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CareFusion (NYSE:CFN)

Q4 2014 Earnings Call

August 07, 2014 5:00 pm ET

Executives

Jim Mazzola - Senior Vice President of Global Marketing, Communication and Investor Relations

Kieran T. Gallahue - Chairman and Chief Executive Officer

James F. Hinrichs - Chief Financial Officer

Analysts

David R. Lewis - Morgan Stanley, Research Division

Frederick A. Wise - Stifel, Nicolaus & Company, Incorporated, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Ravi Misra - Leerink Swann LLC, Research Division

Matthew Taylor - Barclays Capital, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2014 CareFusion Corporation Earnings Conference Call. My name is Kim, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Jim Mazzola, CareFusion, Investor Relations. Please proceed.

Jim Mazzola

Great, thanks, Kim. Thanks, everyone, for joining. In today's call, Kieran and Jim will discuss CareFusion's results for the fourth quarter and fiscal year ended June 30, 2014. In addition, they'll discuss our financial guidance for fiscal '15 and our longer-term outlook.

We issued a news release about an hour ago with our financial results, which is posted on our website at carefusion.com and filed on Form 8-K with the Securities and Exchange Commission. We also filed and posted slide to accompany today's webcast, which may be found on our investor page with our earnings materials.

Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into CareFusion's ongoing results of operations, particularly in comparing underlying results from period-to-period.

Before I turn the call over to Kieran, I'd like to remind you that during today's call, we will be making forward-looking statements, including statements about our fiscal '15 guidance and our longer-term outlook. Our actual results could differ materially from those expressed in our forward-looking statements due to risks and uncertainties, including the risk factors set forth in today's release and our filings with the SEC.

So with that, I'll turn it over to you, Kieran.

Kieran T. Gallahue

Great. Thanks, Jim. Well, good afternoon and thanks for joining. We plan to cover 3 topics during today's call: number 1, discuss our fourth quarter and full year results for fiscal '14; number 2, recap progress we made during the year against our strategic and operational goals; and number 3, provide guidance for fiscal '15 and over the longer term. Let me begin with the fourth quarter.

So we finished the year strong with revenue in the quarter growing 24%, including contributions from each business line. We have indicated all year that the fourth quarter would be a significant ramp, primarily due to the timing of installations in both the Dispensing and Infusion businesses. We definitely saw this uptick in installations, as well as contributions from share gains in our procedure-based businesses and strength in Europe. I would describe the overall market conditions as stable in all geographies, meaning we did not see substantial changes in buying patterns or in competitive behavior. Our primary customers are acute care hospitals, and these organizations continue to look for opportunities to control costs and improve quality, areas that align well with our products and our focus on improving the safety and lowering the cost of health care.

In the procedural business -- Procedural Solutions segment, revenue grew 32% or 7% organically. Our organic growth was again led by clinically differentiated products that continue to convert markets and take share, including several product lines growing at double-digit rates. The Infection Prevention business grew 16%, led by a great quarter for ChloraPrep and our MaxGuard portfolio of Infusion disposables. In the Medical Specialties business, we grew 6%, driven by our drainage and biopsy lines. And in the Specialty Disposables business, we grew 97%, primarily due to the Vital Signs acquisition, or 6% on an organic basis.

Adjusted segment profit grew 30% during the quarter, with balanced contributions from each of these 3 business lines. For the full year, Procedural Solutions revenue grew 19% or 6% on an organic basis and adjusted segment profit increased 17%. All 3 business lines grew revenue in the mid- to high-single digits on an organic basis and executed with great consistency throughout the year, even as we integrated our largest acquisition to date.

Turning to the Medical Systems segment. Revenue for the fourth quarter increased 20%, led by 40% growth in Infusion Systems and 7% growth in Dispensing Technologies. We have talked for several quarters about record committed contracts in both businesses. And during the fourth quarter, we began to install these systems and book the associated revenue. In particular, I'd like to highlight the performance of our Infusion team, who delivered a record quarter by flawlessly executing the complex installation of thousands of channels at dozens of health systems. We have a strong mix of competitive conversions and upgrade to existing customers that we won throughout the year, including in the fourth quarter. Infusion closed the year exceeding $1 billion in revenue, our best year ever and making it the largest business in the company. Each Infusion pump generates an average of $800 to $1,000 annually of higher-margin disposables, software and add-on products for the life of the system, which is typically greater than 6 years. So this record year in Infusion creates an important annuity stream and a connection with our customers that is strategic to our broader medication management strategy.

Our Dispensing business performed just as we expected, growing 7% during the quarter, achieving another record quarter of committed contracts and adding to the record backlog we have built during the year. This backlog is a positive indicator of the health of our business and will comprise the majority of systems we install during fiscal '15. More than half of the committed contracts we signed during the quarter were for our new Pyxis ES platform, which continues to be well received by our customers. We now have nearly 200 sites live on the system and many more in the process of being implemented.

Closing out the quarter in Medical Systems, our Respiratory Technologies business grew 6%, again led by a nice uptick in sales of our upgraded line of Respiratory Diagnostics products. For the year, the Medical Systems segment grew 3%, led by the strong year we had in Infusion. Adjusted segment profit declined 6%, largely due to the delays that we had in ramping our Pyxis ES line and margin pressure from the product mix and additional resources we've applied towards installations this year, a factor that we discussed last quarter. I feel very good about the momentum we have across this segment. The great year we had in Infusion will continue to benefit us in future years. And this quarter provided further evidence that we have turned a corner in the rollout of our Pyxis ES platform.

We finished the quarter with adjusted EPS of $0.79 to close the year at $2.36, an 11% increase over last year and in the middle of the range we provided at the beginning of the year. As I consider our financial results for the year, I am pleased with the above-market organic revenue growth we delivered across the majority of our businesses. We have demonstrated our ability to manage the middle of the P&L over time, so seeing the results of our work affect the top line is a particularly positive indicator. We experienced some margin pressure during the year due to a variety of factors Jim will cover in more detail. I am less concerned about this pressure because I see it as a short-term factor. We are on track with our longer-term plans to expand margins and have multiple levers to get us there.

Before I look ahead to fiscal '15 and our longer-term outlook, I'd like to take a minute to highlight the strategic progress that we made during fiscal '14. Number 1, we completed our largest acquisition to date, the $500 million tuck-in of GE Healthcare's Vital Signs business. We continue to execute well on our integration plans and the business continues to perform well. In addition to Vital Signs, we acquired Sendal in Spain to expand our Infusion disposables business and made a strategic investment in CME to broaden our understanding of a different segment of the Infusion market. Number 2, we continue to generate healthy cash flows, including $685 million of operating cash flow during the year. Our balance sheet remains strong, as does our ability to leverage it for additional strategic acquisitions. I continue to feel good about our pipeline of opportunities, and I'm comfortable with the disciplined approach we have taken with every acquisition that we've considered. We have already deployed approximately $700 million for M&A as part of our 3-year plan, which is in addition to the $1.1 billion we have deployed for share repurchase. Capital deployment will remain an important part of our plans to create shareholder value. Number 3, we launched more than 20 new products, including our Pyxis ES platform and complete medication management solution, several line extensions to our ChloraPrep franchise and new infusion disposable products, including our Chemo-Safety System. This progress reflects the step-up in R&D spending that we made about 2 years ago, which was funded by savings from our work to simplify the company and build the foundation for growth. Number 4, we continue to position our team for success as health care consolidates in the U.S. and adapts to cost pressures in other geographies. We are strengthening how we go to market in our selling organizations, investing in our service organization and building scale in our core businesses. We also remain focused on the projects that we have underway across the company to simplify CareFusion, expand our margins and improve the experience we deliver for our customers. And finally, number 5, we leveraged the strength of our CareFusion brand with new strategies that cut across business lines. The medication management solution that we launched last December is a great example. We had a vision for improving the safety and lowering the cost of medication management and backed it up with products and services that customers have been overwhelmingly positive about. Only CareFusion has the assets to pull together an integrated platform for pharmacy automation, inventory management, medication administration and with the analytics to help improve efficiency and lower costs.

Likewise, our CareFusion focus on quality care initiative has had a similar impact on customers interested in improving the effectiveness of prepping patients prior to surgery, a key factor to help lower infection rates. Increasingly, we are seeing the benefits that we can bring customers when we support them as CareFusion, working across business lines rather than standalone product lines.

Looking ahead to fiscal '15 and our longer-term outlook, I would like to provide an overview of our financial guidance. Jim will provide more color during his remarks. For fiscal '15, we expect: number 1, constant currency revenue growth of 5% to 7%; number 2, adjusted operating margins to be 20.5% to 21.5% for the full year; and number 3, adjusted earnings per share to be in the range of $2.60 to $2.75, an increase over fiscal '14 of 10% to 17%.

On operating margins, we set a goal as we began fiscal 2011 to improve from 17.1% to 21.5% or greater for the full year of fiscal 2015. We have made great progress against the goal and have a line of sight to achieving it, although it may take a few quarters longer primarily from the timing of our acquisitions. I believe we have made smart strategic moves that make us healthier and more profitable company for the long term. As I said earlier, we have ample opportunities to continue to raise margins.

Over the longer term, fiscal '15 through '17, we expect revenue growth in the mid-single digits, adjusted operating margins to expand to 23% or greater and adjusted EPS to grow 10% to 12%. We plan to deploy at least 50% of our free cash flow for share buybacks and tuck-in acquisitions. Given the unpredictable nature of larger scale M&A, we have heard from investors that it is less important for us to forecast it as part of our capital deployment plans. To be clear, I want to reiterate our commitment to gain scale, grow outside the U.S. and improve our strategic portfolio of products via M&A. We continue to actively manage a pipeline of opportunities, covering all sizes, because we believe this is an important lever for our growth.

To close, I reiterate that we had a great finish to the year. We grew our topline with contributions from multiple businesses across the company, including another consistent year of execution across the Procedural Solutions segment. We had a record year in Infusion, and we put to rest any questions about the strength of our new Dispensing platform. I believe we have momentum in all of our businesses as we enter fiscal '15, and I look forward to updating you on our progress as we move throughout the year.

Now let me turn it over to Jim for some additional detail on our results and our guidance. Jim?

James F. Hinrichs

Great. Thanks, Kieran. Thanks, everybody, for joining today. To take a slightly different approach before I get into the details of the quarter, I want to take a big step back and start by thanking and congratulating the entire CareFusion team around the globe for what I feel is a truly remarkable performance for the fourth quarter.

We had a very steep hill to climb and the team delivered. A couple of the key financial highlights, 24% revenue growth overall, that's 15% organic growth, 20% revenue growth in Medical Systems, all organic, with positive growth in all businesses, and an exceptional 40% growth in Infusion, setting a new revenue record for the quarter and for the full year, and continued solid consistent performance in Procedural Solutions. All businesses showing strong organic growth in the mid- to high-single digits for yet another quarter, and then finally, great progress on our 2 significant acquisitions from last year, the integrations of Vital Signs and Sendal are going well, both businesses are performing extremely well as part of CareFusion.

Now from all of these incremental revenue and committed contract upside come higher expenses primarily in the form of higher incentive comp so we did have some pressure on margins. I'll get to that in a minute. But overall, great quarter, great set up moving into next year. Getting to today's business though, let's review our fourth quarter results and move into our forward-looking guidance. For the fourth quarter, consolidated revenue of $1.1 billion grew by 24% on a reported and a constant currency basis. Another quarter of solid revenue growth in Procedural Solutions, that's 32% reported, 7% organic, which is complemented by strong Medical Systems growth in each of its business lines.

Full year revenue, $3.8 billion, it was up 8%. It's above our previous guidance due to better-than-anticipated contributions from Vital Signs and strength in Infusion. Adjusted gross margins for the quarter declines to 49%, ending the year at 50% that's somewhat below our expectations. Like last quarter, there are 3 specific factors that explain essentially all of the entire gross margin decline in the quarter, and we've discussed all of these things previously. More specifically, these 3 factors are the lower margin acquisitions of Vital Signs and Sendal, the additional resources deployed to help our customers install the Pyxis ES platform and then finally, product mix due to our Infusion capital placements, which were higher than expected and therefore, had a larger-than-expected negative impact on gross margins.

As Kieran mentioned, many of these pressures should be temporary and over the long term, make us a stronger company and strengthen our market position. Adjusted SG&A was $277 million, up 21% compared to last year. Again, 2 specific drivers explain the majority of this increase, specifically, the acquired SG&A related to Vital Signs and our incentive compensation plan. The incentive comp variance has actually 2 components. The first is the known headwind that came from resetting our corporate incentive comp plans from last year's below-target performance, with the second component being higher sales commissions primarily related to Dispensing and Infusion over-performance. Our sales comp plans are based on several measures including revenue, profit and committed contracts so in some cases, we do pay ahead of recognizing the revenue.

R&D spend of $48 million was flat sequentially, down $2 million compared to prior year. We continue to invest in both our Medical Systems and Procedural Solutions segment and expect our full year R&D levels of approximately 5% of revenue to remain stable moving into next year.

Adjusted operating earnings in the quarter grew by 20% year-over-year to $227 million. We did see approximately 70 basis points of adjusted operating margin compression, which as mentioned, was driven primarily by Infusion capital revenue mix, additional installation resources for our product line transition in dispensing and then that incentive comp that I just mentioned.

Interest and other is flat to prior year at $21 million. As many of you know, we issued $1 billion of debt in May to put in place permanent financing for our Vital Signs acquisition and to refinance the $450 million in senior notes that matured and were repaid on August 1. The incremental 6 weeks of interest expense associated with this offering was offset in the quarter by FX gains and mark-to-market gains in our deferred comp plan. These mark-to-market gains are completely offset, just FYI, in SG&A.

Next year, we expect our run rate interest and other expense to be approximately $25 million per quarter, reflecting our existing debt level. Our adjusted effective tax rate for the quarter of 21.5% resulted in a 23.3% rate for the full year. This is better than we expected primarily due to our U.S. and our o U.S. income mix, as well as our tax team closing several overseas tax matters favorably.

Adjusted diluted earnings per share were $0.79, that's a 44% increase compared to prior year and above the expectations that we've set on our third quarter call.

Operating cash flow from continuing ops for the year was $685 million. That exceeded our expectations, continues to highlight the steady cash flow that we get from recurring revenue streams and our Dispensing leases. Our cash balance on June 30 was $2.3 billion, of which approximately $1.2 billion is held outside the U.S. And our debt totaled $2.4 billion.

Wrapping up our consolidated results, we repurchased 14.6 million shares for a total of $577 million in fiscal '14. And as of today, we purchased a total of 16.9 million shares for $680 million on a $750 million share repurchase authorization that we announced last August. Our repurchases in fiscal '14 were greater than we previously guided as our strong cash flow gave us the opportunity to return more excess U.S. cash to our shareholders without limiting our future M&A ability.

Now moving on to the operating performance of the segments. Procedural Solutions revenue totaled $410 million, growing 32% in the fourth quarter and 19% for the fiscal year. Balanced growth across all geographies and each business line contributed to organic growth of 7% and 6% for the quarter and year, respectively. In addition to these solid organic performance, we did see strong performance from our recent acquisitions of Sendal and Vital Signs.

Moving to Medical Systems, revenue for the segment increased 20% in the fourth quarter to $712 million and 3% for the year. Within Medical Systems, Dispensing Technologies revenue increased 7% to $274 million, that was in line with our expectations. This is a continuation of the progress that we made last quarter, and we remain very enthusiastic about the progress and the prospects for Dispensing. As Kieran and I have already mentioned, we had another record quarter of committed contracts in Dispensing and that positions us very well for revenue growth in fiscal '15.

Infusion Systems' fourth quarter revenue increased 40% to $333 million compared to last year and grew 13% for the full year. We had a high bar set for this team and once again, they exceeded our expectations.

And finally, Respiratory Technologies returned to growth, revenue of $99 million, 6% higher than last year fourth quarter, and we had our first clean quarter comparison after lapping that government order that we've discussed on past calls.

Now moving to fiscal 2015 guidance. Just to restate what Kieran mentioned, we anticipate consolidated revenue growth of 5% to 7% on a constant currency basis, adjusted operating margins to be in the 20.5% to 21.5% range for the full year and adjusted diluted earnings per share to be in the range of $2.60 to $2.75. Some of the assumptions that underscore this guidance include the Medical Systems revenue growth in the 3% to 5% range. This will be comprised of Dispensing business line growing well above that range, Respiratory being within the range and Infusion declining modestly. We're in a situation similar to what we saw 2 years ago in our Infusion business. If you remember, we're comparing to a very strong capital year, so like 2 years ago, although total revenue will likely decrease, we should see a nice margin benefit from the disposable revenue tail that comes with new pump placements.

Procedural Solutions revenue growth is expected to be 9% to 11%, which includes a full year of our Vital Signs and Sendal acquisition. Organically, we expect PS to continue to grow in the mid-single digits, driven by our clinically differentiated products that will offset a headwind of about $30 million of OEM revenue that we are discontinuing as we look to shift our capacity away from lower margin products.

Our operating expense line will increase in fiscal '15, as we have a full year of acquired SG&A from Vital Signs and Sendal and plan to invest on our sales and marketing operations to continue our organic growth around the globe. And as already mentioned, R&D likely will grow somewhat in line with sales. So even as we make these investments in our business and we have gross margin -- and we see gross margin pressure from Vital Signs, we do expect 110 to 210 basis points of expansion to reach our 20.5% to 21.5% guidance for adjusted operating margin. We still have line of sight to our previous long-term margin goal of 21.5%, however, with the pressure from our most recent acquisition, we acknowledge that we have some work to do and it could take a couple of quarters longer to get there.

Moving to the tax rate. We anticipate the adjusted effective tax rate for '15 to be in the 27% to 29% range. We did have a number of discrete benefits that we realized in fiscal '14, which we do not expect to repeat in fiscal '15. That, along with a strong Dispensing year, driving more U.S. income, are the reasons for the higher tax rate. Adjusted diluted EPS is expected to grow 10% to 17%, that puts us in the $2.60 to $2.75 per share range.

Now last quarter, we said we'd give an update on our capital allocation plan on today's call. And just to remind you, in the fourth quarter, we did increase our open market share repurchases beyond our original plans and expect to continue significant open-market purchases in fiscal '15. We intend to complete our existing $750 million share repurchase program early in the year, and our board yesterday approved another 2-year $750 million authorization, which will begin immediately following the conclusion of our existing program. In total, we'd expect to complete approximately $500 million of buybacks in fiscal '15, with the purchases weighted toward the first half of the year. This gives us the flexibility in the back half of the year to increase our share repurchases if needed to reach our long-term EPS goal but maintains the option of shifting the capital to M&A as needed. We feel like this is the right balance of persistent, aggressive share repurchases while retaining flexibility and dry powder to be active on the M&A front.

We anticipate cash flow from operations in fiscal '15 to be approximately $600 million and CapEx to be about $120 million. As we've mentioned all year, we had stronger-than-expected cash flow this year due largely to our Dispensing leasing model and expect that to have on opposite effect next year as our Pyxis installations ramp up and we consume capital in placing leases. And before reviewing our long-term goals, I want to give a little color on the timing for next year.

We expect our normal seasonality in the first quarter. That means it will be our weakest quarter for the year. This, along with the additional interest expense that we carried through August 1, equates to Q1 EPS growth in the high single-digits, with the remainder of the year having fairly steady growth rates to reach our guidance range for the full year.

Now let's move to our long-term goals. If we take a big step back, we've said consistently for more than 3 years, we believe that profitable growth is what creates value over the long term. One or the other is great, but both are a home run, obviously. We continue to believe that our end markets are flat to low single digit growers. So using this simple concept of value creation and applying it to the environment in which we operate, our strategy is to grow organically, expand margins and leverage our balance sheet and cash flow to create value over a multiyear period. So over the next 3 years, we'd expect to grow revenue in the mid-single digits through continued market conversion and share gains with our clinically differentiated offerings.

We continue to focus on simplifying the company, and we're working on a number of projects that we've spoken about in the past to continue the significant margin expansion that we've already seen. So items such as optimizing our manufacturing footprint, enhancing our supply chain, simplifying our system structure and harmonizing our order-to-cash processes are a few. Through these projects, we expect to expand adjusted operating margins to greater than 23% in fiscal '17.

And finally, we're also committed to utilizing greater than 50% of our annual free cash flow for share repurchases and tuck-in acquisitions, and all of this is expected to drive 10% to 12% adjusted EPS CAGR. It's not a complicated formula but it does require an unyielding commitment to excellence in execution, something that we take pride in calling a core competency at CareFusion.

Focusing on capital deployment for just another moment, accretive M&A is still our preferred use of capital. We believe our organization is prepared for a deal of any size, and our current guidance does not include larger transactions due to the inherently unpredictable nature of M&A. However, we do continue to have a full pipeline of deals at varying size. And we will obviously, update our guidance accordingly if we execute on one of these larger deals.

So in summary, we had a back half-loaded year, finished strong to reach double-digit adjusted EPS growth. Each business line grew revenue in the mid-single digits or better in the fourth quarter and are well positioned moving into fiscal '15. In fiscal '15, we expect continued mid-single digit revenue growth, expanding margins and another year of double-digit adjusted EPS growth. Over the long term, we continue to set the bar high on our margin expansion target and have a number of shots on goal to reach it. And so with that, I think I'll stop talking and we can open it up for questions.

Jim Mazzola

Great. Kim, do you want to give instructions for Q&A?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of David Lewis from Morgan Stanley.

David R. Lewis - Morgan Stanley, Research Division

Jim, I just wanted to start with margins. Fourth quarter and sort of for next year, it does appear getting some benefits in buyback, maybe a little bit from slightly lower tax rates. So it does look like those margin dynamics sort of play into next year. So I mean, just give us a sense of sort of that -- you said the first half of the year. But can you just give us some more detail on which specific components do you think can get better in the back half of 2015 and do you expect all 3 of those to sort of affect the company in some fashion throughout the balance of the year?

James F. Hinrichs

Sure, David. Thanks for the question. So when you look -- I mean, this year, obviously, we had some discrete things that happened, some of which, we think, are temporary. So as we mentioned in the remarks, the acquisitions, obviously, had a depressing effect on margin. The capital component of Infusion had a depressing effect on margins and then the incremental resources that we're putting out there also did. Next year, the biggest tailwinds that we've got are primarily on Dispensing mix. So Dispensing is going to grow next year quite a bit faster than it did this year and quite a bit faster than the average. So we'll see a nice mix component there from Dispensing. We'll also see a nice mix component there on the Infusion side of the business where disposables roll in, replacing capital. So it's kind of like what we saw 2 years ago, if you remember. And then finally, that we did have, as I mentioned, a fairly significant increase in commission expense that doesn't appear at the gross margin line, obviously, at the SG&A line driving operating margin expansion. About $15 million to $20 million of that will not repeat next year. And so we've got -- those are kind of the significant tailwinds that we've got going into '15.

David R. Lewis - Morgan Stanley, Research Division

Okay. And maybe just a follow-up question for Kieran. So Kieran, I think shareholders will largely support this decision to repurchase more shares and move the debate away from M&A. Just kind of 2 clarifying questions. I guess the first is, is 50% of free cash back to shareholders, is that a minimum commitment regardless of M&A and should we take this 50% commitment to mean that your target M&A size range has probably shifted back to the one shareholders are more comfortable with a couple of years ago?

Kieran T. Gallahue

Yes. Thanks for that question. No, I wouldn't read any change in our philosophy or in what we're seeking from M&A out of this message. It really was just a couple of years ago, we have laid out a dollar value of a certain amount that we were going to look to deploying capital. And so there would be some mix between M&A and buybacks. Some of the feedback we have received from investors over that time is to say, look, I think as a percentage of cash flow, it'd just be easier for us to understand between buybacks and tuck-ins what would you spend and give us something that we can model. So that's where we feel that returning to shareholders or through tuck-in acquisitions about half of our cash flow over time is something that will be valuable to build into models. But I'd tell you, there are still -- I think the capabilities of this organization to handle M&A at any size remains. We continue to have opportunities and targets that are both large and small. And for us, the first thing we look at is what's the strategic value of it. How does it make us a better company? How does it help us build scale? And we continue to look at acquisitions throughout that range.

Jim Mazzola

Do you want to clarify anything on the share buyback, Jim? The minimum amount...

James F. Hinrichs

Yes, I mean -- so David, that 50% -- at least 50% of free cash flow on share buyback creates sort of a minimum hurdle that we would set for ourselves on an annual basis. And if you don't read anything into it beyond that, there's no -- you should not -- no one should read any change into our strategy. As Kieran said, looking at deals of all sizes, we continue to look at small, medium and large deals. No change in our philosophy, just trying to set a guidepost out there that's a little more predictable, a little more in-our control. That 50% of free cash flow every year is something that we feel like we have more control over. Obviously, if a larger deal does come along, we'll have to adjust that and we will do so accordingly.

Operator

Your next question comes from the line of Rick Wise from Stifel.

Frederick A. Wise - Stifel, Nicolaus & Company, Incorporated, Research Division

Maybe to start off with a little more color on Pyxis. I think, Kieran, you said that you turned a corner -- the corner this quarter with Pyxis ES. I wasn't totally sure what you were implying but maybe if the 50% ES mix in line better than you thought? I might have -- I thought it might be higher given all your committed Dispensing contracts. And when do we start on Pyxis specifically, the benefit of the end-to-end software of the pharmacy management. Is that the next leg of growth post-install?

Kieran T. Gallahue

Yes, so thanks, Rick. So you know I think internally, we kind of knew and we could see the momentum that we were generating with the Pyxis ES because we get to see committed contracts and obviously, we talked broadly about that. But it's not until those items turn into revenue that it becomes very clear to the whole world the strength that we've seen building in the Dispensing business. So in the fourth quarter, you started to see that flow through. That's why you saw the revenue line start to accelerate, in fact, accelerate quite dramatically. And we'd expect as we begin converting this record backlog of committed contracts into fully installed units and therefore revenue, that the world will see how strong and what an impact this is making on the market place. So I think I -- what I would read into that as that every day, we get more and more effective at the installation process of managing customers, through the process of change, we become ever more comfortable and have more reference sites out there that we can point other customers to. Our committed contracts keep flowing in, and yes, in the fourth quarter, we started to see it in the revenue line and that was simply very gratifying to see that and be able to show the world what's going on. From the perspective of the data side, yes, it's -- we are extremely well positioned on the medication management concept and the ability to help drive efficiencies and visibility within hospital and hospital operations. We have launched this, as you know, a number of features and products in that category. We continue to have a pipeline of products that we'll be launching over the coming years that will provide significant advantage to the customers. And yes, certainly over that time frame, we would expect that the revenues associated with those, and the indirect revenues associated with those, as they support the entire medication management concept from both Dispensing and Infusion continues to get traction, mature and benefit customers. So it's really all about the continued maturation process.

Frederick A. Wise - Stifel, Nicolaus & Company, Incorporated, Research Division

Second question, just on operating margin guidance and maybe, Jim, that's for you, I'm not quite sure I understand why you're guiding to only 23%, '17 margin. To be fair, you said at least 23%, I believe, and I appreciate that acquisitions may have slowed your progress a bit. But if you -- given your growth here, this year, you keep emphasizing that what's next is as the installed base of Infusion Pyxis grows, we're going to see an accelerated surge in, I assume, higher margin disposables. That would seem to suggest that we're going to see even better margins. Is there some offset somewhere that I'm not appreciating or you're just being conservative?

James F. Hinrichs

Driving margin expansion is hard work. We've got a list projects -- first of all, we do have a nice mix factor happening here in the year with Dispensing and Infusion, and so that's helpful, but also, if we operate in extremely competitive tough environments, we have our sort of normal pricing pressure that we see every single year. We've always said it's in the 1% to 2% range. We've got to offset that. We've got 3% inflation, we got to offset that. So we've got these big 8 projects that we're working on, these are sort of what we call the CSI 2.0 products. Many of you heard me talk about it, where we're kind of drilling in and doing more structural improvements, so things like truly global shared services, manufacturing and supply chain, order-to-cash harmonization in addition, we're re-benchmarking all of our support functions and asking them to continue to work toward or above best-in-class, to at least toward and above the benchmark. So I think we've got a lot of shots on goal to get to that 23% -- I think we've proven that we can do it and can execute on it. Some of these things that we're are talking about are longer-term, more structural kind of projects that while they deliver big results and they're permanent results, not like I hate this term, but low-hanging fruit that we've kind of been going after for the last 3 years and I hate that term because it makes it sound easy and it's not. But I would say that we're setting goals that we have line of sight to, that we have multiple shots to get to and we will not stop at 23%. If we get there, we will shoot higher than that, obviously, as time progresses, Rick. But like I said, I don't want to minimize the amount of work that has to go into it. Kieran, do you have anything to add?

Kieran T. Gallahue

No, I think you had -- if we reflect back on several years ago when we started this journey and multiple points of margin below where we are today, one of the things we did -- we said is that look, this is about execution. It's about identifying opportunities. The sum of which, if they all go right, are well beyond the goals that we established. But you know what, somewhere in there, life happens. And you have to be ready for some puts and takes in the process. So I can assure you that when you sum up all the opportunities, they are quite a nice list of opportunities. But we'll get some surprises in there and you got to anticipate that they may happen.

Operator

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

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Kieran, was there an incentive program for your reps in the Infusion business in particular this quarter and the end of this fiscal year that drove such a strong push in the year end?

Kieran T. Gallahue

Yes, well, the way that we -- I'll say both in Infusion and in Dispensing. There was no special spiffs out there, right, so there's nothing that we changed to create a different level of energy. We have a plan, which is same plan you would do in most medical device businesses, which has an accelerator after you hit quota, so that once you go past the 100%, it becomes very attractive for reps to run through the tape and be able to overachieve, as you might imagine, when you've got a year like we've had. Some of which we can see in the revenues, Infusion tends to -- the cycle time from committed contract to install tends to be shorter than we see for instance in Dispensing. When you look at both of those, we had a great year. And I'm really proud of the reps because they ran through the tape and a lot of those people hit their accelerators. So it was an unusual year from that perspective. It's a lot of money but if there's anybody that I want to make a lot of money, it's reps that are running through the tape and exceeding quotas. And so -- no, that had to run through the line. But there was nothing special that said, "Hey, pull in business" or anything like that, if that's what you're asking.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Yes, that's what I'm asking. So if I think about what makes the modeling right, maybe the next couple of quarters for that business because it kind of feels like where that business came out versus what we all thought it would, that there's probably some business that got brought -- got pulled forward there. How should we think about the Infusion business maybe in the first half of the fiscal year?

James F. Hinrichs

Mike, I think you need to think about, first of all, with the normal seasonality, we always -- the first quarter is always relatively weak, first half of the year. I mean, it was a phenomenal year, as we said, we think the business is going to be down for the full year modestly, and the normal seasonality, which is kind of a weak first quarter, will continue to play through. So I don't think you're going to see anything highly unusual in terms of our quarterly growth rates bouncing around a lot. But it is just, coming out from such a strong year, it's going to be down for the full year modestly.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Okay. Let me ask one strategic one, Kieran, we've had this ongoing discussion with you guys about different transaction possibilities. And you guys have addressed the possibility of an inversion if it made strategic sense. Is that option, in your view, still on the table, given the amount of discussion we're on right now in Washington?

Kieran T. Gallahue

Yes, look, there's no change in what we've communicated earlier. Whenever we look at M&A, it is first and foremost driven by strategy, how does it make us a better company, how does it help us create scale and to the extent that it can help us have improvement in our geographic reach. So fundamentally, we always look at M&A from a strategic lens and how it makes us a better business. There is certainly a component in there that some of these transactions may allow for an inversion. I think you know that we've talked about that in the past and you know that we are well versed on it. I don't think that our opinion has changed in any way.

Operator

Your next question comes from the line of Richard Newitter from Leerink Partners.

Ravi Misra - Leerink Swann LLC, Research Division

This is actually Ravi, in for Rich. Just trying to understand a little bit about the margin impact from -- in the fourth quarter and how it should proceed going throughout '15. As you sort of get through the Vital Signs, Sendal and Pyxis ramps up, should we expect a stable ramp throughout the year for margins?

James F. Hinrichs

Great question. I mean, as we lap those acquisitions, the year-on-year impact -- the negative year-on-year impact, obviously, will disappear, right? And as we integrate those companies through the year, there should be a positive effect on the margins, both at the gross margin line and the operating margin line. So I think the way to think about it is that margins should, as they always do at this company, sort of steadily improve through the year. First quarter always tends to be our weakest margin quarter. Fourth quarter usually is our strongest margin quarter. Although this year, it was a little unusual. It's still our strongest margin quarter but usually it's a bit more strong than it was. We had that unusual incentive comp. I don't think that pattern is going to change. I think you're going to see, if you look at prior year's, I think that relative pattern continues on an absolute basis. On a comparative basis, second half looks better than first just because you're still lapping those acquisitions. Does that answer your question?

Ravi Misra - Leerink Swann LLC, Research Division

Yes, that helps. And then secondly, maybe one on Pyxis. In terms of the roughly 200 live sites, I guess, in your prepared remarks and the press release, it says about half are the Dispensing committed contracts. So through that 400 contracts in '14, how should we think of this in '15? Are we looking at this to grow and -- or is it just sort of the installation base is going to be going off the other 200 remaining -- or the revenue recognition is going to be from the other 200 remaining? And what potential factors that are sort of exogenous to CareFusion can you see accelerating that recognition?

Kieran T. Gallahue

So I think we're mixing a couple of things here. So just if I understand your question correctly, let me just -- the 200 sites that we're talking about that are live, those would have already moved into the quadrant of revenue. The committed contracts that we referred to as far as the mix of competitive -- or excuse me, not competitive, but ES versus non-ES, that -- some of those have converted to revenue, some of them are not, right? So there's not a direct translation, and the timing varies on that. What you should take away from the message, there's 2 things to take away in what we're trying to say. The 200 live sites which happen to have gone into revenue demonstrates that we've got a lot of customers that are now active on the ES site, on the ES platform. That's a really good thing because customers like to do what other customers are doing. They like to be able to go to reference sites and they like to know that the platform is stable. That many sites live say that we're getting better at it, that the performance of the system is great and that there are places for our reps to take their customers to that show how good the system is. The other thing is the committed contracts, which is that percentage, there's always lots of upgrades and expansions that happen as opposed to just full system conversions. So you'd always -- you're never going to expect that 100% of your customers are going to be in a new generation because if somebody just adds a new wing in the hospital, they're only going to pick up a certain number and they're going to have the old generation, et cetera. So that is something that over the course of 3 to 5 years, you start seeing the transition moving closer to that 100% of whatever that new platform is. So both those signals are just simply really good indicators of the health of the ES platform and the Dispensing business. That's the way you should take it.

Ravi Misra - Leerink Swann LLC, Research Division

Great. And then maybe one last one before I get back in queue. What -- in terms of backlog, any sense of how much it grew last quarter or what it is?

James F. Hinrichs

We generally don't disclose that. All we said is that we have record backlog and that continues. So we had a record backlog at the end of the third quarter we actually built in the fourth.

Operator

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

Matthew Taylor - Barclays Capital, Research Division

Just wanted to follow up on those Pyxis thoughts. So can you just talk about your expectations. You said well-above the average growth for med systems for the year. In terms of how the shape of that looks, can you help us with a little bit the cadence? And then do you think you're going to accelerate some of that backlog now that you have shown your customers that you're doing it well? And just any help with the shape of the curve there would be great.

James F. Hinrichs

Yes, I mean, I hate to be repetitive to what we said last year. I think it's probably also the growth trajectory of Pyxis, you're going to see improving growth rates through the year. And so, look, we are still -- I mean, we did turn the corner, we got a bunch of ES sites installed, we got nearly 200 of these sites installed, we're getting better. We deployed more resources. We feel great about that. We are still learning. And so when we look at the ramp on Pyxis, the growth rates are going to build through the year. And so first quarter is getting scheduled, second quarter is getting scheduled, and I think you'd expect to see growing growth rates or higher growth rates as each quarter progresses, if that makes sense.

Kieran T. Gallahue

Yes. And then the thing is, just to reinforce the message we said before, there is a seasonality aspect always to our business. So what you'd expect that -- the summer quarter is an example. These things -- they're installation processes, where you needed time from your customers. It's not just us, it's also them. So inevitably, during the summer months, there are usually less installs. Then you start getting into that our second quarter, right, the fall. You start seeing a significant build in the installations, and then it just tends to grow throughout the year and it tends to be in its highest rate as you get towards the fourth quarter.

Matthew Taylor - Barclays Capital, Research Division

And just on your longer-term outlook, when you talk about mid single-digit revenue growth, I mean, to me that means 4% to 6%. But is that an organic number with your current assets? Is there any acquisition contemplated in that number? And what do you think is going to be able to allow you to use these assets to grow a little bit higher than you have been over the past couple of years?

James F. Hinrichs

On the long-term -- kind of the long-term growth rate mid-single digits you're asking about, Matt?

Matthew Taylor - Barclays Capital, Research Division

Yes.

James F. Hinrichs

So included in that mid-single-digit growth rate would be tuck-in acquisitions, so smaller acquisitions sort of that are included in that, 50% of free cash flow that we're deploying every year, there would be a buy back or tuck-in acquisition. So the smaller ones sometimes that we don't disclose or things that are clearly below the materiality threshold would be included in that mid-single-digit growth rate. It is by and large though an organic growth rate. It is -- that growth rate -- we're in markets that are growing low single-digit. We are growing faster than our markets in a number of important places. Primarily Infusion, Infection Prevention and some of our other PS businesses, we're growing faster than market. So it's primarily an organic number but it does include those smaller tuck-ins. Obviously, a bigger deal would change that. And we'd update guidance accordingly.

Operator

Your next question comes from the line of David Roman from Goldman Sachs.

David H. Roman - Goldman Sachs Group Inc., Research Division

I wanted just to follow up on Matt's question actually, on the revenue side. I think in the last time you presented your long-range plan, you talked about revenue performance closer to the low to mid single-digit range. I think that's sort of the organic assumption under which most of us had been operating with the exception of the bonus and fluctuations around the ES launch. So as I look through the pieces of the puzzle, it looks like what's really changed here is the structural uptake in your Procedural Solutions business as well as some share gain opportunity elsewhere. Maybe first, is that a fair characterization? And then, how do you sort of think about the sustainability of that mid single-digit number when you sort of roll off some of the big product launches and share gain opportunities from which you're benefiting now?

Kieran T. Gallahue

Yes, I think, Matt, it's a good way to look at it, right? So I think let's take them side by side. If you take Procedural Solutions, you're absolutely right, that a lot of what has happened over the last couple of years has been structural improvement. We've increased the emphasis and focus of the sales organizations. We have sent them new products. We are significantly increasing our R&D spend. After having done so on the MS side, we are now in a position to be able to do that on the Procedural Solutions side. So as we roll out new products in areas that we've identified as attractive, we should see the benefits of that organically, as well as geographic expansion, where you have the ability to get into some markets that we have not. We've been going through registration processes for certain products in certain countries. So we've got a number of ways to continue, we feel, to be able to continue that, as you call it, structural improvement on the Procedural Solutions side of the business. On the MS side of the business, look, there's -- the Respiratory business just went through sort of a funky time period where we had this lapping of this government order. The fourth quarter, we saw that it returned to growth. And that's a business that we think performs reasonably well, grows with the market, in the low single digits. When you go to the big businesses we have though, on the Infusion and Dispensing, this whole concept of medication management, leveraging the market position that we have in each of those and sort of getting away from just having to sell boxes but being able to sell solutions to our customers that when we knit together these solutions with software products that empower the boxes plus they empower much more than that is really resonating with our customers. And we feel we've got a lot of legs with that strategy over the coming years as we help industrialize a lot of the processes that you see within hospitals. The hospitals and health systems are really turning the corner around that in understanding their needs to drive efficiencies. They can't do it with the processes and they can't do it with the technology they've had yesterday. They need these types of improvements and changes. And I will say also, in those businesses, we have made some changes that are going to allow us to penetrate certain markets around the globe that we have not really made much of a difference in before. So we've got that. That's always a little bit harder to predict than the timing of the ramp, but I can tell you, we're a lot better positioned today than we were even a couple of years ago.

David H. Roman - Goldman Sachs Group Inc., Research Division

That's helpful. Then on the margin side, Jim, as I listened to you describe things like the CareFusion simplification issue part 2, the dynamics that you're talking about sound like they take a little bit more time to realize it might be somewhat more structural in nature than the prior version. So should we think about the 23% as really ramping toward the outer part of your LRP and the nearer-term earnings leverage coming from tax and share reduction, with the operating leverage component coming later in the 3-year plan?

James F. Hinrichs

No, no, I wouldn't say that. Actually, I mean, we've got a -- when I look at our 3-year strat plan, we've got a fairly steady operating margin improvement that we're shooting for. Now some of it next year is driven by mix and so -- but we've got some fairly good initiatives going on that will drive improvements next year and definitely in '16, for sure. So I wouldn't say that at all. I think we've got a nice march upward on the OE line as well.

Operator

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

Kristen M. Stewart - Deutsche Bank AG, Research Division

I just wanted to go back and clarify the fiscal '15 sales guidance. I know you mentioned discontinuing out of some OEM products and then you have Vital Signs. Can you just walk us through that again and what your assumed organic growth is for fiscal '15?

James F. Hinrichs

So if you take organic growth, we're thinking for the company, it's going to be about 3% to 5%, net-net. If you net out Vital Signs and you net out that OEM business that we're exiting, it would be more like in the 3% to 5% range.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Perfect. And then I guess with just the pump side of the equation, can you maybe just walk us through, I know in the past, you've talked about pricing with pumps, that you've been pretty good about raising the price. I'm just curious, with the significant flows into this quarter, how did pump pricing fare? And then just a bigger picture on pumps, Baxter had some pretty bullish comments on their call, about their ability to reclaim some of their lost share. It seems like Hospira is obviously trying to fix their issues as well. So how do you get comfortable, I guess, just with the longer-term ability to continue to drive above-market growth within that business longer term?

James F. Hinrichs

Yes, Kristen, let me take the pricing thing first. From a pricing standpoint, price was pretty much exactly as we expected it to be. And so being a little bit more specific, year-on-year -- versus our budget, we were essentially right on budget. Versus our -- versus prior year, pricing of the pumps that we placed were slightly down. By slightly down, I mean, a low single digit downward move in price on those pumps. As expected, these are some big accounts that we're replacing, and so the price is a little bit lower. It's like it's exactly where we expected. So no real moves on that front. Kieran, do you want to talk about the...

Kieran T. Gallahue

Yes, look, so we certainly have worthy competitors and ones that we respect. When we -- the guidance that we've talked about has assumed reentry of competitors into the market. Although reentry is a funny word because many of these customers really never -- or excuse me, the suppliers never really fully disappeared. There were some opportunities for them to ship some products and be able to bundle up or be able to transactionally align with certain customers, which is why we continue to compete against, we say is compete against free in a lot of these cases. The real thing, I would reflect back. We have been able to build a very strong franchise. We've been able to leverage our technology, which is substantially differentiated and will continue to be substantially differentiated in the market. And it has allowed us to continue to mature this medication management strategy that is something that our competitors at this point can't compete with. So we remain -- while we remain respectful of our competitors, we remain very confident in our own market position.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. And then last question just in terms of the EPS growth guidance of 10% to 12%. What are you assuming over the next 3 years in terms of the tax rate, in terms of opportunities to bring that lower beyond what you've guided for in fiscal '15?

James F. Hinrichs

I think on an ongoing basis, we think about ourselves as a high 20s, kind of tax rate. So I think our guidance for next year is probably applicable into the future years, granted we're all working on things that can hopefully lower the rate. But these things take time. So I would just assume a high 20s kind of rate for the next couple of years, maybe declining slightly year-over-year, but not significantly.

Operator

Your next question comes from the line of Larry Keusch from Raymond James.

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Kieran, I was hoping we could start just talking a little bit about the o U.S. market opportunities. Obviously, I understand that you would like to build scale and presence in those markets through inorganic means. But outside of that, what efforts, initiatives, do you have to get that going in the overseas markets and specifically, where do you think the most opportunity is in your current product line?

Kieran T. Gallahue

Sure. So we've never counted on inorganic being the only mechanism of growth. I think that's always a dangerous way to approach the development of businesses. We've always felt it's a blend of organic and inorganic. And there are times when you need to start with inorganic and then build around it on an organic basis, right? So a good example of that was our entry into Brazil. We felt we needed some critical mass within that market in order to establish a beachhead. We did the normal thing over the course of 12 to 18 months. You get your feet onto the ground, you hire the right people, you CareFusion-ize them, if you will, and then it gives you the opportunity for you as you register new products and potentially add some of the products and their manufacturing capability to be able to expand beyond that. So we've been putting a lot of bricks in place. China is a good example. Over the last couple of years, we've done the basics. We've hired a country manager. We put SAP in there. We put a warehouse in there. Those are the things we didn't have a few years ago. We now have -- for some of our major product lines, I'll talk about Dispensing as an example, we've got boots on the ground now in R&D to be able to help customize certain parts of the product line that are going to allow us to begin to set up pilot sites and be able to expand beyond that. So there are different opportunities by markets, some of which I would discuss publicly; some, for competitive reasons, I probably wouldn't go too deeply in. I'd like to sort of get a little momentum before we get too specific on some of those product lines. We've been registering products in countries around the globe. We've been cost -- behind the scenes, cost reengineering certain products to make them appropriate for certain markets because we have cost points that weren't appropriate and now will be over the course of the next couple of years. So there's a lot of things that have been going on behind the scenes. The lumpiness of acquisitions allow you to grow more quickly, but I can assure you that the activities on the organic side are going to be important over time as well.

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Okay, perfect. And then, Jim, just one for you, and I just want to make sure I understand all the puts and takes within the quarter. Obviously, the tax rate was considerably lower than we had anticipated. But I also understand that there are some incremental costs, if you will, that help offset some of that benefit from the tax rate. So would you mind just, again, just going through what was, if you will, outsized or unexpected in the operating expenses or the cost of goods that helped to offset that lower tax rate?

James F. Hinrichs

Yes, yes, yes, and it's a great question. It's funny, we were talking about this yesterday, and we all decided that this is a quarter when sell-sider's are going to earn their money. You sort of look at the headline results and say, wow, they kind of crushed their EPS number. And then you say, oh no, but it was -- a lot's tax rate-driven. And you say, oh, but that's -- if you look at the revenue number, that's great. And you say, oh, but the margins have declined. Wait, but the margins have declined because of this sort of weird one-time incentive comp thing that probably won't repeat. So this is good. We're headed into '15 with strong backlog and in great revenue growth and great momentum and with margin tailwinds, frankly. So as I said, we feel like this is a kind of a couple of moving parts here. We feel good about it, being very explicit, as you mentioned, we had a much lower-than-expected tax rate. The reasons are very easy for us to understand. That added about $0.10, frankly, to the quarter. But we also had this one-time unexpected, since the last time we talked, we got about $20 million of incremental incentive comp that we weren't planning on, and that was about a $0.07 bad guy. And so you sort of net those 2 things out and you say, net-net, it was still operationally a great quarter. Net-net, it's still would have been a beat, even without those kind of unusual, discrete -- I hate to call them discrete, but unusual, unplanned items. Is that kind of what you're looking for, Larry?

Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division

Yes, that was perfect.

Operator

Your final question comes from the line of Bob Hopkins from Bank of America.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

So 2 quick things. First, just one last question on M&A. You guys have commented the last several quarters about having a full pipeline. And I'm just curious, to the degree that things aren't getting over the finish line, what's the main sticking point? Is it price? Is it strategic fit? Are there other factors? Just curious as to maybe what's holding things up.

Kieran T. Gallahue

Yes, look, these -- every single one has its own story, right? And if you maintain discipline in the process and you put that strategic filter on but also have a financial filter on it, sometimes it's a slow process, sometimes it's fast. I mean, we did this $0.5 billion acquisition earlier in the year and which has gone extremely well. I could tell you the start to finish on that was amazingly fast, while we have other things that have been in the pipeline for 2 years and it's just a matter of you've got to have a buyer and a seller and both parties need to be at the right position. So we're comfortable with the pace. Obviously, we continue to have a great sense of urgency around it. We continue to have the firepower to have a great amount of flexibility, and we continue to be disciplined. And I think you can expect all of those to be our mantra as we go forward.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

All right. And then one for Jim, on the finance side. Just curious on the incentive comp because we've seen this from other companies, just wondering how that turns into a surprise, as a starting point? And then also, when you're talking about hiring people to support the ES launch, does that fade away in 2015, become a tailwind from a margin perspective for you? Or are those kind of permanent full-time hires?

James F. Hinrichs

So first off, on the incentive comp, we really had 2 components, as I mentioned in my script, right? One is corporate incentive comp, where that's sort of a known headwind when you're resetting. Now what happened is we finished the year even stronger from a revenue standpoint. If you remember, our management -- our annual bonus plan is pegged to revenue and operating margin. Revenue over-performed, operating margin underperformed slightly, but net-net, it was a positive. We paid our bonuses at 100% this year, that was an increase from last year and, frankly, an increase where were accrued from -- at the end of the third quarter. So that, I wouldn't say that was a surprise. It was -- well, it was a bit of a surprise positive outcome. That's not the biggest piece of it. The biggest piece of it is the sales commissions. And I think what I'd say there is it's really difficult to model outlier scenarios when you're talking about sales commissions. And so the example this year is particularly in Pyxis and Dispensing where we pay on committed contract, we had accelerators kicking in at times -- at points in the year with a number -- with a larger number of people than we expected across both organizations that frankly look like outliers when we Monte Carlo these things out. And they tested our model beyond what we've seen in the past. And so, well, it was a scenario that we had modeled. It was clearly on the right end of the curve, at the tail of the curve when it all was said and done. And that's simply because we had a large number people that were well over their quota, where accelerators where at their maximum, up and down the organization, up through management, from the reps through management, and that drove a level of commissions that, frankly, at this company, is unprecedented. And so it's not something that we would potentially expect or guide to. So I would say it's not something that we didn't know is possible, but it's certainly something that we've never seen before and certainly something we wouldn't anticipate or ever guide to. And frankly, committed contracts came in way stronger at the end of the year than we expected them to. And so -- and you get this -- so that's sort of the reasons. The other I'll say is you get a sort of weird mismatch here sometimes because we do pay on committed contracts for certain businesses, so there's no corresponding revenue with that sales commission. Just keep that in mind as well. When it comes to the resources, the other thing you asked about on the Dispensing installation team, I would say for now, we're anticipating that they will remain through the fiscal year, that's coming up in '15. We will -- we'd anticipate that increased level of resources. I believe that over time, we will get better. And that could be midway through this fiscal year, it could be next fiscal year. But for now, we're planning to have a higher level of install resource to make sure that the customer experience when they install this product is as good as it can be.

Jim Mazzola

Thanks for the questions, everyone. And Kieran, maybe you want to take just a minute to wrap up before we sign off?

Kieran T. Gallahue

Great. Well, thanks. Thanks, everybody, for your attention and for your questions. I'd like to take this opportunity to thank the CareFusion employees throughout the globe. We just had a -- what I thought was just a wonderful year from a strategic perspective as well as from a results perspective. We ended the year in much, much stronger position than we entered it and with great momentum coming into the new year. Each of our business lines had success stories oriented with them. They have great fundamental improvement in our market positioning, and that doesn't come easily. So it's all from the hard work and dedication of the life changers in the CareFusion organization. And I think they should feel very proud of themselves. So thanks, everybody, and we look forward to updating you as we go through the year.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.

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