Hello and welcome to the Orthofix First Quarter 2016 Earnings Conference Call. Today's call is being recorded. I would now like to turn the call over to Mr. Mark Quick, Director of Business Development and Investor Relations. Please go ahead, sir.

Thanks, operator, and good afternoon, everyone. Welcome to the Orthofix first quarter 2016 earnings call. Joining me on the call today is our President and Chief Executive Officer, Brad Mason; Chief Financial Officer, Doug Rice; and Chief Strategy Officer, Mike Finegan. I will start with our Safe Harbor statements and then pass it over to Brad. During this call, we’ll be making forward-looking statements that involve risks and uncertainties. All statements other than those of historical fact are forward-looking statements, including any earnings guidance that we provide or any statements about our plans, beliefs, strategies, expectations, goals or objectives. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matters contained in such statements will occur. The forward-looking statements we make on today's call are based on our beliefs and expectations as of today, April 28, 2016. We do not undertake any obligation to revise or update such forward-looking statements. Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risks disclosed under the heading risk factors in our 2015 Form 10-K, as well as additional SEC filings we make in the future. If you need copies of these documents, please contact my office at Orthofix in Lewisville, Texas. In addition on today's call we’ll refer to various non-GAAP financial measures in which we exclude certain items from our U.S. GAAP financial results. We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these matters as a supplement to financial performance measures determined in accordance with U.S. GAAP. Please refer to today's press release announcing our fourth quarter 2016 results for reconciliation of these non-GAAP performance measures to our U.S. GAAP financial results. At this point, I'll now turn the call over to Brad.

Thanks, Mark, and good afternoon everyone. I will start by giving you a summary of our first quarter 2016 performance, after which Doug will walk you through the financial results that we reported today. I will then follow up with a few thoughts about our updated expectations for 2016 and beyond before opening up for Q&A. Q1 was another strong quarter for Orthofix, stronger than we had forecasted. There were a couple of reasons for this, which Doug and I will go into shortly, but the overall takeaway is that we excel in many areas of the business, especially given the seasonal weakness historically experienced in the first quarter of the year. I will start by giving you a few financial highlights on the first quarter. Starting with the top-line, we are very pleased with our net sales growth over prior year of 11.8% for the quarter on a constant currency basis. This follows growth of 7.6% in Q4 and 4.1% in Q3 of last year, showing a very nice top-line performance trend. I would note however that we had an unusually high cash collection quarter in our extremity and spine fixation businesses that favorably impacted our net sales in the period. But even when normalized for this difference, on a consolidated basis, we still have high single-digit growth over the prior year. A key driver of this growth came from our BioStim strategic business unit, or SBU, which grew 8.9% over the prior year. This was the third straight quarter of strong performance as our team continues to improve our leadership position in the osteogenesis stimulation market by leveraging our proven PEMF technology and through solid execution of our strategies. Additionally, both of our hardware businesses performed extremely well during the quarter. Our extremity fixation business grew 8% on…

Thanks, Brad, and good afternoon, everyone. I’ll start with providing details into our net sales and earnings results and then discuss some of our other financial measures. Total net sales in the quarter were $98.7 million, up 9.9% from the first quarter 2015 total net sales of $89.8 million, on a constant currency basis net sales increased by 11.8%. Starting with our BioStim SBU, 2016 first quarter net sales were $41 million, up 8.9% versus the same period in the prior year. Looking at the big picture of this business, the significant growth in the last several quarter has been driven by our efforts that we started over two years ago focusing on operational improvements throughout the order to cash process, clinical support of our technology and expanding and better educating our salesforce. The result has been consistent growth in the number of physicians prescribing our market leading PEMF technology. We have experienced eight straight quarters of year-over-year customer base expansion. The growth rate has been particularly strong for the last three quarters. As we begin to annualize our results in future quarters, we expect to see our topline growth rate returned to mid-single digits, but still outpace the overall market growth rate. Turning to our Biologics SBU, 2016 first quarter net sales were $14.1 million an increase of 1% versus the same period in the prior year. The positive effects of our clinical study publications and salesforce expansion uptake have been somewhat offset by additional competitors entering the market and low-single digit pricing headwinds. We continue to believe we can overcome these headwinds with our differentiated tissue form Trinity ELITE and achieve mid-single digit growth for the year. Moving onto our Extremity Fixation SBU, 2016 first quarter net sales were $24.7 million, an increase of 13.3% in comparison to…

Thanks, Doug. Looking ahead now in 2016 we will continue to focus on executing the three key objectives I outlined previously, accelerating the rate of our topline growth, expanding our margins and continuing to invest in clinical research to drive future growth. We plan to accelerate the rate of our annual topline growth by continuing to expand and optimize our salesfroce, drive market acceptance of our technologies through clinical support and field trading and launch new and innovative products throughout the year in all four of our SBUs. In addition to our internally generated new product lanuches we will be more active in looking for complimentary products and technologies that we get add to our product portfolios. In regards to expanding our margins with our infracture improvement projects now nearing completion, we can focus on continuous improvement initiatives in all areas of the company. In order to become more effective and efficient in particular in our SG&A expenses. We expect the resulting cost savings coupled with absorption of fixed costs by increasing our topline to drive improving margins over the next four to six quarters. As I previously stated our expectation is to achieve greater than 20% adjusted EBITDA margin for the full year of 2017. In 2016 we will continue to work on a variety of pre-clinical and clinical studies that are currently in process. These studies support both the use and value of our existing products as well as the potential for new indications for use of our core PEMF technologies, such as for treatment of rotator cuff injuries and knee osteoarthritis. Additionally, we will continue to evaluate and initiate new pre-clinical and clinical studies through the year, not only for PEMF, but for all of our businesses and technologies to help drive long-term growth. These are exciting…

Thank you. [Operator Instructions] And we will go first to Raj Denhoy with Jefferies.

Hi, good afternoon.

Hey, Raj, how are you?

Doing great. How you guys doing?

We are having a good day. Thanks.

What if I could ask a bit about some of the commentary around the expenses and it sounds like your – perhaps more so than in times past really willing to entertain the idea that maybe to have your expending is kind of behind us, we will be behind us very soon. Use words like leveraging fixed expenses and things like that. So as we move through 2016 into 2017 is there any better guide post you can provide for us in terms of how much spending we can expect to start to bleed out here now that Bluecore is nearing completion and you do start to leverage some of the investments you’ve made.

I think, Raj, I think our best opportunities really are in the sales and marketing area we still have opportunities in a number of areas including just leveraging the capacity we have today as we expand our sales some of this is just going to be a fixed cost absorption that’s going to be help us we also have opportunities in – still in commissions, yes, you’re going to see higher commissions for a period of time as we bring on new distributors as you know we bring them on into higher commission rate to being with, they get a higher percentage on growth. So as we absorb those the new distribution that we brought on in the last year or so, that will begin to trend down a little bit. And also in G&A we still have a lots of opportunity, we are just beginning there we just went live with Oracle, are 12 in the states we are going to finish that off in Q3 in Verona. And so as I said in my script I think four to six, another four to six quarter so really kind of ring out the rest of the juice in the orange and by the end of next year, we should be – we’ve got enough room that I think we will be in a really good place by them.

Okay, maybe I could just ask one other one on a – on one of the SBUs the spine business I think you noted the part of the growth, the acceleration growth there has been the additional sales people you’ve been adding as you start to anniversary some of those additions is there a possibility the growth could slow there or do you plan to kind of continue to invest in that sales force with the correlate and will the leverage become less tangible?

In the spine business actually the growth is going to come from I mean, we really haven’t ramped up the new distribution we brought on that usually takes nine to 12 months to ramp it up, so that’s still we still have headroom there. And additionally we got a great string of new products coming out that will accelerate as well. We are not getting even in the numbers you’re seeing today you’re not seeing much of the benefits the new products yet a lot of them are – have been released on limited market basis, they are just rolling into full market release and that will happen through 2016 and you will start to see more in 2017. Additionally, we are going to continue to add to our sales force over time. So it will be a little bit, to be a little bit choppy from quarter-to-quarter but its going to be the trend will be good.

Great. Thanks, congratulations on the progress.

Thank you, Raj. Appreciate it.

Thank you. [Operator Instructions] We will go next to David Turkaly with JMP Securities.

Hi, how are you guys?

Good, Dave, how are you?

Pretty good. Just in terms of your guidance for the SBUs I just want to make sure, I heard this right in terms of your expectations if we – look at the quarter and then sort of the commentary would be expect the fixation part, extremity and spine to kind of stay slightly above your guidance of kind of 4% at the midpoint revenue growth for the year would it be fair that those will be the leading categories as we go to 2016?

In general, they’ve got more probably more opportunity to grow a little bit faster than our regenerative businesses for the rest of this year at least. So yes, I think that’s a fair statement, Dave.

And then to follow-up and sort of Raj was asking on the leverage side of the sales and marketing side. I think you have a big push and that is I think fixed cost. And I was just kind of wondering 45%, have you thought it all or talked all about sort of where you think that could go, say, even if you're looking over the next 12 months. I know that you try to want to give a specific guidance number, but I know it's coming down a lot, but it still seems kind of high. I guess if you could just remind us of if there's any kind of target longer term where that could go that would be helpful.

On the last call I gave guidance and generally for this year – excuse me, Dave, 44% to 45% for our sales and marketing expenses. That's just for 2016. I think we have more room than that. I really don't want to get too specific about it. But we certainly feel like you do that we have more room there for improvement. And particularly when you think about the fixed cost absorption that you mentioned and also the absorption, the higher commission rates due to that impact of distributors that we've added recently.

And overall would you say your sales and marketing feet on the street have increased, despite the leverage that you show in this quarter? I mean your headcount is higher. Would that be a fair statement?

Yes. The headcount is quite a bit higher, but remember we have a hybrid sales force. So most of our sales reps if you think in the U.S. across all of our businesses are distributors, so there’s, yes, the cost of adding new distribution for us is increased instrument sets in the field and it's higher commissions for a period of time and then it drops off. So we don't have a huge expense or adding more distribution, but yes, we have a lot more feet on the street.

Great. Thank you.

You’re welcome, Dave. Thank you.

Thank you. [Operator Instructions] We will go next to Jennie Tsai with Gabelli & Company.

Hi, good afternoon.

Hey, Jennie, how are you?

Good afternoon.

Good thanks. I wanted to ask you a question about the biologics, it was up 1% this quarter, and you talked about additional competitors and pricing pressure. But do you do expect that business to be up mid single-digits for the year? I just wanted to get some more commentary on that…

Sure, Jennie. Yes, absolutely. It's a great question. So we were up 1% in Q1. That was not that far off of our expectations, a little bit short, but not that far off. We still believe with [indiscernible] with the things that we're doing, the sales force that we're adding, the strategies that I won’t talk about necessarily on the phone, that we will get to mid single-digit growth for the year. Bob Goodwin, our President on that division assures me that's going to be the case at minimum. No, I’m just teasing, he’s in the room actually. So, he assures me that they're going to get there and I absolutely agree with him, so we will.

Okay, great. Also you talked about price pressure, where there – did you see it in any of the other segments?

Not that it was particularly noticeable for the quarter that we saw. No.

Okay, good. And I guess on the operating expenses, you talked about your goal of 20% EBITDA margin in 2017 as some of your expenses roll off and let's say you get there. And I know you don't want to – it's hard to go too far out. But just kind of thinking, if your organic growth was growing, let's say, mid to high single-digits combined for the businesses, what kind of aspirational operating margin improvement sort of do you have on an annual basis? What do you think you can get with the fixed cost leverage?

Well, that's good question. So we know for – we know what we talked about for 2017 and we don't – I don't have any thoughts beyond 2017 and specifically around that leverage. But certainly I've seen in the past in with companies of this size in this position, it’s going to continue to increase as time goes on. Obviously, there's going to be a limit. And there's going to be a sweet spot where we want to be, where we're still investing in the business, and not borrowing against the future of it. And so I think if somewhere worth 20% and then EBITDA is going to get us in that sweet spot.

Okay, great. Thank you.

You’re welcome. Thanks for calling.

Thank you. And with no further questions in the queue, I'd like to turn the program back over to Mr. Quick for any additional or closing comments.

This is Brad, I just wanted to say thanks for joining us on the call today, we appreciate it, and we look forward to seeing you out in the field, and talking to you next time a quarter from now. Take care.

That does conclude today's call. Thank you for your participation.