Globus Medical Inc (GMED) 2012 Q3 法說會逐字稿

Good afternoon. My name is Lucy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Globus Medical Third Quarterly Earnings Result Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. (Operator instructions)

Please note that today's call is being recorded. Thank you. Mr. Richard Baron, our Senior Vice President and CFO, you may begin your conference.

Good afternoon. Thank you for being with us today. Joining us on the call today will be David Paul, Chairman and CEO; Dave Demski, President and COO; Anthony Williams, Vice President; Ed Joyce, Director of Investor Relations.

I will now read our required legal disclaimers. During this call, certain items may be discussed that are not based entirely upon historic facts. These items should be considered forward-looking statements and are subject to many risks, uncertainties, and other factors that are difficult to predict and may affect our business and operations. As a result, our actual results may differ materially and adversely from those expressed or implied by our forward-looking statements.

A discussion of some of these risks, uncertainties and other factors is set forth in our prospectus file with the SEC on August 3, 2012, and in our periodic reports on file with the SEC. These documents are available at www.sec.gov.

We undertake no obligation and do not intend to update any forward-looking statement as a result of new information or future events or circumstances arising after the date on which it was made. The financial information discussed in connection with this call reflects estimates based upon information available at this time, and could differ materially from the amounts ultimately reported in our third quarter Form 10-Q.

Our revenue, earnings, operating margins and similar items are sometimes expressed on a non-GAAP basis, and have been adjusted to exclude certain items including, among other things, interest expense, depreciation, amortization, taxes, provision for litigation settlements, and stock-based compensation. The comparable GAAP financial information, and a reconciliation of non-GAAP amounts to GAAP, can be found in the tables included in today's earnings release, which is available at Globus Medical Investor Relations webpage at www.globusmedical.com.

I will now turn the call over to David Paul, Chairman and Chief Executive Officer of Globus.

Thank you, Rick. I appreciate the opportunity to begin the first investor conference call made by Globus Medical. Thank you to each of you for joining our call today.

The third quarter was quite eventful for Globus. For those of you who may be new to our story, we are an engineering and product development-driven company. And our mission is to be the pre-eminent spine company by developing products that promote healing in patients with spine disorders.

Globus continued its part of market-leading growth within the context of a fairly challenging spine market environment. Our product development engine continues to develop and introduce products that are innovative and are of the highest quality at a faster pace than others in our industry, giving us a critical competitive edge in dealing with pricing pressure, competition, and helping us attract the top competitive sales talent in our industry.

We achieved organic revenue growth this quarter of 12.5% year over year. We are proud of our execution this year, maintaining our pace of product introductions, while delivering on the bottom line with adjusted EBITDA of 35.1%.

Through the first nine months of the year, revenue increased 17.2%, with adjusted EBITDA of 35.7%.

We are well positioned to execute our strategy on a day-to-day basis of rapidly introducing innovative products and solutions and productively growing our US sales force.

Our efficient cost structure, which is among the best in the industry, enables us to make ongoing investments to fund aggressive, global sales force expansion, new product introductions, and new initiatives such as Algea Therapies, while maintaining our profitability profile.

In addition to our industry-leading growth, we achieved two major milestones this quarter. The first was the successful completion of our IPO in August. The $115 million offering was the result of all the hard work and effort by our entire company over the last 10 years.

It has been rewarding to have new shareholders that recognize the value created since our founding, and more importantly, have shareholders that appreciate our growth prospects for the future and share our long-term view of building this business.

Secondly, as most of you know, late in the third quarter we received PMA approval of our SECURE-C cervical artificial disc. This is the first PMA approval for Globus, and we are proud of our product development, regulatory, and clinical teams for this achievement. This is a testament to our ability to design, test, manufacture, and conduct level I clinical trials and obtain FDA approval of a new class III device, start to finish.

Last week at NASS, we had an unprecedented number of surgeons visit our booth. Also, we garnered full attendance at our product presentations for SECURE-C; our percutaneous sacroiliac joint fixation system, SI-LOK; and our suite of lateral lumbar interbody fusion products.

In addition, we also highlighted several new products at NASS that we introduced over the last nine months, including PLYMOUTH, a minimally invasive lateral plate system; RISE, our endoscopically-inserted expandable spacer; REVERE 4.5, a new pediatric deformity system; FORTIFY, our second generation expandable corpectomy spacer; and XEMPLIFI, an allograft demineralized bone matrix.

We are continually adding new platforms and next generation products and have a robust and deep product development pipeline. We expect to continue to launch 5 to 10 new products each year.

In addition to our new products, this year we have launched several line extensions and product improvements across our entire product portfolio, including COALITION and INDEPENDENCE, and are in the process of completing the launch of INTERCONTINENTAL. This exceptional response to customer needs, and delivering superior products through our rapid product development engine, will drive our sustained growth and profitability in the future.

We are just now beginning to reap the benefits of being a public company, including the enhanced ability to attract competitive sales people to our team.

Although revenue growth in this quarter was not as robust as we would have liked, our overall progress this year remains on track with our expectations. And as a 5% market share player, we have a large runway of opportunity to increase our territory penetration. We expect to continue taking market share, and are excited about our prospects for the future.

I will now turn the call over to Dave Demski, our President and Chief Operating Officer, to discuss the results of the quarter in more detail.

Thank you, David. Our sales growth of 12.5% this quarter was primarily driven by continued adoption of our new products. In particular, revenue from our disruptive technology products increased by nearly 30% over the third quarter of 2011.

We also continued to expand our geographic footprint, adding territories and increasing penetration in existing markets, both domestically and outside the US.

As David mentioned, we were very pleased to receive PMA approval from the FDA on the SECURE-C device in late September. This approval was the culmination of an IDE study with 380 patients that demonstrated SECURE-C to be statistically superior to anterior cervical discectomy and fusion, or ACDF, as measured in terms of 1) overall success, 2) subsequent surgery at the index level, 3) device-related adverse events, and 4) patient satisfaction, all measured at 24 months post-op.

The SECURE-C success is a testament to our capital efficiency and product development engine. This product was internally conceived and developed by the Globus team. In addition, we have a strong in-house group of regulatory and clinical personnel who conducted the trial and completed all aspects of the PMA with minimal reliance on third party consultants.

Since the SECURE-C approval on September 28, we have launched the product in our rapidly conducting surgeon training programs. FDA requires surgeons to be trained prior to using the device, and we are conducting these training programs every week through the end of this year.

We estimate the market for cervical artificial discs to be about $150 million worldwide. With the excellent clinical results showing overall superiority, and the limited number of competitive products available, we expect SECURE-C to become a meaningful contributor to sales in 2013.

Now as David mentioned, third quarter adjusted EBITDA was 35% of sales, which compares to 37.3% last year. From our origins, Globus has maintained an acute focus on operating efficiency and return on investment, enabling us to simultaneously deliver strong profit margins, while at the same time we invest in our future.

The primary cause of our decrease in profitability this quarter is the investment we are making in Algea Therapies. Algea is a division we launched earlier this year that is focused exclusively on pain management, interventional, and diagnostic products.

The separate sales force calls on pain management physicians and interventional doctors. We currently have over 30 experienced sales representatives in the Algea division.

Sales have not ramped up as rapidly as we had hoped this quarter, primarily due to contracting difficulties in a number of significant accounts.

Expenses associated with the Algea Therapies had a negative 2.4% impact on adjusted EBITDA this quarter.

We remain committed to Algea Therapies, but do not expect a meaningful uptick in sales growth from this division until well into 2013.

In July, we closed on the acquisition of Soteira Inc. We would characterize this as a small, bolt-on technology acquisition. One of the assets we acquired from Soteira is a product called Shield, which is the first implantable, cement-directing stent product of its kind. This is a next generation VCF treatment that received 510K clearance after the completion of an IDE study. We expect to launch Shield in the US through our Algea Therapies division sometime in the first half of 2013.

Our international expansion continues as planned, and we are now in 23 countries. The infrastructure investments we have made over the past three years are beginning to show returns as our OUS operations are EBITDA positive on a year-to-date basis.

We believe our future success will be driven by maintaining our focus on efficient use of resources, rapidly introducing superior products, and continually expanding our sales footprint.

In that regard, our status as a publically traded company, combined with disruption among some of our competitors, has provided several meaningful recruiting opportunities recently, which we believe will reduce growth over the coming quarters.

I will now turn the call over to Rick Baron, our CFO, to provide further detail on our financial results.

Thank you, Dave. And thank you all for joining our first conference call. Today I will review our performance for the third quarter of 2012 as compared to the third quarter of 2011 for key elements of the income statement, balance sheet, and cash flow. I will also highlight certain aspects of the performance of the Company for the first nine months of 2012 as compared to the same period for 2011.

Our sales for the third quarter of 2012 were $94.8 million. This was a 12.5% increase over the third quarter of 2011 with sales of $84.3 million.

Sales for the nine months ended September 30, 2012 increased by 17.2% to $285.5 million.

Innovative Fusion sales increased this quarter to $57.8 million, or by 3.6% from the prior year's quarter, while disruptive technology sales increased this quarter to $36.9 million, or by 29.9% from the prior year's quarter. This increase in disruptive technology sales continues the trend of becoming a greater portion of our sales overall.

Sales in the United States for the third quarter of 2012 grew to $87.1 million, or by 10.6%, while international sales grew to $7.6 million, or 38.3% from the prior year's quarter. Overall growth in sales was attributed to expansion of both domestic and international territories and greater penetration in existing territories and countries.

Gross profit for the third quarter of 2012 was $75.9 million, or 80.1% of sales for the current year's quarter. This is an improvement from 79.7% gross profit from the prior year's quarter.

Research and development expenses this quarter were $7.0 million, or 7.4% of sales, as compared to $5.9 million, or 7% of sales for the same period of 2011. The increase of $1.1 million from the prior year's quarter was predominately due to increases in product development expenses.

Selling, general, and administrative expenses were $41.8 million, or 44.1% compared to $34.8 million, or 41.3% of sales for the prior year's quarter. The increase in SG&A as a percentage of sales this quarter, as compared to the prior year's quarter, is primarily due to our investment in Algea Therapies.

Operating income increased to $27.1 million, or 28.6% of sales for the third quarter of 2012 as compared to $26.5 million, or 31.5% of sales for the prior year's quarter.

Adjusted EBITDA for the third quarter of 2012 was 35.1%, or $33.3 million, as compared to 37.3%, or $31.4 million in the prior year's quarter. The margins for the current three month period were unfavorably impacted by the factors discussed above.

Income tax rate for the current quarter was 39% as compared to 36% from the prior year's quarter. The current year rate was unfavorably impacted by the expiration of the R&D tax credit, which has not yet been extended to 2012, and by the third quarter return to provision reconciliation. When normalized, we anticipate the tax rate to be approximately 37.5%.

Net income was $16.5 million, or 17.4%, or $0.18 per share on a fully diluted basis in the third quarter of 2012. This compares to $16.9 million, or 20%, or $0.19 per share, again, on a fully diluted basis for the prior year's quarter. Net income was unfavorably impacted by the expenses discussed above and the effective tax rate for the quarter.

Fully diluted share count was 92.7 million and 90.4 million as of September 30, 2012 and 2011 respectively.

For the nine months ended September 30, 2012, sales for this period were a record $285.5 million, which was $42 million, or 17.2% greater, than the prior year's nine month period. This was due to overall strength in both innovative fusion, which grew at a rate of 7.6% from the prior year's period, and disruptive technologies, which grew at a rate of 38.6% of the prior year's period.

Growth which occurred in both the US and outside the US was due to expansion of territories and countries in which we sell.

Gross margin for the current nine month period increased to $229.8 million, or 80.5% of sales, compared to $194.2 million, or 79.7% of the prior nine month period.

Adjusted EBITDA for the current nine month period was $101.9 million, or 35.7%, as compared to $88.4 million, or 36.3% for the prior nine month period.

Net income for the current nine month period increased to $53.1 million for an increase of 12.4% as compared to the prior-year period.

Fully diluted earnings per share was $0.58 for the nine month period ended September 30, 2012, as compared to $0.52 for the prior year's quarter.

Fully diluted shares were 91.6 million and 90.7 million as of September 30, 2012 and 2011, respectively.

Our cash balance was $195.2 million as compared to $127.3 million as of September 30, 2012 and 2011, respectively.

The nine month period ended September 30, cash provided by operations was $57.1 million compared to $53.8 million for the nine month period.

Operating cash flow was impacted by the additional investments we mentioned earlier for Algea Therapies, expansion of the sales force, and expansion internationally.

Total investment in CapEx was $17 million for this current nine month period and $13.7 (sic - see press release) million for the prior period.

We continue to remain debt free.

Overall, we feel that we have performed well this quarter. We increased sales by 12.5%, launched and completed an IPO, expanded our international reach, completed a bolt-on acquisition, and received PMA approval of and launched SECURE-C.

We are well situated to continue our upward growth, and remain steadfast towards delivering our industry-leading growth and profitability.

At this point, we would like to open the line for questions. Thank you.

(Operator instructions) And your first question comes from the line of Matt.

Hello, can you hear me?

I can hear you, Matt.

Hi. It's Matt Miksic from Piper Jaffray. So a couple of questions, just following up on some of the color you provided, Rick, on some of the business lines. You had a pretty nice step up in MIS -- I presume in MIS -- but disruptive technologies, MIS being the biggest part of that. Could you talk a little bit about anything in particular in the quarter that drove that, any new products that drove that, and if we should expect that strength to continue into the fourth quarter, or should we expect maybe something to ease off in the fourth quarter? And I have one follow up.

Thank you, Matt. Our disruptive technology portfolio continues to grow because of products such as CALIBER, which showed a lot of strength in the third quarter, REVERE, and our entire lateral portfolio. Our lateral portfolio has really been taking off these past few months, and so that contributed heavily to our growth in the third quarter. And we do expect to see that continuing strength in the disruptive portfolio going forward.

That's terrific. And then in terms, kind of going the other way, if we think about the trends in particular in cervical, but in innovative fusion, couple things, I guess. One, if could you give us some color on just how the training and launch of SECURE-C might impact your own cervical business line within innovative fusion.

And then also stepping back and realizing the events in the last couple days, is there anything we should think about in terms of this storm on the East Coast that might impact your fourth quarter here, just because of what's happened this week and perhaps into next week? Thanks.

Thanks, Matt. Dave Demski. I'll comment on both of those. I think with regard to SECURE-C on our cervical business, we don't expect much cannibalization from our fusion products from the artificial disc. We really think there's a distinct market today for artificial disc that we expect to penetrate.

That will be, I guess the uptick is expected to be gradual, given the training requirements that we have and then the insurance coverage issues that exist out there, but we do think it will be meaningful going into next year.

And then in terms of Hurricane Sandy, first of all, we just want to express our concern and our prayers for those who are suffering for this disaster. And we're very thankful that none of our people or facilities have experienced any sustained, serious injury or damage. We were shut down for a couple days here. FedEx did not deliver out of Philadelphia, so we had to take some fairly extraordinary steps to get products to our surgeons and their patients, particularly as they were needed for trauma surgeries.

Given the fact that our business is a little more heavily concentrated on the East Coast, I think the impact to us was probably greater than average. And it is a bit early to tell -- we're still gathering information -- but it looks like the impact was for the quarter might be up to about $1 million of revenue.

Okay, that's very helpful. Thanks, Dave. Thanks, David.

Thank you, Matt.

And your next question comes from the line of Bob Hopkins.

Hi, thanks. Can you hear me okay?

I can hear you, Bob.

Great. Good afternoon. So David, you mentioned that you were a little bit disappointed with the growth in the quarter. Can you give us a sense as to what you thought you would grow this quarter, and what really was the difference between what you thought you were going to do and the 12.5% that you're reporting today?

Thank you for your question, Bob. One of the things that has been repeated by everyone in the industry is some of the challenges that everyone has been facing in terms of pricing, the proliferation of PODs, and increased competition in the more commoditized products.

I think we expected all these factors going in, but my disappointment, more or less, would be more on us not being able to actuate the recruitment and addition of more competitive sales reps. And I think that's really where my disappointment comes in.

And then to a lesser extent, we did not expect Algea to take so slow of an uptick, so that is a smaller effect on our disappointment. But really, primarily due to our not having as many competitive hires as we would have liked to have. Now that has subsequently turned around, but that really is the genesis of my disappointment.

So can you elaborate that a little bit in terms of the sales organization? So where were you in terms of sales reps at the end of the second quarter? And you said the situation has turned around. What does that mean, exactly? Does that mean in the last couple weeks you were able to bring in the people you thought you were going to bring in earlier in the quarter? If you could just elaborate that a little bit, that'd be helpful.

Okay, Bob. We don't give out specific numbers on the number of sales reps. We don't intend to give those out. But in terms of competitive hiring, as I mentioned in my prepared remarks, we have been aggressive in hiring competitive reps, and that has really picked up over the past few weeks and months. Without giving you specific numbers, I can tell you our hiring has significantly picked up.

Great. Thanks very much.

Thank you.

And your next question comes from the line of David Roman.

Hi, good evening, everybody, and congrats on the first quarter being out of the box here. I'm just trying to understand a little bit better what's happening here in terms of the moving parts. You saw pretty significant deceleration in topline growth. Obviously what the peers have talked about has been a more difficult end user market environment.

But if I hear what you're talking about, David and Dave, is you're hiring more people, you're bringing more products to market, you're more aggressively ramping your efforts in training, and you still have this shortfall. So it almost feels like you're running faster to stand still. I mean is that a result of what's happening in the overall spine market? Is there something that you need to tweak in terms of the model with respect to the end market? Maybe just help us sort of put all the pieces together here.

David, thank you. This is Dave Demski. I think you missed one aspect of what we said and what David just reiterated in hiring. We're not pleased with where our hiring was in the third quarter. We've intensified the activity there. We have seen I would call a really robust pipeline of folks who are interested, and we have accelerated that in the later part of the quarter and then into this fourth quarter.

So we haven't seen the impacts of the hiring yet. And we think that a lot of the third quarter deceleration that you pointed out was a result of not hiring as aggressively as we should have in the second-- first couple quarters of the year.

And can you maybe just give us some perspective on you hire a sales rep today. How long on average to take that person until they're really adding? And where would you call them half capacity, full capacity? Is it really a quarter that we see the impact, or are there non-competes that we need to take into consideration?

It's very dependent on the individual circumstances. Sometimes, even the rep has a non-compete, there's a vacuum, so to speak, left when they leave their customer relationship that we can sometimes step into and get some of that business right away, or our competitors do. So it can happen right away and it can take a long time. It's really very situationally-dependent.

And then maybe for Rick, as you kind of square those dynamics together against the income statement -- and David referenced in his prepared remarks, they're industry-leading operating margins -- how does this sort of all impact the P&L going forward if you're sort of having to hire more, but the market remains sort of weak? What does that do to the return profile of the business?

Overall, it is still within our profit profile, and the comments we've made as far as where adjusted EBITDA will rest over time. The slight or the downturn this quarter is really attributed to the hiring that was done outside of let's call it the normal core spine business. If you take a look at that over in relation to the 35.1% we've invested what we've talked about before, 2 percentage points plus into growth business.

So Algea will address a fairly large market. We'll take a little bit more time to do it, but it will be something that will return appropriate EBITDA over the course of the next year or so. Same thing with international. So it fits with us very nicely, and it's calculated into the way we look at the business.

Okay. And probably this will be the last one. Just so we're all on the same page here at what all the adjustments are, adjusted EBITDA excludes stock-based comp, litigation expense, etc. But the EPS number you're reporting, is that, what adjusted EBITDA versus adjusted EPS, what does those include and exclude?

The earnings per share is straight net income.

So that $0.18 is a GAAP number?

Is a GAAP number. The adjusted EBITDA we do really more for the way that people look at this industry. We're more focused in on operating margins and gross margin and the such. We're proud of the adjusted EBITDA.

The comment about Algea is just to give you a little bit more color on where those margins went and why, but they're relatively low adjustments. And they're actually, there's a table at the end of the press release, David.

Okay. Thank you.

And your next question comes from the line of Matthew O'Brien.

Good evening. Thanks for taking the questions. Just to, and I'm sorry to keep harping on this sales force discussion, but when you're heading into the quarter with a pretty robust number of new products in the queue, is it fair to characterize the situation as you had potentially some reps that left the organization to go elsewhere, and then you were left a little bit short staffed? And then from there, started to aggressively hire reps to kind of backfill those positions and then get beyond where you entered the quarter?

Matt, this is Dave Demski. No, we haven't had any significant or unusual turnover.

Okay.

We're facing some headwinds in our industry related to pricing pressure, and folks have talked about PODs. We have to make up that delta every quarter with new products and new hires. So this isn't to replace people we've lost, but we have expectations to continue to grow the sales force.

Okay. And then, Rick, you didn't talk about it specifically, but how should we think about full-year growth here? Is it, including and excluding Sandy, is it, excluding Sandy, something around 15% or a little above that, or how should we think about the full-year number?

We're still consistent where we've discussed it over time. The only area that we feel has any potential weakness for Q4 and perhaps into the middle part would be, middle part of next year would be Algea.

Obviously with Sandy is, as Dave indicated earlier in the earlier question, there's a little bit of an unknown there. It is something that we, if we need to put a dollar amount around it, it would perhaps be as much as $1 million, perhaps plus or minus. To be honest, it's a little bit early to tell about that. We've been back at work and shipping, and more importantly, the doctors are doing surgery.

Okay. And then just one more from me. When looking at the numbers on the innovative fusion side and then disruptive technologies, they are a deceleration from what we saw in Q1 and Q2, and I understand that Q3 can be somewhat seasonally soft, but we don't have visibility into what the Q3 comparisons were. Would you characterize those as fairly robust? So as when you look at the 3% growth in innovative fusion, was the comparison 8%, 10%, something along those lines? Any kind of detail would help.

So just to clarify the question, Matt, are you asking for numbers compared to last year or comparative to Q2?

Compared to Q3. So I think you gave the nine month numbers. And maybe I misheard you, but it looked like the comparisons for the nine month period were pretty difficult. Would you say that was the same situation here specifically just for the three month period ended in September?

Three month period ended, the innovative fusion growth was 3.6%.

Sure. I mean the comparison from this time last year. So was the comp in Q3 of '11 8%, 10%? We don't have visibility into that.

And I don't have that information in front of me, Matt.

Okay, we can follow up offline. Thank you.

And your next question comes from the line of Richard Newitter.

--questions. I was just hoping, I don't know Dave or Rick maybe, maybe can you talk a little bit about what has to happen within the Algea sales force? Or what's causing some of the delays there relative to your prior expectations, and what initiatives you can take to hopefully turn that around a little bit?

I could comment on it qualitatively. I think it's a little bit different business than the spinal implant business in terms of the influence the physicians have over contracting at hospitals. And our competitors have been fairly aggressive with our move into the market to try to protect the space they're in by discounting, and as well as signing longer term commitments.

We think we have a couple of strategies. I'm not going to share the details with you, but to break those contracts and get past them in terms of new products we're rolling out, as well as some of the bubbling up initiatives we have.

So it's going to take a while. That process dealing with hospital administrators can take a while. So that's I guess the torrent of conservativism from us is we're committed to it, we're going to make it happen; it just may take several quarters to get it done.

And I just want to make sure I'm hearing you guys correctly. Are you noticing a-- you said you anticipated a number of pressures that you outlined related to PODs, pricing, etc. One, are those pressures getting worse relative to what you were expecting, let's just say three or six months ago, or was it just a little bit more on the execution side, on your end, you didn't hire as fast as you thought you might to counter as-expected pressures?

And then if you could also just talk about what kind of price pressure are you assuming for the rest of the year?

It's more the latter. The pressures, the PODs and pricing is about where it has been for the last year or so. So it's really an execution issue from our side. And that's where we thinking pricing, we're seeing it's fairly steady around mid-single digits.

Okay, thank you.

Sure. Thank you.

And your next question comes from the line of Bill Plovanic.

Great, thanks. Good evening. I just have one question. As we talk about the industry, we've heard a couple other spine players talk about the month of September being slow. I don't know if you addressed that in your prepared comments, but I'd like to hear your thoughts on this. Was this a good, a normal July/August and then a slow September, or was this kind of slow throughout, or how would you characterize it?

Yes, from our standpoint, Bill -- this is Dave -- we were a little slow and sluggish in July and August. It seemed like those summer vacations had a little bigger impact than what we would have normally seen. And we had a good September.

Okay. And then, as David had mentioned, you've kind of gone back on that hiring spree. Are you going to have these new reps in place fast enough to make a contribution in Q4, or is this something that really we won't get that innovative fusion segment growing again until, kind of reaccelerating until 2013?

I think, Bill, it's always been a combination for us of getting new products out and get increasing feet on the street. And anytime we slow down on one or the other, we see a deceleration. And so I think all the hires that we've already brought on board, and the hires that are in the pipeline, can add some dollars into Q4, but more we'll see into 2013.

Great, that's all I had. Thanks.

Thank you.

(Operator instructions) And your next question comes from the line of Steven Lichtman.

Just two follow ups on Algea. One on the investment side, Rick. Is this-- are you expecting the level of investment to flatten out here, or are you guys satisfied with the number of reps you have, especially given the ramp you talked about?

And then for Dave or David, in terms of the opportunity, obviously that's been a tough end market. Can you talk about how you think Globus is going to differentiate here and the opportunities specifically to the Company? Thanks

I'll answer the infrastructure question first and then I'll turn it over. So from a hiring perspective, from a cost perspective, we're very much within what we had anticipated. Where we become a little bit more cautious or a little bit slower would be on the topline. So if you-- if in the future this is an issue of we have the right people, the right experience, mix, etc. So from a product introduction perspective, David.

Steve, maybe I can add some color on the product side. The first product that we have introduced here is a balloon kyphoplasty system. I would say it's comparable to what is out there in the competition with primarily Medtronic. We have a small advantage here or there.

But we are focused on delivering a comprehensive fracture management kit that no one else will have. With the acquisition of Soteira, we now have the Shield product that is the first implantable, cement-directing stent that can be placed in the vertebral body. We have the clinical study results to back it up. One of the primary issues with this procedure is extravasation into the vertebral veins, and this product goes a long way towards solving that problem.

So we are furious at work to complete the acquisition and get the logistics done on our end so we can roll this product out in the first half of next year to the sales force. I think that will make a material impact in the uptick in the Algea division.

We are also working on other product lines for the Algea sales force that we are not disclosing at this point, but we are busy at work to continue to build that portfolio. Our competitors in that space mostly are one product, balloon kyphoplasty product companies, so we think that as we broaden our portfolio and offer better solutions, we will not only increase our traction with the current accounts, but it will also lead to more competitive sales reps wanting to come and join us.

Okay, great. Thanks, guys.

Steve, to perhaps embellish the answer just a bit as far as investment, the investment cycle is pretty well complete. This is what we would look to carry and gain future leverage. As we increase sales, you'll see the effect of it drop, obviously. And eventually we anticipate it throwing off the, a similar type of adjusted EBITDA as we've talked about over time.

We have no further questions in queue.

Okay. So at this point, I'd like to thank everybody for joining us on our first quarterly conference call. Our performance in the third quarter is the proof of our ability to sustain top tier growth in a spine market where we expect product and sales-driven share gains to continue for the foreseeable future. Our profit margins are a testimony to our efficient cost structure. Our profit margins also allow us to find new initiatives that may add profits for the long-term growth.

Thank you for joining us on this call today. We look forward to talking to all of you in the months ahead. Thank you.

Thank you. This completes today's conference call. You may now disconnect.