RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics Inc. (RTIX)

Q4 2008 Earnings Call

February 20, 2009; 9:00 am ET

Executives

Brian Hutchison - Chairman & Chief Executive Officer

Tom Rose - Executive Vice President & Chief Financial Officer

Wendy Crites Wacker - Director of Corporate Communications

Analysts

Dave Turkaly - SIG

Keay Nakae - Collins Stewart

Matt Dolan - Roth Capital

Bill Plovanic - Canaccord Adams

Brooks West - Craig-Hallum Capital

Jayson Bedford - Raymond James

Presentation

Operator

Good day and welcome to the RTI Biologics Inc., fourth quarter 2008 results conference call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Ms. Wendy Crites Wacker, Director of Corporate Communications. Please go ahead ma’am.

Wendy Crites Wacker

Good morning and thank you for joining RTI Biologics for our fourth quarter and year end 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 Hutchison.

Brian Hutchison

Good morning everyone. I’m sure most of you’ve seen our press release this morning and many of you also joined us for our preannouncement on January 16. 2008 has been a very challenging year for many, including RTI Biologics as we spent most of our efforts completing our merger with Tutogen Medical and concentrating on a successful integration.

We have achieved quarterly revenues of $37.4 million, slightly better than what was announced in our January call. Primarily due to a non-cash impairment charge to our goodwill, we reported a net loss for the quarter of $102.5 million or $1.89 per fully diluted share, based on 54.1 million fully diluted shares outstanding.

As a result of recent external economic conditions and related volatility of organic stock prices, as well as the decline in our market cap, we performed a goodwill impairment test as of December 31, 2008. This test resulted in a non-cash charge in the fourth quarter of $103 million. When excluding this impairment charge along with purchasing line adjustments and restructuring charges, adjusted net income was $1.1 million or $0.02 per fully diluted share.

For the full year ended December 31, 2008 we achieved revenues of $146.6 million as we stated in our January call. Again, primarily due to the non-cash impairment charge to our goodwill, we reported a net loss for the year of $100 million or $2 per fully diluted share based on $49.9 million fully diluted shares outstanding. If you remove the purchase accounting adjustments, restructuring charges and the impairment charge, we achieved an adjusted net income of $5.1 million or $0.10 per fully diluted share.

Certainly the macroeconomic climate, as well as slower growth anticipated in the medical device industry is a concern for many investors. As a company, we are taking action by controlling our expenses and we have no major investments required and we do not need to raise cash in the near future.

Earlier this month we announced almost $12 million in new financing agreements with Mercantile Bank. The new financing agreements consist of a $1.8 million term loan and a $10 million line of credit facility. For these reasons and more, we believe we’re in a relatively strong position to weather the economic storm and execute on our plan.

Let’s drill down on each of our major lines of business a little further. Spine results were good for the fourth quarter, but were disappointing for the year. However, we did achieve a significant diversification in our portfolio. Our largest buying distributor represented 85% of spine revenues in 2008 compared to 94% in 2007.

To further this diversification, last week we announced a new development and distribution agreement with Aesculap Implant Systems for spinal Implant. With each of our spine distributors, we are evaluating our already developing additional new spine grafts, which will launch in the next 12 months.

As we discussed in our January guidance call, based on conversions with our customers, the uncertainties anticipated in this area will be somewhat offset by new implant offerings on target for launch in the year. Sports medicine although down for the fourth quarter achieved more than 30% growth in revenues, compared to the previous year, significantly exceeding market growth rate for that area.

As we have mentioned, while we have a third quarter and a first two months of the fourth quarter of 2008 were challenging, we saw a strong performance in sports medicine segment in the month of December, which contributed significantly to overall fourth quarter. These results were positively impacted by our recent efforts to address the distribution model in this area. While we are encouraged by this activity, we will continue to monitor the current macro challenges that exist in the overall market.

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