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Orthofix Medical Inc (OFIX) Q1 2019 Earnings Call Transcript

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Orthofix Medical Inc  (NASDAQ: OFIX)
Q1 2019 Earnings Call
May. 06, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Orthofix First Quarter 2019 Earnings Results Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Mark Quick, Senior Director of Business Development and Investor Relations. Please go ahead.

Mark Quick -- Senior Director of Business Development and Investor Relations

Thank you, operator, and good afternoon, everyone. Welcome to the Orthofix's first quarter 2019 earnings call. Joining me on the call today are President and Chief Executive Officer, Brad Mason; and Chief Financial Officer, Doug Rice. I'll start with our safe harbor statements and then pass over to Brad.

During this call, we'll be making forward-looking statements that involve risks and uncertainties. All statements other than those of historical fact are forward-looking statements, including any earnings guidance we provide and any statements about our plans, beliefs, strategies, expectations, goals or objectives. Investors are cautioned not to place undue reliance on such forward-looking statements as there's no assurance the matters contained in such statements will occur. The forward-looking statements we'll make on today's call are based on our beliefs and expectations as of today, May 6, 2019. We do not undertake any obligation to revise or update such forward-looking statements.

Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risks disclosed under the heading Risk Factors in our Form 10-K for the year-ended December 31, 2018, as well as additional SEC filings we'll make in the future. If you need copies of these documents, please contact my office at Orthofix in Lewisville, Texas.

In addition, on today's call, we'll refer to various non-GAAP financial measures. We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these matters as a supplement to financial measures determined in accordance with US GAAP. Please refer to today's press release announcing our first quarter 2019 results for reconciliations of these non-GAAP financial measures to our US GAAP financial results.

At this point, I'll turn the call over to Brad.

Brad Mason -- President and Chief Executive Officer

Thanks, Mark, and good afternoon, everyone. Today, I'll start by giving you a summary of our first quarter 2019 performance and highlights, after which Doug will discuss the financial results in more depth. I will then follow up with our outlook for the remainder of 2019 before taking questions.

For the first quarter, we reported net sales of $109.1 million, representing a year-over-year increase of 0.4% or 0.19% in constant currency. These results were slightly better than anticipated and set us up well to achieve a sequential quarterly sales acceleration that we guided to for this year.

Orthofix Spine, which includes our Bone Growth Therapies, Spinal Implants, Biologics, and Spinal Kinetics product lines generated $85.9 million in sales in the first quarter, which represents a 5.8% increase in reported sales over period -- over prior year or 6.1% in constant currency.

Beginning with the Bone Growth Therapies product line, net sales increased 2.4% in the first quarter versus prior year. This was in-line with our expectations for the period. Order volumes increased 5.4%, partially offset by customer and products mix changes. We still expect this business to grow in the 3% to 4% range for the full-year and have already seen a strong start to the second quarter.

In Spinal Implants, which includes both Spine Fixation and motion preservation products, we reported a net sales increase of 10.6% or 11.6% in constant currency compared to prior year. This increase was driven by a $3.1 million contribution from our Spinal Kinetics motion preservation products, offset by a decrease in sales of our Spine Fixation products in the US, resulting from our ongoing selective disruption of our legacy sales force in preparation for bringing on larger sales partners in key geographies. We now have several new sales partners under contract and ready to go. This sales disruption is likely to continue, but taper off in the quarters ahead, as we gain traction with our new distributors. Spinal Kinetics alone US product sales were in line with our expectations for the quarter.

The sales start for the quarter was our Biologics product line where we reported net sales increased by 9.7% in the period compared to prior year. When normalized for the contractual reduction in March of last year of the marketing service fee Orthofix received from MTF Biologics, sales increased 16.6% in the quarter, primarily driven by the contribution from new distributors added in the last three quarters, and the recovery in our previously underperforming region. Product sales volumes increased by 20%, partially offset by a low-single digit ASP decline.

Lastly, in our Orthofix Extremities business, reported in constant currency net sales decreased to 15.7% and 10.4%, respectively in the first quarter over prior year. As can happen in this business, a number of large stocking orders that were expected in Q1 did not come through before we close the quarter. Given this quarter variability, we believe the best way to assess its performance is to look at the constant currency trailing 12 months year-over-year growth. On this basis, the Orthofix Extremities business grew 1.4%. We've started the second quarter on a good pace and remain confident that this business will grow at least low-single digits for the full year.

Now, turning to operating highlights for the period. In our spine business, we continue to focus on the commercial opportunities created by the consolidation of our spine product lines under one organizational structure. We are beginning to realize these benefits as the top-line performance of our Biologics products as reflected in our strong start to the year. While as I mentioned, the transition from legacy distributors to new sales partners in high potential territories will continue to be a headwind to our top-line and Spine Fixation implants in the near future. We expect this trend to reverse in the latter part of the year as our new partners gain traction.

Regarding the US commercial launch of the M6-C artificial cervical disc, the US Food and Drug Administration approval of the M6-C disc was certainly the most important highlight of the first quarter for the Company. We also recently released the compelling results of the full two-year data from the M6-C cervical disc IDE clinical study. These results included a statistically significant improvement in the Neck Disability Index for patients who received the M6-C disc. These patients also reported a 92% satisfaction rate with the surgery, and 93 % they would have -- say they will have surgery again. Surgery time in the mean length of hospital stay were significantly reduced compared to anterior cervical discectomy and fusion procedures or ACDF. And very importantly in today's environment a 24 months the rate of M6-C disc patients who were still taking some type of pain medication dropped to 14% compared to 38.2% of the ACDF patients. Of these, there was a seven times higher rate of opioid reduced with ACDF patients than with patients who received the M6-C disc.

Additionally, we recently began the training and certification of US surgeons with 16 leading surgeons already through the process, and had our first commercial patient implants of the M6-C disc. We will be executing a measured national rollout of the disc over the next several quarters with a significantly accelerating trajectory by year-end. And we continue to have a very high level of interest and enthusiasm from physicians and distributors about the opportunity this disc presents.

In our Biologics product line, I'm very happy to announce the limited market launch of fiberFUSE demineralized bone matrix or DBM. fiberFUSE DBM is the only natural 100% bone DBM that can be used for spine, orthopedic and (inaudible) procedures. Containing a mixture of consensus bone and demineralized cortical bone with no carrier added, the fiberFUSE DBM creates a natural scaffold for revitalization, cellular in growth and new bone formation. And most importantly, it has the advantage of having handling characteristics similar to our market-leading Trinity stem cell allograft.

And lastly, regarding Orthofix Extremities business, while typically choppy from quarter-to-quarter due to international stocking order cadence, this business remains solid with our biggest opportunities still in the US foot and ankle, and pediatric markets. Orthofix Extremities remains an important part of our inorganic growth strategy and one of the fastest growing segments in orthopedics. In summary, the first quarter was modestly better than we anticipated, which along with the FDA M6-C cervical disc approval and limited launch sets us very well for the remainder of the year.

I'll now hand it over to Doug to give you the financial metrics in the quarter.

Doug Rice -- Chief Financial Officer

Thanks, Brad, and good afternoon, everyone. I'll start by providing some additional details into our net sales and earnings results, and then discuss some of our other financial measures.

As Brad noted, total net sales in the quarter were $109.1 million, up 0.4% on a reported basis, and 1.9% on a constant currency basis when compared to the first quarter of 2018. When adjusting for Spinal Kinetics sales and the MTF Biologics contractual fee change, our organic growth was approximately flat over prior year in constant currency with strong performance in our Biologics business, and low-single digit growth in Bone Growth Therapies, which was offset by year-over-year declines in both Extremities and Spinal Implants.

Gross margin in the first quarter 2019 was 78.3% compared to 77.8% in the prior year period. The increase was due primarily to favorable product mix, offset slightly by the dilutive impact from Spinal Kinetics. For the full year 2019, we continue to expect gross margins to be between 78% and 79%.

Sales and marketing expenses were 49.2% of net sales in the first quarter of 2019, an increase of over 46.2% in the first quarter of 2018. The increase was primarily due to the investments in our extensive training and education programs to support the M6 US commercial launch. We continue to expect sales and marketing in 2019 to tick up approximately 100 basis points over 2018.

G&A expenses were 18.8% of net sales in the first quarter of 2019, which were slightly up from 17.9% in the prior year period. This increase was due primarily to CEO succession charges, which were offset by decreases in strategic investments during the quarter.

R&D expenses for the first quarter were 8.5% of net sales, up from 6.4% in the prior year period, driven primarily by additional spending from the successful and M6-C artificial cervical disc FDA approval process. For 2019, we continue to expect R&D spending to increase modestly to be between 7.5% and 8.5%.

Adjusted EBITDA decreased to $15.7 million, or 14.4% of revenue, down from $19.7 million, or 18.1% of revenue for the first quarter of 2018. This decrease was primarily driven by the M6-C launch costs in sales and marketing, as well as the expected dilution from Spinal Kinetics.

It's important to note, that starting this quarter, we have updated our segment reporting in the 10-Q and earnings release tables to reflect the recent realignment of our Spine and Extremities businesses. We will continue to provide top-line results for each of our forward traditional product categories. Also the updated segment reporting now includes the adjusted EBITDA results for each segment, which provides further transparency into how we currently evaluate these businesses and make strategic decisions.

Now, turning to tax, we had income tax benefit for the quarter of $6 million, or 118% of loss before income taxes, as compared to income tax expense of $5.4 million, or 51% of income before taxes in the same period of 2018. This year-over-year decrease in our quarter tax provision was driven by favorable adjustments from the settlement of our 2015 IRS audit, and final resolution of prior year tax issues.

For the first quarter 2019, we reported GAAP earnings of $0.05 per diluted share as compared to net income of $0.27 per share for the first quarter 2018. After adjusting for certain items and when normalizing for tax using a non-GAAP long-term effective tax rate, adjusted EPS for the first quarter 2019 was $0.27 compared to $0.39 in the first quarter of 2018. The impact of the lower tax rate in the quarter was partially offset by increased investments in the M6-C US launch and the continued dilutive impact of Spinal Kinetics.

Moving onto the balance sheet highlights. Day sales outstanding or DSOs were 66 days at the end of the first quarter 2019, up from 64 days at the end of the first quarter 2018. As noted on the last call, this increase was due primarily to the timing of collections from stocking distributors in our Orthofix US Extremities business.

Our inventory turns at the end of the first quarter 2019 were 1.2 times, flat from the first quarter 2018. Although we continue to see benefits from our inventory management initiatives, these were offset by our investment in newly launched products and a $7.2 million increase in inventory related to the acquisition of Spinal Kinetics.

Cash, cash equivalents and restricted cash at the end of the first quarter totaled $49.2 million compared to $72.2 million at the end of 2018. The decrease was primarily driven by the $15 million milestone payment made to Spinal Kinetics former shareholders related to the FDA approval of the M6-C. Cash flow from operations for the quarter was negative $1 million, an improvement from negative $3.6 million in the first quarter of 2018.

Capital expenditures were up in the quarter to $4.9 million from $3.4 million in the prior year, due primarily to investments in our global IT infrastructure and manufacturing capacity expansion for the M6 artificial cervical disc. We continue to expect 2019 capital expenditures of $24 million to $26 million, which reflects equipment and instrument investments to support sales growth from the M6 artificial cervical disc.

Free cash flow defined as cash flow from operations minus CapEx was an outflow of $6 million during the quarter compared to an outflow of $7 million in the prior year. This modest improvement was primarily due to the increased operating cash flow that I just noted. Consistent with prior years, we expect our free cash flow to improve significantly as our sales ramp for the remainder of the year.

With that, I will now turn it back to Brad.

Brad Mason -- President and Chief Executive Officer

Thanks, Doug. Regarding guidance for the full-year 2019, our outlook remains unchanged. The Company continues to expect to report net sales in the range of $472 million to $477 million, including a $4 million currency headwind, representing a reported year-over-year increase of 4.2% to 5.3%.

We also continue to expect a reported sales cadence for the year to be heavily weighted toward the last third of the year with low-single digit sales growth in Q2 ramping to mid-single digits for Q3, and high-single digits in the fourth quarter. This sales cadence is being driven by a number of factors, including currency headwinds weighted toward the first half of the year, the planned disruption of our US Spinal Implants legacy sales force in selective major markets in order to convert to high potential sales partners that are now attracted to our motion preservation, fixation and biologics portfolio. And lastly, the ramp up of sales in the last third of the year of M6-C disc in the US.

This sales cadence will also disproportionately affect our flow through to the bottom line as we saw in the first quarter. As with sales, we expect our adjusted EBITDA to be heavily weighted toward the end of the year, but continue to expect for the full-year 2019 adjusted EBITDA including Spinal Kinetics to be in the range of $86 million to $89 million, and adjusted earnings per share to be $1.75 to a $1.82 using a non-GAAP long-term tax rate of 27%.

Lastly, the search for our next CEO is going well with a strong pool of outstanding candidates included in the process. The Board of Directors and I remain committed to finding an exceptional individual to lead the Company into its next chapter.

With that operator, we're now ready to open up the line for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Craig Bijou from Cantor Fitzgerald. Your line is open.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great. Good afternoon, guys. Thanks for taking the questions.

Brad Mason -- President and Chief Executive Officer

Hi, Craig.

Craig Bijou -- Cantor Fitzgerald -- Analyst

I want to start with Biologics, obviously a lot of strength there. You called it out and you did -- I think also mentioned that you saw some traction with distributors and that might have been some of the driver of the growth. So just wanted to understand what really drove that growth, were there any stocking orders or one-time items in there? And I think on the last call you said low-single digits for the year and is that still what you guys expect?

Brad Mason -- President and Chief Executive Officer

Yes. Good question, Craig. No. See, exactly as I said in my prepared remarks, it was really driven by -- primarily by distribution that was added in the last six to nine months, as well as kind of getting our underperforming region back up to speed. There's no stocking orders in that business at all that impacted it. And as a matter of fact based on what we've seen year-to-date, I think I'm a little more optimistic about the range that I gave you for the year. And everything is going very, very well in that business and continues to even in this quarter. So nothing that's one-time. It's just solid business that we're bringing in.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great. And then maybe on the sales disruptions or the disruption that you're seeing as you're realigning the sales force, just want to get a sense for, will -- would you be able to or would you be willing to I guess is the question to quantify that impact in Q1, and then maybe kind of lay out how the impact will affect the upcoming quarters.

Brad Mason -- President and Chief Executive Officer

Yes. So without getting into too much detail about Q1, these are geographies where we have enormous potential, the large MSAs where we've been underperforming. So long-term outlook for these geographies is very, very solid. We expect probably second quarter to be similar to first quarter. Well, we expect that to reverse probably by Q3, get into growth again in Q4 even more so.

So I think midyear we should start to see a reversal of what you've seen as we bring on these new distributors. A number of them just started in April and May, and have taken a little bit of a while to -- a little while to ramp up. So -- and cover the business that we lost in this process. So by year-end, we should be on a great trajectory with our fixation implants, and obviously also with the M6-C, of course.

Craig Bijou -- Cantor Fitzgerald -- Analyst

Great. Thanks for taking the questions.

Brad Mason -- President and Chief Executive Officer

You bet, Crag. Thank you.

Operator

Our next question comes from the line of Raj Denhoy from Jefferies. Your line is open.

Raj Denhoy -- Jefferies & Co. -- Analyst

Hi. Good afternoon.

Brad Mason -- President and Chief Executive Officer

Hi, Raj.

Raj Denhoy -- Jefferies & Co. -- Analyst

Wonder if maybe -- yes. Hi. How you're doing, Brad? Maybe I could start a little bit with the extremities business. You mentioned you -- there were a couple stocking orders that you missed at the end of the quarter; now maybe you could just provide a little more detail around that, and sort of confidence that those orders will appear here in the second quarter or really when do you expect to get those back?

Brad Mason -- President and Chief Executive Officer

Sure. Yes. We had a couple of large orders that are choppy that you know. And it's less about the orders. It's more about the geopolitical situation in a number of cases. But we do expect those back. In fact, we've started the quarter very strongly in that business and we expect that we're gonna do very well from here on.

Now, that said, I've given a guidance of low-single digits growth for the year. We still have more work to do in that business in the US, in particular. That's more opportunity I should say. And, I don't -- with the changes and things we're making there, I expect to see that next year, but probably not as much this year. So we're -- we don't have high expectations for that business this year, but I do as we go forward into 2020 and beyond, particularly because that is the fastest growing segment of orthopedics. And it's also a very good I would say landscape for us to look for inorganic opportunities as well.

Raj Denhoy -- Jefferies & Co. -- Analyst

Okay, that's fair. Maybe, I could just ask a couple on spine as well. I know, you gave broad spine guidance at the beginning of the year, but as you look at how Biologics has been -- how it came in the first quarter, which I think was quite a bit stronger than most we're expecting. Have you changed anything in terms of the complexion, in terms of what will contribute in spine over the course of the year? I know you've kept guidance for everything roughly the same, but has there been any change in thinking about whether Biologics might do better and maybe the core spine business takes a bit longer to come back together for you guys?

Brad Mason -- President and Chief Executive Officer

I personally have -- I'm more optimistic about the Biologics business. It's very strong. It's still a little early in the year for me to update any guidance on that. But if we see this for -- through Q2, we'll certainly be willing to take another look at that. But no change in our Bone Growth Therapies business as we look at that, 3% to 4% for the year. And in our Spinal Implants, as I mentioned, we should see a nice turnaround in the business in the last -- particularly, the last third of the year in the fixation portion. And then, so -- and then we're keeping our thoughts, the same on the M6-C between $3 million and $4 million, the vast majority of which will be in Q4.

Raj Denhoy -- Jefferies & Co. -- Analyst

So it's something maybe just the confidence overall is perhaps a bit higher, but you're not willing to raise numbers yet?

Brad Mason -- President and Chief Executive Officer

Exactly.

Raj Denhoy -- Jefferies & Co. -- Analyst

Great. Just may be and one last one. So you mentioned M6-C -- I think, you did mention you had some of the first implants in the United States in the quarter; anything you can share in terms of demand or interest in getting trained with that product, is there anything in terms of the early days on M6-C in the United States will be helpful.

Brad Mason -- President and Chief Executive Officer

Absolutely. So several things. First of all, demand is not -- is the least of our problems right now. In that product category, we want to make sure that every surgeon, every patient has a good outcome, so we're really focusing on training and education with the surgeons. And along that line, we had 13 top surgeons in the country in here over the weekend training and had a phenomenal experience, so we're very, very excited about that, and as are the surgeons that we've trained to date 16 surgeons -- trained and certified 16 surgeons. So everything is going very, very well from our perspective. Again, patience is a virtue here. We want to make sure we do it well, and we do it right and for the long-term health of that business. And that's exactly what we're doing. And I couldn't be more pleased with how that project -- how the whole launch and rollout is going.

Raj Denhoy -- Jefferies & Co. -- Analyst

Great. And sorry, just one last housekeeping one. Looks like you took a write-off in spine in the quarter as well, is there any detail in terms of what that was related to?

Brad Mason -- President and Chief Executive Officer

I'm looking at Doug, and he has a look on his face.

What are you referring to Raj?

Raj Denhoy -- Jefferies & Co. -- Analyst

All right. Just as acquisition related fair value adjustment of $5.9 million...

Doug Rice -- Chief Financial Officer

Yes.

Raj Denhoy -- Jefferies & Co. -- Analyst

...in the quarter.

Doug Rice -- Chief Financial Officer

Yes. Got you. Yes. I wouldn't call that a write-off as much as just increasing our expected liability on some of the milestone payments that relates to our acquisition of Spinal Kinetics as we expect.

Raj Denhoy -- Jefferies & Co. -- Analyst

I'm sorry. It's actually a good thing then. It's actually a good thing.

Doug Rice -- Chief Financial Officer

It's a good thing. Yes.

Brad Mason -- President and Chief Executive Officer

Yes. Okay.

Raj Denhoy -- Jefferies & Co. -- Analyst

Yes. Okay. Sorry. Sorry about that. Yes, got it. Okay, perfect.

Brad Mason -- President and Chief Executive Officer

Thanks for that Raj.

Raj Denhoy -- Jefferies & Co. -- Analyst

Helpful.

Brad Mason -- President and Chief Executive Officer

All right. Thanks Raj.

Operator

Our next question comes from the line of Bruce Nudell from SunTrust Robinson. Your line is open.

Bruce Nudell -- SunTrust Robinson -- Analyst

Thank you for taking the question. Good afternoon. Brad, when you just think about the ramp in the year, clearly the strategy of the Company has been to kind of get more mindshare of existing distributors you want to keep as well as acquire new distributors that have better footprint in targeted geographies. And so when you think about the ramp, what is that about the kind of new distributors that kind of I suspect that's fitting into your belief that you'll be able to show significant acceleration as the year progresses. Did they just have a certain amount of capital share for instance that you know you're going to get?

Brad Mason -- President and Chief Executive Officer

So a good -- a really good question, Bruce. So let me make sure that I'm clear about my answer on a couple of fronts here. One is, specifically around Spine Fixation implants, the growth this year, if we think about this acceleration, a lot of it's going to come from just the launch of the M6-C disc. So we know that, it's going to pick up $3 million to $4 million.

In terms of the -- kind of the reversal of the Spine Fixation products, implants, that has to do with the distributors that you're talking about. Now, the distributors that we're bringing on, these distributors in the past have a history of doing multiple of times of the business that we are doing or are capable of doing with our former distribution in these geographies. And in a lot of cases, these are large distributors in areas where we have no coverage. So as distributors come on, that will be a good portion of our ramp for the year. But also if you think about it, our Bone Growth stimulation business is solid 3% to 4% for the year, so that's going to tick up from where it's been to get to that point, and also our Biologics business now contributing at such a higher level is another driver of it as well. But it's a combination of those things, the new distribution, Biologics with the new distributors that they have and also coming off of what I would say is a disappointing quarter in terms of the extremities because of those stocking orders, we expect a nice recovery in that business as well, which will also give a -- quite a bit of a hockey stick at year end.

Bruce Nudell -- SunTrust Robinson -- Analyst

And just thinking about Biologics, has the complexion of that business changed fundamentally or is distribution going to be playing on outside -- an outsized contributory affect for Biologics? Has there anything really fundamentally changed from I think (inaudible) low-single digit kind of market?

Brad Mason -- President and Chief Executive Officer

I think the things that are changing fundamentally for that business are number one, just the -- the distribution that has now attracted to Orthofix based on what they've seen over the last couple of years and what they anticipate in the opportunity they will have Orthofix. When you consider all of the things in this -- in our spine business, that's certainly contributed to this.

And also I think to a large degree, Trinity ELITE has become the standard of care and that's being recognized I think more and more out there that it's just a great tissue. And now also with fiberFUSE coming on, that gives us even another leg on the stool in Biologics. So fundamentally, the tissue hasn't changed, but the market dynamics have changed a little bit. And we're taking advantage of that.

Bruce Nudell -- SunTrust Robinson -- Analyst

And I guess my last question is, and my knowledge of (inaudible) all, how -- do you have a feel for how the M6 stacks up against the other cervical disks? The opioid number that you cited or percentage versus ACDF sounded impressive, but is that kind of a class effect or it's just unique in that dimension? Thanks so much.

Brad Mason -- President and Chief Executive Officer

Well, probably the best way to frame that Bruce is, virtually every market that the M6 disc has gone into it's taken the leading market share outside the US. There are significant advantages with the disc in terms of its natural design much more similar to a human cervical disc that is recognized by surgeons and appreciated by surgeons, and patients alike. I think there are a number of reasons including the data that I talked about that in virtually every case is superior to the other discs that have gone through this path that are driving demand for this disc.

There's 300 patients a year in the US that fly over to Europe to get the M6 disc put in. It is very well known by patients. There's a lot of demand already built up in the US. And it has the -- now, this is me speaking from what I understand it has the best -- if -- very close to the best reputation of any disc in the world. And so it is differentiated. There's no other disc like it in the US. They're all ball and sockets designed other than the M6-C. And the market recognizes that the demand is there -- is very much there.

Bruce Nudell -- SunTrust Robinson -- Analyst

Thanks so much. Brad. Have a good day.

Brad Mason -- President and Chief Executive Officer

You bet, Bruce, you too.

Operator

Our next question comes from the line yes Ryan Zimmerman from BTIG. Your line is open.

Sam -- BTIG LLC -- Analyst

Hi. It's Sam (ph) on for Ryan. Hear me right?

Brad Mason -- President and Chief Executive Officer

Hey, Sam, how are you?

Doug Rice -- Chief Financial Officer

Hi, Sam.

Brad Mason -- President and Chief Executive Officer

Sam or Stan? All right.

Sam -- BTIG LLC -- Analyst

Sam.

Brad Mason -- President and Chief Executive Officer

Yes.

Sam -- BTIG LLC -- Analyst

So getting into the -- digging a little more into that Biologics on the -- with fiberFUSE on the market now, can you give us a little insight onto how that is going to impact your stem cell business going forward?

Brad Mason -- President and Chief Executive Officer

Yes. So when you think about the Biologics business, the Trinity ELITE product, the stem cell allograft products are a premium cost and premium priced tissue form. In some cases, there are hospital systems that just will not pay that price. In the past, we've just foregone that business. So fiberFUSE is positioned so that we don't have to walk away from that business. It is not positioned as a replacement for Trinity ELITE. Trinity ELITE is a very unique tissue form that has a lot of advantages including ELITE stem cells. By both fiberFUSE and Trinity ELITE are both both -- a partnership with MTF Biologics, which makes it another -- is another advantage in terms of the -- excuse me, the reputation that MTF has. And so it's positioned as a lower cost alternative where Trinity ELITE will not be paid for. And that's the situation. And we have no intention of leading with fiberFUSE. It is a -- it is the backup to Trinity ELITE.

Sam -- BTIG LLC -- Analyst

Great. And then, turning to M6, in the lead up to the more full scale launch here in the back half in the year, are there any metrics that we can look at or that you may be divulging whether it be the surgeon training or things along that line to help us gauge performance of the rollout there...

Brad Mason -- President and Chief Executive Officer

Yes, a good question.

Sam -- BTIG LLC -- Analyst

...are you work that internally?

Brad Mason -- President and Chief Executive Officer

Yes. A good question, Sam. We will be giving a metric. We're contemplating whether that surgeons -- surgeon trained or not. By the end of when we do our Q2 call, we'll have a metric for you to use. We haven't decided on the best one. But we know that it's going to be valuable to you for us to share something other than just sales, so you can get an indication of the future of the rollout of the disc.

Sam -- BTIG LLC -- Analyst

I appreciate that. Thanks.

Brad Mason -- President and Chief Executive Officer

All right. You bet.

Operator

Our next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is open.

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Perfect. Guys, how are you?

Brad Mason -- President and Chief Executive Officer

Good, Jeff. How about yourself?

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Awesome. Just a few follow ups. Excuse me, redundancy if there is any, so Q2, what might the surgeon training look like for the quarter? Are you expecting kind of double or triple the current number that you stated?

Brad Mason -- President and Chief Executive Officer

We probably won't get into that -- those numbers at this point. We are -- what I would tell you is, we're focusing on the key sites where the IDEs -- the study sites were done, and the surgeons in those facilities and that's where our focus is and will be for a quite some time for a number of reasons. So -- but without getting into numbers specifically. We'll have to better handle on that to give you something at the end of Q2.

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Okay, got it. And then sorry to drill down in new Biologics skin, but just in fiberFUSE do you think that the two products that'll give you a pretty wide berth as far as the landscape on Biologics, and can you give us some more color on gram cost and ASPs out there as compared to competitors as well as training?

Brad Mason -- President and Chief Executive Officer

Yes. I think it gives us another arrow in the quiver. I don't -- I wouldn't say that we have a full and complete line of Biologics. But where we have products, we have very, very strong pride for tissues I should say. So if you think about the -- kind of the ASPs in that business, you're really starting with infuse at the top, and you think about this is dollars per CC in terms of the ASPs, it starts with infuse then it goes to the stem cell allograft, and then it goes down to the -- kind of the super DBMs like this is like fiberFUSE will be and then DBMs and synthetics and things like that. So it's got a bit of a cascade. So we're playing toward the upper end at Trinity ELITE, and then more toward the middle of the pack with fiberFUSE.

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Okay. And then lastly, on the data from as far as some of the follow up to M6 as far as opioid use in monotherapies, should we expect more data?

Brad Mason -- President and Chief Executive Officer

No. If you go back and you look at the press release we put out probably a month ago or so, that'll give you a lot of data, Jeff, on what came out in that in IDE. I've just kind of highlighted a few other things.

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Yes. You wouldn't expect some further data to be disclosed, it sounds.

Doug Rice -- Chief Financial Officer

No.

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

No?

Brad Mason -- President and Chief Executive Officer

Well, no. We did disclose the data that was in the IDE if that's what you mean.

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Just a slight about general market data for it, but I got it. Okay. That was it for me. Thanks a lot.

Brad Mason -- President and Chief Executive Officer

Right, you bet.

Operator

Our next question comes from the line of Jim Sidoti from Sidoti & Company. Your line is open.

Jim Sidoti -- Sidoti & Company -- Analyst

Hi. Good afternoon. Can you hear me?

Brad Mason -- President and Chief Executive Officer

Hi, Jim. Yes, we can hear you.

Jim Sidoti -- Sidoti & Company -- Analyst

Great. Can you just give me a little more color on the distribution changes. It's primarily a US issue I assume. Yes, it is.

Doug Rice -- Chief Financial Officer

Yes. And that's exactly right, Jim. I should have been more specific about that; primarily US.

Jim Sidoti -- Sidoti & Company -- Analyst

And why is it -- why there's an impact the -- this hardware more than the Biologics?

Brad Mason -- President and Chief Executive Officer

In many cases there's different distributors -- different agents. So we have -- as you recall about five years ago, we only -- we only sold our Biologics through our metals agents out there and then we separated that, and kind of let Biologics find their own agents in addition to the agents that were selling our Spinal Implants. So roughly let's say a 50/50 split on the distributors that sell our metals, also sell our Biologics. So they have their own other distribution as well. That answers it.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. And so -- and I guess the plan is to continue that strategy to have some agents to sell Biologics and others that just sell the metal?

Brad Mason -- President and Chief Executive Officer

Well, it's really about -- it's less about the strategy in a more broad sense is to do what's best in a local geography, a local territory. There's no national strategy per say. We just go into a territory and say what's the best opportunity here to sell our metals, to sell our Biologics, to sell our Bone Growth Therapies simulators, and the disk. And then in some cases that will be one distributor that sells all of those. That's a little bit more rare, but that happens in some cases. And in other cases all they'll do is sell one portion of the portfolio depending on how they're positioned in the territory and what other distributors we have in that territory. So it's all a case-by-case basis -- based on the market dynamics in an area.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. All right. And then -- sorry, I missed some guidance you gave regarding gross margin. Where do you expect that to end up for the year?

Doug Rice -- Chief Financial Officer

Jim, this is Doug. We -- excuse me, we're guiding 78% to 79% for margins this year.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. And then any update on the CEO search, Brad, and and how much longer you want to work?

Brad Mason -- President and Chief Executive Officer

No other than to say that the -- it's in process. It's going well. We've added some very, very good candidates. And that's really all that we want to speak about at this point.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay, got it. Thank you.

Brad Mason -- President and Chief Executive Officer

Thanks, Jim. Take care.

Doug Rice -- Chief Financial Officer

Thank you.

Operator

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

David Turkaly -- JMP Securities -- Analyst

Thank you. Just a couple of quick follow ups. You mentioned these new distributors in some of the bigger territories and signing them up I think primarily because of the M6. But I would love to get some color on these distributors selling other competitive discs and you're stealing them away or do they not have a disc in their bag today?

Brad Mason -- President and Chief Executive Officer

It could be. Well, I would never use the term that we're stealing anybody away. Let's start with that. Secondly, they may have had a disc at one time, but they are -- we are -- we honor non competes in territories. So if they're coming on and starting with us, that means they are no longer obligated by -- under contract with anybody else. So they could have -- they might have sold disk in the past or or perhaps not. It could be either one. It just -- it depends on which distributor we're talking about.

David Turkaly -- JMP Securities -- Analyst

Got it. And you mentioned market leading share Orthofix US, I'm just curious if you put a number around that, even if it's just sort of a ballpark. Does it have 30% or 40% share in some countries? And I guess the follow up to that will be, do you anticipate it might get to that level here in the US?

Brad Mason -- President and Chief Executive Officer

It actually in many, many markets (inaudible) has over 50% share. As I sit back and I look at this, and I dream about the opportunity that the M6 creates, this is a roughly $250 million, $275 million market in the US today, growing double digits, becoming more and more accepted, more and more pushed by patients, not just surgeons. And based on what's happened in other markets, based on the differentiation of it, and so so this not only in its design and its function, but also in its how the procedure to put it in, the training that we do, all of these things, it should have every opportunity to do what it's done in other markets from my perspective. And that's what gives us a lot of confidence about. This year is a year that I think is going to be a good year. 2020 will be a great year from my perspective. And the M6 disc is a big part of that. And it leads to a lot of other things. It's kind of a link to other opportunities. But in terms of the US market opportunity, growing market and I expect that we will have an opportunity to get a significant portion of the market in the next three, five years.

David Turkaly -- JMP Securities -- Analyst

Got it. Last one. I know you mentioned some of the features and some of the benefits that came out in that study. From an ASP standpoint, is the M6-C is at a premium price device versus the other discs that are on the market?

Brad Mason -- President and Chief Executive Officer

It is. That's where -- that's how we have a position. It is a premium product and we position it with a premium price.

David Turkaly -- JMP Securities -- Analyst

Thank you.

Brad Mason -- President and Chief Executive Officer

All right. Thanks, Dave.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Brad Mason.

Brad Mason -- President and Chief Executive Officer

Thank you, operator, and thanks, everyone for joining the call today. We appreciate your time and attention. And we'll look forward to seeing you hopefully in the near future. Have a nice evening.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 44 minutes

Call participants:

Mark Quick -- Senior Director of Business Development and Investor Relations

Brad Mason -- President and Chief Executive Officer

Doug Rice -- Chief Financial Officer

Craig Bijou -- Cantor Fitzgerald -- Analyst

Raj Denhoy -- Jefferies & Co. -- Analyst

Bruce Nudell -- SunTrust Robinson -- Analyst

Sam -- BTIG LLC -- Analyst

Jeffrey Cohen -- Ladenburg Thalmann & Co. -- Analyst

Jim Sidoti -- Sidoti & Company -- Analyst

David Turkaly -- JMP Securities -- Analyst

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