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.

Matthew O’Brien - Piper Jaffray & Co. Jonathan Demchick - Morgan Stanley & Co. LLC David Harrison Roman - Goldman Sachs & Co. Matt Miksic - UBS Securities LLC Craig William Bijou - Wells Fargo Securities LLC Robert A. Hopkins - Bank of America Merrill Lynch Kyle Rose - Canaccord Genuity, Inc. Kaila P. Krum - William Blair & Co. LLC Jason H.

Wittes - Brean Capital LLC David L. Turkaly - JMP Securities LLC.

Good day. My name is Ian. I will be your conference operator today. At this time, I would like to welcome everyone to the Globus Medical First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

I will now turn the call over to our host, Mr. Brian Kearns. Sir, you may begin your conference..

Thank you, Ian, and thank you, everyone, 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; 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 2015 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 schedules accompanying the press release and on the Investor Relations section of the Globus Medical website. With that, I'll now turn the call over to David Paul, our Chairman and CEO..

pricing, procedures and PODs, remain relatively stable in our view. Pricing pressure, which remained in the mid-single digits in the first quarter, was mostly offset by favorable product mix, primarily driven by new technologies. Procedural growth remains healthy, but off the pace we saw in the fourth quarter.

There were no significant developments regarding PODs in the first quarter, but we continue to be encouraged by the recent trends of certain PODs disbanding, and fewer new PODs.

In summary, as we invest and build towards our long-term goal of creating a diversified musculoskeletal growth company, we remain highly focused on the opportunity to grow our spine business worldwide.

We remain excited about our prospects as we continue to execute on our growth strategy of rapid new product introductions and worldwide sales force expansion, while maintaining our focus on profitability and cash flow. I will now turn the call over to Dan..

Thanks, David, and good evening everyone. As David mentioned, Q1 sales were $139.3 million, up 5.8% as reported, or 6.2% in constant currency versus Q1 2015. We're pleased with the continued financial strength of our business, where net income margin improved 140 basis points to 20.1%.

EBITDA margin improved 300 basis points to 38.2%, and EPS was $0.29 per share, up 13.2% versus Q1 2015, growing at two times the rate of sales. This is consistent with our long-term strategy of growing the bottom line faster than the top. U.S.

sales for Q1 were $127.6 million, a 6.3% increase versus Q1 2015, balancing continued market penetration and new product launches with sales force recruitment timing and on-boarding.

International sales were $11.7 million, a 0.7% increase as reported, or 5.3% in constant currency, driven by strength in key markets like Australia and Austria, where we more than doubled sales year-on-year, partially offset by the continued impact of the Q2 2015 Belgian price reset, Germany pricing, and timing of distributor orders.

Disruptive technology sales were $69.2 million, or 13% growth, driven by continued strength in our expandable technology, CREO MIS and biologics. Innovative fusion sales for Q1 were $70 million, or negative 0.5% decline, driven by U.S. sales force recruitment timing and on-boarding.

Turning to the rest of the P&L, Q1 gross profit margin increased to 77.3% compared to 75.6% in Q1 2015, driven by a $1.8 million or 140 basis point gain from the med device tax suspension, and $800,000 or 60 basis point gain through continued Branch Medical benefits working through inventory and into cost of goods sold, as well as cost improvement programs in logistics, partially offset by the continued shift in product mix, driven by biologics and single-digit pricing pressure.

The Branch Medical benefit will continue as planned in 2016. With approximately 35% of in-house production through Branch, we are forecasting a $5.5 million gross profit lift for the year, and projecting approximately $9 million benefit in 2017 that will increase to $15 million per year in the outer years, as we achieve 50% in-house production.

Research and development expenses for the first quarter were $10.2 million, or 7.3% of sales, as compared to $8.7 million, or 6.6%, for the same period in 2015. The planned increase in spending supports initiatives in robotics, trauma, expansion of our product development capabilities, and continued investment in research.

Investments in emerging technologies impacted Q1 EPS by approximately $0.02. SG&A expenses for the first quarter were $54.6 million, or 39.2%, as compared to $52.3 million, or 39.7%, in Q1 2015. The 50 basis point gain is attributed primarily to ongoing leverage and timing of legal expenditures.

The income tax rate for Q1 was 35.8%, compared to 35.4% in Q1 2015. The change in the effective tax rate is primarily due to a one-time impact for deferred tax assets as it relates to the reorganization of our domestic legal structure to better align our business operations.

This is partially offset by the research and experimentation credit, which is now included earlier in the year due to the change in tax regulations. The full year tax rate is projected to be approximately 34%, reflecting the ongoing benefit of the new U.S. tax structure. The first quarter net income was $28 million, an increase of 13.6% versus Q1 2015.

Fully diluted GAAP earnings per share in Q1 were $0.29 compared to $0.26 in Q1 2015, an increase of 13.2%. The med device tax benefit added approximately $0.01 to EPS in Q1, while investments in emerging technology impacted EPS by $0.02. Adjusted EBITDA margin for the first quarter was 38.2% compared to 35.2% in Q1 2015.

The med device tax suspension added approximately 140 basis points, Branch Medical benefits added 50 basis points year-on-year. We ended the year with $377.1 million of cash, cash equivalents and marketable securities. Free cash flow for Q1, excluding the benefit of the DePuy litigation settlement was $30 million. The company remains debt-free.

Our 2016 full year guidance remains at $583 million in sales with an EPS of $1.20 per share. Guidance reflects the strong 2015 quarterly comps, the anniversary of the TTOT acquisition and single-digit pricing pressure. We will now open up the call for questions..

Our first question comes from the line of Matthew O'Brien from Piper Jaffray..

Good afternoon, guys. Thanks for taking the questions.

Just to start with on the rep side of things, David, I know you've mentioned in the past it's difficult here and there to add those reps but I'm just wondering what is it now that's so much more challenging to onboard some of these reps?.

I wouldn't say it's more challenging, Matt. It's just that it's hard to keep the exact same cadence month after month, quarter after quarter and sometimes these tend to be interest for us (19:19) occasionally with really strong quarters and then we have a lull.

And I think we're in one of those lull periods now where our recruitment and productivity is not really on par with where we expect it to be but we've already taken steps to improve it and we've begun seeing the fruits of the steps we have taken in the on-boarding of several new reps recently.

And over the course of the year, we expect this to even out..

Okay. Just to push a little bit more on that. Historically, we've seen sometimes where some companies, some of your competitors, will be more aggressive in terms of guarantees, et cetera.

Are you seeing that right now in the market? You're not willing to participate in that, or is it just more just a function of cadence on your end in terms of adding the reps?.

I would say it's more a function of cadence on our end. We have not hesitated to spend when we find the best reps throughout our history and we haven't changed anything. So I would more attribute it to cadence on our end. And over the year we expect this to normalize..

Okay. And then as a follow-up what we're seeing in the U.S., some of your competitors, there's really strong performance. So I'm just a little curious as to your performance. Again, I know a little bit more challenging comparison. But are you finding it more and more challenging to take market share here in the U.S.

be it maybe cervical discs or getting more attention and it's just tougher to convert ACDF customers over or iGA is starting to get more attention, to some of these newer technologies that you don't quite have at this point making it more difficult for you to take share here?.

It's not particularly, Matt. I think it's really the reasons I mentioned earlier on. It's two main reasons for our guidance this year also as the extremely strong 2015 comps and then the anniversary of the TTOT acquisition. But I think the biggest Globus factor has been the lull in our sales recruitment and which we're working on to correct.

And we think this will get turned around. We don't see any particular deficit in any of our offerings or any new competitor threats that we see as a reason for this..

Got it. Thank you..

Thank you..

And our next question is from the line of Richard Newitter from Leerink Partners..

Hi, good afternoon. This is Ravi (21:57) in for Rich.

Can you hear me?.

Yes, Ravi (22:00)..

Hi. How are you doing? I just wanted to get a little bit more into the normalized growth at TTOT following up on the last question.

We're looking still at 7% to 8% and then a little bit more clarity on how some of the sales efforts are geared towards reaccelerating the OUS growth number which looks like it took a step down versus the fourth quarter at least?.

So a couple of things, Ravi (22:28). Really when you look at the growth in Q1, if you neutralize out for the TTOT acquisition, you still deliver the same results. It was relatively neutral in Q1. So when you look at what we've done in the U.S. at the 6.3%, that's not being lifted up by TTOT along those lines.

On the international side, to be honest with you, there really is a lot of strength that may not be showing right here. Over half of our countries combined grew at over 38% really for the first quarter. We happen to have three items that are out there that pulled it down.

One of them is just the fact that we have again that large price reset in Belgium that we've carried through the previous quarters and we'll anniversary in Q2. You have Germany pricing which has been slowly eroding through and not unique to us.

And then just really we've had a large couple of distributors that placed orders in Q1 of last year not necessarily repeated this year. In fact they came through in April not as planned in March. So thus when I look at that, I feel like we're on track to do some good health internationally. There's a few areas still to work on.

There certainly some markets we still need to penetrate. But I think we're on the right track..

Great. Thanks. And then maybe one more on the guidance. It sounds like the tax rate gets a little bit better versus what we were thinking after the puts and takes in the 1Q. Yet you reiterated the $1.20.

Does that factor in any sort of ramp-up in SG&A spend towards the back half of the year as you get closer to building out the state of trauma force (24:07) or how should we consider the expense cadence for the remainder of the year?.

You're spot on with that one, Ravi (24:14). So, first thing is we've got an EBITDA that's very strong at 38.2% now. And we expect that to be mid-30s% through the year. But as you just said, in the latter part of this year, you're going to start ramping up the commercial organizations pre-revenue for trauma and robotics.

And I would factor that into your modeling. That's why we haven't changed anything with the EPS right now. We're looking to just redirect that towards staffing up the group..

Okay. Thanks. I'll get back in queue..

And our next question is from the line of Jonathan Demchick from Morgan Stanley..

Hello. Thanks for taking the questions. David, I had a follow-up to Matt's original question on sales force recruitment. I was just kind of curious as I looked across innovative fusion and disruptive technologies, why innovative fusion is where the real impact there and they're I guess seems to be relatively resilient from disruptive technologies.

I would imagine that the sales forces are fairly consistent between the two?.

A couple of things, Jonathan. First is as we've always mentioned we've always seen our shift going from innovative to disruptive. It's about 50%-50% now. When we went public it was about 40%-60% disruptive/innovative. And we've always predicted that it will be 60%-40% over the course of the next few years.

But some weaknesses in innovative, I think, could be tied to some of our timing issues with our rep recruitment and on-boarding. Because pedicle crews are in the innovative bucket and when your hiring, recruitment and on-boarding is a little slower then those tend to be slower.

Anything else?.

Hey, Jon, it's Dan. And I would agree with that. I really think when I look at this, you've got that continued strength of expandables and biologics and things that are just growing in high numbers going through the quarters on the disruptive side. And really the largest portion of innovative is going to be your (26:25).

And that rate of growth is a little bit slower in Q1 than we've seen in previous quarters. And I really do think that's attributed to the on-boarding of the reps. So I think that's the main driver that may show that change in innovative fusion..

So should we be thinking of it as when you on board a new rep, I guess the initial growth that you get is more in the innovative fusion side. And I guess as they grow within the company that's probably when they grow more on to the disruptive technology side.

Is that kind of the right way to be thinking about it?.

That's fairly accurate to look at it. But the other piece that I mentioned earlier on is the shift from innovative to disruptive. So you also have this one phenomenon going on where our experienced reps are then beginning to switch some of their customers from innovative to the disruptive technologies for the same application.

So you have disruptive growing faster. I would say it's not just the newer procedures but also some of us cannibalizing our innovative fusion along with the on-boarding process..

Okay, very helpful. And Dan, I had a follow-up on the cash balance. Does that kind of continue to (27:41)? I think it's probably at this point somewhere around 15% of your market cap and I know M&A is a priority but it looks like it's been a bit harder to come by. So two things.

First how does the M&A pipeline look at this stage? Our priority is still in international and trauma? And second can you maybe help us understand how you think about return hurdles for putting cash to work, especially as you compare it to some of your internal development plans in trauma? And actually a third I'll probably throw in there.

Is there a point when, I guess, by growing cash balance, returning cash to shareholders make a little more sense..

Sure, Jon. Lot of questions. So let me go at that one. So a couple of things.

We are active and continue to be more active with a portfolio of M&A type projects and you are correct that looking at a stronger geographic presence internationally with our spine business, certainly always looking for innovative spine products it may help us out but looking for that bag or any other item that may get us to market faster on trauma is certainly a focus of ours.

And really from hurdle rates what we're looking to do is again the time-to-market and the increase of penetration be a way to stay (28:52) accretive to our business, and always looking for that reasonable payback is really the main measures that we use along those lines. The cash balance is looking at roughly 60% of our annual sales.

And we consider things to do. I still remain convinced that M&A is going to be the best and most long-term benefit versus anything like a special dividend. Certainly, I always had my eye on the amount of float and the dilution at gearing with stock options and we'll always consider that periodically to see if that's an option out there.

But I would tell you at this point, we don't plan as a management team to create any type of special dividends going out. We'd rather focus on executing some M&A opportunities..

Very clear. Thank you very much..

And our next question is from the line of David Roman with Goldman Sachs..

Thank you. And good afternoon, everyone. I wanted just to come back to this dynamic around U.S. sales performance as well as what you referenced in your prepared remarks, David, on the sales force. Because it seems to be a reasonable connection between the rate at which you hire reps and your top line growth rate.

So if you kind of look across the market, what we're hearing from competitors is a lot more noise, particularly from the larger guys about sales force retention, as well as much more aggressive marketing efforts. We saw that in J&J's results. Medtronic has been speaking pretty openly about a turn in their spine business.

So I'm hoping you could just talk about that in a little bit more detail and give us some perspective on resume flow or anything else that would give us confidence that this is just a one quarter blip?.

Thank you, David. I cannot speak about J&J and Medtronic but I can speak from our pipeline of sales force recruiting. It's extremely strong right now and we have begun to see the influx start even in April on the folks that we have hired. So I don't think – I think it's more of a one-time blip.

We've had these blips in the past and sometimes our expansion of sales force is more like a step function. We bring in a class and then it takes time to get those folks settled in and on-boarded before we bring the next class. So it's not a conscious effort on how to translate and make it a smooth ramp-up.

And then, based on non-competes, the conversion of business again takes some time. Sometimes in the vacuum of one rep leaving, we may get some portion of the business; sometimes we don't get it till their non-competes are done. So those are all different factors.

But overall to your basic question, I think, I don't see any difference in our ability to keep recruiting the best sales people from our larger competitors, and that pipeline seems to be extremely strong.

The one caveat I would add to that is, we've always been open about this – the second piece of our sales recruiting, which is hiring inexperienced folks and training them and bringing them into our system. We still haven't quite got this down to a perfect science, and we have been working hard at getting this into our system..

Okay. And then just a follow-up. Dan, one of the things, I think, you've tried to communicate with the guidance this year was a view that your relative growth rate versus that of the end market would converge.

It looks like, at least based on the first quarter, that's happened relatively quickly, because your growth slowed down and the market growth rate looks to have picked up, based on what peers are saying. So I guess, is this dynamic consistent with what you had thought when you issued the guidance? And then, just as corollary topic, just on CapEx.

How long should we expect the sort of elevated level of CapEx spending to persist?.

Okay. So, David, yeah, we did have the feeling that, again, coming off of the strong year in 2015 and having that TTOT without a replacement acquisition coming in, that we would be in a position like this, with that 7% growth rate. So we are where we really anticipated being in Q1.

And as we look for the year, that's where I think we'll be, of course, always looking to be beat that, looking for opportunities to drive beyond that. But right now, it just seems to be the most reasonable approach that we have that way.

As far as CapEx goes, we're spending that to flesh out robotics, as well as TTOT, as well as expand Branch and again, well within the power of the cash flow, and our thoughts initially with those type items are to at least spend through 2017. We'll evaluate where we are then.

But I don't see that as a necessarily large draw from us or any impact that way, just really part of the way to achieve the plans we set in place during the Investor Day..

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

Thank you, David..

Our next question is from the line of Matt Miksic form UBS..

Hey, guys..

Thank you, Matt..

...to follow up.

Yeah, could you hear me?.

Yeah. We can hear you, Matt..

Great. So, I wanted to follow up on the dynamics impacting the first quarter growth. I know that's been the topic here that's been revisited a couple times, but I just want to make sure I'm understanding what you're attributing it to, is on-boarding of these reps.

Am I right to interpret, David, your comments about this sort of alternative strategy for hiring and training reps, not necessarily expert spine reps, but folks who you see potential to become great spine reps.

Is that part of the issue, in terms of I don't know, to be deluding (34:49) some of your efforts, but becoming part of the flow of reps that you maybe don't have that perfected just yet? Is that possibly one of the factors here, in the flow of new reps? And then I have a couple more follow-ups..

I wouldn't attribute that to the newer reps without experience, Matt because the reason we're focusing on that, as well to competitive rep hiring is, we think, in the long term, we're going to be much stronger if we bring in those newer reps and keep building them because, in some way, there's an unlimited supply of them and there's a limited supply of competitive reps.

So that has still been ongoing for the last two, three years. We just haven't really gotten to the point where we think we can repeatedly bring a rep in and make him or her successful in two or three years from the inexperienced category.

We're working diligently on it, putting together the training programs in the office, as well as field-based training, to make sure we can make that happen with the inexperienced reps. But I would just attribute somewhat of a slowdown more to the fact that we have not expanded overall our sales force in the U.S.

and international markets at the same pace that we have been used to over the last several quarters..

Okay.

So just basically, (36:15) that sort of step function that you're describing?.

Yeah..

Okay. And then, on the – I think one of the other things you mentioned or, Dan, you may have mentioned, is this prior year TTOT integration and the comps related to that. And just so I can understand; it was my understanding that last year, knowing that we were kind of in the midst of the TTOT deal and integration, your organic growth was 6%.

This year, I think it's 7%, right? So I just wanted to make sure I understand, is there something happening in integration that's causing that to kind of ebb and flow a little bit, or consolidate in a way that's affecting the growth rate in the U.S.?.

For TTOT, not necessarily, so keep in mind that the revenues relate to TTOT were really more third party. We purchased that company, brought them in. We actually expected them to dissipate or go down over time, and we actually retained them.

The goal wasn't necessarily to grow them as a third-party, but rather use TTOT to generate our own biologic portfolio and drive that forward. And I think we mentioned our biologics being very strong in its growth perspective, 20% overall this quarter.

And so really what you see from them is, they become a component, just like Branch supplies our implants, TTOT becomes a supplier of biologic, and they become woven into our overall Globus..

Okay.

So nothing unexpected there, you're just pointing out that there's comps year-over-year that you're facing as you bring that integration in?.

Exactly..

Okay.

So I have to say, I think, speaking for investors a little bit of a head scratcher just because we have seen similar strength from some of the other players, or I shouldn't say strength on an absolute basis comparing to your numbers but just on a relative basis, better than expected and you've sort of come in, in line, so still a bit of a mystery, maybe we just won't understand it till the second quarter.

My question on profitability. Very nice step-up year-over-year in the margins. And I didn't – maybe I missed if you attributed that to – you didn't mention X, you did mention (38:41) in-house manufacturing.

Can you give us a sense of how the benefit was split across those kinds of factors?.

Yes, I can. So if you look at the EBITDA going up 300 basis points, 140 basis points is going to be because of the med device tax suspension. About 50 basis points is going to be coming through for Branch Medical. That would be the lift and that's going to be 200 points of your 300 points.

And then really the others are really attributed to many different things, be that the leveraging of SG&A that I had mentioned as well as less or lower transactional impacts that we had had for currency along those lines and some benefits within logistics as well..

Great. Well, thank you for the color..

Thank you, Matt..

And our next question is from the line of Craig Bijou from Wells Fargo..

Hi, guys. Thanks for taking the question. I wanted to start with the international business. I think, Dan, on the last call you said that you can see a path towards exiting 2016 with double-digit growth from the international business.

I wanted to see if that's still a fair assessment? And then just bigger picture, if I think back to the Analyst Day, you guys are almost or you guys are planning on almost doubling international sales by 2020. And you used $1 billion plus revenue number then and 15% of that was international, so $150 million. So that means you need $100 million.

So I guess my question is it seems like a big number and I wanted to, given the recent performance, I just wanted to kind of understand your strategic focus on the international business..

Okay. So Craig, a couple of things. Back to the Investor Day, we had also said we expect 2016 to be sort of high single digit year, going back to drive those other things. And so again, it is in line with what we thought. You're right we do expect international to exit the year double digits and we're still leaning towards that at this point.

I think one quarter where we're on our guidance we're not going to step away from our long-range plans. And I think that probably holds true that way.

And I think if you kind of look around this table at the leadership, none of us are daunted by the fact that we want to get to either $1 billion or that we see the need to double international by 2020 anything that comes off track from what we're planning to do..

Okay. And if I could just follow up on the gross margin. Obviously, I think you guys are going to get a little bit more benefit from Branch as you go through the year. So I just wanted to – gross margin came in a little better than we were expecting, so just wanted to – I think, Dan, you said that Branch would offset any of the price or mix pressure.

So just from a 2016 full year gross margin perspective, should we assume that you can get the same type of improvement that you got in Q1?.

Yeah, Craig, I think that's a fair question. When we did our guidance and we put out our $1.20 on the bottom line, I'm looking for the impacts along those lines of the med device suspension and the enhanced Branch coming through.

And so to be honest with you, we always say mid-70s%, and I would tell you right now with where we landed in Q1, and carrying that into the rest of the year is a reasonable way to model based on what we're seeing..

Okay. And if I could just squeeze one last one in on a follow-up on the tax. You expect 34% for the rest of the year.

What's the opportunity to lower that in 2017 and beyond?.

So a couple of things. What we're about to walk into in Q2 is a first step of a tax plan which is just the U.S. side of it. And that's really going to be worth roughly that one point that we'll see from Q2 forward and carrying into the next years.

We are currently working with our international tax strategy and the goal that I have is to finish designing that and get that in place in time for probably mid-2017. And I don't really have a number to tell you, gee, I think that 34% goes to X but I certainly have goals to lower this.

And we recognize that there is most opportunity there with the right structure. So my top priority for this year is to get that international in place and get it active as we enter into or as we are part of 2017..

Okay. Thanks for taking the questions..

And our next question is from the line of Bob Hopkins with Bank of America..

Great. Thanks for taking the question, I appreciate it. So a couple of quick things. First, just following up on earlier question about M&A activity in the pipeline of deals that you may have, how would you characterize the level of new business development activity and M&A activity currently that you're considering versus, say, last year.

Is that activity level higher, the same, lower, just want to get a sense for how active you are right now and what we might expect over the course of the next, say, six months..

Hey, Bob, it's a great question. I would tell you – again, as I'm here now for a year that the level of activity currently is higher than, I think, we or I had seen this time last year. I think there are lot more viable opportunities for us to make a difference.

And as a management team, we've been sorting through those now to understand which ones make the right sense..

So there's a question earlier about return thresholds.

But I was just wondering since you're such a profitable company and have done such a good job on targeted EBITDA margins, when you consider some of these things, how do you think about accretion dilution? I would imagine that most of these things you're looking at are on the smaller or less profitable side.

So I just wanted to understand how you think about accretion dilution as relation to some of this activity..

Really depends on what the deal is, right? So first thing we're going to look at is, are we able to affect this and drive sustained growth. And if that answer is yes, we need to understand if they're a short-term impact versus something in the midterm. We balance those through.

Again, as we're sitting with the 38% EBITDA, if we had the right acquisition we would consider resetting that and adjusting that accordingly as opposed to saying everything from this point forward must remain as is. But ultimately, it's going to be can we be accretive on our earnings per share over the long term for our shareholders..

Well, thank you for that. And then last quick question is back on this conversation on the innovative fusion growth in the quarter and certainly we have seen things ebb and flow over the years but the kind of flat growth that you saw this quarter in innovative fusion is the lowest in three years.

And so I guess my question is I heard all the comments on the sales organization and some of the hiring in April.

But I'm just wondering, in the quarter was turnover a little higher than you thought? Just want to again sort of ask you a question trying to understand that zero percent growth rate given that we haven't seen one of those in a while?.

Thank you, Bob. Generally we have turnover that happens throughout the course of the year that evens out but looking back over the last few months, maybe we have had a little bit more turnover than normal within our sales force. But again, looking at previous periods, they sort of tend to even out over the whole year.

That's why I don't think any one particular change of rep or loss of a surgeon has affected the results. It's more than a little bit more turnover but these things tend to happen in – spikes from now and then.

And so I think over the year when we look back at the end of the year, it's going to be about the same as last year but there had been a little bit more than we would like to see turnover in the past few months..

Understood. Thanks for taking the questions. Much appreciated..

Thank you, Bob..

Thank you..

And our next question is from the line of Kyle Rose with Canaccord..

Great. Thank you very much for taking the question.

Can you hear me all right?.

Yes..

Great. Sorry to belabor the question about the sales force but I just want to circle back there a little bit.

I just wanted to talk about what have you seen historically from a productivity standpoint of new reps? What's the time to get up to speed and ramp and began contributing? And I guess I understand encouraged by the new hiring that quarter-to-date as of April, maybe you can give us a little more color on the previous six, nine months from a hiring standpoint and where some of those reps throughout the productivity curve, just to give us confidence as we move through the back end of the year?.

Thank you, Kyle. Typically, I mentioned the two different buckets of types of sales people we've been recruiting. One is the competitive reps and then the inexperienced reps that we train. Typically our timeline for the competitive reps to get successful and into our system on straight commission is about two years.

And for the inexperienced reps, it's more between three to four years. That hasn't changed. It's more than our ability to develop and keep the reps that we've hired. It's the issue that we've been facing on the developmental side.

So, our sales management team is extremely focused on both the recruitment as well as developing and on-boarding these folks, so we can get them into successful territories. I don't know if that helps clarify your question..

Yeah. No, it is helpful. And then just one question on the model.

Was there any difference in selling days year-over-year? And then also, when you think about the emerging technologies and building out the commercial teams for robotics and trauma, could you just maybe give us a picture of what you envision those commercial teams looking like in the early stages? What the targeted hiring looks like and then expectations from a productivity standpoint there, and I'll hop back in queue.

Thank you..

So hey, Kyle, so the first thing – I'll answer the first part of that, there were no change in the number of days for us in Q1 versus Q1 of last year, so they both kind of stayed the same that way..

And Kyle, this is Dave Demski. I'll address the second half of your question. As David alluded to, we've hired a VP of Sales for the robotics division, and we will be looking for a senior executive for the trauma division. Hope to have that spot filled by the third quarter.

And they're going to be beginning their efforts to build out field sales management and then go on to the rep level towards the end of this year. At this point we're not going to share any target numbers with you but we will keep you posted as we move through..

Great. Thank you for the additional color..

And our next question is from the line of Kaila Krum with William Blair..

Hi, guys. Thanks for taking my questions. Just a couple quick ones. A follow-up on the U.S. I know you mentioned that your business is on track to deliver in line with full year guidance, but you also mentioned in your prepared remarks that the company grew below historical trends because of these sales rep recruitment issues.

So I guess, if these issues didn't occur in the quarter, do you think that you could have potentially grown the U.S.

business sequentially as we've seen you do in prior years?.

Look, tough to answer in a hypothetical sense. But you would think that, if you were to have less attrition and more on-boarding, I would think that we would deliver higher numbers. I would (51:03) say they would be in line or better than previous quarters, Kaila..

Okay, that's helpful. And then, I guess you all – I know you don't want to get too granular on 2017, but you're guiding 7% revenue growth in 2016 and the Street's now modeling 9% to 10% for 2017. So that suggests pretty substantial growth to get up to your $1 billion target in 2020.

Can you just give us a sense for, if this is the right way to think about the cadence there, or is there sort of a disconnect with expectations, in your view?.

I think the way to answer that right now is, again, as we look to exit this year at 7% guidance, as we've said, we would talk about the remainder of those years needing a CAGR for the sales of spine to be roughly 10% to 10.5% CAGR. Right now, I don't think I'm going to set 2017 guidance. I want to get another quarter under our belt.

I want to look and analyze where we are with this. So I guess, my advice to the Street would be, let's talk separately and understand where those models are falling out, but I'm not ready to make a commitment to that level for 2017..

Okay. Thank you..

And our next question comes from the line of Jason Wittes with Brean Capital..

Hi. Thanks for taking the questions. I just wanted to clarify on the cadence for the year. You kind of this last quarter (52:31) sort of a blip, particularly in relation to sales force.

Should we expect an acceleration in the second quarter, or is this going to be more backend-loaded as we look into build – to fit our numbers to your guidance?.

Jason, we give annual guidance and we feel really comfortable about our annual guidance. We don't want to comment on quarters. We're working really hard to make sure that we can improve on our sales force expansion. And that's all I'm willing to say at this point..

That's fair.

I guess, in relation to that, though, the product launches that you mentioned, should those also be contributory to the growth for the year?.

Absolutely. We had a strong quarter of product introductions. We launched six products in the quarter, and we have several more in the pipeline with the agency, as well as in production. And we're looking forward to having an extremely strong product introduction year this year..

Okay. And then, back on the trauma and your comments about building up the sales force. It sounds like this year, it's going to be mostly management, and I guess my assumption would be that you're really going to have to have a portfolio of products to really start attracting the better reps from the companies.

Is that the right way to think about it, and that's kind of the way you're building it, so basically management this year and then start filling it out with senior reps in 2017?.

In terms of trauma, that is correct. We're going to be going to the FDA, for sure by the third quarter, with our initial trauma products. And hopefully get through the FDA pretty quickly. So we'll be looking to hire reps early in 2017. For the imaging, navigation, robotics division, we will be hiring reps this year.

We plan to go to the FDA in the second quarter with that product. And again, we're not sure how long it will take to get through, but we will be hiring at the rep level for that division during this year..

Okay. And then my last question, just a general macro question. There are a couple of articles published in New England Journal of Medicine, I think, a few weeks ago relating to spondylolisthesis and the fact that fusion isn't really appropriate for spondylolisthesis patients. It's not necessarily, I think, a new data point.

But when we spoke to docs, we still found quite a few fusing patients with spondylolisthesis and no other sort of instability in their spine.

Is this something that you've looked at, and do you think there's any potential impact on the market from these types of publications?.

Thank you for your question, Jason. Not really. I don't think that there's any new information in this article. It is an article with extremely small number of patients and a lot of confounding variables within those patients. But surgeons today don't fuse everyone with spondylolisthesis.

It's always defined with the amount of instability that a patient has. So there's not really a whole lot of new information, and I don't think this is going to affect treatment going forward. The patients who were treated before with fusions for back pain are really no longer in the system, and that was more the controversial group subset of patients.

Spondylolisthesis patients with instability were getting fusions, and I think they will be getting fusions in the past – in the future. It's really – you have to define spondylolisthesis from grade one through grade four and then there are so many different factors that a surgeon before he makes up his mind to fuse or not to fuse..

Okay. Thank you very much. I'll jump back in the queue..

Thank you..

Our next question is from the line of David Turkaly with JMP Securities..

Thanks. Given that you said I think that some of the distributor orders internationally were pushed into 2Q, and that you expect that business to exit the year double digit.

Should we kind of assume that the sales growth in the first quarter is kind of the low-water mark for the year?.

Dave, I would think it's at least the area to grow from. And so I don't know if we'll see sequential growth along those lines. The anticipation from our model is that we would. I don't think it's necessarily related to just the timing of distributor but many other factors.

So yes, I think I'm looking for a stronger Q2 and as we go forward into the full year getting up to at least a double-digit number..

Thanks. And then I can't recall, have you – did you guys comment at all on free cash flow expectations for the year and could you just quickly comment on the increase in restricted cash in the quarter? Thanks..

Yeah. So we don't normally throw that out with our guidance. We usually just do the sales and EPS. We don't think there will be anything special or unusual with cash flow this year that we're aware of currently.

And there's not an increase in restricted cash rather a constriction of it because as we settled out our DePuy litigation in Q4, we reflected that on our P&L. In Q1, we're actually making a payment returning some items to cash. So that's really what you see, is that restricted cash set aside for that litigation now coming back into the mainstream..

Great. Thanks a lot..

And at this time, I'm showing no further audio questions. Presenters, I turn the call back to you..

Thank you very much. At this point, we conclude our First Quarter Earnings Call. We appreciate everyone for participating. And we'll be in the office tomorrow. If you have any follow-up calls, we'll be happy to help you out. Thanks very much for the call..

Ladies and gentlemen, this does conclude the Globus Medical first quarter's earning call. Thank you very much for your participation. You may now disconnect..