RTI Biologics Announces 2012 Second Quarter Results

RTI Biologics Inc. (RTI) (Nasdaq:RTIX), a leading provider of orthopedic and other biologic implants, reported operating results for the second quarter of 2012 as follows:

Quarterly Highlights:
  • Achieved quarterly revenues of $45.2 million, a 4 percent increase over the second quarter of 2011.
  • Achieved quarterly net income per fully diluted share of $0.02, a decrease of $0.02 compared to the second quarter of 2011. Excluding a pre-tax litigation settlement charge of $2.35 million in the quarter, or $0.03 per fully diluted share, the company achieved quarterly net income per fully diluted share of $0.05.
  • Achieved quarterly revenues of $8.5 million in the surgical specialties business, an 18 percent increase over the second quarter of 2011.
  • Achieved quarterly revenues of $7.0 million in the bone graft substitutes and general orthopedic (BGS/GO) business, a 12 percent increase over the second quarter of 2011.
  • Achieved quarterly revenues of $13.3 million in the sports medicine business, a 10 percent increase over the second quarter of 2011.
  • Achieved international revenues of $6.0 million, a 9 percent increase or a 19 percent increase on a constant currency basis over the second quarter of 2011.
  • Achieved quarterly revenues of $14.0 million in the U.S. direct distribution organization, an 8 percent increase over the second quarter of 2011. The U.S. direct distribution organization includes sports medicine and certain BGS/GO implants.

“We are pleased with our second quarter results, which exceeded our expectations and were driven primarily by continued growth in our surgical specialties, direct sports medicine and BGS/GO businesses,” said Brian K. Hutchison, president and chief executive officer of RTI.

Worldwide revenues of $45.2 million for the second quarter of 2012 increased 4 percent compared to the second quarter of 2011. Domestic revenues of $39.2 million for the second quarter of 2012 grew by 3 percent compared to the second quarter of 2011, primarily based on the strength of the surgical specialties, direct sports medicine and dental businesses and were offset by unfavorable comparisons in the spine business. International revenues of $6.0 million increased 9 percent compared to the second quarter of 2011 primarily due to higher export revenue in the sports medicine and BGS/GO businesses. On a constant currency basis, international revenues increased 19 percent as compared to the second quarter of 2011.

In 2005, the company was named as a party, along with a number of other recovery and processor defendants, in lawsuits relating to the tissue recovery practices of Biomedical Tissue Services Ltd. (BTS), an unaffiliated recovery agency. During the second quarter of 2012, the company accrued a pre-tax charge of $2.35 million, or $0.03 per fully diluted share, to settle certain cases related to these proceedings.

For the second quarter of 2012, the company reported net income of $1.3 million and net income per fully diluted share of $0.02, based on 56.0 million fully diluted shares outstanding, compared to net income of $2.0 million or $0.04 per fully diluted share for the second quarter of 2011, based on 55.3 million fully diluted shares outstanding. Excluding the litigation settlement charge of $0.03 per fully diluted share, net income per fully diluted share in the second quarter of 2012 was $0.05.

Fiscal 2012 and Third Quarter Outlook

As a result of first half results that exceeded expectations and better visibility into second half trends, the company is raising its full year revenues guidance for 2012. The company now expects full year revenues for 2012 to be between $177 million to $179 million, as compared to prior guidance of $176 million to $178 million. As a result of the litigation settlement charge of $0.03 per fully diluted share taken in the second quarter, full year net income per fully diluted share is now expected to be in the range of $0.14 to $0.15, based on 56.1 million shares outstanding, as compared to prior guidance of $0.16 to $0.17 per fully diluted share.

For the third quarter of 2012, the company expects revenues to be between $44 million and $45 million and net income per fully diluted share to be approximately $0.04.

Conference Call

RTI will host a conference call and simultaneous audio webcast to discuss the second quarter results at 8:00 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 Biologics Inc.

RTI Biologics Inc. is a leading provider of sterile biologic implants for surgeries around the world with a commitment to advancing science, safety and innovation. RTI prepares human donated tissue and bovine tissue for transplantation through extensive testing and screening and using proprietary processes. These allograft and xenograft implants are used in orthopedic, dental and other specialty surgeries.

RTI’s innovations continuously raise the bar of science and safety for biologics – from being the first company to offer precision-tooled bone implants and assembled technology to maximize each gift of donation, to inventing validated sterilization processes that include viral inactivation steps. Two such processes – the BioCleanse® Tissue Sterilization Process and the Tutoplast® Tissue Sterilization Process – have a combined record of more than two million implants distributed with zero incidence of allograft-associated infection. These processes have been validated by tissue type to inactivate or remove viruses, bacteria, fungi and spores from the tissue while maintaining biocompatibility and functionality.

RTI’s worldwide corporate headquarters are located in Alachua, Fla., with international locations in Germany and France. The company is accredited by the American Association of Tissue Banks in the United States and is a member of AdvaMed.

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 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 BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
 
  Three Months Ended   Six Months Ended
June 30, June 30,
  2012       2011     2012       2011  
Revenues:
Tissue distribution $ 43,711 $ 41,504 $ 85,832 $ 81,023
Other revenues   1,486     1,978     3,108     3,105  
Total revenues 45,197 43,482 88,940 84,128
Costs of processing and distribution   23,526     23,763     47,163     46,072  
Gross profit   21,671     19,719     41,777     38,056  
Expenses:
Marketing, general and administrative 14,294 14,186 28,668 28,095
Research and development 3,343 2,479 6,170 4,897
Asset abandonments 2 - 18 57
Litigation settlement   2,350     -     2,350     -  
Total operating expenses   19,989     16,665     37,206     33,049  
Operating income   1,682     3,054     4,571     5,007  
Total other income (expense) - net   51     (55 )   106     (139 )
Income before income tax provision 1,733 2,999 4,677 4,868
Income tax provision   (412 )   (981 )   (1,354 )   (1,602 )
Net income $ 1,321   $ 2,018   $ 3,323   $ 3,266  
 
Net income per common share - basic $ 0.02   $ 0.04   $ 0.06   $ 0.06  
Net income per common share - diluted $ 0.02   $ 0.04   $ 0.06   $ 0.06  
Weighted average shares outstanding - basic   55,857,858     55,158,345     55,785,171     55,024,052  
Weighted average shares outstanding - diluted   56,027,272     55,268,897     55,973,094     55,127,497  
 
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Reconciliation of Net Income and Net Income Per Diluted Share to
Adjusted Net Income and Adjusted Net Income Per Diluted Share
(In thousands except per share data)
(Unaudited)
 
 
  Three Months Ended
June 30, 2012   June 30, 2011
  Impact   Impact
Net per Diluted Net per Diluted
Income Share Income Share
 
As reported $ 1,321 $ 0.02 $ 2,018 $ 0.04
Litigation settlement charge,
net of tax effect (1) 1,444 0.03 - -
Adjusted $ 2,765 $ 0.05 $ 2,018 $ 0.04
 
 
 
Six Months Ended
June 30, 2012 June 30, 2011
Impact Impact
Net per Diluted Net per Diluted
Income Share Income Share
 
As reported $ 3,323 $ 0.06 $ 3,266 $ 0.06
Litigation settlement charge,
net of tax effect (1) 1,444 0.03 - -
Adjusted $ 4,767 $ 0.09 $ 3,266 $ 0.06
 
 
 
 
 
(1) Litigation settlement charge, net of tax effect, as follows:
 
Litigation settlement charge $ 2,350
Tax effect on litigation settlement charge (906)
Litigation settlement charge, net of tax effect $ 1,444
 

Use of Non-GAAP Financial Measures

To supplement RTI Biologic’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 income and non-GAAP net 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 is an explanation of the adjustment that management excluded as part of the non-GAAP measures for the three and six month periods ended June 30, 2012 as well as the reasons for excluding the individual item:

Litigation settlement – This adjustment represents a charge and relates to a litigation settlement of certain BTS related lawsuits. Management removes the impact of the litigation settlement charge from the Company’s operating results to assist in assessing its operating performance in the current period and to supplement a comparison to the Company’s past operating performance.

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

Non-GAAP net income and non-GAAP 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 non-GAAP net income and non-GAAP 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 litigation settlement charge. The Company further believes that providing this information better enables RTI Biologic’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 BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Revenues
(In thousands)
(Unaudited)
 
  Three Months Ended   Six Months Ended
June 30, June 30,
2012   2011 2012   2011
 
Revenues from tissue distribution:
Sports medicine $ 13,337 $ 12,120 $ 26,762 $ 23,809
Spine 9,785 11,028 18,345 20,738
Surgical specialties 8,459 7,153 16,256 15,064
Bone graft substitutes and general orthopedic 7,016 6,241 14,031 12,348
Dental 5,114 4,962 10,438 9,064
Other revenues   1,486   1,978   3,108   3,105
Total revenues $ 45,197 $ 43,482 $ 88,940 $ 84,128
Domestic revenues 39,191 37,980 77,064 73,225
International revenues   6,006   5,502   11,876   10,903
Total revenues $ 45,197 $ 43,482 $ 88,940 $ 84,128
 
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
    June 30,   December 31,
2012 2011
Assets
Cash and cash equivalents $ 50,231 $ 46,178
Accounts receivable - net 22,603 20,674
Inventories - net 73,214 76,598
Prepaid and other current assets   16,288     16,231  
Total current assets 162,336 159,681
 
Property, plant and equipment - net 45,603 44,532
Other assets - net   25,567     25,814  
Total assets $ 233,506   $ 230,027  
 
Liabilities and Stockholders' Equity
Accounts payable $ 9,869 $ 11,141
Accrued expenses and other current liabilities 24,887 24,028
Current portion of long-term obligations   270     448  
Total current liabilities 35,026 35,617
 
Deferred revenue 21,210 20,589
Long-term liabilities   1,106     1,402  
Total liabilities 57,342 57,608
Stockholders' equity:
Common stock and additional paid-in capital 412,772 411,741
Accumulated other comprehensive loss (2,793 ) (2,184 )
Accumulated deficit   (233,815 )   (237,138 )
Total stockholders' equity   176,164     172,419  
Total liabilities and stockholders' equity $ 233,506   $ 230,027  
 
RTI BIOLOGICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
  Three Months Ended   Six Months Ended
June 30, June 30,
  2012       2011     2012       2011  
Cash flows from operating activities:
Net income $ 1,321 $ 2,018 $ 3,323 $ 3,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 1,970 2,042 3,879 3,967
Stock-based compensation 525 494 1,050 993
Amortization of deferred revenue (1,164 ) (1,016 ) (2,328 ) (2,022 )
Litigation settlement 2,350 - 2,350 -
Other items to reconcile to net cash
provided by operating activities   (187 )   5,075     906     8,889  
Net cash provided by operating activities   4,815     8,613     9,180     15,093  
Cash flows from investing activities:
Purchases of property, plant and equipment (1,806 ) (816 ) (4,609 ) (1,310 )
Patent and acquired intangible asset costs   (311 )   (52 )   (376 )   (1,073 )
Net cash used in investing activities   (2,117 )   (868 )   (4,985 )   (2,383 )
Cash flows from financing activities:
Proceeds from exercise of common stock options 114 - 214 185
Payments on long-term obligations (95 ) (1,975 ) (294 ) (2,251 )
Other   -     -     (20 )   -  
Net cash provided by (used in) financing activities   19     (1,975 )   (100 )   (2,066 )
Effect of exchange rate changes on cash and cash equivalents   (74 )   133     (42 )   193  
Net increase in cash and cash equivalents 2,643 5,903 4,053 10,837
Cash and cash equivalents, beginning of period   47,588     33,146     46,178     28,212  
Cash and cash equivalents, end of period $ 50,231   $ 39,049   $ 50,231   $ 39,049  

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