Wright Medical Group NV (WMGI) Q4 2015 Results - Earnings Call Transcript

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Wright Medical Group NV (NASDAQ:WMGI)

Q4 2015 Earnings Call

February 23, 2016 4:30 pm ET

Executives

Julie Tracy - Senior Vice President, Chief Communications Officer, Wright Medical Group, Inc.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Analysts

Jason H. Wittes - Brean Capital LLC

Raj Denhoy - Jefferies LLC

Joanne Karen Wuensch - BMO Capital Markets (United States)

Matthew Taylor - Barclays Capital, Inc.

Ravi Misra - Leerink Partners LLC

Chris T. Pasquale - JPMorgan Securities LLC

Matt O'Brien - Piper Jaffray & Co (Broker)

Mike S. Matson - Needham & Co. LLC

Matt Miksic - UBS Securities LLC

Larry Biegelsen - Wells Fargo Securities LLC

Kaila P. Krum - William Blair & Co. LLC

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2015 Wright Medical Group NV Earnings Conference Call. My name is Steve, and I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Julie Tracy. Please proceed.

Julie Tracy - Senior Vice President, Chief Communications Officer, Wright Medical Group, Inc.

Thank you, and good afternoon, everyone. Welcome to Wright Medical fourth quarter 2015 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 fourth quarter results. A copy of that press release is available on our website at wright.com. The agenda for this call will include a business update from Bob, a review of our financial results and 2016 guidance from Lance, a question-and-answer session, and then conclude with closing comments from Bob.

Before we begin, I would like to remind you that this call includes forward-looking statements, including statements about our outlook for 2016, our beliefs and expectations regarding the outcome of pending litigation, the completed merger with Tornier, and AUGMENT Bone Graft. Each forward-looking statement contained in this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the section entitled cautionary note regarding forward-looking statements in the press release we issued today.

More information about risks can be found under the heading Risk Factors in Wright's quarterly report on Form 10-Q for the fiscal quarter ended September 27, 2015, filed with the Securities and Exchange Commission and Annual Report on Form 10-K for the fiscal year ended December 27, 2015, to be filed by Wright with the SEC as supplemented by our other SEC filings. Our SEC filings are available at www.sec.gov and on our website at wright.com.

The forward-looking statements in this call speak only as of today and we undertake no obligation to update or revise any of these statements.

Our earnings release and today's discussion include certain non-GAAP financial measures. Please refer to the reconciliations, 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 our use of such measures.

Before I turn the call over to Bob, I did want to mention that Wright will be holding an investor and analyst breakfast during the American Academy of Orthopedic Surgery, AAOS Annual Meeting in Orlando. This event will take place on Wednesday, March 2, from 7:30 AM to 8:45 AM at the Rosen Centre Hotel in Orlando and will feature an informal Q&A with Bob Palmisano and members of our management team. If you are interested in attending, please email me at julie.tracy@wright.com to register. If you would like more information about the AAOS Annual Meeting or agenda, please visit aaos.org. We hope to see you in Orlando.

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

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Thanks, Julie, and welcome to everyone joining us today. In our first quarter as a newly merged Wright Medical, we delivered outstanding fourth-quarter results that reflect the combined strong underlying growth and significant positive momentum in our legacy Wright lower extremity and legacy Tornier upper extremity and our emerging biologic businesses.

Our pro forma extremities and biologics growth of 14% was 2 percentage points higher – was 2 percentage points acceleration from a very strong third quarter of 2015 and along with combined pro forma adjusted gross margins of over 77% and earlier-than-anticipated progress on capturing cost synergies, resulted in pro forma net sales and positive adjusted EBITDA results that significantly exceeded our expectations.

We are also off to a strong start in executing our merger integration plans, and with the early success we are seeing, we believe we are well positioned to continue our strong business momentum and deliver on our synergy commitments as we progress through 2016. I believe the future, both short term and long term is indeed very bright.

Let me now highlight our business results for the fourth quarter. As we discussed previously, our fourth quarter included four fewer selling days, due to our transition to legacy Tornier fiscal year-end. Our sales results for the fourth quarter were negatively impacted by this change. But we were positively impacted by conforming the combined company's revenue recognition methodology. Therefore, unless stated otherwise, the revenue growth rates I provide today will be based on a combined pro forma same sales day basis, excluding the impact of confirming the combined company's revenue recognition methodology.

The legacy Wright business continued to demonstrate very strong growth in U.S. lower extremities and biologics, and also improvement in our international business in the fourth quarter. Specifically, our legacy Wright U.S. lower extremities business grew 16% in the quarter, which is another quarter of significant growth, driven by improved sales force execution, medical education, and strong contributions from new products. Notably, the ongoing launch of the INFINITY total ankle drove 42% growth in U.S. and total ankle replacement for the fourth quarter was an outstanding 46% for the full year of 2015. The strong total ankle performance is attributed to both continued market expansion and share gains.

Our PROPHECY patient-specific cutting guides have also proven to be an important enabling technology for our total ankle replacement system, by simplifying surgical steps, decreasing surgical time, and being the most surgeon-friendly system available. Now switching to our AUGMENT launch in the U.S. where we have gotten off to a strong start. During the fourth quarter, we over achieved our goal of training 100 surgeons of our top-decile accounts and have tracked to plan.

Feedback from physicians who have treated patients with AUGMENT since approval has been excellent. And they tell us they are extremely satisfied with their clinical results. We are on track to meet our previously-announced target of U.S. AUGMENT revenue of $10 million to $12 million in the first seven to eight months post launch. Our well-trained sales team and biologics specialists continue to focus on leveraging our PMA clinical data with physicians and hospitals, and we are working our way through hospital value analysis committee as quickly as we can. To date, we have not encountered anything unexpected and our pricing is holding.

In addition to AUGMENT, we are continuing to evaluate future PDGF platform development opportunities and look forward to updating you on these potential opportunities on future calls.

We believe AUGMENT, coupled with continued strong growth in our core U.S. extremities business and future anticipated new product launches, such as our SALVATION limb salvage system, will continue to be important growth drivers this year, next year and beyond in our lower extremities and biologics business.

In upper extremities, our fourth quarter performance highlights the strong momentum from our legacy Tornier upper extremity business, driven by an innovative product portfolio and clinically superior sales team. Legacy Tornier U.S. upper extremities growth of 18% was driven by strong contributions from our ASCEND FLEX shoulder and the positive performance of the launch of the SIMPLICITI shoulder system in the U.S.

And as the first ultra-short stem shoulder implant system in the U.S., SIMPLICITI provides us with first mover access to an approximate $200 million to $250 million market, comprised of portions of the total shoulder, hemi-shoulder and humeral head resurfacing categories. SIMPLICITI has the potential to take share at all these existing shoulder categories, as well as expand the market to younger, more-active patients, who have historically deferred shoulder replacement procedures. To date, we are outpacing our training targets for SIMPLICITI, and physician feedback has been excellent.

Throughout the year, we intend to continue to drive momentum of our flagship ASCEND FLEX shoulder system and maximize our significant first mover advantage with SIMPLICITI. In addition, we expect our shoulder portfolio to continue to expand with a regular new product launch cadence planned in 2016 and beyond.

One important longer-term opportunity in the future – is the future addition of pyrocarbon humeral head to our U.S. shoulder product portfolio.

During the fourth quarter, we began enrolling patients in our U.S. IDE clinical study, which will evaluate the safety and effectiveness of the pyrocarbon humeral head in patients with a primary diagnosis of partial shoulder replacement or hemiarthroplasty. Designed to improve outcomes and reduce procedural costs related to shoulder joint replacements, this novel material is especially attractive for young, active patients for whom implants need to last longer and where bone erosion might be a concern in the future.

We are continuing to expand our product pipeline to ensure that we bring a clinically differentiated offering to a broader customer base, and the beginning of the study is just one of those barriers that we are moving forward in. One area of the merger integration that I would like to discuss in more detail is the sales force integration. Our goal to maximize focus and alignment, while minimizing disruption, we have gotten off to a great start in this area.

In the fourth quarter, we began the communication process with our U.S. commercial team to clarify sales territories, compensation plan, and product bags. This work has now been completed in all go forward roles in our U.S. commercial organization have been communicated. In my opinion, this could not have gone any smoother. In fact, at our first joint U.S. sales meeting held at the beginning of February, there was significant excitement in our sales team about the opportunity to carry an expanded product bag and the growth opportunities we have for a combined company.

Our focus is now on continuing to execute smooth territory transitions. We expect to have these transition substantially complete by the end of the second quarter in our U.S. lower extremities business and by the end of the year in our U.S. upper extremities business. We are also seeing positive results from our Quick Wins cross-selling program that we deployed in the fourth quarter. This program has now expanded to include over 70 sales reps and is allowing us to mitigate revenue disruption by providing account coverage and realizing incremental sales at non-overlapping accounts where the full product bag can be introduced with minimal distraction.

From a cost synergy perspective, we have begun to implement our plans that have already seen some cost savings earlier than anticipated, which contributed to the combined pro forma adjusted EBITDA overperformance in the quarter. I continue to have a lot of confidence in our cost synergy plan on our ability to deliver $10 million to $15 million in cost synergies in 2016 and $40 million to $45 million in year-three post-merger close.

In summary, the execution of our merger integration plans is firmly on track, and we are well positioned to continue our strong business momentum and to deliver on our synergy commitments as we progress through 2016. Given how well the two companies are coming together culturally, I couldn't be more optimistic about the bright future and value creation opportunities, I believe, are ahead for us as the new Wright Medical.

Before I discuss our guidance and longer-term outlook for the business, I did want to address the metal-on-metal hip litigation that the company is involved in. We normally don't comment on pending litigation. But since this has recently received attention, I would like to offer some brief comments. Please understand that because this is pending litigation, I am limited in what I can say and I'm not going to comment on our legal strategy.

First, I would say that this litigation is not new. It has been on our public disclosures for several years. If you have not already done so, I encourage you to read the disclosures in our SEC filings as well as the 10-K that will be filed shortly. I have been a public company CEO for a long time, and I have seen a lot of litigation. As you know, litigation can be complex and subject to significant uncertainties, which makes the ultimate outcome and precise timing difficult to predict. But it is my belief and expectation that with our available insurance, we will ultimately be able to resolve this matter in a way that will not be a long-time issue for us.

The last area I want to touch on before turning the call over to Lance is our 2016 guidance and longer-term outlook for the business. The combined company is very well positioned strategically. And with sustainable sales growth, the ability to leverage the existing resources and achievable integration targets, we believe we are well positioned for significant improvements financially as well. Excluding the impact of anticipated revenue dis-synergies, our 2016 guidance assumes mid-teens underlying combined pro forma constant-currency growth in extremities and biologics.

We also expect growth to accelerate in our biologics business due to the ongoing launch of AUGMENT Bone Graft in the U.S. We will continue to focus on successfully executing our integration plan to realize our full potential, and we believe the positive progress we saw in the fourth quarter is setting us up well for continued strong revenue growth and significant margin expansion in 2016 and beyond.

Following our merger, we have leading positions in the highest growth markets in orthopedics, with differentiated technologies and focused sales forces. We have multiple opportunities to our robust new product pipeline to further accelerate our growth, continue to expand our markets and gain market share. With the execution of our integration plans off to a positive and productive start, we are well positioned to continue to accelerate our business momentum and drive market-leading growth and profitability.

With that, I will now ask Lance to provide further details on our fourth quarter results and 2016 guidance. Lance?

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Thanks, Bob. As we get started, I first wanted to provide some reminders on how the closing of the merger this quarter impacts our as-reported results and how we are handling those to provide you with transparency and assist with the comparability across periods.

As previously announced, we completed the merger of Wright and Tornier on October 1, 2015, and in accordance with U.S. GAAP, the results of the two legacy businesses have been consolidated only from that date forward. The legacy Tornier business began its fourth quarter on September 28, 2015, therefore legacy Tornier's results for the operating days between September 28 and September 30 are not included in the combined company's as-reported results of operations for the fourth quarter of 2015.

Following the close of the merger, the legacy Wright business adopted the legacy Tornier's fiscal calendar, which resulted in four fewer calendar days for the fourth quarter of 2015. Additionally, we conformed the combined company's revenue recognition methodology. Due to these impacts, all sales growth rates that I referred to in my prepared comments will be our pro forma constant currency same-day sales growth rates, excluding the impact of conforming the combined company's revenue recognition methodology. Our results of operations refer to our pro forma as-adjusted results, which are non-GAAP measures as described by Julie during the introduction of our call.

Also, unless otherwise noted, today's discussions refer to results from continuing operations. These items only impact Q4 and, therefore, our reporting should be much more straightforward in future quarters. Please refer to the non-GAAP reconciliations in our press release and also I strongly encourage you to review the information posted on our website. Similar to last quarter, we have provided you with a significant amount of information to assist you with your modeling and to provide you with pro forma information through the fourth quarter of 2015.

Globally, the extremities and biologics business grew 14%, driven by strong performances in the legacy Wright U.S. lower extremities business and the legacy Tornier U.S. upper extremities business, and contributions from the first quarter of the U.S. launch of AUGMENT. The combined U.S. lower extremities business grew 10% in Q4, led by strong performance across the legacy Wright portfolio, which grew 16% in the quarter, including 42% growth in our total ankle products.

Continued strong execution of our sales force initiatives and adoption of the OrthoPro and Solana product lines that we acquired in early 2014 drove the performance in the legacy Wright core business. Partially offsetting the strong performance was a decline of 22% in the legacy Tornier lower extremities products, as sales force distraction due to the merger continue to impact results. The U.S. legacy Wright foot and ankle business had an outstanding performance in 2015 with full-year growth of 22%, well ahead of our original expectations of growth in the mid-to-high teens.

The combined U.S. biologics business grew 32%, driven by the first quarter of AUGMENT revenue. We continue to anticipate $10 million to $12 million of AUGMENT revenue in U.S. in the first seven to eight months following FDA approval. The combined U.S. upper extremities business growth of 16% in Q4 was driven by strong contributions from our ASCEND FLEX shoulder system and the positive performance of the launch of the SIMPLICITI shoulder system in the U.S., which resulted in the legacy Tornier upper extremities business growing 18% this quarter. Despite the macroeconomic conditions in Brazil and China, our international extremities and biologics business continued to see growth acceleration with 13% growth in Q4.

Now, moving on to some detail below the sales line. Beginning with our Q4 gross margin, we achieved 77.4% for the quarter, an increase of 120 basis points over prior year, driven by both mix and leverage. We are confident in our ability to drive continued improvement in gross margins and expect to see positive impacts from the merger, as we begin to leverage our global manufacturing footprint.

As for the line items making up our Q4 operating expenses; selling, general and administrative expenses totaled 72.1% of sales for the fourth quarter compared to 73.2% in the prior-year period. The decrease as a percent of sales was driven primarily by the impact of higher Q4 revenue, driving leverage in the fixed cost structure and realization of some early cost synergies. R&D expense was $14.3 million in Q4 of 2015 and $12.7 million in Q4 of 2014. And finally, amortization expense is approximately $9.2 million compared to $6.8 million in the prior year.

Below the operating income line, net interest expense and other expense totaled $6.2 million for Q4. Our Q4 effective tax rate as adjusted was approximately a 13% benefit for the quarter. As a reminder, we have a tax valuation allowance against our deferred tax assets in U.S. jurisdictions. Our full-year tax rate was a 1% benefit. Going forward, we anticipate a small tax expense each quarter.

Finally, for share account, our Q4 per share results as adjusted are based on average diluted shares of 102.7 million for Q4 of this year and average diluted shares of 101.7 million for Q4 2014. Altogether, this resulted in combined pro forma adjusted EBITDA of $10.9 million for the quarter and negative $3 million for the year. From a cash standpoint, our total cash balance for the combined business at the end of Q4 was approximately $140 million, which is slightly ahead of our expectations. We had significant uses of cash this quarter to pay off legacy Tornier debt and pay costs related to the closing of the merger. Additionally, we had significant integration costs in the first quarter post close.

Both the pro forma net sales and adjusted EBITDA significantly over performed our expectations and guidance ranges. Part of the over performance is due to less-than-anticipated impact from the four fewer selling days. Additionally, we had anticipated approximately $2 million of revenue dis-synergies for the quarter and did not have any consequence. Excluding the impact of these two items, our pro forma net sales were still in excess of the high end of our guidance range on the strength of the underlying business. Our pro forma adjusted EBITDA benefited from the drop-through of the sales over performance, but additionally, we had greater-than-anticipated cost synergies as we were able to get some benefits sooner than expected. Overall, our first quarter post close was excellent and gives us a lot of positive momentum heading into 2016. I will now transition to a discussion on our 2016 full-year guidance.

Consistent with Wright's past practice, please note that our guidance ranges and assumptions for 2016 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 our financial guidance refer to our as-adjusted results of continuing operations. Our press release issued today notes those items that are excluded from our as-adjusted results.

Starting now with sales; as stated in today's press release, we anticipate net sales for 2016 in the range of $695 million to $705 million. The assumptions driving the midpoint of this range are generally consistent with what we have previously discussed and are as follows.

First, we assume approximately 10% total company constant-currency growth before consideration of dis-synergies or the U.S. launch of AUGMENT. This is in line with the growth rates of the combined business prior to close and prior to the U.S. launch of AUGMENT. We then subtract the midpoint of our dis-synergies expectation of $25 million to $30 million, and then add back the incremental year-over-year growth of U.S. AUGMENT.

Finally, our guidance assumes a 2 percentage point headwind from currency. This guidance has about a 1 percentage point cushion as compared to current currency rates. All together, these assumptions result in $700 million midpoint of our total company net sales guidance range.

To assist you with your modeling, I also want to provide some directional comments on some of the components of net sales. This guidance range assumes global extremities and biologics constant currency growth of 10%, or approximately 14%, excluding the impact of revenue dis-synergies.

For the U.S. lower extremities business, we anticipate growth in the mid-single digits as we expect continued strong growth in the legacy Wright business to be dampened by the headwinds from the declines in the legacy Tornier business over the course of 2015 plus dis-synergies.

The U.S. upper extremities business is anticipated to grow in the 10% range, with continued strong growth in the U.S. shoulder portfolio. While we expect the impact of dis-synergies to be much less on the U.S. upper extremities side of the business, we do expect to realize some dis-synergies, resulting in a slightly slower growth rate than we saw in 2015.

The U.S. biologics business is expected to have growth approaching the 30% range, driven by year-over-year growth in AUGMENT revenue, partially offset by declines in the core biologics products, primarily due to some cannibalization from AUGMENT. U.S. sports med and other is a very small part of the company at this point, and is expected to continue to have double-digit declines.

International extremities and biologics net sales are expected to grow in the high-single digits on a constant currency basis, with some minor impact from dis-synergies. The European large bones business is expected to continue to have double-digit declines. This completes my prepared comments on net sales.

Turning now to the P&L, our outlook is for full-year 2016 adjusted EBITDA to be in the range of $20 million to $30 million. This range reflects approximately $10 million to $15 million of potential cost synergies expected to be realized in 2016 from the merger with Tornier, as well as leverage from anticipated net sales growth.

Also, as you are aware, the med device tax has been suspended, which has also benefited us and we have reinvested a portion of the savings and allowed the remainder to drop through. The midpoint of our range results in approximately 400 basis points of improvement in adjusted EBITDA margin over 2015, and approximately 570 basis points of improvement over the midpoint of our previously-communicated 2015 guidance range.

Now for some specifics on the individual line items on the P&L; first on gross margin, for 2016 we're expecting gross margin expansion of approximately 100 basis points to the 77% range, as we begin to leverage our global manufacturing footprint and drive improved plant utilization. We expect SG&A as a percent of sales to decrease approximately 300 basis points through a combination of cost synergies and leverage. R&D is expected to be approximately 8% of sales, and excluding any future acquisitions, amortization expense is expected to be in the range of approximately $6.5 million per quarter. Our purchase accounting adjustments are not yet final, so amortization could change, but we would not expect it to change significantly and it would not impact adjusted EBITDA.

Before we move to line items below the operating income line, to assist you with modeling EBITDA, I want to provide you with our outlook for depreciation expense, which for the full-year 2016 is in the range of approximately $56 million to $59 million as compared to $53 million in 2015. Stock-based compensation expense is anticipated to be in the range of $14 million to $15 million.

Now, let's touch briefly on the items below the operating income line. Our expectation for interest and other is approximately $5 million per quarter. Due to the valuation allowance on our NOLs, we will not have an income tax benefit in 2016. We expect to have approximately $4 million in tax expense related to profits in taxable jurisdictions. The company anticipates adjusted cash earnings per share, including stock-based compensation for full-year 2016 of negative $0.65 to negative $0.75 per diluted share. The company anticipates approximately $103 million diluted weighted average ordinary shares outstanding for fiscal-year 2016. In calculating enterprise value, you should use 114 million shares, which would basically be equal to diluted shares if we were in a net income position.

Briefly, as it relates to cash, we do not expect – we do expect to use cash in 2016 to fund normal business operations, discontinued operations and integration-related costs. We continue to believe our cash balance is sufficient to fund these items until we are cash flow positive. We will have or likely need to raise additional funds to pay off the remaining balance of our 2017 convert and to provide funds for a potential AUGMENT milestone payment. As a reminder, we have historically financed the business through cash converts with call spreads. This form of financing has very minimal equity dilution even with significant stock appreciation as the principal is always payable in cash.

We are currently evaluating all of our options for financing these items and have not made any firm decisions at this time. In addition, we are evaluating our options for a line of credit to provide additional operational flexibility.

As it relates to quarterly guidance, as was the case in 2015, for 2016, we will update our annual guidance each quarter, but we'll not be giving guidance expectations for the current quarter. We do want to provide you with information on the expected cadence of our business to assist you in modeling our quarterly performance.

Overall, we expect net sales growth rates to be fairly consistent over the course of the year, but with slightly higher growth rates in the second half. We expect adjusted EBITDA to be slightly positive through each of the first three quarters of 2016, with a significant portion of the overall EBITDA contribution coming from Q4 2016.

Although, this may appear to be back-end loaded, this cadence is driven primarily by seasonality. This is evidenced by the fact that we anticipate EBITDA margin improvements each quarter that are generally in line with our full-year guidance of approximately 400 basis points of improvement.

Additionally, we expect to see gross margins slightly below the full-year average in the first half of the year and gross margins in the second half that are slightly better than our full-year average as we begin to realize benefits from leveraging our global manufacturing footprint.

In closing, we are very pleased with our better-than-expected fourth quarter net sales and adjusted EBITDA results and the strong positive momentum the business has as we move into 2016. We believe we have a great plan to drive sales, improve profitability, and improve the underlying operations of the business in 2016, and we are focused on executing that plan with excellence.

With that, we would now like to open up the call to take your questions.

Question-and-Answer Session

Operator

And please stand by for your first question which comes from the line of Jason Wittes from Brean Capital. Please go ahead.

Jason H. Wittes - Brean Capital LLC

Hi. Thanks for taking the question. Bob, congratulations. You sound awfully positive about the progress of the merger at this point. But looking back, isn't it normally that sort of it takes a few quarters before you can really see how things are progressing? And I note that in your script you mentioned that, I believe lower extremities – all the moving parts or the dust will settle in 2Q, and for upper extremities it's more towards the end of the year. Is it after that that we can really, truly evaluate sort of how the merger is going? Or do you think that you've got enough data points at this point to really feel comfortable with the outlook for the year and the dis-synergy numbers that you put out there?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Thank you, Jason. I do think that we have enough data today as we sit here to kind of think about where we're going to be throughout the year. The open question is always one of the dis-synergies, and we haven't seen a lot of dis-synergies to-date, but I don't want to get a false sense of confidence around that.

I'm reminded that when we separated our hip and knee business to MicroPort back in 2014, we did not have significant dis-synergies in the first quarter and not so much in the second quarter. But, boy, by the third quarter, they really came back in full force and surprised us.

So that's why we're still thinking that the dis-synergy number that we have put forward in – for 2016 is appropriate. Now hopefully we can do better than that. But I don't want to get ahead of myself and say, well, geez, you're not seeing a lot of dis-synergies, let's up our guidance or something like that. So, I think the underlying business performance that we had seen in Q4 and what we continue to see is very, very strong and that's what we can base our confidence around.

We have built in a significant amount of dis-synergies. We have also built-in an appropriate amount of synergies that will affect our EBITDA. So, we feel real, real good about where we are and I feel real, real good about our guidance for the year. And so I think we will see how it unfolds, but as I sit here today in February, I feel pretty confident about 2016.

Jason H. Wittes - Brean Capital LLC

Okay, that's very helpful. And then thinking about the transition, I know that Tornier in many respects was run similarly to Wright and vice versa. I imagine that's helping with the transition as well. Is that also the case that you're seeing in terms of dealing with Tornier...

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

The cultural fit is amazing and it's gone very, very strongly. We both are advocates of a very strong database management process. And so as we work together, it's not something we have to instill in the two organizations. Everybody was there to start with. And so as we decide on what we – our high priority items to go forward using data and metrics is that we get on the same page fairly quickly. So I think this integration is probably going to go a lot smoother than most that you've been aware of in the past.

Jason H. Wittes - Brean Capital LLC

Okay. And then – very helpful. Last question, has there been much reaction in the field from the physicians? What has been their initial reaction to the merger?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, I think that it's mostly been positive. I think there has been a little bit of angst for some of the upper extremity folks as it relates to the name. They're very much in love with the Tornier name, and it's a very powerful name in upper extremities, particularly shoulders. So our products will still carry that designation.

And another – the other area is making sure that from a compliance point of view is that we're all on the same page. What we didn't say in our prepared remarks, but I'll say it right now, is that we successfully exited from our CIA, most recently in the last couple of weeks or so. And that's a kind of an important milestone.

And having been under a deferred prosecution agreement and then a CIA for a period of time, we got very used to a level of scrutiny around compliance that was very, very rigid. And bringing the upper extremity folks into that system, we realized that we're going to have to modify that, but still be a very, very compliant program, and we're in the midst of doing that.

Jason H. Wittes - Brean Capital LLC

Great. Thank you. Very helpful. I'll jump back in queue.

Operator

And your next question is from the line of Raj Denhoy from Jefferies.

Raj Denhoy - Jefferies LLC

Hi. Good afternoon.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Hi, Raj.

Raj Denhoy - Jefferies LLC

I hate to bring it up, Bob, but since you broached the subject, the product liability has become a big focus. I won't ask you about the individual litigation – the individual trials, but the one thing that remains outstanding is your level of liability coverage, your product liability coverage. And from the disclosures, it sounds like you've been in mediation with your carriers about who's going to cover what. And I'm curious if there's been any movement on that front and really anything around timing and when we might get some resolution on that.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah, Raj. We think – obviously, I don't think it's inexplicable that we have coverage. What's at play here is the number of years that would go into this coverage. It's under negotiations and has been for some time. All I could say is it's my belief and expectation that with our available insurance that we will ultimately be able to resolve this matter in a successful way. So I can't get into the puts and takes in terms of the negotiations. As I said in my prepared remarks, I've been a public company CEO a long time now, and I've learned in spades that you don't negotiate publicly. You negotiate in a confidential manner, manager direct with the other folks. And that's the best way to resolve things, and that's the approach we're taking.

Raj Denhoy - Jefferies LLC

Okay, that's helpful. And then maybe I could just ask about AUGMENT. Again, very positive commentary around that, but I don't think you gave expanded guidance here for 2016. I think you're still endorsing the $10 million to $12 million. Is there a number you could offer for what you think you can do in 2016?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

I don't think we want to get into – that's kind of a slippery slope for us to start giving exact guidance around different product categories. I will say is that we're looking at our bio business to be in the – our bio business, including AUGMENT, in Q4 grew over 30%, a lot of that was due to AUGMENT. We look at that kind of growth in our bio business in 2016.

I have said publicly a long time that I'm really kind of in love with the bio business and think that when you look at what our company should look like long term, and I can't give you timeline, we should have about a third of our business in lower, a third of our business in upper and a third of our business in bio. And I think that's the tack that we're going to take. But AUGMENT has been – I think the launch has gone great. I always look at what are our leading indicators. The leading indicator is the number of trainings that you do and how enthusiastic those – and how quickly those training activities fill up and it's been just marvelous the reception we've got.

The other part of what we're trying to execute against to spur the growth of AUGMENT is to get through these value analysis committees as quickly as we can. When you look at the top-decile accounts, legacy Wright and legacy Tornier for that matter is only in about half of them currently with our products. There's half of the top-decile accounts that we currently do not do business with that are – that we're going after very aggressively with AUGMENT. So this is all kind of upside for us as we go through 2016 and beyond.

So AUGMENT, I think is – very enthusiastic about it. I don't want to give you specific number each quarter and have to talk about that. But we're off to a great start. Training has gone well and we have more opportunities than we ever thought.

Raj Denhoy - Jefferies LLC

No, that's helpful and congratulations on the quarter. Thanks.

Operator

Thank you. And your next question comes from the line of Joanne Wuensch from BMO Capital Markets. Please go ahead.

Joanne Karen Wuensch - BMO Capital Markets (United States)

Thank you very much for taking the question. You gave us some color on the integration and some of the – reinforcing or reiterating your synergy and dis-synergy comments. Could you just give us an idea of sales force stability?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah, I would mark it down as pretty good. There's been some attrition. I can't say that we were 100% successful in keeping everybody that we would have liked to have kept. Particularly, as we transition distributors in the lower extremities, people that were formerly distributors on lower extremities for Tornier into a direct organization.

They don't usually go to another competitor, but what they do is they want to remain distributors. They want to be independent businesspeople and not be one part of a corporation. So there has been some attrition there, Joanne, but not a significant amount. We've been able to fill these vacancies pretty easily. We have a very attractive proposition for sales reps. Our bag is full, the fullest in the industry. Our sales per activity, per rep is very, very high. That's the commissions that people kind of look for, so people are paid very well. So, we're in great shape, I think, from a sales force. And that is what's really kind of driven our – I think our success in Q4 and as we look on through 2016, as continued great execution all the way down through the rep level. So, it's been pretty good, hasn't been perfect, but it's been very good.

Joanne Karen Wuensch - BMO Capital Markets (United States)

For AUGMENT, can we assume that you are starting to see some pull-through in sales? Or is that just too early at this stage?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, as I mentioned, we have these large top-decile accounts that we have not yet previously done business with. I think the first way that we're going to approach them is in our total portfolio of biologics, AUGMENT being the lead product. But then, we think that once we're able to be in these hospitals, that we will be able to bring through other products, particularly our leading technology products like SIMPLICITI and INFINITY and those products.

Joanne Karen Wuensch - BMO Capital Markets (United States)

Terrific. Thank you very much. Nice quarter.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Thanks.

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Thanks.

Operator

Your next question comes from the line of Matthew Taylor from Barclays. Please go ahead.

Matthew Taylor - Barclays Capital, Inc.

Hi. Thanks for taking the questions. Can you hear me okay?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yes, we hear you, Matt.

Matthew Taylor - Barclays Capital, Inc.

Great. So, a couple of little ones. I guess, the first was you mentioned the pyrocarbon shoulder. I was wondering if you could just give us a sense for the timing of that potential approval based on the structure?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah. It's really at the early stages in IDE, Matt. So, depending on what we're actually asked to do for the approval that we're going for, this could take years. So I don't want to say there's anything short term. We have a limited launch of the pyrocarbon in Europe, and that's all going well. So I think that the first significant revenue that we'll see it'll be O-U.S., and then we'll work through the IDE PMA process in the U.S., and that's going to take some time.

Matthew Taylor - Barclays Capital, Inc.

Great. And then, Lance, you mentioned a couple of the financing options that you might have going forward. And just can you talk about how you might think about the timing of that based on where some of your liabilities could fall, and I guess where the stock is, and other factors. I mean is it something you need to do soon or will you have a preference for doing it kind of as late as possible? Any thoughts on that?

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Sure. I guess, as a general point, it typically would not want to wait as late as possible on financing it at any given point in time. We are watching the markets closely. Obviously, there's been a fair amount of volatility this year, and it is something that we're watching. The type of financing we've historically used is cash converts with call spreads, are not quite as susceptible to some of these market conditions as other forms of financing are, but they are impacted.

And then also part of what we need to address is taking out the remainder of a convert. So, as our stock goes down, that gets cheaper to take out. So, there is a little bit of circularity in that as well. So, we're taking all those things into consideration, evaluating all of our options. As we said in the prepared comments, no firm decisions at this point in time, but it is something that we are very actively evaluating.

Matthew Taylor - Barclays Capital, Inc.

Great. Thanks a lot for the time.

Operator

So our next question comes from the line of Matthew O'Brien from Piper Jaffray. Please go ahead. Matthew, your line is open. You may be on mute, Matthew.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Maybe we take another call and get back to Matthew.

Operator

Okay. And the next question comes from the line of Richard Newitter from Leerink Partners. Please go ahead.

Ravi Misra - Leerink Partners LLC

Hi. Good afternoon. This is Ravi in for Rich. Can you hear me all right?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah, sure, Ravi. Got you.

Ravi Misra - Leerink Partners LLC

Hi. Thanks for taking the questions. First of all, just a question on the med tech tax. Lance, I guess you said a portion of that will flow through. Was trying to gauge the impact of that on your EBITDA guidance, and sort of if could you give us any color around what the impact of that was in 2015? And then maybe on SIMPLICITI, just curious, Bob, you were seeing having a first-mover advantage in this space. What's the company's take right now on the competition? How long is that going to last for? And maybe finally, just a housekeeping – sorry, I've been switching between calls. The 2% headwind that you mentioned, that's off the pro forma base of 2015 or that's sort of just on the reported sales? Thanks.

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Okay. So, maybe I'll go in reverse order there. So, the 2% headwind is on full-year pro forma sales. So, that's what that calculated off of, so the 2% on the $656 million. The med device tax was about $7 million in 2015 and really roughly half of that we're letting drop through and half of that we're reinvesting. And then on SIMPLICITI, hard to know exactly on the timing. I think we talked about when first launched, 12 months to 18 months advantage is kind of what we were assuming, but hard to know for sure. We're off to a really good start and we've been working on launching that product really over the past couple of quarters and have some good momentum now. So, we feel like we're in good shape competitively.

Ravi Misra - Leerink Partners LLC

Great. Thank you.

Operator

The next question comes from Chris Pasquale from JPMorgan. Please go ahead.

Chris T. Pasquale - JPMorgan Securities LLC

Thanks. I wanted to start with the quarter. Bob, can you talk a little bit more about what really drove the upside in 4Q? The U.S. in particular was pretty strong across several of the businesses. Were you anticipating disruption from the deal that you baked into the guidance but then didn't materialize? And what's the $3 million impact from moving the legacy Wright business to the Tornier revenue recognition method? Was that included in the guidance you had previously given?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

There's some of that, Chris, there was less impact than I think we anticipated on the four less selling days. And we didn't really see any dis-synergies of note in Q4. And we had thought that there might be some that started. However, even excluding these – those benefits, we would have been over the high ends of our guidance regardless due to the underground – just the execution and strength of the underlying business.

Chris T. Pasquale - JPMorgan Securities LLC

And the $3 million from the revenue recognition change, was that additive versus what you had been thinking when you gave guidance?

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

We had that in mind. I would say, Chris, really the net impact of the days and the revenue recognition ended up being less than we anticipated. But we did know that we would get a pickup from the revenue recognition when we set the guidance out.

Chris T. Pasquale - JPMorgan Securities LLC

Okay, that's helpful. And then as you work through the integration of the sales force here, what percentage of your customer base – or of the revenues, however is easiest to talk about it – is actually going to see their touch point at the company change? The face that they are used to dealing with change as a result of the integration? Do you have any sense of that?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah. There was about – I'll just give it in dollars – there were about $60 million when you combine the Tornier lower extremity business and the Wright upper extremity business, there was about $40 million in lower and about $20 million in upper. So that's the scope of the revenue that will see a change. Does that help?

Chris T. Pasquale - JPMorgan Securities LLC

Yeah. That's helpful. Thank you.

Operator

The next question comes from the line of Matt O'Brien from Piper Jaffray. Please go ahead.

Matt O'Brien - Piper Jaffray & Co (Broker)

Thank you. Can you hear me this time?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah, Matt, got you. Sorry.

Matt O'Brien - Piper Jaffray & Co (Broker)

Okay. Thank you. I was not on mute before. But just two questions. Just thinking about the sales force, have you divvied up the territories at this point and set compensation packages, et cetera? I mean are they pretty much set and ready to go? There shouldn't be any kind of structural change to how they are thinking about the world at this point? And then, if that's the case, I'm just curious as to why you're still comfortable with that $25 million to $30 million in dis-synergies between the two organizations. Because in recent investor conferences, it sounds like that number was quite conservative and there's likely some upside to it.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, yes. To answer your first part of the question, the sales territories have all been divvied up and decided and communicated. Compensation programs have been decided and communicated. All that stuff was completed, and it's rolling out as we speak. And the lower business will be complete by the end of the second quarter, and the upper business will be complete by the end of the year.

So the answer about – it's possible that we may have less dis-synergies than we had talked about, and that's what I said. But I do – I am very burnt and have scars to prove it about my last experience when we thought that we had the dis-synergies behind us, and then we got hit, kind of blindsided with a lot of distributor terminations that we had thought were not going to happen because the distributors and the reps in those organizations had told us they were staying and we had programs for them, but eventually that didn't prove true.

So I'm not – I'm just reluctant to declare victory on that, and I think I'm going to have to get through at least three quarters of the year before I am willing to say that anything should change.

Matt O'Brien - Piper Jaffray & Co (Broker)

Okay, helpful. And then on the AUGMENT side of things, the 100 doctors that you trained, what kind of annual revenue do those docs do on the biologics side? And then I know it's early days here, but what kind of utilization patterns or reorder rates are you seeing from those early adopters?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, I don't know the answer to the first one, so I can't get give it to you. But I would say is that there's a – the way that this usually works other than the – a lot of the – some of the doctors that were involved in the clinical trial. The way it usually works is doctors are very willing – a lot of doctors are very willing to try AUGMENT and to use it in a few cases to get started with. Then the normal reaction is to wait six weeks, two months to see how it goes is the way they always put it. That's the way they've been trained. And then if with satisfactory results, they start to reorder. So, we're in that process now is that the results have been really very good.

Most doctors – just about all the doctors that we talk to think that the clinical results are very – are excellent and even have exceeded their expectations, so that they are now starting in the reordering pattern. So, I think that this really could not have gone better. The only thing that we have to keep on and be very diligent about is that we have to work our way through these value analysis committees and particularly the ones that we don't have relationships in. Usually, you need a physician in that hospital that's willing to go bat for you.

So, in these top decile accounts that we don't currently have relationships in, that are great opportunities for us, the getting – the execution of how to get in is a little bit more complex, but we've been successful in a number of these so far. So, AUGMENT is – I think is going great and it's also having a positive effect on our core biologics is that doctors not only – I guess maybe customers are just more focused on biologics in general. We're talking a lot more about it. So, even our regular core biologics have seen an uptick and saw a significant uptick in Q4.

Matt O'Brien - Piper Jaffray & Co (Broker)

Got it. Thank you.

Operator

The next question comes from the line of Mike Matson from Needham. Please go ahead.

Mike S. Matson - Needham & Co. LLC

Hi. Thanks for taking my questions. I guess I just wanted to focus on your international business. It seems like you still had some pretty good growth there. We've seen a number of companies facing some challenges in the emerging markets. So, I was wondering if you could just give us more detail on – with the combined company, how much exposure you have to emerging markets, specifically Brazil. And have you seen any impact at all from the economic difficulties in those countries?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Our business in Brazil is quite small. I'm not exactly sure. Lance, you know the...

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

We don't break out those details, but it's a pretty small portion of our overall sales.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

I would say that most of the growth came from our direct markets in Europe, particularly the UK, Germany and Australia, are three real kind of real success stories, where we're direct markets. So, I think that – what I'd say is where our growth is coming from is mostly our direct markets and a little bit less in our – in the emerging markets and those are small businesses to begin with. So perhaps we didn't have the same exposures some other companies had in those areas.

Mike S. Matson - Needham & Co. LLC

Okay, thanks. And then just on the – with Tornier having to divest their total ankle products, I was wondering to what degree you've been able to convert some of those customers to the Wright ankles? Or is that – is it just really too early in the game for that?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yes, it really is early. I think that the Integra agreement just was over a couple of weeks ago. So, I think that we're now free to compete for those accounts. But hopefully, we'll be able to gain some of those physicians back, but it's really too early to tell.

Mike S. Matson - Needham & Co. LLC

Okay. Thanks. And then just one final question on some of the new products in the pipeline. So INVISION and SALVATION, what's the expectation around the timing of those launches? And would any of those have any impact this year or is it really more of a 2017 story?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah. SALVATION has launched and I think it will have – I wouldn't say significant, but it will have a meaningful impact on us in 2016. INVISION is not scheduled really to launch until 2017, we're still in product physician preference testing in the U.S. in 2016, it has launched outside the U.S. And I would say that INVISION in terms of scope of – it's not really – for us, we don't think this is a big revenue product, but is a revenue driver in that it gives doctors who are reluctant to do total ankle replacements because they're very concerned about a revision later on. A lot of confidence that there's a product specifically made for revisions that can bail them out if they get into any difficulty. So that's really the real strong selling point of INVISION. It's important, but it's not important specifically as a revenue generator in and of itself. It's the effect that we'll have on our other business and the market of total ankle replacement.

Mike S. Matson - Needham & Co. LLC

Okay. Got it. Thanks.

Operator

The next question comes from the line Matt Miksic from UBS. Please go ahead.

Matt Miksic - UBS Securities LLC

Thanks. Just a couple of follow-ups here on a couple of subjects that I think we've already covered during the call. So, one, you may have mentioned this, Bob, or Lance, the reps that you have seen where you have seen some folks – some attrition, I think you mentioned. Safe to say that's primarily in foot and ankle, or are you seeing that upper as well?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah, primarily in foot and ankle.

Matt Miksic - UBS Securities LLC

Thanks for that. And then one of the things that can happen – and you know this obviously way better than I do, but integration and focusing on all the challenges of bringing these organizations together, you've got training for AUGMENT, you got training for SIMPLICITI. You've got a lot of plates kind of spinning here. There is a bit of a horse race that's been going on in the last four or five years in shoulders, where Tornier was doing quite well. Beyond SIMPLICITI, putting aside the pyrocarbon for a second, is there something else that you are thinking about that we should expect that your surgeons or your reps are expecting you to kind of keep pushing forward in terms – I don't know if it's custom cutting guides or something else that – beyond Flex, that you want to keep on pushing on that share position that you have at the moment?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah. That's really a very good question. I think that we do have a full line of – and robust pipeline in terms of new upper extremity products, including shoulders, a lot of work being done on that. I think that the – in the short term, we still are in the early innings with SIMPLICITI, and I think that is a major focus. There's also the ability to have that as a reverse. So I think that we're – that's something that people are working on. I'm not sure whether I want to get into a whole lot more detail and telegraph to our competitors the rest of the stuff that we're working on. But it is a robust pipeline of products that will enable us, I think, to continue to grow very fastly and to take market share. So very enthusiastic about it.

Matt Miksic - UBS Securities LLC

That's great to hear. And just one more for Lance if I could, on the EBITDA for the quarter and your guidance. We had kind of bent our brain around what that could be and what the moving parts are as the two businesses come together. And you just sort of vastly exceeded what we thought it could be. And so, again, I am bopping back and forth between calls, so apologize, Lance, if I missed some of the detail. But where was the strength? What can you say as maybe some of the areas where you're really seeing leverage here to the EBITDA line?

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Yeah. I think there's really three things this quarter. First of all, we had very strong revenue performance and had very good drop-through of that to EBITDA. We had a pretty solid gross margin quarter as compared to previous quarters, so that helped. And then we were able to accelerate some cost synergies into the fourth quarter, some synergy we really didn't think we'd see until 2016. So those three things combined really is what led us to the over performance on the EBITDA line versus our previous guidance.

Matt Miksic - UBS Securities LLC

And those carry into 2016 or how should we think – is it just – how should we think about it going forward?

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

So on the cost synergies, we talked about, $10 million to $15 million in 2016. So, obviously, we'll have that and then the growth on the business ought to allow us to drive some leverage as well and that's really the big drivers of the $20 million to $30 million of guidance range for adjusted EBITDA for 2016.

Matt Miksic - UBS Securities LLC

And I'm sorry, but the first quarter – I know you're not giving quarterly guidance, but where can we expect you to start on the EBITDA line in particular? Any help would be greatly appreciated there.

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Yeah. We did try to make some high-level comments to try and help everybody with quarterly cadence. So first of all, we do expect to be EBITDA positive every quarter, which is great. There will be a pretty small amount of EBITDA in each of the first three quarters and then a very large portion of the total year that's in Q4. And really, that is driven pretty much almost all by seasonality. And what we did say in prepared comments is, the evidence of that is we expect to see similar amounts of EBITDA margin improvement each quarter of the year and in our full-year commentary was for 400 basis points of EBITDA margin expansion for the full year, so those were the items that we pointed to as far as the quarters are concerned.

Matt Miksic - UBS Securities LLC

Thanks so much.

Operator

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Larry Biegelsen - Wells Fargo Securities LLC

Hi, guys. Thanks for squeezing me in here. A couple of questions. On AUGMENT, by our math it looks like you did about $4 million in the quarter. So my question is, is that close? And can you parse out underlying demand versus stocking? And I had a couple of quick follow-ups.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, I would say that it's all demand, there's no stocking so – and I don't – I'm not going to really say how close you are on the $4 million. Maybe someday when we're together you could explain your methodology to me. But I just think it is a slippery slope when we start getting down into the product, each product and what they did and we don't want to do that. But I do think that you should see the total buyout number as we said is growing at 30% and I think that's a pretty good number.

Larry Biegelsen - Wells Fargo Securities LLC

Okay, thanks for that. And then just two more quick ones. One, pretty straightforward. On the insurance for metal-on-metal, can you just confirm that the total that you are insured for is $225 million? And, Bob, just quickly, any update on where you are at on kind of large joint and your commitment to that business? Thank you.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, I don't think we've ever said publicly what our total amount of insurance is I think that it's our position that we have adequate insurance that would help us to resolve these cases. So I think I'll just leave it at that. What was the second question?

Larry Biegelsen - Wells Fargo Securities LLC

The large joint commitment.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah. This is under something that's kind of bubbling to get our attention now. We've had so much to do with integration and everything else that this is not something that we've been focused on. I think that we will get focused on this and figure out what to do with that business. I mean, we are either going to have to invest in it, which doesn't seem like something we would want to do to any great extent because we don't think it's strategic or we'll have to look for other options here. So, we're just at the beginning stages of looking at that.

I'm sure that in the next couple of quarters, I can't say it's going to be in June or whenever, is that we'll have something to say more specifically about the large joint business. But what we have said all along is it's not strategic. It does produce cash, it is a drag to our overall growth rates and we have to figure out what the plan is, and we're starting to do that.

Larry Biegelsen - Wells Fargo Securities LLC

Thanks for taking the questions.

Operator

And your next question comes from the line of Kaila Krum from William Blair. Please go ahead.

Kaila P. Krum - William Blair & Co. LLC

Hi, guys. Thanks for taking the question.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Hi.

Kaila P. Krum - William Blair & Co. LLC

So you all grew 14% on a pro forma basis in the quarter and AUGMENT at this point is still in really early days. So I guess I'm just trying to understand why that growth rate for the core business, even excluding AUGMENT, especially with the cross-selling program and SALVATION coming online, couldn't be maintained over the course of the year.

Lance A. Berry - Senior Vice President and Chief Financial Officer, Wright Medical Technology, Inc.

Well, Kaila, our guidance for extremities – our guidance assumed extremities and biologics growth of 14% excluding the dis-synergies. So, basically our guidance is to maintain that current growth rate excluding dis-synergies, but the dis-synergies will create a drag on that throughout the year. So, we're very pleased with the 14% growth in Q4. That was up 2 percentage points from Q3 and really in line with kind of the mid-teens growth that we've been saying that we think the business can grow. But as we move through 2016, we will have a headwind from those dis-synergies.

Kaila P. Krum - William Blair & Co. LLC

Okay. And then just a follow-up I guess on the cross-selling program that you guys were talking about. Can you just touch a little bit more on this? And I guess specifically how you've seen revenue per representative expand with that cross-selling program, just specific to those 70 reps that have been trained on this?

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Yeah. There was a program that we put in effect and it will be planted before the closing and put in effect after closing, but we're going to take a certain number of lower extremity reps that currently didn't – and have them, have access to all the Tornier products and all the Wright products. So they have a full bag of products. And so there was a lot of training that had to go on, a lot of logistics stuff to overcome. And they would be the first ones that we'd be able to have the full bag of products.

So that has been launched; that launched in Q4, 70 reps. I don't think we've broken out or talked about the productivity of those reps, but they have been successful in selling products – of total amounts of products. There have been legacy Tornier reps that have sold things such as INFINITY and AUGMENT also, and legacy Wright reps that have sold many of the legacy Tornier products. So it's working well. It gives us some line of sight into what to expect when everything is fully merged and that – so that we can make adjustments as they're needed. But it's a good program. It's worked well. We're seeing revenue enhancement from it. I just don't say – I'm just not prepared to say how much because, frankly, I don't know.

Kaila P. Krum - William Blair & Co. LLC

Okay. Thanks.

Operator

I would now like to turn the call back over to Bob Palmisano for closing remarks.

Robert J. Palmisano - President and Chief Executive Officer, Wright Medical Technology, Inc.

Well, thank you, operator and thank you all for joining us today. I'm very pleased with the progress of our teams and our strong start as the new Wright Medical. We will continue to focus on successfully executing our global integration plans, to extend our leadership position and further accelerate our growth opportunities and path to profitability, all of which we believe will generate long-term value for our shareholders.

I want to reiterate my excitement for the bright future and believe – that I believe is ahead for our company. I also want to thank and express my appreciation to the entire Wright team for their efforts during our first quarter as a newly-merged company. I look forward to updating you on the next quarter earnings call. We appreciate your interest and continued support. This concludes our call.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you very much and have a very good day.

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