RTI Surgical Holdings, Inc. (Nasdaq: RTIX), a global surgical
implant company, today provided a business update in conjunction
with releasing financial and operating results for the quarter
ended March 31, 2020.
Business Update Highlights:
- Scheduled special meeting of stockholders for July 15, 2020 to
vote on sale of OEM business
- Announced two senior leadership appointments and a new director
to support transition to a pure-play global spine company
- First quarter 2020:
-
- Revenue of $73.7 million, up 5% compared to the first quarter
of 2019
- Net loss of $17.9 million, or $0.24 per common share
- Adjusted EBITDA of $1.4 million, or 2% of revenue
“I am very proud of the actions taken by our entire organization
over the last several months as we have navigated the COVID-19
pandemic while at the same time managing through the pending sale
of the OEM business and a number of other headwinds,” said Camille
Farhat, President and CEO, RTI Surgical. “The integrity,
dedication, and talent of our people have enabled us to come out on
the other side of this unique period in time ready to take
advantage of the opportunities that exist in the Spine market for
high-value surgical solutions.”
Farhat continued, “We view the recent disruption as transitory,
and despite the uncertainty associated with COVID-19, we remain
very confident in the long-term prospects of the Spine business. We
are targeting double-digit long-term revenue growth with gross
margins of 75% by executing on our strategy of build, innovate, and
acquire. We are very excited about this next phase of RTI’s
transformation.”
Annual Meeting and Special Meeting of
Stockholders The company will hold its annual meeting of
stockholders on July 15, 2020. Among the matters to be considered
and voted on at the Annual Meeting, which, as previously disclosed,
will be combined with a special meeting of the stockholders, are
the various proposals necessary to approve the transactions
contemplated by the previously announced Equity Purchase Agreement,
dated January 13, 2020, as amended, with Ardi Bidco Ltd., a
Delaware corporation and an entity affiliated with Montagu Private
Equity, LLP (the “Buyer”), pursuant to which the Buyer will acquire
the OEM business of the Company by means of a sale of certain
affiliates of the Company.
Spine Business Update On June 10, 2020 The
Company announced two senior leadership appointments to support its
transition to a pure-play global spine company. Scott Durall joined
RTI as Chief Commercial Officer, and Bryan Cornwall joined RTI as
Executive Vice President, Research and Clinical Affairs, both
effective June 15, 2020. Durall and Cornwall bring to RTI decades
of commercial, operational and scientific expertise, and will
support the Company’s ongoing focus on becoming a leader in the
global spine market following the close of the pending sale of the
OEM business. Please see our related press release for more detail
on their backgrounds.
In addition, on June 1, Stuart F. Simpson joined the Board of
Directors and was recently named Vice Chairman of the Board.
Mr. Simpson brings decades of industry experience which will be
valuable in supporting RTI’s strategy as a pure-play global spine
company.
First Quarter 2020 Financial Results RTI’s
worldwide revenues for the first quarter of 2020 were $73.7
million, an increase of $3.7 million, or 5% compared with $70.0
million during the same period in the prior year. Gross profit for
the first quarter of 2020 was $40.5 million, or 55% of revenues, a
7.0% increase compared to $37.9 million, or 54% of revenues, in the
first quarter of 2019.
Net loss applicable to common shares was $17.9 million, or $0.24
per fully diluted common share in the first quarter of 2020,
compared to net loss applicable to common shares of $9.4 million,
or $0.14 per fully diluted common share in the first quarter of
2019.
Adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA), for the first quarter of 2020 was
$1.4 million, or 2% of revenues, compared with $7.0 million, or 10%
of revenues for the first quarter of 2019. The decrease in
Adjusted EBITDA was primarily driven by annualization of costs
related to the Paradigm acquisition and incremental investment for
the separation of the business to support the sale of the OEM
business.
2020 Outlook Due to the inability to estimate
the size and impact of the COVID-19 pandemic on the Company’s
operations and financial results, RTI Surgical Holdings, Inc. will
not provide guidance for fiscal year 2020. We will continue to
evaluate the COVID-19 pandemic on our operations and financial
results and will provide additional information when we are more
certain.
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), using conference ID 6346397. 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 Holdings, Inc. RTI Surgical
Holdings 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 over 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. Connect with us on LinkedIn
and Twitter.
Forward-Looking Statements This press release
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. The forward-looking statements are not
guarantees of future performance and are based on certain
assumptions including general economic conditions, as well as those
within the Company’s industry, and numerous other factors and risks
identified in the Company’s Form 10-K for the fiscal year ended
December 31, 2019 and other filings with the SEC. Our actual
results may differ materially from the anticipated results
reflected in these forward-looking statements. Important factors
that could cause actual results to differ materially from the
anticipated results reflected in these forward-looking statements
include risks and uncertainties relating to the following: (i) the
risk of existing or potential litigation or regulatory action
arising from the previously announced internal investigation and
its findings or from the failure to timely file the Form 10-K; (ii)
the identification of control deficiencies, including material
weaknesses in internal control over financial reporting and the
impact of the same; (iii) potential reputational damage that the
Company has or may suffer as a result of the ultimate findings of
the investigation; (iv) general worldwide economic conditions and
related uncertainties; (v) the anticipated impact of the COVID-19
novel coronavirus pandemic and the Company’s attempts at
mitigation; (vi) the failure by the Company to identify, develop
and successfully implement immediate action plans and longer-term
strategic initiatives; (vii) our ability to continue production;
(viii) the reliability of our supply chain; (ix) our ability to
meet obligations under our debt or material agreements; (x) the
duration of decreased demand for our products; (xi) our ability to
continue to recall furloughed employees; (xii) whether or when the
demand for procedures will increase; (xiii) the Company’s access to
adequate operating cash flow, trade credit, borrowed funds and
capital to fund its operations and pay its obligations as they
become due, including the impact of adverse trends or disruption in
the global credit and equity markets; (xiv) our financial position
and results, total revenue, product revenue, gross margin, and
operations; (xv) the risk that the Company may be unable to obtain
shareholder approval for the proposed transaction; (xvi) the risk
that a condition to the closing of the proposed transaction may not
be satisfied; (xvii) the risk that the occurrence of an event that
could give rise to termination of the definitive agreement; (xviii)
the risk that shareholder litigation in connection with the
proposed transaction may affect the timing or occurrence of the
proposed transaction or result in significant costs of defense,
indemnification and liability; (xix) the timing to consummate the
proposed transaction; (xx) the effect of the announcement or
disruption from the proposed transaction making it more difficult
to retain and hire key personnel and maintain relationships with
customers, suppliers and other third parties; (xxi) the diversion
of management time and attention on the proposed transaction;
(xxii) the effect and timing of changes in laws or in governmental
regulations; and (xxiii) other risks described in our public
filings with the SEC. These factors should be considered carefully
and undue reliance should not be placed on the forward-looking
statements. Each forward-looking statement in this communication
speaks only as of the date of the particular statement. 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. We undertake no obligation to update
these forward-looking statements except as may be required by
law.
RTI SURGICAL
HOLDINGS, INC. AND SUBSIDIARIES |
Condensed
Consolidated Statements of Operations |
(Unaudited,
in thousands, except share and per share data) |
|
|
|
|
|
|
For the
Three Months Ended |
|
March 31, |
|
|
2020 |
|
|
|
2019 |
|
Revenues |
$ |
73,726 |
|
|
$ |
70,021 |
|
Costs of
processing and distribution |
|
33,273 |
|
|
|
32,134 |
|
Gross
profit |
|
40,453 |
|
|
|
37,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
Marketing,
general and administrative |
|
39,217 |
|
|
|
32,116 |
|
Research and
development |
|
4,282 |
|
|
|
4,336 |
|
Asset
impairment and abandonments |
|
1,879 |
|
|
|
15 |
|
Other
general expenses |
|
3,436 |
|
|
|
- |
|
Transaction
and integration expenses |
|
9,280 |
|
|
|
8,957 |
|
Total
operating expenses |
|
58,094 |
|
|
|
45,424 |
|
Operating
loss |
|
(17,641 |
) |
|
|
(7,537 |
) |
Total other
expense - net |
|
(3,761 |
) |
|
|
(1,504 |
) |
Loss before
income tax benefit (expense) |
|
(21,402 |
) |
|
|
(9,041 |
) |
Income tax
benefit (expense) |
|
3,539 |
|
|
|
(310 |
) |
Net
loss |
|
(17,863 |
) |
|
|
(9,351 |
) |
Convertible
preferred dividend |
|
- |
|
|
|
- |
|
Net loss
applicable to common shares |
$ |
(17,863 |
) |
|
$ |
(9,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
common share - basic |
$ |
(0.24 |
) |
|
$ |
(0.14 |
) |
Net loss per
common share - diluted |
$ |
(0.24 |
) |
|
$ |
(0.14 |
) |
Weighted
average shares outstanding - basic |
|
75,847,046 |
|
|
|
65,675,203 |
|
Weighted
average shares outstanding - diluted |
|
75,847,046 |
|
|
|
65,675,203 |
|
|
|
|
|
|
|
|
|
RTI SURGICAL
HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Revenues to Adjusted Gross
Profit |
(Unaudited,
in thousands) |
|
|
|
|
|
|
For the
Three Months Ended |
|
March 31, |
|
2020 |
|
2019 |
Revenues |
$ |
73,726 |
|
|
$ |
70,021 |
|
Costs of
processing and distribution |
|
33,273 |
|
|
|
32,134 |
|
Gross
profit, as reported |
|
40,453 |
|
|
|
37,887 |
|
Inventory
write-off |
|
48 |
|
|
|
- |
|
Inventory
purchase price adjustment |
|
878 |
|
|
|
- |
|
Non-GAAP
gross profit, adjusted |
$ |
41,379 |
|
|
$ |
37,887 |
|
Non-GAAP
gross profit percentage, adjusted |
|
56.1 |
% |
|
|
54.1 |
% |
RTI SURGICAL
HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Net Loss Applicable to Commons Shares to
Adjusted EBITDA |
(Unaudited,
in thousands) |
|
|
|
|
|
|
|
|
|
For the
Three Months Ended |
|
|
|
March 31, |
|
|
|
2020 |
|
2019 |
Net loss applicable to common shares |
$ |
(17,863 |
) |
|
$ |
(9,351 |
) |
|
Interest expense, net |
|
3,515 |
|
|
|
1,473 |
|
|
Provision for income taxes |
|
(3,539 |
) |
|
|
310 |
|
|
Depreciation |
|
1,766 |
|
|
|
3,443 |
|
|
Amortization of intangible assets |
|
473 |
|
|
|
957 |
|
EBITDA |
|
(15,648 |
) |
|
|
(3,168 |
) |
Reconciling items impacting EBITDA |
|
|
|
|
Preferred dividend |
|
- |
|
|
|
- |
|
|
Non-cash stock based compensation |
|
1,310 |
|
|
|
1,163 |
|
|
Foreign exchange gain (loss) |
|
246 |
|
|
|
31 |
|
|
Other reconciling items * |
|
|
|
|
|
Inventory write-off |
|
48 |
|
|
|
- |
|
|
|
Inventory
purchase price adjustment |
|
878 |
|
|
|
- |
|
|
|
Other
general expenses |
|
3,436 |
|
|
|
- |
|
|
|
Asset
impairment and abandonments |
|
1,879 |
|
|
|
- |
|
|
|
Transaction
and integration expenses |
|
9,280 |
|
|
|
8,957 |
|
Adjusted EBITDA |
$ |
1,429 |
|
|
$ |
6,983 |
|
Adjusted EBITDA as a percent of revenues |
|
1.9 |
% |
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*See explanations in
Use of Non-GAAP Financial Measures section later in this
release. |
RTI SURGICAL
HOLDINGS, INC. AND SUBSIDIARIES |
|
Reconciliation of Net Income (Loss) Applicable to Common
Shares and Net Income (Loss) Per Diluted Share to |
|
Adjusted Net
Income Applicable to Common Shares and Adjusted Net Income Per
Diluted Share |
|
(Unaudited,
in thousands except per share data) |
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
March 31, 2020 |
|
March 31, 2019 |
|
|
Net |
|
|
|
Net |
|
|
|
|
Income
(Loss) |
|
Amount |
|
Income
(Loss) |
|
Amount |
|
|
Applicable
to |
|
Per
Diluted |
|
Applicable
to |
|
Per
Diluted |
|
|
Common Shares |
|
Share |
|
Common Shares |
|
Share |
|
As reported |
$ |
(17,863 |
) |
|
$ |
(0.24 |
) |
|
$ |
(9,351 |
) |
|
$ |
(0.14 |
) |
|
Asset
impairment and abandonments |
|
1,879 |
|
|
|
0.02 |
|
|
|
- |
|
|
|
- |
|
|
Inventory
purchase price adjustment |
|
878 |
|
|
|
0.01 |
|
|
|
- |
|
|
|
- |
|
|
Other
general expenses |
|
3,436 |
|
|
|
0.05 |
|
|
|
- |
|
|
|
- |
|
|
Inventory
write-off |
|
48 |
|
|
|
0.00 |
|
|
|
- |
|
|
|
- |
|
|
Transaction
and integration expenses |
|
9,280 |
|
|
|
0.12 |
|
|
|
8,957 |
|
|
|
0.14 |
|
|
Tax effect on adjustments |
|
- |
|
|
|
- |
|
|
|
617 |
|
|
|
0.01 |
|
|
Adjusted
* |
$ |
(2,342 |
) |
|
$ |
(0.03 |
) |
|
$ |
223 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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 and Adjusted Net Income
Applicable to Common Shares. The calculation of the tax effect on
the adjustments between GAAP net 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 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 are explanations of the adjustments that
management excluded as part of the non-GAAP measures for the three
months ended March 31, 2020 and 2019. Management removes the amount
of these costs including the tax effect on the adjustments from our
operating results to supplement a comparison to our past operating
performance.
2020 Asset impairment and abandonments – These costs relate to
asset impairment and abandonments of certain long-term assets
within the Spine asset group.
2020 Other general expenses – These costs relate to consulting
and legal fees and settlement expenses incurred as a result of the
restatement, regulatory and related activities in 2020.
2020 Transaction and integration expenses – These costs relate
to transaction and separation expenses due the Sale of OEM in
2020.
2020 Inventory purchase price adjustment – These costs relate to
the purchase price effects of acquired Paradigm inventory that was
sold during the three months ended March 31, 2020.
2019 Transaction and integration expenses – These costs relate
to acquisition and integration expenses due to the purchase of
Paradigm in 2019.
Material Limitations Associated with the Use of Non-GAAP
Financial Measures
EBITDA, Adjusted EBITDA and Adjusted Net Income Applicable to
Common Shares 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 and
Adjusted Net Income Applicable to Common Shares 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
HOLDINGS, INC. AND SUBSIDIARIES |
Condensed
Consolidated Revenues |
(Unaudited,
in thousands) |
|
|
|
|
|
|
|
|
|
For the
Three Months Ended |
|
March 31, |
|
2020 |
|
2019 |
|
|
|
|
Revenues: |
|
Spine |
$ |
27,109 |
|
$ |
24,377 |
OEM |
|
46,617 |
|
|
45,644 |
Total revenues |
$ |
73,726 |
|
$ |
70,021 |
RTI SURGICAL
HOLDINGS, INC. AND SUBSIDIARIES |
Condensed
Consolidated Balance Sheets |
(Unaudited,
in thousands) |
|
|
|
|
March
31, |
|
December
31, |
|
|
|
2020 |
|
2019 |
Assets |
|
|
|
|
|
Cash |
|
|
$ |
6,557 |
|
|
$ |
5,608 |
|
Accounts
receivable - net |
|
|
|
54,921 |
|
|
|
59,288 |
|
Inventories
- net |
|
|
|
126,760 |
|
|
|
124,149 |
|
Prepaid and
other assets |
|
|
|
8,422 |
|
|
|
6,769 |
|
Total current assets |
|
|
|
196,660 |
|
|
|
195,814 |
|
|
|
|
|
|
|
Non-current
inventories - net |
|
|
|
5,891 |
|
|
|
6,637 |
|
Property,
plant and equipment - net |
|
|
|
70,716 |
|
|
|
69,890 |
|
Goodwill |
|
|
|
55,384 |
|
|
|
55,384 |
|
Other assets
- net |
|
|
|
16,419 |
|
|
|
16,784 |
|
Total assets |
|
|
$ |
345,070 |
|
|
$ |
344,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
Accounts
payable |
|
|
$ |
38,520 |
|
|
$ |
30,126 |
|
Accrued
expenses and other current liabilities |
|
|
|
43,364 |
|
|
|
36,085 |
|
Current
portion of long-term obligations |
|
|
|
175,673 |
|
|
|
174,177 |
|
Total current liabilities |
|
|
|
257,557 |
|
|
|
240,388 |
|
|
|
|
|
|
|
Long-term
liabilities |
|
|
|
3,633 |
|
|
|
3,147 |
|
Total liabilities |
|
|
|
261,190 |
|
|
|
243,535 |
|
|
|
|
|
|
|
Preferred
stock |
|
|
|
66,456 |
|
|
|
66,410 |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
Common stock and additional paid-in capital |
|
|
|
494,465 |
|
|
|
493,372 |
|
Accumulated other comprehensive loss |
|
|
|
(7,999 |
) |
|
|
(7,629 |
) |
Accumulated deficit |
|
|
|
(469,042 |
) |
|
|
(451,179 |
) |
Total stockholders' equity |
|
|
|
17,424 |
|
|
|
34,564 |
|
Total liabilities and stockholders' equity |
|
$ |
345,070 |
|
|
$ |
344,509 |
|
|
|
|
|
|
|
|
|
|
RTI SURGICAL
HOLDINGS, INC. AND SUBSIDIARIES |
Condensed
Consolidated Statements of Cash Flows |
(Unaudited,
in thousands) |
|
|
|
|
|
|
|
|
|
For the
Three Months Ended |
|
March 31, |
|
2020 |
|
2019 |
Cash
flows from operating activities: |
|
|
|
Net loss |
$ |
(17,863 |
) |
|
$ |
(9,351 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities: |
|
|
|
Depreciation
and amortization expense |
|
2,239 |
|
|
|
4,400 |
|
Stock-based
compensation |
|
1,310 |
|
|
|
1,163 |
|
Amortization
of deferred revenue |
|
(1,188 |
) |
|
|
(1,292 |
) |
Other items to reconcile to net cash |
|
|
|
used in operating activities |
|
22,018 |
|
|
|
(10,477 |
) |
Net cash
provided by (used in) operating activities |
|
6,516 |
|
|
|
(15,557 |
) |
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
Purchases of
property, plant and equipment |
|
(5,084 |
) |
|
|
(3,477 |
) |
Patent and
acquired intangible asset costs |
|
(286 |
) |
|
|
(328 |
) |
Acquisition
of Paradigm Spine |
|
- |
|
|
|
(99,921 |
) |
Net cash
used in investing activities |
|
(5,370 |
) |
|
|
(103,726 |
) |
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
Proceeds
from long-term obligations |
|
- |
|
|
|
115,000 |
|
Payments of
debt issuance costs |
|
- |
|
|
|
(729 |
) |
Payments for
treasury stock |
|
(193 |
) |
|
|
- |
|
Other
financing activities |
|
20 |
|
|
|
156 |
|
Net cash
(used in) provided by financing activities |
|
(173 |
) |
|
|
114,427 |
|
Effect of
exchange rate changes on cash and cash equivalents |
|
(24 |
) |
|
|
(50 |
) |
Net increase
(decrease) in cash and cash equivalents |
|
949 |
|
|
|
(4,906 |
) |
Cash and
cash equivalents, beginning of period |
|
5,608 |
|
|
|
10,949 |
|
Cash and
cash equivalents, end of period |
$ |
6,557 |
|
|
$ |
6,043 |
|
|
|
|
|
|
|
|
|
Jonathon Singer Investor and Media Contact
jsinger@rtix.com +1 877-343-6832
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