RTI Surgical™ Announces 2013 Third Quarter Results

  RTI Surgical™ Announces 2013 Third Quarter Results

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

Business Wire

ALACHUA, Fla. -- October 29, 2013

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

Quarterly Highlights:

  *Completed the acquisition of Pioneer Surgical Technology, Inc. (Pioneer)
    on July 16, 2013.
  *Achieved quarterly revenues of $54.7 million, a 23 percent increase over
    the third quarter of 2012. Quarterly revenues include $16.1 million of
    revenue from Pioneer for the period of July 16, 2013 to Sept. 30, 2013.
  *Announced successful outcome to Food and Drug Administration (FDA)
    inspection of Alachua, Fla. facility.
  *Successfully completed the first human implantations of map3™ cellular
    allogeneic bone graft in both spine and foot and ankle procedures.
  *Launched the Tritium™ Sternal Cable Plating System for closing median
    sternotomies following open heart procedures.

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    34,423         22,874         78,722         70,037     
distribution
Gross profit      20,319         21,692         58,751         63,469     
Expenses:
Marketing,
general and        24,837           14,499           55,555           43,167
administrative
Research and       4,738            3,109            11,190           9,279
development
Asset              -                -                -                18
abandonments
Litigation         -                -                3,000            2,350
settlement
Acquisition       4,342          -              5,837          -          
expenses
Total
operating         33,917         17,608         75,582         54,814     
expenses
Operating         (13,598    )    4,084          (16,831    )    8,655      
(loss) income
Total other       4              32             7              138        
income - net
(Loss) income
before income      (13,594    )     4,116            (16,824    )     8,793
tax benefit
(provision)
Income tax
benefit           5,094          (1,308     )    6,787          (2,662     )
(provision)
Net (loss)        (8,500     )    2,808          (10,037    )    6,131      
income
Convertible
preferred         (625       )    -              (625       )    -          
dividend
Net (loss)
income           $ (9,125     )   $ 2,808         $ (10,662    )   $ 6,131      
applicable to
common shares
                                                                    
Net (loss)
income per       $ (0.16      )   $ 0.05          $ (0.19      )   $ 0.11       
common share -
basic
Net (loss)
income per       $ (0.16      )   $ 0.05          $ (0.19      )   $ 0.11       
common share -
diluted
Weighted
average shares    56,356,885     55,908,574     56,216,200     55,826,306 
outstanding -
basic
Weighted
average shares    56,356,885     56,110,898     56,216,200     56,013,541 
outstanding -
diluted


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,      4,176          0.07          -              -
net of tax effect
(1)
Acquisition
expenses, net of tax   3,863          0.07          -              -
effect (2)
Integration
expenses, net of tax   387            0.01          -              -
effect (3)
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,      4,176          0.07          -              -
net of tax effect
(1)
Acquisition
expenses, net of tax   4,771          0.08          -              -
effect (4)
Integration
expenses, net of tax   387            0.01          -              -
effect (3)
Litigation
settlement charge,     1,822          0.03          1,444          0.03
net of tax effect
(5)
Adjusted               $ 494          $ 0.01        $ 7,575        $ 0.14
                                                                   
(1) Inventory purchase price
adjustment, net of tax effect, as
follows:
Inventory purchase     $ 6,875
price adjustment
Tax effect on
inventory purchase     (2,699)
price adjustment
Inventory purchase
price adjustment,      $ 4,176
net of tax effect
                                                                   
(2) Acquisition
expenses, net of tax
effect, as follows:
Acquisition expenses   $ 4,342
Tax effect on          (479)
acquisition expenses
Acquisition
expenses, net of tax   $ 3,863
effect
                                                                   
(3) Integration
expenses, net of tax
effect, as follows:
Integration expenses   $ 637
Tax effect on          (250)
integration expenses
Integration
expenses, net of tax   $ 387
effect
                                                                   
(4) Acquisition
expenses, net of tax
effect, as follows:
Acquisition expenses   $ 5,837
Tax effect on          (1,066)
acquisition expenses
Acquisition
expenses, net of tax   $ 4,771
effect
                                                                   
(5) 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


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           7,692      7,916      19,093      21,947
general orthopedic
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                   24,597         25,397
liabilities
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           4,091          2,035        8,214          5,914
amortization expense
Stock-based                584            524          1,653          1,574
compensation
Amortization of            (1,182   )     (1,163 )     (5,229   )     (3,491 )
deferred revenue
Other items to
reconcile to net cash
(used in) provided by     (2,136   )    3,915      (6,528   )    7,171  
operating activities
Net cash (used in)
provided by operating     (7,143   )    8,119      (11,927  )    17,299 
activities
Cash flows from
investing activities:
Purchases of property,     (6,282   )     (2,235 )     (11,154  )     (6,844 )
plant and equipment
Acquisition of Pioneer     (126,307 )     -            (126,307 )     -
Surgical Technology
Other investing           (342     )    (966   )    (576     )    (1,342 )
activities
Net cash used in          (132,931 )    (3,201 )    (138,037 )    (8,186 )
investing activities
Cash flows from
financing activities:
Proceeds from              68,250         -            68,250         -
long-term obligations
Payment of debt            (525     )     -            (525     )     -
issuance costs
Proceeds from
preferred stock            50,000         -            50,000         -
issuance
Payment of preferred       (1,290   )     -            (1,290   )     -
stock issuance costs
Payments on long-term      (28      )     (95    )     (121     )     (389   )
obligations
Other financing           98           176        (208     )    370    
activities
Net cash provided by
(used in) financing       116,505      81         116,106      (19    )
activities
Effect of exchange
rate changes on cash      311          12         297          (30    )
and cash equivalents
Net (decrease)
increase in cash and       (23,258  )     5,011        (33,561  )     9,064
cash equivalents
Cash and cash
equivalents, beginning    39,393       50,231     49,696       46,178 
of period
Cash and cash
equivalents, end of      $ 16,135      $ 55,242    $ 16,135      $ 55,242 
period


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    $ (0.09)             $ (0.28)
Share
Inventory purchase price              0.08                 0.16
adjustment, net of tax effect
Acquisition expenses, net of tax      0.00                 0.09
effect
Integration expenses, net of tax      0.00                 0.01
effect
Litigation settlement charge, net     0.00                 0.03
of tax effect
Adjusted Non-GAAP Guidance Net Loss   $ (0.01)             $ 0.00
per Diluted Share

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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