RTIX
$4.30
Rti Surgical
Earnings Details
3rd Quarter September 2018
Thursday, November 01, 2018 7:00:00 AM
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Summary

RTI Surgical Guides to Low-end of Range

Rti Surgical (RTIX) reported 3rd Quarter September 2018 earnings of $0.03 per share on revenue of $69.1 million. The consensus earnings estimate was $0.02 per share on revenue of $70.1 million. Revenue grew 3.6% on a year-over-year basis.

The company said it expects 2018 revenue of approximately $280.0 million. The company's previous guidance was revenue of $280.0 million to $290.0 million and the current consensus estimate is revenue of $283.5 million for the year ending December 31, 2018.

RTI Surgical Inc is a surgical implant company. It processes donated human musculoskeletal and other tissue, including bone, cartilage, tendon, ligament, fascia lata, pericardium, sclera, dermal tissue and bovine and porcine animal tissue..

Results
Reported Earnings
$0.03
Earnings Whisper
-
Consensus Estimate
$0.02
Reported Revenue
$69.1 Mil
Revenue Estimate
$70.1 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

RTI Surgical® Announces Third Quarter 2018 Results

Strong Growth in Spine and OEM Franchises Drives Performance

Third Quarter 2018 Highlights:

  • Revenue increased 4% to $69.1 million
  • Net income of $2.9 million, inclusive of $0.9 million of net non-recurring income
  • Adjusted EBITDA of $9.1 million, or 13% of revenue
  • Company narrows fiscal 2018 outlook ranges

ALACHUA, Fla.--(BUSINESS WIRE)-- RTI Surgical, Inc. (Nasdaq: RTIX), a global surgical implant company, reported operating results for the third quarter of 2018.

“The strength of our third quarter results underscores the substantial ongoing progress we are making across our strategic transformation and the growing momentum throughout the company,” stated Camille Farhat, President and CEO. “Our spine franchise produced excellent results aided by growth in recently introduced products, and our OEM franchise continued its strong performance. Our operational excellence initiatives are taking hold throughout the organization, helping to further reduce costs and instill a culture of continuous improvement. Overall, with our seventh consecutive quarter of meeting or exceeding our commitments, our team is executing effectively on many fronts and we have increased our focus on accelerating growth with investments in both organic and inorganic activities.”

Third Quarter 2018

RTI’s worldwide revenues for the third quarter of 2018 were $69.1 million, compared with $66.7 million during the same period in the prior year. Excluding a $1.3 million reduction from the sale of substantially all the assets of the Cardiothoracic Closure business completed in August 2017, total revenues increased $3.7 million, or 5.7%, driven by strong performance in both the spine and OEM franchises. Gross profit for the third quarter of 2018 was $37.7 million, or 54.5% of revenues, a significant increase compared to $33.5 million, or 50.3% of revenues, in the third quarter of 2017.

During the third quarter of 2018, RTI incurred non-recurring pre-tax charges to support the ongoing strategic transformation of the business. The company incurred $1.9 million of acquisition and integration costs related to investment in our objective of accelerating growth through the ongoing pursuit of M&A activity. The company incurred $0.8 million of severance and restructuring charges to complete the rationalization of the international infrastructure and transition distribution to a third-party logistics partner. Finally, the company recognized a $3.0 million gain from a cash contingency consideration related to the release of escrow funds held at the close of the Cardiothoracic Closure sale. During the third quarter of 2017, the company incurred $2.8 million of non-recurring charges primarily to support executive leadership transitions.

During the third quarter of 2017, RTI completed the sale of substantially all the assets related to its Cardiovascular Closure business for total consideration of $54 million, plus an additional $6 million in contingent cash consideration. In conjunction with the sale of the Cardiovascular Closure business, the company recognized a gain of $34.1 million, or $18.2 million after-tax.

Net income applicable to common shares was $2.9 million, or $0.04 per fully diluted common share in the third quarter of 2018, compared to net income applicable to common shares of $16.5 million, or $0.23 per fully diluted common share in the third 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 third quarter of 2018.

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), for the third quarter of 2018 was $9.1 million, or 13% of revenues, compared with $8.1 million, or 12% of revenues for the third quarter of 2017. The increase in Adjusted EBITDA is driven by gross margin expansion associated with the efforts to reduce complexity and increase operational excellence initiated during 2017, partially offset by increased operating expenses focused on accelerating growth, such as planned increases to research and development spending.

Fiscal 2018 Outlook

Farhat concluded, “We firmly believe our strategic transformation is well underway. Our teams are aligned with common purpose and intense focus on achieving our considerable potential. Given the ongoing success of our efforts to reduce complexity and drive operational excellence, we are focused on accelerating growth by further developing our R&D capabilities, pursuing M&A activities, and ensuring we continue to deliver on our commitments.”

Based on our recent financial results and current business outlook, the Company is narrowing its financial guidance for fiscal 2018, originally issued on January 5, 2018:

  • The Company now expects full year revenues in the range of approximately $280 million.
  • The Company now expects full year Adjusted EBITDA to be in the range of $32 million to $35 million.

The Company noted the following assumptions are included in its guidance:

  • Relatively stable market conditions and regulatory environment;
  • Continued 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
  • The successful ongoing transition of map3 to ViBone, or an alternative RTI orthobiologic product, during November and December 2018.

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/investors. 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, plastic 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. Connect with us on LinkedIn and Twitter.

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 Nine months ended
September 30, September 30,
2018 2017 2018 2017
Revenues $ 69,064 $ 66,688 $ 209,639 $ 208,747
Costs of processing and distribution   31,409     33,177     108,262     102,494  
Gross profit   37,655     33,511     101,377     106,253  
 
Expenses:
Marketing, general and administrative 29,671 27,678 87,326 86,845
Research and development 3,606 2,801 10,297 10,229
Severance and restructuring costs 824 2,820 1,708 10,623
Asset impairment and abandonments 104 - 4,748 -
Acquisition and integration expenses 1,941 - 2,741 -
Cardiothoracic closure business divestiture contingency consideration (3,000 ) - (3,000 ) -
Gain on cardiothoracic closure business divestiture   -     (34,090 )   -     (34,090 )
Total operating expenses   33,146     (791 )   103,820     73,607  
Operating income (loss)   4,509     34,302     (2,443 )   32,646  
Total other expense - net   (598 )   (681 )   (2,524 )   (2,470 )
Income (loss) before income tax (provision) benefit 3,911 33,621 (4,967 ) 30,176
Income tax (provision) benefit   (807 )   (16,135 )   1,646     (16,251 )
Net income (loss)   3,104     17,486     (3,321 )   13,925  
Convertible preferred dividend   (173 )   (938 )   (2,120 )   (2,772 )
Net income (loss) applicable to common shares $ 2,931   $ 16,548   $ (5,441 ) $ 11,153  
 
Net income (loss) per common share - basic $ 0.05   $ 0.28   $ (0.09 ) $ 0.19  
Net income (loss) per common share - diluted $ 0.04   $ 0.23   $ (0.09 ) $ 0.19  
Weighted average shares outstanding - basic   63,495,952     59,704,533     63,517,958     59,045,372  
Weighted average shares outstanding - diluted   79,284,315     75,188,161     63,517,958     59,954,964  
 
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net Loss Applicable to Commons Shares to Adjusted EBITDA
(Unaudited, in thousands)
       
 
Three Months Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
Net income (loss) applicable to common shares $ 2,931 $ 16,548 $ (5,441 ) $ 11,153
Interest expense, net 597 741 2,192 2,475
Provision (benefit) for income taxes 807 16,135 (1,646 ) 16,251
Depreciation 2,577 2,623 7,824 7,947
Amortization of intangible assets   1,149     952     2,970     2,757  
EBITDA 8,061 36,999 5,899 40,583
Reconciling items impacting EBITDA
Preferred dividend 173 938 2,120 2,772
Non-cash stock based compensation 1,080 2,305 3,650 4,113
Foreign exchange loss (gain) 1 (60 ) 23 (5 )
Other reconciling items *
Inventory write-off - - 7,582 -
Inventory purchase price adjustment - - 456 -
Severance and restructuring costs 824 2,000 1,708 9,470
Loss on extinguishment of debt - - 309 -
Asset impairment and abandonments - - 4,515 -
Acquisition and integration expenses 1,941 - 2,741 -
Cardiothoracic closure business divestiture contingency consideration (3,000 ) - (3,000 ) -
Gain on cardiothoracic closure business divestiture   -     (34,090 )   -     (34,090 )
Adjusted EBITDA $ 9,080   $ 8,092   $ 26,003   $ 22,843  
Adjusted EBITDA as a percent of revenues   13 %   12 %   12 %   11 %
 
*See explanations in Use of Non-GAAP Financial Measures section later in this release.
 
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Reconciliation of Net Income (Loss) Applicable to Common Shares and Net Income (Loss) Per Diluted Share to
Adjusted Net Income (Loss) Applicable to Common Shares and Adjusted Net Income (Loss) Per Diluted Share
(Unaudited, in thousands except per share data)
       
Three Months Ended
September 30, 2018 September 30, 2017
Net Net
Income (Loss) Amount Income (Loss) Amount
Applicable to Per Diluted Applicable to Per Diluted
Common Shares Share Common Shares Share
As reported $ 2,931 $ 0.04 $ 16,548 $ 0.23
Severance and restructuring costs 824 0.01 2,820 0.04
Acquisition and integration expenses 1,941 0.02 - -
Cardiothoracic closure business divestiture contingency consideration (3,000 ) (0.04 ) - -
Gain on cardiothoracic closure business divestiture - - (34,090 ) (0.45 )
Tax effect on new tax legislation (650 ) (0.01 ) - -
Tax effect on adjustments   -     -     15,159     0.20  
Adjusted * $ 2,046   $ 0.03   $ 437   $ 0.01  
 
 
Nine Months Ended
September 30, 2018 September 30, 2017
Net Net
Income (Loss) Amount Income (Loss) Amount
Applicable to Per Diluted Applicable to Per Diluted
Common Shares Share Common Shares Share
As reported $ (5,441 ) $ (0.09 ) $ 11,153 $ 0.19
Severance and restructuring costs 1,708 0.03 10,623 0.18
Asset impairment and abandonments 4,515 0.07 - -
Inventory purchase price adjustment 456 0.01 - -
Loss on extinguishment of debt 309 0.00 - -
Inventory write-off 7,582 0.12 - -
Acquisition and integration expenses 2,741 0.04 - -
Cardiothoracic closure business divestiture contingency consideration (3,000 ) (0.05 ) - -
Gain on cardiothoracic closure business divestiture - - (34,090 ) (0.57 )
Tax effect on new tax legislation (650 ) (0.01 ) - -
Tax effect on adjustments   (3,654 )   (0.06 )   13,855     0.23  
Adjusted * $ 4,566   $ 0.07   $ 1,541   $ 0.03  
 
 
 
* 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 income (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 income (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 nine months ended September 30, 2018 and 2017 as well as the reason for excluding the individual items:

Severance and restructuring costs – These costs relate to the reduction of our organizational structure, primarily driven by simplification of our international operating infrastructure, specifically our distribution model. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance.

Asset impairment and abandonments – These costs represent an asset impairment and abandonments related to lower 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 – These costs relate to acquisition and integration expenses due to the purchase of Zyga and certain other business development activities. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance.

Inventory write-off – These costs relate to an inventory write-off due to the rationalization of our international distribution infrastructure and an inventory write-off related to lower 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 – These costs relate to the purchase price effects of acquired Zyga inventory that was sold during the nine months ended September 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 – These costs relate to refinancing our debt. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance.

Gain on cardiothoracic closure business divestiture – This adjustment represents the gain relating to the sale of substantially all of the assets of our CT Business to A&E. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance.

Cardiothoracic closure business divestiture contingency consideration – This adjustment represents the remaining cash contingency consideration received from the sale of substantially all of the assets of our CT Business to A&E. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance.

Tax effect on new tax legislation – This adjustment represents charges relating to the Tax Cuts and Jobs Act tax legislation which was enacted on December 22, 2017. 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 Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Revenues: (In thousands)
Spine $ 20,741 $ 18,131 $ 58,938 $ 57,888
Sports 12,271 12,723 39,896 41,852
OEM 30,092 28,779 91,382 81,904
International 5,960 5,715 19,423 18,939
Cardiothoracic   -   1,340   -   8,164
Total revenues $ 69,064 $ 66,688 $ 209,639 $ 208,747
 
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
   
September 30, December 31,
2018 2017
Assets
Cash $ 10,022 $ 22,381
Accounts receivable - net 44,141 35,081
Inventories - net 103,891 111,927
Prepaid and other assets   8,613     16,285  
Total current assets 166,667 185,674
 
Property, plant and equipment - net 77,344 79,564
Goodwill 62,864 46,242
Other assets - net   43,222     34,426  
Total assets $ 350,097   $ 345,906  
 
Liabilities and Stockholders' Equity
Accounts payable $ 19,282 $ 18,252
Accrued expenses and other current liabilities 27,111 30,478
Current portion of long-term obligations   -     4,268  
Total current liabilities 46,393 52,998
 
Deferred revenue 1,968 3,741
Long-term liabilities   54,780     43,507  
Total liabilities 103,141 100,246
 
Preferred stock 66,180 63,923
 
Stockholders' equity:
Common stock and additional paid-in capital 427,271 425,132
Accumulated other comprehensive loss (6,980 ) (6,329 )
Accumulated deficit   (239,515 )   (237,066 )
Total stockholders' equity   180,776     181,737  
Total liabilities and stockholders' equity $ 350,097   $ 345,906  
 
 
RTI SURGICAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
       
 
Three Months Nine Months
Ended September 30, Ended September 30,
2018 2017 2018 2017
Cash flows from operating activities:
Net income (loss) $ 3,104 $ 17,486 $ (3,321 ) $ 13,925

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

Depreciation and amortization expense 3,726 3,575 10,794 10,704
Stock-based compensation 1,080 2,203 3,650 4,011
Amortization of deferred revenue (1,217 ) (1,141 ) (3,652 ) (3,601 )

Other items to reconcile to net cash (used in) provided by operating activities

  (5,064 )   (35,594 )   3,536     (27,897 )
Net cash provided by (used in) operating activities   1,629     (13,471 )   11,007     (2,858 )
Cash flows from investing activities:
Purchases of property, plant and equipment (3,250 ) (3,198 ) (7,106 ) (10,358 )
Patent and acquired intangible asset costs (2,070 ) (279 ) (2,798 ) (2,124 )
Acquisition of Zyga Technology - - (21,000 ) -
Cardiothoracic closure business divestiture   3,000     51,000     3,000     51,000  
Net cash (used in) provided by investing activities   (2,320 )   47,523     (27,904 )   38,518  
Cash flows from financing activities:
Proceeds from long-term obligations - 2,000 74,425 6,000
Payments on long-term obligations (4,421 ) (32,000 ) (71,171 ) (39,375 )
Other financing activities   896     (18 )   1,299     1,415  
Net cash (used in) provided by financing activities   (3,525 )   (30,018 )   4,553     (31,960 )
Effect of exchange rate changes on cash and cash equivalents   (8 )   35     (15 )   195  
Net increase (decrease) in cash and cash equivalents (4,224 ) 4,069 (12,359 ) 3,895
Cash and cash equivalents, beginning of period   14,246     13,675     22,381     13,849  
Cash and cash equivalents, end of period $ 10,022   $ 17,744   $ 10,022   $ 17,744  
 

RTI Surgical, Inc.
Media Contact:
Molly Poarch, +1 224-287-2661
mpoarch@rtix.com
or
Investor Contact:
Nathan Elwell, +1 847-530-0249
nelwell@lincolnchurchilladvisors.com

Source: RTI Surgical, Inc.