Feb 10, 2017
Executives
Carol A. Cox - NuVasive, Inc.
Gregory T. Lucier - NuVasive, Inc.
Quentin Blackford - NuVasive, Inc. Jason M.
Hannon - NuVasive, Inc.
Analysts
Matthew O'Brien - Piper Jaffray & Co. Richard Newitter - Leerink Partners LLC Kaila P.
Krum - William Blair & Co. LLC Joshua Jennings - Cowen & Co.
LLC Matt Miksic - UBS Securities LLC Andrew Ronald Hanover - JPMorgan Securities LLC Matthew Taylor - Barclays Capital Kyle William Rose - Canaccord Genuity, Inc. Jeff D.
Johnson - Robert W. Baird & Co., Inc.
Larry Biegelsen - Wells Fargo Securities LLC Joanne Karen Wuensch - BMO Capital Markets (United States)
Operator
Greetings, and welcome to the NuVasive, Inc. Fourth Quarter and Full Year 2016 Conference Call.
At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.
As a reminder, this conference is being recorded. I'd like to turn the conference over to your host, Carol Cox, Executive Vice President, External Affairs and Corporate Marketing.
Thank you. You may begin.
Carol A. Cox - NuVasive, Inc.
Great. Thank you, Matt, and welcome, everyone to NuVasive's fourth quarter and full year 2016 earnings call.
Today, we've issued our earnings release, which we issued earlier this afternoon, is posted on our website in our Investor Relations section along with the presentation, as well as we have filed the Form 8-K with the SEC. We've also posted our supplemental financial information on the IR website to accompany today's discussion.
On the call, we will be covering information that's included in the investor presentation, and I encourage you to access these materials so that you can follow along. Before we begin today, I would like to remind you that the discussions during today's call will include forward-looking statements, which are based on current expectations and involve risks and uncertainties, assumptions and other factors, which, if they do not materialize or prove to be correct, could cause NuVasive's results to differ materially from those expressed or implied by such forward-looking statements.
Additional risks and uncertainties that may affect future results are also described in NuVasive's news releases and periodic filings with the SEC. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates.
This call will also include a discussion of several financial measures that are not calculated in accordance with Generally Accepted Accounting Principles, or GAAP. We generally refer to these as non-GAAP financial measures.
These measures include our cost of goods sold, gross margin, sales, marketing and administrative expenses, research and development expenses, operating margin, non-GAAP earnings per share, free cash flow and EBITDA. Reconciliations to the most directly comparable GAAP financial measures can be found in the news release and the supplementary financial information, which are accessible from the Investor Relations section of NuVasive website.
Joining me on today's call are Greg Lucier, our Chairman and Chief Executive Officer; Jason Hannon, our President and Chief Operating Officer; and Quentin Blackford, our Chief Financial Officer. With that, I'll turn the call over to Greg.
Gregory T. Lucier - NuVasive, Inc.
Thank you, Carol, and good afternoon, everyone. By all measurements, 2016 was another dynamic year for NuVasive.
Our talented global team executed on our strategy to launch game changing products and systems, expanded in new market and geographies, drive operational efficiency throughout the business, and improve our capital structure to support long-term growth. We are extremely pleased to report fourth quarter and full year 2016 results that exceeded our expectations.
On today's call, I will provide an overview of our results for the full year 2016 and share some color on Q4 revenue drivers, and then Quentin is going to review our fourth quarter 2016 performance in more detail and provide our 2017 guidance expectations. Our revenue performance for 2016 delivered growth at multiples of the market and reflected strength across our business and geographies ending the year at $962.1 million, representing year-over-year growth of approximately 18.6% on an as reported basis.
On an organic basis, our revenue grew approximately 8%. Throughout the year, we saw strong acceptance of our Integrated Global Alignment platform, or iGA across core product areas, including our Reline posterior fixation system, ALIF, Bendini and Integrated Operative Solutions.
In particular, the adoption of Reline within iGA is leading to greater penetration in the deformity market. Results were also driven by the integration of MAGEC for early onset scoliosis and PRECICE technology for limb lengthening, both acquired with Ellipse Technologies in February 2016, and are now part of NuVasive Specialized Orthopedics, or NSO.
In the U.S., revenue growth in the fourth quarter of 2016 continued to reflect strong procedural volume and another sequential increase in revenue coming from new surgeon conversions where our strategy to focus on bringing new surgeons into the NuVasive family is really taking hold and contributing to results. Additionally, we are very pleased with the pull-through we are seeing in our NuVasive Clinical Services business, or NCS.
Not only has the inclusion of Biotronic in NCS expanded our footprint, it is also providing greater opportunity to grow our M5 neuromonitoring platform disposables as we continue to successfully integrate our M5 platform into NCS contracts, resulting in an accelerating number of cases being performed utilizing this M5 technology. Now, we exited the fourth quarter of 2016 continuing to see an acceleration in our field sales hiring initiatives, ending the year with our largest year-over-year increase in field head count.
Now more than ever, we are attracting long-tenured competitive sales reps who have experience running large geographies at their previous companies. Now, they're interested in joining NuVasive for a couple of reasons.
They want access to the most innovated spine portfolio and the continuous commitment to bringing new products to the market, as well as world-class training and support, and more than anything, they want to be winners. They see how much we are investing in the spine business and the impact it's having in the market.
We saw tremendous progress from our focus on these strategic hires and are excited about the potential they bring to the future. Our core International business returned to 20% year-over-year growth in Q4 on a constant currency basis, despite the temporary delay of selling XLIFs in Japan during the quarter.
Our results were fueled by strong growth in Europe, Southeast Asia and Latin America. We continue to see strong revitalization in our Western European markets of Italy, Germany and the UK.
And importantly, we also saw Latin America return to strong growth driven by the beginning recovery in our Brazilian operation, as anticipated, and strength across much of the region. As I mentioned, the International team delivered these strong results despite the temporary destruction of our XLIF business in Japan.
As you're aware, in December we received the Class III approval for our dilator in Japan, and XLIF procedures commenced again in January of this year. The Japan team focused on posterior fixation and Bendini, resulted in a strong finish to 2016.
Now, as we've been communicating over the last two years, margin expansion is a key element in our efforts to deliver value creation for you, our shareholders. We continue to execute against these well-defined efforts and for the full year 2016 delivered a non-GAAP operating profit margin of 16.1%, an increase of 70 basis points year-over-year.
This included absorbing some of the temporary headwinds while integrating Ellipse Technologies and approximately 70 basis points of incremental investment in R&D over the course of 2016. Most importantly, we are making this progress on profitability while simultaneously investing in the key areas that will sustain future growth by growing our sales force and investing in new innovation.
For the full year, non-GAAP EPS performance came in at $1.66, an increase of 27% over 2015 and grown faster than our reported revenue growth. We expect this strong leverage to accelerate as we continue to benefit from increasing scale and simultaneously executing on our efforts to lower our tax rate.
Beyond financial metrics, we achieved several notable milestones during the year, including settling over eight years of patent litigation with Medtronic in a manner that removes the ongoing burden of litigation between the two companies and provides a clear protocol for resolution of potential patent disputes in the future. Second, purchasing and building out our new state-of-the-art, all-digital manufacturing facility in West Carrollton, Ohio, creating over 200 new jobs and nearing 100% self-manufacturing over the next several years.
And finally, in recognition of our significant growth from small-cap to mid-cap and increased interest from our investors, NuVasive was named to the S&P MidCap 400. Over the last decade, NuVasive has evolved from a company focused on bringing minimally invasive spine products to the market, a company focused on developing end-to-end procedurally-integrated solutions to drive clinical predictability and moving towards a company focused on systemizing spine from pre-op to post-op, creating an integrated OR completely unique to spine.
We aspire to lead this industry by delivering these technologies and innovations that surgeons want and need. And during 2016, we continued to strengthen that momentum as the fastest-growing full-line spine company as we undertook significant steps to expand our unique capabilities and our footprint in new markets through a combination of internal R&D and strategic acquisitions.
As a result of this strategy, in 2016, we entered the early onset to pediatric deformity markets with the acquisition of Ellipse Technologies. And over the course of the year, we integrated the technology into our Reline posterior fixation system to further build out the capabilities in the $2.5 billion complex deformity market.
We also created NuVasive Clinical Services, the nation's leading intraoperative neuromonitoring services company with over 450 neurophysiologists covering more than 85,000 cases annually. We expanded our iGA platform to include cervical procedures, making NuVasive the first company to offer a solution for surgeons to address spinal alignment for all spine procedures.
And finally, took a big step forward in our efforts to reduce radiation exposure in the OR with the acquisition of LessRay software suite, which will be integrated into future technology offerings. In 2017, we have a number of planned introductions to enhance these offerings such as 3D printing capabilities, an expandable cage offering, the commercial launch of LessRay and the integration of LessRay into our M5 platform and the introduction of the UNYTE System, which uses MAGEC technology to help heal complex fractures and fractures that fail to heal due to poor bone quality or poor fixation.
At the core of these achievements is our commitment to transform spine surgery and beyond with clear strategies to meet surgeon and hospital system customers' need for greater clinical predictability. Over the course of 2016, we were very active on the corporate development front, utilizing approximately $490 million in capital to complete several acquisitions.
These acquisitions which included Ellipse Technologies, Mega Surgical, Biotronic NeuroNetwork, and LessRay software suite have expanded NuVasive's technology leadership in spine and entered new markets or broadened our participation along the spine care continuum. We remained disciplined and highly selective in our approach to M&A, seeking targets that are both a great strategic fit, meet our return on investment capital goals, and fit into the long-term margin expansion plans we have.
I am pleased to report our integration efforts for those deals do remain on track and are delivering substantial growth. Now, as we look to 2017, we expect to maintain an active pipeline of potential targets.
Please rest assured, we intend to maintain our disciplined approach to potential deals. Our top priorities will include opportunities that complement our existing technology platforms, target geographic expansion, and opportunities for imaging and navigation in the spine continuum.
The healthcare landscape continues to rapidly change with increasing focus on delivering measurable clinical outcomes, reducing overall costs, and delivering high-quality care in an environment of regulatory and payment changes. The pace of change demands our relentless focus to understand our customers better than anyone else and adapt quickly.
And at NuVasive, our dedicated employees and shareowners strategize about these challenges every single day. Given these dynamics, we are confident NuVasive is uniquely positioned and nimble enough to provide value and outperform in this landscape.
With our procedurally-integrated solutions and our service line partnership strategy in place, we are acting different than our competitors. Today, we are already changing the way we do business with our strategic partners, including academic centers, regionally integrated delivery networks, ambulatory surgery centers, and spine specialty hospitals.
A structure of this new business model contemplates risk-sharing and is designed to transform how spine procedures are approached, measured and valued from a clinical and economic perspective. With that, we'll turn it over to Quentin.
Quentin?
Quentin Blackford - NuVasive, Inc.
Thanks, Greg, and good afternoon, everyone. Before we get started with the financials, let me remind you that many of the financial measures covered in today's call are in non-GAAP basis unless noted otherwise.
Please refer to today's earnings new release as well as the supplemental financial information on nuvasive.com for further information regarding our non-GAAP reconciliations. As Greg noted, we are very pleased with the strength we continue, experience in the business.
Our results for the fourth quarter of 2016 reflects strong procedural volumes and continued share-taking, resulting in year-over-year double-digit revenue growth, as well as continued expansion in our non-GAAP operating margin and more than 50% growth in our non-GAAP earnings per share. For the fourth quarter of 2016, we delivered total revenue growth of 25.9% on an as reported basis and 12.8% on a pro forma basis.
Excluding results from both our NuVasive Specialized Orthopedics, or NSO and Biotronic businesses, both of which we acquired in 2016, our core business grew approximately 9% on a constant currency basis. For the quarter, we delivered revenue of $271.1 million driven by U.S.
revenue growth of 23% and international growth of 42% on a constant currency basis. Before I move into the details of our results, I wanted to provide some context for why our revenue for the fourth quarter came in about $6 million higher than the preliminary results we provided back in early January in connection with our presentation at the JPMorgan Conference.
The difference is primarily due to a $4.8 million purchase order for MAGEC rod that came late in the quarter from a charitable organization. The balance of the organization include certain former stockholders of Ellipse Technologies who made the purchase with a stated purpose of donating the rods for use in spinal deformity procedures for children in underprivileged communities.
Given the unique nature of this order, we did not include it in the preliminary revenue figure we provided in January as we will work into the revenue recognition criteria alongside our auditors. We subsequently determined that it does meet the appropriate revenue recognition requirements.
This order contributed to the achievement of the milestone payment under the merger agreement, which was contingent on meeting specific stretched revenue targets for 2016. The target was well above the revenue expectations we had when we completed the deal.
The milestone payment in amount of $30 million will be paid pro rata to the former stockholders of Ellipse Technologies in accordance with the merger agreement. We are extremely pleased with the progress to date of our integration efforts with Ellipse Technologies and the impact this unique asset is having on our business.
While the type of purchase order we saw in Q4 may not repeat in the future, the underlying revenue performance for NSO excluding this transaction was in line with our expectations. The business continued to grow in excess of 30% and will continue to contribute to the accelerated growth profile of the overall company for years to come.
In addition, we are exceeding our operating margin goals and have been able to monetize unanticipated tax benefits, which have us performing well ahead of our ROIC expectations for the deal. Our U.S.
spinal hardware business had a very strong finish to the year of approximately 22% compared to Q4 of 2015 primarily driven by NSO and strong adoption of the Reline posterior fixation system within our iGA platform. Excluding the benefit of NSO, growth in our core U.S.
spinal hardware revenue accelerated nicely in Q4 to approximately 9% year-over-year to $138.1 million against our toughest comp of the year. Our cervical business benefited from the launch of iGA cervical during the quarter which drove nice sequential revenue growth from Q3 to Q4 and led to nearly 10% growth year-over-year.
Revenue from U.S. surgical support came in at $78.6 million for the quarter, up 26% primarily driven by the addition of Biotronic and growth in our NVM5 disposables business as we continued to integrate that platform into our service accounts.
Excluding the benefit of Biotronic, our core surgical support revenue came in at approximately $64 million, growing 2.7% driven by the NVM5 disposable business. Our International revenue grew approximately 45% on a reported basis or 42% on a constant currency basis in the quarter primarily attributed to the addition of NSO and strong year-over-year growth across many of our EMEA markets including Italy, Germany and the UK.
Asia Pacific remained flat on a constant currency basis as a result of the temporary delay of XLIF procedures in our Japanese business, which was offset by nice growth in Southeast Asia. Excluding the impact of NSO, our core NuVasive International business grew approximately 20% on a constant currency basis.
And if XLIF procedures in Japan had been performed at the normal phase, our core NuVasive International revenue growth would have been approximately 46% on a reported basis and 42% on a constant currency basis. With the dilator receiving Class III approval in late December, our Japanese proctors have resumed XLIF procedures as of mid-January and we are moving forward with the other additional training requirements needed as part of our approval terms.
As we have discussed before, the ramp-up in procedures will occur throughout the first quarter of 2017. And we anticipate a return to normal XLIF volumes in Japan throughout the second quarter.
Latin America grew approximately 56% on a constant currency basis in the quarter, driven by strong performance across its markets. Puerto Rico, Mexico and Brazil contributed significantly to the year-over-year growth in the fourth quarter.
While the slower start than expected in going direct in Brazil for most of 2016, sales started to gain momentum in the fourth quarter. We continue to remain confident that our strategy to go much more broadly in Latin America and efforts to go direct in Brazil will pay off.
Turning to the rest of the P&L, non-GAAP gross margin for the fourth quarter was 75.3%, down 90 basis points from prior year primarily driven by the lower gross margin profile of the Biotronic business which negatively impacted our overall gross margins by 210 basis points. Excluding the impact of Biotronic, our gross margins improved by approximately 120 basis points, which was driven by the temporary suspension of the medical device tax, favorable NSO product margins and further asset efficiencies related to inventory utilization.
Pricing pressure remained consistent to past quarters, remaining in the very low single digits and negative 1% and had a negligible impact on gross margin. Our new manufacturing facility in West Carrollton, Ohio, came online in the third quarter.
And by the end of 2016, we had machined our first 40,000 pieces out of that facility. We are excited about the future benefits we expect to realize from this in-sourcing initiative.
Non-GAAP SM&A expenses as a percent of revenue decreased 270 basis points from the prior year to 52.5% in the quarter or $142.4 million. The lower SM&A expense profile of Biotronic contributed 220 basis points.
And excluding the benefit of the Biotronic business, SM&A expenses as a percent of revenue improved by 50 basis points, which was primarily driven by greater asset efficiencies related to NSO and U.S. sales force efficiencies which were partially offset by investments in our International business.
Non-GAAP research and development or R&D expenses totaled $13 million in the fourth quarter 2016, compared to $8.5 million in the fourth quarter 2015. R&D expense was 4.8% of revenue for the fourth quarter versus 4% in the prior year.
The increased R&D expense reflects our continued commitment to supporting internal R&D and investing in strategic assets we acquired to drive further innovations. Over time, as Greg said, we expect R&D expenses as a percent of revenue to increase with the long-term goal of investing approximately 7% of revenue on these efforts.
We continue to make investments in key areas including the NSO technologies and efforts around imaging, navigation and surgical automation as well as continued improvement in evolution of the iGA platform like our recently announced iGA for cervical. We are pleased to report fourth quarter non-GAAP operating profit margins increased to 18% resulting in 90 basis points of operating margin expansion compared to the 17.1% we reported last year.
Adjusting for the impact of the different P&L profile of the Biotronic business, we saw meaningful improvements in our underlying cost of goods sold and SM&A spend that delivered roughly 170 basis points of improvement offset by the increased investments into R&D. Moving further down the P&L, interest and other expense net on a non-GAAP basis was $5.9 million in Q4, up from $3.3 million in the same period last year.
This increase is primarily a result of the new interest expense associated with the 2021 convertible notes issued in March of this year – 2016. Now turning to tax.
Our non-GAAP tax expense in the quarter was $15.7 million resulting in a non-GAAP effective tax rate of 36.7%. In addition, we finished the year with a non-GAAP effective tax rate of 36.6%, which was an improvement of more than 500 basis points from the prior year as we continue to focus on our multi-year initiatives to reduce our annual effective tax rate.
I will talk more specifically about our decreasing tax rate in 2017 and beyond in just a minute. Fourth quarter non-GAAP net income was $27.6 million or non-GAAP earnings per share of $0.53 compared to non-GAAP net income of $18 million or non-GAAP earnings per share of $0.35 in the same period last year.
Turning to our GAAP results. GAAP net earnings for the fourth quarter of 2016 were $6.4 million or $0.11 per share compared to the $11.5 million or $0.22 per share in the same period last year.
Please refer to our earnings press release or the supplemental financial information file posted on nuvasive.com for further information related to our GAAP versus non-GAAP adjustments for both our fourth quarter and full-year performance. Adjusted EBITDA margin, which excludes the impact of non-cash share-based compensation, was 26.8% for Q4 compared to 25.9% in the same period last year.
And finally, free cash flow was very strong for the fourth quarter at $45.9 million. In addition, we delivered a record amount of underlying free cash flow of nearly $113 million for the year before paying the one-time legal settlement with Medtronic of $45 million.
We ended the year with a cash and investment balance of $153.6 million. Looking back, 2016 was a tremendous year for NuVasive.
Despite the temporary delay of XLIF sales in Japan for nearly half the year, we saw the growth of our business accelerate on a pro forma basis to nearly 10% while continuing to drive meaningful improvements in our profitability profile with non-GAAP operating margins coming in at 16.1%, well ahead of our initial expectations at the beginning of the year. In addition, we made meaningful progress in reducing our non-GAAP effective tax rate by more than 500 basis points and exceeded our initial expectations at the beginning of the year for non-GAAP earnings per share of $1.48 by $0.18 finishing the year at $1.66.
Now, I'd like to spend some time discussing guidance for 2017. We expect full-year 2017 revenue to grow double digits at 10.7% or 11.7% on a constant currency basis to approximately $1.065 billion.
Our revenue growth assumptions reflect an estimated negative impact of $10 million from currency headwinds during the year. On a pro forma basis, normalizing for a full year of NSO and Biotronic, we expect 2017 revenue growth of approximately 8% on a constant currency basis or 7% on a reported basis, which is consistent with our high single-digit growth expectations as a combined company.
U.S. spinal hardware and other revenue is expected to grow approximately 8.4%.
This growth will continue to be fueled by the adoption of iGA including iGA for cervical and our Reline posterior fixation system. In addition, we expect continued growth from the adoption of our NSO portfolio and the associated pull-through of our NuVasive products.
On a pro forma basis, we expect growth of approximately 7.7%. U.S.
surgical support and other revenue is expected to grow approximately 13% for 2017. The growth in this category is primarily driven by the addition of the Biotronic business and incremental pull-through from our NVM5 disposables.
On a pro forma basis, we expect U.S. surgical support and other to grow by approximately 3%, which is driven by the growth in our services and disposables business.
For 2017, we expect our International business to grow by approximately 16%, which includes the negative $10 million currency headwind. On a constant currency basis, we expect International to grow approximately 22% on both the reported and pro forma basis, which will continue to be fueled by markets like Italy, Germany, the UK and Australia as well as our ramp back up in Japan by the second quarter.
We also anticipate the momentum we started to build in Brazil during the fourth quarter will continue throughout 2017. Overall, we are very pleased with the performance of the International business and are confident in our ability to nearly double our current market share outside the U.S.
of approximately 4.5% over the coming years. We expect non-GAAP gross margin to be approximately 76.1% for 2017 or 50 basis points lower than the prior year.
The lower gross margin profile of the Biotronic business will create a headwind of roughly 150 basis points and will be partially offset by the progress at our new West Carrollton manufacturing facility which will deliver roughly 100 basis points of benefit in 2017. Keep in mind the benefit of our in-house manufacturing initiative will be more heavily weighted towards the back half of the year as the manufacturing benefits work through inventory and to the P&L.
We expect non-GAAP SM&A expense as a percent of revenue to be approximately 54% for 2017 or 150 basis points better than the prior year. The lower SM&A spend profile of Biotronic will benefit the year-over-year comparison by 100 basis points, while the remaining 50 basis points of improvement will be driven by incremental asset efficiencies resulting from greater utilization of our instruments.
Leveraging of our support functions and continuing to grow into the investments we've made in our International business partially offset by the investment in building out a pediatric sales channel to further increase our reach with MAGEC and its use in combination with Reline. We anticipate full year 2017 non-GAAP R&D expense to be approximately 5% of revenue, increasing more than $5 million from the previous year.
As we've said, we will continue to invest in game-changing innovation of new and differentiated products and technologies each year. We expect a non-GAAP operating profit margin of approximately 17.1% for 2017, an improvement of 100 basis points versus 2016's performance driven by the improvements and efficiency efforts we've laid out.
We anticipate full year 2017 non-GAAP interest and other expense to be approximately $21.6 million, roughly flat to the prior year. And for 2017, we expect our non-GAAP effective tax expense rate will continue to improve to approximately 35%.
We continue to be on track with our goal to achieve a tax rate of sub-30% and approaching the mid to high-20%s by 2020. It's important to note that our current tax rate expectations do not contemplate any potential impacts of tax reform.
However, we are uniquely positioned in that nearly 100% of our taxable profits reside in the U.S. today.
So we anticipate any potential tax reform, as currently discussed, would have a material benefit on our effective tax rate. In addition, the current focus of the administration on creating U.S.
manufacturing jobs and potential incentives bodes well for NuVasive as we look to add more than 200 new jobs at our West Carrollton facility in Ohio. We anticipate 2017 non-GAAP earnings per share of $2 or a 20% increase over our performance in 2016.
From a GAAP perspective, we anticipate EPS of $1.16 for 2017. And you can find further details of our GAAP expectations on nuvasive.com or in today's press release.
Lastly, a quick note on the first quarter of 2017. As a result of the acquisitions of Ellipse Technologies and Biotronic in 2016 as well as the re-launch of XLIF in Japan, we expect that seasonality in our business may be a bit different than historical NuVasive averages.
Therefore, to provide greater clarity in terms of expectations and for your modeling purposes, we anticipate that revenue for the first quarter will be approximately $250 million. In addition, from a profitability perspective for the first quarter, we anticipate the continued ramp-up of production in West Carrollton and the re-launch of XLIF in Japan will create a headwind on non-GAAP operating margins in the quarter.
As a result, we expect non-GAAP operating margins will be roughly 14.1% in the first quarter or in line with the prior year in non-GAAP earnings per share of $0.37. In closing, we couldn't be more excited as head into 2017.
I'm extremely pleased with the significant progress we made in 2016 as we accelerated the growth profile of the top line while continuing to deliver against our profitability goals with operating margins coming in ahead of expectations. The acquisitions we made last year are on track to deliver the financial expectations we established.
We're taking market share from our competitors. We're investing in both our internal and external pipeline to generate and deliver new technology innovations.
And we continue to make progress on the 1,000 basis points of improvement in our margin profile that we've outlined for the past two years. As I've always said, we will continue to manage the business efficiently and prudently by continuing to deliver high single-digit top-line growth, continued expansion in our non-GAAP operating margin and significant growth in our non-GAAP earnings per share.
Thank you. And we'll now open the call to Q&A.
Operator
Thank you. We will now be conducting a question-and-answer session.
Our first question comes from Matthew O'Brien from Piper Jaffray. Please go ahead.
Matthew O'Brien - Piper Jaffray & Co.
A couple of questions. I know we're supposed to stick to one.
But I'll ask both of these together and then listen to the response. But, Quentin, as far as guidance goes, it sounds like organic constant currency in 2016, 8.7%, going to 8% for 2017, although it seems like there's a lot of tailwind that you have to the business; is there something specific there?
Is it the $5 million Ellipse order that's the delta there as far as why it's modestly decelerating? And then secondly, on the tax rate side.
Just given the International strength, I thought we might see a little bit more improvement in that metric. So if we're not going to see it for the full year, should we expect it to be sliding meaningfully lower as we exit 2017?
Thank you.
Quentin Blackford - NuVasive, Inc.
Yeah. Thanks, Matt.
So with regard to the first question, when you look at the full year, certainly that order that came in late in the quarter related to MAGEC that I spent some time talking about was about 50 to 60 basis points on the growth rate. So if you were to normalize that, our growth is sitting right around 8.5%, a little bit north of that in terms of percentage growth year-over-year, which would be right in line with where we ultimately grew on a pro forma basis in 2016.
So I think when you normalize for that, you'd find a growth rate that's pretty comparable year-over-year. And to your point is there are a lot of tailwinds that we look at as we head into this year.
But we're certainly not going to get ahead of ourselves with respect to seeing those play through until they actually start to play through. And we can get into the details of what those are.
But we feel very good about those things. With respect to the tax rate, the tax rate is coming down almost 200 basis points, which is pretty consistent with the way we've laid that out over the last year or so when we started to talk about the longer-term planning effects that we had in place.
The temporary delay of XLIF in Japan certainly pushed some of that out and impacted us by about 1 point on the rate in 2017 just because of that delay. But we'll see that start to come back in the future years.
And again, we're still on track to get into the high 20s by 2020 absent any potential reform. But I would just highlight, given our unique position, any reform that you do see come through on the domestic side of things is going to benefit us to a significant degree as 100% of our profit still sit in the U.S.
So things remain on track and we're excited about what we're going to see on the tax side.
Matthew O'Brien - Piper Jaffray & Co.
Thank you.
Operator
Our next question comes from Richard Newitter from Leerink Partners. Please go ahead.
Richard Newitter - Leerink Partners LLC
Hi. Thanks for taking the questions.
Just following up to an asked question. As we think of some of the tailwinds, some of them are new product related.
It also sounds like you're finally starting to see that momentum hit from the Brazil distributor acquisition you did last year. You've got Japan coming online for a whole year contribution in 2017.
Can you maybe just go through those three that I just mentioned and kind of give us a sense for what the incremental year-over-year contribution could be there? Because it sounds like, based on your answer to the last question, you're trying to start off the year conservatively.
But if some of those incremental drivers kind of hit the way – even in a base case, there should be upside. Can you just help us think through what does Brazil contribute incrementally, what does Japan for a full year incrementally do for you?
And then maybe some of these new products, when can we see the contribution?
Quentin Blackford - NuVasive, Inc.
Yeah. So around Japan, I think we were pretty clear.
In the fourth quarter, that was about a $6 million impact that we saw on that business. And to the comments earlier, we started to launch that again nearing Q1.
The proctors are doing cases. And we would expect to be back up to kind of that full ramp up you used to see in the second quarter.
If that were to accelerate, obviously, there's upside to it. But you can kind of do the math in terms of how we framed it up with $6 million of impact back in the fourth quarter.
On Brazil, I think we all know that did not start as quickly as we had hoped when we came out of the gates back in the second quarter of last year. We started to see that turn in the fourth quarter.
And so we haven't quantified exactly what that looks like in 2017. But the last time we talked about those impacts in Brazil, we were talking about them being a $3 million to $4 million impact on a quarterly basis on a direct sales model.
They used to be a distributor of ours, so it's about half of that. But that's what we're looking to getting back to.
And to the extent we can ramp more quickly, there's upside to that. I think the other things that you start to look at from a pull-through perspective and that we're just not going to get ahead of ourselves yet on is if you look at MAGEC with Reline, you'd look at some of the new products that are coming out this year with the small stature product line that opens up the four or five rod capability; that becomes exciting to us.
And we haven't seen those benefits yet. But we're going to wait to see them play through before we start to roll them into the results.
I think the same could be said for the NVM5 disposable business on the Biotronic acquisition. We're just getting into the early stages of penetrating that pull-through opportunity.
So as we see that play out and if we can replicate what we saw in the IMI business, which we're penetrated north of 20%, moving towards 30% and onto 40%; we haven't contemplated that kind of penetration yet in Biotronic. So to the degree that we can replicate that, there's where you have the upside opportunities.
But again, from our perspective, we're going to wait to see those play through before we start to roll those into our numbers.
Richard Newitter - Leerink Partners LLC
Okay. That's really helpful, Quentin.
So it sounds like you guys kind of have a lot of levers that are out there that are getting fully baked into your guidance. And then maybe just one follow-up.
I think you had mentioned a combination product of LessRay and MAGEC somehow combining to address trauma fractures. Did I hear that correctly?
Is that new and when can we (37:43) potentially hear more about that?
Gregory T. Lucier - NuVasive, Inc.
Yeah. This is Greg.
I think you might be referring to the UNYTE product, which is a new product coming out of NSO. And think of it as almost the opposite of PRECICE.
So where PRECICE lengthens the bones in the legs, this actually compresses them and is an alternative to external fixation which is the normal protocol for hard-to-heal fractures. We're very excited about the product.
And we think it ultimately could obsolete the entire external fixation market.
Richard Newitter - Leerink Partners LLC
Sounds exciting, okay. And when is that going to launch?
Gregory T. Lucier - NuVasive, Inc.
That launches this year in the next two months.
Richard Newitter - Leerink Partners LLC
Okay, thank you.
Operator
Our next question comes from Kaila Krum from William Blair. Please go ahead.
Kaila P. Krum - William Blair & Co. LLC
Hey, guys. Thanks for taking my questions.
So you've talked a lot about an uptick in sales rep hires. And without giving us exact head count numbers, can you just give us a little bit more granularity as to the percentage growth you saw in your sales force for the full year 2017 just relative to what you've seen in 2016 or 2015 – I'm sorry, in 2016 relative to what you saw in 2015 or 2014?
And then it doesn't sound like you're modeling a substantial contribution from pretty much anything outside of the core growth. But just to be clear how you're incorporating that accelerate there.
Gregory T. Lucier - NuVasive, Inc.
So in terms of percent, in terms of head count additions domestically, let's call it, 15%. And then Jason's here, in terms of international head count growth on the field sales force would be about -
Jason M. Hannon - NuVasive, Inc.
Pretty similar, maybe closer to 20%, but pretty similar to U.S.
Gregory T. Lucier - NuVasive, Inc.
Yeah. So you could see we're scaling the frontline organization to support strong double-digit growth into the future.
Kaila P. Krum - William Blair & Co. LLC
And then I guess just relative to kind of what you saw in 2015?
Gregory T. Lucier - NuVasive, Inc.
2015, I'd say, was probably 5%. We really perfected our approaches, our kind of framework for building out the frontline through 2016.
Kaila P. Krum - William Blair & Co. LLC
Okay, that's helpful. And then I'd love to talk just a little bit more about LessRay just to get an update on your thoughts there.
I know you mentioned it would launch within the next couple of months. But can you just talk a little bit more about the selling process there or how we should think about sizing that potential opportunity?
Jason M. Hannon - NuVasive, Inc.
Sure. This is Jason.
So LessRay will launch in the next couple of months. It'll launch – think of it in two phases generally.
Initially, it will launch on its own. And so the selling process is a small piece of capital equipment that is launched on films (40:46) to reduce radiation in the OR.
That will be a limited process through the course of 2017. Ultimately, LessRay will be incorporated into our larger capital unit that's placed into the operating room.
That's the longer-term strategy and that's the real expansion opportunity for LessRay over time.
Kaila P. Krum - William Blair & Co. LLC
Okay, that's helpful. Thank you.
Operator
Our next question comes from Josh Jennings from Cowen & Company. Please go ahead.
Joshua Jennings - Cowen & Co. LLC
Hi, good evening. Thanks for taking the questions.
I was hoping to just start off just on iGA and just ask a question. Historically, there's been the potential to reduce instrument sets per case and potentially enhance the margin profile of the hardware unit.
Can you just talk about where we are in terms of that storyline for iGA?
Gregory T. Lucier - NuVasive, Inc.
Jason and I can Frick and Frack on that one. I would say we're still in the very beginning stages of driving iGA adoption as a tool to do pre-surgical planning.
And so therefore, the very idea you spoke about to then have it tied to the production of more patient-specific implants is still ahead of us. So it has no impact yet on our financials.
And I would say it's more towards the 2019-2020 timeframe to start impacting the financials. Jason, anything you would add?
Jason M. Hannon - NuVasive, Inc.
No, just that we are actively building the operational capability to fulfill the reduction of inventory needed to put into the room. But ultimately, you have to drive the practice of electronic surgical planning so that we can communicate that information back.
And that's a slightly commercial process to get that done over the next couple of years.
Joshua Jennings - Cowen & Co. LLC
Okay, thanks for that. And I just wanted to follow up on Ellipse.
And just any updated thoughts on the market opportunity for the MAGEC rod specifically? And then just on 2017 guidance with the historic accretion that you had put on the table at the time of the acquisition, is that baked into 2017 guidance?
And is Ellipse accretive or dilutive to margins in 2017? Thanks so much.
Gregory T. Lucier - NuVasive, Inc.
Yeah, you bet. So the MAGEC rod will have another very strong year of growth in 2017.
I think there are a number of growth drivers, the first being that the full integration of our small stature Reline system with MAGEC will be out in the course of 2017. And then second, we mentioned it in Quentin's script.
We're building out a pediatric sales force to focus on the unique needs of pediatric surgeons that are different than adult degen or adult deformity surgeons. They kind of do it all.
They do spine surgery; they do orthopedics. And so we're building out a channel to sell to them both PRECICE and the spine system I just referenced.
We think that's also going to have a nice impact on growth. So, Quentin, about the accretion or dilution of Ellipse Technologies.
Quentin Blackford - NuVasive, Inc.
Yeah. So, Josh, over the course of 2016, as we had indicated when we did the deal, it was about 60 basis points dilutive.
As you come into 2017, it'll be neutral. And you'll see it start to be accretive in the back part of the year.
But for the full year, it will be neutral and then accretive going forward. Certainly from an EPS perspective, it's been accretive from day one.
But on the operating margin and as a percent of revenue, it was a drag in 2016 as we had believed it would be.
Joshua Jennings - Cowen & Co. LLC
Thanks again.
Operator
Our next question comes from Matt Miksic from UBS. Please go ahead.
Matt Miksic - UBS Securities LLC
Thanks for taking our questions. So I want to just follow up on LessRay and then I had one kind of market, industry kind of tone question for you.
But on LessRay, your comments about the sales model; it's obviously a system that offers a benefit similar to some of the robotic surgery platforms out there in terms of reducing exposure to radiation. And I'm just wondering – you mentioned it's a capital sales opportunity initially and then integrate it into your M5 platform over time.
Can you give us any sense of how you're valuing this in the marketplace or how you'll commercialize it once it gets integrated? And then, as I mentioned, just one quick follow-up.
Gregory T. Lucier - NuVasive, Inc.
So yeah, think of it as initially it's a small capital sale item and it's primarily focused on radiation reduction as you described. The difference is significant though when you start to compare it to other visualization robotic systems on the market.
It doesn't just do radiation reduction. Since it's built on imaging, it has capability of adding significant imaging capabilities to the system.
So when we add it into our capital platform over time, over the next year to two; you start to marry it directly to the imaging platform. The software that's being run to reduce radiation is the same software that's being used to generate the images and married with the navigation images.
So it works seamlessly with what will become our navigation imaging. And then ultimately, that becomes the brain for a robotics platform, all with the ability to not just reduce radiation because you're taking less shots because you're using a robot or navigation, but because you can actually reduce the radiation of the shots you actually take in the room.
So it's designed to work seamlessly with what becomes the entire navigation platform.
Matt Miksic - UBS Securities LLC
Now that's excellent. So kind of blending iGA being – the lines between this and iGA are going to start to blur, I guess we should expect?
Gregory T. Lucier - NuVasive, Inc.
You may call it blurring. We call it coming into perfect focus.
Matt Miksic - UBS Securities LLC
Got it, okay. So the other was just on – it's not something we often think about or hadn't thought about with the ACA over the past couple of years.
But most medical device manufacturers had the take that they hadn't benefited much. And so regardless of what might happen, they might not lose much if coverage is disrupted.
But you – of course, spine skews to a younger patient. And I'm wondering – whether it's private pay, whether it's thoughts on ACA, just your general thoughts on coverage, what you're seeing if there are any changes and what you might expect if there were to be some changes in terms of ACA or reforms?
Gregory T. Lucier - NuVasive, Inc.
It's a topic we've been spending a fair amount of time on over the last months. And your conclusion that probably isn't going to have much impact on us as a company is how we see it as well.
We think the bigger changes will happen in terms of changing the risk pool to allow this more ubiquitous coverage, insurance coverage of people. And that can only be good for us.
But that's a problem that has to get solved. And then, obviously, the prescription drug dilemma and it's completely – a very complicated approach with rebates will probably be the other area of focus of change.
We don't see any big disruption to the ongoing progress of bundled payments, capitated payments, companies like ours potentially going at risk. We like that direction.
And again, we don't see that changing because that's going to be needed to continue to drive changes in the economics. So all-in, we'll see what happens.
But we think net-net we're going to be just fine.
Matt Miksic - UBS Securities LLC
Great. Thanks for the color.
Operator
Our next question comes from Andrew Hanover from JPMorgan. Please go ahead.
Andrew Ronald Hanover - JPMorgan Securities LLC
Thanks for taking our question. I wanted to spend one second on Biotronic and its integration.
And, first, I wanted to just talk about the market overall, how quickly is the market growing on a reported basis or organic basis? However, you know it.
And then, can you talk about sales rep productivity improvement as a result of having the service-oriented business?
Gregory T. Lucier - NuVasive, Inc.
I think what we said and has certainly borne out to be true, it's in line with the current growth rate of our hardware implant business. And so, we think that is good.
We think that we can get the operating margins more in line with our implant business, so that's good. The big opportunity is, as you say, the opportunity to have a more complete holistic coverage of the operating room, both in terms of solutions, but also productivity that we can figure out even new models of servicing the case than other people can or other companies can.
That work is still ahead of us. And so, I'd say 2017 is all about driving the integration, driving the economics on the platform itself, but we have more productivity to get and more opportunity to get in 2018, 2019 as we do even tighter integration with our commercial teams.
Andrew Ronald Hanover - JPMorgan Securities LLC
On the ped deformity system that you are supposed to launch in May, I just wanted to get an idea of how the Street should be thinking about the launch of that. You had deformity season in the second and third quarters.
You typically have or had in the past – have a weaker, on a quarter-over-quarter basis, third quarter. So should we be expecting the same type of seasonality second to third quarter or how should we be thinking about that launch?
Gregory T. Lucier - NuVasive, Inc.
Yeah, I wouldn't expect that launch to change historic seasonality at this point. Let's get it out in the market, let's see how it performs.
And then potentially, we're looking at it a little bit differently. But at this point, in terms of how you're thinking about modeling the year and setting it up, I would say let's look at historic seasonality and expect something comparable.
Operator
Our next question comes from Matt Taylor from Barclays. Please go ahead.
Matthew Taylor - Barclays Capital
Hi. Thanks for taking the question.
Hear me okay?
Gregory T. Lucier - NuVasive, Inc.
We hear you fine.
Matthew Taylor - Barclays Capital
Great. Thanks.
So I wanted to follow up on some of the stuff you're talking about with the NSO portfolio, getting exciting there. I think you have a claim that you could displace a lot of external fixation is the really a strong one.
So I guess starting with that, I'm really wondering if you think that's going to happen over a long period of time? How much investment that takes?
Does that need a lot of data like you have with the cordless (51:57) portfolio or do you think the results you're getting are just so much better that it might create an earlier inflection? Maybe you can help us frame that.
Gregory T. Lucier - NuVasive, Inc.
I think it's something that's going to play out over the medium-term. As we all know, doctor practices, medical practices don't change that rapidly.
And so, we're going to launch the product this year. We're going to get a lot of good clinical data as we've done that.
And we think that we'll have good penetration over the next several years. Just on a more empirical basis though, I mean it has the potential to solve a lot of the problems that have plagued the external fixation for these hard-to-heal fractures in terms of, as you know, surface penetration, skin penetration that causes infections, very clumsy in terms of the ability of the person to have a normal kind of functioning life while they're having this fixation.
A lot of those problems are alleviated with this UNYTE technology. And as you said, it's a great example of why we bought the company, because it has a chance to completely re-think the orthopedics industry.
Matthew Taylor - Barclays Capital
Great. And just a housekeeping kind of follow-up question.
So, Quentin, if you had the $4.8 million order and beat revenue on that, how come we didn't see as much of a difference in EBIT? Was that lower margin, because it was a charity or was there something different there?
Quentin Blackford - NuVasive, Inc.
Yeah, it was a very low margin. I mean, what ultimately went into that order as well was the controllers or the ERC controller, which is the hardware that can extend the magnet themselves.
We typically would not include that as we loan those out. So that was part of what weighed upon the economics.
But just to be clear, that order is not what allowed us to beat on the quarter. When we set up the quarter back at the end of Q3, we came in at $261 million with the guidance.
The performance in the underlying business would have left us at about $266 million on the quarter, and then with that order, take you to $271 million. So without that order, the underlying performance of the business is really what drove the outperformance or the beat to make sure people understand that.
Matthew Taylor - Barclays Capital
Got it. Okay.
Thanks very much.
Operator
Our next question comes from Kyle Rose from Canaccord. Please go ahead.
Kyle William Rose - Canaccord Genuity, Inc.
Great. Thank you very much for taking the question.
Just wanted to go a little more big picture OUS. Obviously, you've showed a very strong return to growth in Europe.
Japan has been a great success story and it sounds like Brazil is on track. Just wonder when you think about doubling OUS market share over the coming years, I mean, how do you think about that as more of a going deep within existing territories or adding new territories, converting over distributors to direct territories and just how should we think about that growth?
And then, just secondly, it sounds like sales rep hiring has obviously been strong this year. Longer term, historically, how have you seen the productivity ramp of new sales rep hires, and how should we think about this new class of hires with the big growth over 2016?
Thank you.
Gregory T. Lucier - NuVasive, Inc.
So start with the International business overall, the largest markets, the markets where our technologies have the greatest impact and can change surgery are the markets where we're direct and you hit some. They're the Western European markets, it's Japan, it's Australia, it is now Brazil.
Those are going to continue to be the primary drivers for us. To get all those markets to 10%, 15%, 20% market share is the primary focus, and that's going to drive the majority of our growth.
When you get beyond those markets, then it is about finding the areas where we've been successful with our distributors, maybe converting some of those distributors and getting closer to the market directly. That's how we bring our best pieces of technology to bear the closer we get to market, because the investment profile is easier for us to deal with.
And then selectively entering new markets, what really is the third tier. We don't want to be in every market in the world.
It'll pull us and stretch us too thin. We want to be deep in the markets we enter.
So it's selective market entry as the third piece of the strategy.
Quentin Blackford - NuVasive, Inc.
Yeah. And then, with respect to your question on sales rep productivity and the ramp there, I think historically and just looking at our past, it would tell a rep is usually going to take 12 to 18 months to really ramp up and come into their own in our business, but I think it's fair to look at the profile of the reps that we're hiring, and Greg talked about this a little bit, much more seasoned tenured guys.
We're certainly hopeful that we would see that play out even more quickly than what history would suggest. But in terms of how we think about modeling is we've stuck with what history have told us.
So we'll see how the year shapes up, but we're excited about what we're seeing there.
Kyle William Rose - Canaccord Genuity, Inc.
Great. Thank you for taking the questions.
Operator
Our next question comes from Jeff Johnson from Robert W. Baird.
Please go ahead.
Jeff D. Johnson - Robert W. Baird & Co., Inc.
Thank you. Good evening, guys.
So let me ask two Ellipse questions and then one bigger picture question. So on Ellipse, Greg, any update on go-to-market strategy on the trauma side just with the UNYTE and PRECICE now filling out that bag a little bit, are you going to still go alone at this point or any update there?
And then, I just want to maybe cynically make sure I understand the charitable deal, low level of profit for you guys. They get a $4.8 million tax right off probably from charity standpoint.
They also get a $30 million milestone on this. It just seems a little bit strange to me, but maybe I'm missing something there.
Gregory T. Lucier - NuVasive, Inc.
So first part of the question I'll grab and then, Quentin will take second half. In terms of the PRECICE technology, as I said for pediatrics, we're going to over time have a pediatric channel be formed.
It will take us some time to do that, but as we're hiring our own people and teaching them how to do PRECICE, MAGEC, Reline, we think that's going to be a nice recipe for growth. In terms of PRECICE for the adult markets, we continue to go at that direct and with distributors.
And I would just say that we're contemplating a bigger play on how we can make adult PRECICE having a deeper penetration. So we're thinking about that one to a greater degree.
And certainly with the UNYTE product, which is certainly adult-oriented, that gives even more tools in the bag from which somebody can sell. And so, we're creating a pretty good product line that others or ourselves could invest in and bring the market on the adult side.
Quentin Blackford - NuVasive, Inc.
And, Jeff, yeah, good question on the MAGEC or the $4.8 million. I think without question there is a need in the marketplace around the charitable aspect of children who don't have access to this kind of care and this was an entity that was set up with the intention of fulfilling that need.
Certainly, you hit on the point that it did trigger at the end of the day the $30 million contingent consideration. I want to just be clear.
When the order came through, that was not the case. They were not at that milestone.
Yeah, so there was incremental procedures and orders that were coming together to make that happen. So at the end of the day you look at the order, and we had a requirement under the merger agreement to certainly act in good faith.
And when you look at the details of the purchase order, what it's for, the fact that it's been an arm's length transaction, it was prepaid, all of those facts lined up to where had we not accepted it for the simple case of not wanting to trigger the $30 million, we certainly would have been operating in bad faith, and that wasn't something we wanted to do. So at the end of the day, look, it's a great positive that's been set up for, (01:00:03) we're hopeful to see that continue into the future, continue to support it.
But ultimately, that's kind of the fact around the situation.
Jeff D. Johnson - Robert W. Baird & Co., Inc.
Understood. And then, Greg, maybe could you give us a tangible example maybe of how that your risk sharing and outcomes focus might be helping at this point?
You mentioned a couple of different channels there, but I'd love to hear maybe a tangible example or two of where that's coming together and really starting to help the business.
Gregory T. Lucier - NuVasive, Inc.
Just a good example would be a Midwest-focused spine hospital where we're doing procedural pricing. And so, within a range of procedure of bill of goods, the customer gets basically a fixed price.
So if more is required, we eat it. If less is required, we get a benefit.
What the customer, the hospital gets in this case is predictability. And given our knowledge of the surgeries and the variation that you see in patients, we feel very good on actuarial basis to be able to provide that type of kind of certain payment or procedural payment.
So that's an example of it and we're going to see a lot more of those models in the future, and we like that. We think that creates more separation between us and for sure a lot of the smaller spine companies.
And we have other ideas ahead of that, too, but we'll save them for another day.
Operator
Our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead.
Larry Biegelsen - Wells Fargo Securities LLC
Hey, guys. Thanks for fitting me in.
Two questions, one on M&A for Greg, and then one on the operating margins. So, Greg, you took disciplined capital deployment for strategic M&A off the slide of reasons to invest in NuVasive in the fourth quarter deck.
So the question is why and does it mean you're going to take a pause from M&A in 2017? It doesn't sound that way based on your earlier comments.
And then, I just had one follow-up.
Gregory T. Lucier - NuVasive, Inc.
You know what, Larry, I'm not sure what you're referring to, but certainly in my script, and I'll reiterate it here. What I did say is that we'll take a very disciplined approach to M&A as we have done so far.
And so, I'm not sure what you're referring to on the slide though. That's missing.
Larry Biegelsen - Wells Fargo Securities LLC
All right. Fair enough.
So it's related question for my follow-up. About a year ago at the December 2015 Analyst Meeting, you guided to an operating margin of 20% with $1 billion in sales, but in 2017 you're guiding to over $1 billion in sales, but an operating margin of 17%.
And obviously, I think what changed was the Biotronic acquisition. So it does seem like you're willing to sacrifice some of those margin goals, at least, short-term for M&A.
And so the question really is, when do we get to that 20% that you outlined about a year ago? And you put out a number of 25% for the long-term operating margin goal.
Any color on the progression to that? Thanks for taking the question.
Quentin Blackford - NuVasive, Inc.
Yeah, Larry, this is Quentin here. And you're referring to the Analyst Day back late Q4 of 2015, I believe it was, which is prior to the Ellipse deal and prior to the Biotronic acquisition that we made as well.
And at that point in time, if you were to use the guidance or the growth expectations that we put out there as being a mid single-digit grower, you would have modeled $1 billion revenue stream and a 20% operating margin out around 2018 or 2019. So we would have got to that $1 billion mark far further into the future than where we're at today.
So we've accelerated the overall growth profile of the company while continuing to maintain our commitment to improving the operating margins, which we did again this year. And I think if you go back and you look at your models, you'd find pretty clearly that we're delivering more incremental operating profit dollars today in the path that we're heading down than what you ever would have modeled at that point in time.
So I think we're probably a year to two years ahead on the operating profit dollar side of things, but you're right. From a margin perspective, at that time, we had guided to something that would have put you at 20% of $1 billion, but it would have been two years from now.
So that was before the M&A that was out there and we remain committed on the M&A side. We're going to do deals that have the potential to accelerate the top line, but also meet the long-term margin goals of the company, which is to get to 25%.
And we're committed to 100 basis point per year again in 2017 that we put out for you.
Larry Biegelsen - Wells Fargo Securities LLC
All right. No color on the 25%, Quentin?
Quentin Blackford - NuVasive, Inc.
Well, I think the way to think about it in, at least the way we framed it up is 100 basis point a year is the way to think about it, but if you look at the last several years, we've consistently been ahead of that. So I'm not going to put a timeframe on exactly when it will be, but our focus is to get there as quickly as we can.
Larry Biegelsen - Wells Fargo Securities LLC
Got it. Guys, thanks for taking the questions.
Operator
Our next question comes from Joanne Wuensch from BMO Capital Markets. Please go ahead.
Joanne Karen Wuensch - BMO Capital Markets (United States)
Good evening, everybody. And thank you for taking the question.
Two of them, specifically; one is a big picture question. Every now and then the larger competitors such as Medtronic and J&J do some sabre-rattling that they're going to accelerate their growth rate and stop losing market share.
Have you seen any of that in the market as you compete?
Gregory T. Lucier - NuVasive, Inc.
Well, we certainly didn't see it in the fourth quarter. So we've heard that as well.
We remain humble about what we're doing and respectful of the competition. But as I tried to emphasize in my prepared remarks, we think we have the right formula here of being very focused on what we do, very fast in our response to the market, and I think it's just difficult for perhaps other large organizations to have that nimbleness.
Joanne Karen Wuensch - BMO Capital Markets (United States)
My second question has to do with what happened in the third quarter as it relates to capital sales. I know it's not a big number, but it was one of the reasons we also took a pause in the third quarter.
Have you changed anything internally so that you don't get surprised or don't have that sort of moment again in the future?
Gregory T. Lucier - NuVasive, Inc.
So I'd say, just the rigor around vetting each one of those opportunities directly with sales team, understanding what the pipeline looks like and where we're at in the close process with respect to each one of those deals is something that we're now reviewing on a weekly basis. That weekly rigor wasn't there before.
So we do continue to look for ways to get better and improve upon what we do and that is one of the practices we put in place.
Joanne Karen Wuensch - BMO Capital Markets (United States)
Fair enough. Keep up the good work.
Bye-bye.
Gregory T. Lucier - NuVasive, Inc.
Thank you, everybody. Thank you for participating today, and we look forward to speaking with you at the next quarter.
This concludes the fourth quarter and full year 2016 earnings call.