Attached files

file filename
8-K - 8-K - RTI SURGICAL, INC.d439186d8k.htm

Exhibit 99.1

For more information, contact:

Robert Jordheim

Chief Financial Officer

rjordheim@rtix.com

Roxane Wergin

Director, Corporate Communications

rwergin@rtix.com

Phone (386) 418-8888

RTI Surgical® Announces 2017 Second Quarter Results

Second Consecutive Quarter of Revenue Growth; Each Business Reports Top-Line Improvement

Initiatives Focused on Reducing Complexity, Driving Operational Excellence and Accelerating Growth Continue to Move RTI toward Sustainable Long-Term Profitability

ALACHUA, Fla. (August 8, 2017) – RTI Surgical Inc. (RTI) (Nasdaq: RTIX), a global surgical implant company, reported operating results for the second quarter of 2017. RTI has delivered two consecutive quarters of revenue growth as its initiatives to transform the business continue to yield improving operating performance.

In the second quarter 2017, as described in greater detail below, each of RTI’s businesses generated top-line growth, including its commercial business, which continues to show signs of stabilization. RTI also delivered double-digit revenue growth across its direct business, including its spine, surgical specialties and cardiothoracic segments, as well as continued revenue growth in its sports medicine and orthopedics segment and its International business.

“We are making tangible progress toward our plan to transform RTI and return it to a path of solid, predictable and sustainable growth,” said Camille Farhat, chief executive officer, RTI. “While we are still in the early phase of this effort and there is more work to do, we are beginning to accomplish what we set out to achieve. Our Commercial business continues to stabilize, our direct business delivered another quarter of strong performance and our Spine business continues to grow at above-market rates. We are encouraged by our strong second quarter results and remain laser-focused on implementing our strategic initiatives and generating value for our employees, customers and shareholders.”

As previously announced, RTI’s management has been implementing a series of initiatives to reduce complexity, drive operational excellence, and accelerate growth to position the company for long-term and sustainable profitability. As part of these initiatives, RTI has appointed Paul Montague as Head of Human Resources and Enrico Sangiorgio to lead the company’s international operations. Mr. Montague


brings more than 15 years of global experience in senior human resources roles to RTI and Mr. Sangiorgio’s nearly two decades of leadership positions with European healthcare organizations will be instrumental in growing RTI’s International platform. The company is also actively recruiting for its top two R&D positions.

As part of its focus to reduce complexity, RTI recently completed the previously announced sale of substantially all the assets of its cardiothoracic closure business to an affiliate of A&E Medical Corporation for total consideration of up to $60 million in cash. Concurrent with the sale of the business, RTI entered into a multi-year Contract Manufacturing agreement whereby RTI will continue to support the cardiothoracic business under A&E Medical’s ownership through the manufacturing of existing products and the engineering, development and manufacturing of potential new products in the future.

RTI used the majority of the proceeds from the sale, net of transaction fees and anticipated taxes, to reduce its term loan, as it extended the maturity of its existing credit facilities. The transaction was made possible by RTI’s success growing its cardiothoracic closure business by a compounded annual growth rate of more than 25% over the last five years, through a focused R&D and disciplined direct channel strategy, and demonstrates RTI’s proven ability to create value in OEM product lines. The sale of the cardiothoracic closure business represents an important action toward RTI’s stated goals to reduce complexity in its business and devote resources to those businesses, products and markets with the greatest growth potential.

“Longer-term, our focus will continue to be to: 1) simplify our business to manage costs, specifically in tissue acquisition and processing, 2) deepen our investments in our people with a focus on R&D to accelerate growth and innovation, and 3) ensure a culture of disciplined execution to achieve sustainable profitability,” said Mr. Farhat. “The sale of our cardiothoracic closure business during the quarter was an important first step toward our effort of enhancing RTI’s platform for operational excellence. We are committed to further streamlining our business and evaluating strategic growth opportunities so that we can devote resources to the areas that align best with our long-term growth aspiration. With our talented team, dedication to our customers and innovative products, I am optimistic that RTI is on the right path to success.”

Second Quarter 2017

RTI worldwide revenues were $72.1 million for the second quarter of 2017, an increase of 7 percent. Direct revenues were $43.6 million for the second quarter of 2017, an increase of 10 percent compared to the second quarter of 2016, with double-digit growth reported in RTI’s spine, surgical specialties and cardiothoracic direct business segments. Commercial/other revenues were $28.6 million for the second quarter of 2017, an increase of 2 percent compared to the second quarter of 2016.


Net loss applicable to common shares of $2.6 million in the second quarter of 2017, or $0.04 per fully diluted common share, primarily due to a previously disclosed pre-tax charge for severance-related expenses totaling $3.4 million. As outlined in the reconciliation tables that follow, excluding these charges, adjusted net income applicable to common shares was $965,000 and adjusted net income per fully diluted common share was $0.02.

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) were $8.3 million, or 11 percent of second quarter revenue.

Fiscal 2017 Outlook

The company has developed its guidance based on its ongoing restructuring and operational improvement program, its current business profile and existing market conditions.

Within this context, based on second quarter results and the transition of the cardiothoracic closure business from a direct business to a commercial business as a result of the sale, RTI expects full year revenues for 2017 to be between $274 million and $280 million compared to prior guidance of between $274 million and $285 million, with direct revenues anticipated to grow low-to-mid single digits on a percentage basis compared to 2016, while commercial/other revenues are expected to be relatively flat on a percentage basis.

As detailed in the reconciliation provided later in this release, excluding the severance-related expenses in the first half of 2017, the expected third quarter 2017 gain on the sale of the cardiothoracic closure business, and including the transition of the cardiothoracic closure business from a direct business to a commercial business as a result of the sale, RTI expects adjusted full year net income per fully diluted common share to be between $0.04 and $0.08 compared to prior guidance of between $0.05 and $0.10, based on 60 million fully diluted shares outstanding.

RTI will continue to evaluate its operating platform throughout the year and will update its top and bottom line guidance as its actions might warrant.

Conference Call

RTI will host a conference call and simultaneous audio webcast to discuss its second quarter 2017 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
June 30,
    For the Six Months Ended
June 30,
 
     2017     2016     2017     2016  

Revenues

   $ 72,120     $ 67,620     $ 142,059     $ 134,971  

Costs of processing and distribution

     35,157       33,671       69,317       64,997  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     36,963       33,949       72,742       69,974  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Marketing, general and administrative

     29,496       28,402       59,167       55,954  

Research and development

     3,740       4,084       7,428       8,245  

Severance charges

     3,400       711       7,803       711  

Restructuring charges

     —         1,107       —         1,107  

Contested proxy expenses

     —         2,372       —         2,680  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     36,636       36,676       74,398       68,697  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     327       (2,727     (1,656     1,277  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense - net

     (990     (424     (1,789     (738
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax (provision) benefit

     (663     (3,151     (3,445     539  

Income tax (provision) benefit

     (1,026     859       (116     (430
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (1,689     (2,292     (3,561     109  
  

 

 

   

 

 

   

 

 

   

 

 

 

Convertible preferred dividend

     (924     (870     (1,834     (1,728
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss applicable to common shares

   $ (2,613   $ (3,162   $ (5,395   $ (1,619
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share - basic

   $ (0.04   $ (0.05   $ (0.09   $ (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share - diluted

   $ (0.04   $ (0.05   $ (0.09   $ (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - basic

     58,935,786       58,215,477       58,715,791       58,065,185  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - diluted

     58,935,786       58,215,477       58,715,791       58,065,185  
  

 

 

   

 

 

   

 

 

   

 

 

 


RTI SURGICAL, INC. AND SUBSIDIARIES

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

(Unaudited, in thousands)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2017     2016     2017     2016  

Net (loss) income

   $ (2,613   $ (3,162   $ (5,395   $ (1,619

Interest expense, net

     915       386       1,734       746  

Provision for income taxes

     1,026       (859     116       430  

Depreciation

     2,652       3,454       5,324       6,836  

Amortization of intangible assets

     909       930       1,805       1,858  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     2,889       749       3,584       8,251  

Reconciling items for Adjusted EBITDA

        

Preferred dividend

     924       870       1,834       1,728  

Non-cash stock based compensation

     974       600       1,808       1,100  

Foreign exchange gain

     75       38       55       (8

Other reconciling items(1)

        

Severance charges excluding stock based compensation

     3,400       711       7,470       711  

Restructuring charges

     —         1,107       —         1,107  

Contested proxy expenses

     —         2,372       —         2,680  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 8,262     $ 6,447     $ 14,751     $ 15,569  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA as a percent of revenues

     11     10     10     12
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) See explanations in Use of Non-GAAP Financial Measures section later in this release.


RTI SURGICAL, INC. AND SUBSIDIARIES

Reconciliation of Net Loss Applicable to Common Shares and Net Loss Per Diluted Share to

Adjusted Net Income (Loss) Applicable to Common Shares and Adjusted Net Income (Loss) Per Diluted Share

(Unaudited, in thousands, except per share data)

 

     For the Three Months Ended  
     June 30, 2017     June 30, 2016  
     Net
Income
Applicable to
Common Shares
    Amount
per Diluted
Share
    Net
Income
Applicable to
Common Shares
    Amount
per Diluted
Share
 

As reported

   $ (2,613   $ (0.04   $ (3,162   $ (0.05

Severance charges

     3,400       0.06       711       0.01  

Restructuring charges

     —         —         1,107       0.02  

Contested proxy expenses

     —         —         2,372       0.04  

Tax effect on adjustments

     178       0.00       (1,237     (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted*

   $ 965     $ 0.02     $ (209   $ (0.00
  

 

 

   

 

 

   

 

 

   

 

 

 
     For the Six Months Ended  
     June 30, 2017     June 30, 2016  
     Net
Income
Applicable to
Common Shares
    Amount
per Diluted
Share
    Net
Income
Applicable to
Common Shares
    Amount
per Diluted
Share
 

As reported

   $ (5,395   $ (0.09   $ (1,619   $ (0.03

Severance charges

     7,803       0.13       711       0.01  

Restructuring charges

     —         —         1,107       0.02  

Contested proxy expenses

     —         —         2,680       0.05  

Tax effect on adjustments

     (1,304     (0.02     (1,355     (0.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted*

   $ 1,104     $ 0.02     $ 1,524     $ 0.03  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* See explanations in Use of Non-GAAP Financial Measures section later in this release.

Amount Per Diluted Share may not foot due to rounding.


Fiscal 2017 Outlook

Full year net income per fully diluted common share is expected to be in the range of $0.00 to $0.04, based on 60 million fully diluted shares outstanding. Excluding severance charges taken in 2017, full year net income per fully diluted common share is expected to be in the range of $0.04 to $0.08.

RTI SURGICAL, INC. AND SUBSIDIARIES

Reconciliation of GAAP Guidance Net Income Per Common Share - Diluted to

Adjusted Non-GAAP Guidance Net Income Per Common Share - Diluted

(Unaudited)

 

     Twelve Months Ended  
     December 31, 2017  
     $ Amount
Per Common
Share - Diluted
 

GAAP Guidance Net Income Per Common Share - Diluted

   $ 0.00 - 0.04  

Severance charges, net of tax effect

     0.04  
  

 

 

 

Adjusted Non-GAAP Guidance Net Income Per Common Share - Diluted

   $ 0.04 - 0.08  
  

 

 

 


Use of Non-GAAP Financial Measures

To supplement the Company’s unaudited condensed consolidated financial statements presented on a GAAP basis, the Company discloses certain non-GAAP financial measures that exclude certain amounts, including Adjusted EBITDA, Adjusted Net Income Applicable to Common Shares and Adjusted Net Income per Common Share - Diluted. The calculation of the tax effect on the adjustments between GAAP net (loss) income applicable to common shares and non-GAAP net income applicable to common shares is based upon our estimated annual GAAP tax rate, adjusted to account for items excluded from GAAP net (loss) income applicable to common shares in calculating Adjusted Net Income Applicable to Common Shares-Diluted. A reconciliation of the non-GAAP financial measures to the corresponding GAAP measures is included in the tables listed above.

The following is an explanation of the adjustments that management excluded as part of adjusted measures for the three and six month period ended June 30, 2017 and 2016 as well as the reason for excluding the individual items:

(1) 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 supplement a comparison to our past operating performance.

(2) Restructuring charges – This adjustment represents the closure of our French distribution and tissue procurement office. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance.

(3) Contested proxy expenses – This adjustment represent charges relating to contested proxy expenses. Management removes the amount of these costs 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, Adjusted Net Income Applicable to Common Shares and Adjusted Net Income per Common Share - Diluted 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, Adjusted Net Income Applicable to Common Shares and Adjusted Net Income per Common Share - Diluted in addition to the related GAAP measures provide investors greater transparency to the information used by management in its financial decision-making. 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
June 30,
     For the Six Months Ended
June 30,
 
     2017      2016      2017      2016  

Revenues:

           

Spine

   $ 19,419      $ 17,645      $ 39,757      $ 34,739  

Sports medicine and orthopedics

     12,997        12,562        25,893        25,082  

Surgical specialties

     1,456        802        3,236        1,817  

Cardiothoracic

     3,673        2,905        6,824        5,439  

International

     6,005        5,663        11,662        11,180  
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal direct

     43,550        39,577        87,372        78,257  

Global commercial

     25,837        24,769        49,418        50,099  

Other revenues

     2,733        3,274        5,269        6,615  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 72,120      $ 67,620      $ 142,059      $ 134,971  
  

 

 

    

 

 

    

 

 

    

 

 

 


RTI SURGICAL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

     June 30,
2017
    December 31,
2016
 
Assets     

Cash and cash equivalents

   $ 13,675     $ 13,849  

Accounts receivable - net

     39,099       41,488  

Inventories - net

     116,773       119,743  

Prepaid and other current assets

     6,177       5,213  

Assets held for sale

     1,750       —    
  

 

 

   

 

 

 

Total current assets

     177,474       180,293  

Property, plant and equipment - net

     84,379       83,298  

Goodwill

     54,887       54,887  

Other assets - net

     49,854       49,553  
  

 

 

   

 

 

 

Total assets

   $ 366,594     $ 368,031  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Accounts payable

   $ 27,745     $ 26,112  

Accrued expenses and other current liabilities

     25,668       26,772  

Current portion of long-term obligations

     5,779       6,080  
  

 

 

   

 

 

 

Total current liabilities

     59,192       58,964  

Deferred revenue

     6,176       6,612  

Long-term liabilities

     75,201       77,523  
  

 

 

   

 

 

 

Total liabilities

     140,569       143,099  

Preferred stock, including accrued dividends

     61,941       60,016  

Stockholders’ equity:

    

Common stock and additional paid-in capital

     417,886       416,570  

Accumulated other comprehensive loss

     (6,903     (8,316

Accumulated deficit

     (246,899     (243,338
  

 

 

   

 

 

 

Total stockholders’ equity

     164,084       164,916  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 366,594     $ 368,031  
  

 

 

   

 

 

 


RTI SURGICAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

     For the Three Months
Ended June 30,
    For the Six Months
Ended June 30,
 
     2017     2016     2017     2016  

Cash flows from operating activities:

        

Net (loss) income

   $ (1,689   $ (2,292   $ (3,561   $ 109  

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

        

Depreciation and amortization expense

     3,561       4,384       7,129       8,694  

Stock-based compensation

     974       600       1,808       1,100  

Amortization of deferred revenue

     (1,186     (1,217     (2,460     (2,434

Other items to reconcile to net cash provided by operating activities

     (624     5,311       7,697       5,740  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     1,036       6,786       10,613       13,209  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property, plant and equipment

     (3,877     (4,766     (7,160     (9,403

Patent and acquired intangible asset costs

     (1,526     (195     (1,845     (1,391
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (5,403     (4,961     (9,005     (10,794
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from long-term obligations

     2,000       4,000       4,000       7,000  

Net payments from short-term obligations

     —         (600     —         (849

Payments on long-term obligations

     (3,125     (4,166     (7,375     (8,299

Other financing activities

     1,467       14       1,433       (94
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     342       (752     (1,942     (2,242
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     102       (47     160       (33
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (3,923     1,026       (174     140  

Cash and cash equivalents, beginning of period

     17,598       11,728       13,849       12,614  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 13,675     $ 12,754     $ 13,675     $ 12,754