Greetings, and welcome to the Bacterin 2013 fourth-quarter results conference call. At this time all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rich Cockrell. Thank you, sir. You may begin.

All right, thank you, Christine and good morning, everyone. Appreciate you joining us on the call today. With me are Dan Goldberger, Bacterin's President and Chief Executive Officer and John Gandolfo, Chief Financial Officer. Yesterday afternoon the Company issued a press release announcing calendar year 2013 financial results within which the Company reported 2013 revenues of approximately $33 million. Today's call is being made available via the Investor Relations section of the Company's website at investor.bacterin.com. Following remarks by management we will open the call to your questions and we anticipate the duration of the call to be approximately one hour. During the course of this call management may make certain forward-looking statements regarding future events and the Company's future performance. These forward-looking statements reflect Bacterin's current perspective on existing trends and information can be identified by such words as expect, plan, will, may, anticipate, believe, should, intends and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties including those noted in the risk factors section of the Company's annual report on Form 10-K. Actual results may differ materially from those projected in the forward-looking statements. For the benefit of those of you who may be listening to the replay, this call was held and recorded on March 20, 2013, at approximately 10 AM Eastern Time. Since then the Company may have made additional announcements related to the topics discussed. Please reference the Company's most recent press releases and current filings with the SEC. Bacterin declines any obligation to update these forward-looking statements except as required by applicable law. With that I would like to turn the call over to Dan.

Thank you, Rich and good morning, everybody. Thank you for joining us today to discuss our fourth-quarter and full-year 2013 results. I will begin by providing highlights on the year and John will conclude with a more detailed review of our financial results. 2013 was a year of great transition for Bacterin. With the change in leadership I brought a variety of new initiatives and disciplines that should return the Company to revenue growth. I am pleased to report that Bacterin's employees and distributor partners have responded with enthusiasm and most of the difficult restructuring has been completed. You don't see that in our financial results yet but you will. The recurring theme in the marketplace about our Company has been that clinicians love our products but Bacterin had became difficult to work with. Understanding our customers is paramount to the success of any business despite having a competitive product. Many of our changes are intended to focus on the customer experience including a variety of internal processes that have worked for me in the past. When I took this position we made a conscious decision not to pursue large domestic stocking orders to independent distributors. The Company's stocking orders in 2011, 2012 and the first quarter of 2013 nearly pulled revenue forward at a discount and created unintended channel conflict, a toxic and short sighted combination. Going forward our business model is direct sales to orthopedics and neurosurgery through our hybrid sales channel. We are also exploring private label relationships and partnerships in plastic surgery and wound care but we are not modeling any contribution from these activities in our forecasts. Since I joined the Company we have been reporting revenue of our core biologics products excluding stocking orders. By this measure fourth-quarter 2013 grew 4.8% year on year…

Thank you, Dan. I'd like to remind our listeners to refer to the 2013 earnings press release issued yesterday and also our Form 10-K for the calendar year 2013, which will be filed in the near future. For the fourth-quarter 2013, revenues were approximately $8.3 million, an increase of 1.7% over fourth-quarter 2012 revenues of approximately $8.1 million. Fourth quarter core recurring biologics revenues, which exclude stocking order transactions, were approximately $8.1 million in 2013 and this represents an increase of 4.8% over the fourth-quarter 2012 and a sequential increase of 5.4% compared to the third quarter of 2013. Revenue for 2013 were approximately $33.1 million as compared to approximately $33 million in 2012. Core recurring biologics revenues for the year were approximately $30.9 million as compared to $30.1 million year-over-year. This represents a 2.5% increase. Gross profit for the fourth-quarter 2013 was $4.1 million, or 49.5% of revenues and this compares to $4.6 million, or 56.3% of revenues in the fourth quarter of 2012. As Dan mentioned, we included a $1.1 million one-time nonrecurring charge in the fourth quarter of 2013's figures related to an increase in the Company's inventory reserve on slow-moving inventory that was manufactured back four to five years ago and is approaching the end of its shelf life. We implemented several marketing initiatives to sell these expiring products throughout 2013 and although these initiatives proved to be partially successful, we made a decision to provide a reserve against these products at the end of the year due to the short remaining shelf life. Excluding the one-time charge gross margin in the fourth quarter of 2013 was approximately 62.8%. For the year gross profit was approximately $18.9 million compared to $22.6 million in 2012. Gross margin for the year was 57.1%, which compares to a gross…

Thank you, John. Our management team and Board of Directors are committed to ensuring that Bacterin grows as a leading biologics company within the regenerative medicine space. We have a very comprehensive and competitive portfolio of regenerative medicine products. Demineralized bone matrix generated almost $400 million in US sales last year and is expected to grow at a 4% to 5% per year. Bacterin holds a 6.5% share behind Medtronic, DePuy and Integra. Acellular dermis for plastic surgery and wound care is another $600 million sales opportunity for our hMatrix product line. These are very large addressable market opportunities. Our revenue growth strategy for 2014 and 2015 is simple. Number 1, a reinvigorated, focused sales effort in our core demineralized bone category to gain market share; number 2, new demineralized bone products to be sold through our existing channel to gain market share; and number 3, careful investments in hMatrix to grow revenue in this new product category. OrbiMed has given Bacterin the financial resources to execute this plan and I'm confident in the team we have assembled at Bacterin. With that we will go ahead and open the call to questions.

(Operator Instructions). Thank you. Our first question comes from the line of Suraj Kalia with Northland Securities. Please proceed with your question.

Good morning, gentlemen. Dan and John, first of all most congrats on a very nice quarter. Let me start out with some questions specifically related to the quarter and then I have a question on the study that was just published this morning. So, Dan, is it fair to assume that direct sales are still about one-third of overall sales?

Yes, sir.

And I know this is a simplistic view, but if I look at 25 reps, let's say one-third of $8 million, we are roughly looking at $125,000 per rep per quarter, so annualized about $0.5 million. I know it's a little simplistic but is it the right way to look at it? And second point is where could this go with the core employees that you have retained now?

So, no, Suraj, that's not the right way to look at it. Those 25 employees are responsible for direct sales but they are also responsible for managing the distributor partners that we have. So the right way to do the arithmetic is to take those 25 sales reps, sales employees, excuse me, they are responsible for the full $8.1 million that we reported in the fourth quarter, so we have various physicians in that total number. Some of them get a relatively smaller commission as an override on what their distributors do but that is the right way to look at our productivity and you get closer to something like $250,000 per head in our sales function per quarter.

Fair enough. So, Dan, let me just jump into two other questions, and I'll get back in queue. Related to the study that was published this morning, Dan, obviously this is not a randomized controlled study. This is a case series, prospectively defined case-series. Having said that a couple of things caught my attention at to the extent that you can shed some additional color, what I read in the study was that OsteoSponge, a fusion at six months was 96%. If I remember correctly some of the, from the PDGF base study is especially for augment at six months were, again I am speaking from memory, were around 60% or so. Am I reading too much into this right now, and I guess the subpart of this question is, do you intend to do any level of randomized controlled study for OsteoSponge in foot and ankle fusions?

So, yes, I really have to defer the interpretation of the study to the physicians involved. The fusion rate is indeed high compared to the standard of care. The standard of care is autologous bone grafts and the challenge in all of these studies is you can't do a control arm because that involves a different procedure. So while it is not the level of science that the pure academics would like to see, I think it is pretty well understood in this space that there is plenty of literature surrounding autologous bone grafts to establish the baseline and a single arm study does have credibility. That said, the investigators are very excited about these results and they are designing a variety of other small prospective studies to continue to explore.

Fair enough. Then one last question and I'll hop back in queue. We've followed you since the time you have joined Bacterin. You just made a statement in your prepared remarks, and I'm paraphrasing, you said we have made some tough reorganization within the firm and you haven't seen the impact yet. But you will. We already know the reps, the number of employees from 60 to 25. Care to give us some additional color and what other things are happening behind the curtain whether it's in streamlining of distributors or whatever, so that I know you don't provide guidance, so that we can potentially take color from your comments and try to map out numbers for fiscal 2014 and beyond.

Absolutely. It's not just the reduction in headcount, what's more important is identifying individuals and skill sets that are successful in our business and then using that understanding of what kind of individuals and experience can be successful with our product category with our channel as a pattern for hiring additional headcount. The other aspect of this behind-the-scenes is we have tremendous success in certain small geographies. What are you doing right in those geographies and how can we replicate that pattern across the United States We have also identified a lot of things that were not effective and so obviously we don't want to do those things anymore. The right way to look at my remarks is that the productivity that 25 sales employees generated in the fourth quarter of 2013 we now understand it. It's not just the people, it's not just the number of people but it's the activities, it's the strategies and as we add additional headcount we get them trained, we introduce them to best practices, we replicate those best practices in the rest of the United States and I am very confident that we will be able to maintain that level of productivity per headcount as we grow the sales function.

Fair enough. Gentlemen, congrats once again. Nice quarter.

Thank you.

Our next question comes from the line of Matt O'Brien with William Blair. Please proceed with your question.

Hi, guys. This is Kaila in for Matt. Just a few quick ones for you. First off, we noticed the following with your former CEO indicating that the Company maybe took private. We just wanted to get your thoughts and opinion on that commentary.

So, thank you for the question. So Guy Cook in his 13G had some comments about exploring a go-private transaction. We do not know exactly what he is contemplating. He has not made a formal proposal to the Company, so there really is nothing for us to respond to. If he does make a formal proposal of course we will take it seriously and study it. But for the time being John and I and the rest of the management team are focused on executing the plan and growing revenue and getting those new products into the marketplace. So it's back to the business at Bacterin.

Okay. And then on the clinical results that were published today, I know this is tough to do, but can you just help to quantify what percentage of your revenue today is coming from foot and ankle procedures? And just how you view that – how you would anticipate that the study will resonate with clinicians over the next few years.

So there are two issues, two features, let me say, of that study. The first answer to your first question, we have relatively small revenue contribution from foot and ankle specifically at this point in time but obviously with Dr. Brigido and his colleagues championing the use of our products in that specialty, we have some marketing opportunities. Bigger picture what that study shows and on the back of many other studies that have been published over the last year or two is dramatic improvement in fusion rates using our products and dramatic reduction in the incidence of non-fusion. And both of those core principles speak to the use of our biologics, OsteoSponge, OsteoSelect, in the broad category of orthopedics procedure where physicians are trying to get bones to heal more quickly and more reliably.

Okay, thank you.

(Operator Instructions). Our next question comes from the line of Jay Harris with Goldsmith & Harris. Please proceed with your question.

First, Dan, I'm very happy to hear that you've joined the Company and the focus you are taking. My first question is what do you expect minimum revenues per salesman on the people you've hired or the kind of person you are hiring, and what do you think they are capable of making if they really excel?

So, as a benchmark we look at our own trailing naturals, so the productivity in the fourth quarter of 2012. We also look at other orthopedics and spine companies that have success in the field to establish those kinds of benchmarks. I think the productivity per head that you just (technical difficulties) on the fourth quarter, that sort of $250,000 per quarter, is a very reasonable target. Many of our individuals carry quotas that are substantially higher than that number. In their last conference call I think we talked about similar numbers, Wright Medical in particular has published a target of $750,000 per head per year. So I think numbers in that ballpark, between $150,000 and $250,000 per head, are at the high end of the productivity in the industry.

And by the end of this year how many salespeople do you think you will have on board?

Our budget is for 40 to 45. One thing I need to caution you case I didn't mention it is it does take time to train new employees and then it does take time for those new employees to fill up their pipeline, to fill up their funnel. So we have to be careful about how we model in the fall productivity from the new cohort of sales professionals that we are bringing in.

As the Company evolves, where do you think you can get the gross margin back to over let's say the next couple of years?

John, I believe in his remarks, talked about a gross margin range of 60% to 63%. I think that is the right number to use for 2014, 2015.

All right, thank you.

(Operator Instructions). Our next question comes from the line of Greg Garner with Millennium. Please proceed with your question.

Thank you for taking my question and I like what you are doing with the sales force here. It just seems like you are moving into a more productive mode for the whole Company. A question on the OsteoSTX. Or, actually no, I really mean the study that was done for the foot and ankle. The standard of care that you had mentioned, Dan, in answering the prior question about the [V in the] bone graft, is there any data that can share with us as to what the relative success rate is given the same time end point that was done for the study that showed your 96% success rate for the Bacterin product?

Yes, so the standard of care is autograft, so bone harvested from the same patient which usually requires another incision. And Suraj identified earlier in his question, Suraj identified some of the literature that talks about a 65% to 75% fusion rate at an early time period at 90 days or 120 days. I am not fluent in the literature around foot and ankle because historically it has been a smaller piece of our business. In other specialties a fusion rate for the standard of care is in the 90% range and so the primary take away from that study is certainly equivalency. The study isn't large enough to start talking about superiority.

Okay. You had mentioned about some other products that would be introduced this year. Would that be similar along the lines of the OsteoSTX? I'm not sure if my interpretation of it is correct but it seems like it's the OsteoSponge just in a different physical configuration that is easier for the physicians to use. So I guess that's a two-part question, is that the right way to look at it? And is that the type of new products that you expect coming out this year or is there another orientation?

I think you're looking at it correctly. I think the marketing textbooks would call these line extensions as opposed to new product categories. And as we come up with new configurations for our core technology in demineralized bone, in some cases these are sizes or packages that are easier for a physician to use in a particular environment. In other cases there is a better value proposition for the physician compared to other things that he is using in those cases. So in the example of OsteoSTX, these multilevel fusions require a lot of bone, frankly, and OsteoSTX is a configuration which is easier and faster for the surgeon to use compared to their standard methods today.

Okay. And the new products that are expected to come out this year, would that be more on the line extension...

Correct. That's the right way to think about our R&D pipeline for the next 12, 18 months.

Okay, great. Thank you.

Thank you. Ladies and gentlemen at this time we have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you. It's been a difficult four to six months for many of the employees and stakeholders at Bacterin. I personally am very gratified to be here. This is a great family of products, really a jewel of a company now that we are coming into our own and we are looking forward to great things in 2014 and beyond. Thank you all for your attention and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.