David Crawford - IR Robert Abernathy - Chairman and CEO Steve Voskuil - SVP and CFO.

Kristen Stewart - Deutsche Bank Larry Keusch - Raymond James David Turkaly - JMP Securities David Lewis - Morgan Stanley.

Good morning, and welcome to the Halyard Health Third Quarter Earnings Conference call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Dave Crawford. Please go ahead..

Thank you, Cassia, and good morning, everyone. It is my pleasure to welcome you to the Halyard Health third quarter 2015 earnings conference call. With me this morning are Robert Abernathy, Chairman and CEO; and Steve Voskuil, Senior Vice President and CFO.

Robert will begin with an assessment of our third quarter performance and the progress we are making on our key priorities for 2015. Then Steve will review our results in more detail and provide his perspective on our outlook for the balance of the year. We will finish with Q&A.

A presentation for today’s call is available on the Investors section of our website www.halyardhealth.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance, economic conditions and our industry. No assurance can be given as to the future financial results.

Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today’s press release and our prior filings with the SEC.

Additionally, we will be referring to adjusted results and outlook; both exclude certain items described in this morning’s press release. The press release has further information on these adjustments and reconciliations to comparable GAAP financial measures. Now I will turn the call over to Robert..

Thanks, Dave, and good morning, everyone. I appreciate your interest in Halyard Health. On November 1st, we celebrated our one year anniversary as an independent company.

Those of you who have followed us since day one, know that we launched Halyard with a strategic vision of creating long-term shareholder value by shifting our product portfolio toward our faster growing higher margin medical devices segment. And that we have a step-by-step plan to accomplish that goal.

Looking back at our first year, I can say that my management team and I have meaningful accomplishments to be proud of; but that we face some headwinds, some challenges and have more work ahead of us.

Our third quarter reflected that theme, a mix some positive results in our separation from Kimberly-Clark and in our medical devices business and challenges in our S&IP business. Let me talk about each of these. First, we remain on track in building Halyard Health as an independent company.

Our ability to exit, transition services agreement or TSAs on time and in some cases early is a major accomplishment that positions us to execute our long-term growth strategy of portfolio transformation. To-date, we have exited nearly 90% of the TSAs and are on plan to exit the remaining TSAs in the fourth quarter and in 2016.

We are now shifting our internal focus to improving efficiencies and reducing cost. We are also continuing to make progress on our re-branding and repackaging efforts as more than half of our product shipped are now Halyard branded. Customer reception to the Halyard brand continues to be strong.

Second, I’m pleased to say our medical devices sales are on track to deliver year-over-year constant currency growth of 2% to 4% consistent with our guidance.

Medical devices increased 5% this quarter on a constant currency basis, that’s two consecutive quarters of constant currency growth of 5% or more driven by continued strong growth of COOLIEF and improvement in ON-Q. Third, the S&IP segment continue to face headwinds. While S&IP sales in the third quarter were the highest quarter of the year.

Sales declined 4% in constant currency compared to last year. We attribute the decline to three factors. First, market dynamics affecting our pricing. Second, the continued competitive market intensity in surgical drapes and gowns. And third, a slower than planned uptick in sales conversion in our exam gloves business.

Although we have recently renewed several key contracts and accelerated market share gains in exam gloves the overall challenging pricing dynamics in S&IP are likely to continue into 2016.

As a consequence during our annual goodwill impairment testing conducted in the third quarter we determined that the S&IP segment’s fair value no longer exceeds the carrying value of its assets on our balance sheet. As a result we recognized a $476 million non-cash preliminary goodwill impairment that we announced in today’s press release.

Steve will provide more details about the impairment in a moment. But it’s important to know that this is a non-cash charge that does not directly impact our cash flow from operations, our bank covenants or our liquidity.

Most importantly the charge will not change our day-to-day operations and does not change our long-term growth strategy of shifting our portfolio to higher margin and faster grow medical devices.

We understand the importance of generating improved results in S&IP in order to position Halyard for future growth and we remain confident in our strategy and the path we’ve chartered since day one. Now let me turn to a few other headlines for the quarter.

I am happy to report that we delivered slightly above our planned $0.52 adjusted diluted earnings per share driven by growth in medical devices, commodity deflation and manufacturing cost savings. We also controlled discretionary spending to help counteract the impact of lower S&IP sales volume.

We ended the quarter with $113 million of cash on the balance sheet while we’ll continue to control expenses in a discipline manner our strong financial position will help us continue to fund research and development and pursue M&A to accelerate growth in our medical devices business.

As we look to the balance of the year including our third quarter earnings results we now anticipate full year adjusted diluted earnings per share to be at the top end of our previously reported range of $1.90 to $2.10, as a result we are narrowing that range to $2 to $2.10.

Our immediate task in hand is closing out the year by delivering our sales and EPS guidance and laying the ground work for a successful 2016. With that I’ll turn it over to Steve for more details on the quarter and our outlook for the balance of the year..

Thank you, Robert. Before discussing our third quarter results, I would like to remind everyone that our results for 2014 reflect the business as it existed when it was part of Kimberly-Clark. Included in our 2014 results our pre-spin cost associated with executing the spin-off. Now let me start with some key information from our press release.

Third quarter sales were $390 million, a 2% decrease in constant currency compared to the prior year. Adjusted operating margin was 12% for the quarter compared to the prior year of 15%. Adjusted EBITDA was $56 million for the quarter compared to $81 million the prior year.

Taking a more detailed look at our results for the third quarter, overall sales of $390 million were down 5% compared to $409 million a year ago. Exchange rates negatively affected net sales by 3% or approximately $13 million and lower selling prices impacted sales by 1%. Adjusted gross margin of 35% this quarter was even with a year ago.

Manufacturing cost savings and lower commodity prices in the quarter were offset by lower production volume and price erosion in S&IP. Adjusted operating profit was $46 million, down from $63 million a year ago. The decrease was driven by lower S&IP sales volume and pricing and increased standalone costs due to our spin-off.

During the quarter, we incurred $16 million of post spin related charges; $9 million for litigation matters and $7 million in intangible amortization expense that were excluded from adjusted operating profit. Additionally the non-cash preliminary goodwill impairment that Robert mentioned was excluded from adjusted operating profit.

As a result, adjusted operating profit margin was 12% for the quarter. Looking at our performance on a segment basis, S&IP net sales declined 8% in the quarter to $257 million, down 4% on a constant currency basis, which represents a 2% decline in volume and a 2% price loss.

S&IP operating profit for the quarter fell to $26 million compared to $37 million the prior year. As a result of lower sales volume and price, lower fix constant absorption as we curtail production to manage inventories and standalone cost. As Robert mentioned, we continue to face some challenges in S&IP.

Let me provide some additional details, first as results of competitors aggressively discounting we continue to see price erosion and some market share loss in certain S&IP categories. While we have been successful in renewing key contracts these contracts were negotiated at lower prices than expiring contracts.

Given the current dynamics in S&IP we continually focus on striking the right balance between maintaining market shares and driving profitability and our approach varies by category. In some categories like sterilization, we will utilize innovation and pricing to aggressively defend our leading market share.

In proactive apparel, which is our lowest margin category volume losses more likely as competitor use price to gain share. Second, certain product categories due to their competitive intensity are proving to be more challenging to achieve that balance.

While we have gained new accounts in surgical drapes and gowns leveraging new innovative like our AERO BLUE performance gowns these increases have not completely offset pre-spin account losses in North America and EMEA. Third, we’re beginning to see positive results from our renewed focus in our exam glove business.

We have grown our North American market share for the second straight quarter and have a strong new business pipeline. To-date, we have secured $11 million dollars of incremental annual contracts. While we had expected to realize more benefit from those commitments in the third quarter the conversion process has taken longer than we anticipated.

We now expect these commitments to benefit our fourth quarter 2015 and full year 2016 results. Exam glove sales to Kimberly-Clark are another driver. To-date these sales are running below prior year by approximately $5 million, to the elevated pre-spin purchases and inventory adjustments.

It’s important to note that while these sales represent approximately 5% of our total S&IP business the margin on these sales is minimal given our pricing agreement post-spin. Medical devices delivered another solid quarter of growth led by interventional pain, digestive health and ON-Q.

Compared to the prior year sales increase 3% to $126 million or 5% on a constant currency basis. Results were driven by 4% higher volume and a 1% gain in selling price, partially offset by 2% of unfavorable currency exchange rates.

Interventional pain delivered another strong quarter, with 22% growth fueled by continue momentum of COOLIEF in North America. Within the surgical pain category we’re seeing encouraging signs as the market dynamics continue to improve.

ON-Q posted 5% volume growth in the third quarter this was the first quarter since the fourth quarter of 2013 there ON-Q delivered year-over-year growth. It’s the second quarter consecutively that ON-Q sales have increased.

Medical device operating profit for the quarter improved 40% to $29 million compare to $20 million a year ago, increased research and development investment was more than offset by higher volume and price manufacturing cost saving and lower general administrative expenses due to lower amortization.

Before moving to the balance sheet I would like to discuss the non-cash preliminary goodwill impairment in a little bit more detail. In accordance with GAAP accounting rules we perform our annual improvement test as of July 1st each year.

As such, we conducted our annual impairment test in third quarter, which resulted in the preliminary impairment charge of $476 million related to the goodwill in our S&IP business. The size of the impairment charge will be finalized in fourth quarter.

As you will recall last year when we completed the impairment testing the fair value of our S&IP business exceeded its carrying value by only 6%. This would disclosed in our 2014 third quarter 10-Q.

As we have discussed, during the course of 2015, the competitive dynamics and S&IP were more challenging than expected as price declines and volume losses affected our segment results. Even though we expect S&IP volumes to stabilize and grow slightly in the balance of the year sequentially.

We now anticipate price loss in the neighborhood of 2% due to lower commodity costs and continued changes in the competitive landscape. We anticipate that this price environment will carry over into 2016, as pricing will reflect discounts on contracts renewed in 2015 and an environment of lower commodity costs continues.

We took these pricing and competitive market dynamics into account in our discounted cash flow model when we calculated the fair value of the S&IP business for purposes of the 2015 goodwill impairment test. We concluded that the fair value of the business no longer exceeded the carrying value of the S&IP net assets on our balance sheet.

This difference represents the first of two elements in the overall goodwill impairment charge. The second element is related to the large amount of goodwill on the S&IP balance sheet associated with legacy acquisitions.

In the impairment analysis this legacy goodwill is compared to implied goodwill after tangible and intangible net assets are stepped up to their fair value.

Those intangible assets were developed over the course of Halyard’s long history within Kimberly-Clark, such as our significant domestic and international customer base, our widely recognized trade and product names and technology and knowhow associated with many of our manufacturing processes.

As these intangible assets are fair valued for the purpose of the impairment analysis along with the write-offs of other net assets on our balance sheet the residual value left to allocate to implied goodwill quickly diminishes.

The difference between this implied goodwill and the actual goodwill on the S&IP balance sheet represents the second element of the impairment charge and over half of the overall charge.

It is important to recognize that this impairment is a non-cash charge and that it does not impact our cash flow from operations, our bank covenants or our liquidity.

Most importantly, this preliminary non-cash charge does not affect our ability to execute on our long-term strategy of transforming our product portfolio to higher margin and faster growth medical devices. Now let’s turn to our balance sheet and cash generation. For the quarter cash from operations was $19 million compared to $24 million a year ago.

At quarter-end, we had $113 million of cash on hand. We continue to move aggressively to build out our M&A pipeline. Our cash balance along with our current leverage positions us well to shift our portfolio to medical devices. Robert has already discussed our updated view for our full year 2015 adjusted diluted EPS.

And now I’d review the key planning assumptions that we have revised and build into our updated outlook for the balance of the year. Based on continued challenging dynamics, price erosion and anticipated lower glove sales to Kimberly-Clark, we now expect S&IP sales to decline 5% to 7% in constant currency.

This assumes normal timing and severity for this year’s cold and flu season. Based on our commodity outlook, we now anticipate cost deflation and key inputs of $25 million to $30 million, up from our previous guidance of $20 million to $25 million.

With the recent weakening of the US dollar, we now anticipate negative foreign currency translation to impact net sales between 2.5% and 3.5%. Additionally, we expect the negative currency impact on operating profit to be in the range of $10 million to $15 million. Our remaining 2015 key planning assumptions, which we affirmed are as follows.

Net sales growth on a constant currency basis is expected to decline 1% to 3% compared to 2014. We anticipate that medical device sales will grow 2% to 4% compared to 2014 on a constant currency basis. To support product innovation, we anticipate research and development investment of $30 million to $35 million.

Capital spending is expected to be in the range of $70 million to $75 million for the year. This is slightly above our long-term target of 3% of net sales due to spin related projects. For 2015, we anticipate spin related transitional costs to be in the range of $45 million to $55 million.

We continue to forecast the total amount for 2014, ‘15 and ‘16 to be in the range of $60 million to $75 million. Finally, our adjusted effective tax rate for 2015 is expected to be in the range of 37 % to 39%.

In summary, for the quarter we delivered adjusted earnings per share slightly ahead of our plan, as well as another quarter of medical devices growth. In S&IP, we are beginning to see encouraging signs in our exam glove category and remain committed to improving that segment’s overall performance.

While we have more work ahead of us we are well-positioned to execute our strategy of transforming our product portfolio to higher margin and faster growth medical devices. Cassia, we will now take any questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kristen Stewart of Deutsche Bank. Please go ahead..

Hi, thanks for taking my question.

Can you guys hear me?.

Yes, Christine. Good morning..

Hi, good morning.

I was just wondering, I wanted to obviously talk a little bit more about the S&IP business and I just wanted to kind of go over to what extent do you feel like you’ve covered I guess the renewal of different contracts and at what point do you feel like we’ve kind of hit the bottom that you feel confident that you can kind of gauge at what level you feel like you’ve got to handle on what the bottom of the pricing cycle maybe?.

Yeah, good question. We’ll start with the contracts first and I’ll talk about whether we’ve sort of found the bottom or not.

In terms of the contracts they are all right on schedule, last quarter I talked about our largest contract, which is our surgical business with one of the large GPOs that we were looking to shift that contract by one year and we were allowed to do that.

So that was postponed till next year, so that gives us really solid base of contract business in surgical, other contracts have been negotiated and are either completed at this point or well along the process, we haven’t lost contracts with GPOs through that negotiating time. So we feel good about the contract negotiations.

We continue to see though the pressure in S&IP, we continue to see the price loss. So whereas earlier in the year we were talking about 1% price loss, we are now signaling for this year and into next year a 2% price loss that price loss is coming predominately in our glove business and in sterilization.

So we’re really focusing on using price strategically to win contracts at the hospital level as well as to maintain our leadership position in sterilization wrap. So price loss is clearly dialed up from that 1% level to 2% level.

The second part of the difference in S&IP that we haven’t talked a lot about in the past is that we sell gloves to Kimberly-Clark and they use those gloves in their industrial business and those sales are falling short of the forecast for the year.

So we’ve seen a little bit more of a dial back there in terms of our planning assumptions going forward. And the third part that’s really kind of an unknown and it’s still out there and may indicate whether there will continue to be some softness, the share loss in surgical.

A lot of our volume loss this year has been in the surgical business and to a lesser extent in apparel, but surgical in particular has been an area of concern some of that surgical loss is due to the consolidation of custom procedural tray manufacturers the custom packer business, the consolidation has happened as Medline, Cardinal and Owens & Minor have been buying up custom procedural tray companies.

So we’ve seen some share loss as that consolidation has happened. We feel like we’ve got a sense of what that share loss is today and we don’t feel like there is significant share loss going forward, but it’s sort of a quarter-by-quarter analysis, Kristen as we look at that..

Okay.

And then just thinking about the cash flows, what I guess would you say is the kind of normalized cash flow that we should expect on an annualized basis just in terms of thinking about your ability to pursue acquisitions going forward, if we were to think about kind of the next couple of years balancing that with some of the ongoing transition costs?.

Yeah we’ll give you better information on that in the first quarter when we do our forward-looking guidance, but cash flow continues to be strong our cash from operations continue to be strong we’re generated strong cash flow both from our S&IP business and from medical devices.

I’d say as we really look at the year we’re sort of over delivering the cash in the medical device area and slightly under delivering the cash in the S&IP business, but in total the cash flow from operations continue to be strong which will allow us to pursue our strategy of growth through acquisitions.

Steve you want to add anything?.

Yeah, I would just say that there will be some pressure on S&IP cash flow certainly based on the performance this year and as Robert said the carry forward of pricing, but that impact on our ability to borrow is not going to be material enough to impact our ability to transform the portfolio..

Okay. So no material impact from the strategy for S&IP that you see at this point..

That’s right. .

Okay great thank you..

Thanks, Kristen. .

The next question comes from Larry Keusch of Raymond James. Please go ahead..

Hi, good morning everyone..

Hi, Larry. .

So I guess, I just wanted to start with perhaps a couple questions on the Medical Devices business and then I just had a financial question for you.

Could you talk a little bit I know you talked a little bit about ON-Q, but could you talk just broadly about sort of the trends that you’re seeing within the big buckets, within the Medical Devices business?.

Yeah let me talk about each of the four kind of big buckets and I’ll start with our interventional pain, we continue to see strong growth there driven by our COOLIEF business that’s the business that’s been growing at sort of that 60%, 70%, 80% range quarter-by-quarter.

It’s continuing to grow in that sort of range so we’re very, very pleased with the growth of COOLIEF, which is driving the overall growth of our interventional pain.

Our surgical pain business, the majority of surgical pain business is ON-Q and ON-Q continues to show that we did find the bottom in terms of that business that had been declining for a year and half and now it’s turned to grow.

So up 5% in the ON-Q business in this quarter, which is very, very pleasing to us, because we signal that our key messages in the marketplace around non non-narcotic medication and the effective treatment using non-narcotic surgical pain through ON-Q is certainly is resonating. So that business anchored with ON-Q is showing growth.

Then our other two businesses respiratory care and digestive health we maintain very high market shares in those two categories, they typically grow with hospital, surgical procedures and hospital utilization so they continue to be strong with low single-digit growth..

Okay, perfect. And then just two financial questions, I’ll just rap [ph] them off and you can answer them.

So I am just trying to make sure I am thinking about this correctly, but you maintained a minus 1% to minus 3% sales growth on a constant currency basis for the company yet you reduced the outlook for S&IP to that minus 5% to minus 7% that’s obviously 70% of the business.

So just trying to understand how the overall guidance was maintained in light of the med device guidance remaining unchanged? So that’s question one and then question two is, if my map is correct I think the spin related charges are just under $29 million year-to-date I think $28.5 million.

And you’ve got $45 million to $55 million targeted for the year.

So I’m just trying to understand what perhaps changes in the fourth quarter to step those charges up?.

Yeah let me first take the guidance on total Halyard sales and why we’ve maintained that range of 1% to 3%. Let me start by just reminding everyone that we’re at -- our total Halyard sales year-to-date constant currency are down 2%. So it’s -- so right in the middle of that 1% to 3% range and our S&IP sales year-to-date are currently down 5%.

So we’re already sort of in those two ranges below into the S&IP range and right in the middle of the sales range for the total company. But as we go into the fourth quarter, obviously we’ve left the range pretty broad.

And fourth quarter tends to be the quarter where you can have quite a range of sales based on whether you have a particularly heavy cold and flu season or whether you have a pandemic that comes through. So we’ve left the range pretty broad.

Assuming that our medical device business continues to show the sort of growth it has in the last two quarters, which was plus 7% in the second quarter and plus 5% in the third quarter.

That would indicate that we’re going to have some medical device sales that gives us some momentum to offset some of the decline in S&IP to get us squarely in the middle of that net sales growth range that we’ve maintained..

And picking up that second piece on one-time cost. Our numbers are slightly different than yours Larry we would say $34 million year-to-date spending at either way we would expect to be on the low end of that range that we’ve communicated..

Okay, perfect. Thank you very much. .

The next question comes from David Turkaly from JMP Securities. Please go ahead. .

Hey, you mentioned some expense discipline, and I guess SG&A came in below what we were thinking, is that one-time in nature is that something that we can kind of count on going forward?.

It’s not one-time in nature, we’ve actually been just controlling our spending very tightly realizing that we’ve had the shortfall of S&IP sales, particularly in the volume area. So we’ve controlled SG&A, so we had some ramp ups expected for this year in terms of hiring plans. We’ve been little more conservative in terms of that hiring plan.

We’ve been little more conservative in terms of some of the spending in key categories. None of which are going to compromise our long-term strategic focus of transitioning our portfolio toward medical devices overtime and strengthening and stabilizing our S&IP business..

And the only thing I would add Dave is we’re going to expect to see some increase sequentially. So fourth quarter tends to be a step up a bit G&A spending in some of that say deferral and management will catch up a little bit in the fourth quarter..

Okay. And then you mentioned some share loss in surgical, but that you think you’ve identified it and now we kind of we know what it is now.

Can you just comment on how much share you think you lost in that business? Where you stand today?.

Yeah we don’t give specific share numbers, but it’s a couple of percent from the base line of where we started. And as we look at it a big portion of it is in surgical non-steril that goes into custom procedural trays.

We believe that share loss has come as a result of the consolidation the purchase of the custom procedural tray companies by Medline, Cardinal and Owens & Minor. We’re focused on capturing back some of that business, that business is contracted at the hospital level.

So it’s not the sort of thing that just arbitrarily gets to be selected by the owner of this custom procedural tray business. So we’re concentrating on making sure that we’ve got the contracts for that part of the business and that they are maintained..

Last quick on, the litigation expense can you just remind us what that is?.

The litigation expense includes predominantly litigation that was pre-spin litigation related. So it includes both the California litigation as well as some condolysis [ph] litigation. There are small amount of additional litigation cases that have come up after the spin, predominantly condolysis as well.

So the total legal expense -- total legal approval will be both a feature of the California case and other cases..

Did you expect those to continue?.

Do I expect those cases to continue or do I expect other legal expenses to happen?.

Yeah, I just trying to get a sense for $9 million is that a good number of what you anticipate or is that kind of going to drop off as we look forward?.

So the $9 million includes both litigation expenses and then accruals for potential settlements across the variety of cases that Robert mentioned. So going forward you can expect that there will be additional litigation expenses as we defend those cases and that will roll through that line item..

Alright, thanks..

[Operator Instructions] Next question comes from David Lewis of Morgan Stanley. Please go ahead..

Good morning..

Good morning, David..

Just a couple of quick questions here. Thank you.

The question Robert just your commentary on pricing, is 2% pricing for next year a firm number, is that reflect just the GPO negotiations or is that sort of an all-in estimate for GPOs and the competition that we are seeing this year?.

It’s a combination of both of those. So as we just sort of program out what we already know we’ve negotiated for next year that would give us about a 1% price loss go for next year, then we factored in an additional 1% of contracts that we’ll be negotiating next year.

So it’s a combination of roll forward of new contracts from this year at lower price as well as anticipation of continued low commodity cost such that will have continued price pressure next year..

Okay, very helpful. And then so I think I know it’s early to talk about ‘16 outlook.

But if just in broadly on margins qualitatively if we think about pricing pressure comp expense the R&D investment that we saw step up this quarter, can margins be up next year in 2016?.

I would expect margins -- we’ve sort of found the set play. Now we’ve got a path forward where we’re going to start looking at how to recapture our 200 basis points of dis-synergy and gross margin line and 500 basis points dis-synergy at the operating margin line.

There are some offsets though; we are increasing our spending on research and development. As you remember we are going to have some strategic investments to both grow our medical device business and to set us up for future growth beyond that.

So it will be a combination of some things that will improve margins as well as some things that would be negative to margin..

And I would say although we are not giving guidance yet for 2016 beyond that for shadowing on price. I think it’s fair to say that margins will be pressured next year and it’s based a little bit on the bar math that you just did David.

The R&D investment, the additional incentive we will get some benefit from some of the cost and distribution dis-synergy that we had this year that don’t repeat to the same magnitude next year. But net-net it will be some pressure on margin..

Okay, very helpful. And then just lastly Robert, just thinking about the momentum in the device business in recent weeks your key competitor at least the one we’ve focused on the last four to six quarter they seem more upbeat in the last couple of weeks than they have been in last six months.

Do you still expect sequential gains in ON-Q here relative to that competitor the next couple of quarters? Thank you..

Yes, we expect to continue to see some gains in ON-Q and the reason for that is we believe the message about better clinical outcomes from use of ON-Q versus other products is really well understood now in hospitals as well as with anesthesiologist and with surgeons.

So that key message about the clinical use of our product that does work for 72 hours and longer in terms of its pain relief following surgery and that other products do not work for that length of time..

Okay, thank you very much..

Our final question today is a follow-up from Kristen Stuart of Deutsche Bank. Please go ahead..

Hi, thanks again for taking my follow-up question. I just wanted to go back and just with respect to the whole Ebola thing from last year, I just wanted to go back and quantify that.

So I think that just sets up for tough comp, can you just remind me what the estimated sales were last year in the fourth quarter?.

We estimated sales from Ebola of $13 million in the fourth quarter of last year and that was then taken off of the first quarter sales. So we’d say really what happened was we shifted $13 million of sales that would have naturally happen in the first quarter of ‘16 and to the fourth quarter of ‘15..

Okay. So that off….

‘15 and ‘14 yes. .

Okay.

So that also is in you obviously guidance making the fourth quarter of S&IP sales also be down pretty heavily in the fourth quarter?.

Exactly in all year we know we have this tough fourth quarter comparison coming. So we had that built into our prior sales guidance and our new sales guidance.

So I think the real difference is the glove sales to Kimberly-Clark falling well short of our forecast and estimates as well as the higher price loss than we had in earlier plans and some of the surgical ster loss..

Okay.

And then you had also commented earlier in your prepared remarks on the M&A pipeline being quite full I believe, can you maybe expand a little bit upon that and just kind of what size of M&A you might be looking for?.

Yeah I think the key message is the same as prior quarters, we’re actively discussing parts of companies as well as entire companies that have product lines that fit nicely within our medical device categories. I think the timing is still in 2016 earlier rather than later and 2016 is certainly what we’re targeting.

We’ve got sufficient cash to do acquisitions of sales of say up to $150 million in sales. So that would assuming the sort of multiple folks are paying now, which will allows us to use a $500 million of cash or so.

So that’s still consistent with what we’ve been saying in prior quarters and it feels very much like we can -- we will be able to make that happen..

Okay. And Steve can you make a lower tax rates happen hopeful as well. I think you are the highest tax payer in town..

Yeah, Robert reminds me of that every day. Yes that is something we’ll look at as well to take first step next year. .

Okay, yeah that’s a good thing to look out. So glad to hear you on that. Alright, thanks guys..

Thanks, Kristen. .

This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Please go ahead. .

Well thank you today for your interest in Halyard Health. Information about how to access today’s presentation can be found on the Investor Relations section of our website halyardhealth.com. Thanks, everyone..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..