Bacterin International Holdings, Inc. (BONE)

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Bacterin International Holdings Inc. (BONE)

Q3 2012 Earnings Call

November 7, 2012 4:30 pm ET

Executives

Guy Cook – President and Chief Executive Officer

John P. Gandolfo – Chief Financial Officer

Analysts

Kyle Harris – William Blair & Co. LLC

Bruce Jackson – Northland Capital Markets

Nathan Cali – Noble Financial Capital Markets

Gregory P. Garner – Singular Research

Benjamin Black – Maxim Group LLC

Presentation

Operator

Ladies and gentlemen, thank you for standby, and welcome to the Bacterin International Holdings, Inc. Third Quarter 2012 Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for your questions. (Operator Instructions) Today’s conference is being recorded November 7, 2012.

I would now like to turn the conference over to our host John Gandolfo. Please go ahead.

John P. Gandolfo

Thank you, and good afternoon, and thank you for participating in today’s conference call to discuss Bacterin’s third quarter financial results for the period ended September 30, 2012. My name is John Gandolfo, Bacterin’s CFO. With me today is Guy Cook, the Company’s Founder and Chief Executive Officer. Following our remarks, we will open up the call for your questions. Then before the conclusion of today’s call, I’ll provide the necessary precautions regarding forward-looking statements made by management during this call.

I would like to remind everyone that the replay of this call will be available for one month starting later this evening. A webcast replay will also be available via the link provided in today’s press release, as well as the Investor section of the company’s website at www.bacterin.com.

Now, I would like to turn the call over to the Chief Executive Officer, Guy Cook.

Guy Cook

Thank you, John, and good afternoon, everyone. Thank you for joining us today to discuss our third quarter 2012 results. Bacterin continues to improve and develop innovated biological scaffolds for tissue regeneration. Our best-in-class platforms for bone standard cartilage regeneration address multiple billion dollar market opportunities.

Our flagship product OsteoSponge, which is a normal form of demineralized bone matrix provides a natural scaffold for cellular in-growth and exposes bone growth inducing proteins to the healing environment, used by orthopaedic surgeons and dispensing neurosurgeon, spinal fusion, trauma, with knee reconstruction, sports medicine extremities including hand, foot and ankle, the unique valuable properties in osteoinductive of OsteoSponge to conform the irregular bony defects is found wide adoption across all of these orthopaedic PowerPoints.

Moving on to our direct and biologics dedicated sales force to meet the particular needs of multiple end-users, Bacterin has expanded into acellular dermal matrix to use in breast reconstruction, hernia repair, rotator cuff repair, diabetic foot ulcers and tendon augmentation.

And finally, our OsteoSponge SC graft used for subcondral repair has been used to successfully treat over 250 patients for (inaudible) bone fractures and subcondral defects on the knee. As referring for evidence continues to grow for the appropriate utilization of this product, we expect the unique handling properties and ability to use to graft in minimally invasive manner for a solid adoption into the foot and ankle and sports medicine market.

Addressing a wide variety of specialty biologic needs, Bacterin terms become another one direct biologic supplier choice for both our surgeon and hospital partners. Our GPO partners from innovation in MedAssets have accelerate adoption of our products and allows us into almost 80% of all U.S. hospitals, as well as being able to introduce new products footprint easily into our direct distribution model.

But the recent $25 million financing from OrbiMed, we are well-positioned to achieve our growth objectives, with expanded processing capabilities coupled with the dedicated and growing sales force, increased marketing and excellent product pipeline of new and second generation products, we are well-positioned for 2013 and beyond.

Turning to this quarter’s results, we issued a press release this afternoon announcing our earnings. Revenue for the quarter was $8.9 million, compared to $8.2 million in the previous quarter and an increase of 18%, compared to $7.5 million in the third quarter of 2011. Revenue for the first nine months of 2012 reached $24.9 million, an 18% increase year-over-year. Net accounts were 71% of our annual guidance. With numerous growth catalysts in place and a strong October complete, Q4 is off to a good start toward our forecast.

Margin of 71% remains solid within the guidance range of 70% to 75%. As of September 30, 2012, we had approximately $8.6 million in cash and net accounts receivable of approximately $7.2 million. Before we go much further, I’d like to turn the call back over to our CFO, John Gandolfo, who will step into a summary of the quarter and year’s financial results. When he is finished, I’ll return to give a more detailed operational update and then look forward. And we’ll open up the call up to your questions John?

John P. Gandolfo

Thank you, Guy. Turning to our results for the third quarter of 2012, as Guy mentioned revenue for the quarter was $8.9 million, compared to $8.2 million in the previous quarter, and an increase of 18% compared to $7.5 million in the third quarter of 2011. The year-over-year increase was largely the result of increased sales generated from the company’s direct sales force and independent distributors compared to the third quarter of 2011.

Gross profit margin for the quarter was 71%, as compared to 72% in the previous quarter and 83% in the year-ago quarter, reflecting the addition of the second production shift in 2012, as well as increased allocation of G&A expenses due to the increased production.

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