August 7, 2012

Tornier Reports Second Quarter 2012 Financial Results

Shoulder Products Drive Extremities Constant Currency Growth of 8%

Adjusted EBITDA Margin Improves Year Over Year for 4th 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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