NUVA
#Thank you, Shae.
Welcome everyone to NuVasive's second quarter 2016 earnings call.
I want to apologize for the technical difficulty that we had.
Appreciate everyone's patience and we will try to get through this as quickly as we can.
Today's earnings release, which we issued earlier this afternoon, is posted on our website, as is an investor presentation, both of which have been filed on Form 8-K with the SEC.
We have also posted supplemental financial information on the IR website to accompany our discussion.
On today's call we will be covering information that is included in the investor presentation and I encourage you to access these materials so that you can follow along.
But before we begin today, I'd like to remind you that the discussions during today's call will include forward-looking statements, which are based on current expectations and involve risks and uncertainties, assumptions and other factors, which if they do not materialize or prove correct could cause NuVasive's results to differ materially from those expressed or implied by such forward-looking statements.
Additional risks and uncertainties that may affect future results are described in NuVasive's news releases and periodic filings with the SEC.
We assume no obligation to update any forward-looking statements or information which speak as of their respective dates.
This call will also include a discussion of several financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP.
We generally first to these as non-GAAP financial measures.
These measures include our cost of goods, gross margin, sales marketing and administrative expenses, research and development expenses, operating margin, non-GAAP earnings per share, free cash flow, and EBITDA.
Reconciliations to the most directly comparable GAAP financial measures can be found in the news release and supplementary financial information, which are accessible from the investor relations section of the NuVasive website.
Joining on today's call are <UNK> <UNK>, our Chairman and Chief Executive Officer, Pat <UNK>, our President and Chief Operating Officer, and <UNK> <UNK>, our Chief Financial Officer.
With that I'll turn the call over to <UNK>.
Thank you <UNK> and good afternoon everyone.
I am pleased to report results for the second quarter of 2016 that reflect continued strong execution against our commitments to take market share, expand our operating profitability and delivered earnings growth as we continue to invest in the business today for future growth.
Earlier this afternoon we reported second quarter year over year revenue growth of approximately 16%.
During the quarter we continued to outperform the spine market delivering double-digit topline growth in the second quarter in a row.
On an organic basis, our revenue grew approximately 9%.
In line with our commitment to drive mid to high single-digit growth in our core business and reflecting strength across business lines and geographies.
This strong revenue performance coupled with year over year improvements in our gross margins and continued improvements our core SM&A spend, drove our non-GAAP operating profit margin higher than our internal expectations with 60 basis points of expansion to 15.9% and resulted in a 28% non-GAAP EPS to $0.40 per share.
Now let me elaborate on our Q2 results.
Total revenue exceeded our expectations coming in at $236.2 million.
Momentum with our integrated global alignment systems, or iGA, continued during Q2.
Marking the one-year anniversary of the successful launch of our game changing, surgical planning technology.
Continue to see strong acceptance of the platform across the core product areas within iGA strategy.
Our results continue to outpace our expectation with strength across all demographics.
The strength of iGA is also driving the pull through its spinal hardware.
As a result, we had another standout performance in NuVasive's cores US spinal hardware business largely driven by our [surfactual] lumbar business, which was up again double-digits year over year as well as continued strength across all procedural categories, posterior lumbar, arterial, lateral and cervical.
We continue to get favorable feedback from prominent surgeons who are adopting iGA.
I want to share the feedback I recently received Dr.
Ivan Cheng, who is Associate Professor of Orthopedic Surgery and Neurosurgery up in Bay Area, at Stanford University.
Dr.
Chang was an early adopter of our iGA technology and he praised the benefit the platform is having on this practice.
Chang has passed on to me.
He said that quote, the utility of iGA has allowed me to minimize the morbidity to patients, who have traditionally required significantly more reconstructive surgery.
This has had both a clinical and economical benefit to my patients and the hospital, end quote.
Chang's comments echoed those of other surgeons who are realizing the benefit of NuVasive's procedurally integrative solutions.
Additionally in the quarter we benefited from the inclusion of the results from our NuVasive specialized orthopedic business, or NSO, for the full quarter.
Which reflected continued strong growth from our MAGEC and PRECICE products.
Over the course of the quarter we have made significant process in integrating NSO into NuVasive to capture commercial and operational synergies.
During the quarter we completed the transitioning of the US MAGEC distributors to our own NuVasive sales force allowing us to further integrate the NSO offerings and capitalize on opportunities that the NSO surgeon network is providing.
Based on the progress so far, we remain on track with the integration and expect to achieve the milestones we laid out at the time of the acquisition.
In Q2 international revenues grew 33% on a constant currency basis to $37.8 million or 35.8% as reported.
Including the contribution of NSO during the quarter.
Excluding the contribution from NSO, our core international revenues grew 18.5% on a reported basis.
As further evidence that our strategy to concentrate and go deep into each country is taking hold, we also delivered significant sequential acceleration in our core international revenue with revenue growing 24% sequentially from Q1.
The ramp-up we have seen in growth from Q1 to Q2 and our expectations for the second half of the year, we remain on track to grow our core international revenue by more than 20% for the full-year 2016.
In Q2 we successfully drove year over year growth in our core direct markets including Japan, Australia, and New Zealand, the UK, Italy and Germany.
In June, I spent time in several of our European markets meeting with the local Management teams alongside Jason Hannon, who took over the international leadership role a year ago.
Jason and his team are very impressive and passionate about the business they are building and they are making great progress in executing against their stated plans.
As a result of this work we saw revitalization in our core NuVasive EMEA markets in Q2 fueled by strong sales in Germany, Italy and the UK.
Importantly, we are also seeing meaningful initial contributions from thoughtful investments we made in smaller markets such as Belgium, Spain and South Africa.
We're please with localized business plans we put in place in the second half of last year are driving these nice improved results in the European [sector].
As you recall our share of the international spine market sits at 4.5%.
What this means is that we have a ton of runway ahead of us.
Over the coming years I am confident we can get bigger in these markets and more than double our market share.
As we've been communicating to you this past year, margin expansion is a key element of our effort to deliver value creation for our shareholders.
During the second quarter 2016 we delivered a 60 basis points year over year improvements in our non-GAAP operating profit margin at 15.9%.
Even as we absorbed approximately 30 basis points of headwinds from the NSO Acquisition and approximately 70 basis points from non-cash stock based compensation expenses versus the prior year.
As we've communicated the last year we are committed to delivering a nearly 1000 basis point increase in profitability in the medium-term.
Clearly there is tremendous amount of opportunity in front of us and the good news is it's all within our control.
The Company is a incredibly unique position today as we create value over the next several years.
It's not as if we're working on one particular level.
There are multiple levers available to us.
Sales force efficiency, international scalability, in-house manufacturing, and asset efficiencies.
These are all opportunities we can execute on ourselves and the majority of these are not even dependent on revenue growth.
For example, our efforts to achieve 100% in-house manufacturing remain on track with tremendous amount of work going on at our West Carrollton, Ohio manufacturing facility.
The phase one build-out of this facility is nearly complete with initial production expected to start in August.
I am heading there in mid August to welcome our new members of our work force and hold our first town hall at the new facility.
Today I'm pleased to be updating several components of our full-year guidance based on a combination of strength we have seen in the first half of 2016 and the inclusion of the Biotronic acquisition which was closed on July 1, 2016 and will be result starting now in Q3.
We are increasing our full year 2016 revenue guidance from $928 million to $962 million representing an approximately 19% increase over 2015 revenue of $811 million, getting us closer to that $1 billion mark sooner than we expected.
At the same time we're confident with the progress we are making to increase our operating efficiency.
And as a result we're also increasing our expectation for non-GAAP operating margin to16% resulting in approximately 60 basis point of operating margin expansion for the full year, up from our previous expectation of a 40 basis point improvement.
With our increased revenues and expanded profitability expectation combined with an improvement in our full year non-GAAP effective tax rate, which <UNK> will cover his remarks we are increasing our full year 2016 expectations for non-GAAP EPS to be approximately $1.64 versus our prior guidance of $1.48.
This new guidance represents a 25% year over year versus 2015 non-GAAP EPS of $1.31.
<UNK> will provide more details in his remarks.
During the quarter we made progress in several strategic initiatives that allow us to continue to build-out our procedural offerings and operate freely as we move the business forward.
In June, we announced plans to augment our internal growth and enhance our spine service line partnership offerings for health system customers with the acquisition of Biotronic Neuronetwork.
With the acquisition of Biotronic completed in July, we doubled the footprint of our service business across the US and have grown coverage and capabilities in key complimentary markets.
We have combined the service offering of Biotronic with our impulse monitoring business to create NuVasive Clinical Services, which will support more than 75,000 cases annually in the US, making it the nation's largest intra operative neural monitoring service provider.
With our increased capabilities to support clinical fulfillment through enhanced surgical monitoring and oversight capabilities, NuVasive is uniquely positioned deliver a consistently high standard of care, an increase of breadth, a differentiated product and services offered to help systems, as they seek to build out their spine service line.
Additionally, we reached a definitive agreement with Medtronic to settle over eight years of ongoing patent litigation between the two companies.
Removing the associated expenses of the legal proceedings and providing a clear protocol for resolution of potential patent disputes in the future.
Let me be clear this is a positive resolution for NuVasive and our shareholders both strategically and financially.
First, it removes the overhang of the litigation and allows NuVasive to operate freely in the marketplace covering our current portfolio and providing for a standstill for future potential products.
Secondly, we were able to settle the litigation for a one-time payment of $45 million, which is significantly lower than our reserve at $88.3 million that we had on our books.
The final result is that we can put this behind us.
Free up some cash and further focus on what NuVasive does best, bringing game changing innovation to the spine surgery marketplace.
As we look to build out the strong momentum from the first half of 2016, we remain focused on three core initiatives.
Drive innovation that addressed unmet clinical needs and improves clinical and economic outcomes to our customers.
Two, drive organic growth in the US and internationally while also pursuing strategic M&A that strengthens our leadership in spine.
Three, increase profitability through operational excellence.
We remain laser focused on these initiatives and additional opportunities that will allow us to improve our financial profile.
We have very clear pathways to improve our operating profitability, accelerate a meaningful reduction in our effective tax rate, and better convert our increased earnings to free cash flow over the next couple of years.
With our recent acquisitions well into the integration phase and tracking to our financial metrics these opportunity support and enhance our long-term goals for revenue growth, increased profitability and significant earnings growth.
In combination with our increased focus on disciplined spending and improved efficiencies, including a reduction in our CapEx burn rate and targeted increases in our inventory turns, we are confident we can become an even more profitable business with an even more attractive financial profile.
Turning to the bigger picture we continue to see tailwinds for NuVasive.
A macroeconomic environment that is stabilized, strong procedural volume and pricing pressures that can be largely offset with the introduction of innovative products and procedures.
We continue to take market share from the bigger spine players who remain complacent and the small spine players who are getting squeezed out.
We're doubling down on our investments to expand our sales force hiring feet on the street and providing our sales reps with world-class spine training.
And we remain committed to investing in the R&D necessary to further build out our portfolio to meet the needs of our customers.
When we can't do it internally we will continue to look for strategic tuck-in opportunities that will help us fill out our pipelines and extend our own reached to every aspect along the spine care continuum.
We have a very active pipeline that includes opportunities that complement our leadership position in spine, targeted geographic expansion and technologies that make procedures even safer for surgeons and patients, such as imaging and navigation.
As we have already demonstrated we will remain thoughtful and prudent in our approach to acquisitions and will ensure they meet our stringent financial criteria for investment.
In closing, I continue to be encouraged by our results of the first half of 2016 and we're very excited about the remainder of the year.
We continued to take share in the US and internationally and are well positioned to support our ongoing business initiatives and execute against our short and long-term financial goals.
With a clear vision of the future we are incredibly confident in our ability to drive both topline growth and profitability.
No other spine Company of our size and scale and is doing that today.
And now for more details on how we're doing it I'd like to turn it over to <UNK>.
Thanks <UNK> and good afternoon everyone.
Before we get started with the financials, let me remind you that many of the financial measures covered in today's call are a non-GAAP basis unless noted otherwise.
Please refer to today's earnings release as well as supplemental financial information on nuvasive.com for further information regarding our non-GAAP reconciliations.
As <UNK> noted we're very pleased with the strength we are continuing to experience in the business.
Our results for the second quarter of 2016 reflected this momentum with year over year double-digit topline growth, continued expansion in our non-GAAP operating margin, and nearly 30% growth in our non-GAAP earnings per share.
Turning the results of the second quarter of 2016, revenue came in at $236.2 million or 16.4% growth year over year including a $700,000 benefit from currency.
On a constant currency basis revenue for the quarter was $235.5 million or 16.1% growth year over year.
NSO generated $15.1 million in revenue for the quarter, which contributed approximately 7 percentage points to our overall growth rate on both a reported and constant-currency basis.
NuVasive core business excluding the impact of NSO during the quarter, grew approximately 9% on a reported basis.
On a pro forma basis, NuVasive and NSO combined to grow nearly 10% in the quarter, in line with our commitment to deliver high single-digit growth as a combined Company.
Our US spinal hardware business, which includes MAGEC and PRECICE performed well for the quarter coming in at $137.8 million, an increase of 18.3% year over year, including roughly 9 percentage points of growth from the acquisition of NSO.
Excluding the benefit of NSO, our core spinal hardware revenue grew 9.5% year over year to $127.5 million demonstrating the continued momentum of our iGA product platform.
Notably in the quarter, our core US lumbar business again delivered double-digit growth growing more than 10%.
Revenue from US surgical support came in at $60.7 million, up 3.5% compared to the same period last year primarily driven by growth in our M5 neuro-monitoring disposable's business.
For the quarter, while nominal, we saw an improvement from our biologics portfolio, which returned a slight growth after several quarters of year over year declines.
Our international business came in at $37.8 million up 35.8% on a reported basis or up 33.3% on a constant currency basis.
NSO contributed 17 percentage points of growth for the quarter on both a reported and constant currency basis.
Notably on a sequential basis, our core NuVasive business grew nearly 24% from the first quarter as the momentum in our European business where our revitalization strategy of focusing on the value of our differentiated procedural solutions, is taking hold and the benefit of going direct in our Latin America business are beginning to pay off.
At the same time Asia-Pacific, which has been fueled by the strength of Japan continued to grow very well in the quarter.
In summary, we are very pleased with our overall revenue results for the second quarter.
Based on the strength we saw in the first half of 2016 and the impact of the Biotronic acquisition we are now expecting revenue of approximately $962 million for 2016, which now includes a $1 million benefit from currency.
For the full-year, this represents approximately 19% growth year over year on both a reported and constant currency basis.
The Biotronic acquisition closed on the first day of our third quarter and going forward we will report the results from Biotronic in US surgical support as part of NuVasive Clinical Services.
While we do not quarterly guidance we have a number of moving pieces that are impacting the cadence of growth including the recent acquisition of Biotronic and the expectations of more pronounced seasonality in the back half of the year as a result of one less selling day from the second quarter to third quarter than normally experienced.
As a result we're guiding to revenues of approximately $243 million for Q3, which includes roughly $13 million from Biotronic.
Turning to the rest of the P&L, non-GAAP gross margin for the second quarter was up 170 basis points year over year to 77.8%.
Improving from 76.1% in the same period last year.
This improvement was primarily driven by the suspension of the medical device tax, which provided a benefit of 80 basis points and a favorable contribution from NSO of 90 basis points.
Pricing pressure remained in the very low single-digits at negative 1% had a negligible impact on gross margin.
As a reminder, we did not realize any contribution from our in-house manufacturing initiatives in the quarter as those benefits are expected beginning in 2017.
As a result of the recent acquisition of Biotronic which has a lower gross margin profile, we now expect full-year non-GAAP gross margins to approximate 76.4% versus prior guidance of 77.4%.
Non-GAAP SM&A expense as a percentage of revenue increased 40 basis points year over year to 56.9% up from 56.5% in the same period last year due to the addition of NSO in the current year period which contributed 40 basis points of headwinds.
In addition increased non-cash share-based compensation expenses created incremental headwinds of approximately 70 basis points compared to the prior year as a result of a higher share price, increased performance expectations, and a prior-year benefit did not repeat as it was related to departing executives.
Normalizing for those items our focused efforts to drive asset efficiencies continue to drive meaningful improvements in our underlying SM&A spend profile versus the prior year.
To reflect the impact of the recently acquired Biotronic we now expect full-year non-GAAP SM&A expenses a percentage of revenue to approximate 55.4% down from a prior expectation of 56%.
We increased non-GAAP R&D investment during Q2 with spending up 70 basis points to 5% of revenue compared to 4.3% in the same quarter last year.
This is primarily attributable to the continued investment in the game changing technology of NSO and our core NuVasive platform.
We now expect full-year non-GAAP R&D expense as a percent of revenue to approximate 5.1% versus the prior expectation of 5.6%.
Lower R&D expense as a percentage of revenue is reflective of the lower R&D spend profile associated with the recently acquired Biotronic.
In all we're making great progress in our efforts to drive profitability improvements with non-GAAP operating costs margin up 60 basis points year over year to 15.9% in the second quarter compared to 15.3% in the same period last year.
The 60 basis point improvement was meaningful when considering the fact that at the same time we increased our R&D spending by 70 basis points as we continue to invest opportunity to drive future growth and absorbed another 70 basis points of headwinds related to non-cash share-based compensation.
Adjusting for those items the underlying business realized an improvement of approximately 200 basis points in its operating margin profile.
In line improvement is meaningful and coming from the areas that represent the greatest opportunities both cost of goods sold and selling, marketing and administrative expenses.
Most importantly we're making this progress on the profitability front while at the same time accelerated the growth profile of the overall business and investing in research and development initiatives.
We're pleased with our performance for the first half of 2016.
And to that end we are increasing our profitability guidance and now expect a non-GAAP operating margin of approximately 16% for the year, which includes impact of the recently acquired Biotronic business.
An improvement of 20 basis points from our previous estimate of 15.8% for the year and 60 basis points of improvement compared to 2015.
Given the seasonality of revenue mentioned earlier and the impact of integrating the recently acquired Biotronic we expect a non-GAAP operating margin in the third quarter of 15.5%.
Moving further down the P&L, interest and other expense net on a non-GAAP basis was $5.6 million in Q2 up from $3.3 million in the same period last year.
This increase is primarily a result of the new interest expense associated with the 2021 convertible notes we issued late last quarter as it impacted all of Q2.
We expect full year interest and other expense net on a non-GAAP basis to be approximately $21 million unchanged from prior guidance.
Now turning to tax.
Our non-GAAP tax expense in the quarter was $11.6 million resulting in a non-GAAP effective tax rate of 36.6%.
Included in the quarterly results was the impact of the early adoption of the FASB accounting standards update, ASU 2016-9, which relates to stock is compensation and is mandatory for all US public companies to adopt, January 2017.
The ASU early adoption requires treatment as if it were implemented from the beginning of the year and therefore requires a recap of first quarter results and impacts both second quarter results and full-year expectations.
On a non-GAAP basis the impact was a benefit of $0.02 of the first quarter and the benefit of $0.05 for the second quarter.
For the remainder of the year, we expect the adoption of ASU 2016-9 to favorably impact non-GAAP earnings per share by roughly $0.04 in each of the third and fourth quarters resulting in a benefit of $0.15 for the year.
We now expect the full-year non-GAAP effect of tax rate of approximately 37% an improvement from the prior guidance of 41%.
I am extremely pleased with the work of our tax and accounting team who have been hard at work to address our abnormally high tax rate.
They have been making tremendous strides and based upon the recent work of the team including the early adoption that previously discussed accounting standard, we now expect that future progress of our tax rate reduction efforts to materialize much faster than anticipated.
While we expect our 2016 non-GAAP effective tax rate to be approximately 37% we anticipate that our rate in 2017 will move below 35% and will now be sub 30% and approaching the mid to high 20% by 2020.
The improvement is being driven by underlying operational improvements as the benefit we realize from the adoption of ASU 2016-9 will diminish significantly in 2017 and future years due to the fact that all outstanding stock options that have been issued have now been exercised.
To help you better understand the progress that has been made we have included a slide explaining our future expectations in a slide that we filed today on Form 8-K and posted with our supplemental information found on the NuVasive website.
Second quarter non-GAAP net income was $20.6 million or non-GAAP EPS of $0.40 compared to non-GAAP net income of $15.7 million or non-GAAP EPS of $0.31 in the same period last year.
Based on our overall performance for the first half of 2016 the addition of Biotronic Neuronetwork and the early adoption of ASU 2016-9, we are increasing our full-year non-GAAP earnings per share guidance to $1.64 up from our previous guidance of $1.48.
Included in this increased outlook for non-GAAP earnings per share is the expectation that diluted weighted average shares outstanding will be 52 million shares for the year.
Turning to our GAAP results.
GAAP net earnings for the second quarter of 2016 were $30.2 million or $0.57 per share, an increase of 186% compared to $10.3 million or $0.20 per share in the same period last year.
On a full-year basis we now expect GAAP earnings per share to be approximately $0.84.
Please refer to our earnings press release for the supplemental financial information file posted on nuvasive.com for further information related to our GAAP versus non-GAAP adjustments for both our second quarter performance and full-year expectations.
Adjusted EBITDA margin, which excludes the impact of non-cash share-based compensation was 25.3% for Q2, a 40 basis point improvement compared to the 24.9% in the same period last year.
Our cash and investment balance at the end of the second quarter was $331 million.
And for the quarter free cash flow was $9 million due to planned higher capital expenditures totaling approximately $34 million in the quarter to support new product launches and an anticipated ramp-up in volumes in the back half of the year.
As <UNK> mentioned earlier on the call in June we reached agreement on terms to settle all ongoing patent litigations with Medtronic.
This multi-year overhang is now removed and let me discuss how this impacts our financials.
First, we have more than sufficient liquidity to cover the one time $45 million payment to Medtronic.
As you may recall, when the original verdict in the litigation was issued back in 2011 the court ruled in favor of Medtronic with damages calculated at $101.2 million plus royalties.
Over time as the Company grew the Company accrued a litigation liability reserve of approximately $144 million.
And based on favorable court decisions in the first quarter of last year the Company reduced the reserve and recognized a litigation gain at the time.
And as of our most recent quarter end, the reserve was at $88.3 million.
The final settlement amount of $45 million is significantly lower than our current reserve and the cash that we set aside to manage through this matter.
This removes the risk of ongoing litigation, as well as the incurred cost of this type of patent litigation in the future.
In closing, we executed very well during the quarter.
We're certainly making strong progress toward our year-end financial goals giving us the ability to raise our full-year guidance for several key P&L items.
We're doing exactly what we said we were going to do.
We're investing wisely in the business organically and through acquisitions that meet our laid out criteria, we're integrating them quickly and efficiently and continue to take market shares through our differentiated spine procedural portfolio.
Based on the solid execution we're confident about our ability to execute in the back half of the year.
Thank you and now we'll take the call to Q&A.
Let's go to the next one.
We may be losing people with the technical difficulties.
Go to the next one.
Certainly.
As <UNK> and I said in our prepared remarks the US saw continued strength.
We think it's being driven by the integrated global alignment technology that then pulls through the hardware.
And it's reflective of innovation that I think NuVasive has come to be recognized for.
Internationally, we are making good progress across a number of geographies, Europe, Asia.
We're starting to get our Latin America business cooking.
So we didn't and we would not be reporting any distributor drawdowns or anything else like that.
The business is just good and strong.
Yes.
Certainly.
Le me have Pat <UNK> our President answer that one.
Pat.
Thanks, <UNK>.
The whole complex ---+ there's nothing more complex than fixed spine when a spine is fixed, controlling the alignment of the spine is probably the hardest thing that spine surgeons do.
I'll tell you that our growth profile is reflective of progress in that arena.
We couldn't be more excited, kind of a found a market for us is going to be on the early-onset idiopathic side.
We are in that process of running after procedural of solutions in both of those markets.
Our perspective is hugely bullish with regard to what we consider complex spine, which is fixed adult deformity.
And then from an idiopathic and early onset standpoint, I think with the addition of MAGEC, I think we are in great shape to stay the course and build meaningful portfolios in the other two areas.
Most certainly.
That may have Pat follow on my comments.
I would simply say that for us we believe that surgeons need to drive the innovation, that the procedure needs to have a set of requirements, and not the other way around.
That a robotics engineer innovated an arm that could be applied to spine.
So that's why we are approaching it in a very thought away in terms of that needs around imaging for minimally invasive surgery.
Navigation that allows true navigation in the procedure.
And then ultimately some level of automation.
But we think the cart is before the horse a little bit with some of the systems that are expensive, don't really automate the right things, and in the end won't give the pay back to the customers.
Pat, please why don't you say a few things about where we are going.
I guess foundationally, you can't have great navigation unless you have good imaging and you can't have a cannula holding or an arm holding a cannula in space without good navigation.
So the things that <UNK> talk about are really foundational to ever doing or ever really automating anything.
So as you look at the history of navigation and even imaging you look at stealth, which is a navigation for Medtronic's, been out there for close to 20 years.
It really hasn't been a hurdle from a market perspective and so I would say the adoption of those technologies has been less than what we have see with something like neurophysiology.
With what <UNK> talks about is completely integrated into a procedure.
What we're trying to do is really proceduralize technology and minimize radiation and enable people to get things done in a more remote way.
We don't feel like robotics is quite there from a market perspective.
We're watching it closely but more enthusiastic on the imaging and navigation end.
Good question.
That may just first make sure we are grounded on the answer that our financial guidance around revenues is mid to high single-digit growth.
We are really feeling good about where we are right now, which is at the high end of that.
But we are grounded.
That's our long-term financial guidance.
It's just important that we stay sober minded around all of that.
But with that, let me have Pat talk about iGA and how it's getting us new surgeons.
One of the things that I recall is stating from one of the publications that the most corrosive element to a durable long-term option is alignment.
And so the surgeon published on it and have accepted it.
What we are seeing is the ability to measure inter-operatively from a pre-op plan is really become a fluid part of a lot of these guys procedure.
There is a quote in <UNK>'s remarks that talked about a comment that Ivan Cheng.
And when you can avoid the morbidity of an osteotomy in the replace of an interbody implant in a measured realignment it's a very, very big deal.
Those big deals end up perpetuating amongst surgeons and so we are seeing very sound acceptance of our iGA portfolio through the very things I just described.
That's the way.
You are right it was a $0.05 impact in the quarter the ASU adoption was, so $0.40 would have been $0.35.
Obviously we don't give quarterly earnings guidance we are well ahead of where we expected internally and feel good about where we are at.
But, yes, it was a $0.05 impact of the quarter.
We like this business for a number of reasons.
One, it integrates in our neural monitoring capabilities in a way that we think is unique to NuVasive in terms of being able to extract value.
Second, we like it because it broadens the conversation with hospitals as they build out their spine service line.
So not only are we about hardware, in time we will be about imaging navigation automation.
And with Biotronic merge now with IMI, we have a very big service footprint to be in the operating room with them on tens of thousands of spine cases.
So it makes us just that much more strategic.
Lastly, we like it financially because there are economies of scale in this business.
And so as we merge those two entities and we continue to acquire more, we can really drive up the financial profile to meet or exceed the core NuVasive profile that we laid out for all of you.
So we like it for those three reasons.
We think it's a great part of the franchise and you will see us do more.
On the biologic side as I mentioned we saw that return from what had been a drag on growth down 3% or 4% for the last couple of quarters, it was up slightly a bit over one point for the quarter.
So we are seeing that start to turn.
So far it's been Osteocel Pro that continues to lead the results there, that's the majority of the overall portfolio.
I think would you've had is you've had a lot of new product introductions into this space over the course of the last 12 to 18 months.
Anytime you have that you typically see some trialing and ultimately I think you see surgeons come back to the product that they like the best.
I think that's what you're seeing happen with Osteocel Pro at this point in time.
Now in the back half of the year we have some exciting feeds coming out with the tracks that we will have launched, fully launched in the back half of the year.
You haven't really seen that play into the results just yet.
Repeat the question on the Ellipse side.
Sure from a revenue perspective you are pretty close.
Think about it is the core business up $10 million with about $3 million of incremental headwinds from currency and that gets you to that same net $7 million that you're talking about when you mentioned $11 million and $4 million.
Core business up $7 million on a net basis and then you add the $27 million from Biotronic you get right into the $962 million.
From an EPS perspective, there's going to be about a $0.15 impact coming from the adoption of the ASU benefit and then you're going get about $0.04 from Biotronic coming in.
You mentioned the litigation cost.
Most of that litigation has been incurred in the first half of the year so there wasn't a lot of litigation you had to take out in the back half of the year.
You'll start to see those benefits in future years.
So you're not going to get as much of that the current year.
Offsetting those tailwinds that I mentioned was the increase in the share count.
Given where the share price has moved up into the 60s, obviously still have a bit of the old convert to 2017 converts that still remain out there they trade further into the money and create some incremental dilution on EPS.
We have an opportunity either to take those out of the back half of the year at some point, where as they get exchanged next year you will see that dilutive impact the addressed as well.
But for the time being we're reflecting the higher share price.
That's about $0.02 to $0.03.
You do the math on those items there and you're going get right into the number.
We continue to make good progress in 2016 getting national contracts, big healthcare systems to adopt that vary set of procedural pricing service integration as you described.
We fundamentally believe the industry is moving past the pieces and parts that you could buy from the smaller entities that are losing relevance.
And they really want to partner with a Company that can do this integration that we just described.
It drives their economics, it makes our economics better too.
And I think it explains some of the growth we are seeing.
Shay, I think we ---+ I am hearing a lot of people are calling in and you are not able to hear them and they are not on mute.
I think because of the technical difficulties we will just conclude the call and try to catch up with people separately.
Apologize for the technical difficulties.
I know it was a real unpleasant experience.
We will get out the transcripts and probably post those up on our website so you have access to that sooner rather than later.
