RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics, Inc. (RTIX)

Q4 2012 Earnings Conference Call

February 7, 2013 08:30 ET

Executives

Wendy Crites Wacker - Director, Corporate Communications

Brian Hutchison - President and Chief Executive Officer

Rob Jordheim - Executive Vice President and Chief Financial officer

Tom Rose - Executive Vice President and Chief Operations Officer

Carrie Hartill - Executive Vice President and Chief Scientific Officer

Analysts

Bill Plovanic - Canaccord

Matt Hewitt - Craig-Hallum

Matt Dolan - ROTH Capital Partners

Dave Turkaly - JMP Securities

Jayson Bedford - Raymond James

Raymond Myers - Benchmark

Bruce Jackson - Northland Capital Markets

Brian Gagnon - Gagnon securities

Presentation

Operator

Good day, ladies and gentlemen and welcome to the RTIX Fourth Quarter and Year End Earnings 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 is being recorded.

I would now turn the call over to your host Wendy Crites Wacker. Please go ahead.

Wendy Crites Wacker

Good morning and thank you for joining RTI Biologics for our fourth quarter and year end 2012 conference call. Today we will hear from Brian Hutchison, President and Chief Executive Officer, and Rob Jordheim, Executive Vice President and Chief Financial officer. Also joining us this morning for Q&A are Tom Rose, Executive Vice President and Chief Operations Officer, and Carrie Hartill, Executive Vice President and Chief Scientific Officer.

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’ll turn the call over to Brian Hutchison.

Brian Hutchison

Good morning everyone. Thank you for joining us. On our call today, I will discuss our operating highlights and then Rob will review our financial results. I will follow up with financial guidance for 2013.

Let me start by saying that we are pleased with the progress we made on our financial and operational goals in 2012. Our growth in the year was driven primarily by solid performance in our dental, BG/SGO, and sports medicine businesses. We improved our financial position from the beginning of the year and our results met or exceeded expectations each quarter. Beyond that, we continued to position the company for long-term performance.

As detailed in our press release issued this morning, we reported fourth quarter revenues of $44.6 million meeting our fourth quarter guidance of $44 million to $45 million. We achieved record annual revenues of $178.1 million, an increase of 5% from 2011 and meeting our annual guidance of $178 million to $179 million given at the beginning of Q4, 2012. When reviewing each of our lines of businesses, our direct sports medicine business had quarterly revenues of $12.6 million, a decrease of 5% compared to last year. The decline in this business in the fourth quarter was the result of customer reaction to the FDA warning letter received in October of last year.

Unanticipated publicity and aggressive marketing tactics from certain competitors created confusion around the content of the letter for many of our customers. This impacted our revenues at the end of the fourth quarter. We are actively communicating with our customers to keep them informed and provide them with accurate information. We will systematically address each customer’s concerns to ensure they are confident in our implants. Later, I will give more detail on where we are with the warning letters today.

For the full year, sports medicine grew 6% over 2011. This is the seventh consecutive year of growth for our largest business. As we begin 2013, we are seeing continued negative impact on this business related to customer reaction to the warning letter. We expect this will continue in the first half of 2013 and should largely be resolved when we receive a formal close-out letter from the FDA. At this time, we anticipate sports medicine will grow low single-digits for the full year 2013. The majority of this growth will occur in the back half of the year.

Fourth quarter spine revenues increased 19% compared to fourth quarter 2011. The increase was primarily related to growth from most of our large distributors offset by declines from smaller distributors. For the full year, the spine business declined 2% compared to 2011. The decrease for the full year was primarily related to inventory adjustments from certain distributors partially offset by an increase in orders due to product launches and replenishment of stock from our largest distributors in the year. At this time, we anticipate our spine business will mirror the spine market for 2013 which continues to be flat. Fourth quarter surgical specialty revenues decreased 13% compared to fourth quarter of 2011. The decrease in revenues was due to decline in hernia revenue as our commercial distributor is focusing more on xenograft for hernia repair. The decrease was offset by growth in breast reconstruction urology and ophthalmology.

For the full year 2012 surgical specialty revenues increased 2% over 2011. Moving forward in surgical specialties we will be co-exclusive with our distributor in human dermis for the hernia market. Starting in the first quarter of 2013, we will begin direct distribution of these implants through our newly developed distribution force surgical specialties. We have the leadership in place and have been hiring and training new biologics reps, this team will be introducing new biologics portfolio for hernia repair which includes the human dermis implant and our bovine pericardium implant this March at the American Hernia Society meeting in Orlando.

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