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Tornier Reports Second Quarter 2012 Financial Results

August 7, 2012

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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