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RTI Surgical Announces Fourth Quarter and Full Year 2017 ResultsRTI 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 noted the following assumptions are included in its guidance:
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.
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 and Adjusted Net Income per Common Share - Diluted. The calculation of the tax effect on the adjustments between GAAP net (loss) income 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) income 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 twelve month periods ended December 31, 2017 and 2016 as well as the reason for excluding the individual items: Severance and restructuring costs - This adjustment represents costs relating to the reduction of our organizational structure. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance. Strategic review costs - This adjustment represents charges relating to a comprehensive strategic review of the Company's business lines and operations to leverage the Company's expertise, technology and products and identify opportunities to increase stockholder value. Management removes the amount of these expenses from our operating results to supplement a comparison to our past operating performance. Executive transition costs - This adjustment represents charges relating to hiring a new Chief Executive Officer and Chief Financial and Administrative Officer and the retirement of our former Chief Executive Officer. Management removes the amount of these expenses from our operating results to supplement a comparison to our past operating performance. Contested proxy expenses - This adjustment represents charges relating to contested proxy expenses. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance. Asset impairment and abandonments - This adjustment represents an asset impairment and abandonment of certain long-term assets at our U.S. and German facilities. Management removes the amount of these costs from our operating results to supplement a comparison to our past operating performance. Excess inventory charge - This adjustment represents an inventory charge as a result of writing-off certain excess quantities primarily of hernia and sports medicine inventory. Management removes the amount of these expenses from our operating results to supplement a comparison to our past operating performance. Acquisition expenses - This adjustment represents charges relating to acquisition expenses. 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 cardiothoracic closure business to A&E. Management removes the amount of this gain from our operating results to supplement a comparison to our past operating performance. Foreign net operating loss valuation reserve - This adjustment represents charges relating to a foreign net operating loss valuation reserve. 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 and Adjusted Net Income per Common Share - Diluted 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 and Adjusted Net Income per Common Share - Diluted 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.
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