Performance Powered by Ongoing Strength of OEM
Business and Operational Excellence Initiatives
Highlights:
- Second Quarter 2018 revenue of $70.7
million
- Second Quarter 2018 Net loss of $6.4
million, inclusive of $8.5 million of non-recurring charges
- Second Quarter 2018 Adjusted EBITDA of
$9.1 million, or 13% of revenue
- Completed new $100 million credit
agreement increasing borrowing capacity at reduced cost of
borrowing
RTI Surgical, Inc. (Nasdaq: RTIX), a global surgical implant
company, reported operating results for the second quarter of
2018.
“Our team is sustaining the momentum generated over the past 18
months, as evidenced by our positive operational and financial
performance this quarter,” said Camille Farhat, chief executive
officer. “As anticipated in our previously issued guidance, our OEM
franchise continues to contribute attractive growth, which we
believe demonstrates the importance of the changes we implemented
in 2017 and the value of our diverse portfolio. Our current
operational excellence priorities, focused primarily on the cost of
tissue processing, began to positively impact our cost of sales
this quarter, providing significant margin and adjusted EBITDA
improvements. Our efforts to date are encouraging and we believe
that we remain well positioned to deliver on our commitments in
2018 and beyond.”
Farhat added, “As we enter the second half of the year, we
continue to make significant strides in our strategic
transformation. Following the recent owned agency transition
announcement, we have further reduced the complexity of our
operations through the reduction of vertical integration and
increased focus on our strength in tissue processing. We believe we
maintain strong partnerships with the organ procurement community
that, in our opinion, ensure that we can continue to expand the
number of patients served with our differentiated allograft
products. With the implementation of our operational excellence
initiatives well underway, we are starting to see the positive
outcomes in our financial results, and I am proud of the ongoing
efforts of many people across the Company. Also, we are encouraged
by the progress demonstrated by the team managing the Zyga
acquisition and integration, which exemplify our endeavors to
accelerate growth. In light of this progress, I am focused on
reinvigorating the R&D pipeline and pursuing attractive deals
at logical valuations.”
Second Quarter 2018
RTI’s worldwide revenues for the second quarter of 2018 were
$70.7 million, down slightly compared with $72.1 million during the
same period for the prior year. Excluding a $3.7 million reduction
from the sale of substantially all the assets of the cardiothoracic
closure business completed in August 2017, our total revenues
increased $2.2 million, or 3.3%. Gross profit for the second
quarter of 2018 was $30.0 million, inclusive of a $6.8 million
charge for the write-off of excess inventory related to decreased
distributions of our map3® implant and the purchase accounting
step-up of Zyga inventory. To partially offset the impact of the
decreased distribution of map3® implant we signed a distribution
agreement with Aziyo Biologics, Inc., to supplement our biologics
portfolio with an alternative allograft stem cell product.
Excluding the excess inventory charge and purchase accounting
impact, our Adjusted Gross Profit for the second quarter of 2018
was $36.8 million or 52.1% of revenues, compared to $37.0 million,
or 51.3% of revenues, in the second quarter of 2017.
During the second quarter of 2018, RTI incurred non-recurring
pre-tax charges to support the ongoing strategic transformation of
the business. The company incurred $4.5 million in asset impairment
and abandonment charges related to decreased distribution of our
map3® implant During the second quarter of 2017, the company
incurred $3.4 million of non-recurring pre-tax charges.
Net loss applicable to common shares was $6.4 million, or $0.10
per fully diluted common share in the second quarter of 2018,
compared to a net loss applicable to common shares of $2.6 million,
or $0.04 per fully diluted common share in the second quarter of
2017. As outlined in the reconciliation tables that follow,
excluding the impact of the various non-recurring charges, Adjusted
Net Income applicable to common shares was $2.0 million, or $0.03
per fully diluted common share in the second quarter of 2018.
Adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA), for the second quarter of 2018 was
$9.1 million, or 13% of revenues compared with $8.3 million,
inclusive of $1.2 million of EBITDA related to the cardiovascular
closure business, or 11% of revenues for the second quarter of
2017. The increase in Adjusted EBITDA is primarily driven by the
reduction in operating expenses associated with efforts to reduce
complexity and increase operational excellence implemented during
2017.
Fiscal 2018 Outlook
Based on our recent financial results and current business
outlook, the Company is reiterating financial guidance for 2018,
originally issued on January 5, 2018:
- The Company expects full year revenues
in the range of $280 million and $290 million.
- The Company expects full year Adjusted
EBITDA to be in the range of $32 million to $38 million.
The Company noted the following assumptions are included in its
guidance:
- Relatively stable market conditions and
regulatory environment;
- Positive revenue contribution from the
acquisition of Zyga Technology – announced January 4, 2018;
- Ongoing positive impact of efforts to
reduce complexity and implement operational excellence; and
- Continued demand of map3® cellular
allogeneic bone graft or alternative allograft stem cell
product.
Conference Call
RTI will host a conference call and audio webcast at 9:00 a.m.
ET today. The conference call can be accessed by dialing (877)
383-7419 (U.S.) or (760) 666-3754 (International). 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
RTI’s website for one month 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 and
trauma procedures and are distributed in more than 40 countries.
RTI 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 Statements
This communication contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including the statements made in this communication about our
positive operational and financial performance, the continued
contribution of the OEM franchise to RTI’s growth, the impact of
operational priorities on costs and their impact on RTI’s financial
performance, RTI’s ability to meet its commitments, the
implementation of RTI’s strategic initiatives, the reduction in
complexity of RTI’s operations, RTI’s ability to maintain
partnerships in the organ procurement community, RTI’s ability to
expand the number of patients it is able to serve, the integration
of Zyga’s operations, anticipated financial results, growth rates,
new product introductions, and future operational improvements.
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. The forward-looking statements are not
guarantees of future performance and are based on certain
assumptions including RTI’s ability to reduce inventory, manage
expenses and accomplish its goals and strategies, the quality of
the new product offerings from RTI, general economic conditions, as
well as those within RTI’s industry, RTI’s ability to integrate
acquisitions into existing operations, and numerous other factors
and risks identified in the Company’s Form 10-K for the fiscal year
ended December 31, 2017 and other filings with the 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 Six months ended June 30,
June 30, 2018 2017 2018 2017
Revenues $ 70,685 $ 72,120 $ 140,575 $ 142,059 Costs of processing
and distribution
40,645
35,157 76,853
69,317 Gross profit
30,040
36,963 63,722
72,742 Expenses:
Marketing, general and administrative 29,266 29,496 57,655 59,167
Research and development 3,270 3,740 6,691 7,428 Severance and
restructuring costs - 3,400 884 7,803 Asset impairment and
abandonments 4,515 - 4,644 - Acquisition and integration expenses
- -
800 - Total
operating expenses
37,051
36,636 70,674
74,398 Operating (loss) income
(7,011 ) 327
(6,952 )
(1,656 ) Total other expense - net
(1,151 ) (990
) (1,926 )
(1,789 ) Loss before income tax provision
(8,162 ) (663 ) (8,878 ) (3,445 ) Income tax benefit (provision)
2,702 (1,026
) 2,453
(116 ) Net loss
(5,460 ) (1,689
) (6,425 )
(3,561 ) Convertible preferred dividend
(981 ) (924
) (1,947 )
(1,834 ) Net loss applicable to common
shares
$ (6,441 )
$ (2,613 ) $
(8,372 ) $
(5,395 ) Net loss per common share
- basic
$ (0.10 )
$ (0.04 ) $
(0.13 ) $ (0.09
) Net loss per common share - diluted
$
(0.10 ) $ (0.04
) $ (0.13 )
$ (0.09 ) Weighted average
shares outstanding - basic
63,405,708
58,935,786
63,400,737 58,715,791
Weighted average shares outstanding - diluted
63,405,708 58,935,786
63,400,737
58,715,791 RTI SURGICAL, INC.
AND SUBSIDIARIES Reconciliation of Net Loss Applicable to
Commons Shares to Adjusted EBITDA (Unaudited, in
thousands)
Three Months Six Months Ended
June 30, Ended June 30, 2018 2017
2018 2017 Net loss applicable to common shares $
(6,441 ) $ (2,613 ) $ (8,372 ) $ (5,395 ) Interest expense, net 771
915 1,595 1,734 (Benefit) provision for income taxes (2,702 ) 1,026
(2,453 ) 116 Depreciation 2,524 2,652 5,147 5,324 Amortization of
intangible assets
960
909 1,921
1,805 EBITDA (4,888 ) 2,889 (2,162 ) 3,584
Reconciling items impacting EBITDA Preferred dividend 981 924 1,947
1,834 Non-cash stock based compensation 1,290 974 2,570 1,808
Foreign exchange gain 71 75 22 55 Other reconciling items *
Inventory write-off 6,559 - 7,582 - Inventory purchase price
adjustment 250 - 456 - Severance and restructuring costs - 3,400
884 7,470 Loss on extinguishment of debt 309 - 309 - Asset
impairment and abandonments 4,515 - 4,515 - Acquisition and
integration expenses
-
- 800
- Adjusted EBITDA
$
9,087 $ 8,262
$ 16,923 $
14,751 Adjusted EBITDA as a percent of revenues
13 % 11
% 12 %
10 % * 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 Applicable to Common Shares and Adjusted Net
Income Per Diluted Share (Unaudited, in thousands except per
share data) Three Months Ended June 30,
2018 June 30, 2017 Net Net (Loss)
Income Amount (Loss) Income Amount
Applicable to Per Diluted Applicable to Per
Diluted Common Shares Share Common Shares
Share As reported $ (6,441 ) $ (0.10 ) $ (2,613 ) $ (0.04 )
Severance and restructuring costs - - 3,400 0.06 Asset impairment
and abandonments 4,515 0.07 - - Inventory purchase price adjustment
250 0.00 - - Loss on extinguishment of debt 309 0.00 - -
Inventory obsolescence and reserve
charge
6,559 0.10 - - Tax effect on adjustments
(3,161
) (0.05 )
178 0.00 Adjusted *
$ 2,031 $
0.03 $ 965
$ 0.02 Six Months
Ended June 30, 2018 June 30, 2017 Net
Net (Loss) Income Amount (Loss) Income
Amount Applicable to Per Diluted Applicable
to Per Diluted Common Shares Share
Common Shares Share As reported $ (8,372 ) $ (0.13 )
$ (5,395 ) $ (0.09 ) Severance and restructuring costs 884 0.01
7,803 0.13 Asset impairment and abandonments 4,515 0.07 - -
Inventory purchase price adjustment 456 0.01 - - Loss on
extinguishment of debt 309 0.00 - -
Inventory obsolescence and reserve
charge
7,582 0.12 - - Acquisition and integration expenses 800 0.01 - -
Tax effect on adjustments
(3,654 )
(0.06 ) (1,304
) (0.02 ) Adjusted *
$ 2,520 $
0.04 $ 1,104
$ 0.02 * See
explanations in Use of Non-GAAP Financial Measures section later in
this release. Amount Per Diluted Share may not foot due to
rounding.
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 EBITDA, Adjusted EBITDA, Adjusted Net Income
Applicable to Common Shares, Adjusted Net Income per Common Share –
Diluted and Adjusted Gross Profit. The calculation of the tax
effect on the adjustments between GAAP net loss 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 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 months ended June 30, 2018 and 2017 as well as the reason for
excluding the individual items:
Severance and restructuring costs – This
adjustment represents costs relating to the reduction of our
organizational structure. Management removes the amount of these
costs from our operating results to supplement a comparison to our
past operating performance.
Asset impairment and abandonments – This
adjustment represents an asset impairment and abandonments related
to decreased distributions of our map3® implant. Management removes
the amount of these costs from our operating results to supplement
a comparison to our past operating performance.
Acquisition and integration expenses – This
adjustment represents charges relating to acquisition and
integration expenses due to the purchase of Zyga. Management
removes the amount of these costs from our operating results to
supplement a comparison to our past operating performance.
Inventory obsolescence and reserve charge –
This adjustment represents charges relating to inventory
obsolescence due to the rationalization of our international
distribution infrastructure and an inventory reserve charge related
to decreased distributions of our map3® implant. Management removes
the amount of these costs from our operating results to supplement
a comparison to our past operating performance.
Inventory purchase price adjustment – This
adjustment represents the purchase price effects of acquired Zyga
inventory that was sold during the six months ended June 30, 2018.
Management removes the amount of these costs from our operating
results to supplement a comparison to our past operating
performance.
Loss on extinguishment of debt – This
adjustment represents costs relating to refinancing our debt.
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
EBITDA, Adjusted EBITDA, Adjusted Net Income Applicable to
Common Shares, Adjusted Net Income per Common Share – Diluted, and
Adjusted Gross Profit 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 EBITDA, Adjusted EBITDA,
Adjusted Net Income Applicable to Common Shares, Adjusted Net
Income per Common Share – Diluted and Adjusted Gross Profit 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 For the Six Months Ended June
30, June 30, 2018 2017 2018
2017 Revenues: (In thousands) Spine $ 18,934 $ 19,419 $
38,197 $ 39,757 Sports 14,190 14,453 27,625 29,129 OEM 31,170
27,983 61,290 53,125 International 6,391 6,592 13,463 13,224
Cardiothoracic - 3,673 - 6,824 Total
revenues $ 70,685 $ 72,120 $ 140,575 $ 142,059
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited, in
thousands) June 30, December 31,
2018 2017 Assets Cash $ 14,246 $ 22,381
Accounts receivable - net 45,576 35,081 Inventories - net 101,022
111,927 Prepaid and other assets
8,038
16,285 Total current assets 168,882
185,674 Property, plant and equipment - net 76,838 79,564
Goodwill 64,863 46,242 Other assets - net
36,910 34,426 Total
assets
$ 347,493 $
345,906 Liabilities and Stockholders'
Equity Accounts payable $ 14,797 $ 18,252 Accrued expenses and
other current liabilities 28,934 30,478 Current portion of
long-term obligations
-
4,268 Total current liabilities 43,731 52,998
Deferred revenue 3,155 3,741 Long-term liabilities
58,571 43,507 Total
liabilities 105,457 100,246 Preferred stock 65,961 63,923
Stockholders' equity: Common stock and additional paid-in
capital 425,544 425,132 Accumulated other comprehensive loss (6,850
) (6,329 ) Accumulated deficit
(242,619
) (237,066 ) Total
stockholders' equity
176,075
181,737 Total liabilities and stockholders'
equity
$ 347,493 $
345,906
RTI SURGICAL, INC. AND
SUBSIDIARIES Condensed Consolidated Statements of Cash
Flows (Unaudited, in thousands) Three
Months Six Months Ended June 30, Ended June
30, 2018 2017 2018 2017 Cash
flows from operating activities: Net loss $ (5,460 ) $ (1,689 )
$ (6,425 ) $ (3,561 ) Adjustments to reconcile net loss to net cash
provided by operating activities: Depreciation and amortization
expense 3,484 3,561 7,068 7,129 Stock-based compensation 1,290 974
2,570 1,808 Amortization of deferred revenue (1,218 ) (1,186 )
(2,435 ) (2,460 ) Other items to reconcile to net cash (used in)
provided by operating activities
12,731
(624 ) 8,600
7,697 Net cash provided by
operating activities
10,827
1,036 9,378
10,613 Cash flows from investing
activities: Purchases of property, plant and equipment (1,738 )
(3,877 ) (3,856 ) (7,160 ) Patent and acquired intangible asset
costs (398 ) (1,526 ) (728 ) (1,845 ) Acquisition of Zyga
Technology
- -
(21,000 )
- Net cash used in investing activities
(2,136 ) (5,403
) (25,584 )
(9,005 ) Cash flows from financing
activities: Proceeds from long-term obligations 54,425 2,000
74,425 4,000 Payments on long-term obligations (61,625 ) (3,125 )
(66,750 ) (7,375 ) Other financing activities
(991 ) 1,467
403 1,433 Net
cash (used in) provided by financing activities
(8,191 ) 342
8,078 (1,942
) Effect of exchange rate changes on cash and cash
equivalents
(66 )
102 (7 )
160 Net increase (decrease) in cash and
cash equivalents 434 (3,923 ) (8,135 ) (174 ) Cash and cash
equivalents, beginning of period
13,812
17,598 22,381
13,849 Cash and cash equivalents, end of
period
$ 14,246 $
13,675 $ 14,246
$ 13,675
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version on businesswire.com: https://www.businesswire.com/news/home/20180802005216/en/
RTI Surgical, Inc.Media Contact:Molly Poarch,
+1-224-287-2661mpoarch@rtix.comorInvestor Contact:Nathan
Elwell, +1-847-530-0249nelwell@lincolnchurchilladvisors.com
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