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Executives

Curt R. Hartman - Interim Chief Executive Officer, Chief Financial Officer and Vice President

Katherine A. Owen - Vice President of Strategy & Investor Relations

Analysts

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

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

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Steve Beuchaw - Morgan Stanley, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Richard Newitter - Leerink Swann LLC, Research Division

Rajeev Jashnani - UBS Investment Bank, Research Division

Matthew Taylor - Barclays Capital, Research Division

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Jason Wittes - Caris & Company, Inc., Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

William J. Plovanic - Canaccord Genuity, Research Division

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

Joanne K. Wuensch - BMO Capital Markets U.S.

Stryker (SYK) Q1 2012 Earnings Call April 17, 2012 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Stryker Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to take the time and read the Safe Harbor statement.

Certain statements made in this presentation may contain information that includes or is based on forward-looking statements within the meaning of the federal securities laws that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from those expressed or implied in such statements.

Such factors include, but are not limited to, weakening of economic conditions that could adversely affect the level of demand for the company's products; pricing pressures generally, including cost containment measures that could adversely affect the price of or demand for the company's products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payers; a significant increase in product liability claims; resolution of tax audits; changes in financial markets; changes in the competitive environment; the company's ability to integrate acquisitions; and the company's ability to realize anticipated cost savings as a result of workforce reductions and other restructuring activities.

Additional information concerning these and other factors are contained in the company filings with the U.S. Securities and Exchange Commission, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

I would now like to turn the call over to Mr. Curt Hartman, interim Chief Executive Officer and Vice President and Chief Financial Officer. Please proceed, sir.

Curt R. Hartman

Thank you, Derek. Good afternoon, everyone, and welcome to Stryker's first quarter 2012 earnings report. Joining me on the call is Katherine Owen, Vice President Strategy and Investor Relations. In terms of the format for today's call, I will provide opening comments and then turn the call over to Katherine for an update on several key focus items. I will then cover the financials before opening the call up to your questions.

Consistent with previous quarters, our press release contains additional detail that we encourage you to review relating to our quarterly performance.

On that note, first quarter sales finished at $2.16 billion, up 7.2% as reported and 7.4% in constant currency. As shown in the supplemental sales chart in the press release, it is clear that our revenue growth was balanced, both by segment and geography.

The quarterly and year-over-year increase in our Reconstructive segment sales augmented continued strength in MedSurg and a solid showing from Neurotechnology and Spine. The balanced revenue growth reinforces our conviction in the benefits provided by our diverse offering, supported by a strategy of internal innovation and focused acquisition. More specifically, our Reconstructive results were led by a solid sequential and year-over-year acceleration in both hip and knee implants.

Within MedSurg, instruments delivered strong growth of over 10%, fueled by the launch of our System 7 power tools, and our Sustainability Solutions business delivered another solid, high-growth quarter.

Finally, within Neurotechnology and Spine, solid gains from Interventional Spine, Neurovascular, and Neuro, Spine and ENT were partially offset by continued challenge in our spinal hardware segment.

Overall, sales excluding currency and acquisitions posted an increase of 5.2% in Q1 versus our 2% to 5% expectation for the full year.

With these sales results, our adjusted per-share earnings increased 10% to $0.99. The 10% adjusted earnings per share increase is in line with our target for double-digit per-share earnings growth. Additionally, this performance includes absorbing roughly $0.015 per share of onetime SG&A expense associated with the previously disclosed separation agreement.

Finally, I'll provide an update regarding the board's search for a permanent CEO. As stated previously, the board, in conjunction with an outside search firm, is conducting a comprehensive and thorough search of both internal and external candidates. That process is ongoing, and although the timing of an announcement is impossible to predict, the board is comfortable with the pace of the review.

In the interim, as our Q1 results reflect, we remain focused on executing our strategic objectives and delivering on our financial commitments. The results of these efforts underscore the collective strength of this company, which includes our global offering of products and services, our dedicated employees and the strength we have built with our customers and markets.

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

Katherine A. Owen

Thanks, Curt. There are 4 key topics where I will try and provide some additional details, including hip and knee pricing and elective procedure trends, an acquisition integration update, our Global Quality and Operations initiatives and an update regarding key new product launches.

Starting with pricing. In an attempt to provide greater granularity by our key segments and to help facilitate your modeling, the press release includes a breakdown of our sales growth by volume, mix and price for our 3 key business segments: reunion -- excuse me, Reconstructive, MedSurg and Neurotechnology and Spine. As it relates to our hip and knee pricing trend, during Q1, U.S. pricing remained negative in the low single-digits and was largely offset by favorable mix, particularly within our hip segment. Although the overall trend improved again this quarter, our forecasts do not assume a meaningful change in the pricing environment, and we continue to assume pricing as modestly negative and partly offset by mix.

Turning to elective procedure trends. We did not see any meaningful re-acceleration in volumes during the quarter. Rather, the environment appeared stable. Recall that our assumptions for full year Reconstructive sales growth excluding currency and acquisitions of less than 3% are predicated on the assumption that there's no notable change in elective procedure trends. Given the progressive nature of OA, combined with the fact that we are essentially entering year 2 of the recession-induced slowdown in elective procedures, an uptick is possible but as yet is not evident. We are comfortable with the assumptions we outlined at the start of the year and believe we are appropriately resourced to execute on the financial targets for our Reconstructive segment in 2012.

Shifting to the acquisitions update. As many of you are aware, we completed a series of acquisitions in the 2010 and 2011 time frame. With respect to the deals completed in 2011, in total, they contributed over 2 percentage points of sales growth in Q1. And while recognizing there are always challenges with any M&A activity, overall, we are generally pleased with the integration progress and the financial results achieved to date.

With respect to our most recent acquisition, we continue to target 510(k) clearance of Concentric's stent retriever device in 2012 or possibly 2013 and look forward to the opportunity to further leverage our market-leading presence in stroke care with this next-generation device targeted at the ischemic segment. Going forward, our BD activity remains focused on targets that both leverage our existing sales footprint while also elevating key adjacent market segments.

Next, an update on our Global Quality and Operations, or GQO, initiatives, which are part of our previously discussed efforts to drive greater efficiencies within our decentralized model while maintaining our focus on quality. We are now starting to see the initial signs of the leverage we are targeting from these efforts as 2012 will be the second consecutive year of favorable standard cost improvements following years of standard cost increases.

As we look ahead to 2013, we expect to see continued improvements with incrementally higher standard cost reductions year-over-year. More specifically, we expect to deliver a minimum 2% reduction in standard costs in 2013, which represents another sequential year-over-year improvement. We are also working to improve the efficiency of our global plant infrastructure, which includes the closing and divestiture of 2 facilities, which is currently under way, while we are consolidating a third facility into an existing plant. In addition, we are in the process of consolidating a portion of our U.S. distribution to one facility, which should be largely complete by year end. The benefit of this initiative will include lower freight costs within SG&A and, to a lesser degree, leverage of the fixed and variable cost lines.

Finally, we are starting to see the benefit from our ongoing investments in quality, such as improved reliability of new product launches, which is the obvious benefit to our customers, while also helping to lower warranty expense within SG&A. By way of example, looking at our System 7 next-generation power tool, the customer complaint rate is less than 1%, which compares favorably with the prior generation, System 6.

While we have highlighted some clear positive steps on our journey to drive greater efficiencies, we have also seen some challenges. Of note, given the heightened level of M&A activity, we have added meaningfully to our manufacturing footprint with 11 additional plants, only partly offset by the aforementioned closing, divestiture and consolidation. Integrating these facilities has resulted in some margin pressure, which will continue during 2012. And as we take a more comprehensive look at our manufacturing footprint, we are focused on reducing inventory in certain areas, which also adds pressure to the P&L near term.

All told, we believe the myriad initiatives under way within GQ and O are having a positive impact, recognizing we are still in the relatively early stages but with the benefits that will be evident in our P&L on a long-term basis. The acceleration in this contribution is one component behind our conviction in our ability to deliver on our stated goal of double-digit per-share adjusted earnings growth, including in 2013, when we will also be absorbing the impact of the medical device excise tax.

Finally, a few comments regarding key new products within our major business segments. Starting with the Reconstruct, our hip sales continue to see the benefit from the uptick of both the ADM and MDM mobile bearing systems that allow for a large hip head without the need for a metal-on-metal component. Combined, ADM and ADM (sic) [MDM] represented approximately 21% of our U.S. hip cup procedures exiting the quarter, up from 17% at the end of 2011, underscoring the market's receptivity to an ultimate large-head implant system.

The launch of Accolade 2, our next-generation version of the highly successful Accolade primary hip system, is now under way. Accolade 2 offers a better implant fit for a wider range of patients, and given surgeons' familiarity with the existing Accolade platform, we anticipate a relatively faster rollout than the normal timing for a new hip or knee system, recognizing it will cannibalize existing Accolades sales to some degree, but we also expect to see competitive surgeon conversions.

Within our MedSurg segment, we are pleased with the market acceptance of our System 7 power tool, which helped drive over a 20% increase in U.S. heavy-duty sales in the quarter. We're expecting both customer upgrades and competitive conversions.

And Stryker Sustainability Solutions delivered its fifth quarter of sequentially higher sales with over 20% year-over-year growth owing to additional 510(k) clearances of products that can be reprocessed as well as a more favorable competitive environment.

With that, I'll turn the call back over to Curt.

Curt R. Hartman

Thanks, Katherine. As noted, positive growth across our 3 segments coupled with acquisition growth, principally in Neurotech and Spine, increased company sales 7.2% on a reported basis and 7.4% on a constant currency basis.

With respect to earnings, we delivered encouraging results with adjusted diluted net earnings per share of $0.99, representing growth of 10% over Q1 of 2011. On a GAAP basis, diluted net earnings per share were $0.91, an increase of 16.7% versus Q1 of 2011. A reconciliation of non-GAAP to GAAP EPS is provided in the tables accompanying today's press release.

In reviewing the quarter, I'll start with a discussion of the components of our revenue growth. In the quarter, volume and mix contributed 6.9% to our top line growth, acquisitions added 2.3% and currency decreased top line sales by approximately $4 million and decreased the company's overall reported sales growth by 20 basis points. Company-wide selling prices declined 1.7% on a worldwide basis.

We did have an additional selling day versus 2011. The calculation would compute a 1.6% favorable impact to growth rates. We would note, however, that the extra day principally benefits our procedure-driven business to include Reconstructive and other implant lines, while capital sales are not materially impacted by variations in selling days.

Finally, by way of providing additional information, the details regarding the components of revenue growth for each of the 3 reporting segments are provided in today's press release.

Looking at our reporting segments, I'll start with Reconstructive products, which represented 44% of our sales in the quarter. Reconstructive products include our hip, knee, trauma and other Reconstructive lines. Our Reconstructive segment had a solid quarter with sales up 5.2%, both as reported and on a constant currency basis. First quarter growth in hips, knees and trauma and extremities improved sequentially from fourth quarter results. Acquisitions added 6% to the Trauma top line. Overall, it was a nice performance for our hip and knee implants, which posted both sequential and year-over-year revenue growth. Importantly, our results included positive growth in the Reconstructive lines across our European market.

Next, I'll turn to the MedSurg product segment, which represented 38% of sales in the quarter. For reporting purposes, MedSurg is comprised of instruments, Endoscopy, Medical and the Sustainability Solutions business.

In total, MedSurg sales increased 7.5% as reported and 7.9% on a constant currency basis. Results were paced by a strong performance from instruments and another quarter of solid performance by our Sustainability Solutions business. We expect instruments and Sustainability Solutions will remain growth drivers for the quarters ahead.

Internationally, our Medical and Endoscopy segments recorded strong performance. However, in the U.S. market, Medical was disappointing after 8 quarters of solid results, and Endoscopy, as previously mentioned, is looking toward a strong second half product introduction cycle.

Overall, the results for MedSurg reflect continued strength, and we remain encouraged by the new product plans and look forward to a solid 2012 from MedSurg.

Our final segment, Neurotechnology and Spine, which represented 18% of company sales in the quarter, increased 12.4% as reported and 12.3% on a constant currency basis. As noted in the press release, acquisitions added 8% to the constant currency gain, reflecting the performance of the Orthovita and Concentric acquisitions. We continued to generate strong high-teen growth from our Interventional Spine and NSE offerings as well as the positive influence of the NV business, which is now part of the underlying growth.

Finally, Spine results, while greatly benefiting from the Orthovita acquisition and new product introductions, remain under continued pressure in the spinal implant category in terms of both price and volumes.

I'll now turn to income statement, beginning with our gross margin performance.

On a reported basis, gross margin finished at 67.2%. This included $14 million of inventory step-up and other restructuring-related charges. Excluding the charges, margins finished at 67.8%, which is down 70 basis points from last year but up 50 basis points from the fourth quarter. Factors influencing margins in the quarter relative to the prior year included a 50-basis-point decline associated with the previously mentioned pricing pressure. Additionally, margins were negatively impacted from higher inventory charges, while the impact of currency in our quarterly sales mix were not meaningful in the quarter.

Overall, we expect gross margin in Q2 to be generally consistent with Q1, with modest year-over-year improvement anticipated in half 2 and full year levels trending slightly above 2011.

Research and development finished at 5.2% of sales. Overall, the absolute dollar spend was consistent with anticipated levels, as noted in the January call.

SG&A costs represented 37.9% of sales. And adjusting for restructuring and acquisition-related charges, SG&A finished at 37.5% of sales. This is slightly higher than our prior year levels although represents leverage after considering the impact of the separation agreement in the first quarter, which is recorded in G&A.

Reported operating income increased 12.5% over prior year and was 22% of sales. Adjusted operating income increased 4.7%, while the adjusted operating margin decreased to 23.7% as a result of the previously mentioned items.

Other income and expense reduced pretax income by $8 million in the quarter but was $4 million favorable versus prior year. Components of this included investment income and interest of $12 million, offset by interest expense of $20 million.

And finally, the company's effective income tax rate was 25.2% for the first quarter of the 2012. This was in line with our expectations and was 20 basis points lower than Q4 after excluding the impact of tax settlements and inventory step-up.

In terms of the balance sheet, we ended the quarter with $3.3 billion of cash and marketable securities, which was a decrease of approximately $100 million from year-end 2011. As a reminder, we have $1.75 billion of long-term debt on the balance sheet associated with our January 2010 $1 billion debt offering and our September 2011 $750 million debt offering.

On the asset management side, accounts receivable days ended the quarter at 61, which represented an increase of 3 days compared to year end. Days in inventory finished the quarter at 169, which was up 11 days sequentially versus year-end and 8 days against the prior year level, partially reflecting investments in new product introduction cycles.

Turning to cash. In the first quarter, we generated cash flow from operations of $35 million. Overall, we're not pleased with that performance.

Finally, in the first quarter, we repurchased approximately 1 million shares for a total spend of $50 million. We currently have open authorizations totaling approximately $653 million.

In summary, the first quarter was a solid start, and we remain comfortable with our initial sales and earnings targets that we provided at the start of the year. Specifically, we anticipate sales growth at 2% to 5% for the full year, excluding the impact from currency and acquisitions, and we'll deliver not less than double-digit adjusted per-share earnings growth.

Currency remains a slight headwind, and if rates hold near current levels, we would expect second quarter sales to be negatively impacted by approximately 1% to 2% when compared to 2011. Using current rates, the full year currency impact on top line sales would be negative in a range of 0.5% to 1.5% when compared to 2011, which is consistent with our original expectations.

In closing, we look forward to building on the strength of our first quarter results. Maximizing the performance of the various acquisitions, we're continuing to launch new products resulting from our ongoing investments and internal innovation.

With that, we'll now open the call up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions].

Our first question is coming from the line of Bob Hopkins from Bank of America.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

So this quarter, from a hip and knee perspective, you've got an extra selling day and you've got some easier comps, and we're all going to be busy trying to adjust for those items. But I was wondering if you could help us in that regard. When you look at your hip and knee sales rates on kind of a same-day sales basis in Q1 versus Q4, do you think that the volume of procedures is roughly flat in terms of the level of Q4? Or was there an uptick sequentially?

Katherine A. Owen

Bob, it's Katherine. It's probably closer to flat, stable, as we mentioned in our prepared comments. It feels like the environment may be getting a little bit better, but with just one quarter and some of the seasonality, seasonal anomalies that happen between Q4 and Q1, it's probably too soon to say if we've seen a real change in the trend. But it certainly feels very stable at the moment.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Okay, that's helpful. And then, Curt, on the operating margin side, in 2012, when you net out all the comments that you made, how much operating margin leverage should we expect in 2012? And then if you could also just comment on the cash flow generation in the quarter, that would be helpful as well.

Curt R. Hartman

Sure, Bob. I think when we look at the operating margins, we started the year with an assumption that it would -- we would roll through the year and finish somewhere a little bit north of 68%. I think we remain committed to that. I would point back, however, to some of Katherine's comments in her prepared comments relative to the integration of the facilities and the investments that those require to bring quality systems on par with what we have across our global network at this point in time. In addition, to somehow align these efforts in GQ and O do acquire upfront investments before you see the long-term benefit of those. And as Katherine tried to comment, we are seeing some of that benefit starting to show up in standard costs that impact future periods. So we're encouraged, though acknowledge it, certainly. On cash, as I said very briefly in my comments, it was not our best day. There's not one particular area that really stands out in terms of driving the performance, though I would note we did have some legal settlements previously disclosed that were paid in the quarter, like the Biotech settlement. We also had some larger-than-anticipated tax payments that impacted cash in the quarter as well. But when you look at all the other categories, working capital, inventory increased, DSO increased, accounts payable actually decreased, which was a negative as well, so it just -- frankly, if I summed it up, it was not our best performance, and I think it's something that we've reinvigorated our focus on here starting in the second quarter.

Operator

[Operator Instructions] Our next question is coming from the line of Kristen Stewart from Deutsche Bank.

Kristen M. Stewart - Deutsche Bank AG, Research Division

I just wanted to -- I guess Bob had asked about operating margins, and one of the things in the quarter that would have expected to see a little bit more on would have been SG&A leverage. You did kind of talk a little bit about the separation agreement. Was that something that was maybe already anticipated by you guys? Or was it incremental to your expectations? Or was it just kind of the Street model that may be a little bit wrong?

Curt R. Hartman

No, it's entirely incremental. The resignation occurred. You can't time resignations or build those into plans. It's entirely incremental cost in the quarter, and it was previously disclosed. So it hits G&A. And when you do the math on the previously disclosed, it's about 40 basis points.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay, perfect. I wasn't sure if that was acquisition-related or -- obviously [indiscernible]. That's helpful. And then just on MedSurg, can you maybe just give us an update on what you're seeing for hospital CapEx trends? You had commented that the U.S. medical beds business was a little bit softer that what you were anticipating. Is that something you think will persist?

Curt R. Hartman

It's a very fair question, and I probably should have provided a little color around that. U.S. medical results were disappointing, obviously, as you can look at our press release. I think it's more owing to internal issues than it is to external market issues. We had -- as Katherine commented, we've had some plant transitions going on. One of those involves production associated with our Medical business. In addition, we had some regulatory approvals and product launches that were a bit delayed beyond what we had anticipated, and that has also impacted our ability to ship and hit the desired levels in the first quarter. So as we enter the second quarter, we have higher expectations, though it does take time to recover some of those shipment delays and get production ramped back up when you're talking about something as complex as our medical bed franchise. So we have higher expectations as we enter the second quarter.

Katherine A. Owen

And Kristen, one follow-up I would make. Although Medical is the most -- the business most dominated by capital, there is significant capital component to both our instruments and Endoscopy businesses, and particularly with instruments and power tools, which is clearly capital, we're seeing very good growth. So it doesn't feel like there's any real issue from hospital capital budgets versus what might be more Stryker-specific issues in the short term.

Operator

Your next question is coming from the line of Michael Matson from Mizuho Securities.

Michael Matson - Mizuho Securities USA Inc., Research Division

Based on what we've heard from some of the other larger med tech companies, it sounds like there has been a little bit of an uptick in accounts receivable, particularly in some of the European countries. So I was wondering if any of that increase of it we saw there was due to what's going on in Europe, particularly around the periphery.

Katherine A. Owen

Yes, similar to some of the other comments that we've heard from companies, some of the Southern European areas have been a little bit more challenged, and it's contributed to our higher DSOs by about 3 days from the end of 2011. It doesn't feel like anything that isn't manageable right now, but it is part of what -- where the pressure is coming from.

Michael Matson - Mizuho Securities USA Inc., Research Division

Okay. And then you all have said that you expect to offset the medical device tax in 2013. It sounds like that's mainly based on the restructuring programs you already have in place. But I guess I'm wondering why we're not sort of seeing the benefits of some of those things this year. And I'm also wondering if there's going to be additional restructuring required to hit that kind of 17% underlying earnings growth number that you need to offset the tax.

Curt R. Hartman

I think there's a couple of answers to that question. Number one, part of the offset to the med device tax will come from the restructuring initiatives that were announced in November of 2011. So that was 4 months ago. So I wouldn't anticipate that those restructuring efforts would be materially impacting our results at this point in time. It is possible that we will see some of that benefit as we get into the second -- later half of this year. Other components that we're counting on are the GQO initiatives, which Katherine started to provide a little more detail on in this call. And then finally, we are certainly banking on all the acquisition activity and new product innovation introduction being contributors to top line growth to also help offset that. So our model is not solely based on a restructuring action that's been announced as the thing that gets us over this hurdle. It's a combination of all of the above and then probably some other things that will happen just within the overall normal operations of our business at the -- as we unfold our plans heading into 2013.

Operator

Your next question is coming from the line of Derrick Sung from Sanford Bernstein.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

I was wondering if you could comment on what your underlying growth in your core Spine business is. And any color there in terms of pricing and procedure volume trends?

Katherine A. Owen

Yes, the environment in the spine market remains challenging. It is one of the areas where we're seeing continued pricing pressure. I wouldn't say it's materially different from what we've seen previously. It is being offset by better gains for Interventional Spine business, but the traditional core Spine business remains under pressure when you ...

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

So what was -- go ahead. Sorry.

Katherine A. Owen

I was going to say when you ex out the benefit they're seeing from the addition of the product offering from Orthovita.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Okay. So -- I mean, are we still sort of -- in terms of organic underlying Spine growth ex-ing out acquisition, are we still sort of looking at sort of negative mid-single-digit declines? Is that kind of a fair assessment?

Curt R. Hartman

It's negative. I don't know if it's mid-single-digit negative.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Okay. And then as a follow-up, you talked about driving some mix benefit on your hip side of the business, and I'm assuming that that's coming from your ADM and MDM offerings. I was wondering on the knee side. How is mix looking there? We heard some commentary from a few other -- a couple of other companies that talked about revision procedures driving some mix in knees. Are you seeing any of that? Or any comment there would be helpful.

Katherine A. Owen

To your first comment, not in total. But certainly, ADM and MDM are a driver of that mix benefit. And just as we would expect Accolade to help going forward, we are seeing a mix benefit in knees but not to the same degree that the hip segment is seeing. And I wouldn't point to anything specific as it relates to revisions. That's just kind of the normal offering helping.

Curt R. Hartman

And I would say, Derrick, we are -- continue to be encouraged by the rollout of OtisMed. And that trend continues to increase month over month and is being with some level of enthusiasm at this point as we get more of the imaging centers up and installed and get to that further comprehensive approach out across the market.

Operator

Your next question is coming from the line of Mike Weinstein from JPMorgan.

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

Katherine, just make sure I understand what your -- the message you're trying to send across on the improvement in Recon performance. So your view is that the underlying market hasn't changed much, it's relatively stable 4Q to 1Q. But the improvement in your own business is a function of easier comparisons and an improvement in mix. Is that the message?

Katherine A. Owen

I would say we're cautiously optimistic, but too soon to say that we've seen a meaningful improvement or even a modest improvement in volume trends right now. And partly, it's because of the historic Q4 to Q1 seasonality anomaly that it's just -- it's tough to know. It certainly feels very stable from a volumes perspective, and perhaps the trend arrow is pointing upward. But we'll feel better when we see how the results in the next quarter and how they play out for the year. I think it's certainly benefiting from easier comps as well as the momentum now that we're kind of in that full rollout, ADM, MDM, getting traction with OtisMed. So the product traction is helping. It's helping with some competitive conversions. And it's helping on the mix side. So we're having a little bit less of a negative impact from a price-mix perspective as it relates to hips and knees, particularly on the hip side.

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

Okay. I had 2 launch/mix questions. So one, you made some comments with regard to the mobile bearings, the mobile bearings systems that you guys now have out there. I think you said they were, in total, 21% of your U.S. hip cup mix during the quarter. Where do you think that can go?

Katherine A. Owen

Hopefully, higher. It's trending nicely. It's up 4 percentage points sequentially, and we're still out there pretty aggressively promoting the benefits of that. It's tough to know if you look at metal-on-metal. And the benefits were certainly, in large part, driven by the large head design, and the desire for that hasn't gone away. That peaked at 30%, 35%. Whether that gets to that degree with our business, it's kind of tough to know, but I would say that it's continuing to trend upward at this point. So I don't think it's flattened out yet at 21%.

Operator

Your next question is coming from the line of Larry Biegelsen from Wells Fargo.

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

Katherine, the Concentric launch, is that slightly delayed? When you said earlier 2012, 2013, is that -- does that represent a slight delay? And the TREVO 2 data, when should we should see that?

Katherine A. Owen

No, it's no change from the time when we acquired Concentric back in late Q3, I believe, where we said we were hopeful of a 2012, 2013 FDA clearance. So no change at all in the time frame there. Some of the Trevo device was released at one of the recent neuro meetings. But I'll -- Larry, I have to follow up with you offline to get more specifics around it because I don't have that in front of me.

Larry Biegelsen - Wells Fargo Securities, LLC, Research Division

No problem. And Curt, just one for you. Just basically in this interim period, are you approaching anything differently from your predecessor?

Curt R. Hartman

No, I think going back to our original commentary, we're satisfied with the strategy that we have in place, and the company continues to execute on that strategy, both as it relates to our markets but also as it relates to our internal areas of focus, be it GQO or other shared service categories that we've been looking at or operational efficiencies. So I think the game plan remains very much sustained. Now with that said, there's always tweaks and adjustments, but we were making tweaks and adjustments quarter-on-quarter anyway. So we'll continue to run the offense and, as appropriate, adjust our plans where we see fit to take advantage of opportunities that may be presented.

Operator

Your next question is coming from the line of Glenn Novarro from RBC Capital Markets.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

I had a question on Japanese pricing. Can you discuss with us the biannual pricing or price declines that you're going to see in knees, hip and Spine? And I'm assuming that that's in your guidance for the rest of the year.

Curt R. Hartman

Yes. Glenn, I would qualify the answer a couple of ways. Number one, the pricing cuts were a little bit larger than we had originally anticipated, so somewhere in the aggregate around 4% -- a little more than 4%. But overall, to the expectations for our business, it's immaterial, and our full year guidance factors all that in. So I don't think we see it as a major event at this point in time. It certainly is for our Japan business as they adjust to a slightly larger cut than they originally planned for, but the breadth of the portfolio over there should give them opportunities to absorb that.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

And is that 4% to 5% cut, that's across everything you sell there? Or is that just predominantly knees and hips?

Curt R. Hartman

I'm giving you one aggregated number for the Japan price cuts. Different segments have different price cuts, and I, again, I don't have that in front of me.

Operator

Your next question will be coming from the line of Matthew O'Brien from William Blair.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

I just wanted to see if I'm looking at this correctly. From the press release, it looked like Recon pricing was down about 2.6% in the quarter. Is that a modest acceleration compared to the last couple of quarters? And what is driving that?

Katherine A. Owen

Are you saying that the global Recon pricing down 2.6%?

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Yes, out of your release. I looked in the previous releases, and I didn't see it. But if memory serves, I think it was negative 1.7% or 1.8%.

Katherine A. Owen

No, that's a new level of detail that we included in the press release by segment just to give you guys a little bit more granularity. So it's not a number we released previously. The number you're referencing is total company price, which we've always reported. It's just you're getting more segment detail. So no, there's no material change. And as I mentioned, it's actually a little bit more favorable when you factor in mix for hips and knees.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Okay. And my follow-up question, on the neuro side, specifically hemorrhagic stroke. How is that business trending? What kind of growth did you see in the quarter? And then I can't see what it actually was, but how does that compare versus what you were thinking when you've initially acquired the business?

Curt R. Hartman

Well, keep in mind 65% of that -- of the Neurovascular business is outside the U.S. And so we look at the revenue breakdown between international and U.S. and we start looking at product rollouts, the Target Coil is the key innovation that, that business has been rolling through, and we feel very good about that. And internationally in the quarter, we had a very good quarter, which I think does directly reflect the success and acceptance of the Target Coil. In the U.S., our results were probably a little bit muted for our original expectations, and I think that's a reflection of the fact that we do not have a flow-diverting stent at this point in time. And customers are evaluating that technology, and that comes directly at the expense of coiling. That said, we still feel very good about our innovation pipeline in that business and feel very good about the Target Coil franchise. And we've got great customer relationships and great market shares across all the segments there. So as the year unfolds, we don't see any real material change in that business, and we do have some new products that are scheduled to be released here shortly that we're encouraged about how they will further impact that business this year.

Operator

Your next question will be coming from the line of David Lewis from Morgan Stanley.

Steve Beuchaw - Morgan Stanley, Research Division

It's Steve Beuchaw here for David. I wonder if you could speak to some of the levers in the thinking in the revenue guidance. As we look at the results for the quarter and how the cadence -- the cost trend over the course of the year with this quarter around 5% growth in the top line excluding the acquisitions and currency, it seems that guidance is at least reasonably conservative. Now could you give us an update on what you're looking as the key levers in this -- at this point in the year driving expectations toward the higher or lower end of the range?

Curt R. Hartman

Yes. I guess first thing I would point to is we did have an extra selling day in the quarter, which would take that 5.2% down, as we said, on an absolute basis to 3.6%. So that's not 100% accurate because capital businesses are not as subject to the day variations that the procedure-based businesses are. So if you take the 3.6%, it's comfortably inside the 2% to 5% range we gave, maybe a little bias to the high end. And number one, it's one quarter. So if we're sitting here at the midyear and we've got a quarter that's outside or -- to the upside of the range, maybe we'll reflect a little deeper on our business segments and look at our guidance. Right now, I think with one quarter under our belt, no material change in what we would refer to as elective procedure volumes. We're comfortable with our range and the assumptions that go into it.

Steve Beuchaw - Morgan Stanley, Research Division

That's helpful. I wonder, then, if you could touch briefly on the operating environment in Europe. Is it any tougher or easier in your mind than it was a quarter ago? And is that any more true on either direction, either in the capital or implant markets?

Curt R. Hartman

I don't think that from a Stryker perspective, we have found the commercial operating environment to be materially different in the first quarter than what we saw last year. Clearly, on the asset management side, we have seen a little bit of holdback on the payable side in Southern Europe. However, there are some things being tossed around in some of the Southern European countries around payment schedule in some of the markets for the midyear point, and we hope that, that materializes, and we're obviously very involved in that. Overall, the market remains pretty stable. And I did comment that at least within Stryker in our hip, knee and in other Reconstructive segments, we did have positive growth in the quarter, which we view as a good sign for our business and a good sign for the stability that we're starting to get in that business.

Operator

Your next question will be coming from the line of Matt Miksic from Piper Jaffray.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

I had one area to follow up on, on recon. And I did have a follow-up on Spine. I'm wondering if you could give us any color, Katherine or Curt, as to what within Spine, is it product lines, the launches, introductions that you're looking to, to improve that product line over the next several quarters? And then -- or maybe what some of the weak spots have been? And then I have one follow-up.

Katherine A. Owen

I think it's been probably just the market. The overall spine market has seen lower volumes, and some of that is the recession-induced slowdown in elective procedures, but it's also payer pushback. So that is probably the overriding biggest factor. Layer on top of that ongoing pricing pressure. Certainly, the comps help, and -- but that's hardly we want to be banking on. And we haven't done as well but better more recently on some of the new products that fill gaps. So I wouldn't view them as game-changers but necessarily to make sure we've got a competitive product offering. So it's first and foremost just a challenged market, but an area that we continue to believe has a lot of opportunity for innovation. So it's a segment we're committed to, just recognizing it is going to be one of the more challenged businesses that we have right now.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Okay, that's helpful. I had one follow-up, then, on the Medical business line. You mentioned sort of some of that might have been self-inflicted. Any color -- I guess similar question -- color within that business line? Neptune? Stent? Anything you could tell us that could maybe help us understand that a little bit better?

Curt R. Hartman

I think within Medical, what we're really looking at is more self-induced damage in the first quarter than anything else. And that comes from some of our transition plans that always seem to have more difficulty in them than one would like to assume. And then on the regulatory front, we had some new products that didn't quite get where we needed them to in the first quarter. But we still feel very encouraged about those and how they'll influence this year. And so I don't look at our Medical results in the first quarter with great alarm. I'm disappointed, clearly, and I think that the team over at Medical is disappointed, because they've been on an 8-quarter run, and this is not how they wanted to start their first quarter. And I have it on good authority from that leadership team that they have much different plans for the rest of this year. So I'm cautiously optimistic that the rest of the year will unfold in a much different fashion.

Operator

Your next question will be coming from the line of Bruce Nudell from Credit Suisse.

Bruce M. Nudell - Crédit Suisse AG, Research Division

Curt, now that you're at the helm, where do you see, kind of net of price in the U.S. Recon as kind of the steady state that's achievable given the price pressures offset by the innovation ability?

Curt R. Hartman

So Bruce, when I -- I'm still the CFO, and when I get price questions, I usually deferred those to Katherine. So I don't know. You're kind of bumping that up to the interim CEO, which I know [ph]. But my view on price net of mix is probably no different than Katherine's. It's probably no different today than what it was 3 or 6 months ago. Innovation still matters. Our organizations are focused on innovation, be it internally developed or externally acquired. And I think to the extent that we keep the innovation focus on, that can benefit and offset some of the price pressure. There's nobody in our business walking around saying pricing pressure is going to change any time soon. We recognize that's part of the current day environment. We're not forecasting that to go away any time soon. And would we love price to change? Absolutely. But that's not what we're walking around thinking, and what we are thinking is that innovation still matters. We're seeing this in things like ADM and MDM, System 7, other products that we've introduced, the lateral approach out at our Spine organization. Innovation still pays. Customers still pay for great innovation. That remains somewhat the marching orders here.

Bruce M. Nudell - Crédit Suisse AG, Research Division

And Katherine, just a follow-up for you. You -- reading between the lines, it almost sounded like you're -- you think you might have seen some green shoots with regards to volume. Is there anything substantive that you can comment on?

Katherine A. Owen

No, and it really wasn't my intent. I certainly feel very good that the market is stable. But as we've tried to say in the past, with our implant business in particular and given the vagaries of the market right now, you really have to look at more than one quarter to get a true sense if there's been a change in the trend. So what -- are we hopeful that maybe trends get better? Absolutely. But at this point, it would just be too early a call to say anything other than certainly stable, and, hopefully, we're not going to go into an environment where we see any type of worsening in elective procedure trends that occurred, as everybody knows, in some of the prior quarters. So a high degree of conviction in stability, but not ready to say anything stronger than that at this point.

Curt R. Hartman

I think we've just overall found that we need to let the numbers do the talking versus us projecting, because it's just far too difficult to estimate where the markets are going. Every day, there's a new headline that seems to shake things up. And we've got a highly engaged selling organization, great product innovation. And we're just going to keep pushing on that and let -- ultimately, let the numbers materialize.

Operator

Your next question will be coming from the line of Richard Newitter from Leerink Swann.

Richard Newitter - Leerink Swann LLC, Research Division

Maybe I could just start off on the -- both the hip and the knee side. I -- you've talked about positive mix shift opportunities. Within hips, Accolade is coming up. Should we expect this to be as big of an incremental contributor as kind of the MDM, ADM launch? And in knees, just where are we in OtisMed? And how much kind of is there to go as we move forward?

Katherine A. Owen

I think it's probably too early. Literally, the Accolade 2 launch is getting under way right now. And unlike ADM and MDM, it will cannibalize some of the original or first-generation Accolade sales. But obviously, our -- that group is focused on competitive conversions. And I think the uptake will be a bit quicker for the reasons we've pointed to and the familiarity with the Accolade platform. So certainly -- it's correct that we can't control the markets, but giving sales reps new products to sell is a big motivator in any environment. And OtisMed continues to see sequential growth, and very pleased with the ability to offer what is increasingly becoming an important product offering to have in that knee portfolio.

Richard Newitter - Leerink Swann LLC, Research Division

And just maybe to follow up on that. Is OtisMed a mix driver for you in knees going forward? Is that one of the positive mix opportunities? Or is that more of a, I don't know, a market share gain potential driver?

Katherine A. Owen

I think it's more in the market share side of things than anything else. We do charge for it, but it's -- I would view that more as a driver of market share.

Operator

Your next question will be coming from the line of Rajeev Jashnani from UBS.

Rajeev Jashnani - UBS Investment Bank, Research Division

I was hoping we could go back to, excuse me, Bob's question regarding operating margins. And I guess if you kind of take out the 40 basis points this quarter out of SG&A, you were still down year-over-year, albeit on a tough gross margin comp on the year-over period. But I was just wondering if could kind of talk about operating margin outlook for the entire year and whether -- I guess how we should be thinking about that on a year-over-year basis.

Curt R. Hartman

Certainly. Starting any year, the goals are to improve the ratio. So as we begin 2012, we're looking at every ratio, looking for opportunities of improvement. With that said, at the end of the day, we have an earnings target that we're trying to move towards. And we reserve that right to invest in the areas of opportunity, whether they be in Global Quality and Ops or whether they're in the operating expense category. So if the top line is improving, you should probably anticipate we're going to make greater investments in the selling expense line, which is going to, therefore, impact the operating margin. So we try to keep the absolute amount of flexibility that we can while continuing to move the business ratios forward in a responsible way. As we look at this year, I go back to my very first comment. We're looking for improvement in all of our ratios. We do believe in letting the business roll up their results and make the appropriate investments locally, because they tend to make the best decisions. And as of right now, we still feel that there's opportunity, and we're still going to drive forward toward some improvement in the operating margin. I'm not going to give you a specific number on what we're targeting, specific percentage improvement or things of that nature. And then keep it in mind, some of this is also impacted, again, by acquisition work that does hit operating expenses. As it's first time in this year, it doesn't have a prior-year comparable.

Operator

Your next question will be coming from the line of Adam Feinstein from Barclays --

Matthew Taylor - Barclays Capital, Research Division

It's Matt for Adam. I just wanted to touch on some of these other questions that have been asked. But on this operating market target issue, you bought back some shares this quarter, but it really seems like you're just offsetting dilution. And it feels like you're comfortable with your level of investment. I guess, can you talk a little bit about the investment strategy and how you may be looking at it differently when your customer's focused on reducing costs and health care reform?

Curt R. Hartman

So on the first part of that, we did buy a few shares back. And it was a little bit later in the quarter, so they don't really materially impact the quarter. And frankly, it was intended to offset some of the dilution. So that's a fair and accurate statement. As it relates to our investments and trying to align those with our customers, it's absolutely spot on. The customer is evolving. They don't all evolve at the same point in time. You have some highly sophisticated customers who have a much different attitude and appetite in terms of the approach by companies like Stryker, and we're having to make some investments to ensure we align with their expectations. On the other side, there's a lot of health care systems that like the same approach they've always had, and we're not going to run away from that, either. So we're making the investments where we see the opportunity to move with our changing customer while at the same time ensuring that we don't leave any customers behind. And so I guess I'd just put that in the "Do we retain flexibility to make the investments to address where our customers are going and recognizing along the way we may have to change some approaches and we may have to make some strategic investments to get our customers attention?" And that's fine, too, because, again, if you've got -- if you have the right innovation walking in the door, if you have the right commercial approach walking in the door, there's generally a favorable reception. And we're doing those experiments to ensure we're on track with where our customers are heading.

Matthew Taylor - Barclays Capital, Research Division

And just to follow up. I know you typically don't break out emerging markets. But can you talk a little bit about the difference in growth between developed and emerging markets o U.S. and what you're doing there?

Curt R. Hartman

Sure. The emerging markets, we believe, are an important part of this company's future. And we have a new group president within the last 6 months who's responsible for international, and one of his first homework/assignments along with his team was to really dive in and evaluate what our current approach was versus what it may need to evolve to. And we're very encouraged by that work and what he and the team are doing. Today, when I look at emerging markets, you can come up with a long laundry list of countries. But I think places like China, India, Brazil, maybe you throw Russia, Turkey and a few others in the mix a little bit later, but if you start with China and India, we have a presence there. We've had a presence there for a long period of time. And our growth in those market is above the company average, and we anticipate that it should stay there. The real question is, is it growing fast enough, given the rapid evolution of those markets? And that's what we're evaluating. Do we have the right products? Do we have the right structure? Do we have the right approach? So I think our strategy here is to do a comprehensive review, take a hard look at what our investments are lined up to support, make adjustments where appropriate and ensure that at some point out in the future, we can really point to success in those markets and Stryker evolving and emerging to be a key market share leader in that space.

Operator

Your next question will be coming from the line of Josh Jennings from Cowen and Company.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Just quickly on the Neurovascular side. Can you just give us an update in terms of whether you're on track for transferring manufacturing responsibilities over from Boston Scientific? And just some directional color on -- in terms of how impactful that will be to gross margins for that unit?

Curt R. Hartman

Yes, the Boston Scientific Neurovascular integration to Stryker is, obviously, then and continues to be, a very complex transaction. But I think in the best spirits, both the Boston Scientific side and the Stryker side have put highly dedicated, high-performance teams on this, and we remain very much on track with the transition service agreements and the transfer. Keep in mind, there's the manufacturing in Cork, Ireland; there's manufacturing in West Valley, Utah; and a small bit of manufacturing out in Fremont, California. All of those platforms remain on track, and those will continue in the integration transaction. We'll, probably not be complete until midyear 2013 based on latest plans and estimates. Obviously, that fluctuates and moves somewhat, because these are big projects that do have some variability. I'm probably not going to get into any of the color commentary around impact on gross margins. It's a little premature to talk about that right now given that we have not yet officially transitioned any of the manufacturing to Stryker.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

All right. And then just a follow-up on the Spine business. I know it's been a short time since AAOS, but any color on your lateral fusion platform launch and traction there in the millions of invasive surgery market?

Curt R. Hartman

We're excited by the lateral system that we developed and are launching. We've -- it's been met with good enthusiasm, both from the selling organization and from customers. But to your point, it's very early, so I wouldn't say it's had a substantially meaningful impact on our Spine business at this point in time. But from a feedback and enthusiasm standpoint, I think our selling organization is engaged, and I think our customers who are getting exposure to it are finding that we have a nice offering. So we're encouraged. I'll leave it at that.

Operator

Your next question will be coming from the line of Jason Wittes from Caris & Company.

Jason Wittes - Caris & Company, Inc., Research Division

A couple of product-related questions. First off, for the Concentric acquisition, I assume most of those revenues that you have at this point are coming from Trevo, not from the Merci product?

Katherine A. Owen

Yes.

Curt R. Hartman

No, it's the other way around. Merci is the original device, and Merci has the broadest regulatory approval inclusive of Japan. And in addition,, Concentric also brought some access products and balloon catheter-related items that compromise sales. The Trevo device has CE Mark and is in sale in limited form in the European market.

Jason Wittes - Caris & Company, Inc., Research Division

Okay, I misheard you. I thought you had said that most of your revenues were coming from Europe at this point.

Curt R. Hartman

No, 65% of revenues comes from outside the U.S., which is inclusive of Japan, China, Latin American countries.

Jason Wittes - Caris & Company, Inc., Research Division

Is there a -- sorry, go ahead.

Curt R. Hartman

For total Neurovascular, not Concentric.

Jason Wittes - Caris & Company, Inc., Research Division

Is there a timeline expected for a Trevo approval in the U.S.?

Curt R. Hartman

Yes, that's late 2012, early 2013 that Katherine mentioned in her opening comments.

Operator

Your next question will be coming from the line of Jeff Johnson from Robert Baird.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Curt, Katherine, just 2 quick questions here. As for the components of guidance, are you still expecting less than 3% growth in OI and -- or in orthopedic implants and 5%-plus in MedSurg, Neurotech at this point?

Curt R. Hartman

I think at this point in time, we're sticking with our original guidance. I think it's the responsible thing to do. There's -- we all want to be optimistic that elective procedures will rebound, will return at some level. But again, we -- we'd rather have our numbers tell the story. And based on those numbers, if there are adjustments to be made from guidance, we would move in that direction. But we're not seeing that right now, and, therefore, we're comfortable with the original guidance we've put out across the segments.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Okay. And just on the pricing front, I know Japan was asked about. But now that you're breaking out ortho pricing and with the 4%, 5% cuts there, simple math would say next quarter, maybe sequentially, pricing gets down to -- down 3% or so in ortho. Would that be your expectation? Or is there anything maybe offsetting that? Are there ways to get some improvements elsewhere to offset that Japanese impact starting in April?

Curt R. Hartman

The Japanese impact will start in April. But again, the 4% to 5% comment was across all Japan products that are impacted by the price cut. And so when you look at our Japan revenue, a segment of that is hip, a segment is knees, a segment is trauma, right on down the line. So I don't think it's not going to have a super-material impact on overall hip or knee total company pricing. Certainly, it is dilutive to the overall pricing right now, but I don't think it's going to be material to the overall company's price to the extent that we need to make massive changes.

Operator

Your next question will be coming from the line of William Plovanic from Canaccord.

William J. Plovanic - Canaccord Genuity, Research Division

So 2 questions. First, just on the Medical. You talked about some of the issues being internal, and that being new products and supply. I was just curious if there's new products that you were expecting had gained approval and if those supply issues had been resolved.

Curt R. Hartman

The new products are approved, and we're very excited about those. And the supply issues, the majority have been resolved, and we are working forward on ramping up supply. It's one thing to get the process in place. It's another to ramp the capacity up. But we feel good about the future periods here.

William J. Plovanic - Canaccord Genuity, Research Division

And of the challenges you faced, was it more supply-focused or product issue?

Curt R. Hartman

I don't have the document in front of me, but I think it was a little bit of both. It was fairly equal contributions. That business has a couple of different components into it, so there was some supply in some components. There were some regulatory approvals in others.

Operator

Your next question will be coming from the line of David Roman from Goldman Sachs.

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

I just want to ask a follow-up question on Neurovascular. I think, Curt, in your prepared remarks or a response to one of the questions, you talked about competitive trialing of flow diverters having an impact on your business. Maybe just talk about where we are in the goal that you had lined -- outlined when you did the acquisition to get this business back toward end market growth. And where do you see end market growth right now?

Curt R. Hartman

We still feel good about our progress towards that goal and feel good about not only the early innovation that was released there in the Target Coil, but follow-on innovation that's coming. And I feel pretty high degree of resolve that we're on track with our acquisition goals that we stated when we first announced the deal. And we -- I think similar to what I said in January, we see that overall market probably growing in the 7% to 9%. Obviously, you're doing a little bit of estimating, because a lot of the numbers are not publicly disclosed. But as we try to roll things up, we see it in that 7% to 9%, 6% to 8%. And again, the acute ischemic side is where the -- where we see the higher growth rates coming from.

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

Okay. And maybe as a follow-up on the P&L, I know in the last quarter you had talked about R&D as obviously somewhat cyclical based in where you are in certain projects, but a very good R&D spending. Last quarter, you think it grew kind of in the 4% range. In this quarter, up 1% in dollars after, I think, what was 8 quarters of teens or 20%-type increase. Tell us where are we in the R&D spending cycle and how should we think about that on a go-forward basis?

Curt R. Hartman

David, your comments are accurate. I would just remind you, the other thing I talked about in the first quarter was that all of the R&D spending related to the Phase II trials for the OA product out of Biotech, which had previously been included in R&D, had been turned completely off, and those dollars had been reallocated across the core business franchises. So on an absolute basis, dollar for dollar, it looks very similar, but we've actually put more dollars into our core R&D platforms because of the shutdown of the OA Phase II trial. So I think the dollars that you see are going to be -- it's going to be in that range on a quarter-on-quarter basis. Net result, the growth rate will be slower. And potentially, as a percentage of sale, it drops down. But it does not signal by any stretch a slowdown in our investments in innovation. It signals more a re-prioritization of some dollars that were in a Phase II trial for OA that are now part of our core growth platforms R&D.

Operator

Your next question is coming from the line of Joanne Wuensch from BMO Capital Markets.

Joanne K. Wuensch - BMO Capital Markets U.S.

Most of my questions have been answered. But I want to just focus on 2 things. Can you remind us how many manufacturing plants you currently have? Because the number that you talked about in terms of adding new plants was a bit higher than I had calculated.

Curt R. Hartman

It's 31.

Joanne K. Wuensch - BMO Capital Markets U.S.

31 in total? And you added 14, I think you said, with acquisitions?

Curt R. Hartman

No, 11. We've added 11. Included in those 11 are the 3 that are still yet to come over from Neurovascular.

Joanne K. Wuensch - BMO Capital Markets U.S.

And when you've finished, I would assume consolidation is part of the SG&A gross margin program here. What do you think this looks like in 24 months?

Curt R. Hartman

I don't think we're ready to go there. I think Katherine commented that we have 3 of them in process for closure...

Katherine A. Owen

Consolidation.

Curt R. Hartman

Consolidation, et cetera. Again, there's a bandwidth issue here. We're doing, on one side, absorbing acquisitions, at the same side trying to simplify our global manufacturing network while both have an overriding priority of doing absolutely nothing to disrupt the quality systems that we have in place and, in fact, continuing to try to elevate our quality systems each and every day.

Katherine A. Owen

I would just add that I'd be surprised if over the next 24 months, there wasn't more acquisition activity. So it's -- there's going to be a push-pull here.

Operator

Your next question will be coming from the line of Kristen Stewart from Deutsche Bank.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Curt, I just wanted to ask on buybacks just kind of general. Is that -- is any acceleration in buybacks included in your guidance at this stage?

Curt R. Hartman

No, our guidance does not include any additional buyback information or any acceleration, which is exactly how we started the year. And hopefully, as we now enter what I would call the third year of more consistent approach to buybacks, you understand that we try to be fairly opportunistic with where the market is and where we see the stock price and where we finally have the opportunity based on our U.S. cash position. And so you've got to have an authorization in place, you've got to have the market opportunity and you've got to have U.S. cash available to make it all come together. And we did what we thought was appropriate in the first quarter given all of those factors.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. And just to go back on the extra selling day, you said 1.6% mathematically, but it sounds like it's probably a little bit less than that, because you mentioned the capital business. So maybe, think about it as skewing more Recon and then, obviously, a little bit more in the Neuro and Spine side, too, right?

Curt R. Hartman

Yes, it's a -- those are very fair comments.

Operator

At this time, I'm showing no further questions in queue. I would like to turn the call back over to Mr. Curt Hartman for any closing remarks.

Curt R. Hartman

Thank you, Derek, and thank you, everybody, for your time with us this evening and your questions. That concludes our first quarter call. We're very excited about our first quarter results, and we'll continue on the strategic objectives that we have laid out and that we've been committed to now for a number of years. I'd just like to remind everybody before closing that the conference call for our second quarter 2012 operating results will be held on July 18, 2012. I would note that, that is a Wednesday. Our calls are typically held on Tuesday. We're doing that because there's actually calendars with holidays. Take one day out of the closing process. So we want to make sure we give our teams around the globe appropriate time to reconcile all of our global results. So thank you, everybody. Have a good evening.

Operator

Ladies and gentlemen, we'd like to thank you for joining today's conference. You may now disconnect. Have a great day.

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