RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics Inc. (RTIX)

Q1 2009 Earnings Call Transcript

April 29, 2009 9:00 am ET

Executives

Wendy Crites Wacker – Director of Corporate Communications

Brian Hutchison – Chairman & CEO

Tom Rose – EVP & CFO

Analysts

Matt Dolan – Roth Capital

Keay Nakae – Collins Stewart

Bill Plovanic – Canaccord Adams

Greg Brash – Sidoti & Company

Matt Menze – PearlDiver Technologies

Jayson Bedford – Raymond James & Associates

Brooks West – Craig-Hallum Capital

Brian Gagnon – Gagnon Securities

Presentation

Operator

Good day and welcome to the RTI Biologics Inc., first quarter 2009 results conference call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Wendy Crites Wacker. Please go ahead.

Wendy Crites Wacker

Good morning and thank you for joining RTI Biologics for our first quarter 2009 conference call. Today, we will hear from Brian Hutchison, Chairman and CEO, who will discuss operational highlights and feature 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. As many of you saw in this morning's press release, we met our goals in revenue and earnings this quarter and exceeded The Streets Consensus on both revenues and net income. We achieved quarterly revenues of $38.6 million representing a 29% growth over the same period last year. As mentioned in our release revenues on a pro forma basis increased by 1% over 2008.

We continue to make progress, optimizing our merger with Tutogen that was completed about a year ago. Net income for the quarter of $1 million or $0.02 per diluted share met our expectations for the quarter. Let us drill down on each of four major lines of business are little further.

We saw a nice improvement and fine results for the first quarter, up almost 12% over the prior year, primarily due to new implants going to new distributors. In February, we signed a new development and distribution agreement with Aesculap Implant Systems for spinal implant. Initial shipments have gone up this month.

This agreement is the latest in the series of improvements we've made in diversifying our distribution model in the spinal area. This quarter, our largest spine distributor represented 85% of spine revenues compared to 92% in Q1 2008. Sports medicine revenues increased compared to the same period last year and were up more than 11% sequentially over last quarter.

These results were favorably impacted by the improving effectiveness of our direct Biologic representatives. We're comfortable with our staffing levels at this time and will add as necessary throughout the remainder of this year. We launched two new sports medicine implants in the first quarter.

Matrix HD heralds RTI’s entry into the augmentation graft market and is the first crossover implant opportunity from our merger with Tutogen. Matrix HD is a cellular human dermis sterilized through Tutoplast, using the same processing technology that has been clinically successful for membrane implants used in hernia, dental, and other surgical specialties for more than 30 years.

Additionally, Matrix HD (inaudible) in a number of other procedures including the large rapidly growing (inaudible). After the successful launch of our fresh OC graft (inaudible).

The fresh-stored OC talus enables surgeons to resurface cartilage defects in the ankle with mature hyaline cartilage and healthy subchondral bone in a single procedure.

We are encouraged by the opportunities in the orthopedic foot and ankle markets as this is an increasing area of focus for orthopedic surgeon. With the activities in this area over the last quarter, we are pleased to say that our sports medicine business is back on track. Dental revenues have been impacted as a result of continuing weakening of the global economy as many of these procedures are elective and not covered by insurance.

In the first quarter of 2009, we saw a 14% decrease in revenues in this area over the same period last year on a pro forma basis. The US business was down 13%, while international was down 17%. Our decline in this area is very similar to the decline mentioned by our exclusive distributor on their recent conference call.

However, what is not easily seen in our numbers is that nearly $1 million of end market value of our bone graft substitutes revenues, which by the way are at transfer price in our financials are representing putty used in dental cases. Therefore, combining these putty revenues with our dental segments shows that Biologics are actually flat year-over-year.

Surgical specialties continues to be a strong area for the company. Revenues were $4.8 million in the first quarter, which is a 30% increase over the same period last year on a pro forma basis, as well as a 35% increase sequentially over fourth quarter 2008. This significantly exceeds market growth rates for this very.

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