EX-99.1 2 d255338dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

FOR RELEASE AT 7:30 AM ET   For more information, contact:
OCTOBER 25, 2016   Robert Jordheim
  Executive Vice President,
  Chief Financial Officer
  rjordheim@rtix.com
  Wendy Crites Wacker, APR
  Vice President, Global Communications
  wwacker@rtix.com
  Phone (386) 418-8888

RTI SURGICAL® ANNOUNCES 2016 THIRD QUARTER RESULTS

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

ALACHUA, Fla. (Oct. 25, 2016) – RTI Surgical Inc. (RTI) (Nasdaq: RTIX), a global surgical implant company, reported operating results for the third quarter of 2016 as follows:

Quarterly Summary:

 

    Achieved worldwide revenues of $66.5 million, comparable to third quarter of 2015.

 

    Achieved worldwide direct revenues of $38.1 million, a 14 percent increase over the third quarter of 2015.

 

    Achieved global commercial and other revenues of $28.5 million, a 14 percent decrease compared to the third quarter of 2015.

 

    Expanded nanOss® Bioactive bone void filler into Australia and Europe with regulatory clearance from the Australian Therapeutic Goods Administration (TGA) for nanOss Bioactive bone void filler and CE Mark from BSI for nanOss Bioactive Loaded bone void filler and nanOss Bioactive 3D bone void filler in Europe.

 

    Continued comprehensive strategic review of RTI’s business lines and operations and continued to pursue search for a new chief executive officer to succeed Brian K. Hutchison who announced his intent to retire on August 15, 2016.

Worldwide revenues were $66.5 million for the third quarter of 2016, which were comparable to revenues for the third quarter of 2015. Domestic revenues were $61 million for the third quarter of 2016, which were also comparable to revenues for the third quarter of 2015. International revenues were $5.6 million for the third quarter of 2016, a slight increase compared to revenues of $5.5 million


for the third quarter of 2015. On a constant currency basis, international revenues for the third quarter of 2016 increased 2 percent compared to the third quarter of 2015. Direct revenues of $38.1 million increased 14 percent for the third quarter of 2016 compared to $33.2 million for the third quarter of 2015. Commercial and other revenues of $28.5 million decreased 14 percent for the third quarter of 2016 compared to $33.3 million for the third quarter of 2015.

“Our direct business continued to show strong performance in the third quarter, highlighted by our U.S. spine, cardiothoracic and surgical specialties businesses,” said Brian K. Hutchison, president and chief executive officer. “Our direct spine business has become one of the fastest-growing spine companies in the market according to published data, with growth driven by both hardware and biologics. . Despite the strong performance in our domestic direct business, our commercial business continues to perform below expectations.

For the third quarter of 2016, the company reported net loss applicable to common shares of $4.5 million and net loss per fully diluted common share of $0.08, based on 58.4 million fully diluted shares outstanding, compared to net income applicable to common shares of $2.7 million and net income per fully diluted common share of $0.05 for the third quarter of 2015, based on 58.9 million fully diluted shares outstanding. On an adjusted basis, excluding pre-tax other charges of $5.1 million, as detailed in the reconciliation provided later in this release, and a foreign net operating loss valuation reserve of $1.2 million, adjusted net income applicable to common shares was $0.0 million and adjusted net income per fully diluted common share was $0.00, based on 58.4 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 $8.1 million for the third quarter of 2016 (12 percent of third quarter 2016 revenues) compared to $10.7 million for the third quarter of 2015 (16 percent of third quarter 2015 revenues). The decline was principally a result of higher variable compensation and distributor commission expenses on direct revenue distributions and the development of our international direct sales network.

Fiscal 2016 Outlook

As previously announced, RTI continues to progress on its strategic business review and CEO search. RTI’s board of directors and management remain focused on achieving sustainable top- and bottom-line growth and identifying opportunities that can generate the most value for RTI’s customers, employees and shareholders.


Based on the outlook for the remainder of the year, the company now expects that full year revenue for 2016 will range from $268 million to $270 million, as compared to prior guidance of $274 million to $280 million. The company expects full year direct revenue to grow in the range of 13 percent to 15 percent as compared to the previous range of 16 percent to 17 percent. The reduced outlook is primarily due to delays associated with transition of an international distributor. The company expects full year commercial and other revenue to decline in the range of 21 percent to 23 percent as compared to the previous range of 18 percent to 21 percent. The reduced outlook is primarly due to continued softness in commercial orders.

As a result of the lower revenue guidance, the other charges, and the foreign net operating loss valuation, the company now expects that full year net loss per fully diluted common share for 2016 will range from $0.11 to $0.13 based on 58.3 million fully diluted shares outstanding, as compared to prior guidance of net income per fully diluted common share of $0.03 to $0.06. Excluding the other charges and foreign operating loss valuation reserve, adjusted full year 2016 net income per fully diluted common share is expected to range from $0.01 to $0.03, based on 58.3 million fully diluted common shares outstanding as compared to prior guidance of adjusted full year 2016 net income per fully diluted common share of $0.09 to $0.12, based on 58.5 million fully diluted common shares outstanding.

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. 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,  
     2016     2015     2016     2015  

Revenues

   $ 66,547      $ 66,529      $ 201,518      $ 206,172   

Costs of processing and distribution

     32,273        31,296        97,270        96,737   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     34,274        35,233        104,248        109,435   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Marketing, general and administrative

     28,724        25,464        84,678        80,088   

Research and development

     3,789        3,793        12,034        11,492   

Restructuring charges

     —          —          1,107        —     

Strategic review costs

     650        —          650        —     

CEO Retirement and transition costs

     4,107        —          4,107        —     

Contested proxy expenses

     —          —          2,680        —     

Severance costs

     328        —          1,039        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     37,598        29,257        106,295        91,580   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (3,324     5,976        (2,047     17,855   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense - net

     (374     (405     (1,112     (986
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax provision

     (3,698     5,571        (3,159     16,869   

Income tax benefit (provision)

     92        (2,069     (338     (6,120
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (3,606     3,502        (3,497     10,749   
  

 

 

   

 

 

   

 

 

   

 

 

 

Convertible preferred dividend

     (883     (832     (2,611     (2,460
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income applicable to common shares

   $ (4,489   $ 2,670      $ (6,108   $ 8,289   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common share - basic

   $ (0.08   $ 0.05      $ (0.10   $ 0.14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common share - diluted

   $ (0.08   $ 0.05      $ (0.10   $ 0.14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - basic

     58,353,110        57,701,810        58,173,580        57,492,606   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - diluted

     58,353,110        58,922,423        58,173,580        58,591,303   
  

 

 

   

 

 

   

 

 

   

 

 

 


RTI SURGICAL, INC. AND SUBSIDIARIES

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

(Unaudited, in thousands)

 

     For the Three Months     For the Nine Months  
     Ended September 30,     Ended September 30,  
     2016     2015     2016     2015  

Net (loss) income

   $ (4,489   $ 2,670      $ (6,108   $ 8,289   

Interest expense, net

     307        336        1,053        978   

(Benefit) provision for income taxes

     (92     2,069        338        6,120   

Depreciation

     3,459        3,011        10,295        9,212   

Amortization of intangible assets

     934        1,100        2,792        3,245   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     119        9,186        8,370        27,844   

Reconciling items for Adjusted EBITDA

        

Preferred dividend

     883        832        2,611        2,460   

Non-cash stock based compensation

     1,975        662        3,075        1,915   

Foreign exchange loss

     67        69        59        8   

Other reconciling items(1)

        

Restructuring charges

     —          —          1,107        —     

Strategic review costs

     650        —          650        —     

CEO Retirement and transition costs

     4,107        —          4,107        —     

Contested proxy expenses

     —          —          2,680        —     

Severance costs

     328        —          1,039        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 8,129      $ 10,749      $ 23,698      $ 32,227   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA as a percent of revenues

     12     16     12     16
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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


RTI SURGICAL, INC. AND SUBSIDIARIES

Reconciliation of Net (Loss) Income Applicable to Common Shares and Net (Loss) 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  
     September 30, 2016     September 30, 2015  
     Net           Net         
     Income     Amount     Income      Amount  
     Applicable to     per Diluted     Applicable to      per Diluted  
     Common Shares     Share     Common Shares      Share  

As reported

   $ (4,489   $ (0.08   $ 2,670       $ 0.05   

Severance charges, net of tax effect (1)

     202      $ 0.00        —           —     

Strategic review costs, net of tax effect (2)

     401      $ 0.01        —           —     

CEO retirement and transition costs, net of tax effect (3)

     2,709      $ 0.05        —           —     

European net operating loss valuation reserve

     1,224      $ 0.02        —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted

   $ 47      $ 0.00      $ 2,670       $ 0.05   
  

 

 

   

 

 

   

 

 

    

 

 

 
     For the Nine Months Ended  
     September 30, 2016     September 30, 2015  
     Net           Net         
     Income     Amount     Income      Amount  
     Applicable to     per Diluted     Applicable to      per Diluted  
     Common Shares     Share     Common Shares      Share  

As reported

   $ (6,108   $ (0.10   $ 8,289       $ 0.14   

Restructuring charges, net of tax effect (4)

     1,050        0.02        —           —     

Contested proxy expenses, net of tax effect (5)

     1,654        0.03        —           —     

Severance charges, net of tax effect (6)

     641        0.01        —           —     

Strategic review costs , net of tax effect (2)

     401        0.01        —           —     

CEO retirement and transition costs, net of tax effect (3)

     2,709        0.05        —           —     

European net operating loss valuation reserve

     1,224        0.02        —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted

   $ 1,571      $ 0.03      $ 8,289       $ 0.14   
  

 

 

   

 

 

   

 

 

    

 

 

 

Note: Amounts may not foot due to rounding.

         

Footnotes:

   2016                     

(1) Severance charges, net of tax effect, as follows:

         

Severance charges

   $ 328          

Tax effect on Severance charges

     (126       
  

 

 

        

Severance charges, net of tax effect

   $ 202          
  

 

 

        

(2) Strategic review costs, net of tax effect, as follows:

         

Strategic review costs

   $ 650          

Tax effect on Strategic review costs

     (249       
  

 

 

        

Strategic review costs, net of tax effect

   $ 401          
  

 

 

        

(3) CEO Retirement and transition costs, net of tax effect, as follows:

         

CEO Retirement and transition costs

   $ 4,107          

Tax effect on CEO Retirement and transition costs

     (1,398       
  

 

 

        

CEO retirement and transition costs, net of tax effect

   $ 2,709          
  

 

 

        

(4) Restructuring charges, net of tax effect, as follows:

         

Restructuring charges

   $ 1,107          

Tax effect on Restructuring charges

     (57       
  

 

 

        

Restructuring charges, net of tax effect

   $ 1,050          
  

 

 

        

(5) Contested proxy expenses, net of tax effect, as follows:

         

Contested proxy expenses

   $ 2,680          

Tax effect on contested proxy expenses

     (1,026       
  

 

 

        

Contested proxy expenses, net of tax effect

   $ 1,654          
  

 

 

        

(6) Severance charges, net of tax effect, as follows:

         

Severance charges

   $ 1,039          

Tax effect on Severance charges

     (398       
  

 

 

        

Severance charges, net of tax effect

   $ 641          
  

 

 

        


Fiscal 2016 Outlook

Full year net loss per fully diluted common share is expected to be in the range of $0.11 to $0.13, based on 58.4 million fully diluted shares outstanding. Excluding the contested proxy expenses, restructuring charges, severance charges, strategic review costs, CEO retirement and transition costs and foreign operating loss valuation reserve taken in 2016, full year net income per fully diluted common share is expected to be in the range of $0.01 to $0.03.

RTI SURGICAL, INC. AND SUBSIDIARIES

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

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

(Unaudited)

 

     Twelve Months Ended  
     December 31, 2016  
     $ Amount  
     per Common  
     Share - Diluted  

GAAP Guidance net loss per common share - diluted

   $ (0.13) - (0.11)   

Restructuring charges, net of tax effect (1)

     0.02    

Contested proxy expenses, net of tax effect (2)

     0.03    

Severance charges, net of tax effect (3)

     0.01    

Strategic review costs , net of tax effect (4)

     0.01    

CEO retirement and transition costs, net of tax effect (5)

     0.05    

European net operating loss valuation reserve

     0.02    
  

 

 

 

Adjusted non-GAAP guidance net income per common share - diluted

   $     0.01 - 0.03    
  

 

 

 


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 non-GAAP net income applicable to common shares, adjusted. 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 non-GAAP net income applicable to common shares. 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 nine month periods ended September 30, 2016 as well as the reason for excluding the individual items:

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

(2) 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.

(3) Severance charges – This adjustment represents charges relating to the termination of former employees. Management removes the amount of these expenses from our operating results to supplement a comparison to our past operating performance.

(4) Strategic review costs – This adjustment represents charges relating to a comprehensive strategic review of the Company’s business lines and operations to leverage the Company’s expertise, technology and products and identify opportunities to increase stockholder value. Management removes the amount of these expenses from our operating results to supplement a comparison to our past operating performance.

(5) CEO Retirement and transition costs – This adjustment represents charges relating to the retirement of our Chief Executive Officer, Brian K. Hutchison, pursuant to the Executive Transition Agreement dated August 29, 2012. 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 utilizes certain financial measures that are not calculated based on GAAP. Certain of these financial measures are considered “non-GAAP” financial measures within the meaning of Item 10 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that non-GAAP financial measures reflect an additional way of viewing aspects of its operations that, when viewed with the GAAP results, provide a more complete understanding of the Company’s results of operations and the factors and trends affecting the Company’s business. These non-GAAP financial measures are also used by the Company’s management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by the Company may differ from the non-GAAP measures used by other companies, including the Company’s competitors.


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,  
     2016      2015      2016      2015  

Revenues:

           

Spine

   $ 17,775       $ 13,674       $ 52,514       $ 42,375   

Sports medicine and orthopedics

     11,874         11,882         36,956         37,654   

Surgical specialties

     1,168         670         2,985         2,004   

Cardiothoracic

     2,893         2,225         8,332         6,403   

International

     4,352         4,793         15,532         13,938   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal direct

     38,062         33,244         116,319         102,374   

Global commercial

     25,297         30,182         75,396         93,061   

Other revenues

     3,188         3,103         9,803         10,737   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 66,547       $ 66,529       $ 201,518       $ 206,172   
  

 

 

    

 

 

    

 

 

    

 

 

 

Domestic revenues

     60,959         61,046         183,192         189,751   

International revenues

     5,588         5,483         18,326         16,421   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 66,547       $ 66,529       $ 201,518       $ 206,172   
  

 

 

    

 

 

    

 

 

    

 

 

 


RTI SURGICAL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

     September 30,     December 31,  
     2016     2015  
Assets     

Cash and cash equivalents

   $ 11,624      $ 12,614   

Accounts receivable - net

     38,512        47,243   

Inventories - net

     125,175        118,673   

Prepaid and other current assets

     7,512        13,184   
  

 

 

   

 

 

 

Total current assets

     182,823        191,714   

Property, plant and equipment - net

     89,856        84,992   

Goodwill

     54,887        54,887   

Other assets - net

     46,844        49,069   
  

 

 

   

 

 

 

Total assets

   $ 374,410      $ 380,662   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Accounts payable

   $ 23,287      $ 20,446   

Accrued expenses and other current liabilities

     22,153        33,474   

Current portion of long-term obligations

     4,689        5,853   
  

 

 

   

 

 

 

Total current liabilities

     50,129        59,773   

Deferred revenue

     7,754        9,354   

Long-term liabilities

     79,115        73,856   
  

 

 

   

 

 

 

Total liabilities

     136,998        142,983   

Preferred stock, including accrued dividends

     59,073        56,323   

Stockholders’ equity:

    

Common stock and additional paid-in capital

     417,670        417,337   

Accumulated other comprehensive loss

     (6,895     (7,042

Accumulated deficit

     (232,436     (228,939
  

 

 

   

 

 

 

Total stockholders’ equity

     178,339        181,356   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 374,410      $ 380,662   
  

 

 

   

 

 

 


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,  
     2016     2015     2016     2015  

Cash flows from operating activities:

        

Net (loss) income

   $ (3,606   $ 3,502      $ (3,497   $ 10,749   

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

        

Depreciation and amortization expense

     4,393        4,111        13,087        12,457   

Stock-based compensation

     1,975        662        3,075        1,915   

Amortization of deferred revenue

     (1,216     (1,160     (3,650     (5,065

Other items to reconcile to net cash provided by operating activities

     (4,721     (11,409     1,019        (17,633
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (3,175     (4,294     10,034        2,423   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property, plant and equipment

     (3,371     (4,392     (12,774     (12,969

Patent and acquired intangible asset costs

     (804     (133     (2,195     (249
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (4,175     (4,525     (14,969     (13,218
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from long-term obligations

     8,000        6,750        15,000        6,750   

Net proceeds (payments) from short-term obligations

     (662     160        (1,511     508   

Payments on long-term obligations

     (1,125     (1,135     (9,424     (4,161

Other financing activities

     —          612        (94     2,308   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     6,213        6,387        3,971        5,405   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     7        41        (26     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,130     (2,391     (990     (5,395

Cash and cash equivalents, beginning of period

     12,754        12,699        12,614        15,703   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 11,624      $ 10,308      $ 11,624      $ 10,308