RTI Surgical™ Announces 2013 Third Quarter Results

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

Business Wire

ALACHUA, Fla.--(BUSINESS WIRE)--

RTI Surgical Inc. (RTI) (RTIX), a global surgical implant company, reported operating results for the third quarter of 2013 as follows:

Quarterly Highlights:

Worldwide revenues were $54.7 million for the third quarter of 2013 compared to revenues of $44.6 million for the third quarter of 2012. Domestic revenues were $49.3 million for the third quarter of 2013 compared to revenues of $39.6 million for the third quarter of 2012. International revenues were $5.4 million for the third quarter of 2013 compared to revenues of $4.9 million for the third quarter of 2012. On a constant currency basis, international revenues for the third quarter of 2013 increased 6 percent as compared to the third quarter of 2012. The increases in year-over-year revenues reflect the inclusion of $16.1 million of Pioneer revenues for the period of July 16, 2013 to Sept. 30, 2013. If Pioneer revenues had been included for the entire third quarter for both 2012 and 2013, worldwide revenues would have decreased by 12 percent.

“As disclosed earlier this month, our revenues came in lower than projected due to several factors including lower than expected volumes in our spine business, uncertainties surrounding the company’s October 2012 warning letter and surgeons’ subsequent shift to alternative solutions, a slower than expected ramp in our new direct surgical specialties business and lower than projected revenues in our international business due to shortages in tissue supply,” said Brian K. Hutchison, president and chief executive officer of RTI.

For the third quarter of 2013, the company reported a net loss applicable to common shares of $9.1 million and net loss per fully diluted common share of $0.16, based on 56.4 million fully diluted shares outstanding, compared to net income applicable to common shares of $2.8 million or $0.05 per fully diluted common share for the third quarter of 2012, based on 56.1 million fully diluted shares outstanding. Excluding certain acquisition related expenses and certain purchase accounting adjustments, the company reported a net loss applicable to common shares of $699,000 and a net loss per fully diluted share of $0.01.

“While third quarter results were below expectations, we are working diligently to rebuild business that was lost in the year and gain new customers,” Hutchison said. “We have made progress on integrating the Pioneer business and are in the early stages of realizing cross distribution opportunities. We are confident we are headed in the right direction for long term success.”

Fiscal 2013 and Fourth Quarter Outlook

Based on the acquisition of Pioneer and results from the first three quarters the company is revising its full year revenue guidance for 2013. The company now expects full year revenue guidance for 2013 to be between $196 million to $197 million, as compared to prior guidance of $211 million to $215 million. Full year net loss per fully diluted common share is expected to be approximately $0.28, based on 56.4 million fully diluted shares outstanding, as compared to prior guidance of full year net loss per fully diluted common share of $0.13 to $0.11. Excluding certain acquisition related expenses, certain purchase accounting adjustments, and the Biomedical Tissue Services Ltd. litigation settlement charge taken in the second quarter of 2013, full year earnings per fully diluted common share is expected to be approximately breakeven.

For the fourth quarter of 2013, the company expects revenues to be between $59 million and $60 million and net loss per fully diluted common share to be approximately $0.09, based on 56.4 million fully diluted shares outstanding. Excluding certain acquisition related expenses and certain purchase accounting adjustments, fourth quarter net loss per fully diluted common share is expected to be approximately $0.01.

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 advancing science, safety and innovation, 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
(In thousands, except share and per share data)
(Unaudited)
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
  2013       2012     2013       2012  
Revenues $ 54,742 $ 44,566 $ 137,473 $ 133,506
Costs of processing and distribution   34,423     22,874     78,722     70,037  
Gross profit   20,319     21,692     58,751     63,469  
Expenses:
Marketing, general and administrative 24,837 14,499 55,555 43,167
Research and development 4,738 3,109 11,190 9,279
Asset abandonments - - - 18
Litigation settlement - - 3,000 2,350
Acquisition expenses   4,342     -     5,837     -  
Total operating expenses   33,917     17,608     75,582     54,814  
Operating (loss) income   (13,598 )   4,084     (16,831 )   8,655  
Total other income - net   4     32     7     138  
(Loss) income before income tax benefit (provision) (13,594 ) 4,116 (16,824 ) 8,793
Income tax benefit (provision)   5,094     (1,308 )   6,787     (2,662 )
Net (loss) income   (8,500 )   2,808     (10,037 )   6,131  
Convertible preferred dividend   (625 )   -     (625 )   -  
Net (loss) income applicable to common shares $ (9,125 ) $ 2,808   $ (10,662 ) $ 6,131  
 
Net (loss) income per common share - basic $ (0.16 ) $ 0.05   $ (0.19 ) $ 0.11  
Net (loss) income per common share - diluted $ (0.16 ) $ 0.05   $ (0.19 ) $ 0.11  
Weighted average shares outstanding - basic   56,356,885     55,908,574     56,216,200     55,826,306  
Weighted average shares outstanding - diluted   56,356,885     56,110,898     56,216,200     56,013,541  
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net (Loss) Income Applicable to Common Shares and Net (Loss) Income Per Diluted Share to
Adjusted Net (Loss) Income Applicable to Common Shares and Adjusted Net (Loss) Income Per Diluted Share
(In thousands except per share data)
(Unaudited)
 
  Three Months Ended
September 30, 2013   September 30, 2012
Net Net
(Loss) Income Amount (Loss) Income Amount
Applicable to per Diluted Applicable to per Diluted
Common Shares Share Common Shares Share
As reported $ (9,125) $ (0.16) $ 2,808 $ 0.05
Inventory purchase price adjustment, net of tax effect (1) 4,176 0.07 - -
Acquisition expenses, net of tax effect (2) 3,863 0.07 - -
Integration expenses, net of tax effect (3) 387 0.01 - -
Adjusted $ (699) $ (0.01) $ 2,808 $ 0.05
 
Nine Months Ended
September 30, 2013 September 30, 2012
Net Net
(Loss) Income Amount (Loss) Income Amount
Applicable to per Diluted Applicable to per Diluted
Common Shares Share Common Shares Share
As reported $ (10,662) $ (0.19) $ 6,131 $ 0.11
Inventory purchase price adjustment, net of tax effect (1) 4,176 0.07 - -
Acquisition expenses, net of tax effect (4) 4,771 0.08 - -
Integration expenses, net of tax effect (3) 387 0.01 - -
Litigation settlement charge, net of tax effect (5) 1,822 0.03 1,444 0.03
Adjusted $ 494 $ 0.01 $ 7,575 $ 0.14
 
(1) Inventory purchase price adjustment, net of tax effect, as follows:
Inventory purchase price adjustment $ 6,875
Tax effect on inventory purchase price adjustment (2,699)
Inventory purchase price adjustment, net of tax effect $ 4,176
 
(2) Acquisition expenses, net of tax effect, as follows:
Acquisition expenses $ 4,342
Tax effect on acquisition expenses (479)
Acquisition expenses, net of tax effect $ 3,863
 
(3) Integration expenses, net of tax effect, as follows:
Integration expenses $ 637
Tax effect on integration expenses (250)
Integration expenses, net of tax effect $ 387
 
(4) Acquisition expenses, net of tax effect, as follows:
Acquisition expenses $ 5,837
Tax effect on acquisition expenses (1,066)
Acquisition expenses, net of tax effect $ 4,771
 
(5) Litigation settlement charge, net of tax effect, as follows:
Litigation settlement charge $ 3,000 $ 2,350
Tax effect on litigation settlement charge (1,178) (906)
Litigation settlement charge, net of tax effect $ 1,822 $ 1,444
 

Use of Non-GAAP Financial Measures

To supplement RTI Surgical’s condensed consolidated financial statements presented on a GAAP basis, the company discloses certain non-GAAP financial measures that exclude certain amounts, including non-GAAP net (loss) income applicable to common shares and non-GAAP net (loss) income per fully diluted share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measures are included in the reconciliation above.

The following are explanations of the adjustments that management excluded as part of the non-GAAP measures for the three and nine month period ended September 30, 2013 as well as the reasons for excluding the individual item:

2013 Inventory purchase price adjustment – This adjustment represents a charge and relates to purchase price accounting associated with the acquisition of Pioneer. Management removes the amount of these one-time fees from the Company’s operating results to assist in assessing its operating performance in the year-to-date period and to supplement a comparison to the Company’s past operating performance.

2013 Acquisition expenses – This adjustment represents a charge and relates to certain fees associated with the acquisition of Pioneer. Management removes the amount of these one-time fees from the Company’s operating results to assist in assessing its operating performance in the year-to-date period and to supplement a comparison to the Company’s past operating performance.

2013 Integration expenses – This adjustment represents a charge and relates to certain expenses associated with the integration of Pioneer. Management removes the amount of these one-time fees from the Company’s operating results to assist in assessing its operating performance in the year-to-date period and to supplement a comparison to the Company’s past operating performance.

2013 Litigation settlement charge – This adjustment represents a charge and relates to a litigation settlement of certain BTS related lawsuits. Management removes the amount of the litigation settlement charge from the Company’s operating results to assist in assessing its operating performance in the year-to-date period and to supplement a comparison to the Company’s past operating performance.

2012 Litigation settlement charge – This adjustment represents a charge and relates to a litigation settlement of certain BTS related lawsuits. Management removes the amount of the litigation settlement charge from the Company’s operating results to assist in assessing its operating performance in the prior year periods to supplement a comparison to the Company’s current operating performance.

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

Non-GAAP net (loss) income applicable to common shares and non-GAAP net (loss) income per fully diluted share 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 non-GAAP net (loss) income applicable to common shares and non-GAAP net (loss) income per fully diluted share 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 price adjustment, acquisition expenses, integration expenses and litigation settlement charges. The Company further believes that providing this information better enables RTI Surgical’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
(In thousands)
(Unaudited)
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
  2013     2012   2013     2012
 
Revenues from tissue distribution:
Spine $ 17,600 $ 10,187 $ 38,920 $ 28,532
Sports medicine 9,532 11,811 31,700 38,573
Surgical specialties 6,730 7,880 20,559 24,136
Bone graft substitutes and general orthopedic 7,692 7,916 19,093 21,947
Dental 4,963 5,240 14,142 15,678
Ortho fixation 6,704 - 6,704 -
Other revenues   1,521   1,532   6,355   4,640
Total revenues $ 54,742 $ 44,566 $ 137,473 $ 133,506
Domestic revenues 49,295 39,643 122,822 116,707
International revenues   5,447   4,923   14,651   16,799
Total revenues $ 54,742 $ 44,566 $ 137,473 $ 133,506
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
    September 30,   December 31,
  2013     2012  
Assets
Cash and cash equivalents $ 16,135 $ 49,696
Accounts receivable - net 33,294 21,694
Inventories - net 113,138 76,509
Prepaid and other current assets   25,417     18,673  
Total current assets 187,984 166,572
 
Property, plant and equipment - net 72,818 49,644
Other assets - net   113,304     25,193  
Total assets $ 374,106   $ 241,409  
 
Liabilities and Stockholders' Equity
Accounts payable $ 23,505 $ 11,949
Accrued expenses and other current liabilities 24,597 25,397
Current portion of long-term obligations   28     116  
Total current liabilities 48,130 37,462
 
Deferred revenue 17,052 18,780
Long-term liabilities   83,947     1,175  
Total liabilities 149,129 57,417
 
Preferred stock 49,381 -
 
Stockholders' equity:
Common stock and additional paid-in capital 415,663 414,504
Accumulated other comprehensive loss (1,294 ) (1,776 )
Accumulated deficit   (238,773 )   (228,736 )
Total stockholders' equity   175,596     183,992  
Total liabilities and stockholders' equity $ 374,106   $ 241,409  
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
  Three Months Ended   Nine Months Ended
September 30, September 30,
  2013       2012     2013       2012  
Cash flows from operating activities:
Net (loss) income $ (8,500 ) $ 2,808 $ (10,037 ) $ 6,131
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization expense 4,091 2,035 8,214 5,914
Stock-based compensation 584 524 1,653 1,574
Amortization of deferred revenue (1,182 ) (1,163 ) (5,229 ) (3,491 )
Other items to reconcile to net cash
(used in) provided by operating activities   (2,136 )   3,915     (6,528 )   7,171  
Net cash (used in) provided by operating activities   (7,143 )   8,119     (11,927 )   17,299  
Cash flows from investing activities:
Purchases of property, plant and equipment (6,282 ) (2,235 ) (11,154 ) (6,844 )
Acquisition of Pioneer Surgical Technology (126,307 ) - (126,307 ) -
Other investing activities   (342 )   (966 )   (576 )   (1,342 )
Net cash used in investing activities   (132,931 )   (3,201 )   (138,037 )   (8,186 )
Cash flows from financing activities:
Proceeds from long-term obligations 68,250 - 68,250 -
Payment of debt issuance costs (525 ) - (525 ) -
Proceeds from preferred stock issuance 50,000 - 50,000 -
Payment of preferred stock issuance costs (1,290 ) - (1,290 ) -
Payments on long-term obligations (28 ) (95 ) (121 ) (389 )
Other financing activities   98     176     (208 )   370  
Net cash provided by (used in) financing activities   116,505     81     116,106     (19 )
Effect of exchange rate changes on cash and cash equivalents   311     12     297     (30 )
Net (decrease) increase in cash and cash equivalents (23,258 ) 5,011 (33,561 ) 9,064
Cash and cash equivalents, beginning of period   39,393     50,231     49,696     46,178  
Cash and cash equivalents, end of period $ 16,135   $ 55,242   $ 16,135   $ 55,242  
 

Fiscal 2013 and Fourth Quarter Outlook

Based on the acquisition of Pioneer and results from the first three quarters the company is revising its full year revenue guidance for 2013. The company now expects full year revenue guidance for 2013 to be between $196 million to $197 million, as compared to prior guidance of $211 million to $215 million. Full year net loss per fully diluted common share is expected to be approximately $0.28, based on 56.4 million fully diluted shares outstanding, as compared to prior guidance of full year net loss per fully diluted common share of $0.13 to $0.11. Excluding certain acquisition related expenses, certain purchase accounting adjustments, and the Biomedical Tissue Services Ltd. litigation settlement charge taken in the second quarter of 2013, full year earnings per fully diluted common share is expected to be approximately breakeven.

For the fourth quarter of 2013, the company expects revenues to be between $59 million and $60 million and net loss per fully diluted common share to be approximately $0.09, based on 56.4 million fully diluted shares outstanding. Excluding certain acquisition related expenses and certain purchase accounting adjustments, fourth quarter net loss per fully diluted common share is expected to be approximately $0.01.

RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of GAAP Guidance Net Loss Per Diluted Share to
Adjusted Non-GAAP Guidance Net Loss Per Diluted Share
(Unaudited)
   
 
 
Three Months Ended   Twelve Months Ended
December 31, 2013 December 31, 2013
$ Amount $ Amount
per Diluted per Diluted
Share Share
GAAP Guidance Net Loss per Diluted Share $ (0.09) $ (0.28)
Inventory purchase price adjustment, net of tax effect 0.08 0.16
Acquisition expenses, net of tax effect 0.00 0.09
Integration expenses, net of tax effect 0.00 0.01
Litigation settlement charge, net of tax effect 0.00 0.03
Adjusted Non-GAAP Guidance Net Loss per Diluted Share $ (0.01) $ 0.00

Contact:
RTI Surgical Inc.
Robert Jordheim
Chief Financial Officer
rjordheim@rtix.com
or
Wendy Crites Wacker, APR, 386-418-8888
Executive Director, Global Corporate and Marketing Communications
wwacker@rtix.com

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