RTIX

RTI Surgical, Inc. (RTIX)

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RTI Biologics, Inc. (RTIX)

Q4 2009 Earnings Call

February 9, 2010 9:00 am ET

Executives

Wendy Crites Wacker - Director of Corporate Communications

Brian Hutchison - Chairman & CEO

Tom Rose - EVP & CFO

Roger Rose - EVP

Analysts

Matt Pommer - Roth Capital Partners

Bill Plovanic - Canaccord Adams

Greg Brash - Sidoti & Company

Brooks West - Craig-Hallum Capital

Jayson Bedford - Raymond James

Raymond Myers - Emerging Growth Equities

Presentation

Operator

Good day and welcome to the RTIX Fourth Quarter Earnings Conference. Today’s conference is being recorded. At this time, I’d like to turn the call over to Ms. Wendy Crites Wacker. Please go ahead.

Wendy Crites Wacker

Good morning everyone and thank you for joining RTI Biologics for our fourth quarter and year-end 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 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’ll turn the call over to Brian Hutchison.

Brian Hutchison

Good morning everyone. As many of you saw in our press release this morning, we reported quarterly revenues of $42 million. We’ve also achieved net income of $1.5 million or $0.03 per diluted share for the quarter. For the year, we reported record annual revenues of $164.5 million representing growth of 12% over last year. We also reported net income of $5.9 million or $0.11 per diluted share.

Twelve months ago, during a time of full uncertainties, we gave 2009 revenue guidance and maintained that guidance throughout the year. We came within 1% of our guidance for 2009 revenues. Thanks to our ability to control our operating cost, we were able to meet our guidance for earnings.

Throughout the year, sports medicine and surgical specialties have been our fastest growing segments offsetting declines in dental and spine and slower growth in our other markets. Sports medicine revenues reached record levels with an increase of 22% in the fourth quarter and 9% for the year. At the beginning of the year, our sports medicine team launched two new implants, the Fresh OC Talus and Matrix HD.

The Fresh OC Talus is an extension of our Fresh osteochondral program, which has doubled revenues compared to last year. Matrix HD is our first dermis graft used in various foot and ankle procedures, joint repair and superficial wound repair. At the end of 2009, Matrix HD surpassed $1 million in revenues and has been used in some novel tissue repair cases.

We finished the year with about 36 direct distribution staff plus a number of independent distributors, an increase of about 20% from the end of last year. We actively monitor and invest in areas where enhanced coverage is needed to ensure that we best meet the needs of our surgeon.

We plan on adding distribution personnel and resources as needed throughout 2010 to provide additional coverage around the country. Surgical specialties has been the strongest area of growth for the company for the entire year. Revenues increased 86% for the quarter and 71% for the year.

The most significant growth rate in our domestic surgical specialties line are in hernia repair with growth in excess of 150%. Breast reconstruction has also been an area of growth over the year as we completed our exclusive agreement with Davol to distribute these implants. After shipping initial launch quantities to Davol on our third quarter, we increased breast reconstruction revenues to more than 30% for the year.

Our bone graft substitute's revenues were up 58% for the fourth quarter. The increase related to higher export orders and follow on orders from a successful product launch with Stryker in the third quarter.

International revenues, which include export revenues and distribution from our French and German locations, were up 37% for the fourth quarter and up 18% for the year. Fourth quarter international revenue increases were the result of 39% unit volume increase and $542,000 of favorable currency exchange fluctuation.

Over the course of 2009, our team worked diligently to close out some litigation that had been consuming significant company resources for the past two years. In 2009, alone we spent more than $2 million in litigation related expenses and hundreds of hours of staff time. Two significant cases have benefited from this effort; one is the patent case for the Osteotech, which has been resolved under confidential terms.

We've also reached settlement agreements in nearly all of the federal and state cases brought by trial lawyers representing recipients of tissue from the BTS recall from 2005. Throughout the course of this litigation, RTI has maintain the position that there was no risk of disease transmission from these allograft implants due to the sterilization methods that these implants were subjected to at RTI.

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