Brian Kearns - Vice President of Business Development David C. Paul - Chairman & Chief Executive Officer Daniel T. Scavilla - Chief Financial Officer & Senior Vice President David M. Demski - Group President-Emerging Technologies.

Matt Miksic - UBS Securities LLC David Harrison Roman - Goldman Sachs & Co. Robert Adam Hopkins - Bank of America Merrill Lynch Craig William Bijou - Wells Fargo Securities LLC Jonathan Demchick - Morgan Stanley & Co. LLC William J. Plovanic - Canaccord Genuity, Inc. Ben C. Andrew - William Blair & Co. LLC Jason H. Wittes - Brean Capital LLC David L.

Turkaly - JMP Securities LLC.

Welcome to Globus Medical's Third Quarter 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 Brian Kearns, Vice President of Business Development. Please go ahead..

Thank you for being with us today. Joining today's call from Globus Medical will be David Paul, Chairman and CEO; Dan Scavilla, Senior Vice President and CFO; Anthony Williams, President of Globus Medical; and Dave Demski, Group President of Emerging Technologies.

This review is being made available via webcast accessible through the Investor Relations section of the Globus Medical website at www.globusmedical.com. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements.

Our Form 10-K for the 2014 fiscal year and our subsequent filings with the Securities and Exchange Commission identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings, including the 10-K, are available on our website.

We do not undertake to update any forward-looking statements as a result of new information or future events or developments. Our discussion today will also include certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles, or GAAP.

We believe these non-GAAP financial measures provide additional information pertinent to our business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with the most directly comparable GAAP financial measures.

Reconciliations to the most directly comparable GAAP measures are available in the schedule accompanying the press release and on the Investor Relations section of the Globus Medical website. With that, I will now turn the call over to David Paul, our Chairman and CEO..

Thank you, Brian, and good evening, everyone. The third quarter of 2015 was an outstanding period for Globus. Sales were a record $137 million, increasing 16.4% on an as-reported basis and 17.6% on a constant currency basis. Earnings per share were $0.28 and adjusted EBITDA margin was 36.9%.

We introduced three new products in the quarter and we continue to make further advances with our sales force expansion program. Significant progress has also been made in the development of our robotics platform and the integration of TTOT and Branch Medical.

In short, we are very pleased with our third quarter results and overall execution for the first nine months of 2015. Sales for the third quarter marked the fifth straight quarter of record sales, reflecting tremendous strength in our business. U.S.

sales grew by 17.9% for the quarter and international sales increased by 1.2% as reported, or 14.6% on a constant currency basis. Sales growth in the U.S. was driven by several key products including CREO, CREO MIS, ALTERA, KINEX, SIGNIFY, COALITION AGX, and RISE-L.

Feedback from the field has been outstanding as adoption has grown, enabling us to gain new business with existing customers and converting new surgeons and hospitals. We launched three new products this quarter, bringing our total to 12 year to-date. I will now comment on two of them.

First, we launched CREO 4.75, further bolstering our position in the complex deformity segment as we build the most comprehensive deformity platform. CREO 4.75 is indicated for pediatric and adolescent use for deformity correction and features a rigid cobalt chromium head that provides excellent constant stability during tough correction maneuvers.

The system also features multiple reduction and derotation options to accommodate various surgical techniques. Second, KINEX PLUS was launched in the quarter, adding to our growing regenerative biologics portfolio.

KINEX PLUS combines Bioglass, collagen, and hyaluronic acid to provide osteostimulative, cell signaling and angiogenic properties for generating robust bone growth. Regenerative biologics' sales has been growing extremely well in recent quarters as we work our way to reaching our goal of biologics comprising 10% to 15% of our sales.

On the sales force front, we had a strong recruiting class this year and are hard at work to hone our process of recruitment and onboarding of new sales people, positioning us well for the future. We see strong evidence from our hiring efforts that Globus remains the destination of choice for the best sales talent in the industry.

While the international operating environment remains challenging, there are some encouraging signs resulting from recent management changes in two key markets. Net income for the third quarter was $26.5 million, an increase of 14.8% from the third quarter of 2014.

On a constant currency basis, net income increased 18%, higher than the sales growth rate. We were able to achieve this outstanding result despite the challenges from currency headwinds and continued price pressure while incurring approximately $2.3 million in expenses associated with our emerging technologies investments.

Fully diluted earnings per share were $0.28 in the third quarter of 2015 compared to $0.24 in the third quarter of last year. Adjusted EBITDA for the third quarter of 2015 was 36.9% compared to 35.6% in the third quarter of 2014.

Our third quarter performance highlights the fact that we have consistently maintained profitability metrics in line with much larger companies while growing much faster than any of them and continuing to make investments in new areas of future growth.

As we move into the final months of 2015 and into 2016, we plan to continue making investments in emerging technologies, such as robotics, orthopedic trauma and other adjacencies. We estimate that these areas will collectively represent almost $10 billion in addressable markets by 2020.

We feel they are attractive markets that fit well within our core competencies and demonstrated ability to bring technological innovation and customer focus to competitive arenas. They represent important growth opportunities outside of our core spine business.

At the same time, we are committed to maintaining our industry-leading profitability metrics, as demonstrated in the third quarter. Both net income and EPS grew in line with our top-line growth, while still investing over $2.3 million in emerging technology development efforts. U.S.

pricing pressure remained in the mid-single digits in the third quarter. Procedural growth remains healthy. There were no significant developments regarding PODs during the third quarter. We are very pleased with the outstanding results in the quarter and year to-date.

We're executing well on our strategy to introduce a broad spectrum of innovative technology and grow our sales footprint in the U.S. and abroad with disciplined expense control. This has enabled us to produce year-to-date constant currency growth of 18% while maintaining our industry-leading profitability and cash flow metrics.

I will now turn the call over to Dan Scavilla, our Chief Financial Officer, for additional comments on our financial results..

Thanks, David. And good evening, everyone. As David mentioned, Q3 sales were strong, achieving $137 million, or 16.3% growth on as-reported basis. On a constant currency basis, Q3 sales grew 17.6% versus prior-year Q3. U.S. sales increased 17.9%, driven by continued market penetration and strong new product sales.

International revenues increased 1.2% as reported, or 14.6% on a constant currency basis, continuing positive momentum gains. Innovative Fusion sales increased this quarter to $72.5 million, or 7%, driven by CREO, our newest pedicle screw platform.

Disruptive Technology sales increased to $64.5 million or 28.8% from Q3 2014, driven by continued strength in our spindle technology, CREO MIS, and biologics. Turning to the rest of the P&L. Q3 gross profit was 75.9% compared to 76.5% in the third quarter of 2014 and 75.6% in Q2 2015.

As we stated in our Q1 and Q2 earnings release, the year-on-year change is attributable to a shift in mix associated with biologics, which typically have a lower margin than other implants, and the impact of foreign currency rates on our international sales.

The 30 basis point gross profit improvement versus Q2 2015 is attributed to Branch Medical benefits beginning to work through inventory into the cost of goods. As planned, this will continue into Q4 and increase in 2016. We are forecasting a $5.5 million cost of goods sold benefit from the Branch Medical acquisition in full year 2016.

Research and development expenses for the third quarter were $9.4 million, or 6.9% of sales, as compared to $8.1 million, or 6.9% for the same period in 2014. The planned increase in spending support new initiatives such as robotics, trauma, expansion of our product development capabilities and continued investment in research.

Investments in emerging technologies impacted EPS in Q3 2015 by approximately $0.02. SG&A expenses for the third quarter were $53.8 million, or 39.3%, as compared to $47 million, or 39.9% in Q3 2014, improving 60 basis points driven by ongoing leveraging.

The improvement in SG&A percent compared to Q2 2015 is attributed to higher legal and bad debt expenditures in Q2 not repeated in Q3. Third quarter net income was $26.5 million, an increase of 14.8% on an as-reported basis and 18% in constant currency versus Q3 2014.

Fully diluted earnings per share were $0.28 compared to $0.24 in the third quarter of last year. Adjusted EBITDA for the third quarter was 36.9% compared to 35.6% in Q3 2014. We ended the quarter with $300.1 million of cash, cash equivalents and marketable securities. Free cash flow for Q3 was $19.3 million.

Year-to-date cash flow was $43.3 million, reflecting flat operating cash flow versus prior year and increased investment activity driven by robotics building, in-house manufacturing equipment and instrument sets to support new product launches and increased market penetration.

Based on our strong results for the first nine months of the year, we are increasing 2015 full-year guidance for sales to $539 million, including $5.5 million of currency headwinds, and EPS of $1.07 per share.

Recall that Q4 marks the anniversary of our TTOT acquisition, which will no longer provide the purchase accounting sales growth benefit of recent quarters. I will now turn the call back over to David Paul, Chairman and CEO, for our concluding remarks..

Thank you, Dan. We are very pleased with the outstanding performance for the first three quarters of 2015. We have produced year-to-date constant currency growth of approximately 18% and continue to take market share while maintaining our industry-leading profitability and cash flow metrics.

Our continued strong performance was the result of consistent, sustained execution of our strategy of combining robust product innovation and sales force expansion with disciplined expense control.

I am proud of the performance of our team this quarter and I'm confident in our ability to produce profitable growth for the remainder of 2015 and beyond, even as we make significant investments in emerging technologies, R&D initiatives key to our expansion and in-house manufacturing.

We look forward to seeing some of you in person at our Investor Day on the 12th of November. We're now happy to take questions..

And our first question comes from the line of Matt Miksic..

Can you hear me okay?.

We can hear you, Matt..

Great. Thanks for taking my question. So really pretty amazing, I thought, acceleration.

I don't use that word often on conference calls, but could you talk a little bit about maybe some of the catalysts here in the quarter? And where in particular you saw some of the strength that we saw in the numbers here?.

Matt, we saw strength both in some of the new products that we have introduced over the last 18 months. CREO, CREO MIS has been very strong. ALTERA, COALITION AGX and RISE-L have also picked it up a lot for us. At the same time, we have also seen tremendous growth from some of our sales force additions.

So it's been a combination of both new product cycle flows and sales force expansion..

I know you don't drill the detail down within Disruptive, but it looks like it was sort of the U.S.

Disruptive business that was seeing most of that strength? Is that fair?.

That's fair to say, yes..

And in MIS in particular? Or not all the products it strikes me that you mentioned fit into MIS.

Or do they all fall into that MIS category?.

No. CREO falls into Innovative Fusion, but we look at CREO MIS and some of the other expandable technologies into the Disruptive bucket and so they have been doing extremely well for us..

Matt, this is Dan. One thing that's really nice with this as well is that growth in Disruptive is not particular to one or two products. There are really several products with strong growth that are contributing to that lift year-on-year..

I guess just with that color, one of the questions I get often is are the dynamics from your perspective competitively changing either in the way that larger players are behaving in the marketplace or sort of the interplay between some of the faster-growing, more innovative companies like yourself? Is there anything that you are seeing in the landscape that's shifting that would contribute to this? Or is it from your perspective just straight-ahead execution?.

I think for the most part it's straight-ahead execution. Frankly, we've also been helped by a more healthy market in recent quarters. But for the most part, it's been straight-ahead execution with the new products and sales force expansion..

And if I could ask just one question on some of your new products going forward. You talked about robotics and you've also talked a little bit about trauma as an area of investment. Could you give us a bit more color or timing as to when, you know – I understand we will see some of this at your Analyst Meeting.

Maybe what we can expect there and then maybe what we can expect over the next 6 months to 12 months?.

Hey, Matt. This is Dave Demski. We're going to the FDA with – our plan is to go to the FDA early part of next year with the robotics platform as well as some of the initial products in Orthopedic Trauma should start to get into the FDA next year.

So depending on how well we do there and get through there, we would be looking to commercialize those and get a sales force built towards the end of next year..

Thanks so much..

Thank you, Matt..

And our next question comes from the line of David Roman..

Thank you and good afternoon, everybody. I wanted to follow up, Dan, on your comment regarding the Branch Medical contribution expected for 2016. I think you referenced a number of $5.5 million.

But if I try to put that into context and what you're seeing from a pricing perspective, if you're seeing 2% to 3% negative price, so that would be a $10 million to $15 million headwind to the top line. Branch doesn't get you to a point where gross margins would not be down next year.

Is that the correct way to think about it? And what am I missing in that analysis?.

David, you're partially there. So a couple of things with this. With Branch, what I'm signaling to you is we are going to see the lift we've actually not only modeled through but actually announced in Q4 of 2014 when we went through and told this. It's on track.

As I've said out in the field, the benefit of Branch will be a counter-lever to pricing pressures and biologic mix. So we think it's out there. It's one of those items that will help us maintain the mid-70%s GPs that we're striving for and the mid-30%s EBITDA that we're going for. So it may not be the full answer.

It's a big lever for us to use in a positive way to go against what we concede with those other items..

So as you think about the total P&L algorithm as you continue to hire salespeople, face pricing pressure and mix headwinds from biologics and invest in future product developments, how fast do you need to grow the top line to generate operating leverage? Is that north of 10%, given those moving parts? Or do you have other levers to pull?.

Well, listen, we're always going to look for leverage and we think there's some opportunity for levers. Keep in mind that as we continue to do the penetration in our markets with sales reps and the new product cadence, we're going to see those lifts as well benefit these things.

So the model that we have still has runway is what we're signaling and I don't see any struggles with where we're going based on our long-range plans that we're looking at..

And we still think that there's some leverage in the U.S. business but also international. We're just nascent with turning that in the black over the last several quarters, and we think there's a lot of improvement that we can have there even as we grow our international business.

And frankly, another big counter-lever for pricing pressure for us has been the mix. And we've been having great success with several of our Disruptive products commanding a premium price and that's been enabling us to offset some of the pricing pressure, Dave..

That's helpful. And then, lastly, David, in your remarks you talked about an improved backdrop for the overall end market.

Can you maybe just give us a little bit more detail on how you've seen that progress? Has the market strengthened throughout the year? And maybe you could just give us some perspective on your confidence in market growth going forward and how we square that up with some of the commentary we're hearing from the hospitals regarding in-patient admissions and surgeries.

And anything more specific you can give us to spine would be really helpful..

See, we don't have any published data. But what I'm telling you is pretty anecdotal from what we hear from surgeons and customers. Anecdotally, I think procedures are growing between 3% to 4% at least.

And we've always felt bullish about the future of the procedural growth just because of the demographics that are a big tailwind for us with the Baby Boomers. 1 level ACDFs, on average the age is 43, and 1 level lumbar fusions are in the mid-50s. So the demographics are still a good tailwind for us going forward.

I still don't know how all this factors in with the payer issues and reimbursement issues. But demographics alone is a powerful tool for us at this tailwind..

Okay. Thank you. I appreciate all the perspective..

Thank you, David..

And our next question comes from the line of Bob Hopkins..

Hi. Thanks for taking the question.

Can you hear me okay?.

We can hear you, Bob..

Oh, great. Sorry for the background noise. I'm out at a conference. So just a couple quick follow-ups on the questions that have already been asked. So the first question relates to the comments on margins really and the 35% EBITDA margin. You guys have an exciting pipeline. You're investing in that pipeline.

2016, I just wonder if you could comment to the degree to which that's going to be an investment year.

Can you maintain the 35% EBITDA margin in 2016 if you're growing in the high-single digits, or is 2016 going to be a year where that margin will be a little bit on the lower side, given some of the investments that are necessary to drive long-term growth?.

So, Bob, we've been increasing our transparency as we go through this and certainly coming out with the emerging technologies and explaining some of those investments are there. I would tell that our goal and our focus based on the plans that we have is to maintain that mid-35% EBITDA as we invest with the emerging technologies and do the ramp-ups.

There's certainly levers we have. There's others we need to discover, but as a management team our focus is to maintain that as we do the investments required to enter into those $10 billion market opportunities David spoke of..

Okay. So that was a comment not only for the long term but for next year? Again, I don't think this is that big of a deal. I just want to be clear on whatever you're saying about 2016. I understand some investments are needed.

But you think in 2016 you can shoot to maintain a mid-30s% margin despite the investment?.

Based on where we're going and the amounts that we have right now, we would say the mid-30%s is within range of what we're aiming to do in 2016..

Great. And then one last follow-up. David, you mentioned management changes in two geographies and how that helped the business. I was wondering if you could talk about that in a little more detail and also specifically just give us a sense as to where you are right now with international. You had a pretty good growth quarter this quarter.

Do you think you're on solid footing there? Can we see growth continue to improve outside the United States?.

So first, overall the international environment remains challenging. And as you've noticed, some of our competitors who have announced their results have also had the same kind of struggles. And while we're not fully happy with where we are with our international performance, I feel like we'll still outperform most of our peers there.

The challenges that we've had internally have been in a couple of markets that we quickly followed up to address and we're beginning to see changes. In one, we have seen a full-scale sea change. In another the change is more slowly happening and I think we'll be in a good position to begin re-acceleration of our sales growth in international markets..

Great. Thank you..

Thank you, Bob..

Our next question comes from the line of Craig Bijou..

Hi, guys. Thanks for taking the question..

Hi, Craig..

I did want to touch on your comments on trauma.

And obviously you guys are – you're not in trauma today, so I wanted to see if you could discuss the opportunity that you guys see in trauma given some of the competitive dynamics? And then is there any read-through or any signal to anything that we could read through for the spine market or Globus' position within the spine market because of the investment in or the focus on trauma going forward?.

Hey, Craig. This is Dave Demski. We look at the orthopedic trauma market as about a $4 billion opportunity with some pretty significant competition. We think what we've done with Globus over the last 13 years is bring innovation, particularly mechanically engineering-driven innovation, to a market with clinical needs.

And we see orthopedic trauma as very similar to that and an area of opportunity for us to take that core competency and apply it to a very large market and take market share in a fashion similar to what we've done with the Spine business. I think your question maybe as regards to focus, we have an extremely strong team in the core Spine business.

Most of the senior executives have been with us 10 years or more. And I see the runway there as being very attractive. Particularly with the larger competitors losing their focus, I think we can continue to outpace the market for the foreseeable future and core Spine as well..

I guess just as a follow-up on that, I mean do you guys see it as necessary just in terms of the future of the spine market or potential bundling down the road to get broader within orthopedics through trauma? Or is it trauma-specific an area where you think you can have an impact?.

We don't see it as necessary to compete in the Spine business at all. We just think it's an opportunity for us to apply a core competency at a very attractive market that's kind of had less innovation than some other areas in the past. And we think we can bring some benefits to physicians and patients there..

Okay. Thanks. That's helpful. And then, Dan, just one quick one for you. I know that I think on the last call you talked about plans for potentially lowering the tax rate down the road.

I just wanted to see if there was any update on the plan and how that fits as a priority for the business?.

Thanks, Craig. Well, I'll tell you, yeah, there is a plan. We're actually in due diligence right now where we've selected a partner we want to work with from one of the top accounting firms. We're breaking down how we want to execute U.S. and international, we're testing the feasibility actually right now through Q4.

And if it progresses well, I think we're going to be in a position to start implementing this early into 2016. I don't have numbers yet to tell you impacts. I wouldn't build it into my base just yet.

But what we see is identifiable and promising, and like I said, I think in about a month's time we'll be further along with the management team, the board, as to the right steps to take here..

Okay. Great. Thanks for taking the questions, guys..

Thanks..

Thank you, Craig..

Our next question comes from the line of Richard Newitter..

Hi. This is Robbie (28:25) in for Rich.

How are you all doing?.

Good.

How are you?.

Hi. Thank you for taking the questions. So a couple on the EBITDA margins.

First, I was hoping you could give us a range around what you consider mid-30%s, what the range is on the EBITDA margin? And then how you see that fluctuating, say, in an investment year and a leverage year? And should we think about 2016 being an investment year?.

So, Robbie (28:53), one thing I've always said when we're out on the road is mid-30%s is going to be 33% to 37%. There's a swing by quarter that will occur there because we won't run it quarter by quarter. We're going to invest for the long term.

The 2016 investment year, we're still striving to be in that 34% to 35% range, towards the upper end of that. But somewhere flexing there and depending how we scale up and when we scale up. That's really what we see based on the plans we have right now..

Great. And then maybe one on guidance. Fourth quarter I guess with your new guidance implies a little bit of growth or deceleration. I know that you're expecting the TTOT to annualize there.

Anything in the quarter that would imply anything worse than the deceleration that I think about 8% or so, or 7% to 8%? Any trends that we should be aware of there? Or it seems like you're being conservative there..

Well, a couple of things. When you look at the $539 million number, it's roughly a 14% year-on-year growth. And again, you're in a 3% market, so when you look at that amount about pacing and share, which I think is conservative, we are, to your point, anniversarying TTOT, and we will see that impact occur in Q4.

But we do not see outside of currency and the anniversarying of TTOT any headwinds that are new for Q4. And we'll always look to surpass. But right now this is the right conservative approach with what we see in front of us..

Great. Thank you..

And our next question comes from Jonathan Demchick..

Hello. Thanks for taking the questions. Wanted to follow up on a few of the questions that were I guess asked on Trauma. I assume that most of the investments to date have been more on the product side of things. But how should we think about the investments that are going to be made – that are going to need to be made, I guess, on the sales side.

Is the expectation that you'd want to – is Trauma really the main target for M&A at this point? Or is that one of your primary lookings there?.

Thanks, Jonathan. This is Dave Demski again. Yes. To date all of the expenses have been related to product development and getting some products to the FDA. As we get closer and we get more products in the bag or anticipated, we will begin to build a sales force.

That's a different call point, a different set of physicians, so it will be a separate sales force and we will be hiring from the ground up there. That will probably be more towards the end of next year. But we are actively looking for acquisitions that make sense to get us a jumpstart on that market and some momentum.

We have not gotten very close to anything at this point but we are very active in looking..

Thank you. And just a quick follow-up for Dan. Obviously, international is not a major part of your all's business, but clearly FX has still been a pretty major impact across the board.

How should we be thinking about the actual earnings and margin impact that FX pressures have been placing on you guys this year so we can think about more organically how margins have trended?.

Well, that's what we were saying in there, Jon, was you know, what I had found after we had looked at this a little deeper is, while we have about 1 point, 1.5 points of top-line impact with the FX, it was much bigger on the bottom line, more towards that 3%.

And so once you do look at that, really what I want to signal to the group is our top and bottom line, even with the investments in emerging technology, are growing at par, even certainly above. What we're seeing in this year in particular is that erosion due to the change in the dollar..

Thank you very much..

And our next question comes from William Plovanic..

Great. Thanks. Good evening. Just a couple of questions. One on Trauma.

As we think about going after Trauma, is there any specific segment that you're going to go after? Is this going to be hot trauma, cold trauma in the foot and ankle segment? Are you willing to share that at this point?.

Hey, Bill. Again, this is Dave. We're not saying a lot of details, but the way we've approached the spine market is probably similar to the way we're going to approach the trauma market. We've partnered with clinicians to look for problems, unmet needs, if you will, in the market and come up with solutions.

In the spine, we've done it up and down the spine. We're agnostic in terms of approach, cervical, thoracic, lumbar, anterior, posterior, lateral. So I think we're going to attack the orthopedic trauma in the same comprehensive way.

We feel like we need to have a complete bag in order to have the quality in our sales force that we need to penetrate the market..

And is this going to be a direct channel or independent agents as you think about that segment?.

We haven't made any final decisions there..

And then on Spine, I feel like we've heard more and more discussion in topics relating to the deformity market.

And with the current set of products you have in deformity, are there any glaring holes or anything you're missing to really go after this sub-segment of the market? Given your history of iteration, innovation and breadth of product offering, I would think this is a sweet spot segment for you..

Thank you, Bill. I think I said this about a few quarters ago. As we've built up the CREO platform, and that's where most of our deformity solutions are going to come from, we identified about 18 different systems that we need to be part of this platform and we are more than two-thirds of the way complete with the introduction of these systems.

There are a few more products that we'd like to introduce. But even as we stand now I believe we have, if not the most, one of the most comprehensive deformity platforms now. And what we're working on now is trying to bring out technology to solve what we think are unsolved problems not using the same type of treatment that is currently being used.

And we will have several projects in the pipeline to work on that and I'm hoping that we will be able to make a big difference in the treatment of some of these children..

And then last question, and I know it's been asked. But when I look at the guidance for Q4 and a flat Q4, you're basically guiding Q4 the same as Q3. And even with TTOT and FX and everything you're talking about, even the comps, it just seems like that's a little low, so it tells me you either had something that was one-time in nature in Q3.

Is there something I'm missing?.

Bill, not really. The methodology is simple. I think we had a strong quarter and we're committing to actually repeat that knowing what we know with this in Q4, so we're just carrying that forward.

We're taking the bottom line and through leverage and other opportunities, we're going to increase the guidance by $0.01 on that quarter along the way, and we want to be perfectly conservative.

Again, we'll strive to beat that, but just everything we know today, we're not signaling headwinds or anything that we're aware of so much as we think this is a strong quarter, we're having great growth for the year, we're going to commit to that taking it into Q4..

All right. That's all I had. Thank you very much..

Thank you..

Thanks, Bill..

Our next question comes from the line of Ben Andrew..

Good afternoon. Thanks for taking the question.

On the Trauma side, David, over what timeframe do you believe that that can become even, say, 10% of the company's revenue base given both the investments you've made and absent an acquisition?.

Ben, I'm not sure we're willing to put a stake in the ground in terms of that kind of metric. We're planning to enter the market towards the end of next year and we're going to be aggressive in terms of our growth plan, but we really – you're talking about 2017 before any meaningful revenue begins. So I'm not sure when it would hit the 10% mark..

Okay. And then on the biologics side, obviously TTOT's been a good one for you.

Can you give us a sense of how that has done compared to the target for a $12 million contribution? And again, maybe even just directionally when you can get to the target of 10% to 15% of revenue?.

Thank you. See, we guided to $12 million for TTOT. We're doing a little bit better than what we guided to. We did think that we would lose some of the business they had and that hasn't quite transpired the way we thought, so it's doing a little better than what we thought it was.

As far as the 10% to 15% in biologics, I think over the next three years – it's three years to five years would be a right horizon for that. BMP is still a big part of the biologics space and so it's – when I say 10% to 15%, I do include BMP in those numbers, so that's a tough comp to overcome.

But I think three years to five years is the time horizon to think about that..

Okay. Thank you..

Thank you..

Our next question comes from Jason Wittes..

Hi. Thanks for taking the question. Just what you said about next year in terms of the expansion, it sounds to me like most of the spending next year is R&D spending, with the exception of the fourth quarter, which I think from, again to characterize your statements, is the start of spending for the infrastructure.

And is it fair to presume that the quarter we saw now in terms of the incremental spend for these two new projects is kind of the incremental spend we'll see next year, with the exception of the fourth quarter when you start to build out SG&A as well?.

Jason, it's Dan. I don't know if I'd go quarter by quarter. What I would tell you, and I think what we're signaling is we have spending in emerging technologies now even included in the results that we're delivering. As you go into Q4 of this year, you may see some uptick as we add some positions or get deeper into that but not a radical shift.

Next year, in addition to the continued R&D development of emerging technologies, we'll start to put together a commercial force primarily with robotics. Right now, I would be guessing to say that's probably more Q2, Q3. I don't have the exact splits with that. But, yeah, I think we would see an uptick to it.

That's what we've been signaling, even back when we did the Q2 earnings release, saying our intent is to start putting that together pre-revenue so that we can impact the market at a faster rate..

Okay. And then you mentioned that you are looking for potential acquisitions in Trauma.

Could we assume there's no limitation on size there? And in addition, is that to pick up distribution or technology and/or both? How should we be looking at that?.

Historically, we've done more of the size of bolt-on acquisitions. I think we could be a little more aggressive for the right target in this space, given that it's a new space for us. And the answer is yes, both distribution as well as potential products would be the focus..

Okay. And then, David Paul, one last question. You mentioned, through your time horizon to get to 10% to 15% of your mix being biologics. You're including BMP.

Should we assume that by that point you would have some type of stem cell or BMP alternative in your portfolio?.

Not a BMP product, per se, but we're hoping to have some type of stem cell alternative by then..

Great. Thank you very much..

Thanks..

And our final question comes from Dave Turkaly..

Thanks.

In terms of your robotic platform, and the comments you made sort of on deformity, is that going to be a focus as you roll that product out? Or you be really going into all procedures in spine?.

David, thanks for the question. We're really focused first on safe placement of pedicle screws, and then as we introduce it out to that one application, then we want to keep expanding it out. We see several immediate applications. The robot right out of the box is going to be able to do multiple applications.

But our focus first is on the pedicle screws. And as I've spoken in the past, when you have, especially in deformity cases, when you have rotated spines, it's a lot more important to have accuracy of pedicle screw placement. And that would be one area where the robot would bring significant benefits right away..

Great..

David, I would add just one other thing there. The robot is not limited to spine applications. We see potential cranial applications, other orthopedic applications, but as David mentioned, the first one is going to be pedicel screw placement, but the robot can address a much bigger market than just spine..

Great.

Last, just on the o-U.S., can you just remind us the big geographies you're in today? And are there any incremental that are coming on soon to help that grow faster?.

Well, the big geographies for us are countries in Western Europe like the U.K. and Germany and Belgium and then if you look at Asia, it's India and Australia. Those are our big markets. We have mentioned before that we've begun preparation to get into Japan.

We have some folks hired and we're working through the regulatory process there, and that I think is more going to be a 2017 issue..

Great. Thanks a lot..

Thank you, David..

And at this time we have no further questions. Thank you very much. This does conclude today's conference call. You may now disconnect..