Bacterin International's CEO Presents at Investor Call - (Transcript)

Sep. 9.13 | About: Xtant Medical (XTNT)

Bacterin International Holdings Inc (BONE) Investor Call - (Transcript) September 9, 2013 4:00 PM ET

Executives

Dan Goldberger - Chief Executive Officer

John Gandolfo - Chief Financial Officer

Rich Cockrell - Investor Relations

Analysts

Operator

Greetings and welcome to the Bacterin's CEO call with Mr. Dan Goldberger. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Rich Cockrell. Thank you, Mr. Cockrell, you may begin.

Rich Cockrell

Thank you very much, and I appreciate you guys joining us today for the initial call with Bacterin’s new CEO, Dan Goldberger. He’s going to open up the call with opening remarks. With us today, is also John Gandolfo, Bacterin's CFO. Before we move to Dan’s comments, I'm going to go ahead and read the forward-looking statement.

During the course of this call, management may make certain forward-looking statements regarding future events of the company and it's future performance. These forward-looking statements reflects Bacterin’s current perspective on existing trends and information and can be identified by such words as expect, plan, will, may, anticipate, believes, should, intent and other words of similar meaning.

Any forward-looking statements are not guarantees of future performance and involve risks and uncertainties including those noted in the risk factors such as of the company’s annual report on Form 10-K. Actual results may differ materially from those projected in these forward-looking statements. For the benefit of those who may be listening to the call today and to the replay. This call is being held on today, September 9th, at approximately 4 PM Eastern Time.

Since then the company may have made additional announcements related the topic discussed. Please reference the company’s most recent press releases and current filings of the SEC. Bacterin declines any attempts or obligations to update these forward-looking statements.

With that I’ll turn the call over to Dan.

Daniel Goldberger

Thank you, Rich. And thank you all for joining us today. I’ve been in this position going on four weeks now and it's important to formally introduce myself to our customers and shareholders and offer more direct line of communication. I'm very pleased with the solid foundation that exists at Bacterin. We’ve got strong systems in place, quality personnel, and some of the best products in the industry.

I also want to take a moment to commend the interim leadership team, they did a great job in assuring that operations continued smoothly and that our customers were taken care of properly. More importantly our business continued to grow organically in spite of the disruption that we had in first half of the year.

Heavy opportunity to speak with several physicians in the fields and customers and I'm all the more confident about the opportunities that lie ahead. The predominant theme from our existing customers has been that they love our products, but the company becomes difficult to work with. We can fix that. There are few things that we're working on, right now that will contribute to a successful recovery.

Our GPO contracts are well received and we’ve been successful become preferred vendors with some large health systems. We’ve got numerous studies underway or in the review process that we’ll be able to talk in the near future and we’re going to continue to add clinical data to support large scale adoption of our allografts.

We see some opportunities in which we can drive more rapid growth with minimal changes to the existing infrastructure to increase our efficiency. Our BONE’s capitals OsteoSponge and OsteoSelect are best in class and the only allograft supported by clinical evidence hMatrix dermal scaffold is a very excited product family that we're just starting to launch into the plastic surgery market. Great things lie ahead for Bacterin.

Near-term strategic changes that we prioritized are to strengthen in our sales channels and focused on adoption of all of our product lines. Specifically DBM Putty with a new spinal indication that was announced recently hMatrix PR for reconstructive procedures which I'm confident that our network of context in that area will serve as a launch pad to the product line.

For the rest of 2013 leadership team and I are going to be focused on the following initiatives. Number one, resolving channel conflicts in our core U.S. market this is a major source of friction that customers identify in working with our company. Number two, continuing to deliver word class service through our field sales activities and our customer service organizations. We currently have 20 direct sales reps and more than 100 distributors detailing Bacterin products in the United States.

Number three, we're going to be resolving some product mix issues that have resulted in shortages on the one hand and excess inventory on the other. Number four we're going to continue to work with our GPO relationships and drive those into new business and number five, we are going to work on driving adoption in the health systems where we’ve obtained preferred vendor stages, and then use that as a model in new relationships elsewhere. Longer term I believe we can grow our BoneScalpel franchise in spine and ortho and that the business can be scaled effectively.

I am very excited about the launch of our [dermal] scalpel to the plastic surgery specialty recognizing that this is a new distribution channel for Bacterin. In summary, I want to thank the investors that have supported Bacterin during this transition. With good execution this company has tremendous potential. Having managed several turnarounds in my carrier Bacterin has all of the elements for another success, great products supported by clinical evidence, a passionate dedicated team and loyal thoughtful customers.

Everyone at Bacterin is now focused on moving forward and growing the business. I’d love to entertain some questions and Rich will be keeping track of the clock for us.

Rich Cockrell

Yeah, operator. We will go ahead and take questions from the audience.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Matthew O’Brien of William Blair. Please go ahead.

Matthew O’Brien - William Blair

Good afternoon, thanks for taking the question. [Currently] to start off with the broad portfolio that you offer and at relatively sizable infrastructure already in place, just how do we think about products selection and focus for the team going forward with all these different products and different disease [base] that you are treating.

Dan Goldberger

I think on a trailing basis, OsteoSponge and OsteoSelect have been the bread and butter of the business and will continue to be a large contributor to revenues. We've got some opportunities within those product lines to manage making sure that we have the right sizes on the shelf at the point-of-care and we are studying that a message to do that. But I think you can look to those two product lines to continue to be our flagships for the foreseeable future.

Matthew O’Brien - William Blair

Okay. And then at what point do you think we’ll start to see if there’s more contribution from its matrix?

Dan Goldberger

It's hard to tell at this point, the product family goes well in wound therapy and general surgery applications. We are specifically targeting reconstructed surgery and specifically within that specialty the breast reconstruction, secondary to (Inaudible) and I'm optimistic that we're going to be well received in the plastic surgery community. But we have to be put that out yet.

Matthew O’Brien - William Blair

Okay. And then Dan you mentioned, the comment that you’ve been to difficult to work within the past that the company has been. I know you have been doing this very long, but just your feedback so far just anecdotal commentary from, there’s actually some accounts that you lost in the past, their willingness to work with you going forward. How difficult do you think it's going to be to start those relationships back up again compared to other companies you have been at it in the past.

Dan Goldberger

So, nobody has refused my call, nobody has told me that they are sick and tired of the company. Unanimously, the product are well received and when the product functionality and efficacy and economics are there, there is always an opportunity to rebuild the business relationship and get that revenue back.

Matthew O’Brien - William Blair

Okay, just two more [questions] for me if you don’t mind. You mentioned the opportunities with all these products and some of the profitability metrics or potential overtime I guess. But is there any way you can and again I know very (inaudible) for you but just give us a sense for some key metrics to really hone in on over the next, maybe 6 to 12 months to get a sense for the turnaround program is working.

Dan Goldberger

That’s a good question. Internally, we're studying the efficiency, productivity of our sales force, and the number of distributors that we have contract and the number of direct reps that we have. I am not sure. We don’t really record a lot of that but those are the metrics that we are going to be looking at carefully for the next six quarters as we look to scale the business. Externally, certainly, you should be looking at us stabilizing the business both on gross margin side as well as on operating expense line, and I believe that we are putting the mechanics in place, here in the end of 2014 that are going to drive revenue growth in 2014.

Matthew O’Brien - William Blair

Okay, just one more from me. I think you mentioned in the second half of the year, looking pretty similar to the first half of the year on the top line. First of all, is that fair assessment?

And then secondly, as we get into ’14, I know this can take some time for these initiatives to really start to pay off, but end of ‘14 and ‘15, how should we think about that trend from a growth perspective on the top line and then a profitability perspective?

Dan Goldberger

So we haven’t agreed among ourselves yet what are model for 2014 is, so it’s premature for me to try to give you any indications for that yet in terms of revenue growth. And then as far as operating profit, we are also studying a model carefully because we may choose to spend a little bit more on the operating OpEx line to drive growth in the second half of the year. So I am going to dodge that question for the time.

Unidentified Analyst

So maybe I could just be a little bit more general, I mean is this a platform you think can be one of the faster growth entities in MedTech in a couple of years?

Dan Goldberger

Absolutely. I think our position is a relatively small player in like these really a $3 billion market segment gives us huge opportunities to drive growth before we approach any kind of saturation or any kind of limitations. We need to get out of our own way and go execute.

Unidentified Analyst

Okay. Thank you.

Operator

(Operator Instructions). The next question comes from Jay Harris of Axiom Capital. Please go ahead.

Jay Harris - Axiom Capital

Thanks for taking my question. As you look at the options that you are facing, how should we think about the change in gross profit margin?

Dan Goldberger

By that you mean the Q2 number that looks a little bit out of place with historical trends?

Jay Harris - Axiom Capital

Yeah, in other word, yeah, starting with that, what directions do you think over what period of time can we drive gross margins in the business?

Dan Goldberger

We are modeling 60% to 65%. There are reasons why we’ll be better than that, but we are not ready to put those into the model. The Q2 number was disappointing and that was driven by a one-time recognition of some older inventory, expiring inventory and we put in place programs so that that doesn’t happen again because we are going sell that, identify that product and sell it, do what it takes to sell it so that it doesn’t turn into a write-off in the future.

Jay Harris - Axiom Capital

Will it take some time to move to your objective?

Dan Goldberger

To back into the 60s, no. We should be there.

Jay Harris - Axiom Capital

All right, thank you.

Operator

(Operator Instructions). Sorry gentlemen, we do have another question, it comes from the line of [Jim Kehoe] from (inaudible). Please go ahead.

Unidentified Analyst

Just wondering your liquidity, do you need to raise more capital to execute on your plan?

John Gandolfo

We think we have sufficient capital to execute on our plan, I mean ultimately that is going to be totally dependent upon what our sales come it, but right now we feel that we have a good amount of cash to execute on our plan.

Unidentified Analyst

Okay, thank you.

Operator

(Operator Instructions). It appears there are no further questions at this time. At this time we will go back over to management for closing remarks.

Dan Goldberger

Thank you everybody for joining us. We will be presenting the company at the Rodman Conference tomorrow afternoon. And I look forward to meeting many of you in person in the coming months. Thanks everybody.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.

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