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Wright Medical Group (NASDAQ:WMGI)

Q2 2014 Earnings Call

August 05, 2014 4:30 pm ET

Executives

Julie D. Tracy - Chief Communications Officer and Senior Vice President

Robert J. Palmisano - Chief Executive Officer, President and Director

Lance A. Berry - Chief Financial Officer and Senior Vice President

Analysts

Michael Matson - Needham & Company, LLC, Research Division

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Raj Denhoy - Jefferies LLC, Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Daniel Sollof - Barclays Capital, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Robert Justin Marcus - Leerink Swann LLC, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Jason Wittes - Brean Capital LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Wright Medical Group Incorporated Earnings Conference Call. My name is Estevan, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Julie Tracy.

Julie D. Tracy

Thank you and good afternoon, everyone. Welcome to Wright Medical Group's Second Quarter 2014 Conference Call. We appreciate you joining us. I'm Julie Tracy, Wright's Chief Communications Officer. With me on the call today are Bob Palmisano, Wright's President and Chief Executive Officer; and Lance Berry, Wright's Chief Financial Officer.

We issued a press release this afternoon regarding our second quarter results. A copy of that press release is available on our website at wmt.com. The agenda for this call will include a business update from Bob, a review of our financial results from Lance, followed by a question-and-answer session and conclude with closing comments from Bob.

Before we begin, I would like to remind you that this presentation contains forward-looking statements as defined under U.S. federal securities laws. These statements reflect management's current knowledge, assumptions, beliefs, estimates and expectations and express management's current views of future performance, events, results and trends and may be identified by their use of terms such as confident, anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will and other similar terms.

Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. You should not place undue reliance on forward-looking statements. Such statements are made as of the date of this presentation and we undertake no obligation to update such statements after this date.

Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements are discussed in our publicly available filings with the Securities and Exchange Commission, including without limitation, our annual report on Form 10-K for the year ended December 31, 2013, as supplemented by our quarterly reports on Form 10-Q. These risks include, by way of example and without limitation, the risk that we will be unsuccessful in obtaining FDA approval for our Augment product and the risk that we will be unable to realize the anticipated benefits from recent acquisition or from the divestiture of our OrthoRecon business.

Our earnings release and today's discussion include certain non-GAAP financial measures. Please refer to the reconciliation, which appear in the tables of today's press release and are otherwise available on our website. Note further that our Form 8-K filed today provides a detailed narrative that describes the use of such measures.

Before I turn the call over to Bob, I did want to mention that Wright will be holding an Investor & Analyst Event during the American Orthopaedic Foot & Ankle Society, or AOFAS, meeting in Chicago. This event will take place on Monday, September 22, from 4:30 p.m. to 6:30 p.m. at the Hyatt Regency Chicago. We are delighted that Dr. Hodges Davis, a leading foot and ankle specialist with the OrthoCarolina Foot & Ankle Institute, will be joining as our guest speaker. Dr. David has significant experience treating disorders of the lower extremities and has published dozens of articles and delivered more than 100 presentation ranging from shoe wear and foot pain to surgery for foot deformities and total ankle replacement. If you're interested in attending, please email me at julie.tracy@wmt.com for additional details and registration information.

If you would like more information on the AOFAS annual meeting or agenda, please visit aofas.org. We hope to see you in Chicago.

With that introduction, it's now my pleasure to turn the call over to Bob Palmisano. Bob?

Robert J. Palmisano

Thanks, Julie, and welcome to everyone joining us today. Our second quarter results reflect continued strong growth and the benefits of additional foot and ankle products from our Solana Surgical and OrthoPro transactions. As anticipated, there were some minor dis-synergies in the U.S. associated with these transactions during the quarter, as well as the impact of 1 less selling day. However, we are confident that there will be strong acceleration in the second half of the year as we get the impacts of these nonrecurring events behind us, benefit from expanded sales and expanded sales force and launch new products, in particular our new INFINITY ankle. Q3 will be the first straightforward quarter of the new Wright, where we will have the MicroPort transaction and the new acquisitions fully integrated and behind us.

We extended our leadership position in foot and ankle with strong constant currency growth of 25% on a global basis. Also, despite a significant stocking order that occurred last year in the second quarter, our International business grew 26% on a constant currency basis and continues to make good progress in our key markets.

Our U.S. foot and ankle sales growth for the quarter was approximately 10% (sic) [ 12% ] on a pro forma sales -- same sales day basis as compared to 8% in Q1. I'm very pleased with this 400-basis-point increase in our growth rate. We expect the early launch of INFINITY and the additional sales reps and acquired products to drive acceleration in the second half.

We are particularly pleased to see another quarter of strong total ankle sales growth, which grew 30% on a same sales day basis in the U.S. this quarter. We are also off to a strong start with our new INFINITY ankle, which we launched in mid-June. The INFINITY ankle extends our leadership position and multi-year competitive lead in total ankle technology and represents a significant near-term opportunity for Wright. The technology, combined with our new streamlined go-to-market program, should enhance our ability to grow and lead in this underpenetrated segment. With the addition of INFINITY to our existing INBONE ankle products, Wright is the first to offer best-in-class total ankle replacement systems that address the continuum of care for end-stage ankle arthritis. We expect INFINITY's physician requested lower profile design and straightforward surgical approach will expand our access to the broader market, including less complicated primary cases. We believe this technology will be an important catalyst in the ongoing conversion from fusion procedures to total ankle replacement.

In summary, we believe the second quarter results provide positive momentum for an excellent second half of the year. Execution of our Vital Few initiative is on track with continued focus on driving sales productivity gains in our U.S. foot and ankle business and building a fast-growing International business.

Before I update our progress on the Vital Few initiatives, I would like to provide a brief update on the status of our appeal for Augment Bone Graft. As previously disclosed, we submitted an amendment to our premarket application on April 29 of this year. We continue to work interactively with the FDA to answer their questions and still expect the Office of Device Evaluation to issue an approvability determination no later than October 26, 2014. Although we view the amendment process and the interactions with the FDA as constructive, it is important to reiterate there is no guarantee this PMA Amendment will result in approval for Augment Bone Graft. We will continue to keep you informed through our normal communication channels.

Now moving to our strategic priorities and Vital Few initiatives. As we have previously outlined, our 3 strategic priorities for this year are to continue to accelerate global revenue growth and improve our gross margins and improve EBITDA. We believe that our Vital Few initiatives supporting these strategic priorities will position us for future success and drive growth and shareholder value.

I'm pleased to report we made significant progress during the second quarter and have completed the integration activities of our Solana and OrthoPro transactions. The entire team did an excellent job assimilating both of these businesses as well as combining the sales teams. We have added 50 direct sales reps since the beginning of the year and our focus now is on ensuring each rep is fully trained and equipped to successfully sell the complete product line.

Improving our U.S. foot and ankle sales force productivity remains an important initiative. And as of the end of the second quarter 2014, our average U.S. foot and ankle sales rep productivity now stands at over $880,000 per direct quota-carrying rep. Even though it will take some time to complete training and fully ramp-up and despite all the moving parts involved in the sales force combination, we expect to achieve our productivity goal of $1 million per rep exiting 2014. Given our sustained focus and attention to this area, I also believe that we can reach a meaningfully higher level than that goal in the future.

As I mentioned previously, we expect INFINITY to be a game changer and a catalyst for significant growth in the second half of this year and beyond. It is still early days, but we are off to a great start with strong demand and a full pipeline of surgeons to be trained.

With many specialists currently opting for fusion or conservative interventions, such as bracing to treat their end-stage arthritis patients, our primary focus is on expanding this very underpenetrated segment. And with the launch of INFINITY and the availability of INBONE II for revision option and our strong direct sales force, we are directly addressing several key barriers to bridge the adoption chasm.

INFINITY features a low profile, bone conserving design and is compatible with our PROPHECY Preoperative Navigation System. INFINITY with PROPHECY reduces the required surgical steps and is easier to implant. This decreases the learning curve for new adopters and reduces procedure times, which now can be at par with fusions and approximately 30 minutes less on average than with standard instrumentation. Importantly, the talar component of the INFINITY ankle system is interchangeable with INBONE II system, which can serve as a future revision option should one be needed. For the first time, we can now facilitate a true continuum of care for total ankle replacement patients and address a significant concern of physicians, who today are now choosing fusion or conservative treatment instead of total ankle replacement.

Based on a recent independent market survey data, a significant majority of total ankle change surgeons ranked Wright as the highest among ankle replacement competitors. Additionally, the #1 barrier to increase adoption for surgeons that either currently perform or expect to perform total ankle replacement in the future is the lack of a clear -- is the lack of clear revision options.

On the heels of the successful launch of INFINITY, our next major advancement is the development of a completely new revision system, which we expect have ready to go to enter physician testing by the end of this year. We believe this new system tentatively called INVISION, will further address this top concern of surgeons and be a key element to convert cases from fusions and expand the total ankle replacement segment.

In summary, we believe the significant improvements in total ankle design and technique further increases our already significant technology lead, can be a win-win for end-stage ankle arthritis patients and physicians and can drive significant growth for the remainder of this year and beyond.

Shifting now to improving gross margins and inventory. As anticipated, our gross margin in the second quarter were 73.2% due to planned inventory reserves, which occur normally within our business. We remain on track with our gross margin initiative and expect further margin acceleration in the second half of this year and to exit this year at a level meaningfully above last year's 77%. Also, by further developing and enhancing our supply chain, we continue to expect to reduce gross inventory days on hand by over 50% over time. We have clear visibility to improving gross margins to over 80% by increasing equipment utilization, decreasing material usage, leveraging overhead and improving pricing.

In summary, we have multiple opportunities to drive growth in our business in several areas. First, due to an expanding market and our leading product portfolio, we expect our growth to be in the high -- to be in the mid- to high-20% range this year. Second, from a technology perspective, we continue to benefit from several new product launches this year, including the breakthrough INFINITY Total Ankle, which extends our technology lead and continues to fuel growth. And third, we are on target to exit the year with a U.S. sales productivity rate of $1 million per rep.

Additionally, we continue to drive gross margins and expect to exit the year at levels meaningfully above last year's 77%, which we believe is one of the highest gross margins in all of public MedTech. We also expect to exit the year with positive adjusted EBITDA and we'll be positioned well -- to be positioned well for growth in 2015 and beyond.

Today, Wright is the fastest-growing, highest-margin extremities biologics public company in the world. Through the remainder of the year and beyond, we intend to build on our lead. The launch of leading technologies such as the INFINITY ankle and INVISION system in 2015, combined with our recent acquisitions, give me confidence that we'll be able to continue to see accelerating revenue growth and improving EBITDA in our business throughout the year and will be an important component in driving sustained growth and greater shareholder value.

In addition, I am optimistic about our plan to expand our gross margins in a meaningful way by improving our supply chain and pricing initiatives. The potential benefits of these are very significant and we expect to see strong progress in the second half of this year and be well positioned for growth in 2015 and beyond. We are looking forward to the resolution of the Augment PMA Amendment by the end of October. While we have no way of knowing the final determination with the FDA, we believe that the PMA Amendment that we submitted has excellent science behind it and meets the FDA's needs for approvability for this breakthrough biologic.

Also, very importantly, we will continue to execute the requirements of our Corporate Integrity Agreement and ensure that our compliance systems continues to promote the highest standards of ethical and legal conduct in all the markets that we serve.

Before I turn this call over to Lance, I just wanted to briefly comment on the significant M&A activity in the MedTech device and orthopedic landscape. As you know, there have been many M&A transactions announced and rumored over the past couple of months. These current dynamics strengthen our belief in the importance of being a high-growth, high-margin company focused in one of the fastest-growing markets in all of MedTech. We believe this will enable us to differentiate ourselves, both competitively and from an investment perspective.

I would now like to turn this call over to Lance for a discussion of our second half financial results. Lance?

Lance A. Berry

Thanks, Bob. As we get started, please note that unless otherwise stated, all of today's discussions regarding our sales growth rates refer to our constant currency growth rates and our results of operations refer to our as adjusted results, including stock-based compensation, as described by Julie during the introduction of our call.

As a reminder, as a result of the previously announced acquisition of our hip and knee business by MicroPort Scientific, all current and historical operating results for the OrthoRecon business are reflected in discontinued operations. Unless otherwise noted, today's discussions refer to results from continuing operations.

Globally, the foot and ankle business grew 25% on a constant currency basis, driven by U.S. foot and ankle growth of 26% and International foot and ankle growth of 22%. In addition to growth in our core business, global foot and ankle growth was positively impacted by the Solana and OrthoPro acquisitions completed in Q1 and the International foot and ankle growth was positively impacted by the Biotech acquisition completed in November of last year, offset by a $2.1 million China stocking order in Q2 of 2013.

To assist you with your modeling and to provide additional transparency on the trajectory of our business, we will provide you today with some estimated pro forma growth rates and commentary on the drivers of those growth rates.

First, I will discuss the U.S. business. As we stated previously, we expected to have dis-synergies in the first half of the year related to the Solana and OrthoPro acquisitions as we integrated those businesses and terminated significant portions of their distributor sales forces. Despite these short-term headwinds, U.S. foot and ankle growth was approximately 12% in Q2 on a pro forma same day sales basis, an acceleration of approximately 400 basis points from the first quarter of 2014. We expect the second half of the year to continue to accelerate as we complete the training of the reps we onboarded as a result of the acquisitions, build out full supply of OrthoPro and Solana product and see the positive impact of the INFINITY launch.

With the Solana and OrthoPro sales force combinations complete, we now have visibility to where we stand on sales force productivity following the acquisitions. In Q2, our U.S. foot and ankle sales productivity was approximately $880,000, which represents a good baseline following the integration of the acquired revenue and reps from the Solana and OrthoPro transactions.

On a pro forma same sales day basis, our U.S. Biologics business grew 2% and the U.S. Upper Extremity business declined 15%. These growth rates are generally in line with the growth rates in Q1 of this year. We have made a significant number of territory changes following the close of the MicroPort transaction and for these businesses to perform at a level that is generally in line with Q1, both from a growth rate and absolute dollar perspective, is encouraging given all the changes.

Today, we have over 75% of our Biologics and Upper Extremity business that is under direct employee management. This is not the same as having all the reps as direct employees, but it is a significant improvement when our local sales management is completely focused on Wright Medical. These changes were necessary to better position us long term, but definitely are creating some headwinds in the first half of the year.

Our International business grew 2% on a pro forma constant currency basis this quarter as compared to pro forma constant currency growth of 26% in Q1. The growth this quarter is significantly lower than what we have seen recently in the International business and it is driven primarily by the difficult comparable in prior year from the China stocking order that we discussed previously. Additionally, similar to in the U.S., as anticipated, we are seeing some dis-synergies in the Biotech business. Our International business continues to be very healthy, evidenced by the fact that our sales levels were higher this quarter than Q1 of this year.

We fully anticipate our International growth rates to return to strong levels in the second half the of the year, driven by more normal prior year comps as we begin to see the benefits of driving Wright products into the Biotech sales channel.

As we move on to some detail below the sales line, please note that the expense of the business are not really apples-to-apples to prior year, as the prior year does not reflect any expense dis-synergies associated with the split of the business.

Beginning with our Q2 gross margin. Overall, we achieved 73.2% for the quarter, which was a decrease of 300 basis points over prior year and prior quarter, driven primarily by significantly higher inventory reserves than the other quarters based on our normal reserve calculation. This was in line with what we anticipated when we provided our full year guidance on our previous earnings call.

As to the line items making up our Q2 operating expenses. Selling, general and administrative expenses totaled 91.4% of sales for the second quarter compared to 76.2% in the prior year period. The increase as a percent of sales was driven primarily by dis-synergies associated with the split of the business, higher run rate costs due to the Solana, OrthoPro and Biotech acquisitions and investments related to the International expansion initiative.

R&D expense totaled $6.8 million in Q2 of 2014 and $5.9 million in Q2 2013. The increase was driven by increased investments for International regulatory support as we execute our International expansion plans and increased spending on product development.

In total, operating expenses during Q2 were in line with our expectation and we still anticipate spending for the full year to be in line with our previous guidance.

And finally, amortization expense was approximately $2 million compared to $2 million in the prior year.

Below the operating income line, net interest expense and other expense totaled $1.6 million for Q2. Our Q2 effective tax rate as adjusted was approximately negative 1.4% expense for the quarter as compared to 38.7% in the prior year period.

As a reminder, we recorded noncash tax valuation allowance in Q4 against our deferred tax asset in U.S. jurisdictions. Due to this, we will not have a tax benefit in 2014 and we still expect our full year tax rate to be roughly 0.

Finally, for share count. Our Q2 per share results as adjusted are based on average diluted shares of 49.6 million for Q2 of this year and average diluted shares of 46.2 million for Q2 of 2013.

Moving on to the balance sheet and cash flow. Our combined cash and marketable securities balance totaled $315.1 million as of June 30, 2014.

Overall, we had a good quarter. U.S. foot and ankle growth accelerated 400 basis points on a pro forma same sales day basis and International sales continued to be strong. Gross margin, operating expenses and our cash balance are in line with where we expected to be halfway through the year. From an execution standpoint, we completed the sales force combinations of our 2 U.S. acquisitions and launched the INFINITY Total Ankle System. Additionally, we continue to make good progress on our Vital Few initiatives and the Augment PMA Amendment process.

Now I will touch briefly on guidance. Consistent with past practice, please note that our guidance ranges and assumptions for 2014 exclude any consideration for the effect of potential future acquisitions or any other possible material business developments. Additionally, it is important to note that we will be using a number of non-GAAP financial measures to describe our outlook for the business.

In particular, unless stated otherwise, all of today's discussions regarding results of operations refer to our as adjusted results of continuing operations. Our press release filed today note those items that are excluded from our as adjusted results.

As stated in today's press release, we are reiterating our guidance for net sales from continuing operations for 2014 of $308 million to $312 million. In addition, we are reiterating our previously communicated full year 2014 adjusted EBITDA from continuing operations, as described in the GAAP to non-GAAP reconciliation in the press release of negative $15 million to negative $20 million.

We are also reiterating our full year 2014 as adjusted earnings per share, including stock-based expense, of negative $1.28 to negative $1.38 per diluted share based on approximately 49.9 million shares outstanding.

Excluding any future acquisitions, amortization expense is expected to be in the range of approximately $2.5 million per quarter.

While we do not provide quarterly guidance, I do want to remind you of the information we provide in our previous Q4 and Q1 calls on expected cadence to assist you with quarterly modeling.

For the acquired revenue, as previously noted, we expect the second half to be higher than the first half. Combined, we expect the U.S. growth rate, including acquired products, to continue to improve throughout the second half of the year as we get the impact of these nonrecurring events behind us, benefit from an expanded sales force from the recent acquisitions and launch new products, in particular our INFINITY Total Ankle.

For International, we anticipate growth rates generally in line with the full year. Note that following the divestiture of our hip and knee business and with our sales more concentrated in the U.S., we do not anticipate seeing the same degree of seasonality in Q3 as we have historically. This, combined with the stronger contribution of acquired products in the second half of the year and the INFINITY launch, should result in a sequential increase in revenue from Q2 to Q3.

Additionally, we anticipate these factors will have a greater impact on Q4 than Q3, so you should see a greater increase in revenue from Q3 to Q4 than you have in previous years.

Additionally, we expect to see gross margins in the second half that are better than our full year average, as we begin to realize benefits from our gross margin Vital Few initiative.

Operating expenses as a percentage of revenue are expected to be lower than our full year average in the second half of the year. We anticipate improvement in adjusted EBITDA in the second half of the year, driven by higher gross margins and higher sales levels driving significant expense leverage as compared to the first half of the year. We plan to exit 2014 EBITDA positive.

As we stated last quarter, it will be difficult, if not impossible, to provide a true organic growth rate performance. Legacy Wright products will benefit from having an expanded footprint and acquired products will benefit from our existing large direct sales force. Both legacy and acquired products will be negatively impacted to some degree by cannibalization from the other. Both legacy and acquired products have excellent gross margins and we do not have particular preference as to the mix of sales between them. We are primarily focused on delivering the total sales number.

To assist you with better understanding the trajectory of the business, we will provide you with some pro forma growth rates today. Additionally, we note that our 2014 guidance for total sales implies pro forma growth rates for the second half of 2014 in the mid- to high-teens.

In closing, we are pleased with our results for the second quarter, the progress we have made on our Vital Few and the opportunity we have to drive significant opportunity again this year.

Operator, we would now like to open the call to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mike Matson with Needham.

Michael Matson - Needham & Company, LLC, Research Division

I guess, first of all, you did comment on some of the M&A activity, but I wanted to get your perspective on Stryker's acquisition of Small Bone Innovations, particularly given that they have the STAR Ankle. I know that the ankles have done kind of comparably to your INBONE ankle. But I was just wondering, do you expect that to become more competitive in the hands of Stryker's sales force?

Robert J. Palmisano

Mike, it's Bob. I think that today, it's probably not a factor. We anticipate that over the long term, Stryker is a very respectable company and will do the necessary things probably to improve their technology and to add technology to it, but I think that's going to take them a period of time. I think that we're now on our third generation of product. STAR is a first-generation product. We have done a lot to improve the technology, both from a patient perspective, but also from a physician standpoint in terms of making this device much easier to implant, less time involved, which is very, very important to physicians. And now have a revision system with INBONE II and then a really completely new revision system later on in the year. So our -- and we also have a much larger direct sales force. So our thoughts are that with all due respect to Stryker, I think that we have a lead. We're not going to be standing still. We're not going to be a static company. We're going to be moving ahead. We are 100%, 24/7 focused on this business. And I think that -- so we will be able to compete very, very effectively against Stryker. I've made a -- in previous life competed against very large companies and we've been able to do that effectively by having leading technologies and a tremendous amount -- more focused than our competitors. So I could tell Stryker welcome to the party. And we're going to be a very tough competitor. We're not giving anything up. We're going full bore. We have this window of opportunity. We have the so-called pedal to the metal. We have a lot -- a full product pipeline out there. We have a Med Ed that's unbelievable. We have a local Med Ed. We have a whole fleet of RVs that do local training. We have a new corporate headquarters that have full capacity in terms of cadaver labs and everything else. So we're in great -- I think we're in great shape. But we respect them, but I think that we will be -- I think it's a better question for them. I think we're going to be very, very tough, if not impossible, to dislodge from our spot.

Michael Matson - Needham & Company, LLC, Research Division

Okay. And then just with regard to the INFINITY ankle launch. Are there -- would you say that there are any gating factors there, either in terms of getting the sets out in the field or your training physicians, et cetera?

Robert J. Palmisano

Yes. Well, I think that we do have a backlog of physicians to be trained and that there's a lot of excitement. And we're trying to prioritize our training around physicians that are going to be full adopters and do a lot of procedures quickly. We think that one of the key factors in conversion in doctors that do very few total ankle replacements and do mostly fusions is, it takes them a while to get comfortable. Now we designed this product in a way to help people get comfortable quicker, but it still takes to do a number of surgeries to really get comfortable. We have a whole process. We call it rapid adoption process that is geared towards making doctors confident and comfortable as quickly as possible. So but just out-of-the-box, we do have a backlog of training. We have enough kits, I think, today. But we will have many more kits available to us in the future. So this was a well-planned, well-executed launch by our R&D, manufacturing and commercial team. And so -- I got to tell you, it's really going well. That's all I could say about.

Michael Matson - Needham & Company, LLC, Research Division

All right. And then one final question on INFINITY. Do you expect it to cannibalize INBONE at all? I mean, I understand the product is supposed to be more complementary in nature and used for more basic type procedures, but I'd imagine there's still some overlap in that the patient groups there. So how should we think about that risk?

Robert J. Palmisano

Yes, I think that there is, but I think it's a little bit. Overall, INFINITY gives us access to a much broader market than INBONE played in, which was for very complicated or revision cases. So it's very much of a net positive in terms of the available market now that we play in.

Operator

Our next question comes from Matthew O'Brien with William Blair.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Bob, you were talking -- just to follow-up on Mike's question a little bit about INFINITY. What percentage of your INBONE customers do you think you could cover today with your instrument sets or from a training perspective versus how we should think about that exiting the year?

Robert J. Palmisano

I think that the plan is that we should be able to, by the end of this year, train most of our current customers with INFINITY. The bigger question is converting other people. And that takes a little bit longer because, again, it takes doctors to do a certain number of cases to get -- that don't do total ankle replacement. It takes them longer to get comfortable. So I do think that we should -- the current INBONE users will be, I would say, mostly all trained by the end of this year.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Okay. But is there a gating factor to selling INFINITY, be it instrument sets or something else like that, that we should be aware of?

Robert J. Palmisano

No, no. I think that, again, I think this is a well-planned launch. We took a lot of time figuring this out. We trained our reps. We got this RV fleet going. And we got our R&D and manufacturing teams working very collaboratively to make sure that we had enough kits for this launch. So I think those are not gating issues. This drastically exceeds our expectations. There might be some gating issues, but we don't foresee that right now.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Okay. And you're integrating quite a few assets right now with OrthoPro and Solana and Biotech. I mean, can you just give us a sense for some of the lower-hanging-fruit opportunities from a cross-selling perspective?

Robert J. Palmisano

Well, I think that what we've done is, in Q2, we completed the integration of the sales forces. So our rep that we currently have now sells the full bag of products, whether it be OrthoPro, Solana or all the legacy Wright products or the new Wright products. And so that really took place in Q2. We've also added 50 direct reps since the beginning of the year. So that all, I think, has all gone well. But there has been a lot of attention paid to getting all of this done as quickly as possible and in an excellent way so that people come out trained and ready to go. So I think that, right now, there is no more Solana sales force. There is no more OrthoPro sales force. There's just one sales force. And that's why in my opening remarks I referred to Q3 as the first clean, straightforward quarter with all the stuff behind us. And so that's why we think -- we're very bullish on the last half of the year.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Okay. And then just -- that's very helpful. One more for me. I know you don't want to speculate on -- on Augment approval, but given that your sales force has been coming through getting trained on other products and INFINITY and so on, have you been engaging in any kind the activities right now, in preparation for a potential Augment approval? [indiscernible] start selling kind of next day if you were to get that approval at the end of October?

Robert J. Palmisano

No. We haven't. I'll tell you why. Is that my expense with these PMAs, and this may be a big exception, but my experience with these PMAs is that even if we're fortunate enough to get an approvable letter, there's still things to work out with the agency that's going to take several months. They're always looking for a post-market study, a post-approval study. There may be some labeling discussions. So if we're -- if we do get this approvable status as of the end of October, it's going to be several months actually, I think, before we're in the market and that will give us time to really gear up.

Operator

Our next question comes from Raj Denhoy with Jefferies.

Raj Denhoy - Jefferies LLC, Research Division

Wonder if I could spend a minute on the expense structure of the business. I think you're still talking about getting to EBITDA breakeven by the end of the year. As we think about how that plays out, is the thought that the spending levels, the absolute dollar spending will stay relatively constant? I guess you spend roughly $75 million in operating expenses in the quarter. If we think of spending, kind of staying in that level and really all the leverage coming from simply driving the top line faster as we move into the back half of the year or it's a larger revenue base in the back half of the year?

Lance A. Berry

Raj, this is Lance. That's generally correct. We will see some uptick in expenses due to higher absolute dollars of commissions with higher sales levels. But other than that, the expense base should be similar to what we've seen here this quarter, which is for the first, full, clean expense quarter post the MicroPort transaction. We also expect to have pretty meaningfully better gross margins in the second half of the year than we did the first.

Raj Denhoy - Jefferies LLC, Research Division

And on that point you described -- I think there was an inventory issue in the quarter. And I guess that was planned, but maybe you could describe a bit more about what that was in the second quarter and why it shouldn't repeat?

Lance A. Berry

Sure. I wouldn't characterize that as an issue. Inventory reserves is a normal part of our cost of sales each and every quarter. We have a very formulaic approach to how we determine those, which is why we have good visibility to when they're occurring and why I was able to tell you about it last quarter. And it's a normal ongoing thing. You will see some variability from quarter-to-quarter on that and from year-to-year. But we have good visibility to the second half of the year and don't anticipate any abnormal levels of reserves in the second half.

Raj Denhoy - Jefferies LLC, Research Division

Okay. And then just one on INFINITY for me, as well. I think the promise that's been held out about that ankle is that it will, perhaps, prompt clinicians to use replacements more often than fusion. And as you have started to train some clinicians, is there anything you can point to, is there as any data that suggests that this is actually happening, that the trained clinicians are, perhaps, increasing the utilization of ankles relative to fusion at this point?

Robert J. Palmisano

Yes. We do have some data that was provided by an outside group that we asked to really look into this whole market for us. And they indicated that physicians going forward are likely -- are much more likely to increase their use of total ankle replacements based on the INFINITY launch than before, about 3x as many is pretty much what the data said. So we think that, that's where I think this is headed. I think that there will be, I think, a time at some point in the future, Raj, when clinicians look back and say, why did we ever do fusions when we have other ways of doing this? The same way as you probably realize that knees were fused at one time. But anyway, so I think that there's indications both from an empirical and in an anecdotal basis that lead us to believe that the adoption of total ankle replacement is driven a lot by the technology having a revision system and having great training that makes physicians comfortable making this change. And those are all the kinds of things that we have in place.

Raj Denhoy - Jefferies LLC, Research Division

I guess if I'm hearing you correctly, it sounded like that study was more of a really just that kind of a market research study. But in terms of when you might actually see, it's kind of an inflection where you start to see it show up in the numbers. And I realize you did see a nice increase in foot and ankle growth in the U.S. in this quarter, but do you think that's already starting to show up in the numbers at this point?

Robert J. Palmisano

Yes. I think -- but I think that we're at kind of the point of what they call in psychographic terms of crossing the chasm from the real or early adopters into the mass majority. And that study pointed that out to us, also, is that we're just about at that point. And once you get over that, you gain a lot more momentum. And that's what we're seeing. We've had really, abnormally high, I think, growth rates in Total Ankle replacements. This quarter it was 30% and that was really without INFINITY. So we look forward to having this full range of products and even launching INVISION in 2015. That adoption is going to pick up, the mass majority will now be much more a part of our customer base and that will drive further penetration into the market.

Operator

Our next question comes from Jeff Johnson with Baird.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Bob, let me ask one more question on INVISION, if I could. If you're trying to get it into the hands of some test surgeons later this year, when would you think a full market launch, I hear you say '15. Is that kind of a mid-'15 or late '15? And then if it's going to be a full revision system when you already have INBONE II, I guess, can you just maybe help me out a little bit? I'm having a hard time understanding kind of what the difference between it and INBONE II might be then.

Robert J. Palmisano

Yes. As far as the time -- at this point, I'm just going to say 2015. I'm going to hedge. And as we get closer and learn more, I'll be able to hone that down. I think we did the same with INFINITY when we said it was out there and then it was really supposed to launch in the third quarter. We were successfully able to move that up. So we'll do everything we can to do a full job in testing with physicians and making all those improvements that we need, but launching it as quickly as feasible. Regarding the difference between that system and INBONE, it's probably geared towards the same kinds of issues that led us down the path for INFINITY. Ease-of-use. Is that we want to make these revisions easier for physicians to do. The INBONE is a great device, but in all candor, it's difficult, somewhat difficult implant to use. It takes a lot of time, a lot of training and a lot of surgeons skills. INFINITY is just a lot, lot better for the broader market. This revision option that we're talking about, which was tentatively named INVISION, is a same premise. It's how do we make this easier for physicians to use, conserve more bone than INBONE uses and take the fear out of doctors. One of the key things doctors sell -- by the way, not having revision options is the #1 thing, the absolute #1 thing that the data tells us is keeping doctors from doing more total ankle replacements. So this is important. And then having something that -- and so they tend to use it on older patients because they're worried that, no, on a younger patient it's not going to last and they don't have a lot of options. So this will open up, we think, a broader market as well. So the INVISION product is an important next step and it shows you that we're really focused on future technologies. It's going to help us grow the market today and give options to doctors in the future, make them more apt to adapt the technology.

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

And then, Lance, if I can just ask 2, I guess, very quick modeling questions. One, just on the CVR mark-to-market adjustments, can you remind me, they've been pretty heavy the last 2 quarters. I know that's tied on, but just remind me what's going on there, if you would. And then as you calculate kind of that pro forma growth going from 8% to 12% on the U.S. foot and ankle business this quarter and then higher over the next quarter or 2, I'm sure a lot of moving parts in there will never be able to get ourselves to that number, but will that be clean-enough number then as it gets into the low mid-teens, or something like that, to be thinking about that as realistic number going into '15, when it will be clean and we would be able to see that in the P&L then?

Lance A. Berry

Yes. So first -- maybe I'll take the second question first. So on the pro forma, yes, I do think that is a good number for you to think about as the growth rate trajectory of the business heading into '15 when we annualize all these acquisitions. And that was our intent in giving it to you, to help you with better understanding that trajectory, knowing that we're going to annualize those things early next year. And, Jeff, the -- there's information on our website that we put on how we've come up with the number and so we provide a new transparency there on what we've done. So you can take a look at that and hopefully that will be helpful to you when you try to come up with your our views on the business.

Julie D. Tracy

That information will be posted soon. It's not posted just yet, but it will be soon.

Lance A. Berry

Okay. And then on the CVRs, that's just we have to do fair market value accounting there. So as -- and since we have a rarely available marker for what fair value is on the CVRs, as those move up or down, it creates gains or losses in the P&L. And we've had large gains and large losses since the BioMimetic acquisition and so that's definitely a possibility going forward as well. And we're just trying to make sure that call those out to you so you can see them.

Operator

Our next question comes from Chris Pasquale with JPMorgan.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

I just want to circle back on INFINITY again and this question of how much the launch can really contribute to broader adoption to therapy. It sounds like just training your current customer base could keep you busy for a while. But what percentage of the surgeons you've scheduled for INFINITY training so far are fusion only or primary fusion docs today?

Robert J. Palmisano

I'm sorry, Chris. I really don't have that number. And perhaps maybe I should, but I don't have that. What we're asking for in the training that we're doing is doctors coming to training, being committed to do 5 cases upon returning from training. So that -- and we're fully booked at that. So we'll see how that goes. The move -- and in that is a mixture of current users, as well as doctors that do little if no total ankle replacements. So it'll take -- I just don't have the breakdown as to people -- what percentage are in which category, right now.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Is it fair to say that the market expanding, they're getting into docs that aren't doing a lot of replacement today is going to come in a bigger way next year once you've kind of taken care of your own guys, or is it something that you're able to kind of do both the same time?

Robert J. Palmisano

I think we can do both at the same time. As I mentioned just a little while ago is that the data that we have is that we are kind of like on this verge of crossing this chasm from early adopters into mass majority. And so I think that, that's going to accelerate. Secondly is that, although market share is not our primary driver, penetration is at this point, is that with the INFINITY ankle and even using INBONE as a revision option is that we are getting cases today that we wouldn't have gotten before and they would have gone to a competitor. And so that's another part of the story. So we think that in the second half of this year, is that we will see a pretty good acceleration of INFINITY cases, both from our current users, as well as from doctors that are using competitive products and then also by doctors that are now convinced that the technology has advanced far enough and there's a revision option for them to do total ankle replacements instead of just all fusions.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

That's helpful. And then just lastly, Bob, how would you characterize your own M&A appetite at the moment. You talked about the very active environment, the integration of your prior deals is now completed and you've got plenty of cash on the balance sheet. Does that make it likely that you're active yourself in the next 6 to 12 months, or is the environment actually making prices less attractive.

Robert J. Palmisano

Yes. We're always out there. I think that the acquisitions that we've done lately, Biotech and Solana and OrthoPro, were all living up to expectations or passing expectations. So we would do more of that. I haven't been asked the question yet on upper extremity, but I would say is that's -- we think that that's an important piece of our puzzle. So we have a -- we do not have a strong Upper Extremity business, so we would be interested in adding something in that area so that we could then have enough mass to make the investments necessary to have a good upper extremity business. I don't have an appetite for pre-approval PMA products. Now we hope that Augment will work out, but that has been kind of a struggle for us and for me to get my mind around. I still think that given the information we had, it was a good decision and hopefully, it'll turn out well, but I don't have an appetite at least currently to do another one of those.

Operator

Our next question comes from Daniel Sollof with Barclays.

Daniel Sollof - Barclays Capital, Research Division

When you look at some of the announced acquisitions, obviously there's been chatters and rumors about more, but just some of the announced ones, certainly there's a potential for opportunity as a result from some of the sales turnover that you might see with competitors. Do see that as a potential driver for growth, or is it really mainly the sales force productivity that you guys have been talking about?

Robert J. Palmisano

Yes. I think there's no doubt, some, I'm sure, distraction in those organizations and we have certainly fielded a lot of calls from reps coming out of some of those companies. We have, I think, currently about -- in our total market, we have about 200 reps in total. About 140 of those are quota-carrying reps, the rest are assistant reps and things like that, but about 200 reps. And I think we have 8 or 9 vacancies right now. So it's -- and that's pretty normal. That's pretty normal. And that there is a lot of opportunities that from the synergies or distractions from these M&A activities to really gain some high-quality new reps and I think that we are moving in that direction to fill our needs.

Daniel Sollof - Barclays Capital, Research Division

Thank you. And just had a follow-up on just the core for an ankle market. You've talked about just the market broadly in terms of like the ankle plates and screws, the whole market. You talked about being the high-single digit to low double-digit growth market globally. Would you reiterate that or have you seen a change? And also, maybe can you just talk about where you see growth in the U.S. specifically?

Robert J. Palmisano

In terms of the core foot and ankle business?

Daniel Sollof - Barclays Capital, Research Division

Yes.

Robert J. Palmisano

Yes. I think that the -- from all the data that's out there, it looks like growth is in the 8% to 10% area for the total market and that does include total ankle replacements. So I think that the growth in the core, the basically fusion screws and plates is probably on the lower end of that spectrum. And so and that, to me, is pretty competitive and under -- could be under price pressures. The more attractive end of the market is a total ankle replacement market where there is high-growth and a lot of product differentiations and total higher margins. So I think that both of them are good and 8% to 10%, no matter how you cut it, is pretty good. Our growth has always been, at least in the last several quarters, have been above that. And we continue to think that we will be significantly above that, certainly in the second half of this year. And so we're not, in any way, negating or downplaying our core business. That's still an important part of our business. It's just that it's not as growing, not as high margin as the Total Ankle business.

Operator

Up next, we have Matt Miksic with Piper Jaffray.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

So I just wanted to follow up on since we're spending a lot of time talking about INFINITY and the opportunity for Total Ankle, to what degree is this sort of a specialty item given the technique, given the training curve, given the comfort of docs kind of moving to this as a therapeutic comfortable using more often. And does that change kind of the way -- I don't know, the way that you think about sort of the pace and volume of sales that these reps can do given that they're coming from core foot and ankle where you're selling lots of different products, smaller bite-size products, if you will, that don't often require that kind of heavier training curve. Can you talk maybe like with a different standard, that you're segmenting to go after that or how you're thinking about those investments?

Robert J. Palmisano

Are you talking about the training of the physicians or training of the reps, Matt?

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Both, I guess. I mean, both as reps put in the time to convert a surgeon and get them comfortable with that trade and get them to adopt.

Robert J. Palmisano

So they are probably in the area of 50,000 end-stage arthritis cases per year. About 80% of those are what -- according to the data we have, appropriate for Total Ankle replacements. So today, maybe 10% to 15% are actually total ankle replacements. So I think it's more than just a niche kind of product when you think that the opportunity is to grow from 10% or 15% of the market up to 70% to 80% of the market. And at that point, it's a very significant product. It does require more training for both the rep and for the physician. But it benefits, we believe -- the benefits for the patient are significant. They have a lot more mobility. And for the physician, in terms of the INFINITY product, is that it's much easier to implant, the training is easier and that the whole transition will be -- is much better and the time spent is about equal to an infusion. Whereas our INBONE product as well as the competitive products out there, there are probably 30 minutes or even longer than that, a case. So I think that we've designed a product based on a lot of physician input, as what it would take you, doctor, to make this transition. Because I think, intuitively, they all think it's better, but it's a lot -- or do they want to change their practice, they want to get retrained and what it's going to take. And I think that we've kind of like hit on all those buttons. And so we think that the market is going to continue to grow very fast. The ultimate goal is that the vast majority of these treatments are done in -- with implants as opposed to fusions. The technology is there are, the training is there, the revisions options are there. And so we think that it's going to be a significant part of this -- the lower extremity business, whether it's us, the market or our competitors.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

And do you think that's putting in as you get these doctors into training, I'm not sure if you talked about it on the call, but pulling through your other products, as you get these docs up close for training or more exposure to them during the training process?

Robert J. Palmisano

Yes. I think that when a total ankle replacement is done, in a significant amount of those cases, there are some fusion elements to that also. And so and we cover, obviously, cover those cases, I think that would get those additional volumes. It's also important and I realized this from my previous company, at ev3, is it's also important that physicians in general, who do they think is the leader in that particular business. And at ev3, it was important when we acquire a pipeline that physicians then become believing in ev3 was then the leader in this neuro business. It's the same here with our focus on this and our launch of new products based upon a lot of physician input data is that physicians, when surveyed, will say -- do say today, that no matter what products they use, they recognize Wright as leader in this end of the business.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Okay. And then -- that's helpful. And just one follow-up on the synergies impact at the quarter that you have talked about and then that you'd feel that are kind of behind you now. Can you sort of tick through what some of the -- there's a lot of different things that can be at this synergy as you do this kind of integration. But can you sort of tick through maybe examples of what types of things you had to work through, or what gives you the confidence that you're done here?

Lance A. Berry

Sure. Matt, this is Lance. I'll give you some examples. One, we separated with the majority of the Solana and OrthoPro sales forces that were distributors. We were able to retain some, but there is a lot that have moved on, so that creates the synergies. We talked about territory changes that are coming out of the MicroPort transaction. And a lot of territory changes that impacted Upper and Bio more, but did impact the foot and ankle area, as well. And then with Biotech, not so much, they're a direct channel in France but they also had indirect sales around the world and we're having to integrate those with our distributors in some cases, either letting their distributor go or our distributor go. And those are the types of things that create more and a lot of time and attention on those. But then also, you can create some short-term disruptions in the sales number. So we're much more, in Q3, this situation, as Bob said, of it's just the right medical sales force now and everybody knows where the territory is, they know what their products are and they can just go out and execute.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

And just to set our expectations, as we enter the back half, the pieces are in place. The people are in place, but is there some element to this that are going to be sort of rebuilding, meeting new accounts in new territories, things that will need to build momentum over the next couple of quarters?

Lance A. Berry

Yes, Matt, there is some of that. And we'd -- I had some comments in my section around quarterly cadence that we expect those things, the additional reps, additional products, INFINITY launch, to have a greater impact in Q4 than in Q3. I do think there will be a building aspect to this, as you say.

Operator

Our next question comes from Richard Newitter with Leerink.

Robert Justin Marcus - Leerink Swann LLC, Research Division

This is Robbie in for Rich. My question is a little bit -- want to probe a little bit more on INVISION. I'm trying to see how you guys would be positioning INVISION versus INBONE. I mean, would this be seen as a replacement for INBONE or do you, I guess, envision 2 separate markets for this?

Robert J. Palmisano

Rob, this is Bob. INBONE is basically a primary ankle. It's used mostly in very -- more difficult cases. So that was kind of the genesis of launching INFINITY, is that we wanted...

Robert Justin Marcus - Leerink Swann LLC, Research Division

I'm sorry, Bob. I meant INFINITY. Sorry.

Robert J. Palmisano

Why don't you repeat your question again so I can understand...

Robert Justin Marcus - Leerink Swann LLC, Research Division

Sure. I'm just trying to understand. So you have a second sort of a revision option now coming with Envision. And I'm just trying to understand the differences between the two. I mean, is this going to be a replacement or do you see this addressing a second group of patients?

Robert J. Palmisano

A replacement for INBONE or a replacement for INFINITY?

Robert Justin Marcus - Leerink Swann LLC, Research Division

For your prior revision system.

Robert J. Palmisano

Yes, well, we didn't have a revision system. We had -- INBONE was using revisions, but it wasn't primarily -- that wasn't the primary use of it. So the INVISION product is meant to be a totally new, completely -- complete revision system that is based upon making the -- making a revision, which a difficult procedure, making it much easier for a physician to do than using the current products out there, such as INBONE. So they're complementary products. So you have a continuum. You have a continuum. You have INBONE II which is used for more difficult cases and some revisions today. We now have INFINITY, which is a much broader market. And then in the future, we will have INVISION, which is a true revision product.

Robert Justin Marcus - Leerink Swann LLC, Research Division

Great. And then post-INFINITY and INVISION, are you planning on still selling INBONE?

Robert J. Palmisano

Yes. Again, INBONE -- the INBONE is used in different kinds of cases than is -- than the INFINITY is geared towards.

Robert Justin Marcus - Leerink Swann LLC, Research Division

Great. And then maybe some of the commentary on M&A and upper extremities. Anything in particular focus, either shoulder or wrist, elbow or hand?

Robert J. Palmisano

It's awful difficult to talk about things like that until you actually do them. So there are 2 or 3 opportunities out there in various parts of the upper extremity. So I think that we're active in searching these things out. I'll also say is that for every deal we do, we look at about 10. So just because we're looking at things in the upper doesn't mean we're going to do something, although we do think that it's important that we grow that business.

Operator

Next question comes from Joanne Wuensch with BMO Markets.

Joanne K. Wuensch - BMO Capital Markets U.S.

Briefly, you started off by talking about the FDA process for Augment. Have you been having any back-and-forth conversation with the FDA?

Robert J. Palmisano

Yes. We have a dialogue that is quite robust, is the way I would put it. There's a lot of back-and-forth with them. If I were to look at it, there's two things. There's form and substance. Substantively, there's no change. We don't know how this is all going to turn out. But the form of it, the process is, it seems good to me in terms of we're able to get our questions answered, we have very clear lines of communication, there's a lot of communication. And I think so from a process point of view, it's good. But given that, I don't know, again, what the final result will say. But there is a lot of communication between us and them.

Joanne K. Wuensch - BMO Capital Markets U.S.

At 1 stage you were talking about a $300 million market opportunity. Do you still think it's that large? And how long do you think it takes for you to tap that?

Robert J. Palmisano

Yes, we do. We do think it's that large. And I suspect that that's the total market. I don't know if you're ever going to tap all of it. But I think that -- I don't know what time period but maybe within 5 years or so, it might be a good time now to get that full amount. If things always do start out and take time to build. But I do think that the market, based upon the number of cases and the ASPs that we're thinking of, get you to that number pretty comfortably.

Joanne K. Wuensch - BMO Capital Markets U.S.

And then my final question, shifting gears, is on INFINITY. Sounds like you'll have most of your home doctors or house doctors trained by the end of this year. How difficult do you think it'll be to transition other doctors over?

Robert J. Palmisano

Well I think we had pretty much of a backlog of training for them. I think that our sales funnel today of doctors that are not doing total ankle replacement is substantial. I don't know the number, but it's in the hundreds. So there's a lot of enthusiasm. I don't think it will be difficult provided that we're able to convince doctors to follow the formula in terms of doing, cutting the training, coming prepared, to do cases. We're going to help you do your cases initially and get you comfortable with it. If doctors, if it's the point view of doctors, I'm going to come to training and do 1 case and wait 6 months and do another case, that's probably not somebody we are going to spend a lot of time on.

Operator

Our last question comes from Jason Wittes with Brean Capital.

Jason Wittes - Brean Capital LLC, Research Division

I have just some follow-ups. First on the 50 sales reps that you -- direct sales reps you brought on this year. I assumed those came primarily from the acquisitions?

Robert J. Palmisano

Yes, they did. And just to clarify that, of the 50 that we added, 25 are what we call quota-carrying. The other 25 are, like, assistant reps.

Jason Wittes - Brean Capital LLC, Research Division

In terms of the rest of the year, should we assume that, that number will continue to grow from similar to what we saw in the first-half?

Robert J. Palmisano

So I think there's 2 issues. One is that, as I mentioned just a little while ago, that we had probably 8 or 9 open territories due to turnover, which is not a lot, when you consider we have 200 reps total. And also, in some areas, we're evaluating whether the opportunity to add some additional reps given the fact that there's a lot of turmoil in some of our competitors. So that we might take that opportunity.

Jason Wittes - Brean Capital LLC, Research Division

And just what is the total now for reps at this point, at the end of the quarter?

Robert J. Palmisano

Yes, there are 2 -- approximately 200 total reps. About 140 of those are quota carrying reps.

Jason Wittes - Brean Capital LLC, Research Division

Okay. And then just a follow-up on the Upper Extremities business. From your commentary, it sounds like there's really not much, it's not really going to be a focus until you can both get up. I think that's the right way to look at it, so the current growth rates that we see perhaps improve somewhat due to the change in sales but not dramatically. And then on top of that, I mean, what is critical mass? Is that an issue of just having enough revenue or is there something in the Product portfolio?

Robert J. Palmisano

Yes. I think that our upper business is a small part of our business. It's probably less than 10% of our business. And we've -- the way that upper products are distributed, it's much more closely akin to OrthoRecon than it is to lower extremities. So coming out on the separation of the companies, we still had quite a few shared reps that were doing MicroPort, OrthoRecon and right upper extremities. We're taking our steps to separate ourselves from that and from that, we see this business stabilizing somewhat. And hopefully we can stabilize it. But in terms of making a go of it in a big way, I think M&A has to play a role on that.

Operator

And I'd like to turn the call back to Bob Palmisano.

Robert J. Palmisano

Thanks, operator. As we stated earlier, our 3 strategic up priorities for this year are to continue to accelerate global revenue growth, improve our gross margins and improve EBITDA. We are very bullish on our technology, our product pipeline, our medical education programs and the opportunity to drive significant improvement in U.S. sales rep productivity with our large, direct sales force.

We also believe that our Vital Few initiative supporting these strategic priorities coupled with our intense focus in extremities and Biologics will position us for future success and drive sustained growth and greater shareholder value.

Finally, I'd like to thank the Wright worldwide team for their efforts during the quarter and for the continued focus on our Vital Few. Thank you for your interest in Wright and for being on the call today.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: Wright Medical Group's (WMGI) CEO Robert Palmisano on Q2 2014 Results - Earnings Call Transcript
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