SeaSpine Holdings Corp (SPNE) 2018 Q2 法說會逐字稿

Welcome to SeaSpine's 2018 Second Quarter Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded today, July 30, 2018.

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 full financial results for the second quarter ended June 30, 2018.

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, our objectives, future operations and our future financial results and conditions.

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 belief based on the current information and speaks only as of today, July 30, 2018.

For a description of risks and uncertainties that could cause material differences between our actual results and those stated or implied by the forward-looking statements, please see the news releases and periodic filings with the Securities and Exchange Commission, which are available on our corporate website, www.seaspine.com, and at www.sec.gov.

I'll now turn the call over to Keith Valentine. Keith?

Thank you, Carrie. Good afternoon, and thank you all for joining us. We are excited to see our momentum continue to build in 2018 with strong revenue results from the second quarter.

Our top line growth continues to be driven by increasing market penetration from our recently launched products in both portfolios, by a more engaged and increasingly exclusive distributor network and from deep -- from a deeper commitment in organization to customer experience and medical education and training. The 6.5% overall growth and 7.5% U.S. growth that we reported in Q2 marked the highest revenue growth rates that we have posted since the spin-off. We are proud to say that we are now a market-share taker in spine. With this solid momentum and the expectations we have for our recent and upcoming product launches, we are well positioned to continue to be a market-share taker and to accelerate our top line growth rate in the second half of 2018. Accordingly, we are raising the bottom end of our revenue expectations, and now expect full year revenue to be in the range of $136 million to $139 million for 2018.

As we look ahead, we remain focused on our strategic vision, developing surgeon-centric, cost-effective solutions that combine innovative spinal implants systems with industry-leading orthobiologics that together will drive improved procedural solutions and deliver clinical value to the surgeon, hospital and patient. We are steadfast in executing this vision and look forward to continued progress through the remainder of 2018 and beyond.

Turning to our second quarter performance, total revenue was $36.4 million, up 6.5% versus the year-ago period. U.S. revenue increased 7.5% to $32.6 million, with U.S. spinal implants increasing 11.5% to $16 million, and U.S. orthobiologics increasing 4% to $16.6 million.

International revenue was $3.8 million, flat to slightly down compared to the second quarter of 2017, which included some very large initial spinal implants stocking orders last year. Our international revenue is up almost 4% on a year-to-date basis. Orthobiologics continues to drive international growth, increasing more than 23% in the second quarter of 2018 and 16% year-to-date. We're expecting a strong recovery in the second half of 2018 for spinal implants, driven by a recently added distributor in the Asia-Pacific region.

In the U.S., our orthobiologics performance was led by our DBM franchise and, in particular, by the impact of the recently launched OsteoStrand and OsteoBallast product families. We transitioned both the OsteoStrand-fibers-based DBM and the OsteoBallast DBM in resorbable mesh products to full commercial launch during the second quarter and expect to fully launch the OsteoStrand plus product by the end of the third quarter. Feedback from surgeons and distributor partners continues to be overwhelmingly positive, and these new products have been a critical factor to our success in converting surgeons to our orthobiologics portfolio. These new products, together with our proprietary NanoMetalene surface technology, provide a platform for growth as payers and hospitals are increasingly seeking more cost-effective procedural solutions. We expect these products to drive accelerating revenue growth in our U.S. orthobiologics portfolio in the second half of 2018, with additional long-term gross margin expansion as we increase capacity utilization at our Irvine California manufacturing facility.

Turning to spinal implants. The investments we have made in our product portfolio and distributor network continue to bear fruit. The revenue ramp in the U.S. from our many new spinal implants systems continues to outpace the declines in our legacy systems. Revenue from products we have launched since the spin such as Shoreline and Mariner, and our portfolio of NanoMetalene-enhanced interbody devices comprised more than 45% of U.S. spinal implant revenue in the quarter compared to 28% for the second quarter of 2017. In addition, a larger portion of our U.S. spinal implants revenue is being generated by a more engaged and increasingly exclusive distributor network. These distributors have been instrumental in introducing new surgeons to SeaSpine's increasingly innovative and competitive spinal implants portfolio and in turn in driving revenue growth. We continue to be encouraged by the energy and commitment with which so many of our distributor partners have embraced the SeaSpine relationship. Not just the new distributors we've onboarded but also some of our long-tenured distributors with whom we have reengaged. The favorable results of this more effective collaboration with our distributors, coupled with the increasing market penetration of our recently launched spinal implants and orthobiologics products and our expectation for the future contributions from our innovative pipeline, gives us continued confidence that we will exit 2018 with high single-digit to low double-digit revenue growth in the U.S.

Since our call in May, we have completed the transition of the OsteoStrand product line to full commercial launch. We launched our navigation system compatible instrumentation in a comprehensive posterior decompression and disc-preparation instrument system. And we have received FDA 510(k) clearance for our REGATTA lateral implant that leverages our proprietary NanoMetalene technology. We remain on track to launch the complete REGATTA lateral system, including the implant in combination with an intuitive and efficient instrumentation and retractor system in the fourth quarter.

As computer-assisted surgery becomes more ubiquitous, especially in training programs, surgeons are increasingly using navigation system for their procedures. As a result, we expect that the launch of 10 new instrumentation sets, designed to support the use of our Mariner system with one of the most frequently used third-party surgical navigation systems, will give us the ability to access more hospitals and healthcare systems that were previously available (sic) [unavailable] to us. By the end of the year, we plan to launch additional sets that will expand the navigation system compatible instrumentation to support the Malibu and Newport MIS posterior fixation systems. The 510(k) clearance that we received for this instrumentation allows us to extend its reach into cervical, and we are currently evaluating that opportunity. A number of surgeons have completed successful surgeries with our newly designed posterior decompression and disc-preparation instrument system, and we have received very positive feedback. These instruments better support our Ventura NanoMetalene or [dotic] PLIF and TLIF interbody implant line extensions and our Skipjack expandable posterior interbody device. Not to mention the increased visibility of all of the SeaSpine orange instrumentation sets that we love to see in the OR setting.

Our success in attracting a meaningful number of new surgeon users and increasing existing surgeons' usage of our spinal implants systems in orthobiologics products is incredibly rewarding to the entire SeaSpine organization. We firmly believe that this success validates our surgeon-centric approach to product development and our belief that our procedurally based offerings meet the needs of surgeons and their patients. Our focus on innovation and clinical value, coupled with our increasing investment in medical education and training and providing world-class customer experience, is further positioning SeaSpine as the spine company of choice among both surgeons and distributors. We are confident that as we continue to expand our product portfolio with well-supported commercial launches, we will continue to take meaningful market share in 2018 and will significantly outpace the growth of the U.S. spine market.

I'll now turn the call over to John to provide more detail on our financials and our financial outlook, then I will wrap up. John?

Thanks, Keith, and good afternoon, everyone. As Keith noted earlier, total revenue for the second quarter of 2018 was $36.4 million, 6.5% increase compared to the prior year. U.S. revenue increased 7.5% to $32.6 million, while international revenue decreased slightly to $3.8 million.

U.S. orthobiologics revenue increased 4% to $16.6 million, and was once again led by growth in our DBM franchise, and in particular, our recently launched products. U.S. spinal implant revenue increased 11.5% to $16 million, and was led by growth from recently launched products, which now comprise more than 45% of U.S. spinal implants revenue. We expect growth from these newer products and those that we plan to launch in the second half of 2018 to continue to outpace continuing declines in price and usage of our legacy systems. Despite the really strong growth in the second quarter, we remain realistic, particularly in the third quarter due to seasonality, in setting expectations for growth in spinal implants for the remainder of 2018 and are continuing to target high single-digit growth.

Gross margin for the second quarter of 2018 improved 90 basis points to 60% compared to 59.1% for the same period in 2017. The increase was primarily driven by higher gross margins associated with U.S. spinal implants sales, which were greater as a percentage of total revenue compared to the same period of the prior year.

Operating expenses for the second quarter of 2018 were $29 million, a slight increase compared to $28.4 million for the same period of the prior year. R&D expense decreased approximately $550,000 to $2.8 million for the second quarter of 2018, or 7.7% of revenue, with most of that decline driven by lower stock-based compensation.

Selling, general and administrative expenses increased approximately $1.2 million to $25.4 million for the second quarter of 2018. The net increase was driven by higher sales commissions associated with the year-over-year revenue growth and increased compensation expenses, primarily related to the expansion of our medical education and training organization and the hiring of product managers to support the successful launch of new products. These increases were partially offset by lower stock-based compensation and an $800,000 noncash benefit related to a decrease in the fair value of contingent consideration liabilities related to the NLT acquisition. While we expect total SG&A expense in 2018 to continue to decline as a percentage of revenue compared to 2017, we expect to invest substantially more in marketing, product management and medical education and sales training, both in absolute dollars and as a percentage of revenue.

Net loss for the second quarter of 2018 was $7.4 million compared to a net loss of $8 million for the second quarter of 2017. We continue to manage our cash spend carefully and to prioritize investments on revenue growth. Cash and cash equivalents at June 30, 2018, totaled $13.3 million, and we borrowed $4 million under our credit facility. Our net cash burn, which excludes financing inflows and outflows, was $3.9 million in the second quarter of 2018. We remain focused on reducing cash-based G&A expenses as a percentage of revenue again in 2018 and plan to continue to redeploy those savings towards the sales, marketing and R&D initiatives that are so critical to driving sustained revenue growth.

In the second quarter of 2018, we did not sell any stock under our $50 million ATM program. We are pleased by the opportunity to extend and expand our credit facility with the Wells Fargo for an additional 3 years and potential $10 million of additional borrowing capacity. This incremental financial flexibility provides us with even greater long-term liquidity to continue our initiatives, focused on accelerating revenue growth. These activities include investment to deploy even more of our successful spinal implant sets and to ramp up production of the new orthobiologics products. These investments are so critical to attracting and quickly onboarding additional new distributors and the surgeons they support and are expected to be a driver to achieve the anticipated growth -- revenue growth acceleration in the second half of the year.

With our cash currently on hand and ready access to additional cash via our amended credit facility, we believe that we are sufficiently capitalized to at least the end of 2019.

Turning to our financial outlook for 2018, as Keith indicated earlier, we are narrowing our expected range for 2018 revenue to $136 million to $139 million, which reflects growth of 3.2% to 5.5% over full year 2017 revenue.

Moving down to P&L, we expect gross margin for 2018 to increase to within a range of 61% to 62%. Notwithstanding the recent gross margin expansion, we remain cautious for the remainder of 2018. We expect some continued short-term increases in manufacturing costs as we work through the inefficiencies in learning curve associated with the manufacturing ramp of the new orthobiologics products and higher excess and obsolete inventory charges in the second half of the year resulting from recent product launches.

We expect 2018 R&D expense to approximate 8% to 10% of revenue and SG&A, excluding noncash stock-based compensation charges, and any noncash gains or expenses related to changes in the fair value of NLT contingent consideration liabilities, to approximate 67% to 70% of revenue.

With that, I'd like to turn the call back over to Keith for closing comments.

Thank you, John. Our strategy to reposition SeaSpine for growth remains on track, and we believe we are poised to continue taking share in the spine market. We have a terrific team assembled here at SeaSpine and as our operation -- as our operational and commercial capabilities continue to grow, we are well positioned to continue our positive momentum. We are energized by the growing success of the innovative and increasingly differentiated products we have brought to market, and we are more focused than ever on delivering cost-effective clinical value to the surgeons in hospitals to improve the quality of patient lives.

Looking ahead, progress will be defined by continued execution of product launches, expansion of our distribution reach and investments in medical education and training for our surgeon and distributor customers. We look forward to updating you on these initiatives on future calls.

With that, we will now open it up to questions. Operator?

(Operator Instructions) Our first question comes from Matthew O'Brien with Piper Jaffray.

Just a one housekeeping. I just want to make sure I'm clear on this. The guidance for the year, yes, you lowered the bottom end of the range, but you beat by more than, [me] remodeling, about $1.5 million, and you're raising the midpoint of the range by about $0.5 million. Is that just the level of conservatism? Or is there anything specifically in the market that we should be aware of, seasonality, et cetera?

Yes. Matt, I -- we felt that important, so third quarter has been challenging in this marketplace for a number of years if you look over the last decade. And even when it's been a bit seasonal in nature, it also has been littered sometimes with natural disasters as it was last year. And so our intent was to make sure how the third quarter is going to play out and then we can have a different conversation at the end of the third quarter on our next call that talks about how the fourth quarter will be wrapping up for the year.

Okay. Makes total sense. Keith, you mentioned the share, you're now in a share-taking position, which is, I think, the first time SeaSpine's been in this position since the spin. Can you talk a little bit about where that share is coming from? Existing accounts where historically you hadn't done as well with your hardware business, or are you starting to get more and more new customers? I mean, can you just talk a little bit more color between where some of that growth is coming from between existing and new accounts?

Yes. I think there's been over the past couple of quarters and continues to be even for a few more quarters in that some of the larger players have really struggled in the spine space. And so we're able to take advantage of some of those market share losses. And so I think we are gaining new customers, and those new customers are coming from, I would say, larger spine players. In addition, another great thing is we're able to go deeper in accounts now, I think, with our ability to have more exclusive distribution that's now been aboard with us for greater than a year, meaning they have now been fully trained and are better at selling our product. We're able to go deeper in the existing accounts that we're in.

Got it. And then just a couple more for me. As far as distributors go, can you talk about coverage across the U.S. at this point that have exclusive distributors versus your legacy distributors? And where they're at as far as adopting SeaSpine across their businesses?

Yes. The distributor footprint is pretty similar to where it was earlier in the year, Matt, but we're starting to get the outsized growth from the more exclusive distributors, which is exactly why we made those strategic decisions in the past. We're seeing good growth, particularly in the Northwest, the Southwest as we move into new accounts. So as Keith said, we're going deeper in existing accounts, but as they hire additional folks, like in Texas, they're able to sort of spread out, go deeper in existing accounts, but also find new business. And the strength of the portfolio in having great flagship products like Shoreline and Mariner is a great opening discussion point to attract that interest, and then, ultimately, as they get more familiar with that, to kind of go deeper into the portfolio.

Makes sense. Last one for me. John, you were talking about the new sets that you're going to be introducing, can you give us a little visibility on number of sets or how that compares to this time last year? Because as we all know, that's a major factor as far as driving growth in the future.

Yes. Yes, so Shoreline and Mariner are where we're making the biggest bets. We launched with a little over 40 sets in the third quarter last year and the success of those products really being foundational to picking up new surgeons and distributors and expanding our business. We're increasing the number of sets for Shoreline and Mariner, for example, by about 20%. We're going to add another 20 sets or so for our Ventura line extension. So it's really starting to be across the board, but our primary focus has been on Shoreline and Mariner, just because of the success we've seen and how well that's able to attract new surgeons and distributors. So we're starting there, but plans to increase other of the NanoMetalene interbody sets as well.

Our next question comes from Ryan Zimmerman with BTIG.

So just wanted to follow up on a couple of questions Matt was asking. Can you just provide a little more color on -- the hardware was really strong this quarter. It's not something -- orthobiologics traditionally carried the growth for the company, and so just some more color on kind of what drove those gains specifically in the product category? And then your thoughts on the pull-through with your osteobiologics products, OsteoStrand and OsteoBallast? And how we should be thinking about those in the back half of the year?

Yes, it's again, it's Shoreline and Mariner led the growth, but as we rolled out the Ventura line extension, we're seeing good growth from that. The pull-through in the orthobiologics, we're continuing to see a shift in a smaller percentage of that orthobiologics revenue coming from distributors that carry competitive hardware. So that's still continuing a trend in the right direction and that's because the more that -- newer, more exclusive distributors we bring on board tend to carry both portfolios from day 1. And as I said earlier, that's where we're getting that critical mass of revenue growth that's starting to move the needle. Most pronounced on the implant side, but also as they pull through, orthobiologics revenue as well.

Yes, I think also, Ryan, just keep in mind that the orthobiologics, these are new products that haven't -- the orthobiologic group and specifically us have not launched a new product in that category for 7 years or greater. And so there is some process that still has to go on, as the product continues to get traction, of getting on contract and getting into hospitals, because it is a new product in the orthobiologic portfolio and all of that just kind of takes time to get traction, right? So we're actually really pleased with still the continued strength of the traditional DBM product portfolio and are really encouraged, because we continue to knock down getting the new products on a pricing formulary at hospitals. So I think you'll start to see that momentum pick up as we close the year and head into '19.

Very helpful. And then I think you mentioned, you called out, that you have an international distributor in Asia Pac coming on board later this year, maybe sooner than -- in the next few months, I don't know. But just your thoughts or cadence of what we can expect on international distributors, maybe looking out a little further out? And kind of where you want to take your international business over time?

Yes, so the biggest opportunity I think we had mentioned on previous conversations, calls, was we need to have better penetration in Australia. Australia is a very robust spinal implant market, it has common views, if you will, and philosophies to what we do in the U.S. and even some of what we do in Europe. So that was a logical expansion for us. As we move forward, there's a couple of things going on that will happen internationally. There is more and more products that will become available, thanks to regulatory approvals and CE Mark-ings for our products. So Europe will continue to expand. We'll be able to go deeper with those distributors with new products. And then we do -- we'll continue to have a cadence both in South America and Europe moving forward into '19 with additional expansion opportunities. So we feel like now that the new product lines are getting good traction. We're also able to get regulatory approvals in different countries and that's going to enable us to offer new product lines there as well.

Our next question comes from Craig Bijou with Cantor Fitzgerald.

Again, I will -- I just want to start with in the quarter, I know you brought on some distributors. So any onetime items or unusual items that you would characterize in -- embedded in the growth during the quarter?

No, I think what you're seeing, especially in the spinal implant line, we had kind of messaged that a couple of things go on when you bring in an exclusive aboard, right? The first step is making sure you're engaging them on the education opportunity, getting them up to speed on the products, but additionally, they're getting up to speed in their territory as far as hospital approvals and what-have-you. And I think what you see in the second quarter is our larger distributors starting to get real traction now. And you're starting to see more experienced reps that are part of those exclusives that are now very focused on our product line. And so the areas of greatest lift for us were those areas that we had the greatest focus and distributer attention and time.

Okay, that's helpful. Just a bigger, maybe a bigger-picture question on the distributors. So obviously, you're bringing on a lot of new ones, you're reenergizing some of the old ones that you had. What kind of insurance is explicit, implicit, or commitments, are you getting for -- or from the distributors that they may be willing to invest for the next several years, as you guys go through your product cycle and launch new products? Any color on what commitments you are getting from them?

Yes, I think it's both mutual commitments. I mean, part of bringing aboard an exclusive, they want to know that this really is a partnership and what we want to know is that when we think about investing in the business, what are they doing to commit to hiring the number of new reps that can drive the business and what is their commitment to the education and training process as well. And so I view it, I guess, more as a 2-way street than just getting commitments from them. Part of it is, we do sit down, explore their business plan. We're obviously always trying to push to bring more reps on earlier than later, right? I think that we all know of the time lag that's out there, that we want to get those aboard. And our best partnerships and distributors are the ones that are investing early and getting those reps aboard. And that's where we've seen, I would think, the success in the second quarter was largely driven by those groups that are willing to make that investment.

Got it. And with the growth that you guys expect to exit the year, high single-digit, low double-digit, wondering if you can maybe -- do you still see that as a longer-term level of growth that you can do for the next couple of years? And then maybe if you can break down or give whatever color you can on spinal implants or orthobiologics, U.S. versus OUS, when you think about that level of growth?

Yes, so we do. We're very focused that the product portfolio, how we're approaching innovation, what our next strategic steps will be, will ensure that we can maintain this high single-digit, low double-digit growth rate. Our hope also is that as these new products continue to be generated, that we have the ability to launch them OUS as well. And there's a number of opportunities of further penetration OUS. I'd like to see that OUS business starting to approach 15% to 20% and getting a higher growth rate, but to do that, it's going to be more significant investments that will come in later years for the organization. I don't view that as something in '19, per se. But I would like to see it maintain at least 10% and then grow out to 15%, 20%, as we get into '20, '21.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann.

So first thing, John, could you put on a little bit more color as far as margins and what you may expect for the back half of the year? I know you've got a fair amount of innovations going on, on both product lines, but any further clarity on hardware versus biologics on the margin side?

No, I think the same themes as we've sort of talked about in the past are continuing. We were intentionally cautious in the middle of the year because of some excess and obsolete inventory charge risks from all of the new product launches on the implant side, which we think is a good thing for the long term, right? Because we're continuing to launch new products and strategically, sunset the legacy systems that creates those E&O risks. And on the orthobiologics side, we continue to ramp up production of the new Fibers and Ballast products and we know that there is a learning curve. We're manufacturing all those products in our Irvine manufacturing facility, so it's great to control the development and manufacturing and add capacity to that site. But we know that, that ramp-up, particularly as Keith mentioned, we haven't launched a home-grown new product in 7 years in Irvine. So it's something new for them and they're excited by the challenge to be able to produce a new growth-oriented product in the orthobiologics side and we just want to be cautious, knowing that there is a learning curve, when you're making a dramatic shift like that, as we continue to manufacture the legacy portfolio but also shift our focus and attention to the Fibers and Ballast products going forward. But really, no change in terms of the expectations for this year or even the longer-term expansion, which we think will be driven by the gross margins on new products, but also increasing the volume going through that Irvine site as we ramp up the newer products' production.

Okay, got it. And could you provide a little bit more color, you talked about some more Mariner sets getting out there. Can you talk about the robotics and navigation? Are you seeing pulling from that side towards your products? Or you're seeing that the hardware is pulling the navigation and robotics in, at least for users? And any further color as far as thoracic or cervical or both would be great.

Yes, so the first question on -- I don't think either is pulling. I think there is a number of hospitals in larger settings that have big degenerative practices or big degenerative care facilities, and they are requiring, or at least some of the surgeons are requiring that it's compatible with what they already own, right? So that's what we were referring to in the call, was the ability that we do have compatibility with our instrument sets with leading navigation systems, so -- and we'll continue to do that, it will be a continual process, as we want to keep expanding in different areas, we might be faced with them having a proprietary navigation system or a specific navigation system that we have to be compatible with. On the point of -- you're saying on the point of Mariner moving into deformity? Was that the second part of the question, Jeff?

No, just -- yes, and also just any further general clarity on cervical or thoracic, strengths, weaknesses in other areas?

Yes, I think what we're seeing is part of the investments for both Shoreline and Mariner are -- they've been very good launches, they've had good momentum and we also want to enable the -- as we mentioned, the partnerships we're having with our distributors, give them great confidence that they will have sets available as they go out and try to procure new business. I think one of the sticky points with many distributors and distribution channels are they have a fear of bringing on a new large surgeon and whether they can be supported. And so we feel it's our obligation in this partnership to make sure that for those distributors who have a clear plan of how they want to advance and grow the business, that we're committed to them to park sets so that they can do that.

Our next question comes from Swayampakula Ramakanth with H.C. Wainwright.

I have a couple of questions. The first question is just on your guidance and how you view the rest of the year from here. If I look at what you have reported so far for this year and look at the future, look at the guidance, it looks like you kind of assume the similar growth rate, what you had seen last year year-over-year and have remained conservative, which I can understand. But at the same time, the situation is quite different at SeaSpine now, that you have -- you have a different profile of distributors and you have a different set of products, your momentum is quite better than what you had witnessed so far. So I'm trying -- already 1/3 of the quarter is done. So what's kind of -- what is it that you folks are seeing that we outside the company are not able to see? I'm not talking just only within the company, are you seeing something in the industry that's making you feel, let's wait and watch, why rush in and be bullish about ourselves for the rest of the year?

Yes, RK, I hear what you're -- the direction you're taking it, but I think it really goes back to the question when we first kicked off the call and that was, third quarter, if you look back over the last decade, third quarter has been a challenging seasonal quarter in spine. And I think you can even look back and point out a couple instances where in addition to it being a seasonal quarter, it also sometimes adds natural disasters and other challenges that fall on it. And so our intent was to kind of look at that, be conservative in the stance of how we get through the third quarter. We're still extremely bullish on the fourth quarter. We understand the uptick in the fourth quarter. We also understand the overlap of that uptick with what we had going on from a distribution perspective, what we had going on from a product launch perspective, post NASS, the biggest meeting of the year coming up in September. And we just wanted to make sure that we had a thoughtful progress in third and fourth quarter. And with that, we certainly feel like the third quarter call will give much greater clarity to how the year is closing up and will give much greater clarity to what that range should be.

Okay. And then a question on orthobiologics. Certainly, it seems to be growing in the right direction and giving you quite a bit momentum. So what are the pulls and pushes from this segment in the second half -- not only just in the second half, but also how you see yourself for the next couple of years? Because I would think this is a place where you're spending some energy just to build that portfolio up.

Yes, so what we have been, certainly, very aware moving into this launch, was making sure that DBM, the traditional DBM franchise that we have is a very strong franchise and so our focus with our distribution channel, our focus as an organization has been wanting to maintain as much as that business as possible and really use these new product launches to gain additional business and go deeper in accounts, right? So the idea wasn't to have these new products necessarily completely obsolete the products that are doing so well, but instead, it's our opportunity to go after additional business, to go after other biologics competitively. We feel like the Strand material is so good and has done so well in the studies that we have the ability to go after premium orthobiologics at a much more competitive price. And so with that, we also have the task of getting these orthobiologics onto contract and getting them onto the hospital pricing. And that does take time. Sometimes, it can be weeks and sometimes it can be months, but it is a process to submit new products for pricing. And so we're doing both of those as we speak, which positions us really well, I think, for a strong fourth quarter and good momentum into 2019. So the second half of your question, how it plays out, is once we have those contracts, once we have it in hospitals from a pricing perspective, we have a much greater ability then to compete head to head, I feel, with the premium orthobiologics space and we'll be able to offer it at a more cost-effective price.

The last question from me is just on the other business, the spinal implants. It certainly seems to be benefiting from the increasing exclusive distributor relations that you have developed. Could you tell us like what percent of all your distributors are exclusive at this point? And is there some optimal number that you need to get to so that you can maintain and also grow the market share that you're enjoying at this point?

Yes, the overall number hasn't changed dramatically from where it's been. I think we're around 15 or 16 at this point, and they're getting close to representing half of the revenue on the spinal implant side. And really, there is no magic number. We want to continue to add to the white space and bring on those near exclusive distributors who carry both hardware and orthobiologics, continue to reengage some of our longer-tenure distributors and try to push them in the direction of becoming more exclusive. And again, as Keith said before, it's a mutual investment in each other. We're going to continue to launch the innovative new products and we're looking for more exclusivity. But there's no magic number, we just know that we want to continue to add that dedication to get the sustainability of revenue growth and we're pleased with the results of the strategic distribution changes we made over the past 3 years. Because in prior years, they definitely cost us near-term revenue, but it was about the longer-term revenue growth. And that's where we find ourselves now that we've kind of worked through those headwinds of the legacy distributors we moved away from and the newer, more exclusive distributors had that critical mass of revenue that's not only driving growth, but I think serves as a good foundation for sustaining that revenue growth moving forward.

At this time, I'm showing no further questions. I'd like to turn the call back over for closing remarks.

Thank you, everyone, for joining us today, and have a great evening.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.