Advancing Science, Safety & Innovation
2011 Milestones n APRIL 2011» Processing and supply agreement signed with Alphatec Spine
Secretary, Stryker Corporation
RTI provides allograft implants for use in spinal surgeries made from assembled cortical allograft for Alphatec Spine Inc.
n MAY 2011» RTI Board of Directors split chairman and CEO roles Based on an evaluation of current best practices of corporate governance, the board of directors proactively separated the roles of chairman of the board and chief executive officer. Dean H. Bergy assumed the role of board of directors while Brian K. Hutchison remains CEO and a member of the board of directors.
n JUNE 2011» BioAdapt™ DBM Foam launched BioAdapt DBM Foam, a flexible demineralized bone matrix (DBM) solution with unique handling capabilities, was launched with the first implantation in a foot and ankle procedure.
n JULY 2011» New meniscus allograft instrumentation set launched RTI launched new meniscus allograft instrumentation kits at the American Orthopaedic Society of Sports Medicine Annual Meeting, featuring design enhancements to several critical components.
n AUGUST 2011» RTI celebrated 40 years of clinical use of Tutoplast® RTI celebrated 40 years of sterilizing human allografts through the Tutoplast process. Since the first clinical use in 1971, there has been zero incidence of allograft associated infections from more than a million implants sterilized through the process.
n DECEMBER 2011» RTI achieved world class equipment performance rating – recognized in Evolution magazine Since the implementation of the company’s condition-based maintenance program, the equipment performance rating for RTI went from 80 percent to 98.7 percent over four years, placing RTI among the top echelons of facilities in the U.S.
Annual Shareholders’ Meeting Tuesday, April 17, 2012 8:00 am EDT RTI Biologics Headquarters 11621 Research Circle, Alachua, Fla.
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 Web site at www.rtix.com or the SEC’s Web site at www.sec.gov.
2011 LETTER TO SHAREHOLDERS
Board of Directors Dean H. Bergy, Chairman Julianne M. Bowler Insurance Consultant
Philip R. Chapman President, Venad Administrative Services, Inc. General Partner, Adler and Company
Roy D. Crowninshield, Ph.D. Peter F. Gearen, M.D. Division Chief of Joint Replacement and Reconstruction, Alumni Associate Professor or Orthopedics, University of Florida College of Medicine
Brian K. Hutchison President and CEO, RTI Biologics Inc.
Gregory P. Rainey President, CCI Performance Group
Adrian J.R. Smith Chief Executive Officer, The Woolton Group
ContactS Investor Relations 11621 Research Circle Alachua, FL 32615 386-418-8888 [email protected] Independent Auditors Deloitte & Touche L.L.P. 201 East Kennedy Boulevard, Suite 1200 Tampa, FL 33602 Audit Committee Dean H. Bergy (Chair) Phillip R. Chapman Peter F. Gearen, M.D.
RTI Biologics is a leading
Transfer Agent Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 908-497-2300
provider of sterile biological implants for surgeries around the world, with a commitment
Advancin
Corporate Counsel Fulbright & Jaworski L.L.P. 666 Fifth Avenue, 31st Floor New York, NY 10103 212-318-3076
g Scienc
to advancing science, safety
e, Safety
& Innova
and innovation. RTI prepares
tion
donated human tissue and bovine tissue for transplantation
Corporate Headquarters 11621 Research Circle Alachua, FL 32615
through extensive testing and
Tel 386.418.8888 Toll Free 877.343.6832 Fax 386.418.0342
sterilization processes. These
www.rtix.com or www.rtibiologics.com
screening, precision shaping and proprietary, validated allograft and xenograft implants are used in spine, sports medicine, orthopedic, dental and other surgical specialties.
Dear Shareholder:
“
We laid out a multipronged corporate strategy that includes growing our direct distribution organization, introducing innovative new technologies and expanding our international presence.”
Revenues (in thousands) 12 months ended December 31, 2011 n Sports Medicine $48,122 n Spinal Constructs $39,722 n Surgical Specialties $30,328 n BGS/General Orthopedic $26,291 n Dental $18,392 n Other non-tissue $6,461 Total $169,316
11%
The year 2011 was a very successful one for our company. We are very pleased with the progress we made on our financial and operational goals in the last year, posting strong growth despite a challenging economic environment and laying the strategic foundation for future growth. Worldwide revenues of $169.3 million for the full year of 2011 were a record for the company, and our results met or exceeded expectations each quarter. Revenue increased by 2 percent over 2010 on an as reported basis, or by 10 percent if the new terms with the company’s dental distributor had been in effect for the full year of 2010 and excluding related dental stocking orders. Importantly, our growth was broad based, as all of our lines of business grew year-over-year, including posting double digit revenue growth rates from our domestic direct distribution organization and international businesses. We improved gross margins and operating margins each quarter of 2011, while reducing inventory by $11 million. Annual net income was $8.4 million, or $0.15 per fully diluted share, based on 55.4 million shares outstanding. We significantly improved our financial position from the beginning of the year, ending the year with more than $46 million in cash and virtually no debt. Beyond our financial achievements in 2011, we positioned the company for long-term performance. We laid out a multi-pronged corporate strategy that includes growing our direct distribution organization, introducing innovative new technologies and expanding our international presence. Direct Distribution Since we created our direct distribution organization for our sports medicine business in 2005, we have consistently invested in expansion of personnel and product offerings. As a result of these efforts, we have seen six consecutive years of revenue growth from this business. This group now carries a broad offering of sports medicine and osteobiologics implants with coverage across the U.S. and internationally. At the end of 2011, our worldwide direct distribution organization represented 40 percent of our total revenue, representing solid growth over the last several years. In the U.S. alone, revenue from our domestic direct distribution organization increased 10 percent over last year, contributing more than $51 million, or 30 percent of our total revenue, for the full year of 2011. While our diversified business model gives us the benefit of working with
Revenues by year (in millions)
4%
*2008 Includes revenues for the former Tutogen Medical, Inc. from 2/28/08 to 12/31/08.
28%
16%
$164.5
$166.2
$169.3
Revenue growth by geography (in millions)1 $180 –
$146.6*
$140 –
18%
23%
+9%
Domestic: $148,315 88%
2008
2009
2010
2011
$20 – $0 –
+7% +17% +13%
$30 –
$80 –
2007
$60 –
$40 –
$100 –
$40 –
n 2010 n 2011 $50 –
$60 – International: $21,001 12%
Revenue growth BY BUSINESS (in millions)1
Domestic
$120 –
$94.2
New Products and Technologies At the end of 2010, we put a strategic business development plan in place to actively look for “tuck-in” acquisitions that would enhance our existing direct distribution network and product offering. These activities are ongoing, as well as a focused effort on bringing innovative new technologies to the marketplace through our own development efforts. In 2011, we launched 18 different implants or implant enhancements, including seven for our direct distribution organization. These new implants contributed $4 million to our 2011 revenue. Looking forward to 2012, we will be investing in developing a number of key new products to build the foundation for long-term growth in our business. The first of our major new products that will come to market is our Multipotent Adult Progenitor Cells (MAPC) technology based implants for orthopedic applications, which are expected to begin implantation in humans in 2012. We will be releasing these implants to a select group of surgeons in 2012, with a full launch expected in 2013. Two other long-term projects in which we will be investing over the course of 2012 are porcine dermis for hernia repair and xenograft tendon for ligament reconstruction. For porcine dermis, we are performing animal studies in preparation for a 510(k) filing that is anticipated in late 2012. We currently expect porcine dermis to launch in 2013. For xenograft tendon, we are initiating a large primate study in 2012 that will support our progress in the longer, PMA regulatory pathway in the U.S.
n 2010 n 2011
$160 –
+4% +11%
$10 – +15% International
International Presence More than a year ago, we put new leadership in place for our international business with a strong focus on strategy and market development. We made progress in growing our international business in 2011 despite challenging economic environments in Europe and other countries. Led by strong growth in international dental and surgical specialties, international revenues for the year increased 15 percent over 2010 and represented 12 percent of our total 2011 revenues. We intend to grow our international presence over the next few years by expanding our geographic footprint, including exports and distribution from our German and French operations.
industry leading distribution companies for some of our product lines, our direct distribution network gives us many important benefits including: more control over our channel, higher margins and direct relationships with surgeon customers. We anticipate seeing continued growth from our current direct organization in 2012. Additionally, we will expand our direct presence in other areas of our business as we prepare to launch new products in 2012 and 2013 as discussed below.
$20 – $0 –
SPORTS
SPINE
SURGICAL SPECIALTIES
+1% BGS/GO
DENTAL
OTHER
Outlook I believe that 2011 was our best year in the history of our company, and it was accomplished with incredible focus from all of our employees. Along the way, we have made investments and preparations to continue to deliver growth in future years as well. As I mentioned in January on our 2011 year-end earnings call, we expect full year revenues for 2012 to be between $174 million and $176 million. Full year earnings per fully diluted share are expected to be in the range of $0.15 to $0.17, based on 55.8 million fully diluted shares outstanding. We expect that revenue growth will be driven by the continued success of our direct distribution group as well as new product introductions. We will continue to seek opportunities for generating operating leverage while we invest in new product and channel development. We feel confident our corporate strategy will deliver results in 2012 and beyond and are excited about the opportunities in front of us. Our executive management is very pleased with what we have been able to accomplish in 2011 and look forward to 2012. Sincerely,
Brian K. Hutchison President and CEO
Revenue gross margins1
INCREASING OPERATING MARGINS1,2
47% —
9% —
46% —
8% —
45% —
7% —
44% —
6% —
43% —
5% —
42% —
4% —
41% —
3% —
40% —
2% —
n 2010 n 2011
39% — 38% —
QTR 1
QTR 2
QTR 3
QTR 4
n 2010 n 2011
1% — 0% —
QTR 1
QTR 2
QTR 3
QTR 4
1. Figures shown as if new terms of dental distributor agreement, announced in the third quarter of 2010, had been effective for the full year of 2010 and excluding dental stocking orders related to the agreement. 2. 2010 figure excludes goodwill impairment charge of $134.7 million taken in the third quarter of 2010.
Secretary, Stryker Corporation
RTI provides allograft implants for use in spinal surgeries made from assembled cortical allograft for Alphatec Spine Inc.
n MAY 2011» RTI Board of Directors split chairman and CEO roles Based on an evaluation of current best practices of corporate governance, the board of directors proactively separated the roles of chairman of the board and chief executive officer. Dean H. Bergy assumed the role of board of directors while Brian K. Hutchison remains CEO and a member of the board of directors.
n JUNE 2011» BioAdapt™ DBM Foam launched BioAdapt DBM Foam, a flexible demineralized bone matrix (DBM) solution with unique handling capabilities, was launched with the first implantation in a foot and ankle procedure.
n JULY 2011» New meniscus allograft instrumentation set launched RTI launched new meniscus allograft instrumentation kits at the American Orthopaedic Society of Sports Medicine Annual Meeting, featuring design enhancements to several critical components.
n AUGUST 2011» RTI celebrated 40 years of clinical use of Tutoplast® RTI celebrated 40 years of sterilizing human allografts through the Tutoplast process. Since the first clinical use in 1971, there has been zero incidence of allograft associated infections from more than a million implants sterilized through the process.
n DECEMBER 2011» RTI achieved world class equipment performance rating – recognized in Evolution magazine Since the implementation of the company’s condition-based maintenance program, the equipment performance rating for RTI went from 80 percent to 98.7 percent over four years, placing RTI among the top echelons of facilities in the U.S.
Annual Shareholders’ Meeting Tuesday, April 17, 2012 8:00 am EDT RTI Biologics Headquarters 11621 Research Circle, Alachua, Fla.
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 Web site at www.rtix.com or the SEC’s Web site at www.sec.gov.
2011 LETTER TO SHAREHOLDERS
Board of Directors Dean H. Bergy, Chairman Julianne M. Bowler Insurance Consultant
Philip R. Chapman President, Venad Administrative Services, Inc. General Partner, Adler and Company
Roy D. Crowninshield, Ph.D. Peter F. Gearen, M.D. Division Chief of Joint Replacement and Reconstruction, Alumni Associate Professor or Orthopedics, University of Florida College of Medicine
Brian K. Hutchison President and CEO, RTI Biologics Inc.
Gregory P. Rainey President, CCI Performance Group
Adrian J.R. Smith Chief Executive Officer, The Woolton Group
ContactS Investor Relations 11621 Research Circle Alachua, FL 32615 386-418-8888 [email protected] Independent Auditors Deloitte & Touche L.L.P. 201 East Kennedy Boulevard, Suite 1200 Tampa, FL 33602 Audit Committee Dean H. Bergy (Chair) Phillip R. Chapman Peter F. Gearen, M.D.
RTI Biologics is a leading
Transfer Agent Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 908-497-2300
provider of sterile biological implants for surgeries around the world, with a commitment
Advancin
Corporate Counsel Fulbright & Jaworski L.L.P. 666 Fifth Avenue, 31st Floor New York, NY 10103 212-318-3076
g Scienc
to advancing science, safety
e, Safety
& Innova
and innovation. RTI prepares
tion
donated human tissue and bovine tissue for transplantation
Corporate Headquarters 11621 Research Circle Alachua, FL 32615
through extensive testing and
Tel 386.418.8888 Toll Free 877.343.6832 Fax 386.418.0342
sterilization processes. These
www.rtix.com or www.rtibiologics.com
screening, precision shaping and proprietary, validated allograft and xenograft implants are used in spine, sports medicine, orthopedic, dental and other surgical specialties.
Dear Shareholder:
“
We laid out a multipronged corporate strategy that includes growing our direct distribution organization, introducing innovative new technologies and expanding our international presence.”
Revenues (in thousands) 12 months ended December 31, 2011 n Sports Medicine $48,122 n Spinal Constructs $39,722 n Surgical Specialties $30,328 n BGS/General Orthopedic $26,291 n Dental $18,392 n Other non-tissue $6,461 Total $169,316
11%
The year 2011 was a very successful one for our company. We are very pleased with the progress we made on our financial and operational goals in the last year, posting strong growth despite a challenging economic environment and laying the strategic foundation for future growth. Worldwide revenues of $169.3 million for the full year of 2011 were a record for the company, and our results met or exceeded expectations each quarter. Revenue increased by 2 percent over 2010 on an as reported basis, or by 10 percent if the new terms with the company’s dental distributor had been in effect for the full year of 2010 and excluding related dental stocking orders. Importantly, our growth was broad based, as all of our lines of business grew year-over-year, including posting double digit revenue growth rates from our domestic direct distribution organization and international businesses. We improved gross margins and operating margins each quarter of 2011, while reducing inventory by $11 million. Annual net income was $8.4 million, or $0.15 per fully diluted share, based on 55.4 million shares outstanding. We significantly improved our financial position from the beginning of the year, ending the year with more than $46 million in cash and virtually no debt. Beyond our financial achievements in 2011, we positioned the company for long-term performance. We laid out a multi-pronged corporate strategy that includes growing our direct distribution organization, introducing innovative new technologies and expanding our international presence. Direct Distribution Since we created our direct distribution organization for our sports medicine business in 2005, we have consistently invested in expansion of personnel and product offerings. As a result of these efforts, we have seen six consecutive years of revenue growth from this business. This group now carries a broad offering of sports medicine and osteobiologics implants with coverage across the U.S. and internationally. At the end of 2011, our worldwide direct distribution organization represented 40 percent of our total revenue, representing solid growth over the last several years. In the U.S. alone, revenue from our domestic direct distribution organization increased 10 percent over last year, contributing more than $51 million, or 30 percent of our total revenue, for the full year of 2011. While our diversified business model gives us the benefit of working with
Revenues by year (in millions)
4%
*2008 Includes revenues for the former Tutogen Medical, Inc. from 2/28/08 to 12/31/08.
28%
16%
$164.5
$166.2
$169.3
Revenue growth by geography (in millions)1 $180 –
$146.6*
$140 –
18%
23%
+9%
Domestic: $148,315 88%
2008
2009
2010
2011
$20 – $0 –
+7% +17% +13%
$30 –
$80 –
2007
$60 –
$40 –
$100 –
$40 –
n 2010 n 2011 $50 –
$60 – International: $21,001 12%
Revenue growth BY BUSINESS (in millions)1
Domestic
$120 –
$94.2
New Products and Technologies At the end of 2010, we put a strategic business development plan in place to actively look for “tuck-in” acquisitions that would enhance our existing direct distribution network and product offering. These activities are ongoing, as well as a focused effort on bringing innovative new technologies to the marketplace through our own development efforts. In 2011, we launched 18 different implants or implant enhancements, including seven for our direct distribution organization. These new implants contributed $4 million to our 2011 revenue. Looking forward to 2012, we will be investing in developing a number of key new products to build the foundation for long-term growth in our business. The first of our major new products that will come to market is our Multipotent Adult Progenitor Cells (MAPC) technology based implants for orthopedic applications, which are expected to begin implantation in humans in 2012. We will be releasing these implants to a select group of surgeons in 2012, with a full launch expected in 2013. Two other long-term projects in which we will be investing over the course of 2012 are porcine dermis for hernia repair and xenograft tendon for ligament reconstruction. For porcine dermis, we are performing animal studies in preparation for a 510(k) filing that is anticipated in late 2012. We currently expect porcine dermis to launch in 2013. For xenograft tendon, we are initiating a large primate study in 2012 that will support our progress in the longer, PMA regulatory pathway in the U.S.
n 2010 n 2011
$160 –
+4% +11%
$10 – +15% International
International Presence More than a year ago, we put new leadership in place for our international business with a strong focus on strategy and market development. We made progress in growing our international business in 2011 despite challenging economic environments in Europe and other countries. Led by strong growth in international dental and surgical specialties, international revenues for the year increased 15 percent over 2010 and represented 12 percent of our total 2011 revenues. We intend to grow our international presence over the next few years by expanding our geographic footprint, including exports and distribution from our German and French operations.
industry leading distribution companies for some of our product lines, our direct distribution network gives us many important benefits including: more control over our channel, higher margins and direct relationships with surgeon customers. We anticipate seeing continued growth from our current direct organization in 2012. Additionally, we will expand our direct presence in other areas of our business as we prepare to launch new products in 2012 and 2013 as discussed below.
$20 – $0 –
SPORTS
SPINE
SURGICAL SPECIALTIES
+1% BGS/GO
DENTAL
OTHER
Outlook I believe that 2011 was our best year in the history of our company, and it was accomplished with incredible focus from all of our employees. Along the way, we have made investments and preparations to continue to deliver growth in future years as well. As I mentioned in January on our 2011 year-end earnings call, we expect full year revenues for 2012 to be between $174 million and $176 million. Full year earnings per fully diluted share are expected to be in the range of $0.15 to $0.17, based on 55.8 million fully diluted shares outstanding. We expect that revenue growth will be driven by the continued success of our direct distribution group as well as new product introductions. We will continue to seek opportunities for generating operating leverage while we invest in new product and channel development. We feel confident our corporate strategy will deliver results in 2012 and beyond and are excited about the opportunities in front of us. Our executive management is very pleased with what we have been able to accomplish in 2011 and look forward to 2012. Sincerely,
Brian K. Hutchison President and CEO
Revenue gross margins1
INCREASING OPERATING MARGINS1,2
47% —
9% —
46% —
8% —
45% —
7% —
44% —
6% —
43% —
5% —
42% —
4% —
41% —
3% —
40% —
2% —
n 2010 n 2011
39% — 38% —
QTR 1
QTR 2
QTR 3
QTR 4
n 2010 n 2011
1% — 0% —
QTR 1
QTR 2
QTR 3
QTR 4
1. Figures shown as if new terms of dental distributor agreement, announced in the third quarter of 2010, had been effective for the full year of 2010 and excluding dental stocking orders related to the agreement. 2. 2010 figure excludes goodwill impairment charge of $134.7 million taken in the third quarter of 2010.
