Xtant Medical Holdings Inc (XTNT) 2011 Q3 法說會逐字稿

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, 2011. With us today are Guy Cook, the Company's founder and Chief Executive Officer; and John Gandolfo, Bacterin's Chief Financial Officer. Following the remarks, we'll open up the call for your questions. And 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 a 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 Investors section of the Company's website at www.Bacterin.com.

Now I'd like to turn the conference over to the Chief Executive Officer of Bacterin, Guy Cook. Sir, please proceed.

Thank you, Todeo, and good afternoon to all. Thank you for joining us today to discuss our third-quarter 2011 results. We issued a press release this afternoon announcing our financial results for the third quarter.

We increased our revenue 80% in third quarter over the same year-ago period, and it marked our eighth consecutive quarter of record revenue growth. We attribute this to our strength in infrastructure, and continued product traction and penetration in networks of hospitals and medical providers. As we leveraged our existing sales force into new callpoints, our management reorganization increased the capacity and efficiency of our operational platform to our best processing performance for a quarter.

Now before we go too much further, I'd like to turn the call over to our CFO, John Gandolfo, who will walk us through a summary of the quarter and the year's financial results. When he's finished, I'll return and review our operational progress, M&A activities, and how the fourth quarter has been shaping up. Then we'll open up the call to your questions. John?

Thank you, Guy. And thanks, everyone, for joining us today.

Now turning to our results in the third quarter of 2011, as Guy mentioned, revenues for the quarter were up 80% to a record $7.5 million from $4.2 million in the same year-ago quarter, and up slightly from the $7.5 million reported in the second quarter of 2011. For the first nine months of 2011, revenues totaled a record $21 million, up 108% versus $10.1 million in the same period of 2010. The increase in revenue was primarily attributed to the Company's continued market penetration, driven by unique product benefits for both the patient and medical care provider, combined with the continued expansion of the Company's direct sales force.

Our gross profit margin for the quarter was 82.5% as compared to 76.8% in the previous quarter, and 83% in the year-ago quarter. For the first nine months of 2011, gross profit margin was 80.8% versus 81.9% in the same year-ago period. Despite slightly lower margins year-over-year and a typical seasonally-down quarter for the industry, we exceeded our previously-given guidance of gross margins between 75% and 80%.

Our operating expenses for the quarter totaled $7.8 million as compared to $6 million in the previous quarter, and $5.6 million in the third quarter of 2010. For the first nine months of 2011, operating expenses totaled $20.8 million as compared to total operating expenses of $12.9 million in the same year-ago period. The increase was largely the result of increased non-cash restricted stock and stock option compensation expense, as well as increased sales, salaries, and commission expenses associated with the revenue increase between the periods.

Sales and marketing expenses were approximately $4.8 million in the third quarter of 2011. This was due to increased salaries and commission costs compared to the second quarter of 2011. Operating loss for the quarter was $1.6 million versus a $0.3 million loss in the previous quarter. This was due primarily to increased non-cash restricted stock compensation expense and non-cash stock option compensation expense. The operating loss for the third quarter of 2011 improved 25% from an operating loss of $2.1 million in the third quarter of 2010.

Net loss was $3.2 million or $0.08 per basic share for the quarter. This compares to a net loss of $405,000 or $0.01 per share in the previous quarter, and a net loss of $9 million or $0.26 per basic share in the same year-ago quarter. The third-quarter net loss includes $1.3 million for a one-time write-off of a debt discount associated with the MidCap financing transaction, as well as $371,000 for the pre-payment of interest expense associated with that transaction.

In the first nine months of 2011, net income was $1.3 million or $0.04 per basic share, including a decrease of non-cash warrant derivative liability of approximately $7.5 million. This compares to a net loss of $12.7 million or $0.42 per basic share in the same year-ago period of 2010, and that included an increase of approximately $6.8 million in a non-cash warrant derivative liability.

EBITDA for the quarter totaled a loss of $316,000 and this compared to positive EBITDA of $35,000 for the previous quarter and a EBITDA loss of $818,000 in the third quarter of 2010. The sequential decrease in EBITDA for the third quarter of 2011 compared to the second quarter of 2011 was primarily due to increased sales and marketing expenses. Please see the definition and important discussion about our use of EBITDA, a non-GAAP term, in today's earnings release, which is available in the Investor section of our website.

Now looking at the balance sheet, cash and investments at September 30, 2011 totaled $1.8 million, and this compares to $1.4 million at June 30, 2011. The increase in cash during the quarter was primarily due to increased sales and the net proceeds after the repayment of debt from the Company's recently secured $15 million credit facility. The $15 million facility included initial drawdown of $7 million and the Company currently has $8 million available for future acquisitions. We believe our working capital position is adequate with sufficient cash for us to continue to execute our growth strategy. If needed, we do have an equity line of credit in place. However, currently, we don't see any need to draw down on that equity line.

This completes my summary report on our results. For a more detailed and complete analysis of our results for the third quarter, I'd like to direct everyone to our Form 10-Q to be filed with the SEC on November 14, and which will be available at www.SEC.gov and via our website.

I'll be happy to answer any questions you may have during the Q&A session. Now I'd like to turn the call back over to Guy. Guy?

Thank you, John. As reflected in our 80% revenue growth this quarter over the same year-ago quarter, we made a lot of progress across our entire business. As John mentioned, our strong working capital position and finance options have enabled us to be opportunistic in our M&A activity, with $8 million available on our recently secured line of credit.

We acquired Robinson MedSurg, a medical device distribution company, which will eventually add maxillofacial and craniofacial surgery devices to our product portfolio. We anticipate being able to distribute these new orthopedic implant product lines in 2012. We also plan to enhance these orthopedic implants with our antimicrobial coating technology, following anticipated FDA approval in 2012.

Our established biologic product lines are also gaining product traction, such as OsteoSponge, which is a highly effective osteoinductive and osteoconductive bone scaffold that aids in spinal fusion. OsteoSponge has had over 100,000 successful implants since this product was introduced.

We recently reported results of a two-year study for OsteoSponge that showed it to be statistically clinically equivalent to recombinant human bone morphogenetic protein 2 in achieving an interbody fusion based upon radiographic assessment, CT scans, and quality of life outcomes. Surgeons have already reported our bone graft implants easy to use and speed of performance in performing procedures. Also, patients receiving the OsteoSponge graft reported statistically significant less leg pain at two years relative to the rhBMP-2 group.

Our product adoption continues to grow, as we market our biologic and medical device products into new networks of hospitals and medical device providers. To further support product penetration, we've bolstered our operational platform. We've strengthened our infrastructure with new hires and completed a management restructuring, both of which increased the efficiency of our operational platform in terms of procuring better tissues and processing capacity. This led to our best processing performance for a quarter. We believe our platform is now set to support $120 million to $175 million in revenue without significant capital expenditures.

We also significantly improved our donor supply during the quarter by signing four new procurement organizations, doubling the number of procurement agencies since 2010. We now believe our donor supply is sufficient to support our anticipated growth through 2013.

In Q3, we were awarded approval vendor status for our American Medical Concepts. Our preapproved status with AMC opens the door to a leading healthcare delivery network that is dominant in the Northwest US. This also represents our fourth major distribution agreement expanding our network of hospitals. We increased hospital counts to 584 facilities in Q3, an increase of 70% over 343 facilities in the third quarter of 2010.

Our direct sales force model has driven both higher-margin revenues as well as created greater market penetration. In line with putting the infrastructure in place to build the Company for the long-term, we expect our direct sales force to reach approximately 100 employees by 2012, with our next few rounds of hires. For the remainder of the year, we will continue to leverage our higher-margin business model and sales force to execute on further market penetration within our expanding networks of hospitals and medical providers.

We believe this sales ramp-up will help drive another record revenue quarter. Based upon the achievement of the midpoint of this range, we believe we will have positive operating income in the fourth quarter. For the year, we reiterate our previously stated guidance of $30 million to $32 million in revenue. And now with our strength in infrastructure, broadened donor supply, and comprehensive product portfolio, we remain comfortable with our previously stated expectation of $53 million to $56 million in revenue for 2012.

Overall, Q3 demonstrated that we are solidly on track in our corporate development in terms of operational efficiency, procurement agency relationships, broad product portfolio, and market presence, with this all leading to increasing revenues and profitability over the quarters to come.

Now I think we're ready to open the call for your questions. Todeo, please provide the appropriate instructions.

(Operator Instructions) Caroline Corner, McNicoll, Lewis & Vlak.

Congratulations on your progress this quarter. I had a couple of questions. First of all, about revenues. Could you break out what percentage of your revenues were related to OsteoSponge? And along those lines, what, if any, contribution was made from the hMatrix product in the quarter?

Yes, I'll take that, Carolyn. Yes, I would say, again, between 50% to 60% of our revenues are coming from OsteoSponge in its various forms and finished shapes. hMatrix in this point has not been a significant percentage of revenues. We are continuing to build our inventories and get approval for that particular product with our hospital partners. And we do expect it to be a major contributor in 2012.

Okay. Thanks. And then it looks like your royalty stream revenues ticked up this quarter. Can you talk a little bit about where you expect those to go in coming quarters?

It's certainly a modest amount at this point. I would say our main expansion in that product would be our relationship with RyMed and their penetration into the needle-less connector market. At this time, we are expecting a significant uptick for 2012, but we haven't seen it for this quarter.

Okay. And then the product in development for cartilage, the OsteoSponge SC, can you let us know what we should expect to see around data as it relates to that product? Timing of data or studies that are ongoing, et cetera?

Okay. We have a few papers that are soon to be published. We have a 50-patient talar dome study; two sites. That should be published within the next two months, I would say. We have a registry that all of our OsteoSponge SC patients will be entering into. That data will be ongoing. We'll be able to break into that and do some preliminary analysis, I would say, in a 6 to 12-month range. We're also having some independent case studies -- case series being published by sports medicine surgeons that have used the product.

Okay. Thanks, that's helpful. And then my last question, as it relates to the Coatings business, you have distributed products that you're putting your coating on. Can you just walk through how that works with regard to -- the company makes -- the other company makes a product, you coat it, and then you sell it. And then what kind of margins do you get in that kind of situation?

I think probably the best way to understand that is that we are acquiring companies that have a existing orthopedic implant line; an orthopedic implant kit might have 150 to 200 parts. And we think this is a way to jumpstart us to get into the business.

We will be marketing that uncoated orthopedic line through our current direct sales force. We will be applying for the Coated Orthopedic Implant to the FDA in December of this year. We still expect approval in either the second or third quarter of 2012. Once we approved for that, we will begin combining those technologies and again selling them directly.

The coating costs, the variable cost, is nominal. We have pharma-like margins for the coated aspect. We intend to take market share based on our pricing strategy. We'd like to get the product out there, show that it has clinical efficacy. And based on that, we would expect a acute code or a higher reimbursement code once we've established clinical efficacy.

Okay. And the coated product, you expect that you will own outright then, is that correct?

Correct. We currently own all of the coating IP technology, processing capability, but we think a combination of the state-of-the-art coating with a state-of-the-art orthopedic implant line is the best way to go.

And the approval that you expect in the second or third quarter of 2012 is a broad approval for coating of orthopedic implants?

It's specific to the indication, so we believe that the particular submission that we'll be putting in will be fore extremities, which will include foot and ankle indications, trauma, and cranial maxillofacial.

Okay. Great. Thanks for taking my questions, guys.

(Operator Instructions). Nathan Cali, Noble Financial.

Congrats on a nice quarter. Just one quick question on the antimicrobial for approval in 2012. Is there anything left to do there? Or are you just waiting on approval? Or is there anything left from the clinical side of things (multiple speakers) [before you take that] --?

We're still finishing up the actual submission that will go in, in December. There's a variety of assays and cytotox studies that have to be done before you submit that. We are compiling all that data. And it is on track to be submitted in December. And then at that point, we're somewhat at the mercy of the FDA approval process.

As far as the approvals that have been done in the past, have you guys seen a similar timeline that you're kind of expecting your approval to occur?

Correct. This will be the fifth coated device that we've taken to the FDA. The bulk of the work is in the design control before we put the submission together. Once you -- and that can be a multi-year process to compile that data and that information. But once it is submitted, and have all the appropriate forms and procedures, it does move through the 510(k) process. Our prior device submissions have used a different iteration of this coating, have been approved in a -- within one or two cycles, which is a 90 to 180-day process.

Okay. All right, thanks a lot.

Lenny Brecken, Brecken Capital.

Just on that same line of thought, guys, can you -- I mean, assuming you get the approval on the time frame you do for the coated products, what do you think the -- how many products do you think you can get to market? And what do you think the contribution will be in some measurable metric? Thanks.

Once we have approval for that coating, it will go on to all those plates and screws that would be used for those particular indications. So it's -- so we would -- it would go, like, onto a 6-millimeter screw or a 7-millimeter screw. We'd be approved for all of that.

So I think the better way to look at it is, what would be the average sale for a procedure? And we think that number for foot and ankle indications is going to be between 2,000 and 4,000. CMF indications is between 1,500 and 3,000. And trauma, depending on the extent of the trauma, is the cost of the implants. I think we're budgeting between 5% and 10% next year of total revenues for our coated -- for both our orthopedic lines and coated orthopedic lines.

Okay. Just a follow-up. On the operating expense line, I'd noticed that you were a little bit ahead of plan in terms of your spending there. Is it because you thought to hire more people for a bigger sales ramp? And is that why, by the way, Guy -- I don't know if it's relating to the infuse problems or things you see in the channel, and why you gave your revenue capacity range -- I'm just curious. I hope that all ties together somehow. So I just wanted to hear from you.

Okay. I'll take the last one first and probably hand the first one over to John.

But we are seeing a significant uptick in our activity across the country. One of our main competitors continues to have problems -- significant adverse events associated with its use. We are making significant progress in our infrastructure to be able to build out and anticipate that growth.

I would say the entire allograft community is benefiting somewhat by those problems. I think that is a safe and comfortable zone for a lot of orthopedic surgeons who use autograft and allograft. But I think with our particular handling properties, we are a strong competitor to pick up a lot of those sales. I think we have the best price. I think we have the best service in the industry. And I think we're well poised to benefit by the decrease in those sales associated with that product.

And John, you might want to talk about to the shift --?

Yes. Lenny, with respect to your question on the operating expenses, if you look at the Company's G&A and sales and marketing for the second quarter, they totaled about roughly $5.8 million. This quarter, those same figures totaled about $6.8 million. Of that amount, about $400,000 of it was associated with non-cash stock compensation expense.

So the balance of the $600,000 was primarily in the sales and marketing area. But of that $600,000 increase, a big percentage of it related to the commission costs, which were a little higher than we anticipated, because we had a little higher sales from distributors compared to the direct sales force.

So I guess to say in short order, the overall cost base for the Company, especially on a fixed level, really hasn't increased. The increase that occurred is that we had a little higher revenues than we anticipated from the distributors compared to the direct sales force, and they carry a higher commission rate. Now part of the Company's objective and part of our goal going forward is to flip those percentages, and get more from the direct sales force, which will lower our sales and marketing costs as a percentage of our revenues.

Okay. And just one last thing -- Guy, what anecdotal evidence gives you that confidence that you're -- beyond just reading it -- I'm talking about sales channel feedback -- that gives you the confidence that you're necessarily concerned about capacity, which is well above, obviously, 2012 revenues. Can you provide any real anecdotal evidence on exactly what's going on in the channel that could support -- even your existing revenue range, giving us more visibility on that number.

I can just tell you that since we do have a direct sales force, we do own the relationship with the surgeons and, specifically, the hospitals. We hear that that product is basically kicked out of the hospital and there needs to be a reasonable alternative to that. And that's exactly the way we marketed it. And that is the clinical data that we created has shown statistical equivalency to it.

We know firsthand that surgeons are starting to adopt the product; starting to convert the bulk of their procedures over to us. And I think with the new data that's been released, it shows a correlation to cancer with that particular product, changes the risk-benefit scenario significantly. And we think more and more surgeons are looking for an alternative and they -- and I think we fit in that quite well. Other than that, just our direct sales force is asking us to ramp up and get ready for this.

Okay. So you're actually seeing an acceleration towards your product as a result of a competitor's demise, as well as just gaining momentum even without it. Is that basically what I should read it? And then you're seeing it so that -- you're seeing it at an accelerated pace (multiple speakers) -- it picked up in the recent period.

(multiple speakers) I think it's definitely picking up. I think that's been confirmed by their own reports, they're seeing a decrease. I think it was 8% in a quarter-ago period and then 18% last quarter. And we continue to see that happening in the field, almost a hyper level of activity that we're experiencing right now.

Okay, but -- all right. So -- this is my last question -- so why -- if you're seeing -- I guess, is it just too early to say we're going to raise our expectations for the fourth quarter into 2012 at this point? Or is this just -- you're just being conservative? I'm just curious.

I think one is a throughput capacity question. 100% year-over-year growth has its own inherent issues. And I think we address that properly and execute. Yes, I think we compete in $1 billion markets. Regardless of what happens with our competitors' products, there's a lot of market share to go after.

Okay. I'll get back in the queue. I've got a few follow-up things.

Caroline Corner, McNicoll, Lewis & Vlak.

Just following-up Lenny's question a little bit there. With Medtronic having its issues, and as you look to expand into some of that market share that was previously taken by INFUSE, who do you see as your major competitor out there? Is it really just a piecemeal kind of situation, where there's a lot of small competitors that don't have data and don't have the handling abilities? Or is there someone that you think is a formidable competitor, as far as also will be going after that same segment of the market as it's abandoned by INFUSE?

Yes. BOP2 is still the main competitor in the market. I think they own 35%, 40% of the market still. And it's fragmented after that. We see certainly some of the allograft companies as competitors, but we've shown great clinical data and great long-term clinical data that few others have. Few others have a direct sales force that is in orthopedics. Other competitors have focused more on sports med.

But we are in the facilities. Our rep is right there; they can present the argument, present the case for using our product. And we are on contract with the GPOs. That helps us gain market penetration significantly. I think with our med assets agreement, we are preapproved in approximately 80% of the hospitals in the country now.

We also have a significant amount of products already available on the shelf. We have approximately $30 million worth of retail value of inventory. It takes a while to get the right product in the right surgeon's hands to use it. That takes a substantial amount of time. So even though INFUSE may be having its problems, we think we are in a significant competitive advantage over our allograft competitors.

Okay, thanks. And then you mentioned with regard to the Coatings business that you already have five products that have been through the approval process. Are those the products that are associated with your royalty stream?

And then just also about that products, the 510(k) process, you said you would apply for it in December. If that's a 90-day clock and if you have no questions from the FDA, we could see that pretty early in the second quarter as a best case scenario -- is that correct?

Yes, that is correct. The 90-day window comes with somewhat of an asterisk for combinatorial products. When you combine a drug eluting coating with an underlying device, it does move through the 510(k) process. And the other -- the prior four iterations of these have been with -- are associated with the royalty stream. It would be unusual if the FDA had no comments whatsoever the first time through. But again, we've done this many times and we feel we have the bulk of their questions answered in the original submission.

Great. Thanks. That's all I've got. Thank you.

Lenny Brecken, Brecken Capital.

Guys, I don't know what the hospital count grew sequentially and I would assume it grew some. And with the buildout of the sales force, I know it's a seasonally weaker quarter, third quarter, but was there anything that went on that may have pushed sales into the fourth quarter that we didn't touch on?

Well, we are continuing to work on some transactions that had a possibility of closing during the third quarter, that we feel good they might be closing this quarter. So there are -- I don't want to say that we had earmarked it for that quarter, but we're continuing to work on some of those transactions, which had an outside shot of closing in the third quarter. So we do expect some of that, certainly.

In terms of the number of hospital accounts, I think that will remain relatively flat sequentially, mirroring pretty much what the revenues did quarter-over-quarter. But we obviously do expect that to pick back up in the fourth quarter of this year.

Okay. So that probably explained it. So you actually bested -- with that in mind -- bested the industry growth. I mean, I would assume everyone else saw a decline in revenue seasonally and you didn't. So I just wanted to just check on that.

And Guy, can you update us on your efforts when you're going to take the product international? And I had a question about cash needs to follow up on that. Thanks.

We continue to see quite a bit of international activity. We've recently been approved in Canada. We continue to sell in, I think, approximately 15 countries right now. We are looking at partnerships, really, around the world with some domestic sources. We still think it will be probably between 5% and 10% of revenues next year, but we do see significant activity internationally.

And for cash needs, I don't know, John, you want to take that or let (multiple speakers) --?

Do you have a specific question, Lenny, on the cash needs? Or you just want a general discussion?

Yes. No, well, I mean, if -- even if you hit the revenue range, John, can you just walk us through -- you're going to have to build inventory ahead of the ramps, and combine that with the potential to acquire a coatings company here and there during the year. I just wonder would you guys just reiterate what your feelings are in cash needs?

And also, do you have any idea -- because, to distinguish yourselves valuation-wise against your peers, I just want to hear from you what you think your long-term sustainable operating margin range would be on a -- whatever an assumed revenue run rate. I mean, it's clear to me it's not -- you know, you're not going to be a run-of-the-mill type orthopedic company. I think your operating margins, given your cost structure, your gross margin, should be double digits to maybe over 20% at least. Am I in the range here? Or am I missing something?

Well, let me take the first part of that with respect to the cash flow, and then I can get into the operating margins range that we see as we go forward.

In terms of the cash, the Company ended the quarter with $1.8 million. We also have about $6.4 million of accounts receivable as well. So if you combine those two current assets, you're looking at about $8.2 million.

In terms of as we see -- assuming that we're able to achieve our market -- our guidance that we've given, in the fourth quarter and going through every quarter after that, even with the expected increase in inventories, we would be generating positive cash flow. And this is also after the repayment of the MidCap financing debt as well.

So, the way we see it today, based upon the current guidance that we've given, we don't see the need to raise additional capital. That being said -- and this is coming from our current cash balance, our account receivable and where we see the revenues coming in, and our historical collection rates as an aging of AR. That being said, as I mentioned during the script, we do have an equity line of credit available that we would be able to utilize if need be, if, for some reason, things don't go the way we believe that they are going to go.

That being said, I also mentioned we feel comfortable with the current working capital situation that we don't see that, at this point in time, as being something that we'd be drawing down on. So, hopefully, that gives you some insight on the cash and working capital side of the business.

In terms of the Company's operating margins, we do believe that we are going to continue to have 75% to 80% gross margins on the business as we go forward. I think that the key thing in terms of operating leverage are, you're going to have a few factors from that -- one, currently, our sales and marketing expenses as a percentage of revenue are north of 60%. We believe, as we grow our revenues, as we get more direct sales revenues as a percentage of total revenues, as we have new product revenues increasing, we see this percentage going down probably somewhere in the neighborhood of 50% next year, and going down further than that as we get into 2013. So that is the point of leverage that we see with the business.

The other key point is that we don't see a huge amount of increase expected on our General and Administrative expenses. So, when you couple those two points, you have a situation where your operating expenses could get up close to -- your operating income, rather, as a percentage of your total revenues, could get up to, over the next two to three years, somewhere in the 20% to 25% range.

Okay. That's not unlike what I think Caroline was expecting in '13 -- by '13, anyway. Okay, thank you.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Cook. Sir, please proceed.

Thank you, Todeo. I want to thank each of you for joining us this evening, and I especially want to thank you for your insightful questions and comments. As we advance in the remainder of 2011, our overriding priority will continue to be delivering the best quality medical devices and biologic products for our clients, and sustaining Bacterin's position as a provider of choice in the areas that we serve.

I thank you for your continued interest in Bacterin as we continue to make progress, and I look forward to speaking with you again in the near future. And again, as always, we would like to thank all the donor families for their precious gift of tissue donation. Thank you very much.

Before we end today's presentation, I would like to take a moment to read the Company's Safe Harbor statement that provides important cautions regarding forward-looking statements.

During this call, the management and representatives of Bacterin International have made comments that may be deemed to be forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995 that are subject to significant risks and uncertainties. The forward-looking statements include information concerning the Company's future results, operations, financing, products, research, testing, employment levels, market analysis, implementation, business strategy and expansion plans.

Statements made during this call that were forward-looking include, but are not limited to, statements made by the speakers that the Company believes working capital position is adequate with sufficient cash for it to execute its growth strategy; Bacterin's expectation to distribute its new orthopedic implant product line in 2012; the Company's plans to enhance these orthopedic implants with our antimicrobial coating technology in 2012; Bacterin's anticipated FDA approval in 2012; that the Company expects continued product traction and adoption; Bacterin's belief that its donor supply is sufficient to support our anticipated growth through 2013; the Company's expectation its direct sales force to reach 100 employees by 2012; Bacterin anticipates positive operating income in the Q4; the Company's guidance to $30 million to $32 million in revenue in 2011; and Bacterin's expectation of $53 million to $56 million in revenue for 2012.

If you consider forward-looking statements, you should understand that such statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions that could cause actual results to differ materially from the anticipated results contained in the forward-looking statements, including the Company's ability to accomplish goals and strategies; operational and clinical effectiveness of its products; the ability of the Company's sales force to achieve expected results; FDA approval of its products; and general economic conditions.

Additional information concerning these and other factors that may cause actual results to differ materially from those anticipated in forward-looking statements is contained in the Risk Factors section of the Company's Annual Report on Form 10-K.

In closing, I would like to remind everyone that this call will be available for replay for one month starting this afternoon, approximately two hours after the completion of this call. Please refer to today's press release for dial-in replay instructions. The webcast replay will also be available via the Investors section of the Company's website at www.Bacterin.com.

Thank you, ladies and gentlemen, for joining us today for our presentation. This concludes today's call. You may now disconnect.