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Edited Transcript of RTIX earnings conference call or presentation 27-Apr-17 12:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 RTI Surgical Inc Earnings Call

ALACHUA May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of RTI Surgical Inc earnings conference call or presentation Thursday, April 27, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Camille I. Farhat

RTI Surgical, Inc. - CEO, President and Director

* Robert P. Jordheim

RTI Surgical, Inc. - CFO and EVP

* Roxane Wergin

RTI Surgical, Inc. - Director of Corporate Communications

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Conference Call Participants

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* Dominick Leali

* John Trevor Gillings

JMP Securities LLC, Research Division - VP and Research Analyst

* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the RTIX Q1 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Roxane Wergin, Director of Corporate Communications and Investor Relations. Please go ahead.

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Roxane Wergin, RTI Surgical, Inc. - Director of Corporate Communications [2]

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Good morning, and thank you for joining RTI Surgical for our First Quarter 2017 Conference Call. Today, we will hear from Camille Farhat, RTI's Chief Executive Officer; and Rob Jordheim, our Chief Financial Officer.

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 call, 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. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain noncash and other expenses that are not indicative of our core operating results. Management uses non-GAAP measures to compare our performance relative to forecast and strategic plans to benchmark our performance externally against competitors and for certain compensation decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables accompanying our earnings release, which can be found in the Investor Relations section of our website.

Now I will turn the call over to Camille.

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [3]

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Thank you, Roxane, and good morning, everyone. Thank you for joining us on my first earnings call as RTI's CEO. I'm very excited to be here and to report on the progress we are making. As you will hear from Rob shortly, we have had another good quarter. But before we get into those details, I'd like to take a moment to talk about RTI and what I've learned during my first 6 weeks with the company. One of the biggest reasons I chose to join RTI is the considerable untapped potential of the business. RTI is a company with a solid foundation and substantial opportunities for growth.

We certainly have challenges ahead of us, but I'm confident that we have the key ingredients we need to meaningfully improve our results, grow our business and generate sustainable attractive returns for our shareholders. RTI is a company with solid fundamentals. We produce high quality, in-demand products that improve people's lives. We serve growing the markets that offer multiple channels for expansion. We also have customers, shareholders and employees who are committed to our company and our growth plan.

As Rob and others shared last quarter, we have started taking costs out of our system. We also are thoroughly evaluating all of our businesses. Our plan is to pull back on resources for those areas that we identify as less profitable and allocate more resources to those areas of the business that we believe offer the greatest potential for growth. Our efforts are beginning to deliver real results with improving performance on the top line.

The initiatives we have put in place and continue to implement are also positioning RTI's operating platform to better capitalize on future growth opportunities.

The initial phase of our restructuring program remains on target to yield annualized savings of approximately $8 million, beginning primarily in the second quarter. We will be strategic in our capital allocation, and we'll continue to make the necessary organic investments in our business, products and people that will best set up RTI to deliver on our growth goals.

And we will do this and be laser focused on execution. Our initiatives are beginning to take hold. Our first quarter generated solid results relative to our expectations. Our revenue came in at $69.9 million, adjusted EBITDA was $6.5 million and adjusted net income applicable to common shares and adjusted net income per common share were $139,000 and breakeven, respectively.

Importantly, these results do not include any onetime puts or takes, demonstrating the underlying strength of the business. The fact that we have achieved 2 consecutive quarters of solid top line performance is encouraging and demonstrates that we are starting to turn the corner.

That said, we are still turning that proverbial corner, and 2 quarters do not make a trend. We are in the very early stages of what will be a long-term transformation of RTI.

During my first 6 weeks as CEO, I have been meeting with customers, employees and shareholders. I also have been evaluating our business segments with our leadership team to determine what changes we need to make to get our entire employee base moving in the right direction as one tightly integrated, laser-focused and cohesive team. There remain a number of variables and contingencies that we have to manage to ensure that we are as streamlined and cohesive as we can be. But what we do know is how we will judge our success. And here, our goals are clear: profitable growth, improved cash flow generation and predictability. All 3 will be driven by a highly motivated, talented and focused employee base.

The first 2 goals are self-explanatory, particularly, for the people listening in on this call and are intriguingly tied to the 3 central themes that are percolating in my mind as I evaluate the business. One, continue to invest in our Spine business and build scale. Two, increase investments in our commercial business to drive innovation and create new growth opportunities. And three, improve margins in our tissue-based implants.

Now regarding predictability, let me provide a brief explanation, because it is integral to our ability to achieve profitable growth and generate cash. In short, predictability means that we are going to do what we say we are going to do. To accomplish this, we are committed to doing a better job communicating internally and externally regarding what makes our business stick, what the main growth drivers are and the levers that we are able to pull to propel us ahead.

We're going to reduce the complexity of our business and hone in on the areas that offer the biggest opportunities for growth. We are also going to be very clear about what we expect of everyone and ourself. Internally, this should lead to more effective alignment, improved collaboration and greater motivation to make our innovation more relevant and grow in the most promising areas of our business.

Externally, this will make it easier for you to better understand our strategy and how we're progressing against it. We hope this will in turn yield a market valuation for RTI that is more in line with our growth prospects and overall potential.

Now as I said, we're still in the early stage of our transformation, but these objectives of: one, profitable growth; two, improve cash flow; and three, predictability, are what will guide us as we finalize our strategy and move forward.

Our customers value our products and our relationships with them. However, it's clear that there is more that we could be doing for them and their patients. This presents a tremendous opportunity for us to invest in key areas, expand our business and treat even more patients with our products than we do today.

As for our shareholders, they have been patient and supportive. They share my personal and the entire management team's desire for improved performance and stock price appreciation. I believe we are on the right track towards both of these aspirations. Our employees will be critical to our success. And on that front, I couldn't be more enthusiastic.

To say that I've been impressed with our employees during my first few weeks would be an understatement. They are extremely dedicated to their jobs and deeply passionate about our products and the positive impact they have on people's lives. They are also highly experienced, whether in their chosen field or through their tenure at RTI, and they are hungry. They are hungry to continuously improve, hungry to get behind a winning strategy and hungry to put RTI back on a path towards profitable growth. And the management team and I are committed to guiding them and providing them with the tools they need to succeed.

Our plan is to provide our employees with clear direction and prioritization and better communication across the company so that they can execute, enhance and make our innovation more relevant.

By doing this right, we will help our people grow our business no matter the specific function they serve. We're going to tear down walls, drive clear accountability and provide people with incentives to move in a common direction for the good of our patients and our entire company. All of this will take time, but I'm confident we will get there. A big part of helping our employees and, by extension, our business will be integration.

Currently, we are organized functionally in what I refer to as function-first organization. Simplistically, this is employees that are incented and focused solely on their particular corner of the world, whether be it R&D, regulatory affairs, product quality or another function. And what I would like to see more is a customer- or product-first organization. This means ensuring that our various functions are focused on developing and delivering the very best products and working collaboratively with each other in the process.

This will come through the greater focus and clearer accountability I referenced earlier. It will also come through better and more open lines of communication among all of our functions. Our goal will be to create more cross functionable themes throughout the organization. While our direct business performed well across all of our operating segments in the first quarter, we are continuing to take a hard look at each of our segments to determine which ones will remain part of RTI and which we will look to divest or pare back.

We should be in a position to provide further details on this front within the next few months, but I envision fewer business lines in the future. And the ones that remain will be those that we can manage well and fund appropriately, so that they can contribute to our overall profitable growth.

One of the outputs of streamlining and reducing cost will be a greater focused investment in R&D. Our R&D investment, historically speaking, has not been a concentrate -- as concentrated or relevant as it should be, something the management team and I know that we can improve upon. We'll do this as part of a larger effort to rightsize our spending. That is, accelerating it in certain high-growth areas and paring it back in other areas where the potential for profitable growth isn't at the level we'd like it to be.

And with that, I'll turn the call over to Rob Jordheim to provide an overview of our first quarter financial performance as well as highlights of our business segments. Rob?

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Robert P. Jordheim, RTI Surgical, Inc. - CFO and EVP [4]

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Thank you, Camille. I'd like to focus my remarks on the 3 areas we see as key drivers of our first quarter results. These are: for the fifth quarter in a row, we delivered double-digit growth in our direct business. As we expected, our commercial business declined in the first quarter. However, we continue to see signs of stabilization on a sequential basis. Our results include the financial impact of the previously announced severance charges.

Now I'll go through the detailed results. Our first quarter revenue of $69.9 million represents a 4% increase from the first quarter 2016. It includes domestic revenue of $63.3 million, an increase of 3% from the prior year period. This increase was primarily due to strong performance from our domestic direct business. International revenue was $6.6 million, an increase of 8% compared to the first quarter of 2016, primarily due to growth in international direct Spine business. On a constant currency basis, international revenue for the first quarter of 2017 was $6.8 million, an increase of 10% compared to the first quarter of 2016.

We saw continued strong performance from our direct business in the first quarter this year with revenue of $43.8 million, an increase of 13% compared to last year's first quarter. We experienced double-digit growth in the Spine, surgical specialties and cardiothoracic direct business segments. However, this growth was offset by declines in our commercial business, which delivered $23.6 million in revenue in the first quarter of 2017, a decrease of 7% compared to the first quarter of 2016. This decline was partly due to lower orders in our OEM trauma business versus last year's first quarter.

However, our commercial business is stabilizing on a sequential basis, and we intend to solidify and grow it.

Our net loss applicable to common shares for the first quarter of 2017 of $2.8 million or $0.05 per fully diluted common share compares to net income applicable to common shares of $1.5 million or $0.03 per fully diluted common share reported in the first quarter of 2016.

The loss in this year's first quarter was primarily driven by our previously disclosed pretax severance charge totaling $4.4 million. Excluding the $4.4 million in pretax severance charges, we reported adjusted net income applicable to common shares of $139,000.

Let me now review the revenue performance of each of our business lines. First quarter direct U.S. Spine revenue increased 19% compared to the first quarter of 2016. During the first quarter, revenue for the Spine business biologics increased 56% compared to the first quarter of 2016. Additionally, hardware revenue increased 12% over the same period. We continued to add new surgeon users and had a record number of surgeon users for both map3 and hardware during the quarter. Our U.S. direct sports and orthopedics business increased 3% compared to the first quarter of 2016, largely due to strong met growth in map3 allograft distributions in the foot and ankle market.

First quarter surgical specialties revenue for our U.S. direct business increased 75% compared to the first quarter of 2016. Growth was driven primarily by our Cortiva allograft surgical mesh used in breast reconstruction procedures. Revenue for our U.S. direct cardiothoracic business in the first quarter increased 24% compared to the first quarter of 2016, primarily due to balanced growth in sternal closure hardware and biologics.

First quarter revenue for our direct international business increased 3%. On a constant currency basis, our direct international business increased 5% compared to the first quarter of 2016. This growth was led by strong performance in the European market, primarily in biologics and in Asia-Pacific, primarily in Spine.

Our commercial/other business decreased 9%, partly due to the lower orders in our OEM business that I mentioned previously. First quarter adjusted EBITDA of $6.5 million was 9% of our revenues for the same period. This compares to adjusted EBITDA of $9.1 million or 14% of revenues for the first quarter of 2016.

Gross margin for the first quarter of 2017 was 51% compared to 53% for the first quarter of 2016. The decrease in gross margin was primarily due to lower production levels in the first quarter of 2017 as compared to the first quarter of 2016, and the impact of deferred unfavorable manufacturing variance that capitalized at the end of 2016 being amortized in the cost of sales in the first quarter of 2017.

We expect the headwinds from amortization of this deferral into cost of sales to diminish in the second half of the year.

During the first quarter of 2017, marketing, general and administrative expenses totaled $29.7 million, an increase of $2.1 million or 8% compared to the first quarter of 2016. The increase was primarily due to higher variable compensation and distributor commission expenses on direct revenue, mostly in our Spine business.

Research and development expenses totaled $3.7 million, an increase of $473,000 due to lower project spend. Operating loss for the first quarter of 2017 was $2 million compared to operating income of $4 million for the first quarter of 2016. Excluding the $4.4 million of severance charges, adjusted operating income in the first quarter of 2017 was $2.4 million. Our tax rate for the first quarter of 2017 was a 33% benefit compared with 35% provisioned in the first quarter of 2016.

Turning to the balance sheet. Our cash position at the end of the first quarter was $17.6 million, an increase of $3.7 million compared to our cash position at the end of 2016. Working capital at the end of the first quarter 2017 totaled $116.2 million, a decrease of $5.2 million compared to working capital at the end of 2016.

At the end of the first quarter this year, we had $81.1 million of debt and approximately $9.5 million available under our revolving credit facility. Based on the results from the first quarter, we are reaffirming our full year 2017 revenue guidance of between $274 million and $285 million, and our full year 2017 adjusted net income per fully diluted share guidance of between $0.05 and $0.10.

As we continue to execute on our cost savings plans and focus the business on profitable growth, we may incur additional severance loss restructuring charges. We will update you accordingly on these activities on our next call.

With that, Camille and I would be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Matt Hewitt from Craig-Hallum & Company.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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A couple of questions. First, as you look at the company today and obviously, you've only been onboard for 6 weeks. But one of the things that I think has eluded RTI has been the double-digit growth, a total double-digit reported number. Do you think that's achievable? And what's it going to take to get the company there?

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [3]

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So I think this theme has demonstrated where we've made the investment on the direct side that it is achievable. And then when you look at that and you say to what extent and how far out, when we see the size of our business compared to the markets that we're competing on where -- competing in, where we've invested, I think that it is with us for the foreseeable future. So if you take the cardiothoracic closure, if you take the Spine business, if you take the specialty therapies business, I think all these where we've gone direct, there is opportunity to continue in that double-digit. I also feel that the -- there is more opportunity to resume growth and potentially be in solid maybe single-digit, but definitely reversing the trend we're in on the OEM side. The market is there. We have very good products. We have great engineers. We have very good relationships with our customers. It's just that the growth on the direct channels came at the expense of less focus in this area. And as you heard in my comments, we're going to be refocusing as well in that arena.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Okay. On the flip side, I think in your prepared remarks, you mentioned that there are some challenges. As you see the company today, what are the -- maybe the 1 or 2 areas, in particular, that you would like to either stabilize or are maybe looking to divest it if that becomes the route?

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [5]

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The big levers when we talk about that is we need to focus our R&D and our talent and resource allocation in line with the areas that present the biggest opportunities for growth, profitability and cash generation. That adjustment is not an -- it's an easy one on paper, but you need to kind of put the systems, reallocate the team, it may take time to finish certain things that are halfway through in order to do that. So that's one part. The second part is, we're moving from a function-first organization that I've alluded to, to more of cross functional collaboration where passing of the baton matters a lot and that's a very different team effort that -- it's all about practicing together that is going to make the difference. And that will take some time. So I'm confident in that there is nothing fundamentally broken that is going to prevent us from getting there. But thinking about focusing innovation, flawless execution, reallocation and readjustment of resources would be the top 3 challenges that I see having to focus our energy on.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Okay. And then Rob, this might be for you. Gross margins, you mentioned that we should see an uptick in the second half of the year. I'm assuming that -- is that to kind get you back into that 53%, maybe a little bit higher range? And is there opportunity for that to continue to expand as we look, maybe a little bit farther out, whether it's '18 or '19?

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Robert P. Jordheim, RTI Surgical, Inc. - CFO and EVP [7]

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Yes, Matt, I think to your point, if you look at our gross margin at 51%, as I said in the prepared remarks, we did have a headwind from the -- or we do have a headwind from the amortization of deferred manufacturing variances from last year. If you recall, we did say that we intentionally have slowed down the plants to limit inventory growth. We're seeing part of that flow through the P&L the first half of this year. But the good news is when you look at the second half, that will burn off. And with the natural mix that we have towards our direct products, we're going to see -- we should see a sequential improvement in our margin this year and even going into next year.

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Operator [8]

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Our next question comes from the line of Dominick Leali from Raymond James.

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Dominick Leali, [9]

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This is Dominick in for Jayson. I just wanted to start with the restructuring. So on the last call, you guys announced Phase 1 and then mentioned as Camille comes on board, there'd be Phase 2 when you look at further restructuring or different things you could do. So I was wondering if Phase 2 could also include further cost-cutting initiatives or whether that was divesting the business? I was wondering what else could we see in the next coming months from you guys in that respect?

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [10]

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So, this is Camille. Let me comment. One of the things that we're focused on right now is finishing what we started. And that is the Phase 1. In terms of Phase 2, I would like to finish my deep dive into the business and finishing the strategic assessment and refocus on that business. So we'll come back in a few months and talk about that like I said in my opening remarks. But what I can share with you, so that would be helpful and in line with what we said, we've communicated externally differently, so you can see what we're doing. We believe that our gross margin has some room for improvement, but the bigger opportunity for us is in freeing up organizational capacity below that. And so how we're going to work together, how we're going to structure the business, how we're going to get things done is going to lead us to believe where is the opportunity for the restructuring and how deep would that be. It's premature at this point. We think that there is a lot of opportunity when we benchmark ourselves to a hybrid company, if we want to be in the top decile, which is our aspiration over time, then what are the choices we have to make in making us free up that organizational capacity. And you're going to see that -- and we'll articulate that more, I just need time to finish my deep dive on the strategic assessment of the business.

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Dominick Leali, [11]

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Okay. That makes sense. In terms of the quarter, direct international and surgical specialties were really strong quarter-over-quarter and year-over-year. I was just wondering if that momentum can be sustained going forward in the year?

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [12]

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My answer is, yes. And again, you're starting from a relatively smaller base in the surgical specialty. So yes, we can anticipate that the products are doing well, some we’re also introducing on the international side. And we expect them to pick up some momentum. So it kind of goes hand-in-hand, you may end up seeing both happening where surgical specialty internationally also helps in that growth as well. And then on the international side, I think, yes, that we do believe -- we do have, as you can imagine, it's a larger basket of different countries and businesses, but we can sustain solid growth in that area as well.

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Dominick Leali, [13]

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Okay. And I think you guys have mentioned in the past there was an opportunity with a distributor coming onboard in China in the direct, I think the direct international business. So I was wondering if you could frame that opportunity for us and maybe what we could see from it.

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [14]

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Yes, I mean, strategically, I think we're starting to look at our international markets. And actually, I'm -- I have my deeper dive with the team going internationally starting next week. There will be a delineation in how we're going to run the international business, more focused and more services in the countries where there is more demand for our product where we think that we're going to get the profitability, and we can focus the resources to go deeper and broader in these countries. China is one of them for us. We'll continue that focus, and we expect that to pay dividends in line with our expectation.

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Dominick Leali, [15]

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Okay. And I just had 2 quick ones. On focused products, it sounded really good from the prepared comments. I was wondering if there was a percent of revenue we could sort of label them with?

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Robert P. Jordheim, RTI Surgical, Inc. - CFO and EVP [16]

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Yes, this is Rob. Focused products in the first quarter represented about 14% of our total revenue. And as you recall, focused products included our map3 bone growth substitute, our nanOss synthetic bone growth substitute and our direct surgical specialties business.

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Dominick Leali, [17]

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Okay. And then just the last one. The other revenue. It looked like it was down a bit year-over-year. I was just wondering if that's something we should see stable about at that range going forward?

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Robert P. Jordheim, RTI Surgical, Inc. - CFO and EVP [18]

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Yes. I think that, that probably is a good -- this quarter is a good proxy for the following 3 quarters. Included in other revenue is really deferred amortization from exclusivity payments and things like that. And also, we do some third-party recoveries and things of that nature for other tissue banks. And that business can be a little bit lumpy. It's pretty small, but it can be a little lumpy. So I would say Q1, again, is probably a good proxy for the remainder of the year.

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Operator [19]

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(Operator Instructions) And I'm showing we have a question from the line of John Gillings from JMP Securities.

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John Trevor Gillings, JMP Securities LLC, Research Division - VP and Research Analyst [20]

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So Camille, I'm sure you kicked the tires a little bit before accepting the job. So I'm sure you haven't been entirely surprised, but you've given us some high level color on what you've seen so far. But I'm wondering if you could let us know is there anything in the last 6 weeks that's been a surprise, either on the good side or the bad side.

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [21]

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Yes. I mean, I can tell you mostly on the good side. When I look the people side, that was a big positive for me. And I went out my way to articulate that in my prepared remarks, there is a lot of experience and there is a lot of desire to win in the culture in this company. We just need to guide it and channel it in the right direction. The products, the margin on these products, the quality of the products are good, well received. The channel is strong and getting stronger. The market -- there is demand for our products. So the fundamentals are there, and in a way there is nothing that's really fundamentally broken. We just need to evolve as we've had 2 or 3 acquisitions, how do we get ourselves ready to start building scale in our businesses. That said, some of the work we have ahead of us as we continue to grow organically or maybe potentially inorganically, some of our processes are going to be challenged and because they came from individual smaller businesses. And our job is to make sure as we (inaudible) organization towards more cross collaboration to have processes that can scale with us as we go towards the future. So that's basically what I would say, the big ones for me.

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John Trevor Gillings, JMP Securities LLC, Research Division - VP and Research Analyst [22]

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Okay. Great. That's helpful. And then I just wanted to ask quickly about the commercial business. It was down a lot last year. We're expecting it to be flat to down a little bit this year. And historically, at least, it's one that's tended to be a little bit more challenging to predict based on potentially big orders and in a certain quarter from one of the OEM customers, one or the other of them. So in the time that you've had, what is it that makes you comfortable enough about that business to, not just sort of keep it as a maintenance business, but to actually increase investment there?

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [23]

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Yes, I like it. I think there is a lot of tailwind with us in terms of our customers want to outsource more. We have the know-how and the R&D to be able to help them with that, either make their products and services better or even make improvements to the procedure, where we are more relevant. And we've demonstrated that where we have differentiation, we get stickiness and we get price. And I like that aspect of that. So this is not just a straight contract manufacturing. Not to mention that this business when you look at the net EBITDA and EBIT, it is pretty good. And if we're going to continue to grow in the other parts of the business, this one needs to resume growth, so that it throws off the cash that we also need to make the other investments. So we're good at it, the market trends are there. It has attractive margins and cash for us, why wouldn't we invest in it.

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John Trevor Gillings, JMP Securities LLC, Research Division - VP and Research Analyst [24]

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All right. That makes sense. Next I just want to turn really quickly to the surgical specialties business. At less than $2 million this quarter that certainly qualifies as one of those businesses you alluded to that’s small versus the opportunity that's there. And RTI has some great products. Can you just give us some color on how things are going both in terms of the surgeon symposiums and in terms of sort of ramping up productivity of the sales force that’s there? Just to help us get a little bit more color about that how that's going and what the potential is for that business?

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [25]

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Look, like I said, the growth and the numbers are speaking for themselves in that we're off and we're doing well and you can see the growth rates with it. Well received, doing well. We expect more. We want more. The challenge in these areas and I don't have a view, but if you were me, you would ask yourself the question, how do you treat the most number of patients in the shortest time possible? And do we continue down the direct channel? And what is it going to take for us to be of relevant size and make that be a beachhead for us? And what are the alternatives to that? These are things I'm considering. I don't have the juries out yet. And with time, we'll hone in on it. But for now, it's really growing well and is doing what we expect it to do.

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Operator [26]

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Thank you. At this time, I'm not showing any further questions and would like to turn the call back over to Camille Farhat for closing remarks.

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Camille I. Farhat, RTI Surgical, Inc. - CEO, President and Director [27]

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So I want to thank you again for joining us this morning and for your interest in RTI. As you could tell, we are off to a good start on our path to returning RTI to long-term sustainable profitable growth. We are optimistic about our progress thus far. And we remain comfortable with the 2017 outlook we announced last quarter. We have a great deal more to do. We get that. We'll continue to seek profitable growth and be guided by ensuring that our resources spending and other costs are calibrated to our revenue expectations across our business. And while I know we have more specifics to provide you about our path forward, I hope you now have a better sense of how we're rethinking our business and approaching our business. We're looking forward to staying in touch with you and continuing to update you about the progress we are making against our turnaround plan. Again, thanks for joining, and have a great day.

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Operator [28]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.