RTIX

RTI Surgical, Inc. (RTIX)

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RTI Surgical Inc. (RTIX)

Q1 2014 Earnings Conference Call

April 24, 2014 8:30 PM ET

Executives

Brian K. Hutchison – President and Chief Executive Officer

Robert P. Jordheim – Chief Financial Officer

Thomas F. Rose – Chief Operating Officer and Corporate Secretary

Roger W. Rose Jr. – Executive Vice President – Marketing and Sales, North American and President – RTI Donor Services

Caroline A. Hartill – Executive Vice President, Chief Scientific Officer

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

Analysts

Kyle Rose – Canaccord Genuity, Inc.

Matthew Hewitt – Craig-Hallum Capital Group LLC.

Jayson T. Bedford – Raymond James & Associates, Inc.

Chris Cooley – Stephens, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the RTI Surgical First Quarter 2014 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. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to introduce your host for today’s conference, Wendy Crites Wacker. Please go ahead?

Wendy Crites Wacker

Good morning and thank you for joining RTI Surgical for our first quarter 2014 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 us this morning for Q&A are Tom Rose, Executive Vice President, Administration and Corporate Secretary; Roger Rose, Executive Vice President, North American Sales and Marketing and President of RTI Donor Services; Carrie Hartill, Executive Vice President and Chief Scientific Officer; and Robby Lane, Executive Vice President of 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 K. Hutchison

Good morning, everyone, and thank you for joining us. Today, I’ll start with an overview of the first quarter; then Rob will review our financial results. I’ll follow-up with the financial guidance for the second quarter, and full year 2014.

As detailed in our press release issued this morning, we reported first quarter revenues of $60.7 million, a 50% increase over the first quarter of 2013. This includes $19.8 million of Pioneer Surgical Technology revenue in the first quarter. Revenue exceeded our first quarter guidance of $58 million to $59 million. When reviewing each of our lines of business for the first quarter, Spine revenues increased 89% compared to the first quarter of 2013. The increase was primarily related to the addition of revenue from Pioneer acquisition.

We continue to see progress in our direct spine business during the quarter, adding more than 30 new customers in Spine. In the first quarter, we added two exciting new Spine systems to our portfolio. The MaxFuse system is used to replace the diseased vertebral body to achieve anterior decompression of the spinal cord, and neural tissues in the thoracolumbar spine. The Aspect system as a versatile anterior cervical plate system designed to meet the varying clinical needs of surgeons performing ACDF procedures.

As you saw on Monday, we launched another new Spine system Streamline OCT. The system was designed to promote fusion of the OCT spine. This is the first system to offer a high-angle pedicle screw capable of achieving 60 degrees of annulation in any direction. This provides greater intraoperative flexibility, and options for screw placement. RTI received 510(k) clearance from FDA for the system in March of this year.

Also in March, we held our first of four surgeon symposium planned in 2014. The first quarter symposium focused on complications and economics of spine surgery. The event was well attended and we received very positive feedback from surgeon attendees, and faculty. The continued focus on our surgeon engagement efforts along with new product launches will drive growth in spine throughout this year. At this time, we anticipate spine will grow in mid-single digits for the full year of 2014, based on fourth quarter 2013 annualized run rate.

Our sports medicine business increased 8% compared to the first quarter of 2013. We continue to see positive momentum in the business recovery and growth of this business illustrated by sequential increase of more than 100 accounts during the quarter. We anticipate the sports medicine will return to growth in 2014. At this time, we expect growth in the mid-single digits of this line of business.

First quarter surgical specialties revenues increased 5% compared to first quarter of 2013. The increase in revenues is due primarily to the direct U.S. and international businesses offset by a slight decline in our commercial business. Our direct distribution force is consistently gaining traction with first quarter direct revenues exceeding their total revenue for 2013.

We received CE mark approval for the fortiva porcine dermis product, which will expand our opportunity for the implant outside the U.S. At this time, we anticipate that the surgical specialties business will grow in the low single digits for the full year of 2014 with most of the growth coming from direct distribution, and breast reconstruction through our commercial distributor.

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