Financial

RTI Surgical® Announces 2016 First Quarter Results

ALACHUA, Fla.–(BUSINESS WIRE)–RTI Surgical Inc. (RTI) (Nasdaq:RTIX), a global surgical implant company, reported operating results for the first quarter of 2016 as follows:

Quarterly Highlights:

  • Achieved worldwide revenues of $67.4 million, exceeding company revenue guidance of $65 million to $66 million.
  • Achieved net income per fully diluted share of $0.03, meeting company net income per fully diluted share guidance of $0.03.
  • Achieved worldwide direct revenues of $38.7 million, an 11 percent increase over the first quarter of 2015.
    • Achieved U.S. direct spine revenues of $17.1 million, a 17 percent increase over the first quarter of 2015.
    • Achieved direct international revenues of $5.5 million, an 18 percent increase over the first quarter of 2015.
  • Achieved worldwide commercial revenue of $25.3 million, in line with previously issued guidance for the year.
  • Signed an agreement in February with Oxford Performance Materials, Inc. (OPM) to exclusively license its 3-D printing technology platform and proprietary OXPEKK® polymer to manufacture spinal implants for the U.S. markets.
  • Introduced three new spine products – Unison™-C Anterior Cervical Fixation System, a standalone device for the interbody market, Streamline® TL Spinal Fixation System – Deformity Instrumentation, an expansion of our existing system that provides surgeons with the resources necessary to perform challenging adult deformity cases, and the Release® Laminoplasty Fixation System, a system that allows for central spinal cord decompression from C3 to T3 in laminoplasty procedures.

“Results for the quarter were in line with our outlook,” said Brian K. Hutchison, president and chief executive officer. “Strong growth in our direct business offset expected declines in our commercial business. We have a robust pipeline of products to support future growth. In the first quarter we launched three new spine products and entered into an exclusive technology license agreement with Oxford Performance Materials to manufacture spinal implants for the U.S market.”

Worldwide revenues were $67.4 million for the first quarter of 2016 compared to revenues of $68.0 million for the first quarter of 2015. For the first quarter of 2015, the company benefited from $1.5 million in non-recurring accelerated deferred revenue recognition due to loss of exclusivity by its commercial distributor in the breast reconstruction market. Domestic revenues were $61.2 million for the first quarter of 2016 compared to revenues of $62.7 million for the first quarter of 2015. International revenues were $6.2 million for the first quarter of 2016, compared to revenues of $5.3 million for the first quarter of 2015. On a constant currency basis, international revenues for the first quarter of 2016 increased 18 percent compared to the first quarter of 2015.

For the first quarter of 2016, the company reported net income applicable to common shares of $1.5 million and net income per fully diluted common share of $0.03, based on 58.2 million fully diluted shares outstanding, compared to net income applicable to common shares of $2.9 million and net income per fully diluted common share of $0.05 for the first quarter of 2015, based on 57.9 million fully diluted shares outstanding. For the first quarter of 2015, the company benefited from $0.9 million in net income applicable to common shares, or $0.02 in net income per fully diluted common share, due to the previously mentioned accelerated deferred revenue recognition.

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), as detailed in the reconciliation provided later in this release, was $9.1 million for the first quarter of 2016 (14 percent of first quarter 2016 revenues) compared to $10.7 million for the first quarter of 2015 (16 percent of first quarter 2015 revenues).

Fiscal 2016 and Second Quarter Outlook

Based on results from the first quarter, the company is narrowing its full year revenue guidance for 2016. The company now expects that full year revenue for 2016 will range from $282 million to $290 million, as compared to prior guidance of $280 million to $290 million. As compared to 2015, the company expects full year direct revenue to range from 16 percent to 18 percent growth and full year commercial and other revenue to range from 13 percent to 16 percent decline. The company continues to expect full year net income per fully diluted common share to range from $0.18 to $0.21, based on 58.8 million shares outstanding.

For the second quarter of 2016, the company expects revenue will range from $66 million to $67 million, and net income per fully diluted share, as adjusted, to be approximately $0.03, based on 58.3 million fully diluted common shares outstanding. The company expects revenue growth from its direct businesses to be offset by declines in its commercial business.

The above net income per fully diluted common share guidance, as adjusted, excludes expenses expected to be incurred as a result of the contested proxy between the company and Krensavage Partners. At this time, the expenses expected to be incurred as a result of the contested proxy are estimated to be approximately $2.5 million pre-tax, or $0.03 per fully diluted common share, based on 58.8 million shares outstanding. The majority of the $2.5 million pre-tax expense is expected to be incurred in the second quarter of 2016. Due to the inherent unpredictability of a proxy contest, our actual expenditures may differ materially from our current expectations.

Conference Call

RTI will host a conference call and simultaneous audio webcast to discuss the first quarter results at 8:30 a.m. ET today. The conference call can be accessed by dialing (877) 383-7419. The webcast can be accessed through the investor section of RTI’s website atwww.rtix.com. A replay of the conference call will be available on the RTI website following the call.

About RTI Surgical Inc.

RTI Surgical is a leading global surgical implant company providing surgeons with safe biologic, metal and synthetic implants. Committed to delivering a higher standard, RTI’s implants are used in sports medicine, general surgery, spine, orthopedic, trauma and cardiothoracic procedures and are distributed in nearly 50 countries. RTI is headquartered in Alachua, Fla., and has four manufacturing facilities throughout the U.S. and Europe. RTI is accredited in the U.S. by the American Association of Tissue Banks and is a member of AdvaMed. For more information, please visit www.rtix.com.

Forward-Looking Statement

This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including those statements regarding our fiscal 2016 and second quarter outlook, the proxy contest and the potential costs related to such contest. These forward-looking statements are based on management’s current expectations, estimates and projections about our industry, our management’s beliefs and certain assumptions made by our management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties, including the risks described in public filings with the U.S. Securities and Exchange Commission (SEC). Our actual results may differ materially from the anticipated results reflected in these forward-looking statements. Copies of the company’s SEC filings may be obtained by contacting the company or the SEC or by visiting RTI’s website at www.rtix.com or the SEC’s website at www.sec.gov.

RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)
For the Three Months Ended
March 31,
2016 2015
Revenues $ 67,351 $ 68,034
Costs of processing and distribution 31,326 31,035
Gross profit 36,025 36,999
Expenses:
Marketing, general and administrative 27,552 27,255
Research and development 4,161 3,580
Contested proxy expenses 308
Total operating expenses 32,021 30,835
Operating income 4,004 6,164
Total other expense – net (314 ) (294 )
Income before income tax provision 3,690 5,870
Income tax provision (1,289 ) (2,128 )
Net income 2,401 3,742
Convertible preferred dividend (858 ) (808 )
Net income applicable to common shares $ 1,543 $ 2,934
Net income per common share – basic $ 0.03 $ 0.05
Net income per common share – diluted $ 0.03 $ 0.05
Weighted average shares outstanding – basic 57,914,893 57,087,497
Weighted average shares outstanding – diluted 58,211,644 57,949,224
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net Income Applicable to Commons Shares to Adjusted EBITDA
(Unaudited, in thousands)
For the Three Months
Ended March 31,
2016 2015
Net income $ 1,543 $ 2,934
Interest expense, net 360 316
Provision for income taxes 1,289 2,128
Depreciation 3,382 2,944
Amortization of intangible assets 928 1,022
EBITDA 7,502 9,344
Reconciling items for Adjusted EBITDA
Preferred dividend 858 808
Non-cash stock based compensation 500 573
Foreign exchange gain (46 ) (22 )
Other reconciling items(1)
Contested proxy expenses 308
Adjusted EBITDA $ 9,122 $ 10,703
Adjusted EBITDA as a percent of revenues 14 % 16 %
(1 ) See explanations in Use of Non-GAAP Financial Measures section later in this release
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net Income Applicable to Common Shares and Net Income Per Diluted Share to
Adjusted Net Income Applicable to Common Shares and Adjusted Net Income Per Diluted Share
(Unaudited, in thousands, except per share data)
For the Three Months Ended
March 31, 2016 March 31, 2015
Net Net
Income Amount Income Amount
Applicable to per Diluted Applicable to per Diluted
Common Shares Share Common Shares Share
As reported $ 1,543 $ 0.03 $ 2,934 $ 0.05
Contested proxy expenses, net of tax effect (1) 183 $ 0.00
Adjusted $ 1,726 $ 0.03 $ 2,934 $ 0.05
Note: Amounts may not foot due to rounding.

Footnotes:

2016
(1) Contested proxy expenses, net of tax effect, as follows:
Contested proxy expenses $ 308
Tax effect on contested proxy expenses (125 )
Contested proxy expenses, net of tax effect $ 183

Use of Non-GAAP Financial Measures

To supplement the Company’s condensed consolidated financial statements presented on a GAAP basis, the Company discloses adjusted EBITDA, a non-GAAP financial measure that excludes certain amounts. This non-GAAP financial measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States. A reconciliation of the non-GAAP financial measure to the corresponding GAAP measure is included in the table above.

The following is an explanation of the adjustment that management excluded as part of adjusted measures for the three month period ended March 31, 2016 as well as the reason for excluding the individual item:

(1) Contested proxy expenses – This adjustment represent charges relating to contested proxy expenses. Management removes the amount of these expenses from our operating results to supplement a comparison to our past operating performance.

Material Limitations Associated with the Use of Non-GAAP Financial Measures

Adjusted EBITDA should not be considered in isolation, or as a replacement for GAAP measures.

Usefulness of Non-GAAP Financial Measures to Investors

The Company believes that presenting adjusted EBITDA in addition to the related GAAP measures provide investors greater transparency to the information used by management in its financial decision-making which excludes the inventory purchase accounting adjustment. The Company further believes that providing this information better enables the Company’s investors to understand the Company’s overall core performance and to evaluate the methodology used by management to assess and measure such performance.

RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Revenues
(Unaudited, in thousands)
For the Three Months Ended
March 31,
2016 2015
Revenues:
Spine $ 17,094 $ 14,640
Sports medicine and orthopedics 12,520 12,976
Surgical specialties 1,015 650
Cardiothoracic 2,534 1,961
International 5,517 4,671
Subtotal direct 38,680 34,898
Global commercial 25,330 28,919
Other revenues 3,341 4,217
Total revenues $ 67,351 $ 68,034
Domestic revenues 61,184 62,688
International revenues 6,167 5,346
Total revenues $ 67,351 $ 68,034
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
March 31, December 31,
2016 2015
Assets
Cash and cash equivalents $ 11,728 $ 12,614
Accounts receivable – net 42,000 47,243
Inventories – net 122,459 118,673
Prepaid and other current assets 13,157 13,184
Total current assets 189,344 191,714
Property, plant and equipment – net 87,538 84,992
Goodwill 54,887 54,887
Other assets – net 48,556 49,069
Total assets $ 380,325 $ 380,662
Liabilities and Stockholders’ Equity
Accounts payable $ 24,301 $ 20,446
Accrued expenses and other current liabilities 26,564 33,474
Current portion of long-term obligations 5,658 5,853
Total current liabilities 56,523 59,773
Deferred revenue 10,081 9,354
Long-term liabilities 72,800 73,856
Total liabilities 139,404 142,983
Preferred stock, including accrued dividends 57,227 56,323
Stockholders’ equity:
Common stock and additional paid-in capital 416,812 417,337
Accumulated other comprehensive loss (6,580 ) (7,042 )
Accumulated deficit (226,538 ) (228,939 )
Total stockholders’ equity 183,694 181,356
Total liabilities and stockholders’ equity $ 380,325 $ 380,662
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
For the Three Months
Ended March 31,
2016 2015
Cash flows from operating activities:
Net income $ 2,401 $ 3,742
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 4,310 3,966
Stock-based compensation 500 573
Amortization of deferred revenue (1,217 ) (2,746 )
Other items to reconcile to net cash
provided by operating activities 429 (4,529 )
Net cash provided by operating activities 6,423 1,006
Cash flows from investing activities:
Purchases of property, plant and equipment (4,637 ) (4,265 )
Patent and acquired intangible asset costs (1,196 ) (22 )
Net cash used in investing activities (5,833 ) (4,287 )
Cash flows from financing activities:
Proceeds from long-term obligations 3,000
Net proceeds (payments) from short-term obligations (249 ) 510
Payments on long-term obligations (4,133 ) (1,513 )
Other financing activities (108 ) 554
Net cash used in financing activities (1,490 ) (449 )
Effect of exchange rate changes on cash and cash equivalents 14 (69 )
Net decrease in cash and cash equivalents (886 ) (3,799 )
Cash and cash equivalents, beginning of period 12,614 15,703
Cash and cash equivalents, end of period $ 11,728 $ 11,904

Contacts

RTI Surgical Inc.
Robert Jordheim, 386-418-8888
Executive Vice President, Chief Financial Officer
rjordheim@rtix.com
or
Wendy Crites Wacker, APR, 386-418-8888
Vice President, Global Communications
wwacker@rtix.com

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Josh Sandberg

Josh Sandberg is the President of Ortho Spine Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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