RTIX

RTI Surgical, Inc. (RTIX)

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RTI Surgical Inc. (RTIX)

Q4 2013 Earnings Conference Call

February 13, 2014 8:30 am ET

Executives

Brian Hutchison – President, Chief Executive Officer

Robert Jordheim – Executive Vice President, Chief Financial Officer

Roger Rose – Executive Vice President, North American Sales and Marketing

Carrie Hartill – Executive Vice President, Chief Scientific Officer

Wendy Crites Wacker – Executive Director, Global, Corporate and Marketing Communications

Analysts

Matt Hewitt – Craig-Hallum

Bill Plavonic – Canaccord Genuity

Jason Bedford – Raymond James

Chris Cooley – Stephens

Presentation

Operator

Good day ladies and gentlemen and thank you for standing by, and welcome to the RTIX Fourth Quarter and Year-End 2013 Earnings conference 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. Should anyone require assistance during today’s event, you may press star then zero on your touchtone telephone for a live operator. As a reminder, today’s conference may be recorded.

It’s now my pleasure to turn the floor over to Wendy Crites Wacker. Ma’am, the floor is yours.

Wendy Crites Wacker

Good morning and thank you for joining RTI Surgical for our fourth quarter and year-end 2013 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 this morning for Q&A are Tom Rose, Executive Vice President of Administration; Roger Rose, Executive Vice President, North American Sales and Marketing; Carrie Hartill, Executive Vice President and Chief Scientific Officer; and Robby Lane, Executive Vice President, Global Commercial.

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. Today I will start with an overview of the fourth quarter and then let Rob review our financial results. I’ll follow up with guidance for 2014.

As detailed in our press release issued this morning, we reported fourth quarter revenues of $60.5 million, a 36% increase over the fourth quarter of 2012. This includes $19.9 million of Pioneer Surgical Technology revenue in the fourth quarter. Revenue modestly exceeded our fourth quarter guidance of $59 million to $60 million. We achieved annual revenues of $198 million, an increase of 11% from 2012 and exceeding our annual guidance of $196 million to $197 million given at the beginning of the fourth quarter 2013. This includes $36 million of Pioneer revenue for the period of July 16, 2013 to December 31, 2013.

When reviewing each of our lines of business, fourth quarter spine revenues increased to 78% compared to fourth quarter 2012. The increase was related to the addition of revenue from the Pioneer acquisition. In October of 2013, we began cross-distribution of some of our allograft implants with our new direct spine channel. This group now has a complete line of allograft and synthetic bone graft substitutes available to go along with the portfolio of metal and synthetic spinal implant and instrumentation. In December 2013, we had a first spine surgeon symposium, which focused on biologics. We had a great turnout and a very positive response from the surgeon attendees.

Early results from these and other efforts have been impactful, as demonstrated by sequential monthly increases in the fourth quarter in average daily revenue. These initiatives, along with new product launches, will drive growth in spine over the next year. At this time, we are anticipating spine will grow in the mid-single digits for the full year of 2014, based off the fourth quarter 2013 annualized run rate.

Our sports medicine business decreased 14% compared to fourth quarter of 2012. As you know, the sports medicine team faced some challenges in 2013. We changed leadership in this business and in the fourth quarter we initiated cross-distribution opportunities resulting from the Pioneer acquisition. This team is intently focused on recovering and growing this business customer by customer and through a best-in-class portfolio of allograft and second generation synthetics, as well as excellent customer service. Initial signs of the sports business recovery were seen in the fourth quarter, as evidenced by sequential monthly growth in average daily revenue. We are anticipating that sports medicine will return to growth in 2014. At this time, we expect growth in the mid-single digits for this line of business.

Fourth quarter surgical specialty revenues increased 5% compared to fourth quarter 2012. The increase in revenues is due primarily to the higher than anticipated revenues in breast reconstruction offset by declines in hernia revenue from our commercial distributor. In mid-2013, we launched our direct surgical specialties team, completing their portfolio in the third quarter with the introduction of Fortiva porcine dermis. Our direct distribution force has begun to gain traction in the fourth quarter as we begin to gain acceptance from hospital value analysis committees.

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