NUVA
#At the time that we talked about this, the $1 billion and 20% operating margin was there, it's baked at the end of last year.
Our whole goal is to continue to drive that operating margin improvement.
We're committed to getting to 20%.
As a matter of fact, we're committed to getting to 25% over the time.
What we're doing is accelerated growth of that top line at the same time.
So, whether it's $1 billion and 20% at the same time, or if it's a year later, here there's going to be right around the same timeframe, but that we haven't given more specific guidance of exactly when 20% hits versus the last time we gave it, which was at our <UNK> Day.
What I would tell you is, we talked about 100 basis points of core operating margin improvement per year, we've executed well ahead of that for the last two years.
Last year was 400 basis points alone.
Q1, the core business was about 330 basis points and we're committed to continuing to drive that kind of discipline in the business.
So on a go-forward basis, once we get past this year of integrating NSO, we were pretty clear that you would see the improvement, that 100 basis points we've talked about would actually start to accelerate and become much faster.
NSO's going to help contribute to that.
Our in house manufacturing that isn't benefiting us this year will start to do that in 2017.
That's on top of the improvements we're already making.
So, there's quite a few levers out there that will start to accelerate that 100 basis points a year that you have heard us talk about with something much greater.
When you're thinking about the contribution from iGA correctly, the hardware pull through that comes from the planning capability and the intraoperative reconciliation is what's driving the results.
I would also say that as we get into the specific details with our folks who are managing those product lines, Derrick and Ross both articulate very clearly that the complexity of the cases are increasing as well.
What historically might have been an average of two levels per case that we're doing from a posterior perspective, or a fixation perspective, is now moving towards three.
And with that highlights to us is we're getting into more of those complex scoli cases, complex deformity cases, which is what iGA is targeting.
So we're very pleased with the progress we're seeing.
Clearly, the metrics internally that we're following are indicating we're having success in our strategy.
We're not going to get into parsing out the details of the iGA contributions specifically, but clearly you can see that playing through in the lumbar results.
You're thinking about it correctly.
I would correct you.
In Q1, it wasn't necessarily sales force efficiencies.
The headcount efficiencies were really back office driven.
More G&A support functions, which is something that we are focused and trying to become more efficient with our processes.
So that's where we saw some nice improvements.
But not necessarily in the sales force.
We're investing heavily in that area and see some nice benefits from it.
With respect to international, with the lower growth in Q1, we didn't see the benefit on the operating margin that we would expect to see as we get into the back part of the year and that growth starts to accelerate and we start to lever that business to a greater extent.
But to your point, as that happens, you do see opportunities in the operating margin and tax rate to benefit, as well.
Here are the level setting facts about the spine business through the eyes of a hospital.
It's one of the key questions I did a little research on before I decided to step off the Board into this role.
It turns out, the spine business at a typical US hospital represents somewhere between 15% to 25% of their EBITDA.
It is one of the best service lines they have.
The other reality though, is that just because of the complex nature of running a hospital, not all of them can see it.
So when I look at that, I'd say it's also a business that's going in the right direction even from there.
Demographics will lead to ever more spine surgery.
We all want to live a more vibrant vital life.
And to the extent we can make spine surgery more approachable, more minimally invasive, more spine surgery gets done.
The bottom line is the conditions for a great business through the eyes of a hospital are there today and they're even better tomorrow.
So, at NuVasive, we're going to be laserlike focused on helping them make that a great business for themselves and for us.
And I fundamentally believe that focus wins, and will win all day long against other competitors that are trying to do something that is very difficult to do, which is combine economies across service lines and then get something done.
I mean I'll take our chances as being a focused company and winning in what is a very good business called spine.
What you are seeing happened in the international business is procedural selling.
And I think XLIF is an example of procedural selling, but we have a lot of procedures now that we're a full line spine company.
And so what you're seeing different versus in the past, was in the past, we would just be talking about XLIF primarily and then sometimes getting table scraps called pedical screws.
What you are seeing now though through intensive training, investment is we're talking to clients overseas just like we do in the US, that you have to focus on procedures and procedures will deliver better outcomes.
And I think we are just encouraged so far, by what we are seeing in Germany and the UK.
But you're also seeing us not getting ahead of ourselves for the year 2016.
We think it's going to continue on in a very good way, but we've got seven more quarters to prove that out to ourselves and to our investors.
All right.
With that, we will now bring the earnings call to a close.
Operator, you can disconnect us.
Thank you very much everybody.
