SeaSpine Holdings Corp (SPNE) 2016 Q4 法說會逐字稿

Welcome to the SeaSpine 2016 fourth-quarter and year-ending financial results conference call. (Operator Instructions). As a reminder, this conference call is being recorded today, March 2, 2017. I would now like to turn the conference call over to Carrie Mendivil, Investor Relations. Please go ahead.

Thank you for participating in today's call. Joining me from SeaSpine is CEO, Keith Valentine and CFO, John Bostjancic. Earlier today, SeaSpine released financial results for the quarter and year ended December 31, 2016.

During this conference call, we will make forward-looking statements within the meaning of federal securities laws in regard to our business strategy, expectations and plans, objectives for future operations, our future financial condition. All statements other than statements of historical fact are forward-looking statements. Such statements may include words such as believe, could, would, will, plan, intend and similar expressions. You are cautioned not to place undue reliance on forward-looking statements, which are only predictions and reflect our beliefs based on current information and speak only as of today, March 2, 2017.

For a description of risks and uncertainties that can cause material differences between our actual results and those stated or implied by forward-looking statements, please see our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2016, which is available on our corporate website, www.seaspine.com and at www.SEC.gov.

I will now turn the call over to Keith Valentine. Keith.

Thank you, Carrie. Good afternoon and thank you all for joining us. 2016 was a productive year for SeaSpine marked by meaningful progress toward building a foundation to support sustainable growth. Throughout the year, we significantly expanded and upgraded our product portfolio with the launch of several new products and line extensions and we have a healthy pipeline in development. We've also been meaningfully expanding and strengthening our relationships with committed distributors that are excited to commercialize our innovative products.

Turning to our fourth-quarter performance, total revenue was $32.5 million, down 6.4% year-over-year, consisting of orthobiologic sales of $60.6 million and hardware sales of $15.9 million.

Geographically, US revenue decreased $1.4 million or 4.5% to $29.8 million while international revenue declined $800,000 versus the prior year to $2.7 million. US spine hardware revenue continued with a similar theme that we saw in the third quarter with the year-over-year revenue decline driven by lower demand for our older spinal fusion hardware products and low single-digit pricing pressure.

However, the volume and price pressure was more moderate than that experienced in the third quarter. This sequential improvement was led by our cervical portfolio where we are encouraged by two consecutive quarters of volume growth versus the prior-year periods.

Sales of the recently launched Cambria NanoMetalene interbody device and the Cabo Cervical Plate System significantly outpaced the declines in the legacy cervical portfolio. We are planning the full launch of our Mariner pedicle screw system and the initial limited launch of the recently acquired NLT technology around mid-year 2017. We expect these to drive similar improvements in the growth opportunities for our interbody and thoracolumbar portfolios in the second half of 2017.

We experienced fewer year-end stocking orders in 2016 from US hospitals for our orthobiologics products, which contributed to the US revenue decline in that portfolio versus prior year. We expect this will be the new norm going forward for US orthobiologics business as a much larger percentage of our revenue will likely be influenced by surgery procedures in the quarter and less so from stocking orders.

Additionally, low single-digit pricing pressure in the US orthobiologics market was consistent with the third quarter driven primarily by the impact of GPOs and IDNs, which particularly impacted our DBM portfolio. While we were able to counter some of the pricing pressure with higher sales of our lower-cost first and second-generation DBM products to preserve margins, it does impact revenue.

We believe that similar to the situation with spine hardware, it will take time for new distributors that we have onboarded in late 2016 and in 2017 to get through hospital approval committees, to drive revenue growth and to offset the ongoing, but moderate pricing and volume declines.

Our product portfolio is much more robust and current compared to this time last year and we believe that our recent launches, coupled with our pipeline of upcoming new spine hardware and orthobiologics products and line extensions will facilitate additional distributor expansion opportunities and drive increased surge in demand and ultimately convert more business to SeaSpine.

As we continue to execute our strategy in 2017, we expect to see stability in our top-line revenue in the first half of the year and acceleration to mid-single-digit growth the second half as our new products and distributors take hold. We are energized by the strong clinician feedback and early success with our Mariner system, which is our versatile next-generation pedicle screw system that addresses an estimated $1.8 billion market.

The Mariner system released via limited alpha launch in October 2016 is designed to reduce the number of trays needed for surgery and to provide surgeons with multiple intraoperative options to facilitate posterior lumbar fixation. Its versatility enables the broad selection of implant configurations needed to address challenging patient anatomy without sacrificing the simplicity that allows for intraoperative decisions.

We are similarly excited by the revenue growth opportunity presented by our Shoreline ACS anterior cervical standalone system, which was also released via limited alpha launch in October 2016 and is expected to move into full commercial launch around mid-year 2017.

Surgeon feedback on this device, particularly the standalone interbody component, has been positive. We also recently announced the full commercial release of the Vu a POD Prime NanoMetalene System. It features a zero profile, standalone anterior lumbar interbody device that can be configured in a variety of footprint and/or dosis combinations to accommodate an individual patient's pathology.

We've gotten feedback from surgeons that these features, especially when combined with our proprietary NanoMetalene technology, should speed the healing process and ultimately improve long-term outcomes.

Additionally, the Vu a POD and many of our other NanoMetalene interbody devices are now delivered individually, sterile packaged and ready to use, which facilitates configurations tailored to surgeon preferences while simplifying hospital sterile processing requirements and improving inventory management, implant quality and consistency.

In addition to the transition from initial release to full commercial availability of our Mariner and Shoreline systems, we also have several additional limited and full product launches slated throughout 2017 as we continue to expand our portfolio to meet surgeon preferences.

Importantly, we are also targeting the launch of two new projects in orthobiologics late this year with the anticipated introduction of the innovative resorbable mesh DBM system and DBM fibers products, both of which are designed to further leverage our advanced capabilities in orthobiologics product development and manufacturing.

In sum, our cadence of introducing new products and line extension remains strong and we expect steady uptake and incremental revenue contribution throughout this year as we leverage our expanding and improving distributor footprint.

With that, I'd like to comment a bit more on our traction with new distributors. We are starting to realize early positive momentum from recently onboarded distributors. We are confident that investing in innovation and training will cultivate more loyal and exclusive long-term relationships both in territories where we have little to no representation and where we believe that we have been underpenetrated.

As a result, we are experiencing revenue declines from some of our longer-tenured distributors who are not as engaged as they were in the past, whether because of the higher expectations we now have for generating growth and investing in their territories or due to territory realignment.

While these changes create some revenue disruption in the near term, we are absolutely convinced that we are taking the right steps to ensure a sustainable, long-term revenue growth path for SeaSpine.

We are expanding our distribution footprint in key regions of the US where we previously had minimal or no presence or were underpenetrated. We've recently added key distributors in Arizona and the San Francisco Bay area and we recently expanded our West Coast presence to include Idaho and Washington State, areas where we have had little to no presence historically.

We have the financial flexibility and a growing reputation for innovation, education and training and customer focus that is allowing us to attract, pursue and close on these strategic opportunities to establish new and more exclusive relationships with high-performing or high potential distributors. This is supported by the progress we have made operationally and with new product innovation that gives these distributors confidence in our ability to deliver on time the products that our current surgeon customers seek.

We are also investing more in medical education resources and enhancing our capabilities in that area to provide more value to our new and existing surgeon customers. We are establishing an office in Eastern Pennsylvania that will provide additional product development and process improvement resources and bring even more focus to surgeon and patient needs. Ultimately, we plan to expand this office to serve as a local training and education site for surgeons and distributors in the Eastern United States.

As part of this initiative, we brought on Bill Rhoda to spearhead this effort in a newly created position as General Manager of Process Innovation and Development. Bill has more than 20 years of experience in the spinal implant market beginning at Synthes Spine and then later as a founding member of Globus Medical where he was Vice President of Product Development.

While at Globus, Bill conceived and implemented a rapid product development process that dramatically shortened the time from concept to market introduction of new products. We are excited to have Bill onboard as we work to further reduce the time to market of innovative new products while staying laser-focused on the needs of the surgeon.

While it has taken longer than we originally anticipated to reverse the multiyear revenue declines the SeaSpine business experienced as part of Integra, we have made strides in positioning the Company for growth and success. We are making meaningful progress in bringing a steady cadence of innovative products to market, strengthening our distributor relationships and improving our operational processes for reliability and efficiency. And we are lowering our cash spend rate. I remain confident in our team and our ability to drive sustainable double-digit revenue growth.

I will now turn the call over to John to provide more detail on our financials and our financial outlook for 2017. Then I will wrap up. John.

Thanks, Keith and good afternoon, everyone. As Keith noted earlier and consistent with our preannouncement, total revenue for the fourth quarter of 2016 was $32.5 million, a 6.4% decrease compared to the same period of the prior year. Revenue in the US was $29.8 million, a decrease of 4.5% versus prior year and international revenue was $2.7 million compared to $3.5 million reported in the prior-year period.

Revenue from orthobiologics products totaled $16.6 million, a 6.4% year-over-year decrease, while revenue from spine hardware totaled $15.9 million, a decline 6.3%. US orthobiologics revenue totaled $15.1 million, a 5.4% year-over-year decrease, while revenue from US spine hardware totaled $14.7 million, a decline of 3.7%.

Gross margin for the fourth quarter of 2016 was 58.6% compared to 52% in the same period in 2015. The increase in gross margin was mainly driven by substantially lower costs associated with sales of our Mozaik productline manufactured at our Irvine facility in 2016 compared to the higher costs we paid in 2015 to purchase that product from Integra under a supply agreement with them.

We also saw gross margin improvement from lower operating costs following the transfer of our kitting and distribution operations to a third-party logistics provider and the subsequent closure of our Vista, California facility during the fourth quarter.

Operating expenses for the fourth quarter of 2016 totaled $28.6 million, a decline of $2.6 million compared to $31.2 million for the same period of the prior year primarily as a result of lower SG&A expenses.

R&D expenses increased $500,000 to $2.9 million for the fourth quarter of 2016 or 9% of revenue and in line with our expectations.

Selling, general and administrative expenses decreased $2.6 million to $24.9 million for the fourth quarter of 2016 and includes $900,000 and $1.8 million respectively of stock-based compensation expense in the fourth quarter of 2016 and 2015. This decrease was primarily driven by lower transition service fees paid to Integra, lower marketing costs compared to the many rebranding activities initiated in the second half of 2015 following the spinoff, lower bonus expense and sales commissions and the absence in 2016 of the $500,000 of medical device tax expense recorded in the fourth quarter of 2015.

Net loss for the fourth quarter of 2016 was $9.8 million compared to a net loss of $13.8 million for the fourth quarter of 2015. Cash and cash equivalents at December 31, 2016 totaled $14.6 million and we had $3.8 million of outstanding debt against our credit facility. In the fourth quarter, our net cash spend totaled $6.2 million and included approximately $1.6 million invested in inventory and spine hardware sets and $700,000 in severance and related costs associated with the reduction in force we executed in the quarter.

As we mentioned on our third-quarter call, we initiated a number of activities that collectively are expected to reduce our net cash spend by $9 million in 2017 relative to 2016. In particular, we expect the reduction in force to decrease operating expenses by $1.6 million in 2017 compared to 2016 and we anticipate more than $3 million of annual cost savings from outsourcing our kitting and distribution operations and the related closure of our Vista, California facility.

We also plan to reduce our cash spend in 2017 by $1 million on our information systems and related technology infrastructure, particularly our global Oracle ERP platform, as we successfully completed the most critical stabilization and enhancements projects in 2016.

We will continue to invest selectively in our information systems, but in a much more targeted manner. The remainder of the cash spend savings are expected to be generated by a number of G&A spending reduction programs across the Company, from further improvements to our gross margin generated by higher revenues anticipated for 2017 and from lower orthobiologics inventory safety stock levels and lower raw material costs.

These cost efficiencies and inventory rebalancing plans are made possible in part by the process improvements we implemented at the Irvine manufacturing facility in 2016. The current manufacturing output at the plant is much more dependable and consistent than it was at the time of the spinoff and we intentionally stocked higher quantities of inventories throughout 2016 to mitigate the impacts of a previously unreliable production process.

We also expect to reinvest a large portion of the nearly $4 million we invested in 2016 in the Irvine manufacturing plant and the buildout of our Carlsbad facility into the inventory and instrument sets that will be needed to support the successful launches of our hardware products in 2017.

We are very pleased with the reliability and scalability of the infrastructure that we invested in and built in 2016 and plan to leverage the efficiencies gained by those big successes to invest even more aggressively in 2017 in the product development, sales and marketing resources and activities that will drive sustainable revenue growth.

Turning to our financial outlook for 2017, we expect 2017 revenue to be in the range of $129 million to $133 million, reflecting a 0% to 3% growth for the year. While we are not providing quarterly guidance, we anticipate that revenue growth in the second half of the year will far outpace the first half with stability in our top-line revenue in the first half of the year and acceleration to mid-single-digit growth in the second half as our new products and distributors take hold.

Moving down the P&L, we anticipate gross margins for 2017 in a range of 57% to 60%, which includes the impact of approximately $900,000 more in annual non-cash intangible asset amortization compared to 2016 because of the NLT Technology acquisition; R&D to approximate 8% to 10% of revenue and SG&A, excluding non-cash equity-based compensation charges, to approximate 67% to 71% of revenue.

Looking ahead two to three years beyond 2017, as we build scale to the business and achieve anticipated longer-term double-digit revenue growth and leverage the existing infrastructure in which we invested so heavily in 2016, we expect to generate gross margins in the mid to upper-60% range, invest 7% to 8% of revenue at R&D and reduce SG&A, excluding stock-based compensation, to between 60% and 64% of revenue. We plan to end 2017 with two years of liquidity as measured by cash on hand and availability under our credit facility.

At this point, I'd like to turn the call back over to Keith for closing comments.

Thank you, John. I'd like to reiterate that our fundamental strategy to reposition SeaSpine for growth remains on track. 2016 was a transformational year for establishing operational processes, investing in long-term scalability for distribution and manufacturing, driving innovative products to market and strengthening our distributor relationships, which collectively position the Company for success.

We are steadfast in the strategic vision of our organization, confident that it will drive top-line growth and ultimately provide long-term shareholder value. We look forward to updating you on our progress on future calls. With that, we will now open it up to questions. Operator.

(Operator Instructions). Matthew O'Brien, Piper Jaffray.

So just would like to start off on the biologics side of things. Keith, with the commentary that you had about less distributor stocking in the quarter and just a modest softness in that business that we've seen over the last several quarters, would just love to get a little bit more color as far as how you can stabilize that business, if not get back to some better growth just because that category generally speaking I guess across the industry seems to be under a bit of pressure.

Yes.

Hey, Matt, just to give you some context on the numbers too, the impact of the stocking orders that we saw at the end of 2015 compared to the lower volume in 2016, so US orthobiologics was down about 5.5%. The impact of the stocking orders was about half that decline, so the residual business was down just under 3%, just to provide you some context on what that impact was.

Yes, and let me answer or give some commentary from our perspective on your comment on the broader market for orthobiologics. I think that, as we mentioned in the conference call about just the challenges that we've been under for pricing, the good news is we are seeing good surgery volume and in that surgery volume, we've seen consistently as we exited fourth quarter and going into first quarter similar momentum. Obviously, we are still dealing with some of the overhang challenge with the larger buying groups, but that's largely going to resolve as we fill out the year in 2017 and we still see good strength for the DBM platform and even the synthetics.

So I still feel that when you look at the broader market and what categories are doing well, this is still the best reimbursed category, the DBM category, out there and it's becoming now equal -- there's an equalization, if you will, year over year that we are now seeing because we are filtering through those challenges we saw last year with the pricing changes, right?

And now we have attacked that with our first and second-generation products. We are getting good volume. It is a revenue challenge, but the good news is we are maintaining our margins and we're going to see additional strength as we go through 2017 in this category.

That's helpful. So just a couple more from me. As far as the legacy distributors go -- and I may have missed this in your commentary; forgive me -- how much more is left in terms of rebalancing that group or reenergizing that group? I know it's difficult to say on a public call like this, but just any kind of sense for how long it will take to work your way through that group and make all the changes that you need before you can get back to or get the group together that you need to really build the business going forward?

Yes, I think maybe a better way to look at that, Matt, is we now feel like the strategic changes we made in 2016 are going to bring us that momentum in 2017, which should eliminate more of the disruptive properties to it. Now that we are -- an interesting thing is coming together, right? We have distributors now that are getting past their 9 to 12 months with us. We have better training programs for them, better onboarding and then what meets up with that is the full launch of some of these really high market opportunity new products. As I mentioned, in the cervical space and also in the degenerative space.

And so those two things coming together give us a stability so that we can now make very strategic choices around the US of filling in mostly where we are not covered at all. That is our number one priority. And then, of course, we will still have miscellaneous opportunities that come our way due to the consolidation that's going out in the marketplace that we will make a decision whether it's an upgrade or not and whether we have to do a realignment.

Okay. And then, Keith, as we talk about first half of the year -- actually John -- first half of the year growth versus back half of the year, that mid-single-digit outlook there would obviously be pretty good performance for you guys in what -- over the last several quarters since the spin -- has been more of a deceleration. So that type of improvement I think would be quite welcome.

So can you talk a little bit about where that confidence comes from in terms of actually growing the business, be it the distributor networks, the new products? How do we get confidence in your ability to put up that type of growth number understanding that you are going to have somewhat easy comps when you get to that point?

Yes, I will let John answer to that as well after me. I will tell you a couple areas where I feel we see real confident signs of how 2017 is going to shape up. Specifically the two items I talked about previously on the call was the new cervical platform in Shoreline and then what we are seeing in Mariner. And I think in both of those cases, in alpha, we saw greater momentum than we had anticipated. And we also saw the interrelation and the professionalism of this new distribution group really embracing the new products and embracing them in the categories that they are in in cervical and degenerative.

And so that gives us great confidence in how we are going to fully launch the product after -- and as with all alphas, there are some subtle changes we are making to the products to make them even better and more user-friendly in the OR and that will drive forward this new momentum. So it is giving us great confidence.

And then on the other side of the equation is the orthobiologics, we feel a stabilization is taking place, the stabilization with what hit us towards mid-second quarter last year. We now feel that we are going to see that stabilization take hold as we progress through 2017. So that's where the confidence is coming from.

Yes. And Matt, just to add onto that, I think with the new distributor network, we've talked about the pull-through opportunity where we could take some of the legacy orthobiologics distributors where we've had really strong relationships and now that we've got a more innovative hardware portfolio really start to engage them more in representing our hardware portfolio and we are starting to see some of that come through.

One of the big distributors we added in the first quarter was an existing orthobiologics distributor that we were able to convince with our innovation and the investments we're making in hardware to start representing us in our hardware portfolio. So we are starting to see that pull-through opportunity come to fruition as we anticipated it would as we became more innovative on the hardware side.

And then also, as Keith mentioned in his call, we are launching more new products in 2017, including new products on the orthobiologics side. Those will be more towards the back half of the year, but I think it's good to get some wins on the orthobiologics side to show that we can be innovative in the hardware, which we have demonstrated very consistently in 2016, but also bring new innovation to the market on the orthobiologics side in 2017 as well.

Okay. Last one from me. As far as the expandable spacers that you bought -- and, again, I apologize, I may have missed this; you may have said this in the prepared comments -- but when do you expect to see those things on the market?

Along those lines, John, the commentary about two years worth of liquidity exiting this year, does that include the milestone payments associated with that acquisition?

Yes, so the launch date -- we are going to go in limited what we call alpha launch around mid-year with the expandable technology from NLT and then from a liquidity perspective, the milestone payments, there's two. There's ones that are more based on clinical events and those are payable in cash or stock solely at our election, so we are anticipating in our liquidity forecasts that we will be paying those in stock and then the other ones, the second type of contingency payment there are essentially royalty payments, which are payable in cash, but they are a function of revenue and that's fully baked into our liquidity forecast.

Got it. Very helpful. Thank you so much.

Swayampakula Ramakanth, HC Wainwright.

Good afternoon, Keith and John. Just a couple of high-level questions. With a full year of independence and freestanding coming as you got out of Integra, what are the learnings that management have had over the past year and what are the things that you would want to change so that you can maintain the momentum, but also try to grow from here?

So some of the things that we've talked about over the past year of the learnings that go with a spin, there's great items that come along from an existing business and products, but I think the one thing that was certainly a learning experience for us is focusing the organization to be only a spine and orthobiologics company, and that requires a number of things that you just have to do better.

One of them is, for example, it's some of the blocking and tackling that doesn't get talked about a lot, that is making sure your IT system is fully functional to just what spine and orthobiologics is all about and that's what we had to do for our Oracle platform. And we are really proud of the success we've had in 2016 getting it to be a much more user-friendly system for not only internal, but also our external sales folks and how we are interfacing with them on forecasting and sales numbers and everything else.

Another area that was certainly a big focus for us, as I mentioned in the call, is making our manufacturing more predictable. And our orthobiologics franchise is extremely important to us. It's also one that we are quite proud of the fact that we have the manufacturing capability, the in-house R&D capability, as well as a very focused salesforce on orthobiologics and specifically the synthetic and DBM markets.

And so that was a big learning of how we need to make that Irvine facility more predictable and we are proud to say that every major product category that we have, SKU, has six to eight weeks of supply, which is exactly where -- eight weeks or greater -- which is exactly where we want it to be to make sure the salesforce can be successful.

So looking back, those were areas that I think that maybe during the spin we didn't think we'd have to spend as much time on and we've had to to really get the process improvements. The learning is really just, if anything, we underestimated the amount of time and effort that was going to be necessary to get those right, but the great part is we have them in a place that's going to feed and fuel our 2017 growth and momentum.

Thank you. Looking at how you did in 2016 financially and operationally, how do you consider yourselves against what you are seeing in the sector in terms of growth at this point? And then I have one more question.

Yes, so I don't know if it's fair yet to be completely comparable because I think, as you knew from the spin, the entire mission was we had to create a new innovation portfolio. And so I think this is probably a better question, if you will, to ask at the end of 2017 only because a lot of what we worked on in and around the spin and post-spin is now finally getting to full launch, getting to launch into the marketplace, which then I think puts us and rightfully so on even footing with some of the competitors.

But I think the other part to your question is I think we did the right things in the fourth quarter of this year to be accountable to the shifts that we saw, meaning we had legacy products that were not growing or not as stable as we would have liked them. It created the challenges that we just got done talking about in the conference call, but we made the necessary adjustments and cuts to ensure that our expense profile gives us a long runway, 2017, 2018 and 2019, and I think that's an important shift and a pivot that we did in the fourth quarter that led to a more responsible way we are looking at our cash in the next three years.

Okay. Then the last question is about 2017 and you just provided the guidance of 0% to 3% over the coming year. What do you think management needs to deliver to make that a possibility and also what is the potential there for an upside to your current guidance? So what are the levers that you can push and pull to get above and beyond the 0% to 3% range you are giving?

Sure. So the confidence I think goes back to the previous question as well by Matt. The confidence really lies into how we are seeing new distribution get their footing. We are seeing new distribution get their footing quicker than we have previously. This is pre-spin and even during the spin as new distributors were coming aboard, but getting aboard quicker. And they are able to get aboard quicker because they do have access to a number of new products that were not available before.

So that really is what solidifies our confidence, but it would be too early to try to -- the clear levers are, if any one of our or multiple product launches get greater traction than we have forecasted, obviously that's an upside positive lever, but it's too early in my mind to be talking in that direction. We first have to get it to full launch and see how the penetration is going. We obviously have a great deal of confidence in our new distributors and the focus we are putting on these new lunches in their hands, but it would be too early to chat about that. That's something that we would be chatting about in the second half of the year.

Thank you and looking forward to visiting with you guys soon.

Ryan Zimmerman, BTIG.

So I appreciate the color on the guidance and the back-half-weighted nature of the guidance. I'm just curious when you think about the guidance for next year, for 2017, excuse me, and your distribution network, should we think of the distributors that potentially could be coming onboard at a normalized pace through the course of the year, or is there some cadence different from the standard and steady quarter-to-quarter cadence for distribution additions?

I don't think the cadence you saw in 2016 is going to accelerate in 2017. I think it's going to be pretty consistent how we approach 2016 with some distributors we would categorize as larger distributors with greater potential and bigger opportunities because of geography and then other ones will be perhaps just orthobiologics or perhaps they are just in a specific region or section of the country very (technical difficulty) change much from 2016.

And I think, Ryan, one other thing is, as we've said on previous calls, that as you bring in these new distributors, there's getting through hospital approval committees; there's getting them trained on new products. So there's typically a six to nine-month ramp before they really start to hit a critical mass of revenue that moves the needle. So the distributors we brought onboard in 2016 and early 2017 I think will have an opportunity to drive that revenue growth, but the ones we bring on in 2017 I think will just be accretive more towards 2018 because of that timeframe it takes to fully get them wrapped up to speed. So they will have an impact in 2017, but it will be more back-end-weighted and I think it will set us up for 2018 as we continue to bring more distributors onboard.

Okay. That's fair. I appreciate the color there. And then just lastly for me, the cost-savings initiatives that you are going to continue on improving in 2017, is there any cadence there that I should think about in terms of how you implement it or how you roll it out?

A lot of the structural stuff we've done already to reduce the cash spend is already in place. Now it's just a matter of execution, so it's in place and we would expect it to benefit us throughout the year. So a lot of the hard work is done and now I think it's a lot about the execution throughout the year.

Okay. Fair enough. Thanks for taking the questions, guys.

Thank you. I would now like to turn the call back over to Mr. Keith Valentine for any closing remarks.

Sure. Thanks, everyone, for joining us today and have a great evening.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect and have a wonderful day.