RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics, Inc. (RTIX)

Q3 2009 Earnings Call

October 28, 2009 9:00 am ET

Executives

Wendy Crites Wacker - Director of Corporate Communications

Brian Hutchison - Chairman and CEO

Tom Rose - EVP and CFO

Analysts

Shaun Fitz - Stephens

Matt Dolan - Roth Capital

Bill Plovanic - Canaccord Adams

Greg Brash - Sidoti & Company

Jayson Bedford - Raymond James

Brooks West - Craig-Hallum

David Turkaly - SIG

Matt Arens - KOPP Investment Advisors

Presentation

Operator

Welcome to the RTI Biologics Q3 earnings conference call. As a remainder 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 third quarter 2009 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 result.

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

Thanks Wendy, good morning everyone. As you saw in this morning's press release we've exceeded great consensus in revenues and income for the third quarter. We've achieved quarterly revenue of $42.8 million, a new record for RTI Biologics. We've also achieved net income of $2.3 million or $0.04 per diluted share for the quarter. This result represented the third consecutive quarter of increasing revenue.

As we review the quarterly highlights please note the following. Sports medicine revenues increased 8% in the third quarter and 4 % for the first 9 month compared to the same period last year. The quarterly revenues were impacted by the seasonality we see in Sports medicine in the third quarter of each year as fewer surgeries occur during the summer months.

In addition, we began seeing evidence of some softening in sports medicine surgery. We are attributed this to the continued economic slow down, high unemployment rate and related delayed surgeries.

We finished the third quarter with about 36 direct distributions staff, plus a small numbers of independent distributors. We continue to actively monitor and invest in areas where coverage is needed to ensure that we best meet our surgeons need. Over the past quarter our expanded distribution personnel added more than 150 new accounts.

We plan on adding personnel as needed during the fourth quarter and into the first half of 2010 to provided additional coverage around the country. Surgical specialties have been the strongest area of growth for the company for the entire year. Revenues were $8.4 million for the third quarter, which is a 61% increase over last year and a 32% increase sequentially over the second quarter of 2009.

For the first nine months, revenues of $19.6 million represented 41% increase on pro forma basis. For the third quarter and first nine months, the most significant growth rates in our domestic surgical specialties line are in hernia repair, with a 151% growth over the third quarter of 2008 and 148% growth over the first nine month of 2008 on a pro forma basis.

Our ability to improve tissue supply to Davol our distributor in this area has led to exceptional growth every quarter since our merger with Tutogen last year.

In July we announced that we expanded our distribution and supply agreement with Davol a subsidiary of C.R.Bard. The agreement extends Davol’s exclusive worldwide distribution rights for dermal allografts for use in hernia repair for 10 years with options to renew. Under the agreement, we are supplying Tutoplast sterilized dermal allografts for exclusive worldwide distribution by Davol for breast reconstruction application.

In the third quarter, we shipped initial launch quantities to Davol and increased breast reconstruction revenues more than 66% over Q3 in 2008. Our bonegrafts substitute's revenues were up 29% for the third quarter. The increase related to higher export orders from international distributors and a successful launch with Stryker.

International revenues, which include export revenues and distribution from our German and French locations are up 8% for the third quarter and up 10% on a constant currency basis. In the third quarter our German subsidiary, Tutogen Medical GmbH has dealt with challenges resulting from some article in the international media that significantly misrepresented information about their operation. This is a prime example of the sensational journalism that the industry occasionally faces due to lack of knowledge and understanding.

Tutogen operates under very strict regulation in the countries in which it operates. The Company is in inspected regularly by both European and American authorities, including US FDA and they remain in good standing with all of the organization.

Although all these articles are troublesome, due to Tutogen’s excellent long-term reputation, we have not seen a significant impact from these articles on our international business or on our ability to help patients with safe, sterilized tissues around the world.

Read the rest of this transcript for free on seekingalpha.com