RTI Surgical® Announces 2015 Fourth Quarter, Full Year Results, 2016 Financial Guidance

Company Achieves Record Annual Revenues

Company Will Hold Conference Call at 8:30 a.m. ET

ALACHUA, Fla.--()--RTI Surgical Inc. (RTI) (Nasdaq:RTIX), a global surgical implant company, reported operating results for the fourth quarter and full year of 2015 as follows:

Quarterly Highlights:

  • Achieved worldwide revenues of $76.1 million, a 7 percent increase over the fourth quarter of 2014 (8 percent on a constant currency basis).
  • Achieved adjusted net income per fully diluted share of $0.09 compared to adjusted net income per fully diluted share of $0.05 for the fourth quarter 2014.
  • Achieved revenues of $18.2 million in the orthofixation business, a 61 percent increase over the fourth quarter of 2014.
  • Achieved revenues of $11.1 million in the BGS and general orthopedic business, an 8 percent increase over the fourth quarter of 2014.
  • Achieved revenues of $6.6 million in the dental business, a 10 percent increase over the fourth quarter of 2014.
  • Achieved revenues of $5.5 million in the international business, an 11 percent increase on a constant currency basis over the fourth quarter of 2014.

2015 Full Year Highlights:

  • Achieved record worldwide revenues of $282.3 million, a 7 percent increase over the full year of 2014 (9 percent on a constant currency basis).
  • Achieved adjusted net income per fully diluted share of $0.23 compared to adjusted net income per fully diluted share of $0.11 for the full year 2014.
  • Achieved revenues of $55.6 million in the orthofixation business, a 50 percent increase over the full year of 2014.
  • Achieved revenues of $42.3 million in the BGS and general orthopedic business, a 15 percent increase over the full year of 2014.
  • Achieved revenues of $23.6 million in the dental business, a 14 percent increase over the full year of 2014.
  • Achieved revenues of $21.9 million in the international business, a 4 percent increase on a constant currency basis over the full year of 2014.
  • nanOss® 3D advanced bone graft substitute was awarded a 2015 Becker's Healthcare Spine Device Award. Becker's Healthcare recognized 25 spine devices throughout the industry for their contributions to advancing spine technology and patient care.

Fourth Quarter 2015

Worldwide revenues were $76.1 million for the fourth quarter of 2015 compared to revenues of $70.9 million for the fourth quarter of 2014. Domestic revenues were $70.6 million for the fourth quarter of 2015 compared to revenues of $65.4 million for the fourth quarter of 2014. International revenues were $5.5 million for the fourth quarter of 2015, which were comparable to the fourth quarter of 2014. On a constant currency basis, international revenues for the fourth quarter of 2015 increased 11 percent compared to the fourth quarter of 2014.

For the fourth quarter of 2015, the company reported net income applicable to common shares of $3.3 million and net income per fully diluted common share of $0.06, based on 58.5 million fully diluted shares outstanding, compared to net loss applicable to common shares of $136 thousand and net loss per fully diluted common share of $0.00 for the fourth quarter of 2014, based on 56.9 million fully diluted shares outstanding.

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), as detailed in the reconciliation provided later in this release, was $14.1 million for the fourth quarter of 2015 (18 percent of fourth quarter 2015 revenues) compared to $10.2 million for the fourth quarter of 2014 (14 percent of fourth quarter 2014 revenues).

Full Year 2015

Worldwide revenues were $282.3 million for the full year of 2015 compared to revenues of $262.8 million for the full year of 2014. Domestic revenues were $260.4 million for the full year of 2015 compared to revenues of $238.9 million for the full year of 2014. International revenues were $21.9 million for the full year of 2015, compared to revenues of $23.9 million for the full year of 2014. On a constant currency basis, international revenues for the full year of 2015 increased 4 percent compared to the full year of 2014.

For the full year of 2015, the company reported net income applicable to common shares of $11.6 million and net income per fully diluted common share of $0.20, based on 58.6 million fully diluted shares outstanding, compared to net loss applicable to common shares of $417 thousand and net loss per fully diluted common share of $0.01 for the full year of 2014, based on 56.7 million fully diluted shares outstanding.

Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA), as detailed in the reconciliation provided later in this release, was $46.3 million for the full year of 2015 (16 percent of full year 2015 revenues) compared to $34.0 million for the full year of 2014 (13 percent of full year 2014 revenues).

“At the beginning of the year we laid out a plan for growth based on our key value drivers of capturing market share in spine hardware, driving growth in our focused products, growing international revenue and controlling spending,” said Brian K. Hutchison, president and chief executive officer. “During 2015, we executed on all our value drivers and delivered strong annual growth of 7 percent. In addition, we more than doubled our adjusted net income per fully diluted common share from $0.11 for the full year 2014 to $0.23 for the full year 2015.”

Fiscal 2016 and First Quarter Outlook

The company expects full year revenues for 2016 to be between $280 million and $290 million, based on growth in its direct businesses offset by declines in its commercial business. The company expects full year revenue from its direct business to be between $156 million to $160 million, compared to $138.8 million for the full year 2015, and expects full year revenue from its commercial/other business to be between $124 million and $130 million, compared to $143.5 million for the full year 2015. Full year net income per fully diluted common share is expected to be in the range of $0.18 to $0.21, based on 59.8 million fully diluted common shares outstanding. During 2016, the company plans to spend an incremental amount of approximately $1.4 million, or $0.02 per fully diluted common share, in research and development expenses related to ongoing development of the company’s long-term xenograft tendon project.

For the first quarter of 2016, the company expects revenues to be between $65 million and $66 million and net income per fully diluted common share to be approximately $0.03, based on 59 million fully diluted shares outstanding.

“As a company, we are focused on driving growth in our direct business,” Hutchison said. “In order to provide clarity on our performance we are adjusting the way we report revenue. Specifically, we will break out our total direct business revenue into the following components: spine, sports/orthopedics, surgical specialties, cardiothoracic and international. In addition, we will consolidate our commercial business into a single revenue category. We believe this will provide better visibility into our direct businesses as well as correlate to identifiable end markets. For convenience, we are showing both the traditional revenue reporting and the new revenue reporting in this release. We have also posted a three year quarterly history of both the traditional and new revenue reporting on our website www.rtix.com.”

Conference Call

RTI will host a conference call and simultaneous audio webcast to discuss the fourth quarter and full year 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 at www.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. 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. In addition, except for historical information, any statements made in this communication about anticipated financial results, growth rates, new product introductions, future operational improvements and results or regulatory actions or approvals or changes to agreements with distributors also are 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)
       
 
Three months ended Twelve months ended
December 31, December 31,
  2015     2014     2015     2014  
Revenues $ 76,121 $ 70,873 $ 282,293 $ 262,810
Costs of processing and distribution   35,814     33,021     132,551     129,013  
Gross profit   40,307     37,852     149,742     133,797  
 
Expenses:
Marketing, general and administrative 27,351 28,091 107,439 107,653
Research and development 3,573 4,138 15,065 15,536
Asset abandonments 814 - 814 -
Litigation and settlement charges 804 185 804 185
Severance charges   995     4,341     995     4,798  
Total operating expenses   33,537     36,755     125,117     128,172  
Operating income   6,770     1,097     24,625     5,625  
Total other expense - net   (425 )   (300 )   (1,411 )   (1,436 )
Income before income tax provision 6,345 797 23,214 4,189
Income tax provision   (2,179 )   (138 )   (8,299 )   (1,493 )
Net income   4,166     659     14,915     2,696  
Convertible preferred dividend   (845 )   (795 )   (3,305 )   (3,113 )
Net income (loss) applicable to common shares $ 3,321   $ (136 ) $ 11,610   $ (417 )
 
Net income (loss) per common share - basic $ 0.06   $ (0.00 ) $ 0.20   $ (0.01 )
Net income (loss) per common share - diluted $ 0.06   $ (0.00 ) $ 0.20   $ (0.01 )
Weighted average shares outstanding - basic   57,793,509     56,910,377     57,611,231     56,735,924  
Weighted average shares outstanding - diluted   58,450,690     56,910,377     58,590,494     56,735,924  
 

RTI SURGICAL, INC. AND SUBSIDIARIES

Reconciliation of Net Income (Loss) Applicable to Commons Shares to Adjusted EBITDA

(Unaudited, in thousands)

 
    Three Months   Twelve Months
Ended December 31, Ended December 31,
  2015       2014     2015       2014  
Net income (loss) $ 3,321 $ (136 ) $ 11,610 $ (417 )
Interest expense, net 511 301 1,489 1,348
Provision for income taxes 2,179 138 8,299 1,493
Depreciation 3,028 2,906 12,240 11,010
Amortization of intangible assets   1,037     1,076     4,282     4,385  
EBITDA 10,076 4,285 37,920 17,819
Reconciling items impacting EBITDA
Preferred dividend 845 795 3,305 3,113
Non-cash stock based compensation 633 552 2,548 2,247
Foreign exchange (gain) loss (86 ) (1 ) (78 ) 88
Other reconciling items(1)
Asset abandonments 814 - 814 -
Litigation and settlement charges 804 185 804 185
Severance charges 995 4,341 995 4,798
Inventory purchase accounting adjustment   -     -     -     5,708  
Adjusted EBITDA $ 14,081   $ 10,157   $ 46,308   $ 33,958  
Adjusted EBITDA as a percent of revenues   18 %   14 %   16 %   13 %
 
(1 ) See explanations in Use of Non-GAAP Financial Measures section later in this release
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net Income (Loss) Applicable to Common Shares and Net Income (Loss) 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)
 
    Three Months Ended
December 31, 2015   December 31, 2014
Net   Net  
Income Amount Loss Amount
Applicable to per Diluted Applicable to per Diluted
Common Shares   Share Common Shares   Share
As reported $ 3,321 $ 0.06 $ (136) $ (0.00)
Asset abandonments, net of tax effect (1) 584 0.01 - -
Litigation and settlement charges, net of tax effect (2) 543 0.01 133 0.00
Severance charges, net of tax effect (3) 615 0.01 2,710 0.05
Adjusted $ 5,063 $ 0.09 $ 2,707 $ 0.05
 
Twelve Months Ended
December 31, 2015 December 31, 2014
Net Net
Income Amount Loss Amount
Applicable to per Diluted Applicable to per Diluted
Common Shares   Share Common Shares   Share
As reported $ 11,610 $ 0.20 $ (417) $ (0.01)
Asset abandonments, net of tax effect (1) 584 0.01 - -
Litigation and settlement charges, net of tax effect (2) 543 0.01 133 0.00
Severance charges, net of tax effect (4) 615 0.01 3,007 0.05
Inventory purchase accounting adjustment, net of tax effect (5) - - 3,467 0.06
Adjusted $ 13,352 $ 0.23 $ 6,190 $ 0.11
 
Note: Amounts may not foot due to rounding.
 

Footnotes:

2015 2014
 
(1) Asset abandonments, net of tax effect, as follows:
Asset abandonments $ 814
Tax effect on asset abandonments (230)
Asset abandonments, net of tax effect $ 584
 
(2) Litigation and settlement charges, net of tax effect, as follows:
Litigation and settlement charges $ 804 $ 185
Tax effect on litigation and settlement charges (261) (52)
Litigation and settlement charges, net of tax effect $ 543 $ 133
 
(3) Severance charges, net of tax effect, as follows:
Severance charges $ 995 $ 4,341
Tax effect on severance charges (380) (1,631)
Severance charges, net of tax effect $ 615 $ 2,710
 
(4) Severance charges, net of tax effect, as follows:
Severance charges $ 995 $ 4,798
Tax effect on severance charges (380) (1,791)
Severance charges, net of tax effect $ 615 $ 3,007
 
(5) Inventory purchase accounting adjustment, net of tax effect, as follows:
Inventory purchase accounting adjustment $ 5,708
Tax effect on inventory purchase accounting adjustment (2,241)
Inventory purchase accounting adjustment, net of tax effect $ 3,467
 

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 and twelve month period ended December 31, 2015 and 2014 as well as the reason for excluding the individual items:

(1) 2015 Asset abandonments – This adjustment represents an abandonment of certain long-term assets at our German facility. Management removes the amount of these costs from our operating results to assist in assessing our operating performance in the year-to-date period and to supplement a comparison to our past operating performance.

(2) 2015 and 2014 Litigation and settlement charges – This adjustment represent charges relating to settlements of domestic and international distributor disputes. Management removes the amount of these costs from our operating results to assist in assessing our operating performance in the year-to-date period and to supplement a comparison to our past operating performance.

(3) 2015 and 2014 Severance charges – This adjustment represents charges relating to the termination of former employees. Management removes the amount of these costs from our operating results to assist in assessing our operating performance in the year-to-date period and to supplement a comparison to our past operating performance.

(4) 2015 and 2014 Severance charges – This adjustment represents charges relating to the termination of former employees. Management removes the amount of these costs from our operating results to assist in assessing our operating performance in the year-to-date period and to supplement a comparison to our past operating performance.

(5) 2014 Inventory purchase accounting adjustment – This adjustment represents the purchase price effects on the sale of inventory acquired in the Pioneer Surgical Technologies, Inc. acquisition in 2013, which have been included in costs of processing and distribution. Management removes the amount of these nonrecurring costs from the Company’s operating results to assist in assessing its operating performance in the periods affected and to supplement a comparison to the Company’s 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.

Traditional revenue reporting:

RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Revenues
(Unaudited, in thousands)
 
 
  Three Months Ended   Twelve months ended
December 31, December 31,
  2015     2014   2015     2014
 
Revenues:
Spine $ 19,417 $ 21,768 $ 76,968 $ 82,663
Ortho fixation 18,200 11,296 55,585 37,133
Sports medicine 12,051 12,582 46,735 46,758
Bone graft substitutes and general orthopedic 11,132 10,275 42,283 36,747
Dental 6,630 6,003 23,621 20,810
Surgical specialties 5,826 5,792 23,499 26,999
Other revenues   2,865   3,157   13,602   11,700
Total revenues $ 76,121 $ 70,873 $ 282,293 $ 262,810
Domestic revenues 70,636 65,438 260,387 238,936
International revenues   5,485   5,435   21,906   23,874
Total revenues $ 76,121 $ 70,873 $ 282,293 $ 262,810
 

New revenue reporting:

RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Revenues
(Unaudited, in thousands)
 
       
Three Months Ended Twelve months ended
December 31, December 31,
  2015   2014   2015   2014
 
Revenues:
Spine $ 15,608 $ 15,566 $ 57,983 $ 52,270
Sports / Ortho 13,058 13,501 50,712 48,975
Surgical specialties 1,025 570 3,029 1,631
Cardiothoracic 2,296 1,776 8,699 6,997
International   4,400   4,504   18,338   20,327
Total Direct   36,387   35,917   138,761   130,200
Global Commercial 36,869 31,799 129,930 120,910
Other   2,865   3,157   13,602   11,700
Total revenues $ 76,121 $ 70,873 $ 282,293 $ 262,810
Domestic revenues 70,636 65,438 260,387 238,936
International revenues   5,485   5,435   21,906   23,874
Total revenues $ 76,121 $ 70,873 $ 282,293 $ 262,810
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
         
December 31, December 31,
  2015     2014  
Assets
Cash and cash equivalents $ 12,614 $ 15,703
Accounts receivable - net 47,243 38,833
Inventories - net 118,673 113,464
Prepaid and other assets   13,184     29,496  
Total current assets 191,714 197,496
 
Property, plant and equipment - net 84,992 77,028
Goodwill 54,887 54,887
Other assets - net   49,472     48,724  
Total assets $ 381,065   $ 378,135  
 
Liabilities and Stockholders' Equity
Accounts payable $ 20,446 $ 26,834
Accrued expenses and other current liabilities 33,474 30,673
Current portion of long-term obligations   6,009     6,479  
Total current liabilities 59,929 63,986
 
Deferred revenue 9,354 12,460
Long-term liabilities   74,103     81,020  
Total liabilities 143,386 157,466
 
Preferred stock 56,323 52,834
 
Stockholders' equity:
Common stock and additional paid-in capital 417,337 415,570
Accumulated other comprehensive loss (7,042 ) (3,881 )
Accumulated deficit   (228,939 )   (243,854 )
Total stockholders' equity   181,356     167,835  
Total liabilities and stockholders' equity $ 381,065   $ 378,135  
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
 
  Three Months   Twelve Months
Ended December 31, Ended December 31,
  2015       2014     2015       2014  
Cash flows from operating activities:
Net income $ 4,166 $ 659 $ 14,915 $ 2,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 4,065 3,982 16,522 15,395
Stock-based compensation 633 1,337 2,548 3,032
Amortization of deferred revenue (1,160 ) (1,207 ) (6,225 ) (5,420 )
Other items to reconcile to net cash
provided by operating activities   (1,131 )   659     (18,764 )   (8,809 )
Net cash provided by operating activities   6,573     5,430     8,996     6,894  
Cash flows from investing activities:
Purchases of property, plant and equipment (4,771 ) (4,305 ) (17,740 ) (15,577 )
Patent and acquired intangible asset costs   (249 )   (331 )   (498 )   (737 )
Net cash used in investing activities   (5,020 )   (4,636 )   (18,238 )   (16,314 )
Cash flows from financing activities:
Proceeds from long-term obligations 2,000 2,000 8,750 7,000
Net (payments) proceeds from short-term obligations (86 ) (493 ) 422 658
Payments on long-term obligations (1,133 ) (12 ) (5,294 ) (682 )
Other financing activities   88     210     2,396     894  
Net cash provided by financing activities   869     1,705     6,274     7,870  
Effect of exchange rate changes on cash and cash equivalents   (116 )   (726 )   (121 )   (1,468 )
Net increase (decrease) in cash and cash equivalents 2,306 1,773 (3,089 ) (3,018 )
Cash and cash equivalents, beginning of period   10,308     13,930     15,703     18,721  
Cash and cash equivalents, end of period $ 12,614   $ 15,703   $ 12,614   $ 15,703  
 

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

Release Summary

RTI Surgical Inc. (RTI) (Nasdaq: RTIX), a global surgical implant company, reported operating results for the fourth quarter and full year of 2015.

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