RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics, Inc. (RTIX)

Q3 2008 Earnings Call

October 28, 2008 9:00 am ET

Executives

Wendy Crites Wacker - Director of Corporate Communications

Brian Hutchison - Chairman and CEO

Tom Rose - EVP and CFO

Analysts

Shawn Fitz - Stephens Inc.

Keay Nakae - Collins Stewart

David Turkaly - SIG

Matt Dolan - Roth Capital

Greg Brash - Sidoti & Co

Brooks West - Craig-Hallum Capital

Jayson Bedford - Raymond James

Presentation

Operator

Welcome to the RTI Biologics Incorporated third quarter 2008 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Wendy Crites Wacker. Please go ahead.

Wendy Crites Wacker

Thank you for joining RTI Biologics for our third quarter 2008 conference call. Today we will hear from Brian Hutchison, Chairman and CEO, who will discuss operational highlights and future activities for the company as well as Tom Rose, Executive Vice President and Chief Financial Officer who will provide an overview of our financial results.

Before we start, let me make the following disclosure about forward-looking statements. The earnings and other matters we will be discussing on this conference call will involve statements that are forward-looking. These statements are based on our management's current expectations, but they are subject to various risks and uncertainties associated with our lines of business and with the economic environment in general. Our actual results may vary from any statements concerning our expectations about future events that are made during the course of this meeting, and we make no guarantees as to the accuracy of these statements. Accordingly, we urge you to consider all information about the company and not to place undue reliance on these forward-looking statements. Now I will turn the call over to Brian.

Brian Hutchison

As the year continues and 2009 starts to come into focus, we are pleased with the progress that we have made since our merger with Tutogen Medical this past February. As we continue to be excited about the opportunities in the future, we have achieved quarterly revenues of nearly $39 million. Net income for the quarter was $388,000 or $0.01 per fully diluted share based on 55 million fully diluted shares outstanding.

However, when excluding purchase accounting adjustments and restructuring charges, adjusted net income was $761,000 or $0.02 per fully diluted share. For the nine months ended September 30, 2008, we achieved revenues of $109 million.

Net income for the nine months was $2.5 million or $0.05 per fully diluted share based on 50.4 million fully diluted shares outstanding. Again, if you remove the purchase accounting adjustments and restructuring charges associated with the merger, we achieved net income of $4 million or $0.08 per fully diluted share.

Let me review a few key highlights of our quarter. We achieved record revenues in surgical specialties with $5.2 million in the quarter, an increase of 78% from prior year, in large part due to a $1.3 million increase in hernia repair revenues.

We achieved above-industry growth in sports medicine, increasing revenues by 29% compared to prior year. We achieved growth in domestic dental, increasing revenues by 15% compared to prior year. We launched bovine pericardium for dental applications at the American Academy of Periodontology and American Association of Oral and Maxillofacial Surgeons meeting. We shipped initial launch quantities of new lumbar grafts for Stryker and Orthofix.

In general, given the country's macroeconomic climate, we feel RTI is in a comparably good position with our industry seeing elective, non-critical surgeries such as some dental and sports medicine procedures being postponed during this recession. We are not seeing any delays in major or critical surgeries such as sports medicine for athletes, general orthopedic and spine surgeries.

As a company, we are taking action by controlling our expenses. We have no major investments required, and we do not need to raise cash in the near future. For these reasons and more, we believe we are in position to weather the economic storm better than many other companies.

Let's drill down on each of our lines of business a little further. Spine results were again heavily impacted by lower orders for Medtronic, which declined in both the third quarter and nine-month period. As a result of ongoing discussions with Medtronic, we believe that we have reached the bottom of the ordering spectrum. Prospectively orders should grow over the next 15 months. We also plan to begin development of a new lumbar implant with them for 2009.

One of our goals with our merger with Tutogen was to diversify our business and reduce reliance on one major distributor. To illustrate this, note that Medtronic accounted for 22% of our revenues for third quarter 2008, but accounted for 47% for the same period of 2007.

For the nine months, Medtronic accounted for 23% of our business, but accounted for 49% the same period in 2007.

We are pleased with the progress we had with spine distributors, we brought on in the past 18 months. The impact of lower orders from Medtronic is being offset by the progress we are making with our new spine distributors.

In the third quarter spine revenues from Zimmer, Stryker and Orthofix/Blackstone accounted for $2.5 million. In the third quarter, we launched new lumbar designs with both Stryker and Orthofix as we continue to broaden the allograft portfolio of each of our spinal construct distributors. We are on track to deliver another cervical construct for Zimmer Spine, which should have an initial shipment in Q4 with the remainder in 2009.

With each of our spine distributors, we are evaluating or already developing additional new spine grafts which we will launch in the next 12 months. After a difficult transition this year, we anticipate that our spine business will start to grow again in 2009 with a much diversified platform.

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