Derma Sciences, Inc. (DSCI)

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Derma Sciences, Inc. (DSCI)

Q4 2013 Earnings Conference Call

March 14, 2014 11:00 ET

Executives

Kim Golodetz - Investor Relations, LHA

Ed Quilty - President, Chairman and Chief Executive Officer

John Yetter - Executive Vice President, Finance and Chief Financial Officer

Barry Wolfenson - Group President, Advanced Wound Care and Pharmaceutical Development

Bob Cole - President, Traditional Wound Care and Corporate Accounts

Analysts

Scott Henry - ROTH Capital

Steve M. Lichtman - Oppenheimer

Debjit Chattopadhyay - Emerging Growth Equities

Traver Davis - Piper Jaffray

Joe Munda - Sidoti and Company

Larry Smith - SmithOnStocks

Presentation

Operator

Welcome to the Derma Sciences’ Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. (Operator Instructions) As a reminder, this conference is being recorded today, March 14, 2014.

I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma’am.

Kim Golodetz - Investor Relations, LHA

Thank you, operator. This is Kim Golodetz with LHA. Thank you all for participating in today’s call.

Joining me from Derma Sciences are Ed Quilty, President, Chairman and Chief Executive Officer and John Yetter, Executive Vice President of Finance and Chief Financial Officer. Barry Wolfenson, the company’s Group President of Advanced Wound Care and Pharmaceutical Development and Bob Cole, President of Traditional Wound Care and Corporate Accounts will join us for the Q&A portion of the call.

Earlier today, Derma Sciences announced financial results for the 2013 fourth quarter and full year. If you have not received this news release or if you would like to be added to the company’s distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Derma Sciences. I encourage you to review the company’s filings with the Securities and Exchange Commission, including without limitation, the company’s Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Factors that may affect the company’s results include, but are not limited to product demand, market acceptance, impact of competitive products and prices, product development, commercialization or technological difficulties, the success or failure of negotiations and trade legal, social and economic risks. Also, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live call, today, March 14, 2014. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Ed Quilty. Ed?

Ed Quilty - President, Chairman and Chief Executive Officer

Thank you, Kim and many thanks to all of you for joining us this morning. This is our first conference call since we licensed rights to the important placental-derived wound care products that we have branded AMNIOMATRIX and AMNIOEXCEL.

Today, I will spend a fair amount of time updating you on our plans and the progress on those products and how they fit into our advanced wound care portfolio. These skin substitutes have become a $500 million business. And we at Derma are very well-positioned to take our fair share of the market. Our portfolio is now one of the most robust in the industry and positions Derma Sciences to achieve our goal of becoming a leading advanced wound care company in the U.S. with a particular focus on the treatment of chronic wounds in general and diabetic foot ulcers in particular.

Also subsequent to the close of the quarter, we raised $80.7 million net in an offering, where we sold 7.5 million shares at $11.50. The 7.5 million shares include the underwriters’ over-allotment, which was exercised promptly as our offering was oversubscribed.

Before I turn the call over to John Yetter, our CFO to update you on the year end financials, I will just mention that as we indicated in January 2013. As we indicated in January when we did our prerelease of the numbers, 2013 was an outstanding year in many, many ways. Our full year advanced wound care revenue was $33.9 million, which is up 36.6% compared to 2012, while total revenues were $79.7 million, up 9.7% over 2012. The AWC growth is right on target with what we stated to you in 2013. And as you know we have made the commitment again in 2014 to achieve organically between 30% and 40% not including the addition of two new skin substitutes. Also the portion of revenues attributed to advanced wound care products reached 45.6% of net sales for the fourth quarter, up 38.3% of net sales. The sales mix in favor of AWC products contributed to gross margin expansion of three percentage points during the quarter.

With that, I will ask John to review the financial results in more detail and then I will come back to you and discuss our operations, our progress and our next steps. John?

John Yetter - Executive Vice President, Finance and Chief Financial Officer

Thank you, Ed and good morning to our listeners. I want to point out that we filed our 10-K last night and that document contains more details on our quarter and 12 months ended December 31, 2013. Today, I will limit my discussion to key financial highlights and should anyone want to drill down further I will be happy to answer additional questions during the Q&A session. As Ed mentioned, net sales for the fourth quarter of 2013 were $20.7 million, up 3% from $20.1 million in the fourth quarter of 2012. Of this AWC product sales accounted for 45.6%, or $9.4 million. This was up 22.5% over the $7.7 million of net sales in the fourth quarter of last year and compares with 38.3% of total sales last year. So as expected, advantage of advanced wound care product sales continues to grow.

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