NUVA
#Let me have <UNK> answer that one, and then if there's any numbers follow-up, we'll give that to <UNK>.
So talk deformity.
Not to give you a diatribe but I would tell you that we went head long into adult deformity, which is really an extremely complex surgery, where in essence you have a fixed spine.
And so the whole iGA element is really trying to bring about the culmination of less-invasive approaches to correcting alignment.
And so clearly, we made a significant bet on that, and we've seen significant momentum as it relates to the delivery of iGA, and in that through align and through a number of interbody elements and in our IOS contribution.
It's clearly an opportunity and a place that we want to participate, and we believe there's significant innovation opportunity with regard to what Ellipse has done with early onset scoliosis, and where we're heading into the idiopathic space, as well.
It's clearly ripe for a fresh look, and an aggressive approach, and I think that the Ellipse thing gives us nothing but momentum on our way into exploiting that opportunity.
The only thing I would add to it is I think you've got a total deformity market all inclusive of adult down through early onset of close to $2 billion of opportunity.
With the acquisition of Ellipse Technologies we can now play really in that entire space, and the whole $2 billion becomes available to us.
That's how we think about the opportunity around deformity.
You bet.
So we would agree with that last comment, that the NuVasive representative in the OR is one of the key factors that drive the surgeon to want to be a partner, a member with NuVasive.
That said, early in 2015, we experimented with creating the clinical associate role, a person with a good operational room experiential set, deep training in NuVasive technology, and an understanding of how to be a service partner.
And we prototyped that in a couple of geographies, to see if that could be a way, as we have said in other venues, to then remove the more expensive, if you will, sales representative, and let them hunt a bit more.
So we tried it out in certain geographies.
The results came back extremely positive.
Having said that, we still are very cautious about the rollout of that idea across the nation, across the world.
And so what happened in the balance of 2015 was we sat down with each of our major sales representatives, we caucused with them to see if they wanted to try this out, and we probably deployed ---+ actually I'm not going to disclose how many we deployed, but a fair amount of them across the United States, and measured then their impact.
What we found when we deployed them was we didn't lose customers, and we actually accelerated our growth rate in those geographies.
So it's a good idea.
It's an idea that doesn't fit everywhere.
Depends on the surgeon.
We're ramping up the idea in 2016 in the right geographies to get additional growth.
That's how we think about it.
Well, let me answer the question by always coming back to first principles.
So for us, it's about a return on invested capital, and it's about delivering a strategic advantage.
We want to be very disciplined on the deployment of capital, and if it's going to be more of a tuck-in, a smaller acquisition, we want to get the return on capital above our weighted average cost of capital meaningfully, within three years.
Something bigger, transformational, certainly by five years.
As a point, Ellipse Technologies and all of our work and all of our modeling certainly meets those goals.
Because of the very fast revenue growth we're seeing, and we have planned for the business.
We built out a very competent, very strong corporate development team to allow us to not only understand our own innovation, but what others are doing, and seeing when and if it makes sense to make acquisitions.
So we are always looking at things.
I do anticipate that we'll probably make other acquisitions in 2016, but I'm not going to comment on how big or small they are or if we need to take on debt or not.
I come back to my first principle.
We're going to be extremely, extremely principled in the deployment of capital.
China is still a focus.
Beyond the headlines, beyond the volatility, healthcare spending in China remains very strong.
The growth rates in the healthcare market in China are substantially above other markets around the world.
We have zero presence there right now.
And if anything, now is probably a better time than before to buy assets if you're going to move into China, just given the rest of the uncertainty in the world.
I'm not ready to announce anything because again, I come back to first principles, any deal we do is going to be a good deployment of capital.
Yes, <UNK>, it's <UNK> here.
The one thing that we're up against in that biologics segment which falls into the surgical support, is going to be tough comps.
We were growing biologics 13% or so in Q1 and still roughly double digits in Q2, and then in the back half the comps get a little bit easier.
So we've got to work ourselves through that.
But over time, you would expect biologics would pull through, comparable to your hardware growth, which is really your procedural volume.
So once you get through the tough comps you would expect to see that category start to come back in line.
And then the other thing that falls down into surgical support and other is just the services business, which has generally been growing in the low single digits.
We would expect that would continue at along that same trajectory, and that's what we've modeled in.
But that's going to continue to grow at a slower rate than the overall procedural growth, at least for the time being.
But I think over time, you should see that category get closer to the procedural growth that you're going to see in the spinal hardware column or category.
This is <UNK>.
We're extremely enthusiastic about the unique utility of that mechanism.
There's a fair amount of experience already, obviously in the limb lengthening side, and the translation of a limb lengthening strategy to a complex trauma strategy is somewhat straightforward, and it has great momentum.
So we have great enthusiasm as it relates to the elements of R&D that's been done up in Ellipse prior to the acquisition.
So I see every reason to perpetuate that.
I think the same way that we're thinking about the R&D strategy.
We believe this to be a nice little assembly of really specialized orthopaedic products.
And so we see it as an opportunity for us.
And so really no change in terms of the way that we're thinking about the go-to-market strategy other than really bullish on what we believe the opportunity will look like.
The big issue <UNK> was around Brazil, frankly and not being able to get any money out of the country to get paid and recognize that revenue.
That's what we saw in the quarter itself.
Our guidance had anticipated that we would continue to sustain the historic trends within that business, and their ability to pay.
We didn't anticipate some of the benefits we had from the prior year.
If you remember, we talked about that quite a bit back through the middle of the year, that there were some one-time benefits in 2014, and we said they wouldn't repeat in 2015, or at least we wouldn't guide to them, but we thought the core business would continue.
What we saw in the fourth quarter was the inability to get any dollars out of the country at all.
So we didn't recognize much of any revenue in Brazil.
The underlying procedural volumes were still there, though, and they're still being performed in the country.
It's more a timing issue.
That cash will come.
The revenue will come.
But in the quarter itself, we weren't able to recognize it.
Now that the incremental challenge that we hadn't fully anticipated and that was really isolated to Brazil.
There was some headwinds in the Middle East that we talked about, but between the Middle East and Brazil, those were really the challenges.
The transitions we made throughout Europe, as we noted with Germany specifically, we're seeing growth come back in a pretty dramatic way, 30% growth in the quarter.
It's more a timing issue, just working through the ability to get paid from some of these distributors.
We get asked that question quite a lot.
And we reply very simply that we haven't seen any change on the competitive set, or the competitive dynamics in the field.
And I would just make a personal comment that usually management change at those big companies just creates a ripple effect of uncertainty, and then a lack of further focus on execution.
So that's what we think.
It's relatively nominal in terms of its growth expectations next year.
We're not looking at it to contribute to growth.
We're also not looking at it to go backwards in a meaningful way.
But at the same time, there's not a whole lot of room to go backwards.
It's not a significant part of the business, and with the soft year that Brazil had, there's not a huge base that we're working off of.
The plans in guidance is more or less flat year-over-year in those markets and the growth that you see in international is really coming from our direct markets, which are primarily Japan, Italy, Australia, now Germany that's coming back online with some nice growth.
That's what's going to be fueling the overall growth.
You got it.
I think I spoke directly to that.
Yes, it's 20%.
We haven't disclosed that for a while.
I'll tell you the last time we did talk about it, it was about a third across each region.
Obviously with the growth in Asia-Pac accelerating well beyond the overall international growth, it's more weighted in that area, and Latin America's become much less.
It gives you a sense of where it might be.
Sure.
So clearly, the tax rate continues to be well too high for a Company of our size, and we know a big part of that comes back to our international presence, and the ability to drive profitability there, and we're focused on doing that.
At the same time, we're making good progress in bringing it down.
We came into the year guiding to an expectation of around 47% on a non-GAAP tax rate.
We saw it come in around 42%.
We made good progress over the course of the year, and we would hope to repeat that progress as we head into the future.
There were a couple one time discrete items that helped us get there in the current year, that at least at this point, wouldn't repeat.
So I think if you normalize it, you saw us generate 300 basis points of improvement.
Our guidance is roughly 100 basis points of improvement next year.
We feel very good about that, but to the extent we can accelerate international and the profitability efforts there, we should be able to move more quickly.
AttraX is coming along well.
We plan to roll that out in a broader launch in the US in the mid part of the year.
So you'll start to see some contribution from that in the back half of the year.
I would say things are going fine there.
That's right.
If you were just to look at core NuVasive business with no acquisition on a constant currency basis, yes, 20%.
Perfect.
Thank you very much, <UNK>.
It wouldn't be any fun if we told you what's coming.
What I want to give you assurance on is that the current agenda of fundamentally improving execution, delivering great improvement in profitability, and continuing to invest in innovation, whether it's our own or acquiring key technologies, is going to continue.
And I would further add that while I don't control it, I at least anticipate it, that the competitive playing field really won't change very much in the next 12 months, and we think we'll continue to gain market share as a result.
We're feeling, as I said in my prepared remarks, while the world is volatile around us, we're going to be steady, and we think we're going to have a great year.
I think we're all good.
Thank you very much.
