Carrie Mendivil – Investor Relations Keith Valentine – President and Chief Executive Officer John Bostjancic – Senior Vice President and Chief Financial Officer.

William Inglis – Piper Jaffray Ryan Zimmerman – BTIG Jeff Cohen – Ladenburg Thalmann Swayampakula Ramakanth – H.C. Wainwright.

Welcome to SeaSpine’s 2018 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Following the management’s prepared remarks, we will hold the question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today, May 3, 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 first quarter ended March 31, 2018.

During this conference call, we will make forward-looking statements within the meaning of the federal securities laws in regard to our business strategy, expectations and plans, our objectives for future operations and our future financial results and 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 projections and reflect our belief based on current information and speak only as of today, May 03, 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 our news release 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 will now turn the call over to Keith Valentine.

Keith?.

Thank you, Carrie. Good afternoon, and thank you all for joining us. 2018 is off to a strong start with growing sales from recently launched products, further market penetration from our engaged and increasingly exclusive distributors and a deeper commitment to customer experience and surgeon education and training.

The momentum we built across both product portfolios at the end of 2017 has continued into 2018, and we have now seen year-over-year revenue growth of 4% for each of the past two quarters.

We are well positioned to accelerate our top line growth rate and are reiterating our expectations for revenue in the range of $135 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 implant systems with industry-leading orthobiologics, which, 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 in 2018. Turning to our first quarter performance. Total revenue was $33.2 million, up 4% versus the year-ago period. This marks the first quarter since the spin-off that revenue in our orthobiologics and spinal implants portfolios grew both in the U.S. and internationally.

U.S. revenue increased 3.2% to $29.5 million in the first quarter of 2018, with U.S. orthobiologics increasing 4.9% to $15.8 million and U.S. spinal implants increasing 1.4% to $13.7 million. International revenue totaled $3.6 million, up 10.8% over the first quarter of 2017.

Orthobiologics growth was led by existing distribution, while spinal implants growth was led by market expansion via a new distributor in the Asia Pacific region. In the U.S., our orthobiologics portfolio posted another solid quarter of revenue growth that was led, once again, by our DBM franchise.

We delivered on our commitment to move the OsteoBallast DBM in Resorbable Mesh to full commercial launch in April, and we remain on track for the full commercial launch of the OsteoStrand fibers-based DBM product by midyear.

The initial feedback from surgeons and distributor partners participating in the limited launch of both products has been overwhelmingly positive.

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 solution with improved clinical outcomes. We expect them to drive accelerating revenue growth in our U.S.

orthobiologics portfolio in the second half of 2018, with additional long-term gross margin expansion via increased capacity utilization of 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.

for many of our recently launched spinal implants is now outpacing the declines in the legacy systems they replaced. Revenue from these recently launched products, which include our flagship modular Shoreline and Mariner Systems, comprised 45% of U.S.

spinal implants revenue in the first quarter of 2018 compared to only 24% for the first quarter of 2017. In addition, a larger portion of the U.S. spinal implants revenue is being generated by a more engaged and increasingly exclusive distributor network.

We are 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 tenure distributors with whom we have reengaged.

The favorable result of this more effective collaboration with our distributors, combined with the increasing market penetration of our recently launched spinal implants and orthobiologics products, and the potential from the new implant system scheduled to be launched later this year, gives us confidence that we will exit 2018 with sustainable, high single-digit to low double-digit revenue growth in the U.S.

We are also on track to reach our goal of generating 50% of U.S. revenue from products launched within the past four years by the end of 2018. To that end, I will provide some color on the recent upcoming spinal implant launches that we believe will contribute to this growth in 2018.

During the first quarter, we updated the offering of our Spinous Process Fixation System to include flared and large-sized implants and new instruments to accommodate a wider range of anatomy and procedures.

We are now one of the very few spine companies to offer multiple plate options and a specific design for L5-S1, which is one of the most commonly treated levels. By the third quarter, we expect to launch new instrumentation design for the use with one of the most frequently used third-party cervical navigation systems.

As computer-assisted surgery becomes more ubiquitous, especially in treating programs, surgeons are increasingly using these navigation systems for their procedures. Following this launch, we will have the ability to access many more hospitals and health care systems than were previously available to us.

We also plan to launch a number of line extension in late 2018 and early 2019 that leverage our core modular Mariner Pedicle Screw System technology, including full launch of new implants and instruments to address the demands of larger, more complex cases and an alpha launch of a midline cortical screw system that addresses one of the fastest-growing MIS procedures.

These extensions will further develop the Mariner brand as it accommodates a wider variety of approaches and techniques. We also expect the full launch of our REGATTA lateral implant and instrumentation system in the third quarter of this year.

The REGATTA lateral system will leverage our proprietary NanoMetalene technology in combination with an intuitive and efficient instrumentation and retractor system. The surgeon and distributor education and training component of this launch will be critical to its success, and we plan to invest significant time and resources in that effort.

Also launching in the third quarter will be a newly designed comprehensive posterior decompression and disc preparation instrument system.

These instruments will not only support the use of our recently launched Ventura NanoMetalene lordotic PLIF and TLIF interbody implants but will also be used in surgeries that use our Skipjack expandable posterior interbody device. We also expect to broaden the commercial launch of Skipjack in late 2018.

Skipjack, which went into alpha launch in mid-2017, provides expansion in lordosis or height to provide anterior column support tailored to the needs of each patient. The Skipjack product has been a significant improvement to our existing product offerings.

We are incorporating valuable surgeon feedback and intelligence gained from the alpha launch to drive appropriate design changes to the implants and instruments.

We expect the Skipjack system will position us well to capture share in the expandable market, which is projected to grow faster than the overall interbody market over the next several years. As I stated in the past, our surgeon-centric product development helps ensure that our procedural-based offerings meet the needs of surgeons and the patients.

Our focus on innovation and clinical value, coupled with our increasing investment in medical education and training, is further positioning SeaSpine as the spine company of choice amongst both surgeons and distributors.

We are confident that as we continue to expand our product portfolio with well-supported commercial launches, we will take meaningful market share in 2018 and to 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 it up.

John?.

Thank you, Keith, and good afternoon, everyone. As Keith noted earlier, total revenue for the first quarter of 2018 was $33.2 million, a 4% increase compared to the prior year. U.S. revenue increased 3.2% to $29.5 million, while international revenue increased 10.8% to $3.6 million. U.S.

orthobiologics revenue increased 4.9% to $15.8 million and was once again led by growth in our DBM franchise. U.S. spinal implant revenue increased 1.4% to $13.7 million and was led by growth from recently launched products.

We expect growth from these recently launched products and those that we plan to launch in 2018 to continue to outpace continuing declines in price and usage of our legacy systems.

However, for the second quarter of 2018, we still expect this shift to be somewhat muted by further revenue declines from certain lower-performing legacy distributors that is a byproduct of the strategic and more committed distribution adds we have made in the past 24 months.

Gross margin for the first quarter of 2018 improved 460 basis points to 63.3% compared to 58.7% for the same period in 2017. The increase was mainly driven by raw material cost saving initiatives and lower cost to manufacture our orthobiologics products as we continue to increase capacity utilization at our Irvine facility.

Operating expenses for the first quarter of 2018 were $28 million, a slight increase compared to $27.8 million for the same period of the prior year.

R&D expense decreased slightly to $2.8 million for the first quarter of 2018 or 8.4% of revenue and is in line with our expectations as we continue to invest in product development programs and in clinical evidence to differentiate our complementary DBM and NanoMetalene platforms.

Selling, general and administrative expenses increased approximately $500,000 to $24.5 million for the first quarter of 2018.

The net increase was driven by higher sales and marketing costs for additional headcount and program spending to fund our expanded medical education and training organization and product managers to support the successful launches of the many core products we launched in 2017 and plan to launch in 2018 and the cost associated with our very successful global sales meeting in February.

These increases were partially offset by lower general and administrative expenses related to stock-based compensation and audit and legal fees.

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 first quarter of 2018 was $7.1 million compared to a net loss of $9.1 million for the first quarter of 2017. Cash and cash equivalents at March 31, 2018, totaled $12.5 million, and we had no amounts outstanding under our $30 million credit facility.

Our net cash burn, which excludes financing inflows and outflows, was $6.3 million in the first quarter of 2018 and was driven by increased investments in orthobiologics inventory to support the full launches of recently introduced products and from the path of 2017 bonuses.

Recall that in 2017, the senior management team took bonuses for 2016 performance that were paid entirely in equity in order to preserve cash.

We remain focused on reducing cash-based general and administrative 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 first quarter of 2018, we raised $8.5 million in net proceeds through the sale of approximately 882,000 shares of our common stock under our ATM program, which closed out the $25 million capacity of that program.

We will continue to aggressively deploy our capital in 2018 to ramp up production and inventory of our recently launched orthobiologics products as we continue to transition all of them to full commercial launch to support the launch of new spinal implant systems that Keith spoke out earlier and to further invest in more inventory and sets of our Mariner, Shoreline and other foundational spinal implant systems launched in 2017 that are so critical to attracting and onboarding additional new distributors and the surgeons they support.

This increased level of investment is expected to a be critical driver to achieve the anticipated revenue growth acceleration in the second half of the year. With our cash currently on hand and ready access to additional cash via our unused $30 million credit facility, we believe that we are sufficiently capitalized for at least the end of 2019.

Additionally, ATM programs are increasingly viewed as good corporate housekeeping, and we value the efficiency with which we can raise additional capital to finance opportunistic investments that will accelerate revenue growth. Turning to our financial outlook for 2018.

We continue to expect full year revenue to be in the range of $135 million to $139 million, reflecting growth of 2.5% to 5.5% over full year 2017 revenue. While we are not providing quarterly guidance, we anticipate that revenue growth in the second half of 2018 will outpace the first half.

We continue to expect low single-digit revenue growth in the second quarter and to exit 2018 with high single-digit to low double-digit revenue growth.

And while we expect international revenue to increase in the mid- to high-single-digit range for the full year, we remind everyone that those sales can be volatile from quarter-to-quarter due to the nature and timing of the large stocking orders from our distributors, and the second quarter of 2018 faces a particularly tough comp year-over-year.

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, with both of the past two quarters exceeding 63%, we remain cautious for the remainder of 2018.

The multiple spinal implant product launches will likely drive higher excess and obsolete inventory charges in the second half of the year, and we expect a short-term increase in manufacturing costs as we worked through the inefficiencies in learning curve associated with the manufacturing ramp of the new orthobiologics products.

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

At this point, I would 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 are poised to be more of a market share taker in 2018. We have a terrific team assembled here at SeaSpine, and 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 surgeon and hospital to improve the quality of patients’ 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 in order to further accelerate revenue growth in 2018 and beyond. We look forward to updating you on these initiatives on future calls.

With that, we will now open up to questions.

Operator?.

[Operator Instructions] Your first question comes from the line of Matthew O’Brien with Piper Jaffray. Your line is open..

Keith and John, this is Will on for Matt. It’s a great quarter..

Thanks a lot, Will..

Hey guys. First question, with the U.S. spinal growth, this is really some of the best growth we’ve seen in a while.

Aside from Mariner and Shoreline, are there any other dynamics that you could elaborate on such as case volumes? Any pricing pressures that were maybe less than what we’ve seen with competitors?.

Yes. Well, we’re seeing the same low single-digit pricing pressures that we’ve seen historically on the hardware side. I think the strength of our newer portfolios has helped mitigate the pricing declines. And then the volume growth in procedures has obviously outpaced that price declines.

And you’re right, it’s Shoreline and Mariner that are leading the charge, but it’s pulling through – the success of those products is pulling through other products as well as we add new distribution and surgeons with the other products we’ve launched recently..

Great. And then with the healthy gross margins in the quarter, I know you attribute that to raw material savings. But just going forward, I think in your original guidance, you talked about building out a little bit of a buffer.

How should we think about that going forward as you kind of ramp up the orthobiologics manufacturing in Irvine?.

Yes. I think the middle part of the year, so Q2 and Q3 will probably be the lowest quarters of gross margin within the guidance range we gave. And then by the fourth quarter, that’s where, I think, we hit the top of the ramp in terms of the learning curve of the production of the new orthobiologics products.

And they’re in full commercial production, and we’ll probably work through any of the risks that come with the recent and new upcoming spinal implant product launches that are likely to hit in the middle of the year..

Great.

And then as far as the REGATTA lateral NanoMetalene system you were talking about, can you maybe elaborate on that a little bit in terms of timing? And is some of your medical education and training resources going to be devoted towards kind of building up that part of the hardware business?.

Yes. So we’re looking at a third quarter launch. And you identify, I think, a very important kind of simultaneous group that has to work together in that launch, and that is the training side, because it’s not only surgeon training, it’s also distributor-based training.

I think as many are aware, lateral surgery has a higher requirement when it comes to being more consultative, if you will, in the OR, with not only knowledge of your product but also knowledge of the procedure.

And so we want to make sure, we’re making the right investments in the education side for that launch and especially for getting our distributors ready for kind of kicking it to a new ground, if you will, from being consultative in the OR with their customer base and surgeon base.

But what we’re excited about is we’re going to have flexibility, if you will, with sizing, with angulation, with obviously the proprietary NanoMetalene technology.

And so we’re very excited that we think that this, coupled with the data we have on strand and how we’re going to be launching strand, that this is a nice synergy for cost-effectiveness and a nice synergy from a clinical utility..

Great.

And then the posterior instrumentation system, I apologize if I missed this in opening remarks, but what exactly is in that system?.

Are you referring to the comments on Mariner, Will?.

Oh, maybe that was it. That was it.

Is that going to be MIS?.

Yes. So there’s going to be increased utility for the system as we get into different options for complexity, so for deformity cases or shorter deformity cases and then, also, working towards late year on MIS option, which is the cortical screw offering.

And we also mentioned about Skipjack, too, in posterior disc that supports it – yes, in the posterior disc prep that supports Skipjack and supports the interbody and NanoMetalene options..

Okay, great. Thank you..

Yeah..

Your next question comes from the line of Ryan Zimmerman with BTIG. Your line is open..

Great. Thanks for taking the questions. Just the cervical navigation system, I want to talk about that a little bit. It sounds like third quarter is really going to be a big quarter for products. I expect some big debuts at NASS.

But can you just talk about that interplay and what you’re getting with that and the ability to access more hospitals and systems? And does it also give you access to a broader distributor network? Does your distributor get to work with that? How should we think about that?.

Yes.

So are you referring to the navigation system launch, not cervical but just how we’re looking at that posterior opportunity?.

Yes. Excuse me, I maybe have misheard cervical..

Yes, yes, no worries. Yes, so – yes, I think maybe you’re aware that – to – you have to work with the FDA and their certain testing parameters to make sure that your instrumentation and your implants are compatible with these existing technologies in the OR and already purchased by the hospitals.

And so we’re going to have that ability as we move forward. We’ve done the work. And we’re going to have that ability to be able to actually have indications for use with the system. And that does give us the ability now, and our sales force the ability, to sell in those accounts in a different way and to sell it on label, if you will.

It’s clearly a 510(k) that we’ll be getting on that procedure. So it does open up some doors at hospitals. It also gives us a different opportunity with some distributors who have more of those systems in their accounts or territories.

And it gives us the ability to expand and talk with distributors about a partnership because we do have access to that technology..

Great. And then just anecdotally, you’ve got a lot of new biologics products out there.

I mean, what’s the feedback then? What’s it replacing? And what percentage, if you can quantify, you think you’re winning in somewhat of a competitive nature?.

Yes.

So we’re very excited from the perspective that if you look across the biologics space, you look at – one of the challenges that has been hit or miss over the years is where the reimbursement or even hospital pressure comes for – whether it’s the higher-cost orthobiologics that are pushed back either from hospitals trying to control costs, but there’s enough insurance companies across the country that have different views on different premium technologies, whether it’s the cell base or whether it’s something like BMP.

And so we feel fortunate that the investments that we’ve made are all in the DBM space. That DBM space has no insurance pushback. It has – it’s accepted on all of the insurance formulas, if you will, or algorithms.

And further, we also feel very comfortable that what we’ve done from the ground for on the strand technology, that we have something that can be cost-effective but clinically very comparable to what people are presenting and showing on the premium orthobiologics space.

So we think we’re going to be able to bridge a very important segment of the market. Now to the second part of your question, I believe, was, how do we view that with our existing technology? Obviously, we do think that there will be some cannibalization, but we know it’s going to be broadly market expansion.

And obviously, we’re getting into and approaching a full launch. So we’re going to have to be very thoughtful. But one thing very clear now that we have is we have four different products that can compete in different price categories within the marketplace, and I think that also gives us a strategic advantage.

We have the ability to be aggressive in the larger buying groups, and we also have the ability to be aggressive where folks are trying to think about a more cost-effective orthobiologic, but one that has similar clinical utility. We’re really approaching, I think, a very important expansion opportunity with this DBM new introduction.

Not to mention, we have a lot of excitement in and around our Ballast technology and how we’re approaching it with a contained bag of 100% DBM chips. So there’s – it’s an all inductive opportunity for us..

Got it. Thank you guys for taking the questions. Congrats on the quarter..

Yeah..

Thank you..

Your next question comes from the line of Jeff Cohen with Ladenburg Thalmann. Your line is open..

Keith and John, how are you?.

Good.

How are you?.

Good, Jeff..

Just fine. So just a few points I want to get some further clarification on. I guess, you both spoke at different points about high single-digit, low double-digit growth, and obviously, you guys currently configured your $135 million, $139 million guidance, coming in, call it, 5% to 5.5% on the growth trajectory.

Were you referring to kind of the trajectory accelerating in the fourth quarter? I think estimates out there kind of have a jump up as you go from, call it, mid-single digits to high single digits. Or I should say, mid – yes, that’s right..

Yeah. The progression we expect, again, in the second quarter low single-digit revenue growth for the factors we cited in the call rate, some of the legacy – remainder of the legacy distributor network has been a bit of a headwind, but the strength of the new products and a new distribution has what’s been, obviously, generating that growth.

And as we get to the back half of the year, those legacy distributor headwinds aren’t as material an impact as they were in the first half of the year. So I think that creates some of the upward acceleration on the spinal implant portfolio.

Because the new products and new distribution have been performing so strong without those headwinds, we get that acceleration. And in the orthobiologics side, right, we’ve added a lot of distribution in 2017, and we get the full commercial launch by midyear of both of the new technologies.

And that gives us the revenue ramp opportunity for orthobiologics in the second half of the year..

Okay, got it.

And then as you mentioned the orthobiologics, as far as the fibers, the strands that are going into a full launch midyear, what does that stand now? So you essentially have an alpha launch? Should we think of that as 10, 20, 30 users currently? And how does that roll out? And when you say midyear, you mean June, July-ish, I’m assuming?.

Yes. Probably more like a limited launch, because it’s not really – alpha often implies you’re evaluating both the implant and the instrument side often when we use alpha.

So we’re looking that the biologic has been more of a limited opportunity and largely as – I think John mentioned in his comments, because we’re ramping up in manufacturing and we’re also making sure that we have the right process in place to start full production.

And yes, just as you categorized it, number of users, and that’s expanding to the entire United States from an availability perspective. Now some of this will have to get onto – pricing onto accounts. So our standard, particularly DBM, would be the option in those accounts until we have strand available.

And then in another area, strand will be fully available and ready to go in the territories that don’t require a more complicated pricing process..

Okay, got it. And then last, I was wondering if you can give us any kind of color on what you’re seeing in the marketplace as far as strength of areas and procedure in areas from cervical to thoracic and lumbar.

What are you seeing as far as your product portfolio both on the hardware side and as much as you can tell on the biologic side and what procedures you’re kind of driving, where you’re seeing the most gains and the most gains as far as yours as well?.

Yes. It’s really around the new product categories. We’re obviously enjoying some nice momentum in the bread and butter spaces of the degenerative market of cervical and lumbar, and that encompasses, too, our new Nano implants that have been launched also. And I think that especially the Shoreline system has – had a very nice ramp.

I think the simplicity of the instrumentation and the ability to have choices intraoperatively between whether you want to attach a plate or not has been a very significant selling feature for us on – with our distribution team and launching it. So it does follow along pretty consistently with the new product launches.

I think the other thing that’s been extremely helpful is there’s more and more data that we’ve been able to get out there, and NASS was part of that data discussion on synergy of our systems in the use of DBM, along with our implant systems. And so that is also – we’ve seen nice synergy with single surgeries of both products being used..

And the Shoreline and Mariner products, obviously, have been on the market longer, so they’re going to be able to drive most of the results. But it’s only been one quarter. But we’re really encouraged by the Ventura NanoMetalene, the new lordotic footprint that we’ve launched at the end of 2017.

So just one quarter in, it’s really revitalized the posterior interbody franchise. And I think the opportunity to enhance that with the decompression and disc prep instrumentation system we’ll launch later this year is yet another new product launch that, I think, can drive volume..

And can you talk about Ventura a little bit? Now that you mentioned it, what areas are you seeing strength in of the spine and number of kits out there? You’re in a full launch, right? You’re in Q2 of your full launch?.

Yes. That launch at the end of 2017. So Ventura incorporates the NanoMetalene technology. It’s the posterior interbody. So it can be a PLIF or a TLIF..

Yes, I think it’s kind of the classic evolution, that, at first, you may remember from a couple years back, we were working really hard just to upgrade our all PEEK implants to incorporate the NanoMetalene technology, and now we’re hitting stride of making unique graphs, right, graphs that are really catered to new philosophies and the newer techniques that are out there, whether it’s sagittal balance and – or how they want to get lordosis and sometimes different oblique angles on the implants.

And so we’re excited. I think – we think this is a natural next step, but it also is new instrumentation. And so that instrument gets updated along the way as well. And I think you’re seeing it with the strength of the launch..

Okay, got it. That’s great. Thanks guys. Thanks for taking the questions..

Thanks, jeff..

Thanks..

[Operator Instructions] Your next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Your line is open..

Thank you. Good evening, Keith..

Hi, RK.

How are you?.

Just a couple of quick questions. From the commentary so far, it seems like the risks are going to be a little bit of a play in your operating margins going into the rest of 2018.

So at a high level, if you can help us understand how you are managing some of these cost lines that could potentially provide you an upside to your bottom line?.

So the gross margin expansion, right, we talked about the past two quarters has been a good sign that we’re getting return on investments we made in the Irvine facility to make that a much more dependable and reliable and efficient production site.

So as I indicated before, by the fourth quarter, I think we get back to that ramping gross margin opportunity to provide some leverage, and we’ve got the learning curve of the new orthobiologics production ramp-up and the excess and obsolete inventory risks from the new spinal implant products that will be a bit of a damper in the middle of the year.

And on the OpEx side, the leverage we’ve got there is continuing to reduce our G&A spend as a percentage of revenue. But we’re selectively redeploying those savings into more product development, sales and marketing initiatives, like the surgeon education and training and product managers, to support the many product launches.

So while there’s some leverage opportunity in 2018 on the bottom line compared to 2017, as we said in the call, we’re still planning on reinvesting or redeploying a good chunk of those G&A-type savings and gross margin leverage into the revenue-driving activities, like sales, marketing, development.

In a working capital perspective, deploying that capital or those savings in inventory because we need to support the investments with that ramp-up of the orthobiologics products so we can get all of them into full launch by midyear and having those escalated inventory levels, in addition to the normal levels we have on the legacy DBM portfolio as well..

In the long term, I just start revamping your product line and also adding new distributors that are coming onboard.

How should we think about the growth rate in revenues, say, three, five years down the line?.

Well, I think we’ve been focused on giving the guidance of how we want to exit 2018, right, in the high single-digit, low double-digit range, and we want that to be sustainable.

So the investments we’re making in continued product development, commercialization of additional sets of the more successful products we brought to market, like Shoreline and Mariner, over the past year and then the continued investments in rebuilding our distribution network, reengaging some of the longer-tenure distributors who are investing for growth in their business, the new distributors we brought on board recently, the pipeline of new distributors that we’re managing to bring on board.

That’s where – all of those activities, right, are going to combine to give us the long-term sustainable accelerated revenue growth that we plan to exit 2018 and carry forward in the 2019 with..

Yes, I think, RK, too, you need to look at it, that this will continue to be a process that I see – envision us even through 2020.

We’re going to continue to be working towards better partnerships, more exclusive relationships, balancing and supporting it not only through new product introductions, but how we fold the new technologies into the portfolio. I think it has to be a very intimate relationship, and that will continue.

It’s not something that we feel like we’re done in 2018 doing. It’s going to be a continued process through 2020..

There are no further questions at this time. I will turn the call back over to Keith Valentine, CEO..

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

This concludes today’s conference call. You may now disconnect..