RTI Surgical® Announces 2015 Third Quarter Results

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 third quarter of 2015 as follows:

Quarterly Highlights:

  • Achieved worldwide revenues of $66.5 million, a 3 percent increase on a constant currency basis over the third quarter of 2014.
  • Achieved net income per fully diluted share of $0.05, meeting guidance.
  • Achieved revenues of $13.7 million in the orthofixation business, a 44 percent increase over the third quarter of 2014.
  • Achieved revenues of $9.8 million in the BGS and general orthopedic business, a 6 percent increase over the third quarter of 2014.
  • Achieved revenues of $6 million in the dental business, a 20 percent increase over the third quarter of 2014.
  • Achieved revenues of $5.5 million in the international business, a 13 percent increase on a constant currency basis over the third quarter of 2014.

Worldwide revenues were $66.5 million for the third quarter of 2015 compared to revenues of $65.2 million for the third quarter of 2014. Domestic revenues were $61 million for the third quarter of 2015 compared to revenues of $59.7 million for the third quarter of 2014. International revenues were $5.5 million for the third quarter of 2015, which were comparable to the third quarter of 2014. On a constant currency basis, international revenues for the third quarter of 2015 increased 13 percent compared to the third quarter of 2014.

“Our results for the third quarter were mixed with revenues coming in below our guidance and earnings meeting our guidance,” said Brian K. Hutchison, president and chief executive officer. “While the third quarter is traditionally impacted by seasonal trends in surgery, the impact this year was greater than we anticipated. Our revenue shortfall was largely due to lower than expected growth in our direct distribution business as well as declines in certain segments of the commercial business, offset by increased traction in our international business. Due to slower than anticipated growth, we have made changes to some of our sales leadership and we expect that we will see improvement by the end of the year.”

For the third quarter of 2015, the company reported net income applicable to common shares of $2.7 million and net income per fully diluted common share of $0.05, based on 58.9 million fully diluted shares outstanding, compared to net income applicable to common shares of $1.2 million and net income per fully diluted common share of $0.02 for the third quarter of 2014, based on 57.5 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 $10.7 million for the third quarter of 2015 (16 percent of third quarter 2015 revenues) compared to $8.2 million for the third quarter of 2014 (13 percent of third quarter 2014 revenues).

Fiscal 2015 and Fourth Quarter Outlook

Based on results from the first three quarters of the year, the company is lowering its full year revenue guidance for 2015. The company now expects full year revenues for 2015 to be between $274 million and $275 million, as compared to prior guidance of between $282 million and $286 million. The company now expects full year net income per fully diluted common share to be approximately $0.19 based on 58.8 million fully diluted common shares outstanding, as compared to prior guidance of $0.20 to $0.23.

For the fourth quarter of 2015, the company expects revenues to be between $68 million and $69 million and net income per fully diluted common share to be approximately $0.05, based on 59 million fully diluted shares outstanding.

“Despite a challenging third quarter, we are committed to our long term plan,” Hutchison said. “We will continue to focus on our base biologics business, our hardware business and our focused products. While the recent changes in sales leadership will take some time to gain traction, we believe we have put the pieces in place to achieve our goals.”

Conference Call

RTI will host a conference call and simultaneous audio webcast to discuss the third 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 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)
 
 
  For the Three Months Ended   For the Nine Months Ended
September 30, September 30,
  2015       2014     2015       2014  
Revenues $ 66,529 $ 65,163 $ 206,172 $ 191,937
Costs of processing and distribution   31,296     30,470     96,737     95,992  
Gross profit   35,233     34,693     109,435     95,945  
 
Expenses:
Marketing, general and administrative 25,464 26,863 80,088 80,019
Research and development   3,793     4,224     11,492     11,398  
Total operating expenses   29,257     31,087     91,580     91,417  
Operating income   5,976     3,606     17,855     4,528  
Total other expense - net   (405 )   (296 )   (986 )   (1,136 )
Income before income tax provision 5,571 3,310 16,869 3,392
Income tax provision   (2,069 )   (1,324 )   (6,120 )   (1,355 )
Net income   3,502     1,986     10,749     2,037  
Convertible preferred dividend   (832 )   (784 )   (2,460 )   (2,318 )
Net income (loss) applicable to common shares $ 2,670   $ 1,202   $ 8,289   $ (281 )
 
Net income (loss) per common share - basic $ 0.05   $ 0.02   $ 0.14   $ (0.00 )
Net income (loss) per common share - diluted $ 0.05   $ 0.02   $ 0.14   $ (0.00 )
Weighted average shares outstanding - basic   57,701,810     56,864,161     57,492,606     56,677,773  
Weighted average shares outstanding - diluted   58,922,423     57,480,592     58,591,303     56,677,773  
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net Income (Loss) Applicable to Commons Shares to Adjusted EBITDA
(Unaudited, in thousands)
             
 
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
  2015     2014     2015     2014  
Net income (loss) $ 2,670 $ 1,202 $ 8,289 $ (281 )
Interest expense, net 336 277 978 1,047
Provision for income taxes 2,069 1,324 6,120 1,355
Depreciation 3,011 2,830 9,212 8,104
Amortization of intangible assets   1,100     1,056     3,245     3,309  
EBITDA 9,186 6,689 27,844 13,534
Reconciling items for Adjusted EBITDA
Preferred dividend 832 784 2,460 2,318
Non-cash stock based compensation 662 672 1,915 1,695
FX (gain) loss 69 19 8 89
Other reconciling items
Inventory purchase accounting adjustment (1)   -     -     -     5,708  
Adjusted EBITDA $ 10,749   $ 8,164   $ 32,227   $ 23,344  
Adjusted EBITDA as a percent of revenues   16 %   13 %   16 %   12 %
 

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 nine month period ended September 30, 2014 as well as the reason for excluding the individual item:

(1) 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.

RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Revenues
(Unaudited, in thousands)
       
 
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
  2015   2014   2015   2014
 
Revenues:
Spine $ 18,104 $ 20,486 $ 57,551 $ 60,895
Ortho fixation 13,659 9,476 37,385 25,837
Sports medicine 10,816 11,357 34,684 34,176
BGS and general orthopedic 9,752 9,237 31,151 26,472
Dental 6,038 5,021 16,991 14,807
Surgical specialties 5,057 6,747 17,673 21,207
Other revenues   3,103   2,839   10,737   8,543
Total revenues $ 66,529 $ 65,163 $ 206,172 $ 191,937
Domestic revenues 61,046 59,677 189,751 173,498
International revenues   5,483   5,486   16,421   18,439
Total revenues $ 66,529 $ 65,163 $ 206,172 $ 191,937
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
 
  September 30,   December 31,
  2015     2014  
Assets
Cash and cash equivalents $ 10,308 $ 15,703
Accounts receivable - net 44,011 38,833
Inventories - net 118,592 113,464
Prepaid and other current assets   28,644     29,496  
Total current assets 201,555 197,496
 
Property, plant and equipment - net 82,914 77,028
Goodwill 54,887 54,887
Other assets - net   41,860     48,724  
Total assets $ 381,216   $ 378,135  
 
Liabilities and Stockholders' Equity
Accounts payable $ 22,747 $ 26,834
Accrued expenses and other current liabilities 23,694 30,673
Current portion of long-term obligations   6,141     6,479  
Total current liabilities 52,582 63,986
 
Deferred revenue 10,571 12,460
Long-term liabilities   84,336     81,020  
Total liabilities 147,489 157,466
 
Preferred stock, including accrued dividends 55,433 52,834
 
Stockholders' equity:
Common stock and additional paid-in capital 417,492 415,570
Accumulated other comprehensive loss (6,093 ) (3,881 )
Accumulated deficit   (233,105 )   (243,854 )
Total stockholders' equity   178,294     167,835  
Total liabilities and stockholders' equity $ 381,216   $ 378,135  
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
       
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
  2015     2014     2015     2014  
Cash flows from operating activities:
Net income $ 3,502 $ 1,986 $ 10,749 $ 2,037
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization expense 4,111 3,886 12,457 11,413
Stock-based compensation 662 672 1,915 1,695
Amortization of deferred revenue (1,160 ) (1,207 ) (5,065 ) (4,213 )
Other items to reconcile to net cash
(used in) provided by operating activities   (11,409 )   (3,188 )   (17,633 )   (9,468 )
Net cash (used in) provided by operating activities   (4,294 )   2,149     2,423     1,464  
Cash flows from investing activities:
Purchases of property, plant and equipment (4,392 ) (2,800 ) (12,969 ) (11,272 )
Patent and acquired intangible asset costs   (133 )   (130 )   (249 )   (406 )
Net cash used in investing activities   (4,525 )   (2,930 )   (13,218 )   (11,678 )
Cash flows from financing activities:
Proceeds from long-term obligations 6,750 - 6,750 5,000
Net proceeds (payments) from short-term obligations 160 (157 ) 508 1,151
Payments on long-term obligations (1,135 ) (638 ) (4,161 ) (670 )
Other financing activities   612     267     2,308     684  
Net cash provided by (used in) financing activities   6,387     (528 )   5,405     6,165  
Effect of exchange rate changes on cash and cash equivalents   41     (563 )   (5 )   (742 )
Net decrease in cash and cash equivalents (2,391 ) (1,872 ) (5,395 ) (4,791 )
Cash and cash equivalents, beginning of period   12,699     15,802     15,703     18,721  
Cash and cash equivalents, end of period $ 10,308   $ 13,930   $ 10,308   $ 13,930  

Contacts

RTI Surgical Inc.
Robert Jordheim
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 third quarter of 2015.

Contacts

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