Globus Medical, Inc. (GMED) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Lucy and I will be your conference operator today. At this time, I would like to welcome everyone to the Globus Medical Third Quarterly Earnings Result Conference Call. [Operator Instructions] Please note that today's call is being recorded. Thank you. Mr. Richard Baron, our Senior Vice President and CFO, you may now begin your conference.

Good afternoon. Thank you for being with us today. Joining us on the call today will be David Paul, Chairman and CEO; Dave Demski, President and COO; Anthony Williams, Vice President; Ed Joyce, Director of Investor Relations. I will now read our required legal disclaimers. During this call, certain items may be discussed that are not based entirely on non-historic facts. These items should be considered forward-looking statements and are subject to many risks, uncertainties and other factors that are difficult to predict and may affect our business and operation. As a result, our actual results may differ materially and adversely from those expressed or implied by our forward-looking statements. A discussion of some of these risks, uncertainties and other factors is set forth in our perspectives filed with the SEC on August 3, 2012, and in our periodic reports on file with the SEC. These documents are available at www.sec.gov. We undertake no obligation and do not intend to update any forward-looking statement as a result of new information or future events or circumstances arising after the date on which it was made. The financial information discussed in connection with this call reflects estimates based upon information available at this time, and could differ materially from the amounts ultimately reported in our third quarter Form 10-Q. Our revenue, earnings, operating margins and similar items are sometimes expressed on a non-GAAP basis and have been adjusted to exclude certain items including, among other things, interest expense, depreciation, amortization, taxes, provision for litigation settlements and stock-based compensation. The comparable GAAP financial information and a reconciliation of non-GAAP amounts to GAAP can be found in the tables included in today's earnings release, which is available at Globus Medical Investor Relations web page at www.globusmedical.com. I will now turn the call over to David Paul, Chairman and Chief Executive Officer of Globus.

Thank you, Rick. I appreciate the opportunity to begin the first Investor Conference Call made by Globus Medical. Thank you to each of you for joining our call today. The third quarter was quite eventful for Globus. For those of you who may be new to our story, we are an engineering and product development-driven company, and our mission is to be the preeminent spine company by developing products that promote healing in patients with spine disorders. Globus continued its path of market-leading growth within the context of a fairly challenging spine market environment. Our product development engine continues to develop and introduce products that are innovative and are of the highest quality at a faster pace than others in our industry, giving us a critical competitive edge in dealing with pricing pressure, competition and helping us attract the top competitive sales talent in our industry. We achieved organic revenue growth this quarter of 12.5% year-over-year. We are proud of our execution this year, maintaining our pace of product introductions, while delivering on the bottom line with adjusted EBITDA of 35.1%. Through the first 9 months of the year, revenue increased 17.2%, with adjusted EBITDA of 35.7%. We are well positioned to execute our strategy on a day-to-day basis of rapidly introducing innovative products and solutions and productively growing our U.S. sales force. Our efficient cost structure, which is among the best in the industry, enables us to make ongoing investments to fund aggressive global sales force expansion, new product introductions and new initiatives such as Algea Therapies while maintaining our profitability profile. In addition to our industry-leading growth, we achieved 2 major milestones this quarter. The first was a successful completion of our IPO in August. The $115 million offering was the result of all the hard work and effort by our entire company over the last 10 years. It has been rewarding to have new shareholders that recognize the value created since our founding. And more importantly, have shareholders that appreciate our growth prospects for the future and share our long-term view of building this business. Secondly, as most of you know, late in the third quarter, we received PMA approval of our SECURE-C cervical artificial disc. This is the first PMA approval for Globus and we are proud of our product development, regulatory and clinical teams for this achievement. This is a testament to our ability to design, test, manufacture and conduct Level I clinical trials and obtain FDA approval of a new Class III device start to finish. Last week at NAS, we had an unprecedented number of surgeons visit our booth. Also, we garnered full attendance at our product presentations for SECURE-C, our percutaneous sacroiliac joint fixation system SI-LOK and our suite of lateral lumbar interbody fusion products. In addition, we also highlighted several new products at NAS that we introduced over the last 9 months, including: PLYMOUTH, our minimally invasive Lateral Plate System; RISE, our endoscopically inserted expandable spacer; REVERE 4.5, a new pediatric deformity system; FORTIFY, our second-generation expandable corpectomy spacer and the EXEMPLIFY, an allograft demineralized bone matrix. We are continually adding new platforms and next generation products and have a robust and deep product development pipeline. We expect to continue to launch 5 to 10 new products each year. In addition to our new products, this year, we have launched several line extensions and product improvements across our entire product portfolio, including coalition and independence and are in the process of completing the launch of Intercontinental. This exceptional response to customer needs and delivering superior products through our rapid product development engine will drive our sustained growth and profitability in the future. We are just now beginning to reap the benefits of being a public company, including the enhanced ability to attract competitive salespeople to our team. Although revenue growth in this quarter was not as robust as we would have liked, our overall progress this year remains on track with our expectations. And as a 5% market share player, we have a large runway of opportunity to increase our territory penetration. We expect to continue taking market share and are excited about our prospects for the future. I will now turn the call over to Dave Demski, our President and Chief Operating Officer, to discuss the results of the quarter in more detail.

Thank you, David. Our sales growth of 12.5% this quarter was primarily driven by continued adoption of our new products. In particular, revenue from our disrupted technology products increased by nearly 30% over the third quarter of 2011. We also continued to expand our geographic footprint, adding territories and increasing penetration in existing markets, both domestically and outside the U.S. As David mentioned, we are very pleased to receive PMA approval from the FDA on the SECURE-C device in late September. This approval was the culmination of an IDE study with 380 patients that demonstrated SECURE-C to be statistically superior to answer your cervical discectomy infusion, or ACDF, as measured in terms of: One, overall success; two, subsequent surgery at the index level; three, device-related adverse expense; and 4, patient satisfaction. All measured at 24 months post-op. The SECURE-C success is a testament to our capital efficiency and product development engine. This product was internally conceived and developed by the Globus team. In addition, we have a strong in-house group of regulatory and clinical personnel who conducted the trial and completed all aspects of the PMA, with minimal reliance on third-party consultants. Since the SECURE-C approval in September 28, we have launched the product in a rapidly conducting surgeon training programs. FDA require surgeons to be trained prior to using the device and we are conducting these training programs every week until the end of this year. We estimate the market for cervical artificial disc to be about $150 million worldwide. With the excellent clinical results showing overall superiority and the limited number of competitive products available, we expect SECURE-C to become a meaningful contributor to sales in 2013. And as David mentioned, third quarter adjusted EBITDA was 35% of sales, which compares to 37.3% last year. From our origins, Globus has maintained an acute focus on operating efficiency and return on investment, enabling us to simultaneously deliver strong profit margins while at the same time, we invest in our future. The primary cause of our decrease in profitability this quarter is the investment we are making in Algea Therapies. Algea is a division we launched earlier this year that is focused exclusively on pain management, interventional and diagnostic products. The separate sales force calls on pain management physicians and interventional doctors. We currently have over 30 experienced sales representatives in the Algea division. Sales have not ramped up as rapidly as we had hoped this quarter, primarily due to contracting difficulties in a number of significant accounts. The expenses associated with the Algea Therapies had a negative 2.4% impact on adjusted EBITDA this quarter. We remain committed to Algea Therapies, but do not expect a meaningful uptick in sales growth from this division until well into 2013. In July, we closed on the acquisition of Soltera Inc. We would characterize this as a small bolt-on technology acquisition. One of the assets we acquired from Soltera is a product called Shield, which is the first implantable, cement-directing stent product of its kind. This is a next-generation VCF treatment that received 510(k) clearance after the completion of an IDE study. We expect to launch Shield in the U.S. through our Algea Therapies division sometime in the first half of 2013. Our international expansion continues as planned and we are now in 23 countries. The infrastructure presence [ph] we have made over the past 3 years are beginning to show returns as our OUS operations are EBITDA positive on a year-to-date basis. We believe our future success will be driven by maintaining our focus on efficient use of resources, rapidly introducing superior products and continually expanding our sales footprint. In that regard, our status as a publicly-traded company, combined with disruption among some of our competitors has provided several meaningful recruiting opportunities recently, which we believe will reduce growth in the coming quarters. I will now turn the call over to Rick Baron, our CFO, to provide further detail on our financial results.

Thank you, Dave, and thank you, all, for joining our first conference call. Today, I will review our performance for the third quarter of 2012 as compared to the third quarter of 2011 for key elements of the income statement, balance sheet and cash flow. I will also highlight certain aspects of the performance of the company for the first 9 months of 2012 as compared to the same period for 2011. Our sales for the third quarter of 2012 were $94.8 million. This was a 12.5% increase over the third quarter of 2011, with sales of $84.3 million. Sales for the 9 months ended September 30, 2012, increased by 17.2% to $285.5 million. Innovative fusion sales increased this quarter to $57.8 million or by 3.6% from the prior year's quarter, while disruptive technology sales increased this quarter to $36.9 million or by 29.9% from the prior year's quarter. This increase in disruptive technology sales continuous the trend of becoming a greater portion of our sales overall. Sales in the United States for the third quarter of 2012 grew to $87.1 million or by 10.6% while international sales grew to $7.6 million or 38.3% from the prior year's quarter. Overall growth in sales was attributed to expansion of both domestic and international territories and greater penetration in existing territories and countries. Gross profit for the third quarter of 2012 was $75.9 million or 80.1% of sales for the quarter -- for the current year's quarter. This is an improvement from 79.7% gross profit from the prior year's quarter. Research and Development expenses. This quarter were $7 million or 7.4% of sales as compared to $5.9 million or 7% of sales for the same period of 2011. The increase of $1.1 million from the prior year's quarter was predominantly due to increases in product development expenses. Selling, general and administrative expenses were $41.8 million or 44.1% compared to $34.8 million or 41.3% of sales for the prior year's quarter. The increase in SG&A, as a percentage of sales this quarter, as compared to the prior year's quarter, is primarily due to our investment in Algea Therapies. Operating income increased to $27.1 million or 28.6% of sales for the third quarter of 2012 as compared to $26.5 million or 31.5% of sales for the prior year's quarter. Adjusted EBITDA for the third quarter of 2012 was 35.1% or $33.3 million as compared to 37.3% or $31.4 million in the prior year's quarter. The margins for the current 3-month period were unfavorably impacted by the factors discussed above. Income tax rate for the current quarter was 39% as compared to 36% from the prior year's quarter. The current year rate was unfavorably impacted by the expiration of the R&D tax credit, which has not yet been extended to 2012 and by the third quarter return to -- return to provision reconciliation. When normalized, we anticipate the tax rate to be approximately 37.5%. Net income was $16.5 million or 17.4% or $0.18 per share on a fully diluted basis in the third quarter of 2012. This compares to $16.9 million or 20% or $0.19 per share, again, on a fully diluted basis for the prior year's quarter. Net income was unfavorably impacted by the expenses discussed above and the effective tax rate for the quarter. Fully diluted share count was $92.7 million and $90.4 million as of September 30, 2012 and 2011, respectively. For the 9 months ended September 30, 2012, sales for this period were a record $285.5 million, which was $42 million or 17.2% greater than the prior year's 9-month period. This was due to overall strength in both innovative fusion, which grew at a rate of 7.6% from the prior year's period, and disruptive technologies, which grew at a rate of 38.6% of the prior year's period. Growth which occurred in both the U.S. and outside the U.S. was due to expansion of territories and countries in which we sell. Gross margin for the current nine-month period increased to $229.8 million or 85 -- 80.5% of sales compared to $194.2 million or 79.7% of the prior nine-month period. Adjusted EBITDA for the current nine-month period was $101.9 million or 35.7% as compared to $88.4 million or 36.3% for the prior 9-month period. Net income for the current 9-month period increased to $53.1 million for an increase of 12.4% as compared to the prior-year period. Fully-diluted earnings per share was $0.58 for the 9-month period ended September 30, 2012 as compared to $0.52 for the prior year's quarter. Fully diluted shares were $91.6 million and $90.7 million as of September 30, 2012 and 2011, respectively. Our cash balance was $195.2 million as compared to $127.3 million as of September 30, 2012 and 2011, respectively. The 9-month period ended September 30. Cash provided by operations was $57.1 million compared to $53.8 million for the 9-month period. Operating cash flow was impacted by the additional investments we mentioned earlier for Algea Therapies, expansion of the sales force and expansion internationally. Total investment in CapEx was $17 million for this current 9-month period and $13.7 million for the prior period. We continue to remain debt-free. Overall, we feel that we have performed well this quarter. We increased sales by 12.5%, launched and completed an IPO, expanded our international reach, completed a bolt-on acquisition and received PMA approval of and launched SECURE-C. We are well situated to continue our upward growth and remain steadfast towards delivering our industry-leading growth and profitability. At this point, we would like to open the line for questions. Thank you.

[Operator Instructions] And your first question comes from the line of Matt.

It's Matt Miksic from Piper Jaffray. So a couple of questions just following up on some of the color you provided, Rick, on some of the business lines. You had a pretty nice step up in MIS and -- I presume in MIS, but disruptive technologies, MIS being the biggest part of that. Could you talk a little bit about anything in particular in the quarter that drove that and any new products that drove that? And if we should expect that strength to continue into the fourth quarter or should we expect maybe something to ease off in the fourth quarter, and I have one follow-up.

Matt, our disruptive technology portfolio continues to grow because of products such as CALIBER, which showed a lot of strength in the third quarter, REVOLVE and our entire lateral portfolio. Our lateral portfolio has really been taken off these past few months and so that contributed heavily to our growth in the third quarter. And we do expect to see that continuing strength in the disruptive portfolio going forward.

That's terrific. And then in terms kind of going the other way, if we think about the trends, in particular in cervical, but in innovative fusion, a couple of things. I guess, one if you could give us some color on just how the training and launch of SECURE-C might impact your own cervical business line within innovative fusion? And then also stepping back and realizing the events in the last couple of days, is there anything we should think about in terms of the storm in the East Coast that might impact your fourth quarter here just because of what has happened this week and perhaps into next week?

Matt, it's Dave Demski. I'll comment on both of those. I think with regard to SECURE-C on our cervical business, we don't expect much cannibalization from our fusion products from the artificial disc. We really think there's a distinct market today for our artificial disc that we expect to penetrate. That will be, I guess the uptick is expected to be gradual given the training requirements that we have and then the insurance coverage issues that exist out there, but we do think it will be meaningful going into next year. And then in terms of Hurricane Sandy, first of all, we just want to express our concern and our prayers for those who are suffering for this disaster, and we're very thankful that none of our people or facilities have experienced any sustained serious injury or damage. We were shut down for a couple of days here. Fedex did not deliver out of Philadelphia, so we had to take some fairly extraordinary steps to get products to our surgeons and their patients, particularly as they were needed for trauma surgeries. Given the fact that our business is a little more heavily concentrated on the East Coast, I think the impact to us was probably greater than average and it is a bit early to tell, we're still gathering information, but it looks like the impact to us for the quarter might be up to about $1 million of revenue.

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

So David, you mentioned that you were a little bit disappointed with the growth in the quarter. Can you give us a sense as to what you thought you would grow this quarter and what really was the difference in what you thought you were going to do and the 12.5% that you're reporting today?

Thank you for your question, Bob. One of the things that has been repeated by everyone in the industry is some of challenges that everyone has been facing in terms of pricing, the proliferation of parts and increased competition in the more commoditized products. I think we expected all these factors going in, but my disappointment more or less would be more on us not being able to accelerate the recruitment and addition of more competitive sales reps. And I think that's really where my disappointment comes in. And then to a lesser extent, we did not expect Algea to take so slow of an uptick and -- so that is a smaller effect on our disappointment. But really, primarily due to our not having as many competitive hires as we would have liked to have. Now that has subsequently turned around, but that really is the genesis of my disappointment.

So can you elaborate there a little bit in terms of the sales organization? So where were you in terms of sales reps at the end of the second quarter and you said that situation has turned around. What does that mean exactly? Does that mean that the -- in the last couple of weeks, you were able to bring in the people you thought you're going to bring in earlier in the quarter. And if you could just elaborate that a little bit, that would be helpful.

Okay, Bob. We don't give out specific numbers on the number of sales reps. We don't intend to give those out. But in terms of competitive hiring, as I mentioned in my prepared remarks, we have been aggressive in hiring competitive reps and that has really picked up over the past few weeks and months. Without giving you specific numbers, I can tell you our hiring has significantly picked up.

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

I'm just trying to understand a little bit better what's happening here in terms of the moving parts. You saw pretty significant deceleration in top line growth. Obviously, what the peers have talked about has been a more difficult end-user market environment. But if I hear what you're talking about, David and David, you're hiring more people, you're bringing more products to the market, you're more aggressively ramping your efforts in training and you still have a shortfall. So it almost feels like you're running faster to stand still. I mean is that a result of what's happening in the overall spine market? Is there something that you need to tweak in terms of the model with respect to the MR. Can you maybe just help us sort of put all the pieces together here?

David, this is Dave Demski. I think you missed one aspect of what we said and what David just reiterated in that -- we're not pleased with what our hiring was in the third quarter. We've intensified the activity there. We have seen, I would call, a really robust pipeline of folks who are interested and we have accelerated that in the later part of the quarter and then into this fourth quarter. So we haven't seen any impacts of the hiring and we think there a lot of third quarter deceleration that you pointed out was a result of not hiring as aggressively as we should have in the second -- first couple of quarters of the year.

And can you maybe just give us some perspective on new hire sales rep today, how long on average to take that person to their really adding and how -- where would you call them half capacity, full capacity, is there really a quarter that we'd see the impact or there are non-competes that we should take into consideration?

It's very dependent on the individual circumstances. Sometimes even rep has a non-compete, there's a vacuum, so to speak, left when they leave their customer relationship that we can sometimes step into and get some of that business right away or our competitors do. So it can happen right away and it could take a long time. It's really very situationally dependent.

And then maybe for Rick as you kind of square those dynamics together against the income statement and David referenced in his prepared remarks their industry-leading operating margins, how does this sort of all impact the P&L going forward, if you're having to hire more, but the market remains sort of weak, what does that do to return profile of the business?

Overall, it is still within our profit profile and the comments we've made as far where adjusted EBITDA will rest over time. The slight or the downturn this quarter is really attributed to the hiring that was done outside of what's called the normal core spine business. If you take a look at that over -- in relation to 35.1%, we've invested what we've talked about before, 2 percentage points plus into growth business. So Algea will address a fairly large market. We'll take a little bit more time to do it but would be something that will return appropriate EBITDA over the course of the next year or so. Same thing with international. So it fits with us very nicely and it's calculated into the way we look at the business.

Okay, the last one. Just so we're all on the same page about what all the adjustments are, adjusted EBITDA excludes stock-based comp, litigation expense, et cetera, but the EPS number you're reporting, is that -- adjusted EBITDA versus adjusted EPS, what do those include and exclude?

The earnings per share is straight net income.

So the $0.18 is a GAAP number?

It's a GAAP number. The adjusted EBITDA, we do really more for the way that people look at this industry. We're more focused on operating margins and gross margin and the such. We're proud of the adjusted EBITDA. The comments about Algea is just to give you a little bit more color on where those margins went and why, but they're relatively low adjustments and actually there's a table at the end of the press release, David.

And your next question comes from the line of Matthew O'Brien.

I'm sorry to keep harping on this sales force discussion, but you're heading into the quarter with a pretty robust number, new products in the queue, is it fair to characterize the situation as you had potentially some reps that left the organization to go elsewhere and then you are left a little bit short-staffed. And then from there started to aggressively hire reps to kind of backfill those positions and get beyond where you entered the quarter?

Matt, this is Dave Demski. No we haven't had any significant or unusual turnover. It's just that we're facing some headwinds in our industry related to pricing pressure and folks have talked about pods, you kind of -- we have to make up that delta every quarter with new products and new hires. So this isn't to replace people we lost, but we have expectations to continue to grow the sales force.

Okay. And then, Rick, you didn't talk about it specifically, but how should we think about full year growth here? Is it including and excluding Sandy? Is it excluding Sandy something around 15% or a little above that or how should we think about the full year number?

We're still consistent where we have discussed it over time. The only area that we feel has any potential weakness for Q4 and perhaps into the middle part would be part -- middle part of next year would be Algea. Obviously, with Sandy, as Dave indicated earlier in the earlier question, there's a little bit of an unknown there. It is something that we, if we need to put a $1 amount around it, it would perhaps be as much as a $1 million, perhaps plus or minus. To be honest, it's a little bit early to tell about that. We've been back at work and shipping and more importantly the doctors are doing surgery.

Okay. And just one more for me. When looking at the numbers on the innovative fusion side and then disruptive technologies, they are a deceleration from what we saw in Q1 and Q2. I understand that Q3 can be somewhat seasonally soft, but we don't have visibility into what the Q3 comparisons were. Would you characterize those as fairly robust? So as when you look at the 3% growth in innovative fusion, was the comparison 8%, 10% something along those lines? Any kind of detail would help.

So just to clarify the question, Matt. Are you asking for numbers compared to last year or comparative to Q2?

Compared to Q3. So I think you gave 9-month numbers and maybe I misheard you, but look like the comparisons for the 9-month period were pretty difficult, which you say that was the same situation here specifically just for the 3-month period ended in September?

3-month period ended the innovative fusion growth was 3.6%.

Sure. I mean the comparison from this time last year. So as the comp in Q3 of '11 8%, 10%, we don't have visibility into that?

And I don't have that information in front of me, Matt.

And your next question comes from the line of Richard Newitter.

I was just hoping, I don't know Dave or Rick, maybe you -- can you talk a little bit about what has to happen within the Algea sales force or what's causing some of the delays there prior -- relative to your prior expectations and what initiatives you can take to hopefully turn that around a little bit?

I could comment qualitatively. I think it's a little bit different business than this spinal implant business in terms of the influence the physicians have over contracting at hospitals. And our competitors have been fairly aggressive and with our move into the market to try to protect the space therein by discounting and as well as signing longer-term commitments. We think we have couple of strategies although I'm not going to share the details with you. But to break those contracts and get past them in terms of new products we're rolling out, as well as some of the bubbling initiatives we have. So it's going to take a while. That process dealing with hospital administrators can take a while, so that's, I guess, the tone of conservativism from us is we're committed to it, we're going to make it happen. It just may take several quarters to get it done.

And then I just want to make sure I'm hearing you guys correctly. Are you noticing a -- you said you anticipated a number of pressures that you outlined related to pods, pricing, et cetera. One, are those pressures getting worse relative to what you were expecting, let's just say 3 or 6 months ago or was it just a little bit more on the execution side. On your end, you didn't hire as fast as you thought you might to counter as expected pressures. And then if you could also just talk about what kind of price pressure are you assuming for the rest of the year?

It's more of the latter. The pressures, the pods and pricing is about where it has been for the last year or so. So it's really an execution issue from our side and that's where we think pricing -- we're seeing it's fairly steady around the mid-single-digits.

And your next question comes from the line of Bill Plovanic.

I just have one question. As we talk about the industry, we've heard a couple of other spine players talk about the month of September being slow. I don't know if you addressed that in your prepared comments, but I'd like to hear your thoughts on this. Was this a good -- a normal July, August and then a slow September or was this kind of slow throughout or how would you characterize it?

From our standpoint, Bill, this is Dave, we were a little slow and sluggish in July and August. It seems like the summer vacations had a little bigger impact than what we would have normally seen, and we had a good September.

Okay. And then as David had mentioned, you've kind of gone back on that hiring spree, are you going to have these new reps in place fast enough to make a contribution in Q4 or is this something that clearly we won't get that innovative fusion segment growing again until kind of reaccelerating it until 2013?

I think it's always been a combination for us of getting new products out and get increasing feet on the street. And any time, we slowed on one of the other, we see a deceleration. So I think all the hires that we've already brought on board and the hires that are in the pipeline can add some dollars into Q4, but more we'll save into 2013.

[Operator Instructions] And your next question comes from the line of Steven Lichtman.

Just 2 follow ups on Algea. One on the investment side, Rick. Is this -- are you expecting the level of investment to flatten out here? Are you guys satisfied with a number of reps you have, especially given the ramp you talked about and then for Dave or David, in terms of the opportunity, obviously that's been a tough end market, can you talk about how you think Globus is going to differentiate here and the opportunity specifically to the company?

I'll answer the infrastructure question first and then I'll turn it over. So from a hiring perspective from a cost perspective, we're very much within what we had anticipated, where we become a little bit more cautious or a little bit slower would be on the top line. So if you -- in the future this is an issue of not we have the right people, the right experience mix, et cetera. So from a product introduction perspective, David?

Maybe I can add some color on the product side. The first product that we've introduced here is the Balloon Kyphoplasty System. I would say it's comparable to what is out there in the competition with primarily Medtronic. We have a small advantage here or there. But we are focused on delivering the comprehensive fracture management kit that no one else will have. With the acquisition of Soltera, we now have the Shield product that is the first implantable cement-directing stent that can be placed in the vertebral body. We have the clinical study results to back it up. One of the primary issues with this procedure is extravasation into the vertebral veins, and this product goes a long way towards solving that problem. So we are furious at work to complete the acquisition and get the logistics done on our end so we can roll this product out in the first half of next year to the sales force. I think that will make a material impact in the uptick in the Algea division. We are also working on other product lines for the Algea sales force and that we are not disclosing at this point, but we are busy at work to continue to build that portfolio. Our competitors in that space mostly are one product balloon kyphoplasty product companies. So we think that as we broaden our portfolio and offer better solutions, we will not only increase attraction with the current accounts, but it will also lead to more competitive sales reps wanting to come and join us.

Steve, to perhaps embellish the answer just a bit as far as investment. The investment cycle is pretty well complete. This is what we would look to carry and gain future leverage. As we increase sales, you'll see the effect of a drop, obviously, and eventually we anticipated throwing off the -- a similar type of adjusted EBITDA as we've talked about over time.

We have no further questions in the queue.

Okay. So at this point, I'd like to thank everybody for joining us on our first quarterly conference call. Our performance in the third quarter is the proof of our ability to sustain top-tier growth in the spine market where we expect product and sales-driven share gains to continue for the foreseeable future. Our profit margins are a testimony to our efficient cost structure. Our profit margins also allow us to find new initiatives that may add profits for the long-term growth. Thank you for joining us on this call today. We look forward to talking to all of you in the months ahead. Thank you.

Thank you. This completes today's conference call. You may now disconnect.