RTI Surgical™ Announces 2014 Third Quarter Results

RTI Surgical Inc. (RTI) (Nasdaq: RTIX), a global surgical implant company, reported operating results for the third quarter of 2014 as follows:

Quarterly Highlights:

Note: Quarter over quarter revenue growth comparisons for the spine, orthofixation, and BGS and general orthopedic businesses mentioned below include revenues from the July 16, 2013 acquisition of Pioneer Surgical Technology (Pioneer).

• Achieved revenues of $65.2 million, meeting the upper end of our revenue guidance of $64 to $65 million.
• Achieved adjusted net income per fully diluted share of $0.03, exceeding guidance of $0.02.
• Achieved revenues of $11.4 million in the sports medicine business, a 19 percent increase over the third quarter of 2013.
• Achieved revenues of $20.5 million in the spine business, a 16 percent increase over the third quarter of 2013.
• Achieved revenues of $9.5 million in the orthofixation business, a 41 percent increase over the third quarter of 2013.
• Achieved revenues of $9.2 million in the BGS and general orthopedic business, a 20 percent increase over the third quarter of 2013.
• Introduced two new products for the sports medicine business – the PACK™ Precision Allograft Cartilage Instrument Kit and Allowedge™ Bicortical Bone Wedges and Instrument Kit.

Worldwide revenues were $65.2 million for the third quarter of 2014 compared to revenues of $54.7 million for the third quarter of 2013, an increase of 19 percent. Domestic revenues were $59.7 million for the third quarter of 2014 compared to revenues of $49.3 million for the third quarter of 2013. International revenues were $5.5 million for the third quarter of 2014 and were comparable to the third quarter of 2013. Our prior year revenues include Pioneer-related revenues for the stub period of July 16, 2013 to September 30, 2013, whereas our current year period includes a full quarter of Pioneer-related revenues. If Pioneer revenues had been included for the third quarter for both 2013 and 2014, worldwide revenues for the third quarter of 2014 would have increased by 13 percent as compared to the third quarter of 2013.

“Revenues from the third quarter met our expectations. As anticipated, we saw some impact from seasonality in surgical cases, primarily in international markets, but we were able to offset that with sequential growth in the U.S.,” said Brian K. Hutchison, president and chief executive officer. “We continued to make progress in meeting the goals we shared in our first quarter earnings release – growth in our sports and spine businesses, traction in surgical specialties and expanded distribution of map3® cellular allogeneic bone graft.”

For the third quarter of 2014, the company reported a net income applicable to common shares of $1.2 million and net income per fully diluted common share of $0.02, based on 57.5 million fully diluted shares outstanding, compared to net loss applicable to common shares of $9.1 million and net loss per fully diluted common share of $0.16 for the third quarter of 2013, based on 56.4 million fully diluted shares outstanding. On a non-GAAP basis, excluding a severance charge taken in the third quarter of 2014, the company reported adjusted net income applicable to common shares of $1.5 million and adjusted net income per fully diluted common share of $0.03.

Fiscal 2014 and Fourth Quarter Outlook

Based on results from the first three quarters of the year, the company is narrowing its full year revenue guidance for 2014. The company now expects full year revenues for 2014 to be between $260 million and $261 million, as compared to prior guidance of between $258 million and $261 million. On an adjusted basis, excluding a first quarter inventory purchase accounting adjustment and a third quarter severance charge, the company expects full year adjusted net income per fully diluted common share to be approximately $0.11 based on 57.4 million fully diluted common shares outstanding, as compared to prior guidance of $0.09 to $0.11.

For the fourth quarter of 2014, the company expects revenues to be between $68 million and $69 million and net income per fully diluted common share to be approximately $0.04, based on 57.5 million fully diluted shares outstanding.

“Results from the first nine months have met or exceeded our expectations and we continue to be optimistic that we can meet our goals for the year,” Hutchison said. “We are focused on delivering a strong fourth quarter and positioning our business for success in 2015.”

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 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 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, including those regarding our anticipated financial results for our third quarter of fiscal year 2014 and our fiscal 2014 and fourth quarter outlook. 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.

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 adjusted net income (loss) applicable to common shares and adjusted net income (loss) 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 adjusted measures for the three and nine month period ended September 30, 2014 and 2013 as well as the reasons for excluding the individual item:

2013 and 2014 Inventory purchase price adjustment – This adjustment represents the purchase price effects on the sale of acquired Pioneer inventory, which have been included in costs of processing and distribution. Management removes the amount of these nonrecurring costs from the Company’s operating results to assist in assessing its operating performance in the periods affected 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 periods affected 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 periods affected and to supplement a comparison to the Company’s past operating performance.

2014 Severance costs – This adjustment represents a charge and relates to certain expenses associated with the severance costs associated with former employees. Management removes the amount of these severance costs from the Company’s operating results to assist in assessing its operating performance in the periods affected 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 period affected and to supplement a comparison to the Company’s past operating performance.

Material Limitations Associated with the Use of Non-GAAP Financial Measures

Adjusted net income (loss) applicable to common shares and adjusted net income (loss) 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 adjusted net income (loss) applicable to common shares and adjusted net income (loss) 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 accounting adjustment, acquisition expenses, integration expenses, severance costs, and, 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.

Fiscal 2014 and Fourth Quarter Outlook

Full year net income per fully diluted common share is expected to be approximately $0.04, based on 57.4 million fully diluted shares outstanding. Excluding an inventory purchase price accounting adjustment taken in the first quarter of 2014 and severance costs taken in the third quarter of 2014, full year adjusted net income per fully diluted common share is expected to be approximately $0.11.

Fourth quarter net income per fully diluted common share is expected to be approximately $0.04, based on 57.5 million fully diluted shares outstanding.

2014 Severance costs – This adjustment represents a charge and relates to certain expenses associated with the severance costs associated with former employees that were recorded during the three months ended September 30, 2014. Management removes the amount of these severance costs from the Company’s operating results to assist in assessing its operating performance in the current year and to supplement a comparison to the Company’s past operating performance.

2014 Inventory purchase price adjustment – This adjustment represents the purchase price effects of the remaining acquired Pioneer inventory that was sold during the three months ended March 31, 2014 and which has been included in costs of processing and distribution. Management removes the amount of these nonrecurring costs from the Company’s operating results to assist in assessing its operating performance in the current year and to supplement a comparison to the Company’s past operating performance.

Material Limitations Associated with the Use of Non-GAAP Financial Measures

Adjusted net income applicable to common shares and adjusted 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 adjusted net income applicable to common shares and adjusted 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 inventory purchase price accounting adjustment and severance costs. 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.