Tornier Reports Second Quarter 2012 Financial Results

Shoulder Products Drive Extremities Constant Currency Growth of 8%

Adjusted EBITDA Margin Improves Year Over Year for 4^th Consecutive Quarter

AMSTERDAM, The Netherlands--(BUSINESS WIRE)-- Tornier N.V. (NASDAQ:TRNX), a global medical device company focused on providing surgical solutions to orthopaedic extremity specialists, today reported its financial results for the second quarter of 2012 and updated its fiscal 2012 financial outlook.

Sales for the second quarter of 2012 were $66.0 million, compared to second quarter 2011 sales of $65.2 million, representing increases of 1.3% as reported and 6.3% in constant currency. For the first six months of 2012 sales were $140.5 million, compared to sales of $134.6 million in the first half of 2011, an increase of 4.4% as reported and 7.6% in constant currency. Second quarter 2012 sales of Tornier's extremity product categories increased 4.7% as reported and 8.0% in constant currency year over year and expanded to 81% of reported global sales, compared to 78% in the second quarter of 2011.

Douglas W. Kohrs, President and Chief Executive Officer of Tornier, commented, "Our global extremities performance again was the major growth driver during the quarter, with new product launches making strong contributions to upper extremities and sports medicine sales. As we proceed with our strategies to strengthen our domestic distribution channel and to expand our international markets, we remain confident that the steps we are taking will support a return to double digit extremities constant currency growth in the future."

The Company's second quarter 2012 adjusted EBITDA, as defined in the GAAP to non-GAAP reconciliation provided later in this release, increased 12% to $7.0 million, or 10.5% of sales, compared to $6.2 million, or 9.6% of sales, in the same quarter of the prior year. For the first six months of 2012, adjusted EBITDA increased 11% to $17.1 million, or 12.2% of sales, compared to $15.4 million, or 11.4% of sales, in the same period last year.

Mr. Kohrs continued, "Despite top-line headwinds, during the quarter, gross margins expanded to 72.6%, and adjusted EBITDA grew 12% over the prior year period. Our previously announced facility consolidation, combined with our improving gross margins, position us well to continue to deliver significant operating leverage."

Sales and Product Review

Tornier's second quarter 2012 constant currency sales growth of 6.3% was led by its extremity product categories which together posted constant currency growth of 8.0% over the second quarter of 2011. Within the extremity products group, second quarter constant currency growth of the upper extremity joints and trauma category was 8.8%, led by the Company's shoulder arthroplasty portfolio. The Aequalis™ Ascend™ and the Simpliciti™ stemless shoulder system continued to drive market share gains globally. Tornier's lower extremity joints and trauma category grew 3.2% in constant currency due to double digit growth from the market-leading Salto® ankle arthroplasty system and the innovative Stabilis™ ankle fusion system. The sports medicine and biologics product category posted second quarter constant currency sales growth of 8.3%, led by the Company's Insite®FT bone anchor and newly launched Duo™ Instability System. Sales of the Company's large joint product lines were equivalent to second quarter sales on a constant currency basis a year ago.

On a geographic basis, Tornier's international constant currency sales increased 6.2% as compared to the second quarter of 2011 and represented 47% of global sales. Sales in the United States increased 6.3% and represented 53% of global sales.

Outlook

Tornier updated its outlook for 2012, taking into account continued U.S. distribution channel initiatives, European market conditions and anticipated new product launch timing. The Company projects 2012 constant currency sales to be in the range of $277 to $283 million, representing constant currency growth of 6% to 8% over 2011 sales. Based on recent currency exchange rates, 2012 reported sales are projected to be in the range of $267 to $273 million, representing reported growth of 2% to 4.5% over 2011 sales. Sales of the Tornier extremities product categories in 2012 are expected to grow 7% to 10% in constant currency. The Company projects 2012 adjusted EBITDA, as described in the GAAP to non-GAAP reconciliation provided later in this release, to be in the range of $33 to $37 million, or 12.5% to 13.5% of reported sales, representing growth of 15% to 30% over 2011.

For the third quarter of 2012, the Company projects constant currency sales to be in the range of $60 to $62 million, representing constant currency growth of 4% to 8% over third quarter 2011 sales. Based on recent currency exchange rates, third quarter 2012 reported sales are projected in the range of $57 to $59 million, representing reported growth of -1% to 2.5% over third quarter 2011 sales. Third quarter 2012 extremities product category sales are expected to grow 5% to 9% in constant currency. The Company projects adjusted EBITDA for the third quarter of 2012 to be in the range of $4.5 to $6.0 million, or 8% to 10% of reported sales.

The facilities consolidation charges announced in the Company's press release on April 13, 2012 are excluded from projected 2012 adjusted EBITDA. The Company still anticipates that substantially all of the $6.0 to $7.0 million estimated charges will be recorded in 2012 as special charges within operating expenses and, thereby, excluded from adjusted EBITDA as described on the GAAP to non-GAAP reconciliation which will be provided in those quarters.

Earnings Call Information

Tornier will host a conference call today at 4:30 p.m. eastern time to discuss its second quarter 2012 financial results and its updated outlook for 2012. The conference call will be available to interested parties through a live audio webcast available through the Company's website at www.tornier.com. Those without internet access may join the call from within the U.S. by dialing 1-877-673-5355; outside the U.S., dial +1-760-666-3805.

A telephone replay will be available for two weeks following the call by dialing 1-855-859-2056 for domestic participants and +1-404-537-3406 for international participants. When prompted, please enter the replay pin number 10877438. For those who are not available to listen to the live webcast, the call will be archived for one year on Tornier's website.

Forward-Looking Statements

Statements contained in this release that relate to future, not past, events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations of future events and often can be identified by words such as "expect," "should," "project," "anticipate," "intend," "will," "may," "believe," "could," "would," "continue," "outlook," "guidance," "future," other words of similar meaning or the use of future dates. Examples of forward-looking statements in this release include Tornier's financial guidance for the third quarter of 2012 and for the full year 2012, Tornier's intent to return to double digit constant currency growth for its extremities product category and improve operating leverage, anticipated facilities consolidation charges and the timing of such charges. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Uncertainties and risks may cause Tornier's actual results to be materially different than those expressed in or implied by Tornier's forward-looking statements. For Tornier, such uncertainties and risks include, among others, Tornier's future operating results and financial performance, fluctuations in foreign currency exchange rates, the effect of global economic conditions, the European sovereign debt crisis, and austerity measures, risks associated with our international operations and expansion, the timing of regulatory approvals and introduction of new products, physician acceptance, endorsement, and use of new products; the effect of regulatory actions, changes in and adoption of reimbursement rates, potential product recalls, competitor activities, the effect of changes in our distribution channels and the costs and effects of litigation and changes in tax and other legislation. More detailed information on these and other factors that could affect Tornier's actual results are described in Tornier's filings with the U.S. Securities and Exchange Commission, including its most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Tornier undertakes no obligation to update its forward-looking statements.

About Tornier

Tornier is a global medical device company focused on serving extremities specialists who treat orthopaedic conditions of the shoulder, elbow, wrist, hand, ankle and foot. The Company's broad offering of over 90 product lines includes joint replacement, trauma, sports medicine, and biologic products to treat the extremities, as well as joint replacement products for the hip and knee in certain international markets. Since its founding approximately 70 years ago, Tornier's "Specialists Serving Specialists" philosophy has fostered a tradition of innovation, intense focus on surgeon education, and commitment to advancement of orthopaedic technology stemming from its close collaboration with orthopaedic surgeons and thought leaders throughout the world. For more information regarding Tornier, visit www.tornier.com.

Use of Non-GAAP Financial Measures

To supplement Tornier's consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), Tornier uses certain non-GAAP financial measures in this release. Reconciliations of the non-GAAP financial measures used in this release to the most comparable U.S. GAAP measures for the respective periods can be found in tables later in this release immediately following the detail of revenue by geography. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for Tornier's financial results prepared in accordance with GAAP.

Tornier N.V.
Consolidated Statements of Operations
(in thousands, except per share data)
		Three Months Ended								Six Months Ended
		(unaudited)								(unaudited)
		July 1, 2012				July 3, 2011				July 1, 2012				July 3, 2011
Revenue		$	66,014			$	65,158			$	140,472			$	134,593
Cost of goods sold			18,098				18,017				39,214				38,058
Gross profit			47,916				47,141				101,258				96,535
			72.58	%			72.35	%
Operating expenses
	Selling, general and administrative		41,795				41,234				85,633				81,958
	Research and development		5,446				5,189				11,069				10,299
	Amortization of intangible assets		2,636				2,897				5,283				5,707
	Special charges		2,910				132				2,910				132
	Total operating expenses		52,787				49,452				104,895				98,096
Operating income (loss)			(4,871	)			(2,311	)			(3,637	)			(1,561	)
Other income (expense)
	Interest income		121				142				234				270
	Interest expense		(462	)			(631	)			(949	)			(3,237	)
	Foreign currency transaction gain (loss)		106				226				131				147
	Loss on extinguishment of debt		-				-				-				(29,475	)
	Other non-operating income (expense)		(3	)			35				(2	)			16
Loss before income taxes			(5,109	)			(2,539	)			(4,223	)			(33,840	)
Income tax (expense) benefit			25				(330	)			(1,037	)			7,002
Consolidated net loss		$	(5,084	)		$	(2,869	)		$	(5,260	)		$	(26,838	)
Net loss per share
	Basic and diluted	$	(0.13	)		$	(0.07	)		$	(0.13	)		$	(0.72	)
Weighted average ordinary shares outstanding
	Basic and diluted		39,580				39,040				39,450				37,248

Tornier N.V.
Condensed Consolidated Balance Sheets
(in thousands)
			July 1, 2012			January 1, 2012
			(unaudited)
Assets
	Current assets
		Cash and cash equivalents	$	61,424		$	54,706
		Accounts receivable, net		46,827			45,908
		Inventories		79,184			79,883
		Deferred income taxes and other current assets		20,159			18,375
		Total current assets		207,594			198,872
	Instruments, net			49,332			49,347
	Property, plant and equipment, net			32,401			33,353
	Goodwill and intangibles, net			225,050			228,209
	Deferred income taxes and other assets			1,849			1,919
	Total assets		$	516,226		$	511,700
Liabilities and shareholders' equity
	Current liabilities
		Short-term borrowing and current portion of long-term debt	$	21,255		$	18,011
		Accounts payable		13,524			12,020
		Accrued liabilities and deferred income taxes		36,487			35,443
		Total current liabilities		71,266			65,474
	Other long-term debt			22,294			21,900
	Deferred income taxes and other long-term liabilities			23,302			22,866
	Total liabilities			116,862			110,240
	Shareholders' equity			399,364			401,460
	Total liabilities and shareholders' equity		$	516,226		$	511,700

Tornier N.V.
Consolidated Statements of Cash Flow
(in thousands)
			Three Months Ended								Six Months Ended
			(unaudited)								(unaudited)
			July 1, 2012				July 3, 2011				July 1, 2012				July 3, 2011
Cash flows from operating activities
	Consolidated net loss		$	(5,084	)		$	(2,869	)		$	(5,260	)		$	(26,838	)
	Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities
		Depreciation and amortization		7,360				6,798				14,347				13,891
		Impairment of fixed assets		949				-				949				-
		Non-cash foreign currency (gain) loss		620				(30	)			377				603
		Deferred income taxes		247				1,904				(452	)			(6,165	)
		Share-based compensation		1,452				1,615				3,396				2,910
		Non-cash interest expense and discount amortization		-				-				-				2,040
		Inventory obsolescence		566				870				2,056				2,466
		Loss on extinguishment of debt		-				-				-				29,475
		Other non-cash items affecting earnings		695				231				1,251				336
	Changes in operating assets and liabilities
		Accounts receivable		4,490				2,235				(284	)			(3,657	)
		Inventories		(2,249	)			(4,645	)			(1,876	)			(6,680	)
		Accounts payable and accruals		(4,267	)			337				418				2,011
		Other current assets and liabilities		(295	)			(199	)			(1,175	)			3,295
		Other non-current assets and liabilities		(7	)			(734	)			(431	)			(1,222	)
	Net cash provided by (used in) operating activities			4,477				5,513				13,316				12,465
Cash flows from investing activities
	Acquisition-related cash payments			(3,739	)			(1,154	)			(4,089	)			(1,635	)
	Additions of instruments			(3,849	)			(5,582	)			(7,771	)			(8,456	)
	Purchases of property, plant and equipment			(2,548	)			(762	)			(3,704	)			(1,476	)
	Net cash provided by (used in) investing activities			(10,136	)			(7,498	)			(15,564	)			(11,567	)
Cash flows from financing activities
	Change in short-term debt			61				(3,832	)			3,052				(16,764	)
	Repayments of long-term debt			(1,909	)			(1,945	)			(3,951	)			(4,015	)
	Proceeds from issuance of long-term debt			(307	)			3,509				5,036				3,509
	Deferred financing costs			-				(215	)			-				(2,629	)
	Repayment of notes payable			-				-				-				(116,108	)
	Issuance of ordinary shares			3,051				51				6,171				168,308
	Net cash provided by (used in) financing activities			896				(2,432	)			10,308				32,301
Effect of currency exchange rates on cash and cash equivalents				(2,880	)			36				(1,342	)			1,696
Increase (decrease) in cash and cash equivalents				(7,643	)			(4,381	)			6,718				34,895
Cash and cash equivalents at beginning of period				69,067				64,114				54,706				24,838
Cash and cash equivalents at end of period			$	61,424			$	59,733			$	61,424			$	59,733

Tornier N.V.
Selected Revenue Information
(in thousands)
			Three Months Ended									Six Months Ended
			(unaudited)									(unaudited)
			July 1, 2012			July 3, 2011			Percent change			July 1, 2012			July 3, 2011			Percent change
Revenue by product category
	Upper extremity joints and trauma		$	42,987		$	40,795		5.4	%		$	90,005		$	82,950		8.5	%
	Lower extremity joints and trauma			6,489			6,447		0.7	%			13,518			13,079		3.4	%
	Sports medicine and biologics			3,745			3,583		4.5	%			7,876			7,440		5.9	%
		Total extremities		53,221			50,825		4.7	%			111,399			103,469		7.7	%
	Large joints and other			12,793			14,333		-10.7	%			29,073			31,124		-6.6	%
	Total		$	66,014		$	65,158		1.3	%		$	140,472		$	134,593		4.4	%
Revenue by geography
	United States		$	36,569		$	34,395		6.3	%		$	76,270		$	71,416		6.8	%
	International			29,445			30,763		-4.3	%			64,202			63,177		1.6	%
	Total		$	66,014		$	65,158		1.3	%		$	140,472		$	134,593		4.4	%

Tornier N.V.
Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis
(in thousands)
			Three Months Ended
			(unaudited)
			July 1, 2012											July 3, 2011
			Revenue as reported				Foreign exchange impact as compared to prior period				Revenue on a constant currency basis			Revenue as reported			Percent change on a constant currency basis
Revenue by product category
	Upper extremity joints and trauma		$	42,987			$	1,395			$	44,382		$	40,795		8.8	%
	Lower extremity joints and trauma			6,489				163				6,652			6,447		3.2	%
	Sports medicine and biologics			3,745				137				3,882			3,583		8.3	%
		Total extremities		53,221				1,695				54,916			50,825		8.0	%
	Large joints and other			12,793				1,538				14,331			14,333		0.0	%
	Total		$	66,014			$	3,233			$	69,247		$	65,158		6.3	%
Revenue by geography
	United States		$	36,569			$	-			$	36,569		$	34,395		6.3	%
	International			29,445				3,233				32,678			30,763		6.2	%
	Total		$	66,014			$	3,233			$	69,247		$	65,158		6.3	%
			Six Months Ended
			(unaudited)
			July 1, 2012											July 3, 2011
			Revenue as reported				Foreign exchange impact as compared to prior period				Revenue on a constant currency basis			Revenue as reported			Percent change on a constant currency basis
Revenue by product category
	Upper extremity joints and trauma		$	90,005			$	1,797			$	91,802		$	82,950		10.7	%
	Lower extremity joints and trauma			13,518				195				13,713			13,079		4.8	%
	Sports medicine and biologics			7,876				155				8,031			7,440		7.9	%
		Total extremities		111,399				2,147				113,546			103,469		9.7	%
	Large joints and other			29,073				2,230				31,303			31,124		0.6	%
	Total		$	140,472			$	4,377			$	144,849		$	134,593		7.6	%
Revenue by geography
	United States		$	76,270			$	-			$	76,270		$	71,416		6.8	%
	International			64,202				4,377				68,579			63,177		8.6	%
	Total		$	140,472			$	4,377			$	144,849		$	134,593		7.6	%

Tornier N.V.
Reconciliation of Net Loss to
Non-GAAP Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
(in thousands)
		Three Months Ended								Six Months Ended
		(unaudited)								(unaudited)
		July 1, 2012				July 3, 2011				July 1, 2012				July 3, 2011
Revenue, as reported		$	66,014			$	65,158			$	140,472			$	134,593
Net loss, as reported		$	(5,084	)		$	(2,869	)		$	(5,260	)		$	(26,838	)
	Interest income		(121	)			(142	)			(234	)			(270	)
	Interest expense		462				631				949				3,237
	Income tax expense (benefit)		(25	)			330				1,037				(7,002	)
	Depreciation		4,724				3,901				9,064				8,184
	Amortization		2,636				2,897				5,283				5,707
	Subtotal Non-GAAP EBITDA (Loss)		2,592				4,748				10,839				(16,982	)
	Other non-operating (income) expense		3				(35	)			2				(16	)
	Foreign currency transaction (gain) loss		(106	)			(226	)			(131	)			(147	)
	Share-based compensation		1,452				1,615				3,396				2,910
	Loss on extinguishment of debt		-				-				-				29,475
	Inventory step-up from acquisition		105				-				105				-
	Special charges		2,910				132				2,910				132
Non-GAAP Adjusted EBITDA		$	6,956			$	6,234			$	17,121			$	15,372
Non-GAAP Adjusted EBITDA Margin			10.5	%			9.6	%			12.2	%			11.4	%

Tornier N.V.
Reconciliation of Net Loss to
Non-GAAP Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
(in thousands)
			Three-month periods ended: (unaudited)
			Fiscal 2010								Fiscal Year 2011																Fiscal Year 2012
																														`
			October 3, 2010				January 2, 2011				April 3, 2011				July 3, 2011				October 2, 2011				January 1, 2012				April 1, 2012				July 1, 2012
Revenue, as reported			$	49,707			$	61,265			$	69,435			$	65,158			$	57,556			$	69,042			$	74,458			$	66,014
Net loss, as reported				(12,759	)			(8,096	)			(23,969	)			(2,869	)			(1,637	)			(1,981	)			(176	)			(5,084	)
	Interest income			5,282				(81	)			(128	)			(142	)			(145	)			(135	)			(113	)			(121	)
	Interest expense			(1,531	)			5,616				2,606				631				524				565				487				462
	Income tax expense (benefit)			3,989				125				(7,332	)			330				(2,114	)			692				1,062				(25	)
	Depreciation			2,842				4,424				4,283				3,901				4,406				4,445				4,340				4,724
	Amortization							2,772				2,810				2,897				2,741				2,834				2,647				2,636
	Subtotal Non-GAAP EBITDA (Loss)			(2,177	)			4,760				(21,730	)			4,748				3,775				6,420				8,247				2,592
	Other non-operating (income) expense			(283	)			301				19				(35	)			(993	)			(321	)			(1	)			3
	Foreign currency transaction (gain) loss			3,728				(1,304	)			79				(226	)			228				(274	)			(25	)			(106	)
	Share-based compensation			1,352				1,443				1,295				1,615				1,831				1,806				1,944				1,452
	Loss on extinguishment of debt			-				-				29,475				-				-				-				-				-
	Inventory step-up from acquisition			-				-				-				-				-				-				-				105
	Special charges			54				-				-				132				56				704				-				2,910
Non-GAAP Adjusted EBITDA			$	2,674			$	5,200			$	9,138			$	6,234			$	4,897			$	8,335			$	10,165			$	6,956
Non-GAAP Adjusted EBITDA Margin				5.4	%			8.5	%			13.2	%			9.6	%			8.5	%			12.1	%			13.7	%			10.5	%

Tornier N.V.
Reconciliation of Net Income (Loss) and Earnings per Share
to Adjusted Net Income (Loss) and Adjusted Earnings per Share
(in thousands)
		Three Months Ended								Six Months Ended
		(unaudited)								(unaudited)
		July 1, 2012				July 3, 2011				July 1, 2012				July 3, 2011
Net loss, as reported		$	(5,084	)		$	(2,869	)		$	(5,260	)		$	(26,838	)
	Loss on extinguishment of debt, net of tax		-				-				-				21,990
	Inventory step-up from acquisition, net of tax		85				-				85				-
	Special Charges, net of tax		2,251				132				2,251				132
Non-GAAP Adjusted Net loss			(2,748	)			(2,737	)			(2,924	)			(4,716	)
Net loss per share, as reported
	Basic and diluted	$	(0.13	)		$	(0.07	)		$	(0.13	)		$	(0.72	)
	Loss on extinguishment of debt, net of tax		-				-				-				0.59
	Inventory step-up from acquisition, net of tax		0.00				-				0.00				-
	Special Charges, net of tax		0.06				0.00				0.06				0.00
Non-GAAP Adjusted Net loss per share
	Basic and diluted	$	(0.07	)		$	(0.07	)		$	(0.07	)		$	(0.13	)
Weighted average ordinary shares outstanding
	Basic and diluted		39,580				39,040				39,450				37,248

Tornier N.V.
Reconciliation of Net Cash Provided by (Used in) Operating Activities
to Non-GAAP Free Cash Flow
(in thousands)
			Three Months Ended								Six Months Ended
			(unaudited)								(unaudited)
			July 1, 2012				July 3, 2011				July 1, 2012				July 3, 2011
Net cash provided by (used in) operating activities, as reported			$	4,477			$	5,513			$	13,316			$	12,465
	Adjusted for:
		Cash paid related to Facilities Consolidation		963				-				963				-
		Additions of instruments, as reported		(3,849	)			(5,582	)			(7,771	)			(8,456	)
		Purchases of property, plant and equipment, as reported		(2,548	)			(762	)			(3,704	)			(1,476	)
		Purchases of property, plant and equipment related to Facilities Consolidation		292				-				292				-
Non-GAAP Adjusted free cash flow			$	(665	)		$	(831	)		$	3,096			$	2,533

Tornier
Doug Kohrs
President and Chief Executive Officer
952-426-7606
dkohrs@tornier.com

Source: Tornier

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