RTI Surgical Announces 2013 Second Quarter Results

  RTI Surgical Announces 2013 Second Quarter Results

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

Business Wire

ALACHUA, Fla. -- August 6, 2013

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

Quarterly Highlights:

  *Achieved quarterly revenues of $42.3 million.
  *Achieved quarterly revenues of $11.2 million in the spine business, a 15
    percent increase over the second quarter of 2012.
  *Announced acquisition of Pioneer Surgical Technology Inc. (Pioneer), a
    leading medical technology company.
  *Launched Fortiva™ porcine dermis implant for hernia repair; announced
    first human implantation.
  *Achieved sterilization milestone – more than 5 million biologic implants
    sterilized with zero incidence of implant associated infection.
  *Settled substantially all of the remaining Biomedical Tissue Services Ltd.
    (BTS) lawsuits, which brings to conclusion any material risk related to
    these proceedings.

Worldwide revenues of $42.3 million for the second quarter of 2013 decreased 6
percent compared to the second quarter of 2012. Domestic revenues of $37.4
million for the second quarter of 2013 decreased 5 percent compared to the
second quarter of 2012, primarily due to weakness in the sports medicine,
surgical specialties and bone grafts substitutes and general orthopedic
businesses, offset by strength in the spine business. International revenues
of $4.9 million for the second quarter of 2013 decreased 18 percent as
compared to the second quarter of 2012. On a constant currency basis,
international revenues for the second quarter of 2013 decreased 20 percent as
compared to the second quarter of 2012.

For the second quarter of 2013, the company reported net loss of $3.0 million
and net loss per fully diluted share of $0.05, based on 56.3 million fully
diluted shares outstanding, compared to net income of $1.3 million or $0.02
per fully diluted share for the second quarter of 2012, based on 56 million
fully diluted shares outstanding.

In 2005, the company was named as a party, along with a number of other
recovery and processor defendants in lawsuits relating to the tissue recovery
practices of BTS, an unaffiliated recovery agency. During the second quarter
of 2012, the company accrued a pre-tax litigation settlement charge of $2.35
million, or $0.03 per fully diluted share to settle certain cases related to
these proceedings. During the second quarter of 2013, the company accrued a
pre-tax litigation settlement charge of $3 million, or $0.03 cents per fully
diluted share to settle substantially all of the remaining lawsuits relating
to these proceedings. This brings to conclusion any material risk related to
BTS.

Also during the second quarter of 2013, the company accrued a pre-tax expense
of $1.5 million for certain fees related to the acquisition of Pioneer.

Excluding the litigation settlement charge of $3 million and the expense
related to the acquisition of Pioneer of $1.5 million, the company reported
net income of $0.00 per fully diluted share.

“While second quarter revenues were in line with our expectations, net income
fell short,” said Brian K. Hutchison, president and chief executive officer of
RTI. “The shortfall in net income for the period was due to the $3 million BTS
litigation settlement charge, the $1.5 million expense related to the
acquisition of Pioneer, as well as lower gross margins primarily related to
the mix of implants distributed and the continued investment in the business
to launch our new surgical specialties distribution force.”

Fiscal 2013 and Third Quarter Outlook

Based on the acquisition of Pioneer and results from the first six months the
company is revising its full year revenue guidance for 2013. The company now
expects full year revenue guidance for 2013 to be between $211 million to $215
million, as compared to prior guidance of $179 million to $182 million. Full
year net loss after preferred dividends per fully diluted share applicable to
common shareholders is expected to be in the range of $0.13 to $0.11, based on
56.7 million fully diluted shares outstanding, as compared to prior guidance
of full year net income per fully diluted share applicable to common
shareholders of $0.17 to $0.19. Excluding certain acquisition related
expenses, certain purchase accounting adjustments, and the BTS litigation
settlement charge taken in the second quarter, full year net income after
preferred dividends per fully diluted share applicable to common shareholders
is expected to be in the range of $0.05 to $0.07. Throughout the remainder
2013, the company will continue to integrate the Pioneer business, make
investments in distribution, marketing and development activities to support
the launch of new products and to expand its presence in general orthopedics.

For the third quarter of 2013, the company expects revenues to be between $59
million and $61 million and net loss after preferred dividends per fully
diluted share applicable to common shareholders to be approximately $0.10,
based on 56.8 million fully diluted shares outstanding. Excluding certain
acquisition related expenses and certain purchase accounting adjustments,
third quarter net income after preferred dividends is expected to be
approximately $0.00 per fully diluted share applicable to common shareholders.

Conference Call

RTI will host a conference call and simultaneous audio webcast to discuss the
second 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 more than 47 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                Six Months Ended
                 June 30,                          June 30,
                 2013             2012             2013             2012
Revenues:
Tissue           $ 40,809         $ 43,711         $ 77,897         $ 85,832
distribution
Other revenues    1,500          1,486          4,834          3,108      
Total revenues     42,309           45,197           82,731           88,940
Costs of
processing and    23,073         23,526         44,299         47,163     
distribution
Gross profit      19,236         21,671         38,432         41,777     
Expenses:
Marketing,
general and        15,695           14,294           30,718           28,668
administrative
Research and       3,341            3,343            6,452            6,170
development
Asset              -                2                -                18
abandonments
Litigation         3,000            2,350            3,000            2,350
settlement
Acquisition       1,495          -              1,495          -          
expenses
Total
operating         23,531         19,989         41,665         37,206     
expenses
Operating         (4,295     )    1,682          (3,233     )    4,571      
(loss) income
Total other       3              51             3              106        
income - net
(Loss) income
before income      (4,292     )     1,733            (3,230     )     4,677
tax benefit
(provision)
Income tax
benefit           1,293          (412       )    1,693          (1,354     )
(provision)
Net (loss)       $ (2,999     )   $ 1,321         $ (1,537     )   $ 3,323      
income
                                                                    
Net (loss)
income per       $ (0.05      )   $ 0.02          $ (0.03      )   $ 0.06       
common share -
basic
Net (loss)
income per       $ (0.05      )   $ 0.02          $ (0.03      )   $ 0.06       
common share -
diluted
Weighted
average shares    56,272,327     55,857,858     56,146,608     55,785,171 
outstanding -
basic
Weighted
average shares    56,272,327     56,027,272     56,146,608     55,973,094 
outstanding -
diluted
                                                                    

                                                              
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net (Loss) Income and Net (Loss) Income Per Diluted Share to
Adjusted Net (Loss) Income and Adjusted Net (Loss) Income Per Diluted Share
(In thousands except per share data)
(Unaudited)
                                                                   
                                                                   
                     Three Months Ended
                     June 30, 2013                 June 30, 2012
                                     Amount                        Amount
                     Net             per Diluted   Net             per Diluted
                     (Loss) Income   Share         (Loss) Income   Share
                                                                   
As reported          $  (2,999  )    $  (0.05  )   $   1,321       $    0.02
Litigation
settlement charge,
net of tax effect       1,822           0.03           1,444            0.03
(1)
Acquisition
expenses
net of tax effect      908           0.02         -              -
(2)
Adjusted             $  (269    )    $  (0.00  )   $   2,765      $    0.05
                                                                   
                                                                   
                                                                   
                     Six Months Ended
                     June 30, 2013                 June 30, 2012
                                     Amount                        Amount
                     Net             per Diluted   Net             per Diluted
                     (Loss) Income   Share         (Loss) Income   Share
                                                                   
As reported          $  (1,537  )    $  (0.03  )   $   3,323       $    0.06
Litigation
settlement charge,
net of tax effect       1,822           0.03           1,444            0.03
(1)
Acquisition
expenses
net of tax effect      908           0.02         -              -
(2)
Adjusted             $  1,193       $  0.02      $   4,767      $    0.09
                                                                   
                                                                   
                                                                   
                                                                   
                                                                   
(1) Litigation settlement charge, net of tax effect, as follows:
                                                                   
Litigation           $  3,000                      $   2,350
settlement charge
Tax effect on
litigation             (1,178  )                     (906   )
settlement charge
Litigation
settlement charge,   $  1,822                     $   1,444  
net of tax effect
                                                                   
                                                                   
(2) Acquisition expenses, net of tax effect, as follows:
                                                                   
Acquisition          $  1,495
expenses
Tax effect on
acquisition            (587    )
expenses
Acquisition
expenses, net of     $  908     
tax effect
                                                                   

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
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 six month period ended June
30, 2013 as well as the reasons for excluding the individual item:

2013 Litigation settlement – 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.

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.

2012 Litigation settlement – 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 income and non-GAAP net 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 income and non-GAAP net
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 litigation settlement
charge. 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    Six Months Ended
                                     June 30,              June 30,
                                     2013       2012       2013       2012
                                                                      
Revenues from tissue distribution:
Sports medicine                      $ 11,657   $ 13,337   $ 22,168   $ 26,762
Spine                                  11,221     9,785      21,320     18,345
Surgical specialties                   6,875      8,459      13,829     16,256
Bone graft substitutes and general     6,050      7,016      11,401     14,031
orthopedic
Dental                                 5,006      5,114      9,179      10,438
Other revenues                        1,500     1,486     4,834     3,108
Total revenues                       $ 42,309   $ 45,197   $ 82,731   $ 88,940
Domestic revenues                      37,413     39,191     73,527     77,064
International revenues                4,896     6,006     9,204     11,876
Total revenues                       $ 42,309   $ 45,197   $ 82,731   $ 88,940
                                                                      

                                                             
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
                                                 June 30,       December 31,
                                                 2013           2012
Assets
Cash and cash equivalents                        $ 39,393       $ 49,696
Accounts receivable - net                          21,938         21,694
Inventories - net                                  79,357         76,509
Prepaid and other current assets                  20,064       18,673   
Total current assets                               160,752        166,572
                                                                
Property, plant and equipment - net                51,350         49,644
Other assets - net                                24,926       25,193   
Total assets                                     $ 237,028     $ 241,409  
                                                                
Liabilities and Stockholders' Equity
Accounts payable                                 $ 13,532       $ 11,949
Accrued expenses and other current liabilities     20,908         25,397
Current portion of long-term obligations          27           116      
Total current liabilities                          34,467         37,462
                                                                
Deferred revenue                                   17,854         18,780
Long-term liabilities                             1,330        1,175    
Total liabilities                                  53,651         57,417
Stockholders' equity:
Common stock and additional paid-in capital        415,741        414,504
Accumulated other comprehensive loss               (2,091   )     (1,776   )
Accumulated deficit                               (230,273 )    (228,736 )
Total stockholders' equity                        183,377      183,992  
Total liabilities and stockholders' equity       $ 237,028     $ 241,409  
                                                                           

                                                               
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                                    
                            Three Months Ended        Six Months Ended
                            June 30,                  June 30,
                            2013         2012         2013          2012
Cash flows from operating
activities:
Net (loss) income           $ (2,999 )   $ 1,321      $ (1,537  )   $ 3,323
Adjustments to reconcile
net (loss) income to net
cash
provided by (used in)
operating activities:
Depreciation and              2,095        1,970        4,123         3,879
amortization expense
Stock-based compensation      584          525          1,069         1,050
Amortization of deferred      (1,132 )     (1,164 )     (4,047  )     (2,328 )
revenue
Other items to reconcile
to net cash
provided by (used in)        4,731      2,163      (4,392  )    3,256  
operating activities
Net cash provided by
(used in) operating          3,279      4,815      (4,784  )    9,180  
activities
Cash flows from investing
activities:
Purchases of property,        (2,164 )     (1,806 )     (4,872  )     (4,609 )
plant and equipment
Acquired intangible asset    (136   )    (311   )    (234    )    (376   )
costs
Net cash used in             (2,300 )    (2,117 )    (5,106  )    (4,985 )
investing activities
Cash flows from financing
activities:
Proceeds from exercise of     128          114          213           214
common stock options
Payments on long-term         (11    )     (95    )     (93     )     (294   )
obligations
Other financing              (496   )    -          (519    )    (20    )
activities
Net cash (used in)
provided by financing        (379   )    19         (399    )    (100   )
activities
Effect of exchange rate
changes on cash and cash     (9     )    (74    )    (14     )    (42    )
equivalents
Net increase (decrease)
in cash and cash              591          2,643        (10,303 )     4,053
equivalents
Cash and cash
equivalents, beginning of    38,802     47,588     49,696      46,178 
period
Cash and cash
equivalents, end of         $ 39,393    $ 50,231    $ 39,393     $ 50,231 
period
                                                                    

Contact:

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