Good afternoon, ladies and gentlemen, and welcome to the 2012 First Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Jeff Schumm, Senior Vice President and General Counsel. Sir, the floor is yours.

Thanks, operator, and good afternoon, everyone. I would like to welcome you to the Orthofix First Quarter 2012 Earnings Call. Joining me on the call today is our President and Chief Executive Officer, Bob Vaters; Senior Vice President and Chief Financial Officer, Brian McCollum and President of Biologics and Senior Vice President of Business Development, Mike Finegan. I'll start with our Safe Harbor statements and then pass over to Bob. During this call, we will be making forward-looking statements that involve risks and uncertainties. All statements other than those of historical fact are forward-looking statements, including any earnings guidance we provide, and any statements about our plans, beliefs, strategies, expectations, goals or objectives. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matters contained in such statements will occur. The forward-looking statements we make on today’s call are based on our beliefs and expectations as of today, April 26, 2012. We do not undertake any obligation to revise or update such forward-looking statements. Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risk disclosed under the heading, risk factors, in our 2011 Form 10k filed with the SEC. If you need copies, please contact my office at Orthofix in Lewisville, Texas. In addition, note that on today’s call we will refer to certain non-GAAP financial measures in which we exclude certain items from our GAAP financial results. We believe that in order to properly understand our short term and long term financial trends, investors may wish to consider the impact of these items as a supplement to financial performance measures determined in accordance with GAAP. Please refer to today’s press release announcing our first quarter 2012 results available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results. At this point, I will turn the call over to Bob.

Thanks, Jeff, and good afternoon everyone. Thanks for joining us for the second time this week following our announcement of the definitive agreement to sell our sports medicine business. Today we will be discussing our first quarter 2012 earnings. Hopefully you've had -- all had a chance to see our press release. I'll start the call by providing some key highlights that led to our 200 basis points improvement in adjusted operating margin and double digit adjusted earnings per share growth. I'll then turn her over to Brian to give more detailed on financial results following by some general comments before kicking it off to Q&A. The first quarter was highlighted by continued strong performance of our regenerative biologics offering, a return to year-over-year growth in regenerative stimulation and a return to investment and R&D while still maintaining double digit earnings growth. We also continued to strength our balance sheet which provides a strategic advantage to invest in our spine and orthopedic value proposition. This opportunity or advantage will be further enhanced upon the closing of the strategic divesture of the sports medicine business unit that we announced Tuesday. As we discussed on Tuesday's call, the sale of our sports medicine business unit will enable us to divest a portfolio asset that was not integrated into our business as a sales and EBITDA multiple, higher than our pre-announcement corporate trading multiple. Net proceeds will be used to pay down debt, which significantly deleverages the company and increases our borrowing capacity that will help accelerate the enhancement of our value proposition. That proposition is all about offering repair and regenerative solutions for the spine and orthopedics markets with extremely exciting emerging biologics technologies. All of these emerging technologies can be distributed for both the spine and the orthopedics markets. Following the…

Thanks, Bob. Going through the income statement for the quarter, Bob covered revenues and gross margins, so I'll start with operating expenses and move on to the balance sheet. Finally I will update our revenue and earnings guidance for the full year 2012 based upon the announced signing of the definitive agreement to sell our sports medicine business. SG&A expenses were $79.2 million for the quarter at 55.3% of sales down from 56.4% in the prior year. This improvement is a result of lower legal costs associated with various U.S. government resolutions which were partially offset by higher expenses related to private liability matters and the sports medicine business unit. We continue to incur out-of-pocket litigation and settlement cost associated with product liability claims related to our former Pain Care product line we divested in 2008. These out-of-pocket expenses were $1.8 million during the quarter. As we discussed a couple of days ago regarding the signing of a definitive agreement to sell our sports medicine business, the expenses associated with the retained liabilities will not be part of how we assess the results of our ongoing business but rather will be reported in the results from discontinued operations. R&D expenses in the quarter were 7.7 million or 5.4% of sales, up 110 basis points from last year’s 4.3%. The increased spending reflects our reinvigorated commitment to building a more robust product pipeline and making smarter investments in clinical and R&D projects. As Bob mentioned, an example of what we believe to be dollars well spent is the $1 million investment we made during the quarter as part of our development agreement with MTF. We expect to make further payments associated with disagreement totaling $2 million in the second half of 2012. Adjusted operating margin in the quarter was 16.3%, up…

Thank you, Brian. I am extremely proud of the operational and strategic accomplishments during the first quarter of 2012. I am thrilled to report the renewed focus on R&D and investment into the future growth of the company. I am equally thrilled about our continued strong performance of our regenerative biologics offering and the return to year-over-year growth in regenerative stimulation business. By the way, we accomplished all this while achieving double digit earnings growth. I believe this appropriately sets the tone for what we expect to accomplish in 2012 and beyond, especially following the divestiture of the sports medicine business. With that operator, let's open the line for questions.

[Operator Instructions] Our first question is coming from Raj Denhoy from Jefferies.

Wonder if I could ask -- just maybe -- somewhat maybe better offline, but it's interesting to note that you took $100 million plus out of revenue, your earnings numbers stayed exactly the same in terms of your guidance. The implication is that the margin structure is improving fairly dramatically and that you guys didn’t give much detail around how we should think about things like gross margin SG&A, R&D, with this new revenue basin. And I'm curious, do you want to do that now or perhaps you're going to provide for us a more detailed guidance and how we should think about those lines with the business as it exists now.

Your -- you said it well. Your analysis is correct. As I said in my -- as I actually will probably say later is when we find the final closing timing of the sports medicine business, we might have more to say. But at this point, we're looking at a breakeven effect on our earnings and proving it as you said in our operating margins. So I am hopeful that the things you just said are going to happen.

But again, maybe I'll just ask it this way, when you guys had guided I think it was 18% to 20% operating margins exiting the year. I'm guessing that's now going to be commencedly higher with sports medicine out. I mean what should we think about in terms of an operating margin target for you guys by the end of the year and entering 2013?

You're right, with the margin profile improving; we gave you the 200 to 300 basis points at the top of the gross margin line. So obviously, some of that will come down to the bottom line. Where we have to decide what we need to do is how much do we want to invest in the business now that we do have this margin profile improvement. I think mod alludes to it well. We need for us to close the transaction. We need to be able to get a quarter to where you can see and where we can see exactly what those profiles are from this resulting operations and they will be able to give you a little more definitive clarity around 2012 -- the remaining of 2012.

Okay, so I guess the way perhaps to think about it is that you've got some flexibility now in a sense when you have a target on the bottom line, lots of moving parts in the middle and we'll just wait for more detail.

That's correct.

Okay, maybe just one product question if I could, too. You mentioned a couple of times, your excitement around Trinity Evolution, and if you could just provide perhaps some detail around where you're seeing the success, whether its spine, whether it's on the ortho side, in particular, indications where you perhaps have good performance there.

Raj, this is Mike. We're seeing strong continuing evolution across the entirety of the business, both in orthopedics and also in spine. And in terms of the specifics around that, we continue to pick up new customers; we continue to do well with our existing customers. This last quarter, we did particularly well in adding a lot of new customers and most of those new customers were in both big hospitals and mid-sized hospitals. So it's hard to put a finger on it specifically, but I can just tell you the strength of the business in both channels and in every receptor is very strong.

[Operator Instructions ] Our next question is coming from Matt Miksic from Piper Jaffray.

A couple of-- on follow up on Trinity Evolution and the success you're having there. Wondering what kind of investments, as you think about investments and then things to drive growth. Data -- clinical data, where does that fall in the spectrum? Do you find a demand for that? It's hard to imagine that, that's much of a pushback because you're doing quite well with the products, but where and when do you think that's important to follow up with some sort of clinical data around the product.

We have done a lot of in terms of publishing case studies that relate to marketing materials for our folks. Those have been at the request of some physicians who have had a number of cases and a lot of success. In addition to that, we have 3 different post market evaluations that are ongoing. Two in spine, one in surgical, one in lumbar, and we've got a foot-neck fusion study as well. Enrollment in those studies is complete, but they've got significant follow-up periods. So we're not going to have data from those for some time. With regards to the broader question of clinical data and its importance, the demand for the tissue form and for natural solutions to bone grafting and for various safe tissue forms and bone grafting solutions, it's very strong in the market. So independent of data, as you said we're doing quite well. But we do see the data piece as an important element, and we expect to add that to our marketing campaign as we go through time.

And then a follow up on, I think I asked you earlier in the week about potentially investing, reinvesting some of this accretion. There is accretion from this deal, and it seems like there will be the divestiture. And the legal spin that you're unwinding in R&D. I guess just maybe a modeling question long-term. I think about your model and the fact that one or a couple of your fastest growing products are really being developed externally in some ways. Their -- MTF has done a fair amount of research. You've funded some of that research, capacity expansion and so on. But as those grow faster, should we see -- how should we think about R&D as a percentage of your revenues given that a good chunk of your revenues is sort of almost like its off balance sheet or off P&L R&D. And then one last one follow up.

This is Bob. I wouldn’t say it's off P&L, because obviously there's $1 million of expense this quarter. Having said that though, we very much look forward to increasing the R&D component of our total revenue, and one of the things that I emphasized in my opening comments was how pleased I was that we actually had a nice increase in the R&D and at the same time grew earnings double digit. So I think you can continuously see an increase in R&D. Again with the increased liquidity or capacity we have from the proposed sale of BREG, I believe that we're going to have many more options, both internally developed as well as inorganically. So I think you should probably see more activity from us, and I can tell you certainly we have already started internal activity towards that end.

Okay, so just a step up, nothing, 5% to 6%, something like that is the right one to think about in terms of R&D spend?

I don't want to give a target quite yet, but to the extent that we grew up significantly more would be very specific.

Okay, then just one last one on the, I think a lot of folks were picking around this early in the week as we were profitability of the outgoing sports medicine business. I apologize if you gave some color, but we were speaking earlier in the week on 2011 numbers. I guess we hadn't, including the spin required around some of the liabilities attached to that business, we were coming up with a number kind of in the low to mid-single digits in terms of an operating margin for that sports business as it is today and in a current quarter, just recently reported quarter. Can you provide any specifics there?

I think what we've done in reiterating our guidance from an EPS from a continuing operations basis is kind of proving that the transaction is mutual is how we're going to look at our business. Once you take the current liability legal things we're retaining and put those in the discontinued operations, coupled out with the earnings that that business was making for us, we see that as neutral. It could go positive or negative depending on the actual timing of the close and how much interest we actually save from a debt repayment. So right now as much as we want to share that, we believe its mutual based upon our expectation and timing. So that is what we're prepared to share today.

Our next question is coming from Spencer Nam from ThinkEquity.

Just a couple of quick questions here. First of all, what's the approximate free cash flow -- annual free cash flow of the continuing operations? Do you guys have an estimate on that?

We haven't been using free cash flow as a metric because we've had all these various litigation and movement in some of these professional fees. So we haven't really gotten to a free cash flow metric that we can peg and to manage how we're doing in future periods from that. So we don't have that number and haven't provided that number.

So it looks like BREG was not contribution the way at least the forward looking was not going to contribute much to the operating income line this year. I am curious what the -- what the attraction, the proclivity in the, and finalizing. What they were seeing in this business that they thought they could improve? How did this all come about from strategic perspective of their end? Can today, think that they could turn this around and turn it into a high cash flow profitable unit, and if so, maybe you could show what they were thinking.

First of all let me just to make it clear, BREG is a leading former, they're in the midst of a very strong year, and we think that they will continue to thrive post transaction. For us the decision was simple. We didn’t see a lot of strategic benefit as we started to focus into the orthopedics and spine business with particular increased investment in emerging biologics technology. So we made a basic decision that we were better off redeploying our free cash flow into those core products. That was not a statement about BREG and their performance. When you look at some of the things you mentioned, you really have to look at the unique litigation profile that BREG was in right now, which we think we got a very good plan to deal with and all of which you will see in the discontinuing operating lines. So really at the end of the day, this is a strategic decision by our company, and we really wish nothing but the best for BREG and its partners.

Our next question is coming from Michael Matson from Mizuho Securities.

So just by my math I am coming up with, you gave the 200 to 300 basis point improvement, you expect the gross margins. And by my math I'm coming up with about a 20% operating margin implied by the fact that you're maintaining your EPS guidance post the BREG transaction. So I guess those are obviously outstanding margins, but I'm just wondering from there, particularly on gross margin but even on operating margin. How much room is less? This has been a great margin story, but it seems like, I'm getting worried its running its quarters, I guess.

I can ensure you; it doesn’t run its course. Having said that, we continue to support the targets that we put out last year, and as you can see, we're achieving it.

Okay. But is there anything specific you can point to, where you can get additional savings I guess particularly on SG&A?

Yes, I think there is going to be a lot of areas across the board that we can get savings on. The only reason I hesitantly specific, obviously we're going to have a higher gross margin profile, that's clear. The only reason on hesitancy is I don't want to be pinned down to a R&D investment number because I think there is going to be a lot of opportunities and I want to be able to be a little bit more flexible in that line in order to drive top line growth. But overall, as I said in my opening statement, one of the really pleasing things to square is we had increased R&D investment and still increase adjusted net income by 17% or net income by 22%.

And then I guess question for Brian on the tax rate. I mean it was lower this quarter at 37%. So what should we expect for the remainder of the year, is it going to stay out in that range or should we model something more back in the original guidance range?

This is Brian. It's probably closer to the lower end of the original guidance range we gave. We gave 38 to 40, 37 results this quarter based upon income and lower tax jurisdictions as some of those foreign countries have been starting contributing to the pre-tax income. I would say it's probably toward the lower end of the original guidance we gave.

Okay and then last question, just on -- you talked about using your new found balance sheet flexibility to potentially pursue acquisitions and so forth and you mentioned some lower extremities products that you're selling now. So I guess I just wanted to see if that was an area of interest versus the existing, well, I guess that is an existing area you're in but it's not been a big focus, I guess. So is that something where you might go from an M&A standpoint?

Do you know what the really good part about having this new found capacity? Is we don't have to do versus as much? In fact we can invest in more than one good thing, and I don't mean that to be cute. I mean that very seriously because we have a couple of core needs. We have a core need in spine to increase our distribution footprint. We have a need to increase product in our US orthopedics business and, of course, we've shown and we continue to be very interested in investing and emerging technologies like biologics, as evidenced by our most recent investment within there. So I don't want to pin one verse together, and I think we would feel really person to do more than one thing.

Our next question is coming from Stan Manny of Mann Family Investors.

Two questions. One is so, and one, no -- so can you Brian, give me the D&A that you expect for the year? Depreciation and amortization.

Stan, this is Brian. I think I can give you the trailing 12 months. If you look at the press release and the trailing 12 month to EBITDA for our leverage perspective that's in the very back. Depreciation and amortization for a trailing 12 month at December 31 was $23.1 million so that would be a good barometer for what you could expect for full years of depreciation and amortization. It would also -- I just wanted to say it'll be in the pen queue as well. You'll be able to see what the quarterly run rate is if that's changed very much's okay.

Bob can you give us a kind of an expected time table on upgrade; Or using the -- you don't have cash but using the liquidities that you have developed. Do you think it's near term, long term? I mean you've been thinking about those for a while, and I think several questions have said, what do you do after this? Can you just give us a little more descriptive color detail of your thoughts?

Sure, Stan. First of all we actually, we do have cash. Obviously most of the cash is isolated for our agreements that we've negotiated. But we still have cash left over there. Importantly, we have a leverage pro forma that is going to be less than one turn and we have a strong operating cash flow. The timing is very difficult, Stan, because we are working on many things but it takes 2 to do a transaction so it's really difficult to determine that. But I'll tell you what the strategy is. The strategy is really simple. To increase our distribution in spine so anything that does that either organically, inorganically we're most interested in. To improve the product portfolio in US orthopedics is something we're very interested in and working on including internally and lastly we couldn’t be more pleased with our MTF and our biologics portfolio and we haven't even introduced the new product, the new products that are going to come out in 2013. So those are the areas we're working on. We have the capacity and more of the bodies, and more of my time is being focused on that. And as we tap in, we'll let you know.

Okay. Do you think you have proper sizing in the spine market or do you think that there's got to be some bigger, broader entities that exist today?

That's a very good question. I think we have a pretty good bag. I'd like it to be a smart full bag and that's where we're developing and working on our increased investment and R&D. I do think we have adequate distribution but I'd like to see more because we do have certain white spots in our geography, particularly in the United States. So both will be areas that I'll be most focused on. We're trying to grow. So it's definitely our goal to get bigger, and I think it's going to be very important to our success.

Yes, I think that seems to be the biggest puzzlement of the questioning is where do you go from here.

But you know, Stan, what I do like, I was asked this question 2 days ago. Obviously, spine assets and spine companies have been suffering from mixed results, but I like our position of increased liquidity and depressed spine prices to execute on that strategy. So we feel as good as we have in many years and certainly -- almost since the beginning of the Blackwood acquisition, we feel like strategically, one of the best positions we've been in many years. And hopefully, one of us -- hope fully it will be better on the Blackstone.

That was our last question. At this time, I'd like to turn the floor over to Bob Vaters for closing remarks.

Thank you, everybody. I'd like to thank you all for making our conference call this week. It's been a very active and productive week for us. We look forward to updating you after the close of this sports medicine divestiture and have a good day. Bye, bye.

Thank you very much ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.