Sonny Bal - CEO Aaron Stout - Controller.

Greetings and welcome to the Amedica Corporation Third Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] It's now my pleasure to introduce your host Dr. Sonny Bal. Thank you, Dr. Bal, you may begin..

Thank you, and good afternoon. The earnings report for the period ending September 30, 2016 has been released and is also on our Company Web site along with the recording of this call. Some discussions items are forward looking projections that are subject to risks, uncertainties and unpredictable variables that are described in our SEC filings.

Actual results may therefore be different from those made in our forward looking statements and we make no guarantees or assurances. In the last earnings call you'll recall that two key goals set forth were reducing of cash burn and revitalizing our sales revenue.

In October we did indeed reduce our headcount by about 38% thereby saving about $2 million per year in operating cash expenses. This was done after a thorough review of the entire company by independent consultants.

We also trimmed our R&D program simply because we have already generated a wealth of data and also to make the R&D program more responsive to our partner's projects and needs rather than simply the pursuit of science.

This summer as you know we completed a successful 12.7 million public offering and as of September end our principle debt is less than $9 million. During the headcount reduction we were mindful to maintain our unique manufacturing strength and expertise and to maintain the strength of our R&D program.

These things allow us to support and maintain key relationships with several large companies as we seek to expand our company beyond its core spine business. So, in terms of the second goal, namely addressing sales, we expect to announce a new sales leader this month.

A seasoned, experienced proven individual with credibility in the spine field specifically.

My emphasis has changed to devoting my time to sales as well in the last few weeks, visiting our customers, articulating our message, engaging our marketing and sales professionals and most importantly converting the wealth of our data and science to actual sales revenue. Something I'm very familiar with given my background as a surgeon.

One thing from the field is very clear and encouraging, namely that our surgeon customers already believe in our mid-tier -- in our science and data and they have no doubt about the products. In fact our technology appeals very much as a unique biomaterial and the only one that is new.

It appeals very much to scientist in every surgeon, the good news therefore is we can turn our sales around and leverage the data we have created to do what it should do, namely drive revenues. Our sales declined in large part because our metals product line was outdate. I said this two years ago.

We were trying to sell an advanced ceramic supported by a hopelessly outdated metal product line, at that time two years ago we invested and made a commitment to upgrading the entire metals portfolio. An obsolete metal product line was hurting revenues including ceramic revenues because of the pull through effect.

Now we have introduced and launched a brand new system, our brand Taurus that was introduced at the NASH Meeting in Boston earlier and we will begin a marketing launch once final FDA clearance is received. Because the product builds on our existing system with enhanced features, FDA approval is much less cumbersome.

We anticipate the first surgical implantation before the end of this year. In terms of ceramics historically we have 30,000 plus cervical lumbar [ph] devices implanted in patients worldwide with a superb record. Going forward the emphasis is on getting that rich clinical data into print.

For example, many surgeons feel that material stiffness which is relevant to ceramics because ceramics are stiff, may affect subsidence risk. Most papers on the literature say that is not true and our own paper will appear shortly in the Journal of the American Academy of Orthopedic Surgeons. Dr.

Paul Suh from North Carolina, one of the surgeons is the author. And it clearly tells you that material stiffness or modulus of elasticity is not related to subsidence risk, this is a major paper for our sales agents. Another one describing the outcomes of our European trial with a porous ceramic spacer is under submission for publication as we speak.

A third paper of retrospective cervical study out of California with our spacers is in preparation, as is the 12 month outcome of our silicon nitride and PEEK lumbar trial from Europe.

I discovered many of our surgeon partners have been diligent about maintaining their own data and so we have a wealth of data to mine in the field, we'll continue publishing that clinical experience throughout the next 12 to 18 months. Keeping in mind we're now 40 plus papers in the hard material science arena already.

Our FDA resubmissions concerning the composite fusion device that is made with the worlds first and only porous structural bioceramic was completed this week and we answered all questions raised by the FDA in exquisite detail. While we cannot control the FDA we expect their reply in the next few weeks.

We developed a dental implant for a partner that has now passed 5 million cyclical mechanical tests and is ready for further development. That dental implant has fine details and differential threads.

The composite fusion device, that's the subject of the FDA resubmission also has unique features and these implants led us as you know to work on 3D printing of silicon nitride and we have been successful as proof-of-concept and a paper describing our success in that area will be published very soon.

We investigated 3D printing particularly for these specialized devices as a more efficient method of manufacture going forward. We continue to work with overseas markets to increase the use of silicon nitride and we had a successful launch in Brazil and are expanding our distribution network.

In China the CFDA testing has begun on silicon nitride samples and is expected to be completed by January 2017 next year, that's the basic material science testing. Following this clinical testing will begin and that will take approximately one year to complete.

In Japan, attractive market, materials testing data and clinical data have been submitted to the Japanese PMDA with the goal of gaining approval without a clinical trial, and things look optimistic given how much data we have.

To summarize we're executing a major new sales strategy with new leadership, launching a new metals product line, a new lateral lumbar cervix ceramic implant line. These products both at the NASH meeting and when I speak with surgeons have sparked genuine interest from new and existing customers.

We continue our relationships to develop a number of products for partners in dental, hip and knee and other product lines.

As you know we have reduced our cash brunt [ph] significantly and we have reduced our debt leaving us with the most important task in the forthcoming months which is to validate our material science and material platform through increased spine sales.

I have Aaron, our Controller with us to answer the questions and I'll continue to give you the financial details.

Next, our third quarter total revenue was $3.4 million, a decrease of 1.4 million from the third quarter of 2015, primarily because of lower private label sales during the quarter and weaker than expected commercial sales, particularly metals during the implementation of the final stages of our commercial sales expansion strategy as we’ve brought on new people.

We expect this plan will be substantially completed during the fourth quarter of this year with benefits expected to be realized during the first quarter of 2017. The decrease in revenue for the third quarter of 2016 was also attributable to continued market pricing pressure and hospital vendor consolidation.

Silicon nitride ceramic sales decreased by $700,000 as compared to sales for the same period in 2015. This decrease is in part due to the timing of initial private label orders last year that was sizeable when compared to the replenishment orders received this quarter.

As we bring on additional distributors, private label and OEM partners, some of that will smooth out. We anticipate this type of fluctuation with large initial orders to fill inventory and then more moderate replenishment orders to maintain proper inventory levels will smooth.

International revenue decreased 0.1 million during the three months ending September 30, 2016 as compared to the same period last year. Our cost of revenue decreased 0.9 million or 53% as compared to the same period in 2015.

The decrease in cost of revenue was primarily a result of the change in sales during 2016 as compared to the same period in 2015. Excluding the impact of the provision for excess and obsolete inventory, our gross profit as a percentage of product revenue increased by nine points to 82% as compared to 73% during the prior year period.

The increase in gross margins is primarily attributable to lower private label sales during the quarter and the moratorium on the medical device excise tax.

Operating expenses for the quarter decreased $200,000 or 3% as compared to the same period in 2015, this decrease was due to lower commission rates paid during the quarter, but these were offset by an increase in legal expenses.

Net loss for the third quarter 2016 was $4.3 million compared to $10.1 million in the prior year period, primarily as a result of improved gross profit and decreases in operating costs and other expenses during the quarter.

As of September 30, 2016 cash totaled $10.6 million, operating cash burn decreased to $5.3 million for the nine months ended September 30, 2016 as compared to 7.1 million in the prior year period, about 25%. We expect our operating cash burn for 2016 to decrease by 20% to 30% year-over-year.

Total principal debt obligations were 9 million as of September 30, 2016 which is a decrease of $11.9 million from September 30, 2015. So, with costs and debt under control and a defined cap table, new products coming on, new sales leadership, the focus is now entirely on growing our top line through enhanced revenues.

Thank you operator, will you please instruct the callers on how to join the queue for questions?.

Dr. Bal there're no questions in queue. I'd like to turn the floor back to you for closing comments..

Yes, thank you for listening and your support of Amedica. We will update with new developments as they happen. As I outlined two years ago when we started there were a number of goals in this company, reducing expense, reducing the size, updating our metals system that was a serious problem. We now have that updated system.

Expanding our product line and most importantly generating some data one way or another to prove whether or not the material works. We are published heavily now, we have credible data and people believe it.

The company is very different than what it was even two years ago and I'm very confident that we can execute on the considerable promise of silicon nitride. Thank you..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..