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Tornier Reports Second Quarter 2011 Financial Results

August 9, 2011

Extremity Product Sales Growth Reported at 19%, 14% Constant Currency;

Sales and Adjusted EBITDA Guidance Maintained for 2011 

AMSTERDAM--(BUSINESS WIRE)-- Tornier N.V. (NASDAQ: TRNX), a global medical device company focused on providing surgical solutions to orthopaedic extremity specialists, reported sales of $65.2 million for the second quarter of 2011 compared to sales of $54.6 million for the second quarter 2010, an increase of 19.4% as reported and 12.2% in constant currency. Year to date sales were reported at $134.6 million compared to sales of $116.4 million in the first half of 2010, an increase of 15.6% as reported and 12.1% in constant currency. Second quarter 2011 sales of Tornier's extremity product categories increased 19.3% as reported, 14.4% in constant currency over the prior year's second quarter, and represented 78% of reported global sales.

Douglas W. Kohrs, President and Chief Executive Officer of Tornier, commented, "We are pleased to report double digit constant currency growth in the second quarter despite a challenging health care utilization environment. Upper extremities lead our global growth as the new Aequalis™ Ascend™ shoulder arthroplasty system continues to exceed our expectations while our flagship Aequalis™ family of shoulder arthroplasty systems continues to grow. We also recognized double digit constant currency sales growth of our lower extremity and sports medicine/biologics product categories and we continue to expect these product lines to benefit in the second half from global expansion and several new product introductions."

The Company's second quarter 2011 adjusted EBITDA, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was $6.2 million or 9.6% of sales, compared to $6.0 million in the same quarter last year. For the first six months of 2011, adjusted EBITDA reached $15.4 million or 11.4% of sales, compared to $10.8 million or 9.2% of sales in the same period last year.

Mr. Kohrs continued, "Our second quarter operating results met our expectations and we remain on track to demonstrate continued improvement in adjusted EBITDA for the full year, while maintaining our commitment to innovation, evidence-based medicine, and clinical education."

Sales and Product Review
Tornier's second quarter 2011 constant currency sales growth of 12.2% continued to be led by its extremity product line categories which together posted constant currency growth of 14.4% over second quarter 2010. Within the extremity products group, second quarter constant currency growth of the upper extremity category was 15.1% led by the new Aequalis™ Ascend™ arthroplasty system. The recent international launch of the new Simpliciti™ stemless shoulder system is expected to contribute to upper extremity sales growth in the second half of 2011. Tornier's lower extremity and sports medicine and biologics product categories posted constant currency sales growth rates of 11.2% and 11.8%, respectively, in the second quarter over the same quarter last year. The lower extremity product category is beginning to benefit from the expanded instrument set availability for key new products such as the Stabilis™ ankle fusion system and the Wave® calcaneal fracture system. Tornier's sports medicine and biologics product category has seen the early benefit of the launch of the BioFiber® surgical mesh and expanded availability in our international markets. Tornier's large joint product category again posted above market constant currency growth in the second quarter at 4.5% over the same quarter last year, primarily as the result of favorable reception to the Company's total hip arthroplasty systems.

On a geographic basis as compared to second quarter 2010, Tornier's second quarter 2011 sales in the United States increased by 12.1% and represented 53% of global sales. International sales increased 28.7% in the quarter as reported and 12.3% in constant currency, representing 47% of global sales.

Outlook
The Company is confirming and narrowing its previous guidance and now projects 2011 sales in the range of $260 to $265 million, representing growth of 14% to 17% as reported, and 12% to 14% in constant currency over 2010 sales. The Company projects 2011 adjusted EBITDA, as described in the GAAP to non-GAAP reconciliation provided later in this release, of $29 to $32 million or 11% to 12% of total sales.

For the third quarter of 2011, the Company projects sales in the range of $57.0 to $59.0 million, representing growth of 15% to 19%, based on recent currency exchange rates, and 12% to 16% in constant currency over third quarter 2010. The Company projects adjusted EBITDA for the third quarter of 2011 of $4.5 to $5.5 million, representing 8% to 9% of sales.

Earnings Call Information
Tornier will host a conference call today at 5:30 p.m. eastern time to discuss its second quarter 2011 financial results. The conference call will be available to interested parties through a live audio webcast available through the Company's website at www.tornier.com where it will be available for replay beginning two hours after completion of the call and archived and accessible for approximately 12 months. Those without internet access may join the call from within the U.S. by dialing 877-673-5355; outside the U.S., dial +1-760-666-3805.

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," other words of similar meaning or the use of future dates. 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 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 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 80 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 3, 2011     July 4, 2010     July 3, 2011     July 4, 2010
Revenue     $ 65,158       $ 54,563       $ 134,593       $ 116,406  
Cost of goods sold       18,017         14,725         38,058         32,001  
Gross profit       47,141         39,838         96,535         84,405  
                         
Operating expenses                        
Sales and marketing       34,872         29,721         69,571         64,191  
General and administrative       6,362         4,668         12,387         11,194  
Research and development       5,189         4,003         10,299         8,816  
Amortization of intangible assets       2,897         2,881         5,707         5,878  
Special charges       132         28         132         252  
Total operating expenses       49,452         41,301         98,096         90,331  
                         
Operating (loss)       (2,311 )       (1,463 )       (1,561 )       (5,926 )
                         
Other income (expense)                        
Interest expense       (489 )       (4,935 )       (2,967 )       (10,765 )
Foreign currency transaction gain (loss)       226         (3,445 )       147         (5,739 )
Loss on extinguishment of debt       -         -         (29,475 )       -  
Other non-operating income (expense)       35         (153 )       16         61  
                         
Loss before income taxes       (2,539 )       (9,996 )       (33,840 )       (22,369 )
Income tax (expense) benefit       (330 )       1,393         7,002         3,715  
                         
Consolidated net loss       (2,869 )       (8,603 )       (26,838 )       (18,654 )
Net loss attributable to non-controlling interest       -         -         -         (695 )
                         
Net loss attributable to Tornier N.V.       (2,869 )       (8,603 )       (26,838 )       (17,959 )
Accretion of non-controlling interest       -         -         -         (679 )
                         
Net loss attributable to ordinary shareholders     $ (2,869 )     $ (8,603 )     $ (26,838 )     $ (18,638 )
                         
Net loss per share                        
Basic and diluted     $ (0.07 )     $ (0.31 )     $ (0.72 )     $ (0.72 )
                         
Weighted average ordinary shares outstanding                        
Basic and diluted       39,040         27,411         37,248         26,039  
                                         
 
Tornier N.V.
Condensed Consolidated Balance Sheets
(in thousands)
             
      July 3, 2011     January 2, 2011
      (unaudited)      
Assets            
Current assets            
Cash and cash equivalents     $ 59,733     $ 24,838
Accounts receivable, net       47,666       42,758
Inventories       86,191       77,525
Deferred income taxes and other current assets       19,870       28,093
Total current assets       213,460       173,214
             
Instruments, net       47,480       42,378
Property, plant and equipment, net       34,825       33,680
Goodwill and intangibles, net       248,456       240,854
Deferred income taxes and other assets       1,144       1,052
Total assets     $ 545,365     $ 491,178
             
Liabilities and shareholders' equity            
Current liabilities            
Short-term borrowing and current portion of long-term debt     $ 13,572     $ 28,392
Accounts payable       16,765       12,890
Accrued liabilities and deferred income taxes       34,641       34,967
Total current liabilities       64,978       76,249
             
Notes payable       -       84,261
Other long-term debt       27,272       25,467
Deferred income taxes and other long-term liabilities       28,280       34,962
Total liabilities       120,530       220,939
             
Shareholders' equity       424,835       270,239
             
Total liabilities and shareholders' equity     $ 545,365     $ 491,178
                 
   
Tornier N.V.
Consolidated Statements of Cash Flow
(in thousands)
                         
      Three Months Ended     Six Months Ended
      (unaudited)     (unaudited)
                         
      July 3, 2011     July 4, 2010     July 3, 2011     July 4, 2010

Cash flows from operating activities

                       
Consolidated net loss     $ (2,869 )     $ (8,603 )     $ (26,838 )     $ (18,654 )
                         
Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities  
Depreciation and amortization       6,798         6,202         13,891         13,011  
Non-cash foreign currency (gain) loss       (30 )       2,429         603         4,106  
Deferred and prepaid income taxes       1,904         (1,579 )       (6,165 )       (3,722 )
Share-based compensation       1,615         1,276         2,910         2,835  
Non-cash interest expense and discount amortization       -         4,622         2,040         9,819  
Inventory obsolescence       870         1,256         2,466         2,738  
Change in fair value of warrant liability       -         (271 )       -         (418 )
Loss on extinguishment of debt       -         -         29,475         -  
Other non-cash items affecting earnings       231         960         336         1,245  
                         
Changes in operating assets and liabilities                        
Accounts receivable       2,235         60         (3,657 )       (1,378 )
Inventories       (4,645 )       (5,711 )       (6,680 )       (10,443 )
Accounts payable and accruals       337         (474 )       2,011         5,186  
Other current assets and liabilities       (199 )       (698 )       3,295         (1,894 )
Other non-current assets and liabilities       (734 )       (716 )       (1,222 )       78  
Net cash provided by (used in) operating activities       5,513         (1,247 )       12,465         2,509  
                         
Cash flows from investing activities                        
Acquisition-related cash payments       (1,154 )       (591 )       (1,635 )       (1,652 )
Additions of instruments       (5,582 )       (4,685 )       (8,456 )       (7,854 )
Purchases of property, plant and equipment       (762 )       (1,072 )       (1,476 )       (5,651 )
Net cash provided by (used in) investing activities       (7,498 )       (6,348 )       (11,567 )       (15,157 )
                         
Cash flows from financing activities                        
Change in short-term debt       (3,832 )       10,265         (16,764 )       13,801  
Repayments of long-term debt       (1,945 )       (4,688 )       (4,015 )       (7,297 )
Proceeds from issuance of long-term debt       3,509         (1,199 )       3,509         2,165  
Deferred financing costs       (215 )       (525 )       (2,629 )       (525 )
Repayment of notes payable       -         -         (116,108 )       -  
Issuance of ordinary shares       51         397         168,308         938  
Net cash provided by (used in) financing activities       (2,432 )       4,250         32,301         9,082  
                         
Effect of currency exchange rates on cash and cash equivalents       36         (1,757 )       1,696         (1,194 )
                         
Increase (decrease) in cash and cash equivalents       (4,381 )       (5,102 )       34,895         (4,760 )
                         
Cash and cash equivalents at beginning of period       64,114         38,311         24,838         37,969  
                         
Cash and cash equivalents at end of period     $ 59,733       $ 33,209       $ 59,733       $ 33,209  
                                         
 
Tornier N.V.
Selected Revenue Information
(in thousands)
                                     
      Three Months Ended     Six Months Ended
      (unaudited)           (unaudited)      
                  Percent                 Percent
      July 3, 2011     July 4, 2010     change     July 3, 2011     July 4, 2010     change
Revenue by product category                                    
Upper extremity joints and trauma     $ 40,795     $ 33,940     20.2 %     $ 82,950     $ 70,587     17.5 %
Lower extremity joints and trauma       6,447       5,592     15.3 %       13,079       11,848     10.4 %
Sports medicine and biologics       3,583       3,076     16.5 %       7,440       6,517     14.2 %
Total extremities       50,825       42,608     19.3 %       103,469       88,952     16.3 %
Large joints and other       14,333       11,955     19.9 %       31,124       27,454     13.4 %
Total     $ 65,158     $ 54,563     19.4 %     $ 134,593     $ 116,406     15.6 %
                                     
Revenue by geography                                    
United States     $ 34,395     $ 30,669     12.1 %     $ 71,416     $ 64,464     10.8 %
International       30,763       23,894     28.7 %       63,177       51,942     21.6 %
Total     $ 65,158     $ 54,563     19.4 %     $ 134,593     $ 116,406     15.6 %
                                                 
 
Tornier N.V.
Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis
(in thousands)
                                     
      Three Months Ended      
      (unaudited)      
      July 3, 2011     July 4, 2010      
            Foreign                 Percent
            exchange                 change on
            impact as     Revenue on a           a constant
      Revenue as     compared to     constant     Revenue as     currency
      reported     prior period     currency basis     reported     basis
Revenue by product category                                    
Upper extremity joints and trauma     $ 40,795       $ (1,715 )     $ 39,080       $ 33,940       15.1 %
Lower extremity joints and trauma       6,447         (231 )       6,216         5,592       11.2 %
Sports medicine and biologics       3,583         (145 )       3,438         3,076       11.8 %
Total extremities       50,825         (2,091 )       48,734         42,608       14.4 %
Large joints and other       14,333         (1,836 )       12,497         11,955       4.5 %
Total     $ 65,158       $ (3,927 )     $ 61,231       $ 54,563       12.2 %
                                     
Revenue by geography                                    
United States     $ 34,395       $ -       $ 34,395       $ 30,669       12.1 %
International       30,763         (3,927 )       26,836         23,894       12.3 %
Total     $ 65,158       $ (3,927 )     $ 61,231       $ 54,563       12.2 %
                                     
                                     
      Six Months Ended      
      (unaudited)      
      July 3, 2011     July 4, 2010      
            Foreign                 Percent
            exchange                 change on
            impact as     Revenue on a           a constant
      Revenue as     compared to     constant     Revenue as     currency
      reported     prior period     currency basis     reported     basis
Revenue by product category                                    
Upper extremity joints and trauma     $ 82,950       $ (1,890 )     $ 81,060       $ 70,587       14.8 %
Lower extremity joints and trauma       13,079         (264 )       12,815         11,848       8.2 %
Sports medicine and biologics       7,440         (159 )       7,281         6,517       11.7 %
Total extremities       103,469         (2,313 )       101,156         88,952       13.7 %
Large joints and other       31,124         (1,742 )       29,382         27,454       7.0 %
Total     $ 134,593       $ (4,055 )     $ 130,538       $ 116,406       12.1 %
                                     
Revenue by geography                                    
United States     $ 71,416       $ -       $ 71,416       $ 64,464       10.8 %
International       63,177         (4,055 )       59,122         51,942       13.8 %
Total     $ 134,593       $ (4,055 )     $ 130,538       $ 116,406       12.1 %
                                                 
 
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 3, 2011     July 4, 2010     July 3, 2011     July 4, 2010
Net loss, as reported     $ (2,869 )     $ (8,603 )     $ (26,838 )     $ (18,654 )
                         
Interest expense       489         4,935         2,967         10,765  
Income tax expense (benefit)       330         (1,393 )       (7,002 )       (3,715 )
Depreciation       3,901         3,321         8,184         7,133  
Amortization       2,897         2,881         5,707         5,878  
                         
Subtotal Non-GAAP EBITDA (Loss)       4,748         1,141         (16,982 )       1,407  
                         
Other non-operating (income) expense       (35 )       153         (16 )       (61 )
Foreign currency transaction (gain) loss       (226 )       3,445         (147 )       5,739  
Share-based compensation       1,615         1,276         2,910         2,835  
Loss on extinguishment of debt       -         -         29,475         -  
Special charges       132         28         132         252  
Operating expenses from consolidated VIE       -         -         -         594  
                         
Non-GAAP Adjusted EBITDA     $ 6,234       $ 6,043       $ 15,372       $ 10,766  
                                         

 

Tornier N.V.
Carmen Diersen
Chief Financial Officer
952-426-7646
cdiersen@tornier.com
or
Doug Kohrs
President and Chief Executive Officer
952-426-7606
dkohrs@tornier.com

Source: Tornier N.V.

 

 

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