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Tornier Reports Third Quarter 2011 Financial Results

November 8, 2011

Extremity Product Sales Growth Reported at 15%, 12% Constant Currency

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 $57.6 million for the third quarter of 2011 compared to sales of $49.7 million for the third quarter of 2010, an increase of 16% as reported and 11% in constant currency. Year to date sales were reported at $192.1 million compared to sales of $166.1 million in the comparable nine month period of 2010, an increase of 16% as reported and 12% in constant currency. Third quarter 2011 sales of Tornier's extremity product categories increased 15% as reported and 12% in constant currency over the prior year's third quarter, and represented 82% of reported global sales.

Douglas W. Kohrs, President and Chief Executive Officer of Tornier, commented, "Led by upper extremity product lines, and despite economic and healthcare utilization headwinds, Tornier recorded another quarter of solid double digit sales growth both as reported and in constant currency. Growth in our international markets was particularly strong, while our US market performance was below our expectations in our lower extremity and sports medicine and biologics product lines. However, we remain confident that our ongoing instrument set investments and new product launches are positioning us for continued double digit extremities growth."

The Company's third quarter 2011 adjusted EBITDA, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was $4.9 million or 8.5% of sales, compared to $2.7 million or 5.4% of sales in the same quarter last year. For the first nine months of 2011, adjusted EBITDA reached $20.3 million or 10.5% of sales, compared to $13.4 million or 8.1% of sales in the same period last year, an increase of 51%.

Mr. Kohrs continued, "Although our adjusted EBITDA was affected by our geographic and product mix in the quarter, our tight control of operating expenses allowed us to deliver another quarter of significant expansion in our adjusted EBITDA margin. Our plans for product insourcing and other manufacturing efficiencies remain on track to support improving factory utilization and expanding margins."

Sales and Product Review

Tornier's third quarter 2011 constant currency sales growth of 11% continued to be led by its extremity product line categories which together posted constant currency growth of 12% over third quarter 2010. Within the extremity products group, third quarter constant currency growth of the upper extremity joints and trauma category was 14.2%, led by the new Aequalis™ Ascend™ shoulder arthroplasty system, the continued adoption of the Aequalis™ reverse shoulder arthroplasty system and the CortiLoc™ glenoid. Further positive contributions came from the Company's 2011 launch of the new Simpliciti™ stemless shoulder system in select European markets and the Latitude® total elbow prosthesis. Tornier's lower extremity joints and trauma and sports medicine and biologics product categories posted constant currency sales growth rates of 4.3% and 1.6%, respectively. At the end of the third quarter, Tornier initiated an expansion of instrument sets to support recently launched lower extremity products such as the Stabilis™ ankle fusion system. Also in the third quarter, Tornier initiated clinical use of several new sports medicine and biologics products including the Insite® FT PEEK anchors, its shoulder instability system and the Accel-PRP™ system. Tornier's large joints and other product category, which includes hips and knees sold in select international markets, continued its constant currency growth at above market rates in the third quarter at 6.7% over the same quarter last year.

On a geographic basis as compared to the third quarter of 2010, Tornier's international sales increased 26.6% as reported and 14.3% in constant currency, representing 43% of global sales. Sales in the United States increased by 8.8% and represented 57% of global sales.

Outlook

The Company is updating its previous guidance and now projects 2011 sales in the range of $257.5 to $260 million, representing global growth of 13% to 14% as reported, and 10% to 11% in constant currency over 2010 sales. Full year total extremities product sales are expected to grow 14% to 15% as reported or 12% to 13% in constant currency. The Company projects 2011 adjusted EBITDA, as described in the GAAP to non-GAAP reconciliation provided later in this release, of $26.8 to $27.8 million or 10% to 11% of total sales.

For the fourth quarter of 2011, the Company projects sales in the range of $65.5 to $68.0 million, representing growth of 7% to 11% based on recent currency exchange rates, and 6% to 10% in constant currency over the fourth quarter 2010. Fourth quarter extremities sales are expected to grow 9% to 13% both as reported and in constant currency. The Company projects adjusted EBITDA for the fourth quarter of 2011 of $6.5 to $7.5 million, representing 10% to 11% of total sales.

Earnings Call Information

Tornier will host a conference call today at 5:30 p.m. eastern time to discuss its third 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 for at least 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 and the European debt crisis, 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 approximately 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   Nine Months Ended
    (unaudited)   (unaudited)
    October 2, 2011   October 3, 2010   October 2, 2011   October 3, 2010
Revenue $ 57,556     $ 49,707     $ 192,149     $ 166,113  
Cost of goods sold   16,650       13,553       54,708       45,554  
Gross profit   40,906       36,154       137,441       120,559  
                 
Operating expenses              
  Sales and marketing   31,764       29,474       101,335       93,665  
  General and administrative   6,173       5,449       18,560       16,643  
  Research and development   4,309       3,898       14,608       12,714  
  Amortization of intangible assets   2,741       2,842       8,448       8,720  
  Special charges   56       54       188       306  
  Total operating expenses   45,043       41,717       143,139       132,048  
                 
Operating (loss)   (4,137 )     (5,563 )     (5,698 )     (11,489 )
                 
Other income (expense)              
  Interest expense   (379 )     (5,282 )     (3,346 )     (16,047 )
  Foreign currency transaction gain (loss)   (228 )     (3,728 )     (81 )     (9,467 )
  Loss on extinguishment of debt   -       -       (29,475 )     -  
  Other non-operating income (expense)   993       283       1,009       344  
                 
Loss before income taxes   (3,751 )     (14,290 )     (37,591 )     (36,659 )
Income tax (expense) benefit   2,114       1,531       9,116       5,246  
                 
Consolidated net loss   (1,637 )     (12,759 )     (28,475 )     (31,413 )
Net loss attributable to non-controlling interest   -       -       -       (695 )
                 
Net loss attributable to Tornier N.V.   (1,637 )     (12,759 )     (28,475 )     (30,718 )
Accretion of non-controlling interest   -       -       -       (679 )
                 
Net loss attributable to ordinary shareholders $ (1,637 )   $ (12,759 )   $ (28,475 )   $ (31,397 )
                 
Net loss per share              
  Basic and diluted $ (0.04 )   $ (0.43 )   $ (0.75 )   $ (1.15 )
                 
Weighted average ordinary shares outstanding              
  Basic and diluted   39,150       29,569       37,882       27,192  
Tornier N.V.
Condensed Consolidated Balance Sheets
(in thousands)
           
      October 2, 2011   January 2, 2011
      (unaudited)    
Assets        
  Current assets      
    Cash and cash equivalents $ 55,848   $ 24,838
    Accounts receivable, net   42,703     42,758
    Inventories   85,726     77,525
    Deferred income taxes and other current assets   19,783     28,093
    Total current assets   204,060     173,214
           
  Instruments, net   48,802     42,378
  Property, plant and equipment, net   33,454     33,680
  Goodwill and intangibles, net   235,748     240,854
  Deferred income taxes and other assets   1,755     1,052
  Total assets $ 523,819   $ 491,178
           
Liabilities and shareholders' equity      
  Current liabilities      
    Short-term borrowing and current portion of long-term debt $ 20,956   $ 28,392
    Accounts payable   12,010     12,890
    Accrued liabilities and deferred income taxes   31,407     34,967
    Total current liabilities   64,373     76,249
           
  Notes payable   -     84,261
  Other long-term debt   24,356     25,467
  Deferred income taxes and other long-term liabilities   23,918     34,962
  Total liabilities   112,647     220,939
           
  Shareholders' equity   411,172     270,239
           
  Total liabilities and shareholders' equity $ 523,819   $ 491,178
Tornier N.V.
Consolidated Statements of Cash Flow
(in thousands)
                   
      Three Months Ended   Nine Months Ended
      (unaudited)   (unaudited)
                   
      October 2, 2011   October 3, 2010   October 2, 2011   October 3, 2010
Cash flows from operating activities              
  Consolidated net loss $ (1,637 )   $ (12,759 )   $ (28,475 )   $ (31,413 )
                   
  Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities            
    Depreciation and amortization   7,147       6,831       21,038       19,842  
    Non-cash foreign currency (gain) loss   (216 )     4,681       387       8,787  
    Deferred income taxes   (2,828 )     (1,848 )     (8,993 )     (5,570 )
    Share-based compensation   1,831       1,352       4,741       4,187  
    Non-cash interest expense and discount amortization   -       4,780       2,040       14,599  
    Inventory obsolescence   1,348       1,293       3,814       4,031  
    Loss on extinguishment of debt   -       -       29,475       -  
    Other non-cash items affecting earnings   (683 )     (82 )     (347 )     745  
                   
  Changes in operating assets and liabilities              
    Accounts receivable   3,123       2,038       (534 )     660  
    Inventories   (4,335 )     (6,792 )     (11,015 )     (17,235 )
    Accounts payable and accruals   (5,460 )     (596 )     (3,449 )     4,590  
    Other current assets and liabilities   261       (1,961 )     3,556       (3,855 )
    Other non-current assets and liabilities   (55 )     49       (1,277 )     127  
  Net cash provided by (used in) operating activities   (1,504 )     (3,014 )     10,961       (505 )
                   
Cash flows from investing activities              
  Acquisition-related cash payments   (418 )     (340 )     (2,053 )     (1,992 )
  Additions of instruments   (6,586 )     (2,654 )     (15,042 )     (10,508 )
  Purchases of property, plant and equipment   (2,296 )     111       (3,772 )     (5,540 )
  Net cash provided by (used in) investing activities   (9,300 )     (2,883 )     (20,867 )     (18,040 )
                   
Cash flows from financing activities              
  Change in short-term debt   8,579       (6,672 )     (8,185 )     7,129  
  Repayments of long-term debt   (2,443 )     2,294       (6,458 )     (5,003 )
  Proceeds from issuance of long-term debt   1,242       3,186       4,751       5,351  
  Deferred financing costs   (102 )     (1,151 )     (2,731 )     (1,676 )
  Repayment of notes payable   -       -       (116,108 )     -  
  Issuance of ordinary shares   2,907       (132 )     171,215       806  
  Net cash provided by (used in) financing activities   10,183       (2,475 )     42,484       6,607  
                   
Effect of currency exchange rates on cash and cash equivalents   (3,264 )     665       (1,568 )     (529 )
                   
Increase (decrease) in cash and cash equivalents   (3,885 )     (7,707 )     31,010       (12,467 )
                   
Cash and cash equivalents at beginning of period   59,733       33,209       24,838       37,969  
                   
Cash and cash equivalents at end of period $ 55,848     $ 25,502     $ 55,848     $ 25,502  
Tornier N.V.
Selected Revenue Information
(in thousands)
                           
      Three Months Ended   Nine Months Ended
      (unaudited)       (unaudited)    
      October 2, 2011   October 3, 2010   Percent change   October 2, 2011   October 3, 2010   Percent change
Revenue by product category                      
  Upper extremity joints and trauma $ 37,690   $ 31,990   17.8 %   $ 120,640   $ 102,577   17.6 %
  Lower extremity joints and trauma   5,943     5,558   6.9 %     19,023     17,406   9.3 %
  Sports medicine and biologics   3,329     3,170   5.0 %     10,769     9,687   11.2 %
    Total extremities   46,962     40,718   15.3 %     150,432     129,670   16.0 %
  Large joints and other   10,594     8,989   17.9 %     41,717     36,443   14.5 %
  Total $ 57,556   $ 49,707   15.8 %   $ 192,149   $ 166,113   15.7 %
                           
Revenue by geography                      
  United States $ 32,781   $ 30,132   8.8 %   $ 104,197   $ 94,597   10.1 %
  International   24,775     19,575   26.6 %     87,952     71,516   23.0 %
  Total $ 57,556   $ 49,707   15.8 %   $ 192,149   $ 166,113   15.7 %
Tornier N.V.
Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis
(in thousands)
                       
      Three Months Ended    
      (unaudited)    
      October 2, 2011   October 3, 2010    
      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 $ 37,690   $ (1,153 )   $ 36,537   $ 31,990   14.2 %
  Lower extremity joints and trauma   5,943     (148 )     5,795     5,558   4.3 %
  Sports medicine and biologics   3,329     (108 )     3,221     3,170   1.6 %
    Total extremities   46,962     (1,409 )     45,553     40,718   11.9 %
  Large joints and other   10,594     (1,001 )     9,593     8,989   6.7 %
  Total $ 57,556   $ (2,410 )   $ 55,146   $ 49,707   10.9 %
                       
Revenue by geography                  
  United States $ 32,781   $ -     $ 32,781   $ 30,132   8.8 %
  International   24,775     (2,410 )     22,365     19,575   14.3 %
  Total $ 57,556   $ (2,410 )   $ 55,146   $ 49,707   10.9 %
                       
                       
      Nine Months Ended    
      (unaudited)    
      October 2, 2011   October 3, 2010    
      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 $ 120,640   $ (3,027 )   $ 117,613   $ 102,577   14.7 %
  Lower extremity joints and trauma   19,023     (412 )     18,611     17,406   6.9 %
  Sports medicine and biologics   10,769     (267 )     10,502     9,687   8.4 %
    Total extremities   150,432     (3,706 )     146,726     129,670   13.2 %
  Large joints and other   41,717     (2,749 )     38,968     36,443   6.9 %
  Total $ 192,149   $ (6,455 )   $ 185,694   $ 166,113   11.8 %
                       
Revenue by geography                  
  United States $ 104,197   $ -     $ 104,197   $ 94,597   10.1 %
  International   87,952     (6,455 )     81,497     71,516   14.0 %
  Total $ 192,149   $ (6,455 )   $ 185,694   $ 166,113   11.8 %
Tornier N.V.
Reconciliation of Net Loss to
Non-GAAP Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
(in thousands)
                 
    Three Months Ended   Nine Months Ended
    (unaudited)   (unaudited)
    October 2, 2011   October 3, 2010   October 2, 2011   October 3, 2010
Net loss, as reported $ (1,637 )   $ (12,759 )   $ (28,475 )   $ (31,413 )
                 
  Interest expense   379       5,282       3,346       16,047  
  Income tax expense (benefit)   (2,114 )     (1,531 )     (9,116 )     (5,246 )
  Depreciation   4,406       3,989       12,590       11,122  
  Amortization   2,741       2,842       8,448       8,720  
                 
  Subtotal Non-GAAP EBITDA (Loss)   3,775       (2,177 )     (13,207 )     (770 )
                 
  Other non-operating (income) expense   (993 )     (283 )     (1,009 )     (344 )
  Foreign currency transaction (gain) loss   228       3,728       81       9,467  
  Share-based compensation   1,831       1,352       4,741       4,187  
  Loss on extinguishment of debt   -       -       29,475       -  
  Special charges   56       54       188       306  
  Operating expenses from consolidated VIE   -       -       -       594  
                 
Non-GAAP Adjusted EBITDA $ 4,897     $ 2,674     $ 20,269     $ 13,440  

 

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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