Ladies and gentlemen, thank you for standing by, and welcome to the Orthofix Third Quarter 2019 Earnings Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Mark Quick, Senior Director of Business Development and Investor Relations. Sir, please begin..

Thank you, Operator, and good afternoon, everyone. Welcome to the Orthofix Third Quarter 2019 Earnings Call. Joining me on the call today are President and Chief Executive Officer, Brad Mason; Chief Financial Officer, Doug Rice; and incoming President and Chief Executive Officer, Jon Serbousek.

I'll start with our safe harbor statements and then pass over to Brad. During this call, we'll be making forward-looking statements that involve risks and uncertainties.

All statements, other than those of historical fact, are forward-looking statements, including any earnings guidance we provide and any statements about our plans, beliefs, strategies, expectations, goals or objectives.

Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matters contained in such statements will occur. The forward-looking statements we make on today's call are based on our beliefs and expectations as of today, October 28, 2019.

We do not undertake any obligation to revise or update such forward-looking statements.

Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risks disclosed under the heading Risk Factors in our Form 10-K for the year ended December 31, 2018, as well as additional SEC filings we make in the future.

If you need copies of these documents, please contact my office at Orthofix in Lewisville, Texas. In addition, on today's call, we'll refer to various non-GAAP financial measures.

We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these matters as a supplement to financial measures determined in accordance with U.S. GAAP.

Please refer to today's press release announcing our third quarter 2019 results for reconciliations of these non-GAAP financial measures to our U.S. GAAP financial results. At this point, I'll turn the call over to Brad..

Thanks, Mark, and good afternoon, everyone. I'd like to start by publicly welcoming Jon Serbousek to Orthofix.

It has been great to work closely with Jon over the last few months, and I strongly believe that he has the right experience, long-term focus and skill set to take what is a good company with a strong team, financials and products and build it into a great company.

On today's call, I'll start by giving you an overview of our third quarter 2019 performance, after which, Doug will discuss the financial results in more depth as well as our expectations for the remainder of the year.

Jon will then give you his thoughts and observations about the opportunities ahead for Orthofix, and I'll finish up with some closing thoughts. The third quarter had mixed results with positive highlights in Biologics and the M6 cervical disc rollout in the U.S. and challenges in our other businesses for various reasons that I will discuss in detail.

For the third quarter, we reported net sales of $113.5 million, representing a year-over-year increase of 1.6% or 2.5% in constant currency.

This fell short of our expectations for the full company for the period, primarily driven by disruption on our Bone Growth Therapies and Spine Fixation sales due to key management vacancies, delay of expected stocking orders in the Orthofix Extremities business, unanticipated currency headwinds and a longer-than-expected new CEO search process.

I will give you some additional color on each of these factors, starting with the Spine business. Last year, we made the decision to reorganize our 4 business units into 2, Spine and Extremities.

In the Spine business, we eliminated our Spine Implants and Biologics president roles and elevated our Bone Growth Therapy President to lead and consolidate these three businesses, along with the Spinal Kinetics products into one integrated business, including the functions of sales and marketing, operations, R&D, clinical, regulatory and order to cash.

In the middle of this significant transition, the employment of the president of the new global Spine business, who is executing this consolidation, was terminated. The VP of Sales for Spine Fixation also left the company at the end of the second quarter.

The integration plans being implemented were put on hold or slowed significantly, including the addition and onboarding of several large distributors, as well as plans for needed changes in operations, R&D and regulatory that delayed key product rollouts.

The uncertainty around the leadership changes and what to expect from new leadership also distracted the team and impacted sales in all of our spine product lines with the exception of Biologics and the M6-C cervical disc.

The team did a very nice job of keeping their focus on the launch of the M6-C disc in the U.S., which exceeded our expectations and is the most important driver of future growth for the company.

Additionally, Jon has already begun recruiting candidates for these vacant leadership positions who have the experience and skill set specifically needed to address the areas that require the most attention.

While this is a top priority, and we are attracting great talent to the recruiting process, we do expect to continue to see our top line in Spine impacted into 2020. The story in our Extremities business is much simpler. We have 2 large tenders s in our OUS business that we have anticipated shipping for quite some time.

We have the inventory on hand and orders in-house for approximately $2 million worth of products. But due to geopolitical uncertainty in these countries, we were unable to ship these orders in the third quarter. And given the uncertainty of the timing of when these orders can ship, we have now removed these sales from our updated guidance numbers.

Also, we had an unanticipated $1 million currency headwind in this business in the third quarter, which our guidance now reflects for the full year.

Lastly, while it's hard to quantify as much as we've tried to reduce the uncertainty around a change in CEO with employees and customers, it has been a distraction and led in some cases to the postponement of decisions and new hires that would have normally been implemented.

While it was a bit of a perfect storm this period, none of these issues are reflective of the core value proposition of Orthofix and the opportunity for growth and shareholder value creation. They are all fixable and in the process of being addressed.

As I just said a few minutes ago, I strongly believe that Jon is the right person to put this chapter in the rearview mirror and take the company to the next level. Moving on to segment results more specifically.

Orthofix Spine, which includes our Bone Growth Therapies, Spinal Implants and Biologics product lines, generated $88.1 million in sales in the third quarter, which represents a 3.9% increase in reported sales over prior year or 4% in constant currency.

Beginning with Bone Growth Therapies product line, net sales increased 1.6% in the third quarter versus prior year.

Based on this quarter's results and current trajectory, we have lowered our expectations for the full year 2019 to growth to 1.0% to 1.5% from 3% to 4%, which implies a year-over-year decline in the fourth quarter due, in part, to a difficult comparison.

In Spinal Implants, which includes both Spine Fixation and motion preservation products, we reported a net sales increase of 3.8% or 4.4% at constant currency compared to prior year.

These reported results were driven by a $1.3 million increase or 50.1% in constant currency from our motion preservation products, offset by a 2.4% constant currency decrease in Spine fixation products. For the full year 2019, we now expect mid- single-digit growth, down from high single-digit to double-digit growth.

Our updated Spinal Implant sales guidance reflects both the strength in M6 sales and the continuing softness in our Spine Fixation products for the remainder of the year, as I previously mentioned. On a positive note, U.S. sales of our M6-C cervical disc continue to go very well.

We have now trained over 200 surgeons, which has exceeded our rollout plan for the full year. As a reminder, there is typically a lag between when a surgeon is trained and when they start implanting the disc due to case timing and hospital approvals. As of today, trained surgeons have implanted approximately $2 million in U.S. M6--C cervical discs.

This remains ahead of our launch plan and continues to give us confidence that we will achieve our $3 million to $4 million full year U.S. revenue target. Another highlight of the quarter was the continuing strong performance of our Biologics business, which reported a sales increase of 11.4% compared to prior year.

As in the last several quarters, this performance was primarily driven by the contribution from new distribution added in the last year and the return to solid results in each of the 3 U.S. sales regions.

Based on this performance, we have raised our sales expectations for the full year for these products and now expect growth of approximately 10%, up from our previous expectation of high single-digit growth.

Lastly, in our Orthofix Extremities business, reported net sales in the third quarter were $25.4 million, a decrease of 5.6% or 2.4% in constant currency over the prior year.

Given the quarterly variability in this business, we believe the best way to continue to assess its performance is to look at the constant currency trailing 12 months year-over-year growth. On this basis, the Orthofix Extremities business grew 2.6%.

As mentioned, we have adjusted our guidance to reflect the additional currency impact and any possible further delay in shipping the stocking orders. With that, we now expect a low single-digit decrease, down from our previous guidance of flat to low single-digit growth. In summary, the third quarter had mixed results.

While we are very pleased with our continued strong performance in Biologics product sales and the trajectory of the M6 cervical disc in the U.S., several issues that I mentioned negatively impacted other parts of our business.

The good news is that we believe in the quarters ahead, this disruption will be addressed, and the momentum of the M6-C disc and the new leadership team that is being recruited by Jon will have a very positive impact on our future performance. Doug will now take you through the key financial metrics in the quarter and update our guidance.

Doug?.

Thanks, Brad, and good afternoon, everyone. I would like to start by also welcoming Jon to the team. He has already made a significant positive impact on our company. I also want to personally thank Brad for his tireless leadership.

I know I speak for the rest of our Orthofix team when I say how grateful we are for Brad's passion, for his high expectations of us and pushing us to achieve greater things, and lastly, for setting the stage for our next growth phase with the M6 and our marketing-leading Trinity and other product lines. We will miss Brad very much.

Moving on, I'll now provide additional details into our net sales and earnings results and then discuss some of our other financial measures. As Brad noted, total net sales for the quarter were $113.5 million, up 1.6% on a reported basis and 2.5% on a constant currency basis when compared to the third quarter of 2018.

The mixed top line results in the quarter also included currency headwinds in Extremities of approximately $1 million. Foreign currency headwinds have been stronger than expected this year, and we now expect as much as $6 million of impact for the full year, up from our prior expectations of $4 million.

With this additional foreign currency impact, combined with the product category sales guidance that Brad provided, we now expect net sales for the full year 2019 to be in the range of $460 million to $463 million, representing a reported year-over-year increase of 1.5% to 2.2% or 2.9% to 3.5% in constant currency.

For the fourth quarter, we expect reported net sales to be in the range of $121 million to $124 million, which implies a fourth quarter growth rate of flat to 3% reported and 2% to 4% constant currency. Gross margin in the third quarter 2019 was 78.1% compared to 78.5% in the prior year period.

For the full year 2019, we expect gross margins to be between 78% and 78.5%. Sales and marketing expenses were 48.3% of net sales in the third quarter of 2019, an increase over 44.7% in the third quarter of 2018. We continue to see this year-over-year increase due primarily to the extensive training and education programs to support the M6-C U.S.

commercial launch. The continued strong performance in Biologics has also increased our commission expenses due to overachievement of bonus commissions. With the expected outperformance in Biologics continuing for the remainder of the year, we now project sales and marketing expense in 2019 to be between 48% and 48.5% of revenues for the full year.

GAAP G&A expenses were 18.6% of net sales in the third quarter of 2019, down from 19.9% in the prior year period. This decrease was due primarily to lower strategic investments in the period relative to higher expenses associated with the Spinal Kinetics acquisition in Q3 2018.

R&D expenses for the third quarter were 7% of net sales, down from 8.6% in the prior year period due primarily to the higher regulatory spending associated with the M6-C PMA approval process last year. We expect R&D spending to be approximately 7.5% of revenues for the full year 2019.

I would like to point out that we are in the midst of our compliance efforts associated with the new European Union Medical Device Regulations and the pending 2020 and 2024 deadlines. We have incurred $600,000 of related expense through Q3 2019.

Like many of our peers, since these initial compliance expenses are not expected to recur and will vary depending on the timing of the underlying activities, we will be adjusting these implementation costs out of both adjusted EBITDA and adjusted EPS going forward.

Moving on to acquisition-related expenses, as a reminder, we have potential remaining revenue milestone payments related to Spinal Kinetics of $15 million and $30 million that are payable upon achievement of trailing 12-month worldwide revenue of $30 million and $50 million, respectively. Based on the initial success of the U.S.

launch of the M6-C, we updated our long-term sales forecast during the third quarter. And as a result, we recognized $22.3 million in charges in the third quarter related to the remeasurement of the revenue-based milestone payment liability associated with the Spinal Kinetics acquisition.

We have now accrued $41.7 million of the potential $45 million total milestone payments. Moving on to other expense.

We recently entered into a letter agreement with eNeura to settle our restructured debt security investment for $4 million in cash, resulting in the recognition of a $6.5 million other expense charge associated with further impairment of the eNeura debt security investment during the quarter.

Pursuant to the terms of our letter agreement, we have already received the $4 million payment, which concludes all transactions related to eNeura. Also, we expect approximately $4 million tax benefit as a result of the settlement.

Adjusted EBITDA decreased to $20.3 million or 17.9% of revenue, down from $21.4 million or 19.2% of revenue in the third quarter of 2018.

This decrease reflects our continued investments and accelerating top line growth, primarily from the M6-C commercial launch that are reflected in sales and marketing as well as the gross margin decrease that I mentioned.

We now expect adjusted EBITDA for the year to be between $78 million and $80 million, down from our previous range of $86 million to $89 million. This reduction primarily reflects the lower sales expectations for 2019. Now turning to tax.

We had GAAP income tax expense for the quarter of a negative 51% of income before income taxes as compared to GAAP income tax benefit of 9% of loss before income taxes in the same period of 2018.

The tax provision for this quarter was significantly impacted by the increase in acquisition-related expenses associated with the likelihood of achieving the Spinal Kinetics milestones, which is largely not deductible for tax purposes.

In the same period of 2018, we recognized certain benefits related to our domestication, which resulted in a net tax credit. For the third quarter 2019, we reported a GAAP loss of $2.14 per diluted share as compared to $0.07 per share for the third quarter 2018.

After adjusting for certain items and when normalizing for tax using a non-GAAP long-term effective tax rate, adjusted EPS for the third quarter 2019 was $0.41 compared to $0.44 in the third quarter of 2018. The majority of the decrease was due to the investments in the M6-C U.S. launch.

For the full year 2019, we now expect adjusted earnings per share will be between $1.55 and $1.60, down from our previous expectations of $1.75 to $1.82. For the fourth quarter, we expect adjusted EPS to be in the range of $0.59 to $0.64. Moving on to the balance sheet highlights.

Days sales outstanding, or DSOs, were 65 days at the end of the third quarter 2019, up from 61 days at the end of the third quarter 2018 and from 63 days at the end of the second quarter 2019. This increase is primarily due to the timing of certain collections in our Global Spine segment.

We expect this increase to be temporary and to improve in the coming quarters. Our inventory turns at the end of the third quarter 2019 were roughly flat at 1.2x in the third quarter 2018. Cash and cash equivalents and restricted cash at the end of the third quarter totaled $57.5 million compared to $52.1 million at the end of the previous quarter.

Cash flow from operations for the quarter was $11.7 million, down from $15.8 million in the third quarter 2018 due primarily to increases in inventory and other working capital investments that support our top line growth initiatives.

Capital expenditures were up in the quarter to $4.5 million from $4.1 million in the prior year due primarily to investments in our global IT infrastructure and manufacturing capacity expansion for the M6 artificial cervical disc. We now expect 2019 capital expenditures of $21 million to $23 million, down from $22 million to $24 million.

Free cash flow, which we calculate by taking cash flow from operations and subtracting capital expenditures, was $7.2 million during the quarter compared to $11.7 million in the prior year. Finally, I'm also happy to note that, today, we announced the renewal of our credit facility.

We were approaching the expiration of our previous credit agreement from 2015 which needed to be updated to reflect our subsequent growth as well as our new operating environment with our 2018 domestication to Delaware.

This updated facility upsizes our revolver to $300 million from $125 million previously and provides additional financial flexibility as well as tighter borrowing spreads and improved covenants. With that, I will now turn it over to Jon..

Thanks, Doug. I first want to start by thanking Brad, Doug, the rest of the leadership team, the Board and the employees at Orthofix for the warm welcome over the last few months. I believe my first few months here have been very productive.

I've spent considerable time with our internal and external stakeholders and learned a great deal about the company. One thing is very clear to me is the team has done a great job in building a solid business foundation.

With strong infrastructure, robust internal controls and compliance programs, cash flow generation and clean balance sheet, Orthofix is well positioned to execute commercially. In my opinion, based on my experience driving commercial execution spine, biologics and medical device space, in general, I see great opportunity ahead for Orthofix.

We have some obvious and well-defined market and technology leadership positions in bone growth stimulation, cell-based allografts, external fixation, and, of course, artificial disc replacement. We have many great assets to build upon. Needless to say, I believe we undoubtedly have a white canvas for growth over the next several years.

Moving on to my priorities. In short term, I'm focused on strengthening spine business leadership and strategy while assessing the needs within our Extremities business to secure our position for business execution and growth. My next task will be to work with the leadership team to set short-term to long-term priorities and objectives.

I'll update you on those plans as well as the 2020 guidance on our fourth quarter call. After that, I look forward to meeting with our shareholders, analysts and potential investors in the months to follow and sharing our story, which I know will be a very exciting one. With that, I'll turn it back to Brad for his closing remarks..

Thanks, Jon. On a personal note, since this is my last opportunity to share my thoughts, I want to tell you how much I've enjoyed the last 6.5 years and my interactions with all of you, our shareholders and analysts. It has been an honor and privilege to serve all of the Orthofix stakeholders through both the difficult and good times.

I particularly want to thank our amazing Orthofix employees around the world who have worked tirelessly to create a company with products that help improve patients' lives while developing a financial and business foundation for accelerating growth.

I am confident that with Jon's leadership and the great team at Orthofix, the future will be very rewarding for shareholders, and I look forward to assisting Jon in any way I can in my consulting role over the next year. With that, operator, we're ready to open up the lines for questions..

[Operator Instructions]. Our first question or comment comes from the line of Craig Bijou from Cantor Fitzgerald..

Let me start with Brad, just a quick wish of good luck to you and your future endeavors, and I enjoyed working with you..

Thank you, Craig. I appreciate that. Same for me..

And so let me start at a high level. Obviously, a lot of things going on. With Jon coming in and some of the integration delays that Brad called out, I just want to get a sense for -- and it may be a little early, Jon.

But is there any change in the strategy, the integration of the 3 pieces of the Spine business? And just from an overall perspective, given Biologics is still strong and then the other ones are struggling a little bit, just bigger picture, any thoughts in the change of strategy, either in the near term or longer term?.

Craig, thanks for the question. At this stage, I'm still on the data-gathering mode. I've been here for a number of weeks, and I think it's going really well. It's gathering that data, but it'd be really premature for me to basically give strategic guidance at this point in time.

But I will look forward to providing that to you on the fourth quarter call, though..

Okay. And maybe a little bit more specifically. You guys talked about not being able to onboard some distributors. So I mean any -- obviously, one of the questions that investors are going to have is the confidence that you guys have that -- some of the issues that you saw during the quarter don't get worse.

So maybe if you can outline some of the steps that you guys have done, either during the quarter or plan to do, just so we have a little better sense of what you guys are doing to ensure that things don't get worse and that you can rebound from this?.

Craig, this is Jon. What I'm spending my time is just getting more granular in the business and understanding and learning it. And basically, if there's things I see in the short term that I can do, I'm doing them and basically as I gather the information for the more strategic direction. There's nothing that's unwinding in any way, shape or form.

And so that's just based on my business experience on that. We're just handling on a day-to-day basis on The Street. But no, there's nothing to worry about that in the next stance. But also, there's a lot more to learn..

Okay. And then maybe one for Doug quickly, if I could squeeze the last one in. On EBITDA, you guys obviously brought down sales guidance. I think it was $13 million at the midpoint. EBITDA came down $8 million at the midpoint. So, Doug, I think you talked a little bit about maybe some other investment.

But just any reason why it came down at a little bit higher rate than your normal EBITDA contribution?.

Yes. Craig, it's a good question. As we stated before, we're out investing in things like sales and marketing out ahead of the revenue on M6. So when it comes to investing in sales, logistics, trainers and education, we are ramping up based on the initial success of the U.S. launch of the M6.

So I think you're seeing some of that in the flow-through that you're looking at. In addition, we had a great NASS conference. You'll see Q3 spending reflective of that, and that flows through the end-of-the-year guidance as well..

Our next question or comment comes from the line of Raj Denhoy from Jefferies..

Great. This is Anthony in for Raj, and I'll second my congratulations to Brad and also to Jon on your new role with the company, and we look forward to working with you. I'm actually going to start with 2 questions, housekeeping questions for Doug, and then I'll have a handful for Brad and Jon.

Doug, just in terms of -- to reiterate the pushout in Extremities, I want to confirm that, that was $2 million, and then the guidance revision does not include that coming back in at any point in the second half of 2019. And then a few other companies have alluded to the benefit of an extra selling day in the quarter.

So I just want to confirm, was there a selling day benefit in the quarter? And if so, what was the contribution from that extra selling day?.

Right. Anthony, with regards to the extremity, $2 million, you are correct. That's the amount, and we have taken it out of the guidance for the remainder of the year. With regards to selling days, we've not really focused on workdays and selling days within a quarter.

Given our long-term focus, I don't think we would consider that a material driver this quarter..

Okay. And just in terms of, Brad or Jon, just looking at the OpEx of the guide, I guess, the midpoint, the top line is $13 million. And I guess relative to our estimates in The Street, the miss was about $4 million. So that math suggests certainly 3Q and 4Q are going to continue to see headwinds.

And so how much of that is really vacancies in sales versus hesitation on the side of customers? And any additional color on those fronts would be helpful..

Sure, Anthony. It's Brad. It's hard to quantify. I think it's a combination of a lot of things, when you hit some uncertainty around leadership changes. And to be clear, the leadership vacancy in Spine that we had over the summer, that was a pretty significant hit to us, one that -- in the short term.

Long term, we will recover from that and then some, particularly with Jon's experience in spine. But I don't want to underestimate that impact. We also lost our VP of Sales in spine. So as that translates down, it can be a number of things. It can be some of the sales management that is concerned. It could be customers. It could be distributors.

Certainly, one of the bigger impacts in -- versus what we previously anticipated was these larger distributors that we are bringing on, that they were either delayed, either onboarding or delayed in coming onboard. All of those things are fixable.

And I think the one note that I want our investors to take away is there's nothing broken in our core business. We've got some management vacancies that we're going to fill. I think Jon is positioned extraordinarily well to recruit some top talent. His network is well beyond what mine is in spine.

And I think, over time, as those -- as we get those new people onboard, I think all of these things will be fixed and then some..

And just a follow-up there, Brad, would be is there a specific sort of number on just the sales force turnover that was sustained in the past few months? And how many actual slots have to be filled? And then I'll just [Technical Difficulty] six..

Yes. I don't have those numbers off hand, Anthony, and nor do I track them quite that way. But there's nothing there that I think is out of the ordinary in terms of turnover of distribution..

And then the last one for me would be on M6. It sounds like you did $1.5 million, and that was the $500,000 -- versus $500,000 last quarter. So clearly, big momentum, and you guys exceeded on the training in 200 surgeons.

I think -- I believe last quarter, Brad, you mentioned that the target was 150 for the year, but about 100 of those would be active implanters, I guess, heading into 2020.

And so now that, that number is a bit upsized, how many active M6 implanters that you expect when you -- heading into 2020?.

Yes, yes. Absolutely, Anthony. So here's the thing about training the surgeons. So we have a variety of -- we have a lot of requests coming in for training. Some of these surgeons will do a lot of cases. Some of these surgeons will do a few cases, and some will be a case every 3 or 4 months. It all depends.

So we're going to train, and we are training all those that have requested. It does take time, as Jon mentioned and I mentioned previously, for -- once a surgeon is trained, there's lag time with the hospitals. There's lag time -- it can be with insurance coverage. It can be with case loading, things like that.

Also, the other thing that's a factor in kind of the ramp-up of how these surgeons adopt is their own practice and their own belief in products. Most good surgeons are very, very careful about the changes they make in products. And so they're going to want to see a case or 2, follow it for a period of time then another few cases and so on.

So it takes a little bit -- a little while to ramp up for most surgeons. So while the 200 is a good number and ahead of what we had planned for even the year, we still expect that the ramp will be steady but accelerating.

And we're very happy with that number of surgeons, and we're very happy with where we are in our overall sales to date compared to what our plan was..

Our next question or comment comes from the line of Ryan Zimmerman from BTIG..

Great. Brad, it's been a pleasure to work with you. Jon, I look forward to working with you as well. I want to talk about some of the dynamics in the quarter. On the distributor dynamics, just following up from what other people were asking. Brad, if I recall, some of those assurance were -- coming onboard is predicated on M6.

It sounds like that's going well. But with the delays that you are seeing with those distributors, is there any impact that you're now considering for M6 sales in 2020 because these distributors aren't coming onboard? And then just how we should think about that dynamic relative to the momentum that you have with surgeon training..

Yes. No. And Jon can speak to this as well. No. I don't expect any negative impact from those distributors on M6 sales. Those distributors in a number of cases are selling M6 and will continue to, but the momentum we have there is it's just really beginning.

I think we're going to get a nice snowball effect from M6, but nothing that threatens our plans or expectations for 2020 in regards to the M6. As I said in my prepared remarks, the team has done a very nice job of staying focused on the M6 launch.

And really driving that is -- because we know that, that is the #1 growth driver we have going into 2020..

Right, right. And then along those lines, I mean, maybe refresh us what's the bone growth stimulation market look like these days in terms of growth? And how do you improve that level of growth into 2020? You had some really nice growth coming out of last year. It's hard to moderate a little bit.

So just help us kind of understand where that market's at? And what you can do to improve that?.

Yes, absolutely. And that's -- it's a great question, Ryan. Obviously, that's a very important business for us. We've said we've grown probably average -- compound annual growth rate I'm guessing is in the 6.5%, 7% range over the last 5 years, 4, 5 years. That's just a guess. I can confirm that.

But it's been pretty significant growth far in excess of procedure growth rate, so we've had a really good, long run at that. And I've said for a couple of years now that that's not -- we can't expect that to happen forever in what is a pretty mature marketplace.

So I think for us, with our considerable market share, if we come back to procedure growth rates, even in the face of some ASPs, we'd be outgrowing by -- ASP declines or potential ASP declines, we'd be still outgrowing by volumes the procedure growth rate.

So I think if you think in terms of this business in that 2%, 3% -- 1%, 2%, 3% growth, that's just my own opinion. Jon will have his thoughts as well, and that's how I think about the market. What we can do in the market, we'll leave that into Jon's hands. But obviously, we've done very well to date, and we would expect to continue.

We have a very, very strong distribution there. We have strong sales leadership there as well, and none of that has changed. What has -- what did impact us a little bit is the president of our Spine business was previously focused on bone growth therapies. That was his specialty.

And that was a loss, but we will recover there as well with some added talent..

Okay. And then last question for Doug. You mentioned a $4 million tax benefit coming from, I think, your impairment on the investment of eNeura. When do you expect the timing of that? I think that was less open-ended.

Is there a time we should think about that benefit, Doug?.

We expect that to benefit our 2019 GAAP tax rate. From a cash perspective, we'll realize that benefit next year when we file our return and settle up our 2019 tax situation..

Okay. So sometime in '20, got it..

Our next question or comment comes from the line of Dave Turkaly from JMP Securities..

Brad, I hope you get the chance to spend some more time surfing. And, Jon, looks like you're going to be busy here for a while. So -- but good to have you on board. Last call, we talked a bit about ASP in Spine, potentially the decline accelerating a bit.

I was wondering is there any of that happening still? Or what would your comment be on pricing in overall spine market?.

Yes. Our view is it's no worse than normal. In fact, probably a little bit better in the quarter in terms of the ASP pressure. So, no, we're not seeing an increase in ASP pressure over kind of previous patterns..

Got it. And you mentioned the two vacant positions.

I'm curious, outside of those, do you need to hire more people now that you have M6 in the bag? I'm curious if you're out there trying to bring in new reps, new distributors since you've gotten that product approved and launched?.

Absolutely, absolutely. We have a lot of vacant areas, a lot of white space out there, that's just pure opportunity for us. We will -- we have a lot of area for improvement in the coverage we have in the U.S. for sure..

Dave, this is Jon. On that topic, we have more distributors coming to us now, looking for opportunities because they want to carry M6. And with that, we get to have the additional leverage to basically move more of our products in with those distributors for them to have M6. So it's a good positive position for us to be in right now..

Got it. Last one. You mentioned 200 surgeons.

Any colors there, any percentage or guess what -- how many of them were in new Orthofix or Orthofix customers in the past prior to M6? And I imagine there's some opportunities for cross-selling, but I'm trying to understand, are these mostly new people for you?.

That's a good question. I think it's a mix of existing customers and new customers. I couldn't tell you what that mix is off the top of my head, Dave, but we can follow up..

Our next question or comment comes from the line of Jeffrey Cohen from Ladenburg Thalmann..

Brad, thanks for your service, and wish you all the best..

Thank you, Jeff..

And, Jon, I welcome you, and I wish you all the best as well. So I want to follow up a little bit on some of the integration delays, and if you could expand upon your previous commentary as far as spillover into the new year.

I know that you stated that Q4 would be impacted, but there's -- it sounds like there's a fair amount to address as far as the impact on the top line through 2020.

Not that necessarily looking for guidance, but can you give us a sense of some of those roles to be filled, some of the distributors that sound like a portion may be on backlog? What would you expect as far as western remedy by end of this calendar year and then how that spills over into Q1?.

Jeff, thanks for the question. The hiring is a time line that you can't always push, and so we're looking for the best talent we can to fill those roles. In the interim, I'm basically tapping my network as far as -- not only just from sales, but also distribution and trying to pull in the best talent.

And it's a work in process, and we've got a number of really viable candidates coming in, coming forward, looking at the opportunities, but we haven't made those decisions yet. So it would be premature to basically tell you the time frame on that, but it's a priority one for me coming into the role.

And so we'll spend a great deal of time, not only with bringing on the talent to be part of the organization, but also the distribution talent that we're looking for as well. That's an ongoing activity as well..

Okay. Got it. Could you give us color for the $2 million impacts from this quarter as far as ramifications.

Should that come from a particular territory or a continent that you could expand upon us?.

Yes. There's a couple of countries that have been traditionally have been some good business for us, off and on. We're talking Libya, Sri Lanka, and the geopolitical situation is -- can be volatile in those countries. And so while we had expectations, actually, more than a quarter ago, for those tenders to come through, the orders from those tenders.

We have, in fact, got the orders, the purchase orders. We just haven't got all the documentation and things required in those areas. But traditionally, these are countries that need our product. These are patients that need our product, and there's a lot of countries out there that we deal with that are -- can be a little more volatile.

These just happen to be 2 of them in this particular case. But over the long haul, that's -- it can be some good business for us. And more importantly, we can get our products on the patients who need it in those countries..

Jeff, I just want to add to that, this is Jon, that Brad and I talked about how we -- how we basically -- I'm sure, Jeffrey, how we basically look at those accounts. And so we're not going to be loading those into the forecast going forward. We're going to leave them off the side, so we don't have any choppiness in these numbers going forward.

And we think that's a prudent thing to do..

Got it. Okay. And then lastly, on the Biologics portfolio, could you show a little color, if you will, as far as trends that you're seeing as far as how the DBM portfolio is doing as compared to Trinity? And if you expect any further acquisitions or further developments as far as your new product lines within Biologics..

We released our DBM or super DBM earlier this year. It really is a situation where if somebody -- if a customer is based on price only, we will bring that forward, but we don't do that as our first choice. Trinity ELITE is still the gold standard out there, and that's what we sell the most of, and that's what you see reflected in the numbers.

And the 11-plus percent growth in the quarter year-over-year, that's all Trinity. And Trinity has continued to gain traction year after year after year and now is the #1 cell-based allograft in the marketplace..

[Operator Instructions]. Our next question or comment comes from the line of Jim Sidoti from Sidoti..

Can you hear me?.

Yes, we can, Jim..

Great.

Doug, just wanted to -- the metrics you gave for gross margin, R&D and sales and marketing, were those full year numbers or fourth quarter numbers?.

I gave full year guidance in my script, Jim..

Okay. Right. I just want to make sure I understood that. All right. And in the quarter, inventory is up about $2 million.

Is that related to the Extremities business and those tender orders not shipping? Or is that more related to building up inventory ahead of the -- for the M6?.

I didn't understand the beginning of the question, the $2 million on what?.

Right.

Why didn't inventory go up in the quarter?.

Oh, I see. Yes. Again, it's a couple of reasons. Number one, just based on the anticipated rollout of M6. We're getting out ahead of that, and as well as we are launching some spine product lines that we're getting out ahead of as well..

Right.

And do you need to put in instrument sets out in the field for that?.

Well, overall, as our metals business grows, we'll ultimately put out more instrument sets. We try to be as efficient as we can with where those instrument sets go and how efficiently they're utilized. But yes, we would anticipate putting up instrument sets, in general, to support the growth..

And can you give us a rough idea of how many instrument sets are out there now?.

That would be a tough one, Jim. We have hundreds and hundreds of different types of sets out there..

I meant specifically for the M6..

Oh. We wouldn't give that information, just for competitive purposes..

Okay. All right. Well, Brad, I think this is at least the second time saying goodbye. Good luck in what you're doing.

And do you think it's really goodbye this time?.

You never say never, Jim. I've appreciated our relationship over the years and have been grateful for it and to wish you all the best as well..

Right, right. I'm thinking about it, it's at least the third time saying goodbye. So good luck with whatever you do..

Yes. You bet. Thanks, Jim..

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks..

Yes. Thank you, Operator, and thanks, everybody, for joining us today, and I bid you farewell, and I wish you all the best. Take care..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day..