March 01, 2018
ALACHUA, Fla.–(BUSINESS WIRE)–RTI Surgical, Inc. (Nasdaq:RTIX), a global surgical implant company, reported operating results for the fourth quarter and full year of 2017.
“We are pleased to have delivered on our 2017 commitments through four consecutive quarters and produced organic growth in every core product category,” said Camille Farhat, chief executive officer. “As I approach my first anniversary at the Company, I believe we have made significant progress. We have assembled a world class management team and began implementation of our strategic transformation. We successfully divested the cardiothoracic closure business to initiate the reduction in complexity and implemented programs to drive operational excellence and margin enhancement, while reorienting the organization around key customer segments. We are making the necessary investments to accelerate the growth of our spine franchise, most notably, the acquisition of Zyga Technology announced at the start of 2018.”
Farhat added, “While our initial progress is gratifying, we are still in the midst of our transformation with considerable work ahead of us. Moving forward, we are focused on executing our strategic initiatives to create a dynamic company focused on its core capabilities with consistent, predictable earnings and cash flow and growing spine focused operations.”
Fourth Quarter 2017
RTI’s worldwide revenues for the fourth quarter of 2017 were $70.8 million, a slight decline from the prior year quarter revenues of $71.3 million. Fourth quarter revenues were driven by stable performance in most product lines with growth in OEM, which were offset by a $2.8 million reduction from the sale of substantially all the assets of the cardiothoracic closure business completed in August 2017. Gross profit for the fourth quarter of 2017 was $36.3 million, or 51.2% of revenues, compared to $28.1 million, or 39.4% of revenues in the fourth quarter of 2016.
During the fourth quarter of 2017, RTI incurred substantial non-recurring pre-tax charges to support the ongoing strategic transformation of the business and to optimize the tax benefit of the related actions. The company incurred $1.6 million in severance and restructuring charges primarily in support of initiatives to reduce the complexity of its organizational structure; $2.8 million in executive transition costs primarily for non-cash executive inducement awards and stock-based compensation expenses; $3.7 million related to asset impairment and abandonments of certain long-term assets as part of efforts to reduce complexity and improve operational excellence; and $0.6 million in expenses related to the January 2018 acquisition of Zyga Technologies to support the acceleration of growth. During the fourth quarter of 2016, the company incurred $6.2 million of non-recurring pre-tax charges primarily driven by $5.4 million asset impairment and abandonment charges in our German facility.
Net loss applicable to common shares was $8.6 million loss, or $0.14 per fully diluted common share in the fourth quarter of 2017, compared to a net loss applicable to common shares of $11.8 million, or $0.20 per fully diluted common share in the fourth quarter of 2016. As outlined in the reconciliation tables that follow, excluding the impact of the various non-recurring charges and the impact of the Tax Cuts and Jobs Act in the fourth quarter of 2017, adjusted net income applicable to common shares was $1.6 million, or $0.03 per fully diluted common share in the fourth quarter of 2017.
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA)1, for the fourth quarter of 2017 was $9.4 million, or 13% of revenues compared with $6.1 million, or 9% of revenues for the fourth quarter of 2016. The increase in Adjusted EBITDA is primarily driven by the reduction in operating expenses through the efforts to reduce complexity and increase operational excellence implemented during 2017.
Full Year 2017
Worldwide revenues were $279.6 million for the full year 2017, an increase of 2.5 percent compared to revenues of $272.9 for the full year 2016. Growth across all product categories were offset by a $3.0 million reduction from the sale of substantially all of the assets of the cardiothoracic closure business in August 2017 and a reduction in other revenues. Gross profit for the full year 2017 was $142.5 million, or 51.0% of revenues compared to $132.3 million, or 48.5% of revenues in 2016.
During the year, the company recorded non-recurring pre-tax charges including: $12.2 of severance and restructuring charges; $2.8 million of executive transition expenses, $3.7 million of asset impairment and abandonment expenses; and $0.6 million in expenses related to the January 2018 acquisition of Zyga Technologies. During 2016 the Company incurred $26.6 million of pre-tax non-recurring charges.
During the third quarter of 2017, RTI completed the sale of substantially all the assets related to its cardiothoracic closure business for total consideration of $54 million, plus an additional $6 million in contingent cash consideration. In conjunction with the sale of the cardiothoracic closure business, the company recognized a gain of $34.1 million, or $18.2 million after tax.
Net income applicable to common shares was $2.5 million, or $0.04 per fully diluted common share for the full year 2017, compared to net loss applicable to common shares of $17.9 million, or $0.31 per fully diluted common share for the full year 2016. As outlined in the reconciliation tables that follow, excluding the after-tax impact of the non-recurring charges and the impact of the cardiothoracic closure sale gain, adjusted net income applicable to common shares was $3.1 million, or $0.05 per fully diluted common share in 2017.
Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) for the full year 2017 was $32.3 million, or 12% of revenues compared with $29.8 million, or 11% of revenues in 2016.
Fiscal 2018 Outlook
Based on its 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 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 4th, 2018;
- Ongoing positive impact of efforts to reduce complexity and implement operational excellence; and
- Continued marketing of map3® cellular allogeneic bone graft and minimal negative revenue impact related to recent FDA warning letter.
Farhat noted, “We believe 2018 will be a year of focused execution, which will include finalizing the remaining portfolio decisions to further reduce the complexity of our structure. We are also deploying lean manufacturing across additional manufacturing sites to continue the drive for operational excellence, while strengthening our R&D discipline and beginning to rebuild our innovation pipeline. In addition, we will opportunistically explore acquisition possibilities to further accelerate our growth trajectory.”
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, trauma and cardiothoracic procedures and are distributed in nearly 50 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. 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 | ||||||||||||||||
| (Unaudited, in thousands, except share and per share data) | ||||||||||||||||
| Three months ended | Twelve months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | 70,816 | $ | 71,347 | $ | 279,563 | $ | 272,865 | ||||||||
| Costs of processing and distribution | 34,548 | 43,246 | 137,042 | 140,516 | ||||||||||||
| Gross profit | 36,268 | 28,101 | 142,521 | 132,349 | ||||||||||||
| Expenses: | ||||||||||||||||
| Marketing, general and administrative | 28,258 | 31,447 | 115,103 | 116,125 | ||||||||||||
| Research and development | 3,146 | 4,056 | 13,375 | 16,090 | ||||||||||||
| Severance and restructuring costs | 1,550 | – | 12,173 | 2,146 | ||||||||||||
| Strategic review costs | – | 500 | – | 1,150 | ||||||||||||
| Executive transition costs | 2,781 | 297 | 2,781 | 4,404 | ||||||||||||
| Contested proxy expenses | – | – | – | 2,680 | ||||||||||||
| Asset impairment and abandonments | 3,739 | 5,435 | 3,739 | 5,435 | ||||||||||||
| Acquisition expenses | 630 | – | 630 | – | ||||||||||||
| Gain on cardiothoracic closure business divestiture | – | – | (34,090 | ) | – | |||||||||||
| Total operating expenses | 40,104 | 41,735 | 113,711 | 148,030 | ||||||||||||
| Operating (loss) income | (3,836 | ) | (13,634 | ) | 28,810 | (15,681 | ) | |||||||||
| Total other expense – net | (615 | ) | (667 | ) | (3,085 | ) | (1,779 | ) | ||||||||
| (Loss) Income before income tax (provision) benefit | (4,451 | ) | (14,301 | ) | 25,725 | (17,460 | ) | |||||||||
| Income tax (provision) benefit | (3,202 | ) | 3,399 | (19,453 | ) | 3,061 | ||||||||||
| Net (loss) income | (7,653 | ) | (10,902 | ) | 6,272 | (14,399 | ) | |||||||||
| Convertible preferred dividend | (951 | ) | (897 | ) | (3,723 | ) | (3,508 | ) | ||||||||
| Net (loss) income applicable to common shares | $ | (8,604 | ) | $ | (11,799 | ) | $ | 2,549 | $ | (17,907 | ) | |||||
| Net (loss) income per common share – basic | $ | (0.14 | ) | $ | (0.20 | ) | $ | 0.04 | $ | (0.31 | ) | |||||
| Net (loss) income per common share – diluted | $ | (0.14 | ) | $ | (0.20 | ) | $ | 0.04 | $ | (0.31 | ) | |||||
| Weighted average shares outstanding – basic | 61,601,040 | 58,426,241 | 59,684,289 | 58,236,745 | ||||||||||||
| Weighted average shares outstanding – diluted | 62,495,577 | 58,426,241 | 60,599,952 | 58,236,745 | ||||||||||||
