Globus Medical Inc (GMED) 2013 Q4 法說會逐字稿

Welcome to the 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. I will now turn the call over to Ed Joyce, Investor Relations Director. Please go ahead.

Thank you for being with us today. Joining on 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.

I will now read our required legal disclaimers. During this call, certain items may be discussed that are not based entirely on historical 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 businesses 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 Forms 10-Q and 10-K 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 statements 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 on our 2013 Form 10-K.

Our revenue earnings, operating margins, cash flows, and similar items are sometimes expressed on a non-GAAP basis and have been adjusted to exclude certain items including, among other things, interest income and expense and other non-operating expenses, provisions for income taxes, depreciation and amortization, stock-based compensation, changes in the fair value of contingent consideration in connection with business acquisition, provisions for litigations, loss or income, and with respect to the computation of free cash flow, purchases of property and equipment. Comparable GAAP financial information and a reconciliation of non-GAAP amounts to comparable GAAP amounts can be found in the tables included in today's earnings release, which is available on the Globus Medical Investor Relations web page at www.globusmedical.com.

Before turning the call over to Dave Demski, I would like to provide a brief update regarding the filing status of our annual report on Form 10-K. As noted in our press release, we became a large accelerated filer on December 31 of last year, which means that the due date for filing our Form 10-K is Monday, March 3. As a result of this change in status, we no longer qualify for certain exemptions provided under the JOBS Act, relative to Section 404b of the Sarbanes-Oxley Act, and we will be required for the first time to include in our 2013 10-K a report from KPMG, expressing its opinion as to our internal control over financial reporting.

KPMG has not yet completed its procedures relating to its audit of our internal control over financial reporting. As a result, we intend to file for a 15-day extension to file our Form 10-K.

The Company does not, however, anticipate any changes to the unaudited numbers presented during this call. I will now turn the call over to Dave Demski, our President and Chief Operating Officer.

Thank you, Ed, and welcome to everyone on the call. We finished a strong 2013 with a tremendous fourth quarter. Worldwide sales for the fourth quarter of 2013 were $115.2 million, an increase of 14.6% over the fourth quarter of 2012.

On a sequential basis, the fourth quarter grew by $8.1 million or 7.5%. Sales in our international operation reaccelerated in the fourth quarter, growing by 28.7% over the fourth quarter of 2012, while US sales were a strong 13.3% growth.

Worldwide sales for the year were $434.5 million, up 12.6% over 2012. International sales for the year grew by 24.5%; US sales increased by 11.5%. 2013 was also a record sales force recruiting year, and we added more new territories than at any time in our history.

Adjusted EBITDA for the full year was an outstanding 34.7%. The impact of the medical device excise tax was about 1.7%. Thus without the device tax, our adjusted EBITDA for 2013 would have been 36.3%.

This is approximately a 90-basis point improvement over our 2012 adjusted EBITDA of 35.4%. Even though our profitability profile is already one of the strongest in orthopedics, we were still able to achieve significant operating leverage in our business, due to our strong growth and disciplined expense control.

Non-GAAP fully diluted earnings per share, adjusted for the impact of litigation loss provisions, were $0.25 for the fourth quarter and $0.90 for the full year. We produced free cash flow of $69.8 million in 2013, and ended the year with $275 million in cash, cash equivalents, and marketable securities. We remain debt-free.

Our international team had a very strong fourth quarter. We spent much of 2013 focused on growing sales and improving efficiencies in markets we have already entered, and we showed strong improvement on both fronts in the fourth quarter.

The overall spine market continues to show moderate and steady improvement. The three Ps, pricing, procedures, and PODs, remain relatively stable. Pricing pressure remained in the low- to mid-single digits in the fourth quarter.

Payer pushback continues for selected procedures in certain payers, but has not changed materially from earlier this year. The recent announcement by Aetna that they would not cover non-allograft spacers and cervical fusions has not caused a material change in our performance. The reports from the OIG on PODs this year are beginning to have some impact, as we have recently been notified of several hospitals systems who have adopted or will adopt a no-POD policy.

We had a great 2013 capped by an outstanding fourth quarter. We executed well on our strategy of introducing innovative technology and growing our sales footprint in the US and abroad, while maintaining discipline in our spending. This produced outstanding results in terms of sales growth, profitability, and cash flow. I will now turn the call over to Rick Baron to provide detail on our financial results and guidance for the year.

Thank you, Dave. Today, I will review our financial performance for the fourth quarter of 2013, as compared to the fourth quarter of 2012. For key elements of the income statement, balance sheet, and statement of cash flows, I will also highlight certain aspects of the performance of the Company for the full year 2013 as compared to 2012.

Our worldwide sales for the fourth quarter of 2013 were $115.2 million, a 14.6% increase over the fourth quarter of 2012. Innovative fusion sales increased this quarter to $67.1 million or by 15.4% of the prior year's quarter, while disruptive technology sales increased this quarter to $48.1 million, or by 13.6% from the prior year's quarter.

In past quarters, we have seen a much higher growth rate in disruptive technology as compared to the growth rate in innovative fusion. There are two primary reasons that the growth rates are different this quarter.

The first reason is consistent with past explanation and relates to the conversion of business associated with new hires. If we are successful in converting a surgeon's business, the related sales will generally reflect the overall mix of the surgeon's procedural breakdown of disruptive and innovative. Secondly, our recently launched CREO pedicle screw system is categorized as innovative fusion, contributing to the growth in that segment this quarter.

Sales in the United States for the fourth quarter of 2013 grew to $104.1 million or by 13.3%, while international sales grew to $11.1 million or by 28.7% from the prior year's quarter. Overall growth in sales was attributed to expansion of both domestic and international territories, and a greater penetration in existing territories. During 2013, we expanded our international footprint to a total of 28 countries, served by a combination of exclusive direct sales forces and exclusive distributor networks.

Gross profit for the fourth quarter of 2013 was $88.5 million or 76.8% of sales for the current year's quarter, as compared to $81 million or 80.5% of sales from the prior year's fourth quarter. The medical device tax accounted for $1.9 million or 1.6% of fourth quarter gross profit. In addition, as we have indicated in prior calls, gross margins relating to international Algea and biologics are at lower rates than most products sold in the United States.

Research and development expenses this quarter were $6.4 million or 5.6% of sales, as compared to $7.2 million or 7.2% of sales for the same period of 2012. The dollar spend was lower than in prior years, due to the timing of processes associated with ongoing trials and development of new products.

Selling, general, and administrative expenses were $45.7 million or 39.6% of sales, compared to $44.6 million or 44.4% of sales for the prior year's fourth quarter. The dollar amounts of the spend for SG&A expense was in line with prior quarters.

Our goal is to grow our expenses in these areas at a slower rate than our sales growth, thus achieving operating leverage. Our continued sales growth, particularly the large sequential jump we saw from Q3 to Q4, combined with our disciplined approach to expense control, produced the large drop in SG&A as a percentage of revenue in Q4.

Adjusted EBITDA for the fourth quarter of 2013 was 37.3% of sales or $42.9 million, as compared to 34.6% of sales or $34.8 million in the prior year's quarter. The income tax rate for the current quarter was 34.1%. Net income for the fourth quarter of 2013 was $21 million, as compared to $20.8 million in the prior year's quarter. Net income for the current year quarter was impacted by $3 million, due to a provision for litigation.

Earnings per fully diluted share were $0.22 for the fourth quarter of 2013 and $0.22 for the prior year's quarter. Non-GAAP earnings per diluted share, which exclude provisions for litigation, was $0.25 for the fourth quarter of 2013 compared to $0.22 for the fourth quarter 2012. Fully diluted share count for the fourth quarter was $94.6 million and $93.5 million as of December 31, 2013 and 2012, respectively.

Worldwide sales for the year ended December 31, 2013, were a record $434.5 million, which was $48.5 million or 12.6% greater than in 2012. Innovative fusion was $254 million in 2013, and grew at a rate of 6.4% compared to the prior-year sales. Disruptive technologies was $180.5 million, which grew at a rate of 22.5% over the prior-year sales.

US sales for 2013 grew to $396.6 million or by 11.5%, while in 2013 international sales grew to $37.8 million or by 24.5% from the prior year's quarter. Gross profit for the year was $334.1 million or 76.9% of sales as compared to $310.8 million or 80.5% of sales in the prior year.

The medical device tax accounted for $7.2 million or about 1.7% of the full year gross profit. The gross profit margin percentage for the year was also affected by sales mix discussed above, and the write-off associated with litigation and new product launches discussed in the earlier quarterly calls.

Research and development expenses for the year were $26.9 million or 6.2% of sales as compared to $27.9 million or 7.2% of sales for 2012. The dollar spend was lower than the prior year, due to the timing of costs associated with ongoing trials and development of new product.

2013 selling, general, and administrative expenses were $182.5 million or 42% of sales, compared to $168.9 million or 43.7% of sales compared to 2012. The growth in the expenses of $13.7 million per year was due -- primarily due to the expansion of the US sales force. The improvement as a percentage of sales of 1.7% was primarily due to operating leverage, particularly in OUS and Algea areas.

2013 annual adjusted EBITDA for the year was $150.5 million or 34.7%, as compared to $136.6 million or 35.4% for the prior year. The income tax rate for 2013 was 32.7%, as compared to 35.6% from the prior year. This is primarily due to the effect of litigation and the R&D tax credit reinstatement in 2013.

Net income for the year was $68.6 million, as compared to $73.8 million for the prior year. Net income for 2013 was impacted by $15.8 million provision for litigation.

Fully diluted earnings per share for 2013 were $0.73 for the year compared to $0.80 for the prior year, while non-GAAP earnings per diluted share, which excludes the provisions for litigation, was $0.90 in 2013, compared to $0.79 for 2012. Fully diluted share count for the year was 94.2 million and 92.2 million for the years 2013 and 2012, respectively.

Cash and cash equivalents, and marketable securities balance, was $275.5 million as of December 31, 2013, compared to $212.4 million as of December 31, 2012. Operating cash flow for the year was $93.5 million, and free cash flow as defined as operating cash flow less capital expenditures was $69.8 million. We remain debt-free.

Our guidance for the year 2014, as we indicated in January, is for sales in the range of $480 million to $486 million, and earnings per fully diluted share of $0.90 to $0.92 per share. The anticipated tax rate is 34.5%; unless Congress enacts the research and development tax credit, this rate will be affected by seven-tenths of a percent for 2014.

Also, as we indicated in our guidance issued in mid-January, and our announcement regarding Excelsius, the earnings per share is net of an anticipated spend of $6 million to $9 million for that project. I will now turn the call over to David Paul, Chairman and CEO, for closing remarks.

Thank you, Rick. Good evening, everyone. 2013 was an outstanding year for Globus Medical.

We grew our sales by 12.6%, reaching $434.5 million, while maintaining our strong profitability profile with full year adjusted EBITDA of 34.7% and free cash flow of $69.8 million. We launched 16 new products in 2013 and completed the acquisition of Excelsius Surgical. We also had a record number of sales force expansions, adding more new territory than any time in our history, and believe that Globus continues to be the destination of choice for the best sales talent in the industry.

This performance was a result of consistent, sustained execution of our strategy of combining robust product innovation and continued sales force expansion with disciplined expense control. I am very proud of the performance of our team in 2013, and continue to be confident in our ability to produce industry leading growth and outstanding profitability in 2014 and beyond.

I'd like to speak about a few highlights from 2013. First, we launched a total of 16 new products during the year, including several key products such as our next-generation CREO medical screw platform, the laterally expanding LATIS spacer, FORTIFY I integrated corpectomy spacer, and KINEX Bioactive bone void filler. We believe these key products provide distinct advantages in the marketplace over current systems, reinforcing our focus on innovative designs that aid the surgeon in achieving better patient outcomes through traditional or minimally invasive surgical techniques.

CREO, for example, is a comprehensive universal medical school platform for deformity, degenerative, and trauma conditions, with top-loading, side-loading, and closed-type designs for unparalleled versatility of construct building in the operating room. Initial CREO launch began in 2013, and various editions are planned and will continue to be rolled out in 2014.

LATIS is the first unitary interbody fusion device of its kind to offer the benefits of an ALIF footprint with a posterior approach. FORTIFY I incorporates integrated screws into our expandable Globus cage corpectomy platform, and allows for various approach options.

We continue to build our biologics portfolio with the introduction of KINEX Bioactive, the first of a suite of bioactive products with the osteostimulative properties of Bioglass that amplifies cellular activity responsible for bone formation. In addition to Bioglass, KINEX contains collagen for scaffolding and hyaluronic acid to aid in angiogenesis. Our product development pipeline across all segments continues to remain robust and on track to launch more exciting new products in 2014.

We acquired Excelsius Surgical, a robotics company developing a next-generation surgical robotic positioning platform for spine, brain, and other therapeutic markets. The Excelsius GPS system is intended to be a robotic surgical aid for navigating and facilitating surgical access, implant sizing, positioning, and placement.

The system is designed to enable surgeons to perform procedures more quickly and with greater accuracy, safety, and reproducibility than is currently available in the marketplace today. Excelsius GPS will combine robotics, navigation, and imaging, with a goal of enabling surgeons to perform these robotically assisted, minimally invasive surgical procedures that will result in better surgical outcomes for the patient, and be more cost-effective for healthcare providers, with the added benefit of reduced radiation exposure for patients, surgeons, and operating room personnel.

Excelsius fits well with our overarching development efforts to focus on products designed to minimize tissue disruption, blood loss, and surgical complications. And we believe that the use of advanced technology solutions such as the Excelsius GPS system will enable surgeons to consistently achieve better surgical outcomes.

Trends in the adoption of navigation technology, as well as advancements in imaging, only serve to reinforce our belief that this technology will play an increasingly greater role in all surgery of the future. We are very excited by the strategic mix and potential of this technology, and believe that this acquisition positions Globus to be a leader in this important future growth area.

So in summary, we continue to execute on our long-term growth strategy of rapid new product introduction and US and international sales force expansion, while maintaining a continued focus on profitability and cash flow. We remain excited about our prospects in 2014 as we continue to execute on our disciplined strategy of profitable growth. We're now happy to take any questions.

(Operator Instructions)

Bill Plovanic, Canaccord.

Great. This is actually Kyle on for Bill. Can you hear me all right?

Yes, Kyle.

It sounded like obviously innovative fusion had a strong quarter. It sounded like it was a bit of a mix between the new product launch in CREO, as well as some of the new reps coming on board. I just wondered if you could break that down and frame that for us. How should we think about that from a product standpoint, but then also from the actual sales force contribution?

Thanks, Kyle. It's Rick. The traditional way that we've had this over the course of the period of time that we've been out in public has been disruptive has grown at clearly a higher double-digit rate where as innovative fusion has grown at a lower percentage. Generally, when one upticks and one downticks, there's concern from you all.

What we wanted to do was make sure that you understood that some of that growth is naturally due to increases in the number of reps. We said that we had a good year last year. We still haven't seen the full value of those reps and won't see that until probably later this year, and maybe even into sometime next year. Depending upon the value that they bring over, that rate of growth may fluctuate just a little bit.

In addition, one new product that we introduced, which is the big one, happens to be CREO. You're probably going to see innovative fusion be a little bit higher than it had been historically, but we'll point out reasons why as we go forward.

Great. Also touching on, obviously the cervical disc market continues to be a focus for investors. You've got the [kiristeed]. It's now been on the market for 12 months post-approval. I was wondering if you could give your updated thoughts on that product opportunity and also that market as we enter 2014, and some of the catalysts you expect going forward?

This is Dave, Kyle. It still continues to be a challenge, just in terms of reimbursement. It's a fight in some cases to get it covered.

Then, the surgeon reimbursement is also a factor. We believe it's because they're paid for the surgeries less than they would for a fusion surgery.

With both of those things, it's still bit of an uphill battle. We're happy with the progress, but it's slow.

Kyle, just as a point of addition, that's also fitting in nicely as one of the close to 30 products that we introduced over this two-year period. That's one of them

Fantastic. Thanks a lot. Congrats on a great quarter.

Thank you.

Matt Miksic, Piper Jaffray.

Good evening. Thanks for taking the questions. I wanted to follow up on the commentary about the sales force. Maybe if you could expand on a couple of things about that. The record number of new territories, maybe, why is there a motivating driver this year heading into this cycle of growth that you felt that you were ready to take on more, or is it just a matter of getting larger? Then secondly, if you give us an update as to where you stand in terms of direct versus indirect? Then I have one follow-up.

Matt, this is Dave. I would say that there wasn't anything special about this year. I do think that our status as a public Company, and some of the publicity that's brought has enabled us to recruit some of better reps who maybe weren't as eager to come over in the past.

I think our reputation continues to grow as an innovator. We've a great comp model for folks that can drive business.

It's nothing internal in terms of more emphasis or investing more. We're recruiting as many qualified candidates as we can, and continue to see that as an important part of our strategy. We were just more successful in execution this past year.

I think the second part of your question was on the balance. There's no material changes from where we were, but we're not going to disclose that mix on a go-forward basis.

Fair enough. One if I could, on how you feel about the market, we've heard the question come up quite a bit during earnings, very strong finish across the board, from many players, anyway. There's some concern about weather having an impact on the first quarter. Maybe if you could, if you have anything you could share with us, on how you think the pacing of the year might look, improvement throughout the year, seasonal dip in Q1 or anything like that, will be very helpful.

Sure, that is a great question. We have definitely been impacted to date by the weather.

We have a fairly high concentration of business in the Southeast through the Carolinas and Atlanta. They were hard hit a couple of times.

Then up to the Northeast we're strong as well. We think it's impacted us by about $2.5 million to $3 million to date.

We're not suggesting our year's going to be any different. We just think that as those patients get back in the flow, that we'll make that up over the course of the year.

It takes a little while at times because surgery schedules are full. Sometimes guys are booked out for six or eight weeks.

It's difficult for the patient to get back in, and then that produces a ripple effect. I think it will take us to at least two quarters, if not through the end of the year, to make that up.

Thanks very much.

Bob Hopkins, Bank of America.

Hi, thanks. Good afternoon. A couple of things, just to maybe finish that thought on the weather and the impact in Q1, anything else that you guys would like us to be aware of as far as the pacing of the year goes? Any other things in the first quarter that we should be aware of, or is really the out of the ordinary thing that you want to discuss the weather?

That's the only thing. It's been difficult for us to get a handle on the year as well because of how severe the weather has been. That's the only thing that we can see at this point.

Okay. Then, Dave, I was curious about your comments about PODs in a number of hospitals, either no longer doing business with those entities or putting them on notice. I know I saw something from HCA today that look like they were one of those hospital groups.

I was wondering if you could expand on that a little bit. Specifically, who are the hospital groups that you're hearing from and just a little bit more detail on what's going on with PODs? Thank you.

Sure. That was the one that we were most impressed with, given their stature, given their reach, and being a bellwether sort of organization. We thought that was really significant. It was a very strong policy. It really didn't leave a lot of wiggle room for PODs to exist.

I know it's not going to be implemented until the middle part of the year, but that policy is similar to things we've seen in other chains. I'm really not at liberty to speak about them, from a confidentiality standpoint, but very favorable. They have to enforce it, but we're encouraged by how seriously they're taking it.

What's your estimate as to the amount of dollars flowing through PODs in spine now in the United States?

It's hard to tell, Bob. But I think it's impacting our business, from business that we've lost over the years to probably 10% to 15%. I don't know if that's the same ratio that Medtronic and (inaudible) would have, but that's the impact that we have seen.

Okay. Lastly for me, you mentioned litigation a few times, and I was wondering if you could just update us on any new develops on the litigation front that you think are relevant?

The one thing that we can update you is on the Bianco litigation that we've disclosed in the past. The jury returned a verdict against us, and that was what got mentioned earlier on. That was for past sales. It was for trade secret violations.

It's not yet known what, if any, future liabilities will be there. We of course will appeal this position, and nothing else to update on any of the other litigation.

At this point, you don't think that there's an impact on go-forward revenues?

It is hard to say because it's still ongoing, and the judge has to decide if there is any future liabilities in that.

Okay, thank you.

Matthew O'Brien, William Blair.

Good afternoon. Thanks for taking the questions. You touched on innovative fusion little bit in your commentary on Q4, but the disruptive slowdown in Q4 was pretty meaningful even though you had a pretty difficult comparison.

Is that really your existing sales force that's been there for a while focusing more on the CREO rollout? Or is there something else that's going on right now as far as that business goes?

I don't look at it as slowing, unless some people are seeing -- [playing with words], Matt, it's really a ratio of what comes in. Because you had a some bolus of new people coming in, and the new people come in, the split of traditional business is 40% medical screw, which would be innovative fusion.

When you get a bolus of that with a new person, you're going to see that number tick up because it wasn't in that same-store sale for prior year. So it's a little bit of math. We don't view it as having slowed down.

The other point to make is that from an overall growth perspective, this was a fairly significant growth from a sequential quarter, and a pretty fine uptick from what consensus has a $2 million [piece]. So all of those things add to the way the math is done. I hope that was responsive.

Okay, fair enough. No, that's helpful. Along those lines, as we model out for 2014, specifically between innovative fusion and disruptive, does it make sense for the first half of the year innovative fusion to grow faster than disruptive? Maybe as those newer reps get ups the curve and they start pulling through some of the disruptive technologies for that, that growth rate to flip in the back half, to be stronger in disruptive versus innovative fusion?

I think we're going to see the same two factors Rick alluded to here in particularly the first half of the year, both CREO is going to, we hope, continue to get some traction. Then, as we've added the new reps even in 2013, they're going to continue to grow, we hope. So I think you will see the trend more like the fourth quarter as we go into the first half of the year.

Okay. Just one more real quick, and I'll get out of your hair. Algea, I know this was a year for you guys. You're expecting to see some good growth out of that business. Any sense on where we stand from a traction perspective and outlook for 2014 and beyond?

Again, we're not going disclose those numbers individually, but we grew significantly this year, and we have pretty strong plans for 2014 as well.

Okay, thank you.

David Roman, Goldman Sachs.

Thank you and good afternoon. I wanted just to come back to Excelsius a little bit. You talked about that in your prepared remarks. Maybe you could give us some sense on the timeline, and what are the key milestones we should be watching to assess the development of that technology?

Thank you, David. As we had mentioned in the press release, we expect this product to come to the US market sometime in 2016. Like most products, all products in our development pipeline, we really don't disclose anything beyond that until we actually get the product out.

But we are working to make sure that we can make the timeline stick. So sometime in 2016 is when you can expect the product launch. We won't be speaking any more about intermediate milestones on that.

So would that include any clinical data? Should we not expect to see anything until the commercial launch?

Yes.

Okay. Then, maybe just coming back to your cash position, it sounded like you made it very clear a couple times on the call your zero debt is a positive attribute. Maybe you can help us think about what are the opportunities to deploy that capital in a more efficient way, given where interest rates are, and given how fragmented some segments of the supply market looked to be. What are your thoughts to start putting that cash to work in a more efficient manner?

David, this is Dave Demski. We're actively looking at opportunities all the time. We're not going to chase or overpay for something just because we have a strong cash position.

We're very interested in opportunities that would add to our technology portfolio or expand our footprint, and we're always looking at them. We've only pulled the trigger on a select few at this point.

Okay, and maybe one last one for Rick. I wouldn't want him to feel left out here. On the P&L, this is a quarter where you delivered very nice, both operating income and earnings growth in comparison to sales growth.

I think what you've talked about in the past is an intention to be able to grow revenue and earnings roughly at the same pace. Should we look at this quarter as reflective of the type of leverage you can generate over time? Or should we more be thinking about the business as top line and bottom line pacing at a similar level?

I think you should go with the latter. This quarter was the really good quarter. We will call it out. We have to explain the reasons why.

It was above [contested] growth in sales. There was some good events on the ability to roll some costs and timing in R&D and things like that. I think you take the longer-term view. We've always suggested and will continue to suggest that you've got to take a 12-month view of the business.

We have, though, gotten operating leverage. I do think that that's something that is very important, and sometimes misunderstood.

At the beginning of the year, with the med device tax, we indicated that we would regain the leverage associated with that hit, which was about 1.6%. We've been able to pull back -- not pull back, but to increase the operating margins successfully to do that, which I think is pretty unique out there, especially for a company our size. So embedded with the model is leverage.

The third element of leverage is that we've always said that we would reinvest into new business as additional shots on goal, which is exactly what we're doing with Excelsius, with the additional $6 million to $9 million of R&D. So we're leveraging and then reinvesting which creates, hopefully, an extra shot on goal to continue double-digit growth.

Okay. Thank you very much.

Rich Newitter, Leerink Swann.

Hi, good afternoon. This is [Robbie] in for Rich. Another question maybe on Excelsius, I think in the past, you guys have mentioned that the device will be platform agnostic, but should have some enhancements for Globus products. Can you maybe provide more color around that, how that would work? Would you be designing new products for it, or is it going to be designed to work with the existing portfolio right now?

Robbie, thanks for your question. It's been a little bit of both. What we said before still holds. It's going to be designed with an open architecture, but it's going to be especially designed to work with the Globus portfolio.

So we are working on several key Globus instruments that interface with the robot. It's still in development, so it is going to be specifically tailored to work flawlessly with the Globus systems, but also somewhat of an open architecture.

Okay, and maybe if you could provide some more color on some of the new product launches that we can expect in 2014?

Like we've always said, always our goal is to introduce 5 to 10 new products every year, and I think we're well on track to do that for 2014 also. I'm not going to disclose any specific products, but like we've all said always, it's going to be up singles and doubles, and that's what we've focused on, is innovating with new products.

Great, thank you.

Steven Lichtman, Oppenheimer & Co.

Thank you. Hello, guys. I just wanted to focus a little bit on the biologics side. Can you talk a little bit more about the type of contribution you're seeing out of KINEX here in the early days?

I think you mentioned additional products. Should we be looking for some more roll-outs from you in biologics in 2014? Should we be focusing on this as a particular nice ramp area for you over the next couple of years?

Biologics is an area where we're extremely focused on. We think it's a huge opportunity.

KINEX is just the first of a suite of several products that we have in development and with the FDA. So we're looking forward to launching multiple other products this space in 2014.

Today, biologics is approximately what percent of your total revenue, approximately?

We don't disclose that. It's an area we can definitely do better at, and I think there's a lot of upside for us there.

Great. Rick, just on the gross margin, obviously international is doing very well. How should we be thinking about gross margin specifically, as we look at it over the next 12 to 18 months? Can that be held flat, or should we be thinking of little bit of downward pressure just on the mix?

We've held pretty consistent throughout the year on the margin. I think that the potential is a little bit of downward pressure, just because OUS pricing and some of the products that we've talked about have pressure on the margin. That's the bad news.

The good news is operating margin contribution, you shouldn't see it. From that perspective, you've got of think of us as a more mature company, a larger company. We focus more on the operating margin, adjusted EBITDA side, that we can get leverage out of there.

Okay, great. Thanks, guys.

Thank you for joining the Globus Medical fourth quarter earnings conference call. You may now disconnect.