LDR Holding's (LDRH) CEO Christophe Lavigne on Q4 2015 Results - Earnings Call Transcript

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LDR Holding Corporation (NASDAQ:LDRH)

Q4 2015 Earnings Conference Call

February 17, 2016 5:00 p.m. ET

Executives

Matt Norman - Director of IR

Christophe Lavigne - President and CEO

Joe Ross - EVP, Global Marketing

Bob McNamara - EVP, CFO

Analysts

Matthew O'Brien - Piper Jaffray

Glenn Novarro - RBC Capital Markets

Josh Jennings - Cowen & Co.

Kaila Krum - William Blair & Co.

Matt Miksic - UBS

Dave Turkaly - JMP Securities

Jason Wittes - Brean Capital

Operator

Good day, ladies and gentlemen, and welcome to the LDR Holdings Corporation Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference, Mr. Matt Norman. Sir, you may begin.

Matt Norman

Good afternoon everyone. This is Matt Norman, Director of Investor Relations at LDR. Thank you for joining us to review LDR Holding Corporation's financial results for the fourth quarter and full year ended December 31, 2015.

On the call today representing LDR Holding are Christophe Lavigne, President and Chief Executive Officer; Joe Ross, Executive Vice President of Marketing; and Bob McNamara, Executive Vice President and Chief Financial Officer.

Before we start, I want to touch on any forward-looking statements made during the call, including management's beliefs and expectations about the Company's future results. Please be aware, they are based on the best available information of the management and assumptions that management believe reasonable. Such statements are not intended to be a representation of future results and are subject to risks and uncertainties. Future results may differ materially from management's current expectation. We refer all of you to LDR Holding's annual report on Form 10-K and other filings with the Securities and Exchange Commission with more detailed information on the risks and uncertainties that have a direct bearing on the Company's operating results, performance and financial conditions.

On this call today we are also going to discuss certain non-GAAP financial measures which we use as supplemental measures of performance. We believe these measure provide useful information to investors in evaluating our operations period over period. For each non-GAAP financial measure that we use on this call, we've included a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure in our press release. Please note the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

With that said, I would now like to turn the call over to Christophe Lavigne, LDR's President and Chief Executive Officer. Christophe?

Christophe Lavigne

Bon jour and welcome everyone to the call. I am pleased to report LDR's record revenue for the fourth quarter ending December 31, 2015, reached a record $44.5 million, compared to $39.5 million for the fourth quarter of 2015, representing global growth of 16.2% on a constant currency basis or 12.7% as reported, despite the tough prior-year comparison.

As expected, we once again finished with our strongest quarter of the year, due in part to the positive seasonal benefit provided by Q4 for our business. This growth was led by our exclusive technology products which grew a solid 18.3% on a constant currency basis or 15.9% as reported to $41.6 million. Exclusive technology products represented 93.3% of total revenues compared to 90.7% of revenue in the fourth quarter of 2014.

For the full year ended December 31, 2015, our total revenue was $164.5 million, an increase of 21.3% on a constant currency basis, or 16.4% as reported, compared to $141.3 million for the full year 2014.

Our exclusive technology products generated revenues of $152.4 million, up 25.4% constant currency or 21.9% as reported, versus 2014, and represented over 92.7% of LDR's 2015 revenues.

Within our exclusive cervical technology portfolio, sales were once again led by strong growth of the Mobi-C cervical disc year over year. We achieved a new record quarter in Q4 2015 with Mobi-C in terms of revenue, number of cases performed, and number of surgeon users. Previously we had taken that Mobi-C was our bestselling product outside the U.S. I am proud to report that in 2015 Mobi-C became our highest revenue-generating product in the U.S. as well, with a growth rate of nearly 80%. We look forward to sharing more details on this subject with the investment community next week at our Analyst Day in New York.

We continue to capitalize on the opportunity by using Mobi-C as a door opener with new surgeon users, and then implementing our strategy of cross-selling our over-exclusive technology. We continue to gain market share in the cervical spine segment by offering innovative cervical solutions for both fusion and non-fusion, including one and two-level cervical disc replacement. We believe that market dynamics are evolving well to position cervical disc replacement as the most promising segment in the spine industry.

During the fourth quarter, the North American Spine Society, or NASS, updated its coverage policy recommendation for cervical artificial disc replacement to include both one and two-level cervical disc replacement. We view this as a significant milestone, further validating both one and two-level cervical disc replacement as an alternative to traditional cervical fusion. Specifically, it is the recognition by the spine surgeon community that cervical disc replacement for the two-level indication is now becoming a standard of care.

Overall we continue to be very pleased with surgeon customer adoption of our exclusive technology. To date there have been more than 40,000 Mobi-C and 100,000 VerteBRIDGE implantations worldwide.

On the last two earnings calls we've discussed our minimal implant volume or MIVo surgery philosophy. The core principle of the MIVo surgery philosophy is to expand the concept of minimally-invasive surgery through to the implants, with the goals of reducing the volume of implants needed to treat specific pathologies and, when possible, eliminating the use of medical screws in the lumbar spine. We believe MIVo represents a new surgical philosophy for the treatment of lumbar and cervical spine that we'll ultimately create a new market segment in spine. Our clinical evaluations for MIVo continued during the quarter, which Joe will discuss in more details shortly.

Related to our U.S. sales organization, we continued our pace of hiring, reaching our goal with 68 direct spine representatives employed at the end of 2015. The majority of the representatives hired in 2015 joined LDR during the second half of the year. At the same time, we also increased the number of sales agencies selling our exclusive technologies with over 240 sales agencies at yearend, and Q4 2015 was a record quarter in terms of revenue generated by our sales agencies as well as by our direct representatives. This is consistent with our strategy and our commitment to increase our U.S. territory coverage to a hybrid sales model.

As previously announced, during the quarter we made a minority investment in a French manufacturing company called Poly-Shape. Poly-Shape is one of the most advanced companies in additive manufacturing in Europe, with a reputation for production in highly technical fields such as aerospace and Formula1 racing. Through this exclusive partnership, our strategic investment will allow for the development of spinal implants with more complex geometries which are free from the limits associated with conventional manufacturing method. This additive manufacturing will play an important role in future products consistent with our MIVo philosophy.

With that, I would like to turn the call over to Joe Ross, Executive Vice President, Global Marketing, to provide additional detail on LDR's performance. Joe?

Joe Ross

Thank you, Christophe. I would like to begin with an update on our clinical publications.

Last month we were pleased to announce the first peer-reviewed publication of five-year data on Mobi-C versus traditional cervical fusion. The publication evaluated one endpoint from the clinical trial, specifically the subsequent surgery rates through five years for Mobi-C compared to cervical fusion at one and two levels.

Key highlights from the publication included: At five years, the occurrence of subsequent surgical intervention was statistically significantly higher amongst cervical fusion patients compared to both one and two-level Mobi-C patients. The study also found that patients receiving the Mobi-C cervical disc demonstrated significantly fewer index-level and adjacent-level subsequent surgeries in both the one and two-level cohorts.

In addition, last week we announced another peer-reviewed publication evaluating the cost-effectiveness of two-level cervical disc replacement with Mobi-C compared to traditional cervical fusion at five years. Consistent with the findings from the cost-effectiveness study at two years, the paper concluded that, for patients with two-level degenerative disc disease, cervical disc replacement appears to be a highly cost-effective surgical modality compared with cervical fusion. And further that, from a societal perspective, cervical disc replacement imparts greater quality of life at less cost than cervical fusion. And when comparing the results of the study at five years to the previous study at two years, the findings suggest that over time Mobi-C becomes even more cost-effective.

We are also pleased to report that the long-term five-year safety and efficacy data on the two-level Mobi-C full IDE cohort was recently accepted for publication in a peer-reviewed journal. Based on historic timing from acceptance to publication for other similar papers, we expect this key publication to be available by mid-2016.

Finally, a paper reporting on the five-year one-level Mobi-C full IDE cohort was also accepted for publication and is expected to be publicly available in 2016. As a reminder, the ongoing dissemination of our clinical data supporting cervical total disc replacement with Mobi-C is a key component of our reimbursement strategy. We believe the growing weight of long-term clinical evidence, combined with the cost-effectiveness data and the NASS recommendation, will be influential to payors as they make medical policy decisions for their members. The number of payors issuing coverage for cervical disc replacement has increased significantly in 2015 and we anticipate further progress in 2016. We believe our investment and our reimbursement department and its broad payor communication strategy will continue to positively impact the coverage landscape and the rate of policy change.

On the last call we announced that a number of important payors established positive policy updates for one-level cervical disc replacement. This trend continued during the fourth quarter with the following payors updating their policies to cover one-level cervical disc replacement: Capital BlueCross, BlueCross BlueShield Massachusetts, BlueCross Northeastern Pennsylvania, BlueCross BlueShield North Carolina, and just recently, Excellus BlueCross BlueShield and Univera Healthcare, which cover portions of central and western New York, respectively.

In the fourth quarter we also continued to see progress with regional payors moving to cover two-level cervical disc replacement, including Medica which has 1.5 million covered lives in Minnesota and portions of surrounding states, and Hawaii Medical Service Association which has over 700,000 covered lives in Hawaii.

Finally, Medi-Cal, which has 12 million covered lives in California, moved to cover both one and two-level cervical disc replacement during the quarter. In total this represents over 20 million newly covered lives for one-level cervical disc replacement and over 14 million newly covered lives for two-level cervical disc replacement since our last public update in early November.

With this significant coverage expansion in 2015, we now estimate 179 million U.S. lives are covered for one-level cervical disc replacement and 35 million lives are covered for two-level, representing recognition by commercial payors of cervical disc replacement as a standard of care for indicated patients.

On the last few calls we highlighted three new MIVo lumbar technology products: the InterBRIDGE interspinous fusion device, the Avenue T TLIF cage, featuring VerteBRIDGE technology, and the Fossett Bridge [ph] Fossett [ph] fixation product.

We recently completed the beta launch of InterBRIDGE in the U.S. and are moving to full commercial launch in the coming months. InterBRIDGE will be a strong focus at our upcoming national sales meeting scheduled for the end of next week in Austin, Texas.

With regard to Avenue T, based on physician feedback from the ongoing beta evaluation in Europe, we've taken the opportunity to fine-tune features of the implant and associated instrumentation. Consequently, we now plan to begin the U.S. beta launch in Q3 2016.

Finally, we are pleased to announce that Fossett Bridge [ph], our lumbar Fossett [ph] fixation product, recently received 510-K clearance and we anticipate the start of the U.S. trade launch in Q2 2016. The first MIVo cases using Fossett Bridge [ph] in conjunction with Avenue T were recently performed in Europe. Since the beta valuation will occur in 2016, we expect Fossett Bridge [ph] to provide modest revenue contribution in the second half of this year with a more significant contribution beginning in 2017.

Surgeon training and education continues to be a priority for LDR. We remained on pace with our objectives during the quarter with the training of spine surgeons on Mobi-C, and in tandem, our VerteBRIDGE fusion solutions, for both cervical and lumbar spine procedures. As of the end of 2015, over 2,200 surgeons in total have now been trained on Mobi-C since our U.S. launch. Participation in our training programs continues to meet our expectations, and we will continue to invest in surgeon education in 2016 and beyond to support Mobi-C and our other exclusive technology products.

With that, I would like to turn the call to Bob McNamara, Executive Vice President and Chief Financial Officer, to provide additional detail on LDR's financial performance. Bob?

Bob McNamara

Thank you, Joe.

As Christophe mentioned, our total revenue for the fourth quarter ending December 31, 2015 reached a record $44.5 million, compared to $39.5 million for the fourth quarter 2014, an increase of 16.2% on a constant currency basis or 12.7% as reported. For the full year 2015, total revenue was $164.5 million, compared to $141.3 million for the full year 2014, an increase of 21.3% constant currency, or 16.4% as reported. This compares to our previously issued 2015 guidance range of $161 million to $163.9 million. This growth was driven by strong performance from our exclusive technology products.

More specifically, revenue from our exclusive technology products grew to $41.6 million in the fourth quarter of 2015 from $35.8 million in the prior-year period, an increase of 18.3% on a constant currency basis or 15.9% as reported. For the full year 2015, revenue from our exclusive technology products grew 25.4% constant currency or 21.9% as reported to $152.4 million.

In Q4 2015, revenue from exclusive cervical technology products increased 28.6% on a constant currency basis or 26% as reported, reaching $32.1 million, compared to $25.5 million in Q4 2014. For the full year 2015, revenue from exclusive cervical technology products grew 35.9% constant currency or 31.9% as reported to $114.8 million. Key drivers of the cervical product revenue growth were the continued strong year-over-year growth of Mobi-C and the solid performance of our ROI-C cervical cage.

Exclusive lumbar product revenues were $9.4 million in Q4 2015, down 7.1% on a constant currency basis or down 8.9% as reported, compared to the prior-year period. For the full year 2015, revenue from exclusive lumbar products grew 1.5% constant currency or decreased 0.9% as reported to $37.6 million.

Our traditional fusion product revenues were $3 million in the fourth quarter of 2015, down 4.7% on a constant currency basis or down 18.9% as reported compared to Q4 2014. For the full year 2015, revenue from traditional fusion products decreased 10.5% constant currency or 26% as reported to $12 million.

By geography, our fourth quarter 2015 revenue in the U.S. increased 15.4% to $36.9 million, compared to $32 million for the prior-year period, primarily due to the strong performance from our exclusive cervical technology portfolio and Mobi-C in particular.

Fourth quarter international revenue totaled $7.6 million, up 19.4% over the prior-year period on a constant currency basis, or up 1% as reported. For Q4 2015, our U.S. and international revenue represented 82.9% and 17.1% of total revenue, respectively. For the full year 2015, the U.S. revenue reached $133.8 million, representing growth of 22.1% over the prior year, while international revenue increased 18.5% on a constant currency basis, or decreased 3.3% as reported. For the full year, our U.S. and international revenue represented 81.4% and 18.6% of total revenue, respectively.

In the fourth quarter of 2015, our gross margin was 82.3%, compared to 82.7% in the prior-year period. For the full year 2015, our gross margin was 83.4%, compared to 82.7% in 2014. We are confident in the sustainability of our gross margins which we have historically maintained above 80%.

Moving to our operating expenses, our research and development expenses were $3.2 million in the fourth quarter of 2015, compared to $3 million in the fourth quarter of 2014. This year-over-year increase was due to the continued investment in our pipeline products associated with MIVo, offset by the foreign exchange impact. As a percentage of total revenue, R&D expenses were 7.3% for Q4 2015, compared to 7.6% in last year's period. We expect R&D spending to increase over time on an absolute basis as we develop new products, add R&D personnel, strengthen our patent portfolio, and support new clinical activities.

Sales and marketing expenses were $29.5 million in Q4 2015, compared to $26.3 million for the prior-year period, an increase of 12.1%. This increase relates to our planned investments and reflects higher sales and marketing expenses in the U.S., including hiring of additional direct sales representatives, sales management and marketing personnel, along with increased commissions associated with higher sales and investments in other product initiatives. In addition, we have added sales resources outside the U.S., so the increase in the expense was offset by a beneficial FX or foreign exchange impact. As a percentage of total revenues, sales and marketing expenses represented 66.1% of total revenue for the fourth quarter of 2015, compared to 66.4% in last year's period.

Our general and administrative expenses were $10.8 million in Q4 2015, compared to $7.1 million in Q4 2014, an increase of 53.1%. This increase is primarily related to stock-based compensation, payroll, accounting and consulting fees. G&A expenses represented 24.3% of total revenues for the fourth quarter of 2015, compared to 17.9% in the prior-year period.

In 2015, our U.S. medical device taxes were $1.2 million. We do not expect to incur these charges in 2016 and 2017 due to the suspension of the U.S. medical device tax.

During the fourth quarter 2015, we also recognized an income tax benefit of $1.9 million due to deferred foreign tax expense related to intra-company sales and net operating loss carry-forwards generated in our international markets. Our net loss for the fourth quarter in 2015 totaled $4.8 million or $0.16 per diluted share. This compares to a net loss of $3.1 million or $0.12 per diluted share for the fourth quarter of 2014.

As a basis for EPS calculations going forward, investors and analysts should use 29.4 million fully diluted shares at the end of the fourth quarter 2015.

Moving to our balance sheet, as of December 31, 2015, we had $115.1 million in cash and cash equivalents, with $148 million in working capital and $5.8 million in debt held outside the U.S. As compared to the balance sheet on September 30, 2015, our cash position decreased $8.4 million due to our planned spending in key investment areas. This includes working capital changes such as our investment in implant inventory of $3.8 million and other investing activities totaling $4.4 million, including capital spending on instrumentation and the Poly-Shape strategic investment.

Now I would like to provide financial guidance for 2016. Based on LDR's results for the full year ending December 31, 2015, the company expects revenue for the full year 2016 to be in the range of $287.5 million to $189.5 million, or 13% to 15.2% growth on a reported basis. We expect foreign exchange headwinds of approximately 1% in 2016. This implies revenues before any foreign exchange impact in the range of $189.1 million to $191.1 million for the full year 2016, or 15% to 16.2% growth constant currency.

With regard to the progression of revenue throughout 2016, investors should assume growth in the low teens for the first half of 2016, accelerating into growth in the high teens in the second half of 2016. For modeling purposes, investors should also keep in mind the typical seasonal dip in revenue from Q4 to Q1.

Other factors to consider with regard to our 2016 guidance include the following. The majority of direct sales reps hired in 2015 were hired in the second half of the year. Consequently, we expect their productivity to begin increasing in the second half of 2016. Additionally, our posterior fixation solutions for MIVo, including InterBRIDGE and Fossett Bridge [ph], are expected to begin providing modest revenue contributions in the second half of 2016, with more significant revenue contributions coming in 2017. Keep in mind, when commercially launched, both products can immediately be used in conjunction with our intra-body lumbar solutions on the market today, including ROI-A and Avenue L.

Finally, our guidance assumes the additional covered lives added for both one and two-level in the latter half of 2015 will translate into incremental Mobi-C revenue in the second half of 2016, due to the improvements in the reimbursement landscape. Recall, for one level alone, over 35 million newly-covered lives were added in Q3 and Q4 of 2015. And while we only provide annual revenue guidance, we do want to provide a little more color with regard to our operating expenses in 2016.

Previously, we have discussed our Horizon 2016 Plan, which includes investments in sales and marketing, physician education, and reimbursement, to develop and adapt our organization to take advantage of our first-mover position with Mobi-C. For modeling purposes, investors should expect that we will continue to invest in these areas through the end of 2016 at an equivalent or slightly higher pace as experienced in 2015.

And now I would like to turn the call back to Christophe for closing remarks. Christophe?

Christophe Lavigne

Thanks, Rob. I am extremely pleased with our performance in Q4 and for the full year 2015. We finished 2015 with revenues growing by 21.3% constant currency year over year, led by growth in our exclusive cervical products of 35.9% constant currency for the full year. With U.S. Mobi-C revenue growth of nearly 80% in 2015 and to help our investors better understand the market opportunity for cervical disc replacement, we have decided to give more detail on that success story during our Analyst Day next week in New York. Our progress to date confirms we are on the right trajectory with our exclusive technology strategy. The long-term clinical evidence in support of Mobi-C continues to grow, including additional peer-reviewed publication at five years [inaudible] in 2016.

With the growing acceptance in the surgeons community of cervical disc replacements as an alternative to fusion, and the increased number of covered lives, so, both one and two-level indications, we believe the cervical disc replacement market will continue to be one of the fastest-growing markets in spine, penetrating into and expanding the existing $1.2 billion U.S. cervical market. We are committed to taking advantage of this sizable business opportunity and we will use our resources to continue to invest in expanding our U.S. territory coverage and adapting our global organization to achieve our growth objectives.

With that review, we are happy to field any questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from Matthew O'Brien from Piper Jaffray. Your line is open.

Matthew O'Brien - Piper Jaffray

Afternoon, guys. Thanks for taking my questions. Just two for me.

You know, Christophe or Bob, when we look at the performance in Q4, sequentially, on the exclusive cervical side of things, this was the best performance that we've seen to date from the Company, and I'm just curious if you can tease out a little bit some of the driver there, be it, you know, was it the NASS recommendations, kind of the middle of the core that produced an acceleration in utilization of the disc, or was it more sales reps or, you know, more fusion products being sold? Just again, what was the real driver of that uptick that we saw in Q4 sequentially that we haven't seen in the past?

Christophe Lavigne

I would say, different factors. The first one the quality of the work that we have done during the year. It's clearly one of the direct consequences of that. In terms of our results of surgeons being trained on Mobi-C, as you know, we continue to invest in this area. The first thing is also, you know, Q4 has always been the best quarter for the Company, and we said that previously. This is just based on our experience.

So I think it's the association of the quality of the work that we have done, the fact that we have trained surgeons, the fact that our sales organization also continue to -- continue to deliver even more.

Matthew O'Brien - Piper Jaffray

Okay. But there was nothing specific, you know, reimbursement from a couple of quarters ago [inaudible] recommendation or anything specific to call out?

Christophe Lavigne

I think that recommendation, if I recall, came very late in the quarter. So I don't think that this played a role in our Q4 results.

Matthew O'Brien - Piper Jaffray

Got it. And then Bob, just a quick question on the OpEx commentary that you had. Were you saying that we should be modeling for 2016 the percent of revenue to be the same as 2015 or the growth -- are the growth rates to be the same as 2015?

Bob McNamara

Yeah, I think if you look at Q4 and sort of look at the run rate that's in Q4, that'll give you a good base case, if you will, but we know that we're going to be making additional investments in 2016. So I would start with Q4 and build from there.

Matthew O'Brien - Piper Jaffray

Got it. Thank you.

Christophe Lavigne

Okay.

Operator

Our next question comes from Glenn Novarro from RBC Capital Markets. Your line is open.

Glenn Novarro - RBC Capital Markets

Hi. Good afternoon guys, and fine finish to the year. Two questions.

One, as I think about the revenue ramp for 2016, some of it's going to be driven by the reimbursement announcements that we hope to see in 2016. And if I look back in 2015, Aetna was a midyear decision, Cigna was December, Humana was just recently. So my question on reimbursement is the following. Number one, are you aware, could Cigna and Humana come back kind of off-period and decide to reimburse two-level given the fact there's more publications now available with the five-year data and the fact that we're going to get a midyear final full-year five-year data publication? And will that data publication, the final five-year, will that come before the Aetna decision by midyear? Thanks.

Joe Ross

Glenn, thanks. This is Joe. It's a good question.

So as I understand it, the payors can, if they choose to update policies mid-cycle, and we will certainly make that request upon the publication of the pivotal five-year manuscript, you know, sometime by midyear. So we will make the request. Of course it's impossible for us to predict whether or not they'll be willing to do that, but we're going to get it in their hands and be as persuasive as we can be.

In terms of having the paper -- the key paper available prior to the review, you quoted some of the policy update dates, and of course the review itself happens at some point maybe one to three months prior to that new policy becoming public. And so we're hoping that the paper is published sooner rather than later, so that we can get that in. But it's hard to say exactly what the deadline for us needs to be in order to hit the review for any specific policy.

Glenn Novarro - RBC Capital Markets

Okay. And then I guess for Bob, you're talking -- you mentioned operating expenses being elevated similar to 2015, can you tell us about maybe the salesforce hires? So for example, in 2015, you hired 68 reps. Will there be another 50 to 70 reps hired in 2016 and is that why the spending is going to be elevated?

And for example, you trained over 500 docs in 2015, should we expect another 500-plus docs to be trained in 2016 given this elevated spend? Thank you.

Joe Ross

Yeah. Hi, this is Joe, again, just to take that for Bob. With regard to surgeon training, as I mentioned, we're very pleased with the number of surgeons trained in 2015, and we continue to evolve our training strategy as we grow our sales channels in order to kind of optimize the impact. And we're confident that we can train at least as many or more surgeons in 2016 as compared to 2015.

Glenn Novarro - RBC Capital Markets

And then just on the sales reps hire.

Bob McNamara

Yeah. Relative to that, we haven't publicly disclosed what our target is for hiring for 2016, but we will continue to hire reps opportunistically, as well as add agencies to the sales channel. And so you'll certainly see an increase in the number of reps. But we haven't called out a specific number for public purposes.

Glenn Novarro - RBC Capital Markets

Okay. Thanks, Bob.

Operator

Our next question comes from Josh Jennings from Cowen & Co. Your line is open.

Josh Jennings - Cowen & Co.

Hi, good evening, and congratulations on the performance. Also congratulations on also the progress with payors. We did have those recent Cigna and Humana technology assessments for two-level that Glenn referred to.

And just to follow up on his question, can you talk about any back-and-forth interactions you've had with their medical directors and what they need to get them over their hump? Is it the publication of five-year data? Do they need longer-term durability of outcomes? They need cost-effectiveness papers similar to recent publication? And any other incremental information in terms of your interactions with those payors, would be great.

Joe Ross

Sure. So we have a team of reimbursement professionals that each are assigned various payors with which to attempt to interact. And sometimes we're successful in having some back-and-forth, but quite often we're really just kind of submitting information.

With regard to what they're looking for, many policies will cite for instance lack of, you know, scientific societies to support, and we've answered that. But I think that to your point, the thing that is cited most often as a barrier to positive coverage is long-term five-year published evidence, not just presented but published. And so we do feel that the publication of that specific paper, based on the two-level for IDE cohort will have a meaningful impact as we're able to get that to payors in time for their reviews.

Josh Jennings - Cowen & Co.

Great. Thanks for that. And then just on -- just a question about your 2016 guidance, and I know you're not giving specific guidance for cervical or lumbar, but can you just help us think about the assumption you have for the lumbar -- access of [ph] lumbar units? And should that -- we assume that unit to return to growth for the year in 2016 or flattish, or anything direct will be super-helpful? Thanks a lot.

Christophe Lavigne

Yeah, Josh, Christophe. So you know we don't give guidance by product line, but one thing that I can emphasize, as you know, our focus has been cervical, exclusive cervical, and especially Mobi-C, and you have seen it with 80% U.S. revenue growth in 2015.

On the lumbar side, we have explained what we are doing, especially with the MIVo lumbar project. And we clearly see the lumbar spine market as a big opportunity for us in the future.

Operator

And our next question comes from Kaila Krum from William Blair. Your line is open.

Kaila Krum - William Blair & Co.

Hi guys. Congrats on the quarter. I have another follow-up on the reimbursement topic.

I know that you are emphasizing the pivotal five-year data on the 2,000 [ph] Mobi-C IDE cohort, and I understand it's difficult to predict, but can you just help us understand how common perhaps it is for these payors to perform a review outside of their normal review cycle, if presented with this publication? And then if they don't consider an appeal, how this data could help in the patient appeal process.

Joe Ross

Good question. So to answer the first part of the question, it is not common for payors to update their policies mid-cycle. And we have to recognize that.

In terms of the impact of the paper, we think that there are certainly payors out there who are specifically waiting for that evidence to be published in order to sort of check the last box of evidence that don't need two -- probably the two-level indication.

And I'm sorry, the last part of your question? Oh, sorry, patient appeals.

So we've been pleased with the success that we've seen from patient appeals and external reviews. For those that are denied, there are a variety of answers that are sometimes given, and the lack of long-term evidence is one that we see. And so for those reviews or appeals, we would think that the paper would have a meaningful impact.

For other appeals, the answer given is simply that we do not cover and we're not going to cover even on a per-patient basis. So I think that, you know, there will still be a variety of responses. But again if you think about it, it can only help.

Kaila Krum - William Blair & Co.

Okay, that's helpful. And then I guess -- I mean on the competitive dynamic, there's obviously chatter that there'll be a new entrant in the two-level space. And there's been a couple of companies making progress outside of the U.S. So, can you just talk about how, if at all, your strategy, your long-term outlook has changed as the market opens up to new players?

Joe Ross

Yes. So, a couple of things. You know, with regard to another U.S. entrant in two-level, we recognize that possibility, we're not ignoring it. But what we will continue to do is focus on the strategy that we've set forth, which really is built upon our clinical data, the long-term evidence, the superiority of two-level Mobi-C over fusion, the elegance of our surgical technique and the specific features and benefits of the Mobi-C device as compared to other cervical disc replacements.

Regarding anything beyond that one particular potential market entrant, we just have to remember that this is a Class 3 device. It requires a full IDE clinical trial with two-year follow-ups, submission and review. And to our knowledge, there is not another device that's currently being studied in the U.S. for two-level cervical disc replacement. Consequently, you would think that it would be a minimum of seven to nine years before a third or any additional cervical disc replacement devices could compete with Mobi-C for two-levels in the U.S.

Kaila Krum - William Blair & Co.

Thank you.

Operator

Our next question comes from Matt Miksic from UBS. Your line is open.

Matt Miksic - UBS

Hey guys. Nice job on the quarter. Wanted to follow up. I'll step around. Maybe the guessing game is to when we'll get additional coverage, just because it seems like you had some recent good coverage improvements, and as you know and I think most folks following the story know, it's been tough to predict.

But if you could talk a little bit about the improvements you saw last year. And I think Christophe, you mentioned that did make some contribution, if I understood your comments, to sort of improving momentum in Q4, if I may have misunderstood it, but maybe the factors that drives -- that have driven the change in momentum, maybe to what degree it's, I don't know, new folks who haven't done cervical discs before, folks who are brought in by better [ph] expectations of greater coverage, just what some of the factors you see in the field that are helping to maybe hit the business moving a little bit on the Mobi-C side.

Joe Ross

Okay. This is Joe, I'll start, and then turn it over to Christophe.

I think with regard to the progress that we saw in 2015 in coverage, obviously we're very pleased, a significant increase over where we started the year, especially for one-level, and there was clearly a watershed event with the BlueCross BlueShield association where we saw nearly all of them fall in line and cover single-level disc replacement.

That said, you know, trying to connect that with actual cases performed, the revenue performance is difficult. And one of the things that we're doing on the sales and marketing side is trying to make sure that we're educating surgeons of the new policy updates, because just because the policy is updated doesn't mean that they immediately know and understand that they can more easily utilize the technology.

So it takes a little bit of time to actually gain a full understanding in the surgeon community of what their local payor environment is. And so that's something that we work to do actively. And as Christophe said earlier, I think it's really been the culmination of all of our strategies, not just reimbursement and promotion and hiring and training that has kind of all come together to result in a very good Q4.

Christophe Lavigne

Yeah, Matt, maybe just to -- a few things to add to your question. Again you have seen in 2015 80% growth with Mobi-C. So clearly we have more and more surgeons using Mobi-C in Q4. As we said, Q4 has been a recourse quarter for Mobi-C, not only in terms of revenue but also in terms of a number of users, number of cases that we have performed. So, reimbursement, clearly, the evolution of reimbursement clearly helped.

But I would add also to what Joe said. We think that patient demand also play a role, because we see more and more patients really understanding cervical discs and some of them are going to the practice and asking for cervical disc. So we think that it's the conjunction of all of these different elements, surgeons being more and more comfortable with cervical disc, understanding more of the technology, the reimbursement landscape evolving, and the patient demand.

Matt Miksic - UBS

And if I could just follow up on this subject, just because this was -- it was I think maybe misunderstood the last several months after Q3 and ahead of Q4, what the drivers are, how all this is coming together, how important is reimbursement to your sort of, you know, this quarter, next quarter, you know, additional reimbursement events. And when you talk about new surgeons and cases per surgeon, are you seeing some, you know, folks say that you've trained early last year or the year before, or are you staying kind of the group of surgeons that you've trained over a longer period of time, you know, picking up additional cases now? Is there a kind of a waiting period? Have these -- maybe some dynamics on how that comes together over time. Because it's clearly not, you know, you train a surgeon and they switch right on to full capacity. There's some ramping. So, color on that I think will be very helpful.

Christophe Lavigne

Yes, Matt. And you're fully correct, and we've said that in the past, it's normal for a surgeon, when they have been trained, to go step by step doing the first case. The second case, waiting a little bit to make sure that they have good clinical outcomes and moving more and more to cervical disc and being more comfortable to propose that to their patient.

We'll be able to give more information next week during our Investor Day in New York on the success story on Mobi-C, so I will invite you to participate on, we'll be able to share more information. But you're correct -- surgeons who have been trained a year ago now are more comfortable with cervical disc and may have a tendency to do more cases.

Matt Miksic - UBS

And if I could just ask more before I jump here, one for Bob on guidance. This again has been a topic of conversation over the past several months, is visibility and sort of confidence in this sort of mid-teens range. Bob, if you could talk a little bit about what, you know, I'm sure you've looked at this internally and thought about visibility. If you could give us a sense of any changes or information or different approach that you've taken to setting out this guidance for this year. And then maybe how we should think about pace, just because even though you don't provide quarterly guidance, you know, pace of how the year will play out is clearly important as we put our numbers together.

Bob McNamara

Yes. So if you think about kind of the flows of the revenue, and I mentioned this in our comments, the growth that you'll see will be in the -- generally in the low teens in the first half of the year, high teens in the second half of the year.

And the -- in terms of the specific visibility that we have, it is fairly limited. We don't have schedules that go out six months or even three months in terms of surgical schedules, but we do have a lot of data. We understand the physician that we have, we know which procedures they're doing, we know if they're one-level, two-level, if they're using the other products as well. So we have a lot of data that we can use in order to predict what the year might look like. So we're using that.

We're also gaining more experience with our sales organization and the sales organization itself is gaining more experience. So there's a lot of factors that go into predicting what -- and forecasting what the year might look like. But we are confident in our numbers. But it is based on a lot of different factors that come into play.

I wouldn't say that there's any sort of new factors that have come in to, you know, into our analytics, you know. And if you think about last year, in terms of the guidance that we gave, we gave guidance throughout the year, it was annual guidance. We did what we said basically. We hit those numbers. And so we're confident that we'll be able to hit the numbers this year.

Matt Miksic - UBS

Great. Thank you.

Operator

Ladies and gentlemen, due to time limitations, we ask that you please limit yourself to one question.

Our next question comes from Dave Turkaly from JMP Securities. Your line is open.

Dave Turkaly - JMP Securities

Thanks, and thanks for the color on all the distribution adds. I guess, could you share your thoughts today on sort of what percent of the U.S. you think you have covered now? And then as a follow-up, sort of, do you have a ballpark target for a rep, once they're fully mature and ramped? Thank you.

Christophe Lavigne

Yeah, thanks. So what we said is the number of sales agencies that we have reached [ph] 240 sales agencies in the United States, and we ended 2015 with 68 direct reps. So clearly we continue to increase our territory coverage. That's one of our main targets, as you may remember. And we plan to continue to do that.

Now as Bob said before, we are opportunistic. We are committed to the hybrid distribution, which means that if we have a good option with a sales agency in one area where we don't have coverage, that we'd be very happy to work with them. And on the other side, if we don't have good sales agencies in this area, we may plug a direct rep. But this will be opportunity-driven.

So, answering your question big picture, yes, expanding our distribution coverage in the United States remains a priority for our Company.

Dave Turkaly - JMP Securities

Any guess as to -- I know you said in the past you thought you only had about half of the U.S. covered. Is there any update there?

Christophe Lavigne

So, you know, [inaudible] 100% coverage of the United States, as you understand we can't do that in a year. So we are pacing that. We also want to be very smart about the approach that we have per area. So we may give more comment in the future about that.

Dave Turkaly - JMP Securities

Right, thanks.

Operator

Our next question comes from Jason Wittes from Brean Capital. Your line is open.

Jason Wittes - Brean Capital

Hi. Thank you for taking the questions. Just wanted to get a little more clarity on guidance, and that's specifically you guys are sort of pointing to a second half acceleration. I know a little bit of that is due to the fixation devices coming online, although it sounds like that'll be modest. But it also sounds like you feel there's some time for some reimbursement to work its way through, and I'm curious if, one, if that's specifically the reimbursement that's come online over the last two quarters or it's also additional expectations of -- additional decisions or positive reimbursement decisions coming up?

Joe Ross

This is Joe. On the reimbursement side, I think that all of the policy changes that we saw in the second half of 2015 certainly represent excellent growth opportunities for us this year and beyond. And I think that that kind of works its way in to our expectations for Mobi-C this year. But we're very careful to not make any assumptions on what payors are going to do in the future. We have to be careful of that.

But meanwhile, in addition to having a greater opportunity in upside in the geographies of the recent policy changes, we still have the opportunity to sell to new surgeons who are not currently using LDR technology and to penetrate further into the practices of our current customers. And so we're trying to look at it pretty holistically.

Jason Wittes - Brean Capital

Okay. I guess what I was trying to get at is, one, it does sound like you're not necessarily -- you're being conservative not necessarily assuming there's additional coverage decisions that could drive revenue this year. And the secondly, on top of that, it sounds like there's a -- once you do get some positive reimbursement decisions, it's not light switch, there's some time needed to sort of fill out those territories and get the right doctors trained, etcetera. Is that the right way to think about it?

Joe Ross

Yeah, it is. It, you know, so, you know, you can imagine that if a new payor updates the policy and they now cover, every one of those payors is going to have a process by which to authorize a patient who receives a technology and we need to maybe first educate a surgeon on Mobi-C itself, if they were unwilling to receive training because of their payor environment, educate them on the policy, and then kind of work with them as they adopt the technology and work with their payors. So it can take time.

Now, other practices that are sophisticated and are already using the technology, they may know that, as soon as a policy goes from covering one-level to covering both one and two, then that's going to immediately increase their opportunity to use the device. So, you know, of course it varies.

Jason Wittes - Brean Capital

Okay, that's fair. And then, NASS support is traditionally a -- it is a big deal of course, but traditionally it also puts a lot of pressure on the insurance companies to sort of back off and to actually reimburse a spinal technology. I think there's been numerous cases that prove that. So, obviously it's a big decision. You mentioned a little bit about some of the petitions that you're doing right now. I know it's early, but has NASS played a part at all in those petitions at this point in terms of petitioning for reimbursement for cases that aren't officially covered at the moment?

Joe Ross

You know, out of respect for the scientific society and the way in which they need to make careful decisions on policy recommendations, we have not engaged to directly interact with payors on behalf of our specific technology. But we obviously utilize that change in policy recommendation in our efforts to petition for broader coverage and two-level coverage specifically.

Jason Wittes - Brean Capital

Okay. So I guess it's really -- I mean, again, if I'm trying to interpret that, basically it's not really part of the petition process but I'm sure it's part of the petition process versus individual cases, but it sounds like it will certainly play a factor whether you bring it in or not in terms of the larger coverage decisions.

Joe Ross

Yes. Just so that I'm clear, we use the NASS policy recommendation during the appeals and external review process. We absolutely --

Jason Wittes - Brean Capital

Okay.

Joe Ross

-- bring that forward as evidence. But, and maybe I just misinterpreted your question, we do not ask NASS to petition payors to change their individual policies.

Jason Wittes - Brean Capital

No. I just think it's, you know, obviously, it's an important thing that the payors look at and influences decisions, more just having the recommendation there more than anything else. But that's clear.

Okay. Thank you very much. I'll jump back in queue.

Operator

Ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the call back over to Mr. Christophe Lavigne for closing remarks.

Christophe Lavigne

Hey, thank you for participating in today's call. We look forward to seeing you in New York at our Analyst Day on the morning of February 23rd, and at the RBC Healthcare Conference scheduled for later that day. We will also be participating in the Cowen Healthcare Conference on March 9th in Boston.

We look forward to updating you on our progress on the first quarter call in May. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.

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