Ed Joyce - Investor Relations Director Dave Demski - President, Chief Operating Officer, Director David Paul - Chairman of the Board, Chief Executive Officer.

David Roman - Goldman Sachs Bob Hopkins - Bank of America Matthew O'Brien - Piper Jaffray Kayla Crum - William Blair Bill Plovanic - Canaccord Richard Newitter - Leerink Partners Dave Turkaly - JMP Securities Jason Wittes - Brean Capital Steven Lichtman - Oppenheimer Funds.

Welcome to Globus Medical's fourth quarter and full-year earnings call. At this time, all lines will be on mute and a Q&A session will be held after the prepared remarks. I will now turn the call over to Ed Joyce, Investor Relations Director. Please go ahead..

Thank you for being with us today. Joining today's call from Globus Medical will be David Paul, Chairman and CEO and Dave Demski, President and COO. I will now read our required legal disclaimers. During this call, certain items may be discussed that are not based entirely on historical facts.

These items should be considered forward-looking statements and are subject to many risks, uncertainties and other factors that are difficult to predict and may affect our businesses and operations. As a result, our actual results may differ materially and adversely from those expressed or implied by our forward-looking statements.

A discussion of some of these risks, uncertainties and other factors is set forth in our Forms 10-Q and 10-K on file with the SEC. These documents are available at www.sec.gov.

We undertake no obligation and do not intend to update any forward-looking statement as a result of new information or future events or circumstances arising after the date on which it was made.

The financial information discussed in connection with this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in our 2014 Form 10-K.

Our revenue, earnings, operating margins, cash flows and similar items are sometimes expressed on a non-GAAP basis and have been adjusted to exclude certain items including, among other things, interest income and expense and other non-operating expenses, provision for income taxes, depreciation and amortization, stock-based compensation, changes in the fair value of considerations in connection with business acquisitions and other acquisition-related costs, provisions for litigation and with respect to the computation of free cash flow, adjustment for the impact of restricted cash and purchases of property and equipment.

The comparable GAAP financial information and a reconciliation of non-GAAP amounts to their comparable GAAP amounts can be found in the tables included in today's earnings release, which is available on the Globus Medical Investor Relations webpage at www.globusmedical.com.

I will now turn the call over to Dave Demski, our President and Chief Operating Officer..

Thank you and welcome to everyone on the call. We finished 2014 on a very strong note. Worldwide sales for the fourth quarter of 2014 were $128.8 million, an increase of 11.8% over the fourth quarter of 2013. Fourth quarter marked the second consecutive quarter of robust sequential growth with an increase of $11 million over the third quarter.

Sales for the second half of 2014 were $19 million higher than the first six months of the year. Not only is this an impressive increase over the first half, it puts us in a very solid position entering 2015. U.S. sales grew by 4.5% in the fourth quarter, while sales outside of the U.S. grew by 4.8%.

OUS sales in the fourth quarter were negatively impacted by foreign currency exchange rate fluctuations of approximately $600,000. OUS sales growth in constant currency for the fourth quarter was 10.3%. Worldwide sales for the year were a record $474.4 million, up 9.2% over 2013. U.S.

sales increased by 7.7% and international sales for the year grew by 24.9%. Fully diluted earnings per share were $0.29 for the fourth quarter and $0.97 for the full-year, both records.

Part of the exceptional fourth quarter EPS result was due to the fact that the effective income tax rate was only 30% compared to 33% for the entire year, primarily due to the fact that the full-year impact of the R&D tax credit was recognized in the fourth quarter. This had a positive impact of approximately $0.01 on the fourth quarter EPS.

Adjusted EBITDA for the fourth quarter was 36.7% and 36.1% for the entire year. For 2014, we saw 140 basis point improvement over our 2013 adjusted EBITDA of 34.7%. We continued to achieve significant operating leverage on our business as a result of our growth and disciplined expense control.

For the fourth quarter, gross margins were 75.7% compared to 76.8% in the fourth quarter of 2013, primarily due to certain year-end adjustments. For the full-year, gross margins were very stable coming in at 76.6% versus 76.9% for 2013.

Research and development expenses for the fourth quarter were $8.4 million or 6.5% of sales as compared to $6.4 million or 5.6% of sales for the same period of 2013. The increase in R&D spending was primarily due to expenses related to our robotics division along with additional investments made in our research department.

SG&A expenses show significant improvement in the fourth quarter dropping to 37.0% of sales compared to 39.6% in the fourth quarter of 2013. The operating leverage we have consistently driven across our business in 2014 has been most pronounced in the improved SG&A performance of our oUS and Algea divisions, but also in the U.S. as well.

We produced free cash flow of $78 million in 2014 and ended the year with $304 million in cash, cash equivalents and marketable securities. The overall spine market continues to be encouraging. The three P's pricing, procedures and PODs remained relatively stable in our view.

Pricing pressure remained in the mid-single digits in the fourth quarter, continuing the trend we saw beginning in the second quarter. Similar to last year, we did see a pronounced spike in procedures late in the fourth quarter as patients seem to be adjusting to high deductible policies.

In addition, there is anecdotal evidence of strengthening overall procedural growth, possibly associated with the improved employment picture in the U.S. Finally, we are seeing stability on the POD front with news of certain PODs disbanding and fewer instances of surgeons joining new PODs. As we announced earlier today,.

Globus intends to acquire the assets of Branch Medical Group, Inc. or BMG for $52.9 million plus closing adjustments. BMG is Globus' largest third-party supplier and a highly efficient manufacturer of precision medical devices, generating $9.1 million in adjusted EBITDA on sales of $23.3 million in 2014.

Globus intends to invest approximately $15 million to $17 million over the next three years to increase BMG's capacity and enable us to double our sourcing through BMG. This vertical integration opportunity has the potential to increase our adjusted EBITDA by up to $18 million annually by 2019.

Thus the total expended investment of $70 million is only about four times the potential adjusted EBITDA from this acquisition. Not only this is a compelling value to Globus, because it lowers our overall cost structure, it also strengthens our control over our supply chain and protects our intellectual property assets.

As we indicated in January, our guidance for 2015 was for sales of approximately $510 million and earnings per fully diluted share of $1.01 per share. We expect pressure on our 2015 adjusted EBITDA margins and EPS related to increased investment in three strategic areas. One, the increased capacity we are building into our recent TTOT acquisition.

Two, accelerating commercialization efforts related to our robotics division, particularly in the second half of the year. And three, increased emphasis on an investment in basic and clinical research activity.

We expect the impact of the Branch acquisition to be neutral to our 2015 earnings as the benefit from reduced costs of manufactured parts will be delayed as Globus works through its inventory layers and it will be offset by expected investments in additional operating expenses for increased capacity.

However, we expect this acquisition to contribute $0.03 to $0.04 cents to 2016 EPS. In summary, we are very pleased with the strong finish we had to 2014. Sales growth in the quarter was almost 12%, even in the face of significant currency headwinds. We introduced 16 new products during the year.

We consistently added to our sales footprint both in the U.S. and abroad. We made significant progress in our robotics program. We completed the acquisition of TTOT in the fourth quarter, our most significant acquisition to-date. And we delivered record sales, exceptional adjusted EBITDA margins and record EPS for the fourth quarter and the full-year.

I will now turn the call over to David Paul, Chairman and CEO for our closing remarks..

Thank you, Dave and good evening everyone. 2014 was a great year for Globus Medical. Sales grew by 9.2%, reaching $474.4 million and full-year adjusted EBITDA increased by 140 basis points to 36.1% of sales.

We launched 16 new products, made steady progress on our robotics program, significantly expanded our research capabilities and successfully completed the acquisition of Transplant Technologies of Texas.

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

As we look back on 2014, I would like to update you all on the progress of five major ongoing initiatives. First, I have spoken about the continued launch of the CREO platform over the past several quarters.

We have launched seven different systems within this platform over the past 18 months, including CREO non-threaded, CREO AMP, CREO Threaded, CREO Threaded AMP, CREO Deformity, CREO MCS and SILC. Over the next 18 months, we plan to launch another nine systems to complete this platform.

This will make Creole the most advanced and comprehensive pedicle screw system in the world for treating a wide variety of complex deformity, degenerative and trauma pathologies through either a open or minimally invasive approach.

To-date, the CREO platform has been used in approximately 6,000 surgeries worldwide and we expect this to become our largest product in 2016. Surgeon feedback has been exceptional. Second, another product I would like to highlight is our recently launched expandable TLIF spacer, ALTERA.

Early feedback from the first 250 surgeries has been extremely positive. ALTERA is designed to maximize lordosis and sagittal balance from a posterior approach.

Used in combination with our CREO midline cortical screws, ALTERA facilitates a simple MIS approach that minimizes soft tissue disruption and provides a powerful tool for minimally invasive posterior procedures. Third, I would like to update you on our robotics program.

We have made tremendous progress in commercializing this important technology over the past 12 months. We have built a multidisciplinary team dedicated to working on robotics, navigation and imaging in Boston. The first product is a robotic surgical aid for navigating and facilitating surgical access, implant sizing, positioning and placement.

The system is being designed to enable surgeons to perform procedures more quickly and with greater accuracy, safety and reproducibility than is currently available in the marketplace today. We are happy with the progress being made by our team and look forward to commercializing this first product as planned in 2016.

Fourth, we are investing significantly in the capabilities of our in-house research team.

We are greatly expanding our existing research capabilities and laboratory space, including biomechanical testing, histology, histomorphometry, radiographic image analysis, particle analysis, videography and post market clinical research, all with a vision to create the best musculoskeletal research facility in the world.

Finally, our efforts to fortify are offering in regenerative biologics continued in 2014 and led to us having a very strong year with growth over 35%, primarily the result of our launches of KINEX and SIGNIFY, our bioactive products. The integration of TTOT is going well.

As I discussed last quarter, we plan to leverage TTOT's current portfolio across our sales force and use the combined capabilities and expertise to bring new products to our existing customers.

As mentioned before, we have an active pipeline of multiple new tissue-based products in various stages of development that are planned for launch this year and beyond. We are making significant investments in helping TTOT procure and set up high precision manufacturing equipment and processes to bring advancements in allograft tissue offerings.

In closing, we continue to execute on our long-term growth strategy of rapid new product introductions and U.S. and international sales force expansion, while maintaining a continued focus on profitability and cash flow. We remain excited about our prospects in 2015 as we continue to execute on our disciplined strategy of profitable growth.

We are now happy to take any questions..

[Operator Instructions]. Your first question comes from the line of David Roman at Goldman Sachs. Your line is open..

Thank you and good afternoon everybody. First off, congrats on a nice finish to the year, given all the disruption we saw midyear. But I wanted to just start on the Branch Medical acquisition.

Could you just remind us the nature of that relationship right now? And any management involvement with Branch Medical that may have persisted post-IPO?.

Sure, David. This is disclosed in all of our filings. The senior executive team here owns, I think it's about 47% of Branch. So as we disclosed, that's a related party and has been since the IPO..

And I don't mean to be too cynical about that, but to what extent is it benefiting shareholders versus benefiting management? In some ways, it seems like this is shareholder capital being put to work on a supplier side versus being put to work on the growth side?.

Well, it certainly is on the supplier side, but we think it's going to increase our operating margins, particularly over time. As we own it, we have the opportunity to follow more of our purchasing in that direction. And as we outlined in the press release and in my remarks, it's a very efficient manufacturer.

So they did about $23 million of revenue last year, a majority of that was sold to Globus. But on that, they earned $9 million of EBITDA and eventually that EBITDA will go on to Globus shareholders. So for roughly $50 million, we are picking up $9 million immediately of EBITDA.

We think that we are going to double the amount we purchase from them over the next two to three years. So if we continue to operate at that same level of efficiency and there is no reason that we shouldn't, we see that EBITDA benefit rising to about $18 million over the next four or five years.

So I think that's a very compelling investment for Globus to make to improve our bottomline..

Okay. That's helpful. Maybe just one last one on the P&L. I was very impressed with the number on SG&A on the 37%.

As I think about the P&L algorithm going forward, with international getting bigger as a percentage of total, should we think about as gross margins flattish to slightly down and adjusted EBITDA [ph] leveraging your [indiscernible]?.

You are breaking up a bit on me, David. But I think I heard you. What we have been guiding to in the past is, so gross margins will continue to get squeezed a bit as we grow internationally and then also the biologics segment of the business typically has lower gross margins.

And then the other thing that we want to remind you always, we use our highly efficient or bigger segments of the U.S. business with a very strong EBITDA margins to fund some of our investment opportunities like the robotics platform, like Algea. As we improve in the U.S. and even now oUS, we are using those funds to invest in new areas.

So we are kind of projecting a more stable EBITDA margin going forward..

Okay. That's very helpful. Thank you..

Sure..

And your next question comes from the line of Bob Hopkins at Bank of America. Your line is now open..

Thanks and good afternoon..

Good afternoon, Bob..

So just I want to start off with a couple more on Branch, just so I make sure I understand this transaction and also just understand Branch a little bit better, because Branch seems to have EBITDA margins as a contract manufacturer that are better than your EBITDA margins.

So I only have ever seen a contract manufacturer with margins that high, especially on that small of a revenue base, only $23 million.

So just generally, how is this contract manufacturer so profitable?.

I mean, it's a very efficient operation. It's about 50,000 square feet of 110 people or so. I think a lot of their efficiency does come from the fact that they one huge customer. So that could allow them to operate a little more efficiently than a business that has to spread the revenue over multiple customers, just in term of sales and marketing.

I think that's one area where they have been more efficient than some of the other companies might be. It's a very automated facility. Everything they do is high-tech in terms of getting the drawings, then getting the parts made, inspecting them even from that standpoint..

And can you just explain how this isn't immediately accretive given that the cost to finance this is probably less than $1 million and you are bringing in this EBITDA and you mentioned some cost to expand, but I would think most of those would be capital expenditures.

I am just trying to understand why this isn't more accretive in 2015 and frankly in 2016?.

I will answer your question. It is a little tricky to understand, particularly in 2015. So the EBITDA that they have recognized is on sales to us and other folks. When we buy that, it goes into inventory. So we have layers of FIFO out there.

So we are not going to see that part go through our cost of goods sold until it works its way through the FIFO layers, if that makes sense. So these is a delayed impact there.

Even though they made the money and we recognize the money, from a GAAP standpoint, as part of Globus, it reduces our cost, but it has to work its way through the layers to hit at the bottom line.

And then, yes, we are going to make some capital investments there but we are also going to increase the manpower to get them training up to speed as we are going to move more purchasing towards them. So we think the impact in 2015 will be negligible, but going into 2016, that's about $7 million of pretax earnings that would translate into $0.04..

Okay..

So that is much more in line with their historical results. We are also trying to be conservative there..

Yes. Sounds like it.

And then on the business, can we just talk a little bit about biologics and the opportunity there and what specifically some the launches are and maybe just help us understand what the biologic revenue base was in 2014 and what you expect it to be implicit in your 2015 guidance? So just maybe help us with what launches are happening this year and then what's the biological revenue base in 2015 versus 2014?.

Thank you, Bob. As far as the exact revenue of our biologics, as you know we don't share subsegment revenue. But this is something we have been talking about for several quarters about focus on biologics and we have introduced multiple new products including KINEX and SIGNIFY.

As I mentioned in the last quarter, this is an $800 million segment of biologics that we really don't get our fair share in the market. Biologic should account roughly for 10% to 15% of our sales than it does at the moment. So you can do the math and our goal is to get it there in the next three years, that we can get our share all of this market.

One piece is the synthetics, which we have very good progress now with KINEX and SIGNIFY. We have a few other synthetic products in the pipeline for this year and also that regenerative biologics piece from our TTOT acquisition will also add to this.

There is $200 million, $250 million machine spacer market, another $300 million DBM market that we don't participate as much as we would like in today and I think the TTOT acquisition will help us introduce all those products which are slated to be introduced in 2015 which will enable us to get more to that 10%, 15% of our sales with biologics..

Okay. Great. Thanks very much..

Thank you..

Your next question comes from the line of Matthew O'Brien of Piper Jaffray. Your line is open..

Afternoon. Thanks for taking the questions. Hopefully you can hear me okay. I was hoping to start off with the first quarter here. I know back in 2014, you had referenced loss of about $2.5 a million associated with some negative or some lost procedures because of poor weather.

Are you seeing anything here, especially up in the Northeast region that similar to what we saw back in 2014 so far? I know the quarter is not done yet, but just generally speaking..

Not so far, thankfully, at this point, Matt..

Okay and then just thinking about the share taking opportunities within the spine industry, it's a market that's not growing very quickly, if at all. But can you just give us a sense for how difficult it is now? Or if it's been trending one way or the other as far as your opportunities for taking market share in the U.S.

and internationally versus how it may have been a couple years ago? Does the cycle take longer to get back or to convert over? Is it shorter? Just any sense there for any challenges you may have above and beyond what you are seeing recently?.

Yes. I don't think there is a market difference over the last couple of years. If you go back even further, I think the overall market was much more favorable. So I feel like we are just well positioned.

We have demonstrated we continue to take share, as it's really the levers that we always emphasized in terms of product introductions and hiring more people. But we are still able to do both of those pretty effectively..

So no aggressive competitive response is from some of the folks that have been losing share recently?.

I am sorry. I am having a little trouble with the connection. I didn't hear the question..

Yes, my apologies.

No real aggressive competitive responses that you have seen thus far from the bigger companies that maybe you are stealing some of the share?.

Nothing unusual. It's a very competitive market. They have always been great competitors. They have great product lines. They are highly professional. So it's always been a tough battle, but we enjoy the competition. We think it makes us better..

And if I may sneak one more in on the robotics system. Great to hear that it's on track for 2016, but can you just give us any sense for what that's going to do the profitability profile of the business going forward? I know you are spending quite a bit in anticipation of that. I am sure we are going to see somewhat of a drag next year as well.

Is that the way that we should think about that product going into 2016?.

Yes. It's a little bit of a crystal ball right now, but we are going to continue to the development, the product development and get that to the FDA. And as we do that, we will start to think about commercialization, which means hiring a sales force, doing the marketing around that. So you will see drag on the P&L, pre-launch.

And then post-launch, it's really going to be a function of how quickly we can get adoption out there and that's, at this point, really hard to predict. So initially, it is going to be a drag and in fact, I think it was David's question earlier about our model. So we are using the strong EBITDA performance that we have in our U.S.

business, the improvement in that from the oUS, we are using that to fund these sorts of upside opportunities we have..

Understood. Thank you..

Your next question comes from the line of Ben Andrew at William Blair. Your line is open..

Hi guys. This is Kayla, in for Ben. So after adjusting for our estimated contribution from the TTOT acquisition in 2015, we are estimating for your organic sales growth in the id-single digits.

First off, is that a fair assumption? And then secondly, if that math is correct, that growth seems a little bit modest, especially given the improving market commentary that you discussed? So what really has to go wrong in order for you to not hit that organic growth rate target?.

Kayla, welcome to the call. And yes, I believe your math is correct. We are trying to be appropriately conservative. We are in the second month of the year and we are very bullish on our business, but it's a long year and as we just talked about, it's a very competitive market..

Okay and then with respect to the core business, can you just elaborate on the runway for growth with the CREO system? You mentioned that this could be the most substantial contributor to sales, but could you just provide a bit more color on the size and the sustainable growth rate and opportunity with this platform?.

Well, the biggest runway for us is, we still have about 7% or 8% market share and as we keep expanding our sales footprint, the biggest runway for our growth is expanding our geographical footprint and pedicle screws have gone for about 40% of a surgeon's business, if you will.

So that's why CREO will end of becoming our largest product platform next year. So it's the offering of CREO as well as the fact that pedicle screws is the largest subsegment in spine and as we expand our geographical coverage that's going to translate to more sales for CREO..

Great. Thank you..

Thank you..

Thank you..

And your next question comes from the line of Bill Plovanic from Canaccord. Your line is now open..

Great. Thanks. Good evening. Can you hear me okay..

We can hear you, Bill..

Thank you.

So just on the manufacturing acquisition, $23 million gross, what percent of your metal business is that today? And is it 25% of the metal that you are making today and you see that being 50%, 75%? Where do you see that going over time?.

Yes. Roughly it's about a quarter of our purchases today and we expect to probably double that. I don't see it going beyond 50%. There is a lot of value in our diversity of our supply chain and we have a lot of folks that have been with us a long time.

I think it helps to level out the ebbs and flows that are associated with product launches and our demand. So we always want to have a diverse supplier base but we are going to -- our target is to double the amount we would buy from them over the next three to four years..

Okay and then as I look at the oUS performance, even bringing back in the FX impact, not as much, but get it looks like that international component for the year, if I look at each quarter was pretty flat nominally, up and down a little after a very strong growth rate in 2013.

How should we think about that for 2015? Are there new markets you will be seating? Have you hit the wall where you are? So what should we be thinking about the international?.

I think your analysis is right on. It is flattish as you look at it sequentially and we have been focused on that and addressing it. So no big launches in terms of countries this year. We do have a lot of upside in all the markets that we are in, to be honest, even the U.S., but particularly the oUS.

So we have got a couple of little markets there that we have had issues and we are addressing, we are correcting. Overall I think Europe is not particularly strong in terms of procedural growth right now. Their economy is not the greatest. Pricing pressure is pretty pronounced over there. You mentioned the currency.

So it is part of the reason that our overall guidance is where it is. We want to be conservative from that standpoint but nothing in general that's a problem. Nothing systemic from our standpoint. A few little spots that we need to address. But you are right in sating, it's been flat and we need to get it accelerating again..

And then just lastly for me, every quarter you seem to have a little litigation expense that hits the line. I know that's standard operating procedure for you. But is there anything in the pipeline in terms of litigation that we need to be aware of that it's going to come to a head in either 2015 or 2016? And that's it for me. Thanks..

Nothing significant. It's skirmishes that we are evolving quite often, but there is nothing really going out there..

Your next question comes from Richard Newitter at Leerink Partners. Your line is now open..

Hi. Thanks for taking the questions. Just on Branch Medical, you might have said this earlier on in your prepared remarks, but I was jumping between calls. Why the timing now? Maybe just answer that..

Sure. We did not address that, Rich. Thanks for bringing it up. It's actually been something Globus has wanted to do even pre-IPO. We have always thought that the benefit to us was significant in terms of lowering our cost structure.

I think the answer to why now, is that the Branch owners have finally come around to that point of view and decided this would be the best time for them to sell..

Okay and then just as we think about your use of cash going forward, the two deals that you have done in the last six months were not ones we would have expected and a little outside of the box, in our view.

But maybe you can give us a sense of where you think your holds are in the portfolio or where the kind of the value enhancing activity could be directed going forward? Thank you..

We continue to look at opportunities in the metal space. We get approached quite often from people that have technologies or companies that they are looking to sell. I think we saw some upside in biologics.

I think the tissue box has been checked and we have a great opportunity with TTOT, but there is also opportunities with synthetics that we would want to look at. And then just further down the line, I think we would want to leverage our engineering prowess potentially into areas that are still in orthopedics, clearly, but maybe not be in spine.

But that's a little longer down the road..

Got it.

And on the robotics initiatives, are there any milestones or potential events where we might see a more formal presentation of what your robots are going to look at over the next six, nine or 12 months?.

Not really, Richard. We are just still waiting to get the product developed so we can get into the FDA with it. We are hoping to launch it in 2016, as we planned. It is a 510(k). So it's a little bit more process than a PMA. So we fully expect to launch it in 2016..

Okay. Thanks a lot and congrats on the fourth quarter..

Thank you..

Thank you..

And your next question comes from the line of Dave Turkaly with JMP Securities. Your line is now open..

Thanks. And I may have missed it earlier in call but did you guys give the innovative fusion and disruptive technology breakout>.

We did not. I think those numbers are in our 8-K, right. We don't them right in front of me, Dave..

But it's in the filing from tonight?.

Yes..

Okay..

Yes, in the 8-K..

All right, thanks. And you mentioned some increased capacity.

I think you said even at TTOT and I was just curious, is that, I know it's pretty competitive out there for the cadaver space and are you planning on investing in more machinery for them or is it actually like an expansion of that collection opportunity?.

It's more on the machinery side. Their donor base is very strong. It's actually one of the reasons that we were attracted to them, as they have a really strong donor network. Does that answer your question..

Yes. That's fine.

And I guess just last quick one, do they have, I mean you mentioned the space on the DBM side, do they have a stem cell offering or is there any plan for one there?.

They don't have one right now and it is an area we have investigated and are looking at, yes..

Thanks a lot..

Sure..

Your next question comes from Jason Wittes with Brean Capital. Your line is open..

Hi. Thanks for taking the questions. Just as a follow-up to that last question, when you say you get your fair share of biologics in three years, I guess my assumption would be that you would have some type of stem cell offering by then.

Is that the right assumption?.

That's a fairly accurate assumption. To get all our fair share in biologics, you know, as we check off different boxes with synthetics, machine spacers, DBMs. So we will get most of it, but definitely adding the stem cell would then make us get all our fair share.

As Dave mentioned earlier, we do have a program in place and we will be speaking more about it in the coming quarters..

Okay. Thank you. In CREO, I And assume you are getting your fair share of pedicle screws, but you talk about share gain opportunities. I assume that's just penetrating more doctors and surgeons who aren't using Globus right now as opposed to potentially doing more deformity cases or things like that.

Is that the right way to think about it?.

It's all of the above. I think we are going to be able to penetrate deeper into our current sales geographies with CREO because CREO adds some offerings that we did not have in the past, whether it's a modular screw or whether it was a threaded cap.

So those are additions that will help us drive deeper into existing geographies and the ease of use of the instrumentation. But then as we go to new geographies, it also helps us with converting competitive surgeons in new geographies. So it's a combination of all of the above that's going to make CREO keep growing..

Fair enough. Thank you. And last year, you lost a Gulf Coast distributor, but you recovered pretty quickly. I assume that had nothing to do -- that was just the other geographies picking up some of the slack.

Has that area been refilled? And are your expectations that that's catching up to where it was before at this point?.

I am sorry, Jason.

Could you repeat it?.

Yes. I was curious about the distributor that you lost last year. You bounced back pretty quickly from that distributor loss based, I assume, on rebound in other geographies.

So I am just curious, has that area been backfilled with new distribution and has it largely caught up to where it was before?.

We have been actively hiring in the area. It's a direct market for us now. And we are probably halfway, a little bit over halfway back, in terms of their performance to where they were a year ago..

Okay. Thanks. That's all for me. Thanks..

Thank you..

Thank you..

Your next question comes from Steven Lichtman at Oppenheimer Funds. Your line is now open..

Thank you. Hi guys. Just first question on Algea and on the artificial disc market.

Are these area that you still think can be big drivers for you over time? Just wanted to get your latest outlook on the vertebral augmentation and disc market opportunities?.

Yes. I think probably the best way to characterize it, those are single opportunities, as we have used the baseball analogy in the past, they are good niche products for us, but they are not going to huge drivers, is the way we look at the world..

Okay. So the investment -- sorry, go ahead, Dave..

Some of it has to do with the reimbursement challenges that are still out there with the disc placement for physicians and when the reimbursement changes, I expect a little bit more uptick in the disc replacement..

So you haven't reaccelerated investing on the Algea side, paired back maybe a year or two ago. So you haven't reaccelerated that..

We have not. It's more right size now in terms of the opportunity and the investment are in the right proportion..

Okay. Got it.

And then just lastly, what are your latest thoughts on potential launch in Japan? When should we start thinking about that expansion?.

We have started the process of trying to get into the market. So we have been counseled that that's still a couple years before we see sales in the market..

Okay. Great. All right. Thanks, David..

And your next question comes from the line of Bob Hopkins with Bank of America. Your line is now open..

Thanks. Sorry, I just had one follow-up. Because I wanted to circle back to your guidance for organic growth. It's in that mid-single digit range. When you guys went public a couple of years ago, you aspired to mid-teens growth and frankly since I have been watching the company, you haven't had a quarter where you had 5% growth.

So I think that that kind of result would be disappointing to investors and probably disappointing to you too. And I understand it's a challenging marketplace, but you guys have a lot of momentum.

So I guess my question is, is there something that you are seeing in your business, something that you are seeing oUS that makes you think that 5% is a reasonable way of thinking about the year and providing guidance? Just curious, because again, as long as I been following the company, you have never had a 5% growth quarter, even when you had a troubled quarter earlier this year..

Right. Now aspirationally, we still want to be a double-digit grower but we want to be prudent in how we look at the market going forward and not get ahead of ourselves, Bob. So we are very confident in our business. We have great momentum but we are sticking with the guidance that we have given..

No, I understand that.

I just don't expect you to change it on the fly here, but I guess my question is, are you seeing something in the business that's just a little bit different than what you have been seeing, say, over the last six or nine months in terms of whether it's even incremental pricing pressure or more competition from the bigger players who have stopped bleeding relative to their troubles in the last couple of years? Just curious as to what you trying to signal here with a mid-single digit guide and as to whether or not you are actually seeing something turn the business that gives you a little bit of a caution?.

We are not seeing anything turn in the business that's giving us more caution than we have ever had. Just I think it is an appropriate amount of caution as we look forward..

Okay. It's jut you are much more conservative here than you have been in the past.

I am just trying to understand what the rationale for that is?.

I don't want to get ahead of ourselves, Bob. There is nothing else behind it..

Okay. All right. That's all I had. Thank you..

Great. Thank you..

Thank you, Bob..

This concludes the questions. Now I will turn the call to the presenters..

Thank you, again..

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