreign currency hedge gains and cost savings from our operational excellence initiatives.

The Company's R&D expense decreased 16.1% or $9 million on a reported basis to 3.7% of net sales when compared to the prior year.

The decrease in R&D expense continues to reflect the natural decline related to the completion of a number of large projects, the dedication of resources to our quality and operational excellence initiatives, as well as the effect of natural leverage associated with a higher top line typically experienced in the fourth quarter.

Zimmer's pipeline of new and innovative products nonetheless remains robust, which will help drive growth in future periods.

Selling, general, and administrative expenses were $477 million in the fourth quarter, and at 38.4% of sales were 60 basis points below the prior year.

In the quarter and for the full year, a portion of the savings generated from our operational excellence initiatives were invested in higher selling, marketing, and distribution costs associated with the commercialization of a number of new products, as well as direct sales integration in certain key markets.

While continuing to invest in growth initiatives, the Company was able to lower SG&A as a percentage of sales for the full year by 70 basis points.

In the quarter, the Company recorded pretax charges of $61.2 million in special items, and $12.8 million in cost of products sold, pertaining to global restructuring, quality and operational excellence initiatives, certain litigation, and recent acquisitions.

Adjusted fourth-quarter 2013 figures in the earnings release exclude the impact of these charges, which include $40 million related to quality and operational excellence initiatives in manufacturing, logistics, and sales, $14.5 million connected with certain outstanding litigation matters, and $19.5 million in integration and other costs.

Adjusted operating profit in the quarter amounted to $389.3 million.

At 31.4%, our adjusted operating profit rate to sales ratio was 20 basis points higher than the prior-year fourth quarter.

Net interest expense for the quarter amounted to $12.3 million, which was favorable when compared to the prior-year quarter.

Adjusted net earnings were $288.6 million for the fourth quarter, an increase of 9.5% compared to the prior year.

Adjusted diluted earnings per share increased 9.9% to $1.66 on 173.5 million average outstanding diluted shares.

These adjusted earnings per share are inclusive of approximately $0.05 of share-based compensation.

At $1.36, reported diluted earnings per share increased 54.5% from the prior-year fourth quarter reported EPS of $0.88.

Our adjusted effective tax rate for the quarter was 23.6%, and was 210 basis points favorable when compared to prior year, due to more favorable mix of earnings from lower tax jurisdictions.

Our reported effective tax rate for the quarter was 22.3%, as the majority of restructuring and other special items charges are incurred in higher tax jurisdictions.

During the quarter, we repurchased 2.7 million shares at a total purchase price of $241 million.

The authorization under which these shares were purchased expired on December 31, 2013.

As was previously disclosed, a new $1 billion authorization was approved last month.

The Company had approximately 169.8 million shares of common stock outstanding as of December 31, 2013, down from 171.7 million as of December 31, 2012.

Operating cash flow for the quarter amounted to $300.2 million, a decrease of 18.4% from $368 million in the fourth quarter of 2012.

The decrease is driven primarily by increased cash outflows associated with certain claims, restructuring actions, and quality and operational excellence initiatives.

Net inventories were $1.075 billion at the end of the fourth quarter, a decrease of $7 million from September 30, 2013.

Adjusted inventory days on hand finished the quarter at 277 days, a decrease of 7 days as compared to the prior quarter.

As of the end of the fourth quarter, net receivables increased to $937 million from $885 million in the fourth quarter of 2012, or 6% over prior year.

Our adjusted trade accounts receivable day sales outstanding finished the quarter at 65 days, an increase of 1 day when compared with the prior year.

Depreciation and amortization expense for the quarter amounted to $90.1 million.

Free cash flow in the fourth quarter was $251 million, $30 million lower than the fourth quarter of 2012.

We define free cash flow as operating cash flow less cash outlays for instruments and property, plant, and equipment.

During the full year, the primary drivers for the decrease in free cash flow included the ongoing investments in our new product inventory, capacity related investments, and the acquisition and deployment of instruments to support the full release of Persona and other new products.

Capital expenditures for the quarter totaled $49.6 million, including $26.8 million for instruments, and $22.8 million for property, plants, and equipment.

I'd like to turn now to our guidance for 2014.

In our earnings release this morning we announced that the Company expects full-year 2014 revenues to increase between 3% and 5% in constant currency when compared to 2013.

At this time, assuming currency rates remain at year-end 2013 levels, we anticipate foreign currency translation will decrease our reported 2014 revenues by an estimated 0.5%.

Therefore, on a reported basis, our revenues are projected to be between 2.5% and 4.5% above 2013 results.

Among our market assumptions for 2014, we believe that full-year knee and hip markets will grow in the low- to mid-single digits.

We expect global market conditions will remain relatively stable in 2014, when compared to the full year 2013.

With regard to pricing for 2014, we assume stable but declining price.

Beginning in the second quarter, we expect the biannual Japanese price adjustments to take effect, along with some anticipated but moderately weaker pricing in Europe.

In the aggregate, this leads us to expect pricing for 2014 to be between minus 2% and minus 3% compared with 2013.

Moving down the income statement.

Assuming currency rates remain near recent levels, we expect our gross margin ratio to be between 73% and 74% for the full year.

This takes into account anticipated gains on foreign currency hedges, principally from the Japanese yen, as well as the full impact of the Medical Device Excise tax.

Beginning with the first quarter, we anticipate the tax alone will result in approximately $10 million of charges in cost of sales on a quarterly basis.

We expect R&D expense for the year to average approximately 4% to 4.5% of sales; although we have cycled out of several major product development projects, our pipeline remains robust.

Changes we have made to increase the productivity and process efficiency of our R&D function enable us to more effectively focus investments in this area, while still supporting the vitality of our pipeline.

SG&A is expected to be between 38.5% and 39% of sales for the year as we realize efficiencies from our global operational excellence initiatives and further leverage revenue growth.

Assuming variable rates remain near recent levels, we expect interest and other expense of around $50 million in 2014, due mainly to interest rate swaps entered into during the second half of 2013.

We anticipate a 2014 full-year adjusted effective tax rate of 25.5%, which is slightly above our final full-year rate for 2013.

We anticipate diluted weighted average shares outstanding for 2014 to be at or near 169 million shares.

Therefore, 2014 full-year adjusted diluted earnings per share are projected to be in a range of $6.10 to $6.30.

With regard to the first quarter of 2014, constant currency revenue growth is anticipated to be in a range of 3% to 5%, while foreign currency translation is expected to reduce our reported revenue growth by an estimated 1%.

Therefore, on a reported basis, our first-quarter 2014 revenues are projected to grow between 2% and 4%.

Adjusted diluted earnings per share for the first quarter 2014 are expected to be in a range of $1.45 to $1.48.

As indicated in our release, we expect to record pretax charges of approximately $250 million within the 2014 operating period pertaining to global restructuring, quality and operational excellence initiatives, and recent acquisitions.

Therefore, to arrive at our anticipated reported GAAP earnings per share, you should subtract these charges or approximately $1.10 per share on an after-tax basis.

The programs to be completed in 2014 are expected to generate annualized pretax savings of $60 million.

Together with savings realized across the various initiatives completed prior to 2014, total run rate savings are projected to reach $290 million by the end of 2014.

This reflects significant progress toward the realization of our previously announced target of $400 million in total savings by 2016.

Turning to cash flow.

We anticipate total capital expenditures for the year to be in a range of $350 million to $360 million.

Instrument capital is expected to be in a range of $200 million to $210 million, as part of our ongoing launch of the Persona Knee System as well as other new product introductions.

Traditional PP&E is expected to be approximately $150 million, reflecting the cash outlays necessary to update and modernize our manufacturing capabilities and support new product developments and commercialization activities.

Our guidance assumes that we will continue to return cash to our stockholders through our share repurchase and dividend programs.

Free cash flow in excess of these capital allocation programs is assumed to be held in cash and cash equivalents for other investments.

Estimated depreciation and amortization expense for the year is in a range of $365 million to $375 million.

Finally, please note that our guidance does not include any impact from potential acquisitions or other unforeseen events.

David, I'll turn the call back over to you.

Thanks, Jim.

In 2013, Zimmer's focused execution around an expanded portfolio accelerated revenue growth in both our core reconstructive franchises and global businesses.

With revolutionary new offerings, such as Persona, the Personalized Knee System, we continued to set the pace for the musculoskeletal market with clinically-relevant solutions designed to serve the needs of surgeons, their patients, and healthcare institutions.

As we advance the strategic vision in 2014 and beyond, we'll remain committed to our core business principles of delivering growth through innovation, cultivating quality and operational excellence, and serving as disciplined stewards of capital.

We're confident that these critical elements of our value creation framework will continue laying the foundation of our future growth.

And now I'd like to ask Toni to begin the Q&A portion of our call.

(Operator Instructions)

Your first question comes from the line of Bruce Nudell with Credit Suisse.

Just looking at, Dave, as you think about 2014 on the back of what looks like a very much improved major joint market, how are you thinking about volume growth in the major territories for major joints, US, developed ex-US, and emerging markets?

Good morning, Bruce.

We did see a sequential improvement in the procedural demand as 2013 progressed.

But I think that we want to be a bit cautious about taking the exit growth rate on procedural demand from Q4 as an extrapolation as to what we're going to see throughout 2014.

I think you want to think about the demand-producing growth numbers that are consistent with all of 2013 as opposed to jumping off of Q4 and carrying that growth trajectory into 2014.

Beyond the US, and those comments are probably more focused on the US, Bruce, I think that we would expect to see some stabilization in the developed markets within Europe.

We did see that as 2013 progressed and in particular in Q4.

Now, it's different by country within Europe, Middle East, and Africa, and it's also different by product category in some jurisdictions within Europe, Middle East, and Africa.

But as a general trend, we would expect to see stabilization, and as measured against 2013, a bit of improvement in 2014.

And so like just to kind of -- if we think of the US, with units around 4% to 5%, and developed ex-US 2% to 3%, and emerging markets solid double digits, is that appropriate to think about kind of the growth rates in volume?

I think that that's directionally correct.

I think that the growth rate obviously much higher in the emerging markets.

I think that the growth rate that you just articulated is going to likely continue to be higher in developed markets in Asia-Pacific than developed markets in Europe, Middle East, and Africa as well.

Perfect.

And just in terms of just qualitatively about -- I know the Med Tech tax is a big headwind the first half of next year.

Should we in aggregate be expecting like around 50 bips of operating margin, directionally how should we be thinking about the regression for the Company?

I think that's very fair, Bruce.

As I indicated in my scripted remarks, we're anticipating the tax to result in about $10 million of charges running through cost of goods on a quarterly basis in 2014.

If you look how that compares with 2013, we recognized a modest amount of tax in the fourth quarter.

So the headwind will persist if you will, at least for the first three quarters before we get into the fourth quarter of 2014 where we have a year-over-year comp where it's in both years.

Thanks so much.

Your next question comes from the line of Bob Hopkins with Bank of America-Merrill Lynch.

Hi, thanks, good morning.

Can you hear me okay?

We can, Bob, good morning.

Great.

Good morning.

So obviously overall you guys are growing as fast or faster than most medical device companies at this point.

But I wanted to ask you a question specifically about hips because that's an area where you're not quite growing as fast as your peers, and in Europe despite very easy comps, you had another negative growth performance in the quarter.

And so I'm wondering if you could just talk a little bit more about the hip business, and the prospects for the hip business and the potential for accelerating growth in 2014.

Sure.

The points that you make are appropriate.

I would tell you that we believe that we have a very, very competitive portfolio at this point on the hip side.

Some of what you're seeing in the Europe, Middle East, and Africa performance is a matter of our market share position in those developed markets that had slowed down.

We have large share in some of those developed markets in central Europe for example, and so we're going to be affected disproportionately by those slowdowns.

So that's part of it.

I think there's also a lot of energy and excitement globally about the launch of Persona, so we'll balance that focus a bit better in 2014.

But with that by way of background, Bob, I would tell you we're very confident that you'll see improved performance within the hip product category in 2014 for the Company.

Okay.

And then as a follow-up, I was wondering if I could just ask you about sort of a big picture question, David, as you look at 2014 for the prospects for your balance sheet in terms of use of cash, buyback versus M&A, is it a robust environment from your perspective in terms of M&A opportunities, or is this likely to be another year where you're more active with the buyback?

I think that you should plan on the buyback program operating in a manner that's consistent with past periods.

But we're going to be active as we have in the past on the M&A front.

We'll be disciplined about the returns that we would expect through any of those deals.

But I think that if anything, the momentum that we've created with the new product introductions and the top line growth puts us -- (technical difficulties).

I do apologize for that.

That's okay.

I'll just pick up and reiterate, Bob, in response to your last question, I was starting to say that you should expect the capital deployment and the disciplines around that to be consistent with past years.

We'll be very proactive about examining opportunities on the acquisition front as we have in the past.

But we're going to be disciplined about that and the return metrics will be consistently applied with what we've done in past operating periods.

I think if anything, in response to your question as far as additional color, I would say that the new product launches and the success and momentum those are creating within the business, I feel put us in a great place to examine deals of all sizes in 2014.

Great, thank you.

You're welcome.

Your next question comes from the line of Matthew Taylor with Barclays Capital.

Good morning.

Thanks for taking my question.

I guess my first question was I wanted to just understand how you're thinking about some of the momentum that you saw in the knee business, I guess as you look at both Persona launch and any contributions from Gel-One.

How should we think about the additional growth that you could see year over year, based on the pace of your launch of those products?

And then also do you have a strong view or any kind of view on how much of the fourth-quarter growth could have been due to some seasonality in the US?

Sure.

The majority of the performance improvement, and obviously within the knee category in the United States jurisdiction in particular, the performance improvement for the Company was substantial over the course of 2013.

We reestablished momentum within that product category.

It's a very, very important product category to us for obvious reasons.

And what we accomplished in that year was meaningful and will carry momentum into 2014 and beyond.

We're extraordinarily excited about the pipeline that we have beyond the initial launch of Persona, both within primary knees and other subsegments.

So I expect that momentum to continue, and the success that we believe we're having with competitive surgeons already with the Persona system is part of the basis for that optimism as to what we're going to do in go-forward periods.

I would tell you that the contributions within the knee category in the Americas by way of example when you mentioned Gel-One, it isn't material relative to the performance improvement that you saw sequentially from Q1 through Q4 in 2013.

So you can read that as the vast majority of our success in 2013 within the knee category is very much driven by the launch of the Persona system.

I think that in response to the second part of your question, Matt, that as to what we saw by way of demand, procedural demand in the fourth quarter in the United States, it was clearly a substantial uptick.

I don't think that one should carry that into their expectations as to what we're going to see throughout 2014.

I don't know that one wants to describe that as seasonality either in the sense of it's going to repeat in every fourth quarter hereafter.

I think that at least an element of this, and all of this is anecdotal as others have discussed that reported out prior to today, but clearly there's an element of that procedural uptick that is driven by the implementation of healthcare reform and some of the perceived potential disruption to plans or access to particular surgeons that that led to.

But I don't think it's very easy for anyone to tease that apart with precision at this point in time.

I do believe that part of what one should take away from the uptick in procedural demand is back to the fundamental demographic drivers.

There's an aging population out there.

These are procedures that have terrific clinical results.

And relative to the need for joint replacement, the procedure is still underutilized and economically very beneficial to society as measured out including the most recent publication in the JBJS from the August regarding financial results and economic benefits to society of the 600,000 plus knee replacements that were done in the United States in 2009.

So that underlying demand is real, and with a little bit of an adjustment to the environment in which people are making those decisions, you can see how the procedural demand can increase in a short period of time.

I think it just is more indicative from a long-term perspective, this is going to be a very healthy market and a consistently performing market.

Thanks for that.

Just a follow-up quickly on the surgical product segment.

So I wanted to understand a little bit better your expectations for the broadening out of some of your instruments as that is opposed to some tough comps with the Fluid Waste Management System this year.

How should we expect growth to evolve in OSP and other this year?

We're going to be in a good position to continue to grow that business.

Obviously there are some pretty extraordinary comps on a year-over-year basis.

Part of what we'll -- we'll be in a growth mode to be sure within the surgical and other category.

Part of what will happen as we described in the prior call was that we'll be transitioning a bit from the majority of those incremental sales being capital units being placed to more of the higher margin consumable aspect of that, and that will help us on the margin front as the quarters progress.

But continue to expand that portfolio, more to come in the way of new offerings, enhancements to our competitiveness on the power tool side as the year progresses by way of example.

So we're really bullish on that category and that business is performing very, very well.

Great.

Thanks a lot for the time.

You're welcome.

Your next question comes from the line of Mike Weinstein with JPMorgan.

Good morning.

Could we spend a couple minutes on the P&L.

So first item, can you talk about the strategy around the R&D spend?

I don't think we went into the year expecting R&D to be down 9% to 10%.

So can you talk a little bit about what's going on there and the reallocation of your spending?

And then second, I just want to make sure we've got the gross margin mix right.

How much was the FX positive to gross margin this quarter?

Thanks.

Sure, Mike.

As we described with respect to the R&D spending, there was substantial effort and focus on some of the large product systems that were under development, and so we are expecting that to balance out over time.

I would tell you that you ought not to read too much into the Q4 absolute dollar spend.

We still are investing.

We have a very robust pipeline.

I think that you'll see us balancing that out over time, and if anything in the 2014 time period, an expansion of our investment in research and development.

But it's going to be in accordance with our view as to what opportunities that we have in particular points in time.

So you'll see it fluctuate back up.

You ought to not read anything more significant into it.

And Mike, this is Jim.

On the question about hedge gains in the fourth quarter, they contributed about 20 basis points in a favorable way, obviously, to the margin ratio in the fourth quarter.

Was there another question on gross margin?

Yes, Jim, so as you guide going forward, you're still seeing some favorable FX because of your yen hedges?

Yes, we are, definitely.

And the guidance, the 73% to 74% guidance we've given for the full year reflects that, as well as expectations for a more favorable mix of revenues.

David touched on that in part with respect to the surgical business, but it's also the case as our -- we restore the growth as David talked about in the knee franchise, that that will contribute in a positive way.

As we see more robust growth in the US market relative to the international markets, that contributes in a positive way.

We have incremental manufacturing cost savings out of our operational excellence initiatives that will contribute in 2014, and we're also anticipating lower inventory obsolescence charges relative to the last two years.

The last two years we experienced some pretty significant charges, largely kind of driven by the launch of these new products and cannibalization of the products that they're displacing.

All of those things are taken into account and help to fully offset the headwind from both the Medical Device Excise tax as well as negative price.

That's helpful.

And maybe Jim, just spend a minute on all these charges because there's a lot in this quarter and obviously with your guidance for GAAP versus adjusted EPS for 2014, you're assuming a number of incremental charges and you put them under these banners such as operational excellence.

None of us have any idea what that means.

Spend a minute on what are you writing off and what is being backed out as you get to adjusted earnings.

Thanks.

Sure.

I'd have to go back to the announcement we made a couple of years back indicating that we were kicking off a program to, among other things, help us drive about $400 million of operating cost savings over the course of a number of operating periods, which will get us to this $400 million of total savings by 2016.

There are a number of different initiatives.

We've talked from time to time about the various initiatives that will help get us to the point where we've achieved the $400 million in savings.

As I indicated in my prepared remarks, we're making really good progress on those initiatives.

They include quality and manufacturing excellence initiatives and there's a significant amount of activity and effort.

Fees that are incurred, both for the consultant partners that we have engaged to help us with those efforts as well as for the dedicated personnel.

We set it up that way so we have -- we allow the business units as they appoint dedicated personnel to the various projects, they have the opportunity to backfill those positions within their businesses and carry on with their sort of strategic and tactical day-to-day activities.

We've got the distribution and logistics initiative.

I think we talked about this a little bit.

Among other things, resulted in the closure of a facility here in Warsaw that was our finished goods warehouse, which has been relocated to closer to Memphis, Tennessee, and is driving operational expense savings in freight and distribution.

We have a sourcing initiative which I would tell you at this point is contributing a fair share of the over $200 million of savings that we've achieved coming out of 2013 on a run rate basis.

So that's probably just touching on a handful, doesn't cover all of the initiatives, but hopefully gives you some idea of what we have going on and the cost associated, what those costs are for.

Thank you, Jim.

Thank you.

Your next question comes from the line of Derrick Sung with Sanford Bernstein.

Thank you for taking my questions.

I wanted to start with a follow-up on your comments around sort of this kind of Q4 seasonality that you're seeing.

It sounds like you're relatively confident that at least a piece of the market uptick is kind of this pull-forward from the implementation of healthcare reform.

Wondering if you're basing those comments on kind of what you're seeing into January, and then if the kind of deceleration in your Q1 guidance versus the 6.6% constant currency sales growth that you saw in Q4, is that all due to kind of that comment around and your assumption of lower market growth in hips and knees, or is there something else to that guidance?

It really is just a perspective rather than a forward read on what's happening in the first month of 2014.

It isn't based upon that.

It's based upon the view that these one-quarter performance within the market and the procedural demand ought not to be over-emphasized in developing a mindset that that's a trend going into 2014.

So we just believe that the trailing four quarters are more representative of what one should expect to see in 2014, and we're applying that to our annual guidance and the forward view and visibility as it relates to some color around what to expect in the first quarter as well.

And it's really that simple, Derrick.

Okay.

And that first-quarter guidance, is that deceleration then all based on kind of what you just talked about, or is there something maybe beyond the market or hips and knees that's going into that Q1 guidance?

It's more fundamentally premised on what I just described.

Okay.

Great.

Thanks.

As a follow-up, I wanted to talk a little bit about or focus on your European knee performance this quarter, which had a significant acceleration.

Can you just talk a little bit about sort of what drove that pickup this quarter, maybe talk about geographies and put that in context perhaps with the pressure that you've been seeing throughout the year on margins due to sort of unfavorable geographic mix in Europe.

How does this acceleration that we're seeing in European knees impact that?

Sure.

As you mentioned, we had a really nice quarter in European knees, and I think that the sales execution and most of that, frankly, is driven by NexGen, which is a system with terrific clinical results that has been out for some time and is a trusted system and going to continue to be a very important part of our portfolio, and the European team in those developed markets in particular did a terrific job on the sales execution front.

We also benefited from sequentially as the year progressed, as I mentioned, some improvement in stabilization in some of the markets.

And for us where we have significant share in those developed markets, if there's a bit of improvement that creates a nice tailwind as opposed to the headwind that we have been facing in the past.

So I think it was a combination of excellent execution by the sales team and a bit of improvement in some of those large developed markets that helped us produce a very good result within Europe, Middle East, and Africa in the fourth quarter.

Great.

And does that help your sort of margin mix?

Can you put that into context with the margin pressure that you've been seeing, the negative margin pressure that you've been seeing from geographic mix over the last few quarters?

Sure it does, Derrick.

As I indicated in response to an earlier question, the positive momentum that's been restored within that franchise globally will have a -- is and will continue to have a positive impact on gross margin.

Great.

Thank you very much.

Your next question comes from the line of Matt Miksic with Piper Jaffray.

Good morning.

Thanks for taking our questions.

I had one on sort of the macro, your macro view, you talked a little bit about, David, and sort of the demographics for this taking (inaudible) step back and looking at where we are in this sort of slow recovery in this market.

And then I had one on some of your restructuring initiatives for Jim.

So first on the market, I guess I'd love to understand if you could sort of sketch out where you think we are in terms of working our way back through, I don't know if you look at it this way, patients who deferred over the past few years, patients who are waiting, patients maybe who I think you mentioned there was some of the strength in Q4 came out of the sort of uncertainty about access to doctors.

So do you feel like we're sort of back to a state of equilibrium?

Do you feel like there's still a lot of patients out there?

Some of the demographics and sustainability of the US market, great to get your perspective.

And as I mentioned, one follow-up.

Sure, Matt.

I do think that it's marching towards a more normalized state.

I think that in that process there are going to be some ups and downs by month and by quarter towards the more normalized state.

We never believed that it would be a circumstance where even with a better understood macroeconomic environment that there was going to be a sudden bolus that was going to be sustained and push the backlog of patients that had been deferring the election to move forward with these procedures through all at once.

I think that it's going to be a bit more episodic and just a general trend towards normalization, and that's really part of what is informing what we're expressing this morning about -- I think you want to look forward to 2014 and think about the global markets and you can apply this to the US market as well as generally feeling more like 2013 than necessarily like 2014.

If it proves to be the case that there is a continued uptick at any point in 2014, then one can modify the view and you might even examine at some point a deeper penetration and acceptance of these solutions.

But I think that it's going to march towards an equilibrium, a more normalized state.

I don't think that it's going to be a bolus push-through and then a drop back off.

But there will be some ups and downs along the way, and the underlying demand and need for these procedures will be the constant in all of that.

Okay.

That's helpful.

And then Jim, you mentioned your sourcing initiative and distribution changes that you made moving the center out of Warsaw.

I think you and I talked a little bit about some additional work that you're doing to reduce your inventory burden and maybe take on some more of the distribution initiatives throughout the US in a broader way.

I don't know if you're prepared to talk about that.

I'd love to understand what other opportunities there are for you to improve inventory and distribution in the US.

And then if I could, you went through a bunch of little bits of the gross margin, but I don't think you gave us the basis point impact to P&L in the quarter.

Thanks.

Okay.

Well, I'll start with the -- where you landed at the end.

The NO charges in the quarter represented a drag on the gross margin of somewhere in the neighborhood of 60 to 70 basis points, and that would have been a bit higher than what we would have seen in the prior year, maybe 10 to 20 basis points higher than what we would have seen in the prior year.

And then as for the operational excellence initiative that is really focused on distribution.

It's a global initiative so it does not only apply to the US, it does extend outside the US as well.

We're going to continue to look at our own sort of processes, from how we distribute out of our own finished goods warehouse into the field.

And then -- most of the work we've completed to date is really around the piece of the distribution chain that we have full ownership of, the continuing sort of aspects of that particular initiative do involve having us partner more closely with our independent agents in the US.

And then also with our forward stocking locations that we own outside the US.

And looking for opportunities to rationalize our footprint, establish better sharing of the inventory across territories, and there's still a lot of work to do on that front, Matt.

And we're continuing with that effort and will eventually have an opportunity to reduce the amount of capital that we have tied up in inventory as a consequence.

But I think not going to see much of that, don't expect to see much of that benefit in 2014, would expect to begin to see some of that benefit in 2015 and beyond.

Thanks so much.

Sure.

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets.

Thank you for taking the question.

The first question has to do with the Asia-Pacific region.

In both hips and knees, that continues to be sort of a weak area for you.

What does it take to turn that around?

It's not the case, Joanne, that hips and knees were anything but a strength for us through really 2013 generally and certainly in the fourth quarter.

So are you adjusting for currency when you look at the numbers?

I may not be looking at it on a fully (inaudible) basis.

Forgive me on that.

That's okay.

We provide that, the breakout on a constant currency basis and we had good performances in both of those large joint categories.

All right.

Well, never mind that one then.

Next year, in Asia-Pacific, how much are you dialing in for a change in reimbursement?

Thank you.

Yes, I gather that when you talk about Asia-Pacific, it's Japan's biannual price adjustment in particular that you're referencing?

Correct.

Yes, we don't have clarity on that at this point, but I think one should plan to see biannual price reductions that are negative in their nature in a range of something that's consistent with past adjustments.

And that's what we have modeled in at this point in time.

Okay.

Thank you.

That would be something that would have an effect within that particular country of a range of negative mid single digits as an effect on 2014, because it will impact three quarters of the year.

Terrific.

Thank you.

You're welcome.

Your next question comes from the line of Glenn Navarro with RBC Capital Markets.

Thanks.

Good morning, guys.

Good morning.

One segment that came in a little bit below our expectations was trauma.

And I'm just wondering if the issues in trauma are a function of the Johnson & Johnson Synthes merger finally kind of complete, clicking, I'm wondering if they've gained momentum.

So just maybe some of your high-level thoughts on trauma and how that recovers and starts to grow in 2014.

Sure, Glenn.

I think that as it relates to the US performance in particular, in the fourth quarter and this is likely to be the case in the first quarter of 2014 too, we benefited from the disruption that they experienced in the prior period with the recall, and so that has anniversarying that growth out and the recapture of that business, which everyone anticipated would be the likely case, they've been able to relaunch those products and so that's part of the gap in the performance that you see.

I think beyond that, we look at our portfolio right now within the trauma business favorably.

We think that we have a very competitive offering and we're doing a nice job of selling trauma in many OUS markets.

We have work to do to develop the right level of focus to fully exploit the opportunity that we have within that portfolio within the United States.

And so you should expect us to achieve better performance as 2014 progresses, but we'll start the year with a bit of a headwind because of that an anniversarying of the opportunity that we were able to take advantage of last year.

And then just for Jim, on the share buyback for 2014, how should we model that out?

Does that get spread evenly throughout 2014 or does it come more front-end loaded?

Sure.

So as David said, first of all, you should model out somewhere in the neighborhood of $500 million of spending on share repurchase over the course of 2014, consistent with what we've done in prior periods.

I would tell you as well that we would intend to also buy back any dilution that we experience from option exercises, as necessary, so that could potentially put us in excess of that $500 million.

And then I'm not going to comment, give guidance on the specific timing of when we would be in the market, Glenn.

Probably the smartest thing to do would be just what you described.

Okay.

Just model evenly throughout the year.

Sure.

Okay.

Thank you.

Your next question comes from the line of Larry Biegelsen with Wells Fargo Securities.

Good morning.

Thanks for taking the question.

I just wanted to focus on the guidance for a minute.

How are you guys thinking about the two less selling days that you had in Q1 2013?

Are there two less selling days in Q1 2014?

And your EPS guidance implies only 6% to 10% EPS growth and your goal has been 8% to 12% with sales in the low- to mid-single digits.

My question is why the conservatism on the 2014 EPS guidance?

Thanks.

Sure, Larry, let me first -- I'll address the billing day question.

We do pick up a billing day in the US in the first quarter of 2014.

But that's offset by some loss of billing days in certain markets outside the US.

So in the aggregate we're anticipating that we pick up about half a day in the first quarter and then give that back in the second quarter, so not as pronounced as what you might have thought in terms of two additional billing days.

And that's certainly taken into account in the guidance that we provided, both for the first quarter and the full year.

And then with respect to EPS, I would just -- keep in mind that 2014 I suppose unlike some other companies who took on the full effect of the Medical Device Excise tax in 2013, we're taking that on in 2014, just reflecting on what we guided with respect to gross margin and the impact of the Medical Device Excise tax.

If you were to add that back to what the midpoint of what we're guiding to, you'd be adding back something in the order of $0.15 of earnings, and that would get you with it closer to within that -- the midpoint of that range that you referenced.

That's really the issue that we have, frankly, with respect to 2014 is that's a headwind that's not at least at this stage fully reflected in our results.

That's very helpful.

Just one follow-up.

You guys have done a great job with these bolt-on acquisitions, like Dornoch, which contributed to your growth in 2013.

Is there anything in 2014 like that that you would highlight such as subchondroplasty that could augment growth in 2014?

Thanks.

It certainly is the case that that was a successful and not the only successful bolt-on acquisition but probably the one that was most pronounced in FY13.

Those are tough ones to find, tough ones to repeat.

I would tell you that in the aggregate, we continue to be excited about the opportunities, and we always have a pipeline of those types of acquisitions that we're working on at any given point in time.

So without getting out ahead of ourselves, I wouldn't foresee that there's a single product category that would allow you us to repeat what we did in 2013, but I think in the aggregate you'll see continued strong performance with those bolt-on acquisitions.

And we don't end up picking up much by the way of revenue growth by doing those acquisitions.

It truly is the case that that's organic growth post-closing of those deals because we're finding new anatomical sites or other market adjacencies within musculoskeletal health, and we find nice traction, being able to push those through our existing distribution channel and leveraging the existing relationships.

So that's a recipe that you'll see continue.

I doubt that there will be a repeat of the Dornoch acquisition in 2014, but in the aggregate you'll see continued success with those.

Thanks for taking the question.

Sure.

Your next question comments from the line of David Lewis with Morgan Stanley.

Good morning.

Good morning.

I wanted to come back to R&D but less focused on the fourth quarter.

If you actually look at the guidance for 2014 it's going to be the third straight year you're guiding R&D down as a percentage of sales.

I wonder, can you give us a greater sense of the type of prioritization that's happening within the business.

Does this trend reflect -- what does this trend reflect frankly?

Does it reflect some sense of product maturity?

Does it suggest that you're more likely or need to do more incremental M&A?

I'm just trying to put that multiyear trend in context.

I would start by just clarifying that the guidance that we articulated gives you -- you talk about it as a percentage of sales but as an absolute dollar figure we would look to spend anywhere from $10 million to $20 million according to our guidance above what we spent in 2013.

So the absolute spend is going to expand and that's going to flex depending upon what we see by way of opportunity, both internally and externally as well.

So if there's an opportunity for us to accelerate the development of a particular internal project or to get into an adjacency that we think is consistent with our strategy and can create value, then that number is going to go up.

So again, I don't think one should be at all alarmed.

If you look at the -- I don't believe that it's reflective at all of the opportunity to continue to innovate in a clinically relevant way.

We're really excited about the opportunities that we have going forward.

So we just are birthing the largest product development launch in the Company's history and we want to make sure that we're putting our energies to getting the commercialization efforts on Persona just right and fully taking advantage of that launch, but you're going to see continued products rolling out, getting launched, and our pipeline's going to be very healthy.

Dave, very clear.

Maybe just one follow-up either for you or Jim.

The pricing pressure was incrementally heavy in the fourth quarter but I wouldn't say materially so, at least in our view.

But considering the very strong strength we saw in Persona and some of your public commentary about the ability to launch that product as a premium product, I think we would have expected a little better price mix in the fourth quarter given the strength of Persona.

Is there something underlying that may be offsetting that Persona strength, maybe comment on the ability to get premium pricing for Persona.

Thank you.

You have to remember when we talk about price we're calculating out to the best of our ability on a SKU basis pure price as opposed to mix.

And so the mix and volume we aggregate in discussing our results, and then the pure price is what we try to break out for you with a lot of specificity by product category and geographic segment.

So are you still confident David that we're getting mix benefit on Persona?

Absolutely.

Thank you very much.

You're welcome.

Your next question comes from the line of Kristen Stewart with Deutsche Bank.

Just as I guess a follow-up on the pricing side, it looks like the Americas pricing got a little bit worse this quarter.

And I was just wondering if you could maybe just comment on that or whether it's just kind of -- I know it bounces around quarter to quarter, but your guidance of down 2% to 3% for the full year is also a little incrementally worse, and I understand Japan probably adds in there.

But I think you also mentioned Europe.

Maybe walk us through what you're seeing on the price side globally.

Kristen, this is Jim.

First of all, with respect to the Americas it is the case that it's incrementally, and we saw a little more in pure price as David talked about so there's some incremental sort of discounting if you will of some of the legacy products within our portfolio, within the Americas, that is being offset by the premium that we're getting on new products that are getting introduced into the US market.

And again, that favorable mix benefit's not reflected in the pure price discussion -- disclosures that we're providing.

With respect to Europe, in the past where we were able to offset some of the price pressure we're seeing in some of the developed markets with the forward integration transactions we had under way in various operating periods where we're far enough down the road with these forward integration transactions that there's really less opportunity to offset some of that price pressure in some of the developed markets in Europe, but that's where we see some incremental pressure.

And then as you pointed out, we as everyone knows need to take into account in our guidance for 2014 the fact that there will be a price cut, a reimbursement price cut in Japan that takes effect April 1. All of that is what's reflected in that minus 2% to minus 3%.

Sounds like all regions in your view are likely to see incremental pricing pressure over the next year for all the reasons you just mentioned.

A modest amount of incremental pressure, that's right.

Okay.

And would you say -- I know you mentioned the mix benefit and David mentioned it too.

If one were to look at, say, knees or hips, if you look at just the mix versus price, is it net positive or net negative?

Seems like it would be more net negative given some of the pricing that you broke out earlier in the prepared remarks.

I wouldn't assume that.

It's probably the case across the market that -- it's probably a net positive across the market if you consider in some cases, particularly with respect to hips, they're more revision procedures being done which is something else you have to take into account.

But it's also the case that the advanced bearing materials within the hip category are gaining traction.

I think that's the case, certainly the case with respect to our results, we see some indication that's also the case with some of our competitors' results.

And then the new knee systems that are getting introduced, at least we can't speak for the other companies, but at least in our case as David said we're getting a premium that is sticking and adding in a meaningful way to the growth, the volume mix growth that we are reporting and we're reporting in the back half of 2013.

And then just a follow-up on the one-time charges.

How much of those are going to be cash?

And is there any way to just tease out -- I know you walked through with Mike's question just all the different things, but any way to kind of bucket that $250 million since it is a pretty large [offer] on a pretax basis.

How much is the optimization versus anything else that is in there?

I would tell you the majority of it is for the cost, and they aren't largely cash cost connected with the operational excellence initiatives.

There are as well somewhere in the neighborhood of about $20 million out of the $250 million connected with integration of the recent bolt-on acquisitions that we've done.

And those costs, although they do include a number of things, they can include employee termination benefits, contract termination fees, facility closing costs, they do also include dedicated personnel costs as I indicated, and consulting fees.

They can also include potential impairment charges, accelerated depreciation for assets that are being taken out of service or may be pending disposition.

All of that is -- we do provide all the detail in our periodic filings as a footnote within our financial statements that we'll lay out every quarter where the costs are being incurred in detail.

But with respect to the $250 million of costs in 2014, what we're anticipating are largely cash costs.

Thank you.

You're welcome.

Toni, we have time for one additional question.

Okay.

Your final question comes from the line of Bill Plovanic with Canaccord Genuity.

Thank you for taking my question.

I'm only going to ask one.

Persona's a big product for you.

I was wondering if you could just categorize for us where are you in the launch stages of that product in terms of new customers, existing customers, and then geographically?

If you could break that out that would be helpful.

Thank you very much.

Sure.

I would tell you that it's still early with the launch of Persona.

Pick an analogy or metaphor.

I think it's the first quarter, not half time with that launch.

It's going to be phased with additional elements launched over an extended period of time, and then there's going to be a geographic prioritization, so we are primarily focused on the US market at this point in time, selectively outside the US market in 2013 and in 2014.

So it's going to be a launch process that lasts for multiple operating periods and I think you ought to think about that product launch as kind of a three to five year as opposed to a 12 to 24 month process, Bill.

Have you completed the roll-out to the US geography and all your existing physicians or are you still working through that process?

It's ongoing.

There's a lot left to do in that regard.

And --

We have a lot of opportunity going forward with the Persona system.

And then have you -- in terms of competitive approaches, I would assume that you've started that and that's part of the contribution from this year, but as we think about that, is that really a 2014, a 2015, where you really start going heavy after competitive accounts or is that a dual track where it's both the existing and the competitive at the same time?

The latter, really, Bill.

And that was the case in 2013 as well.

I would tell you that probably somewhat uniquely with this launch, because of the interest and the appetite among competitive surgeons, there have been more set placements into the hands of competitive surgeons, so it will be dual track and last for multiple operating periods, not just 2013, nor will it just be 2014 in that regard.

And lastly for clarification, just on the OUS, you mentioned selective in 2013 and 2014.

So we should really think that that becomes a full push in 2015 and beyond or does that kind of build as we're exiting 2014?

Thank you very much.

Sure, Bill, it will build as we move on but, again, there will be different elements and different compositions that -- and forms that the Persona launch will take and the intelligent instruments that are very importantly incorporated into the launch.

So we'll package that up in different ways for different markets, but it will be ongoing for the coming operating periods.

We'll offer more color on that as the launch continues, so that you have some perspective on how much runway we have.

At this point in time, the answer is a great deal.

Thanks for taking my question.

You're welcome, Bill.

So with that, I'd like to just again thank everyone for joining the call today and for your continued interest and support for Zimmer.

We look forward to speaking to you on our first-quarter conference call which is scheduled for 8:00 AM on April 24.

I'll turn the call back to you, Toni.

Thank you again for participating in today's conference call.

You may now disconnect.