Globus Medical Inc (GMED) 2012 Q4 法說會逐字稿

Welcome to Globus Medical's fourth quarter and year-end earnings call. At this time, all lines will be on mute and a Q&A session will be held after the prepared remarks. Joining today's call from Globus Medical will be David Paul, Chairman and CEO; Dave Demski, President and COO; and Richard Baron, Senior Vice President of Finance and CFO of Globus Medical.

I will now turn the call over to Rick.

Thank you for being with us today. I will now read our required legal disclaimers. During this call, certain items may be discussed that are not based entirely on historical fact. 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 operation. 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 today's press release and in our periodic reports on file with the SEC. These documents are available at www.sec.gov and the investor relations section of our website at www.globusmedical.com. 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 on information available at this time and could differ materially from the amounts ultimately reported in our annual report. Our revenue, earnings, operating margins and similar items are sometimes expressed on 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 can be found in tables included in today's earnings release which is available on the Globus Medical investor relations Web page at www.globusmedical.com. I will now turn this call over to David Paul, our Chairman and CEO.

Thank you, Rick. Thank you for joining us on the call today to discuss our 2012 results. We are pleased to report to you our record results for 2012. Our annual sales of $386 million, net income of $73.8 million, adjusted EBITDA of $136.6 million and diluted EPS of $0.80 were all records for our Company. 2012 was a tremendous year for Globus with industry-leading revenue growth, continued strong profitability, the completion of a successful IPO and the launch of 14 new products including our first PMA approved product, the SECURE-C Cervical disc replacement device. We were able to grow our international presence to 24 countries. We continue to take market share from our competitors and expect to continue that momentum into 2013 and beyond.

In 2012, we also launched Algea Therapies and have made significant investments in a dedicated sales force and product development group to focus in on this market opportunity in interventional pain management. Our first product, the AFFIRM Kyphoplasty was introduced in February and will cater to the approximately $500 million vertebral compression fracture market. We are developing a suite of differentiated products in this area and will begin further product introductions this year. We expect this ongoing investment to contribute to our growth and profitability over time.

We are confident in our ability to take market share in the backdrop of the current spine market climate and provide strong, double-digit industry-leading growth and maintain our profit margins for the foreseeable future. Our strategy of utilizing our product development engine to rapidly develop new products while expanding our sales footprint worldwide will continue to provide the fuel for profitable growth into the future. I will now turn the call over to Dave Demski, our President and Chief Operating Officer, to discuss our results in more detail.

Thank you, David. As David mentioned, we are very pleased with our record sales and profits this year. Worldwide sales were $386 million, up 16.4% over 2011. Net income for the year was up 21.5% over 2011 at $73.8 million, or $0.80 per diluted share. Our non-GAAP adjusted EBITDA margin was 35.4% for the year, compared to 35.8% for the year of 2011.

In the fourth quarter, our total worldwide sales topped $100 million for the first time, an increase of 14.3% over the fourth quarter of 2011. Fourth-quarter net income of $20.8 million represents an increase of 53% over the fourth quarter of 2011. Fully diluted earnings per share were $0.22, an increase of 46.7% over the fourth quarter of 2011. Non-GAAP adjusted EBITDA for the fourth quarter, including our investment in Algea Therapies, was 34.6%, compared to 34.4% in the fourth quarter of 2011. Excluding Algea, the fourth quarter adjusted EBITDA would have been 38%.

Internationally we met our target expansion into new countries as well as increased our sales overall, achieving annual sales of $30.4 million, up 48.6% over 2011. Fourth-quarter OUS sales were $8.6 million, up 36.9% over the fourth quarter of 2011. We continue to remain focused on hiring and expanding our sales footprint both in the US and internationally and are very satisfied with our ability to attract top industry talent.

Product development continued its strong pace, launching 14 products in 2012. Notable launches within the year include, SECURE-C, our recently approved cervical disc which was launched in October 2012. The outstanding clinical reports from the IDE study showed superiority and overall success compared to traditional ACDF. And initial clinical feedback from our customers has been tremendous. AFFIRM, Algea Therapies first product, which has an array of options for minimally invasive treatment of vertebral compression fractures with Kyphoplasty. This is the first in a series of products we'll be launching in this space.

RISE, which is an innovative expandable lumbar fusion device that can be inserted through an endoscopic tube. RISE is inserted while contracted and then expanded within the disc space to achieve optimal fit for the patient. The RISE implant, when utilized with our IntraLIF procedure may minimize anatomical disruption over traditional fusion techniques. Also in 2012 we launched SI-LOK, our Sacroiliac Fixation System. SI-LOK includes hydroxyapatite coated screws with the optional slot for bone graft materials. SI-LOK is designed to alleviate pain by fusing the joint as performed through a minimally invasive approach.

Other key notable launches were FORTIFY, an expandable corpectomy spacer made in titanium and PEEK, designed for one step insertion and expansion, implantable through a variety of approaches and is modular to allow surgeons to optimize fit for each patient. PLYMOUTH, our Lateral Plate System and the latest addition to our minimally invasive lateral portfolio, which includes our MARS 3V retractor system, TransContinental, InterContinental and CALIBER-L.

Also of note, at the end of the fourth quarter, we purchased a 112,000 square-foot facility adjacent to our headquarters for $4.2 million to support our future growth. In 2012, we added $69.7 million to our cash balance, ending the year at $212.4 million in cash and cash equivalents. We remain debt free. We believe our future success will be driven by rapidly introducing superior products, continually expanding our sales footprint, both internationally and domestically, and maintaining our focus on efficiency and profitability. I will now turn the call over to Rick Baron to provide details on our financial results.

Thank you, Dave. Today I will review our financial performance for the fourth quarter of 2012 as compared to the fourth quarter of 2011 for key elements of the income statement, balance sheet and statement of cash flow. I will also highlight certain aspects of performance of the Company for the full year 2012 as compared to 2011.

Our worldwide sales for the fourth quarter of 2012 were $100.5 million, a 14.3% increase over the fourth quarter of 2011. Innovative fusion sales increased this quarter to $58.2 million, or by 2.9% from the prior year's quarter, while disruptive technology sales increased this quarter to $42.4 million, or by 34.7% from the prior year's quarter. Sales in the United States for the fourth quarter of 2012 grew to $91.9 million, or by 12.5%, while international sales grew to $8.6 million, or by 36.9% 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. Particularly noteworthy is that during 2012 we expanded our international footprint to 24 countries served by a combination of exclusive direct sales force and exclusive distributor network.

Gross profit for the fourth quarter of 2012 was $81 million, or 80.5% of sales for the current quarter, as compared to $68.5 million, or 77.9% of sales from the prior year's fourth quarter. Research and development expenses this quarter were $7.2 million, or 7.2% of sales, as compared to $5.8 million, or 6.6% of sales for the same period of 2011. Selling, general and administrative expenses were $44.6 million, or 44.4% of sales, compared to $37.9 million, or 30 -- or 43% of sales for the prior year's fourth quarter. The increase in SG&A as a percentage of sales this quarter, as compared to the prior year's quarter, is due to our investment in Algea Therapies. Operating income increased to $29.1 million, or 29% of sales for the fourth quarter of 2012, as compared to $23.7 million, or 26.9% of sales for the prior year's quarter. Adjusted EBITDA for the fourth quarter of 2012 was 34.6% of sales, or $34.8 million, as compared to 34.4% of sales, or $30.3 million in the prior year's quarter.

The income tax rate for the current quarter was 28.6%, this is approximately 850 basis points lower than the normal tax rate for the Company. Factors impacted were year-to-year adjustments to the Federal corporate tax rate due to the corporate manufacturing deduction and valuation allowances associated with certain international jurisdictions. Although this rate was lower than the normal rate, it was also unfavorably impacted by the expiration of research and development tax credit, which was not extended by Congress until 2013. The effective legislative delay was to cause 2012 rate to be 0.6% higher. The effective tax rate for our Company is expected to be 36.6% for 2013. When factoring in the effect of the R&D tax credit for 2012, it should be -- we expect it to be 36%.

Net income was $20.8 million, or 20.7% of sales., this compares to $13.6 million, or 15.4% of sales. Earnings per fully diluted share were $0.22 for the fourth quarter of 2012 and $0.15 for the prior year's quarter. Fully diluted share count for the fourth quarter was $93.5 million and $90.3 million as of December 31, 2012 and 2011, respectively.

Worldwide sales for the year ended December 31, 2012 were a record $38.6 million, which was $54.5 million, or 16.4% greater than 2011. This was due to overall strength in both innovative fusion, which was $238 million -- $238.7 million in 2012, growing at a rate of 6.4% from the prior-year sales. Disruptive technologies was $147.3 million, which grew at a rate of 37.5% from the prior-year sales. US sales for 2012 grew to $355.6 million, or by 14.3%, while 2012 international sales grew to $30.4 million, or by 48.6% from the prior year's quarter -- year. Growth which occurred in both US and OUS sales was due to sales growth within existing territories, expansion to new domestic and international territories in which we sell.

Gross profit for the year increased to $310.8 million, or 80.5% of sales, as compared to $262.7 million, or 79.2% of sales in the prior year. Research and development expenses for the year were $27.9 million, or 7.2% of sales, compared to $23.5 million, or 7.1% of sales for 2011. 2012 selling, general and administrative expenses were $168.9 million, or 43.7%, compared to $140.4 million, or 42.4% of sales compared -- as compared to 2011. Again, this increase in SG&A as a percentage of sales is due to our investment in Algea Therapy.

Operating income increased to $114.8 million, or 29.7% of sales for the year, as compared to $97.4 million, or 29.4% of sales for the prior year. 212 -- sorry, 2012 annual adjusted EBITDA for the year was $136.6 million, or 35.4%, as compared to $116.6 million, or 35.8% for the prior year. The income tax rate for the year was 35.6% as compared to 37.3% from the prior year. Net income for the year increased to $73.8 million, or an increase of 21.5% as compared to the prior-year period. Fully diluted earnings per share for the year were $0.80 for the year as compared to $0.67 in the prior year. Fully diluted share count for the year was 92.2 million, and 90.4 million as of December 31, 2012 and 2011, respectively. The cash balance was $212.4 million as of December 31, compared to $142.7 million as of the same period 2011. We continue to remain debt free.

As David indicated and consistent with our previous views, over the long term we feel we can sustain double-digit sales growth. This is consistent within a range of our growth for the second half of 2012 over a rolling 12-month period. This growth will of course be a range and we'll need to address the growth in prior years' period. Gross margin percentage and adjusted EBITDA will need to be adjusted for the medical device tax which will affect us by approximately 180 basis points. Adjusted EBITDA percentage will also need to be adjusted for the effect of Algea Therapy, as we have experienced it during the last half of the current year. The effect of Algea on adjusted EBITDA will mitigate over the next 24 months. As this affect mitigates, we plan to invest a similar percentage of adjusted EBITDA into future innovation.

Overall, we feel that we have performed well this year. We have increased sales by 16.4%, launched and completed an IPO, expanded our international reach, completed a bolt-on acquisition and received a PMA approval and launched SECURE-C as well as 13 other new products. We are well situated to continue our upward growth and remain steadfast towards delivering our industry leading growth and profitability in the foreseeable future. At this point, I would like to open the line for questions. Operator?

Yes sir?

We can take questions at this point.

Matt Miksic.

I wanted to ask you if you could talk a little bit about some of the sequential trends maybe whether they're tied to the market at all, whether they're tied to successful initiatives on your part across your product line? And I'm speaking particularly of what looks like a pretty big jump in disruptive technologies from Q3 to Q4, and then what -- a little bit more of a shallow increase on of the innovative fusion side. Then I have a couple of other quick follow ups.

Matt, this is Dave. I think that's very consistent with the relative growth we've shown in the past, and as our overall portfolio transitions to the more disruptive products and the fusion market is relatively stagnant I think you'll continue to see that trend.

Okay. And so nothing in particular you'd call out in terms of better than expected new product performance or greater than expected pressure on core traditional market?

No, because it's pretty much as it has been.

Okay, one question I would ask you and you're not obviously a giant player in spine but you're an important player in spine, and there's been some back and forth over the past week or two about what does the spine market look like. We obviously have -- saw pretty healthy step up in Q4, I guess the debate is how does that transition into '13 and maybe what does that look like in terms of seasonality? I'd love to get your view, or at least maybe what your baseline assumptions are as you think about your outlook for '13.

I would say the market is showing signs of stabilizing. The three P's that we're all fighting against, pricing, payer pushback and PODs, I would say pricing continues to be mid-single digits, where it has been. The payer push back is certainly not getting any worse, and it seems to be anecdotally slightly better, but not a huge improvement. And again PODs are where they have been as well, we think that's 10% to 15% of the market. So, from our view, in the fifth position here, which is sometimes a little skewed, things seem to be stabilizing and in pretty good shape as we go into 2013.

And if I could -- two quick clarifications for Rick, in terms of your comments. One, if I do the math on the numbers you've given it looks like Algea for the fourth quarter was a very small number or negligible for Q4, is that right?

That is true.

And then the other, I'd love to get any comment or color you'd be able to provide in the past you've said, given some color as to the investments that you're making in terms of your overseas expansion. You were clear and helpful on the Algea investments. Can you give us some color as to how much of an impact that had on EBITDA margin?

At this point, consistent with where we were in Q3 and Q2, it's roughly break even to providing a bit of EBITDA, but it's not significant at this point. We would expect that to mitigate and actually grow, not mitigate over the next year. I do also want to make one other point, just because apparently I misspoke about the total level of sales. And that was not $38.6 million, it was $386.0 million, as far as the total dollar value of sales for this current year. I wouldn't want someone to misunderstand.

Got it. Helpful, thank you.

Richard Newitter.

Maybe to start off on some of your commentary around the way the year is going to look as we move through the quarters. Can you give us a little bit more color? Is it really a first half, second half impact both from the top line growth trajectory given your really tough comps in the first quarter in sales? And on the bottom line, should we think of that really more towards the fourth quarter, or are the Algea product launches expected to start earlier in the year in the second quarter, where it should be more gradual? Just any color you can give us on how to model the quarters?

We really look at, when we do this, and I hope we've been consistent since we've been on the road and everybody gets to know us, as we encourage everybody, obviously, to look at a 12-month period. And that actually rolls over the course of a year. So from our perspective, we don't really want to talk about quarters on an individual quarter-by-quarter basis.

What I attempted to do was two things. One, anybody that again was with us on the road and has heard us talk and actually has seen the numbers in Q1 and Q2 of last year, Q1 was one of those quarters that was just a beyond-expectation quarter. We grew 20% year to year. And actually for the first six month, we had approximately 19% year-to-year growth from 2012 back to 2013.

Those are tough comps for us to hit in any quarter going forward. So, what I wanted to make sure we did was we understood that the growth rates that we've talked about and where you, as a group, the analyst as a group and have framed consensus, is a number that we feel very comfortable with. And that we wanted to make sure that as you worked with your numbers, you were aware of the outstanding growth early in the year, and then more normalized growth later in the year over those both two six-month periods.

Okay.

Okay, so that I think helps with the revenue. I think you had some additional, if you could repeat your question.

Maybe just -- that's helpful on the revenue side and I would imagine the EBITDA and gross margin quarterly flow is going to be similar to what we see with sales.

Yes, except the factor that everybody needs to model into our numbers and everybody else in the med device area, obviously, is the med device tax. It is 2.3% against US sales, overall we're somewhere in the neighborhood of that 180 basis points that I talked about. It is something that, as it stands now, will most likely put into cost of sales. So you need to be able to adjust that in your models because that is one anomaly going forward.

The other that we've called out is that of Algea. We had a particular hit that we called out in Q3 and then in Q4, because sales just weren't there, but as we expect those sales will begin to ramp throughout the year, accelerating towards the end of the year and that affect will be slightly mitigated by year end. So, work with those things, please.

Okay and to be clear, for 2013 for the year outlook it's -- you're calling for essentially double-digit top line growth, and when you say sustained EBITDA margin, is that off of a particular level, like where you were in 2012, and that's what you'd like to sustain? Can you give us any color there?

It's off of the range of the fourth quarter.

Okay.

So, please don't forget, med device tax.

Right. So, maybe it fluctuates intra quarter, but for the year we should see 2013 EBITDA margin look something like what we saw in 2012, fourth quarter 2012?

Once you factor in med device of course.

Okay and then lastly, I was hoping you provided what you're ex- Algea EBITDA margin was in the fourth quarter. Can you tell us what that was last quarter?

It was 250 basis point of an effect in Q4 -- in Q3. The dollar I don't remember as clearly. The effect of it was slightly higher amount this quarter in that as we talked in Q3, it was a number that was close to being fully baked in in Q3. And was there in Q -- was fully there in Q4.

Okay and then one last one on CapEx, I know you had about a $4 million outlay for your new facility, wondering should we think of CapEx in similar levels for 2013 as we saw? Or does it go down that you don't have that expenditure next year?

We most certainly hope we don't buy end of the new building next year. So please, factor and take a look at the cash flow and roughly model it, we've said, as a percentage of sales. It will grow proportionately with levels of sales as you model.

Okay, thank you.

David Roman.

Rick, I know you're walking us through a lot of numbers here. You have us dancing in circles around the top line and EBITDA. Why aren't you guys giving guidance so you can actually get us all in having reasonable expectations? I'm hearing a lot of moving parts here. You're at double-digit growth the back half of the year, which would put you slightly below 13%. You've been out on the road said 13% to 15% was sustainable top line growth, EBITDA flattish, ex- the device tax, moving parts in CapEx. What are the numbers that you want out there?

Thank you for your question, David. We've always looked at this business for many years forward for the long term. We're not thinking about in terms of quarters, or even in 12 months. And frankly, we feel comfortable that our strategy of introducing new products and growing our sales force is really the best way for us to continue on our growth path.

The guidance we're going to give is what we feel comfortable with sharing at this point and that's how we are going to be as a Company going forward. We want to keep focusing on the long term. I would ask you to look at our results that we put out and judge us on the results. We do not feel comfortable about looking at it quarters and year over year.

So if I -- we're you willing to comment if the 12.8% growth in revenue and $0.80, I think, incentives right now. Is that consistent with your view of the world or is that far off?

I think we feel really comfortable saying that our top line growth will be double-digit industry-leading growth. And we'll be able to maintain our EBITDA margins sans the medical device tax.

Okay, maybe a few related questions then to help us square that. Can you maybe give us a little bit of an update on how some of the launches that you had at the end of the last year are going? Whether it's the cervical disc market, or how you're doing in that space? I think there's some more competitors. Any product related updates you could provide would be helpful.

Yes, as Dave mentioned we launched the SECURE-C device and we had a strong group of product introductions. We don't specifically comment on individual product performances. But for the year we launched over 14 products. We only count a product launch if it has a graphic case, and it's a uniquely different product. We don't count line extensions as product launches. So, we did launch more than 14 products in 2012. We do not comment on individual product performances.

Okay, but are you willing to comment on how they're progressing relative to your expectations? And the 14 new product launches in "13 -- in '12, are you on track to do something similar in '13? And how dependent is your growth on those do product launches?

Part of the way that we think here is historic performance for us is a precursor to what we think we can do in the future. Over the existence of the Company, we've launched in excess of 100 products. This past year we actually have always talked about 10 -- 5 to 10 new products each year this year, this past year we accomplished 14 items. And that led to the overall growth during the year of something north of 16%. Next year we have for -- as of right now we have in excess of 30 products in various stages in the development path and we feel, again, that we'll be able to launch between the 5 to 10 new products during 2013.

Okay, understood. Thank you.

Matthew O'Brien.

David, I know you don't want to comment too much on specific products, but the performance in disruptive technologies accelerated during Q4, can you give us a sense for, especially domestically, I think everybody gets OUS opportunities, but domestically, the drivers there, in terms of, was the 12.5% more driven by new account penetration or additional penetration within existing accounts? And then within that latter question, can you help frame the opportunity that you have with a broad base of products to sell within your existing customers? Are you 10% generally speaking penetrated among your customer base, and that could go up to 20% to 30% over time, or how can we think about that?

I really think it's a mix of all of the above as we continue to introduce a number of new products per year, it allows us to convert business from surgeons accounts we don't already have, it enables our existing sales force to be more productive and efficient. And we're also adding feet on the street to sell that portfolio. We don't really break it down and slice and dice it into what the components come from. But new product introductions and new people are both equally important.

One of your competitors used to give us, when they first went public, the revenue per case number and where that can go over time. Is that not something that you're willing to share?

We don't share that, no.

Okay. And then on the VCF strategy, given the sizable investment that you guys are making there, there's clearly a number of companies out there with balloons and cement. I'm curious, how do you guys intend to differentiate yourselves, and [that's the] strategy, and it's worked quite well for Globus in the past elsewhere, [inclined]. But how do you tend to differentiate yourself from all those other technologies? And what are your thoughts in terms of market share opportunity there, and in four to five years would it be fair to think of something around 10% over that time frame?

Well I think we'll continue to innovate a similar fashion that we've done on the metal side of the business. We have a couple of products in the pipeline that we're pretty excited about, we're not ready share the details of those products. But, you will be seeing one of them certainly this year, and another one maybe this year towards the end of -- or early next year. So, I think we have the ability to differentiate.

We think it's a $500 million market, and with good strong basic products and innovative products we will get our share. So, I don't think it's inconceivable that that division would mirror what we've done on the metal side over time.

Okay and last one for me, and there's been a lot of investor consternation about the impacts to your business post lock up. I'm curious we're about the month past that point now, have you seen any material change in your Business in terms of abnormal surgeon turnover or anything else like that that we should be aware of?

Not at all.

Okay, thank you.

Bob Hopkins.

A couple things, first on the financials, I just want to make sure I've got to the EBITDA guidance correct here. So relative to the fourth quarter, you're saying excluding the med tech tax you feel comfortable saying you can be at least at the level that you are right now, is that correct? Or do I also need to factor in some dilution from Algea in addition to the medical device tax?

That's what I attempted to say, the former part of your comment.

So how much do we -- how much is dilution -- how much dilution from Algea over the course of the year in your view?

That's something we hope to be -- don't forget our models that we talked about is similar to what we did in OUS. In 2010, we launched OUS, it had an effect on our margin of anywhere from 2.5% to 3% -- percentage points in our margin. As that began to break even and began to throw off money, we launched Algea, same dollar amount, same effect. And so as we begin to rotate through the Algea investment, we'll be able to throw those dollars into ongoing new innovation and new investments.

Bob, can I just add a little bit to that. There's quite a bit of leverage in the Algea model that we have right now, and as sales ramp, we'll see the impact pretty pronounced on EBITDA. So we're -- at this point we've had a few stumbles, I think we've documented those in the past, and we're expecting that turnaround to come in the second half of this year. So the first couple quarters you're not going to see a lot but we expect that -- the sales ramp to occur in the last half of the year.

Okay so on the -- but for the full year on EBITDA basis, is that -- it's either a -- is it a marginal detractor from EBITDA over the course of 2013 or is it contributing to EBITDA in 2013?

We're guiding to the full effect of the med device tax, we'll be able to as we've talked about have leverage--

No, no just on Algea, just on Algea.

We'll be able to regain some of that loss of the device tax by the end of the year.

I think, Bob, it's going to be still a net detractor from what we can be. So Algea won't be positive EBITDA for the year. If that's what you're asking.

Okay, yes that's what I was asking, thank you, David. So on EBITDA overall then, if we exclude Algea and we exclude the medical device tax, do you expect EBITDA leverage this year, or should we expect that margins will be flat excluding those two items?

If you exclude those items, it will be flat.

Okay. And then any change in your views, in terms of how you think the spine market will play out in 2013? In your guidance here are you assuming status quo, or any pick up in the market or pricing? Or curious as to what you're assuming for 2013 as it relates to the market.

Pretty much the status quo. I think I commented earlier we think the market might be firming, certainly not getting any worse. So we're assuming status quo.

And then when does the next Algea product launch is it -- from your comments I guess it probably launches around mid-year?

Yes.

And then on SECURE-C, and you guys, obviously, talked very confidently about it, what would limit you from grabbing 10%, 15% of that cervical disc market in 2013?

The limiting factor with the artificial disc are reimbursement, so that's still a lot --

No, no what I -- there's an existing market today. So my question was what would prevent you from getting 10% to 15% of the existing cervical disc market?

Well, so reimbursement is still an issue because we're not necessarily on those payers--

Okay.

Formulary so we have to go through that process, that takes time. And there's also a training component, so with the FDA, even though the surgeon may be very experienced in doing ProDisc-C, he still has to go through training to use SECURE-C. So, that's a natural barrier to a rapid adoption.

Okay. And then lastly for me, on the 2013 new product launch side, are there one or two things that you're most excited about that'll be launching in 2013 that you care to talk about? And I know you ran through some things that are already launched, but is there anything you think it would really matter to the business that's launching in 2013 outside of a mid-year launch of the next generation Algea product?

Not really, Bob. I think like we said on the road, we focus on singles and doubles and we hope to launch 5 to 10 new products this year, and we don't really want to comment on any one product impact there.

Okay. And then is there any major litigation milestones this year that we should be aware of?

The Synthes Plate Spacer patent is scheduled to go to trial this year. Those schedules can fluctuate pretty dramatically, so that's certainly a potential.

All right, great. Thanks for the time, guys.

Steve Lichtman.

Really two questions from me. As you build out this Algea sales force, can you talk a little bit about your vision for the sales force over the next three to five years? Will you be dropping in a lot more product in the bag beyond VCF, interspinous spaces, anything else? How do you see that sales force playing a part for you guys over time?

Well our focus on Algea Therapies is beyond VCF, the focus is on interventional pain management. The reason we have a separate sales force is it's very different call pattern, different surgeon. So spine surgeons are doing traditional instrumentation, it'll be carried by our existing sales force. We are working on several other products for the interventional pain management arena, and that's what that sales force will be carrying.

Okay, thanks. And then on PODs, any update from what you're hearing from your regulatory team in terms of potential increased scrutiny from government entities that we could see perhaps in 2013? Any movement that you're seeing on that front?

We've heard about a lot of activity in Washington, we haven't seen the results of that. So I think it moves at the pace of the belt line.

So, no definitive timelines or milestones we should be looking for?

No, I don't think definitively. No.

Okay, thanks, guys.

(Operator Instructions) Bill Plovanic.

I only have two questions. One is on the sales force, I was wondering if there's any metrics broadly you'd be willing to share on growth of that in 2013 versus '12 and '11?

Bill, this is Dave. No, we're not going to share the details on that, sorry.

Okay, that's fine. And then on new products, I know it was asked, but I'll ask it a different way. We have double AOS coming up in three weeks, is there anything coming in that that you're going to be profiling that's new versus NASS that we could stop by the booth and take a look at? And that's all I had, thanks.

No, nothing significant. A couple of small ones that'll be there but--

But we would welcome you stopping by the booth.

I'll be by the booth on the booth tour, thanks.

Matt Miksic.

Got a follow up here, I'm going to take another run at this question about outlook. I'm sorry I'll apologize in advance, but I want to parse out exactly what you're saying and make sure we have it all buttoned down tight. So, on the top line, I think Rick your comment was double-digit growth, which is consistent with the back half of 2012, is that right?

Correct.

And so that would be if I look at 2012, that's something in the range of say 13% growth. And is that the growth, double digits that you're expecting for 2013? Or is that the growth that you settle into after you get past the tougher comps of say the first and second quarter?

What we attempted to do was make sure that everybody is aware of the tough comps. Next year at this time, obviously, everybody will be aware of it because we're -- whatever those comps are, hopefully, none of them are difficult. So, we felt we needed to explain and remind people of how much we grew in Q1 and Q2 of last year. To apply that kind of a growth rate throughout the year with difficult comps like that, might be -- we feel might be a bit aggressive.

Sure, quarter after quarter but for the full year is that the range that we should be thinking about when the dust clears, and this time next year are we looking at a growth rate for the full year that looks like the second half of '12? Is that the right way to gauge your comment?

Well we will grow into that kind of a rate over the course of the year.

Okay that's helpful. And then on -- and then again I apologize but I just want to be very specific. You gave a year end EBITDA margin ex- Algea of 38%. If we assume no roughly consistent, no increase, not decrease with that, we start with that rate for '13, and we take out the med tech tax, 180 bps and we take out some nominal another 200 basis points of investment for Algea, that gets us into the range that you'd like us to be. And I guess I calculate that to be between 34% and 35% in total for '13, is that math right?

So you -- correct that's what we -- again the way we -- and yes Matt, and the way I would emphasize to people is take a look at how we performed historically. Over the course of our growth periods of the past couple of years, we've been very consistent in the growth in that and the levels we just discussed. And our adjusted EBITDA, when not affected by such things as devices or the introduction of a new business, has settled into the range that you just discussed. The way we look at the business is the historic performance, and we feel that we can sustain that over the course of at least this year for the period that we're talking about.

Great, thanks. Sorry to go through it in such detail, I just want to be clear. Thank you.

Matt, thank you. This is new for us so we're trying to provide the appropriate information given the philosophy of the Company. So, thank you for your patience, and thank you everybody that has been asking the questions, we actually appreciate it.

And this concludes today's conference call, you may now disconnect.