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Tornier Reports Third Quarter 2013 Results
  • U.S. distribution channel transition accelerates with agreements covering 61% of U.S. revenue
  • Non-GAAP gross margin improved to 74.2%
  • Aequalis Ascend Flex launch tracking to plan; over 120 trained surgeon users

AMSTERDAM, The Netherlands, Nov. 5, 2013 (GLOBE NEWSWIRE) -- Tornier N.V. (Nasdaq:TRNX), a global medical device company focused on providing surgical solutions to orthopaedic extremity specialists, reported today its financial results for the third quarter ended September 29, 2013.

Revenue for the third quarter of 2013 was $66.7 million compared to third quarter 2012 revenue of $58.0 million, an increase of 15.1% as reported and 13.4% in constant currency. Revenue for the nine months ended September 29, 2013 totaled $227.6 million, compared to revenue of $198.5 million for the same period of 2012, an increase of 14.7% as reported and 14.0% in constant currency.

Third quarter 2013 revenue of Tornier's extremities product categories totaled $56.9 million compared to $48.7 million for the prior year period, an increase of 16.8% as reported and 16.2% in constant currency. For the nine months ended September 29, 2013, revenue of Tornier's extremities product categories was $189.8 million compared to $160.1 million for the prior year period, an increase of 18.5% as reported and 18.3% in constant currency.

Giving pro forma effect to Tornier's fourth quarter 2012 acquisition of OrthoHelix Surgical Designs, Inc. to include OrthoHelix revenue in the prior year period, Tornier's 2013 third quarter constant currency revenue growth was 1.1%, and extremities product constant currency revenue increased 1.5%. Pro forma constant currency revenue growth for the nine months ended September 29, 2013 was 3.3%, and pro forma extremities product constant currency revenue increased 4.9%.

Dave Mowry, President and Chief Executive Officer of Tornier, commented, "We believe the U.S. sales force transition is integral to positioning Tornier for achieving consistent above market revenue growth and margin expansion. During the third quarter, we made the strategic decision to accelerate this process of moving to a distribution channel with both upper and lower extremities focused sales representatives. At the end of the third quarter, agreements associated with this transition process represented approximately 61% of our U.S. revenue compared to 40% at the end of the second quarter. We expect to complete the transition agreement negotiation process by year end.  While we believe the acceleration is in the best interest of the company, it has led to disruption in our current U.S. sales performance.

The transition also resulted in the expansion of our direct sales representation, which accounted for approximately one-third of our U.S. revenue at the end of the third quarter and is expected to increase to nearly 50% of U.S. revenue by year end. Our confidence in our U.S. sales channel strategy is underscored by the double-digit revenue growth during the quarter achieved by the more mature territories where transition agreements were completed early in this process." 

The Company's third quarter 2013 adjusted EBITDA, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was $4.8 million, or 7.2% of reported revenue, compared to $4.8 million, or 8.3% of revenue, in the same quarter of the prior year. For the nine months ended September 29, 2013, adjusted EBITDA decreased 3.1% to $21.3 million, or 9.3% of reported revenue, compared to $22.0 million, or 11.1% of revenue for the prior year period.

Mr. Mowry added, "We delivered adjusted EBITDA within our guidance range despite the lower than expected revenue. This was driven by an improvement in non-GAAP gross margin and prudent management of operating expenses. We believe we have the infrastructure in place to support our double-digit constant currency revenue growth and enhanced operating leverage expectations."

Third Quarter 2013 Revenue Highlights

Extremities

  • Revenue from the upper extremities joints and trauma category was $40.3 million, an increase of 1.5% in constant currency over the same quarter in 2012. This growth was primarily led by the Company's shoulder arthroplasty portfolio, including the Aequalis™ Reversed Shoulder and Aequalis™ Ascend™, which includes contribution from the third quarter 2013 launch of the Aequalis Ascend Flex.
  • Revenue from Tornier's lower extremities joints and trauma category in the third quarter of 2013 reached $13.5 million, an increase of 132.5% in constant currency. Giving pro forma effect to the OrthoHelix acquisition to include OrthoHelix revenue in the third quarter of 2012, third quarter 2013 lower extremities revenue recorded constant currency growth of 7.7%. The Company's international roll-out of the OrthoHelix product line started with its first sale in the second quarter and first clinical case in the third quarter 2013.
  • Revenue from the sports medicine and biologics product category was $3.1 million in the third quarter of 2013, a decrease of 11.6% in constant currency over the same quarter in 2012 driven by a decline in the Company's anchor products, partially offset by growth in the Company's suture and BioFiber® products. The Company is in the early launch stage of its Insite™ bio anchor and unique Phantom™ high strength resorbable suture.

Large Joints

Revenue of the Company's large joints and other product lines was $9.8 million, a decrease of 0.9% over the same quarter in 2012 on a constant currency basis. In the third quarter of 2013, this product category decreased to 14.7% of the Company's reported global revenue, compared to 16.0% during the prior year period.

Geographic Revenue

On a geographic basis as compared to the third quarter of 2012, Tornier's international revenue increased 10.3% as reported and 6.3% in constant currency, representing 39% of reported global revenue.  Revenue in the United States increased by 18.3% and represented 61% of reported global revenue. Giving pro forma effect to the OrthoHelix acquisition to include OrthoHelix revenue in the third quarter of 2012, revenue in the United States decreased by 1.8% during the third quarter of 2013 compared to the prior year quarter.  

Fourth Quarter 2013 Outlook

  • For the fourth quarter of 2013, the Company projects constant currency revenue to be in the range of $73 to $77 million, representing constant currency growth of negative 7.6% to negative 2.6% over fourth quarter 2012 revenue.  
  • Based on recent currency exchange rates, fourth quarter 2013 reported revenue is projected to be in the range of $74.4 to $78.3 million, representing reported growth of negative 5.9% to negative 0.9% over fourth quarter 2012 revenue.
  • Fourth quarter 2013 extremities product categories revenue is expected to grow negative 7.9% to negative 2.6% in constant currency. The Company projects adjusted EBITDA, as described in the GAAP to non-GAAP reconciliation provided later in this release, for the fourth quarter of 2013 to be in the range of $4.0 to $6.0 million, or 5.4% to 7.7% of reported revenue.  

Fiscal Year 2013 Outlook

  • Based on the year-to-date performance and current business trends, the Company is updating its previous revenue guidance. Fiscal year 2013 constant currency revenue is now expected to be in the range of $299.2 to $303.2 million, representing constant currency growth of 7.8% to 9.3%. 
  • Based on recent currency exchange rates, 2013 reported revenue is projected to be in the range of $301.9 to $305.9 million, representing reported growth of 8.8% to 10.2% over 2012 revenue. 
  • Revenue of the Tornier extremities product categories in 2013 is expected to grow 10.7% to 12.3% in constant currency. Giving pro forma effect to the OrthoHelix acquisition to include OrthoHelix revenue in the full year 2012, extremities product categories revenue is expected to grow 1.4% to 2.7% in constant currency.
  • The Company projects 2013 adjusted EBITDA in the range of $25.3 to $27.3 million, or 8.4% to 8.9% of reported revenue.  

Conference Call

Tornier will host a conference call today at 4:30 p.m. eastern time to discuss its third quarter 2013 financial results and its outlook for the fourth quarter and full year of 2013. 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 (877) 673-5355; outside the U.S., dial (760) 666-3805.

A telephone replay will be available for ten days following the call by dialing (855) 859-2056 for domestic participants and (404) 537-3406 for international participants. When prompted, please enter the replay pin number 75043752. 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," "can," "may," "believe," "could," "should," "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 fourth quarter and full year 2013, Tornier's financial goal to achieve above market revenue growth and margin expansion and return to double-digit constant currency revenue growth; Tornier's strategy to separate its U.S. sales channel to focus on either upper or lower extremities products, transitions in Tornier's U.S. sales channel to do so, and the scope, timing and impact on revenues of such transitions; Tornier's expectations that direct sales representatives will account for 50% of U.S. revenue by the end of 2013, Tornier's infrastructure and its ability to support business growth and operating leverage and the launch and market acceptance of the Aequalis Ascend Flex .  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; changes in Tornier's arrangements with its distributors and independent sales agencies, including the alignment for either dedicated upper or lower extremities sales representatives, and transition to direct selling models in certain geographies and territories; risks associated with Tornier's acquisition of OrthoHelix and subsequent integration activities; fluctuations in foreign currency exchange rates; the effect of global economic conditions; the European sovereign debt crisis and austerity measures; risks associated with Tornier's 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, product recalls; competitor activities; Tornier's leverage and access to credit under its credit agreement; 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 100 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)
 September 29, 2013September 30, 2012September 29, 2013September 30, 2012
Revenue  $ 66,747  $ 58,015  $ 227,567  $ 198,487
Cost of goods sold  17,204  15,420  59,461  54,529
Cost of goods sold - acquisition related  1,768  310  5,444  415
Gross profit  47,775  42,285  162,662  143,543
  71.6% 72.9% 71.5% 72.3%
Operating expenses        
Selling, general and administrative  46,797  38,524  150,400  124,157
Research and development  4,665  5,260  16,390  16,329
Amortization of intangible assets  3,976  2,730  11,597  8,013
Special charges  (3,918)  6,503  1,009  9,413
Total operating expenses  51,520  53,017  179,396  157,912
         
Operating (loss) income  (3,745)  (10,732)  (16,734)  (14,369)
         
Other income (expense)        
Interest income  85  70  181  304
Interest expense  (1,499)  (481)  (5,754)  (1,430)
Foreign currency transaction (loss) gain  (285)  (326)  (1,071)  (195)
Loss on extinguishment of debt  --   --   (1,127)  -- 
Other non-operating income  95  56  183  54
         
(Loss) income before income taxes  (5,349)  (11,413)  (24,322)  (15,636)
Income tax expense  (943)  (268)  (1,405)  (1,305)
         
Consolidated net loss  $ (6,292)  $ (11,681)  $ (25,727)  $ (16,941)
         
Net loss per share        
Basic and diluted  $ (0.13)  $ (0.29)  $ (0.57)  $ (0.43)
         
Weighted average ordinary shares outstanding        
Basic and diluted  48,068  39,708  44,942  39,537
 
 
Tornier N.V.
Condensed Consolidated Balance Sheets
(in thousands)
     
 September 29, 2013December 30, 2012
  (unaudited)  
Assets    
Current assets    
Cash and cash equivalents  $ 62,552  $ 31,108
Accounts receivable, net  48,633  54,192
Inventories  84,584  86,697
Deferred income taxes and other current assets  24,456  25,321
Total current assets  220,225  197,318
     
Instruments, net  58,657  51,394
Property, plant and equipment, net  41,797  37,151
Goodwill and intangibles, net  367,405  366,398
Deferred income taxes and other assets  2,647  1,966
Total assets  $ 690,731  $ 654,227
     
Liabilities and shareholders' equity    
Current liabilities    
Short-term borrowing and current portion of long-term debt  $ 1,229  $ 4,595
Accounts payable  13,862  11,526
Accrued liabilities, deferred income taxes and other current liabilities  54,896  44,505
Total current liabilities  69,987  60,626
     
Other long-term debt  66,070  115,457
Deferred income taxes and other long-term liabilities  31,337  42,065
Total liabilities  167,394  218,148
     
Shareholders' equity  523,337  436,079
     
Total liabilities and shareholders' equity  $ 690,731  $ 654,227
 
 
Tornier N.V.
Consolidated Statements of Cash Flow
(in thousands)
         
  Three months ended Nine months ended
  (unaudited) (unaudited)
         
 September 29, 2013September 30, 2012September 29, 2013September 30, 2012
Cash flows from operating activities        
Consolidated net loss  $ (6,292)  $ (11,681)  $ (25,727)  $ (16,941)
         
Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities    
Depreciation and amortization  9,022  7,051  26,803  21,398
Impairment of fixed assets  --   79  --   1,028
Lease termination costs  --   731  --   731
Non-cash foreign currency (gain) loss  293  (594)  1,079  (217)
Deferred income taxes  141  305  1,929  (147)
Share-based compensation  1,684  1,712  4,753  5,108
Non-cash interest expense and discount amortization  190  --   756  -- 
Inventory obsolescence  2,203  857  6,382  2,913
Loss on extinguishment of debt  --   --   1,127  -- 
Gain from reversal of contingent consideration liability  (4,947)  --   (4,947)  -- 
Inventory step up from acquisition  1,768  --   5,444  -- 
Other non-cash items affecting earnings  (687)  893  619  2,144
          
Changes in operating assets and liabilities         
Accounts receivable  4,055  4,817  5,400  4,533
Inventories  (3,782)  (1,598)  (5,842)  (3,474)
Accounts payable and accruals  (5,235)  (3,847)  311  (3,429)
Other current assets and liabilities  4,464  (142)  2,403  (1,317)
Other non-current assets and liabilities  (2,297)  (763)  (2,169)  (1,194)
Net cash provided by (used in) operating activities  580  (2,180)  18,321  11,136
         
Cash flows from investing activities        
Acquisition-related cash payments  (1,635)  433  (7,758)  (3,656)
Additions of instruments  (4,115)  (1,474)  (16,565)  (9,245)
Purchases of property, plant and equipment  (2,740)  (4,182)  (7,518)  (7,886)
Net cash (used in) investing activities  (8,490)  (5,223)  (31,841)  (20,787)
         
Cash flows from financing activities        
Change in short-term debt  --   6,298  (1,000)  9,350
Repayments of long-term debt  (359)  (4,282)  (53,688)  (8,233)
Proceeds from issuance of long-term debt  --   136  --   5,172
Deferred financing costs  (58)  --   (111)  -- 
Issuance of ordinary shares  10,597  937  98,853  7,108
Net cash provided by financing activities  10,180  3,089  44,054  13,397
         
Effect of currency exchange rates on cash and cash equivalents  1,567  1,389  910  47
         
Increase in cash and cash equivalents  3,837  (2,925)  31,444  3,793
         
Cash and cash equivalents at beginning of period  58,715  61,424  31,108  54,706
         
Cash and cash equivalents at end of period  $ 62,552  $ 58,499  $ 62,552  $ 58,499
 
 
Tornier N.V.
Selected Revenue Information
(in thousands)
             
  Three months ended Nine months ended
  (unaudited)   (unaudited)  
 September 29,
2013
September 30,
2012
Percent
change
September 29,
2013
September 30,
2012
Percent
change
Revenue by product category            
Upper extremity joints and trauma  $ 40,293  $ 39,429 2.2%  $ 136,258  $ 129,434 5.3%
Lower extremity joints and trauma  13,530  5,815 132.7%  42,514  19,333 119.9%
Sports medicine and biologics  3,117  3,487 -10.6%  11,051  11,363 -2.7%
Total extremities  56,940  48,731 16.8%  189,823  160,130 18.5%
Large joints and other  9,807  9,284 5.6%  37,744  38,357 -1.6%
Total  $ 66,747  $ 58,015 15.1%  $ 227,567  $ 198,487 14.7%
             
Revenue by geography            
United States  $ 40,678  $ 34,377 18.3%  $ 134,244  $ 110,647 21.3%
International  26,069  23,638 10.3%  93,323  87,840 6.2%
Total  $ 66,747  $ 58,015 15.1%  $ 227,567  $ 198,487 14.7%
 
 
Tornier N.V.
Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis
(in thousands)
           
  Three months ended  
  (unaudited)  
 September 29,
2013
September 30,
2012
 
 

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  $ 40,293  $ (287)  $ 40,006  $ 39,429 1.5%
Lower extremity joints and trauma  13,530  (10)  13,520  5,815 132.5%
Sports medicine and biologics  3,117  (36)  3,081  3,487 -11.6%
Total extremities  56,940  (333)  56,607  48,731 16.2%
Large joints and other  9,807  (607)  9,200  9,284 -0.9%
Total  $ 66,747  $ (940)  $ 65,807  $ 58,015 13.4%
           
Revenue by geography          
United States  $ 40,678  $ --   $ 40,678  $ 34,377 18.3%
International  26,069  (940)  25,129  23,638 6.3%
Total  $ 66,747  $ (940)  $ 65,807  $ 58,015 13.4%
           
           
  Nine months ended  
  (unaudited)  
 September 29,
2013
September 30,
2012
 
 

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  $ 136,258  $ (290)  $ 135,968  $ 129,434 5.0%
Lower extremity joints and trauma  42,514  (18)  42,496  19,333 119.8%
Sports medicine and biologics  11,051  (39)  11,012  11,363 -3.1%
Total extremities  189,823  (347)  189,476  160,130 18.3%
Large joints and other  37,744  (894)  36,850  38,357 -3.9%
Total  $ 227,567  $ (1,241)  $ 226,326  $ 198,487 14.0%
           
Revenue by geography          
United States  $ 134,244  $ --   $ 134,244  $ 110,647 21.3%
International  93,323  (1,241)  92,082  87,840 4.8%
Total  $ 227,567  $ (1,241)  $ 226,326  $ 198,487 14.0%
 
 
Tornier N.V.
Reconciliation of Revenue to Non-GAAP Pro Forma Revenue
(in thousands)
                   
  Three months ended
  (unaudited)
 September 29, 2013September 30, 2012  
 

Revenue
as reported
Foreign exchange
impact as
compared
to prior period

Revenue
on a constant
currency basis

* Proforma
adjustment for
acquisitions

Proforma Revenue
on a constant
currency basis


Revenue
as reported

* Proforma
adjustment for
acquisitions

Proforma Revenue
on a constant
currency basis

Percent change
on a constant currency basis
Revenue by product category                  
Upper extremity joints and trauma  $ 40,293  $ (287)  $ 40,006  $ --   $ 40,006  $ 39,429  $ 304  $ 39,733 0.7%
Lower extremity joints and trauma  13,530  (10)  13,520  --   13,520  5,815  6,742  12,557 7.7%
Sports medicine and biologics  3,117  (36)  3,081  --   3,081  3,487  --   3,487 -11.6%
Total extremities  56,940  (333)  56,607  --   56,607  48,731  7,046  55,777 1.5%
Large joints and other  9,807  (607)  9,200  --   9,200  9,284  --   9,284 -0.9%
Total  $ 66,747  $ (940)  $ 65,807  $ --   $ 65,807  $ 58,015  $ 7,046  $ 65,061 1.1%
                   
Revenue by geography                  
United States  $ 40,678  $ --   $ 40,678  $ --   $ 40,678  $ 34,377  $ 7,046  $ 41,423 -1.8%
International  26,069  (940)  25,129  --   25,129  23,638  --   23,638 6.3%
Total  $ 66,747  $ (940)  $ 65,807  $ --   $ 65,807  $ 58,015  $ 7,046  $ 65,061 1.1%
                   
                   
  Nine months ended
  (unaudited)
 September 29, 2013September 30, 2012  
 

Revenue
as reported
Foreign exchange
impact as
compared
to prior period

Revenue
on a constant
currency basis

* Proforma
adjustment for
acquisitions

Proforma Revenue
on a constant currency basis


Revenue
as reported

* Proforma
adjustment for
acquisitions

Proforma Revenue
on a constant currency basis

Percent change
on a constant
currency basis
Revenue by product category                  
Upper extremity joints and trauma  $ 136,258  $ (290)  $ 135,968  $ --   $ 135,968  $ 129,434  $ 795  $ 130,229 4.4%
Lower extremity joints and trauma  42,514  (18)  42,496  --   42,496  19,333  19,735  39,068 8.8%
Sports medicine and biologics  11,051  (39)  11,012  --   11,012  11,363  --   11,363 -3.1%
Total extremities  189,823  (347)  189,476  --   189,476  160,130  20,530  180,660 4.9%
Large joints and other  37,744  (894)  36,850  --   36,850  38,357  --   38,357 -3.9%
Total  $ 227,567  $ (1,241)  $ 226,326  $ --   $ 226,326  $ 198,487  $ 20,530  $ 219,017 3.3%
                   
Revenue by geography                  
United States  $ 134,244  $ --   $ 134,244  $ --   $ 134,244  $ 110,647  $ 20,530  $ 131,177 2.3%
International  93,323  (1,241)  92,082  --   92,082  87,840  --   87,840 4.8%
Total  $ 227,567  $ (1,241)  $ 226,326  $ --   $ 226,326  $ 198,487  $ 20,530  $ 219,017 3.3%
                   
Notes:                  
 * -- Represents Pro forma Revenue adjustment for OrthoHelix acquisition related to the respective period.
 
 
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)
 September 29,
2013
September 30,
2012
September 29,
2013
September 30,
2012
Revenue, as reported  $ 66,747  $ 58,015  $ 227,567  $ 198,487
         
Net loss, as reported  $ (6,292)  $ (11,681)  $ (25,727)  $ (16,941)
         
Interest income  (85)  (70)  (181)  (304)
Interest expense  1,499  481  5,754  1,430
Income tax expense (benefit)  943  268  1,405  1,305
Depreciation   5,046  4,321  15,206  13,385
Amortization  3,976  2,730  11,597  8,013
         
Subtotal Non-GAAP EBITDA   5,087  (3,951)  8,054  6,888
         
Other non-operating (income) expense  (95)  (56)  (183)  (54)
Foreign currency transaction loss (gain)  285  326  1,071  195
Loss on extinguishment of debt  --   --   1,127  -- 
Share-based compensation  1,684  1,712  4,753  5,108
Inventory step-up from acquisition  1,768  310  5,444  415
Special Charges:        
Acquisition, integration and distribution transition costs  1,029  1,722  4,742  1,790
Facilities consolidation initiative  --   2,786  --   5,254
Reversal of OrthoHelix contingent consideration liability  (4,947)    (4,947)  
Italy bad debt expense  --   1,995  --   1,995
Legal settlements  --   --   1,214  -- 
Management Exit Costs  --   --   --   374
         
Non-GAAP adjusted EBITDA  $ 4,811  $ 4,844  $ 21,275  $ 21,965
         
Non-GAAP adjusted EBITDA margin  7.2% 8.3% 9.3% 11.1%
 
 
Tornier N.V.
Reconciliation of Net Loss and Net Loss per Share
to Non-GAAP Adjusted Net Loss and Non-GAAP Adjusted Net Loss per Share
(in thousands)
         
  Three months ended Nine months ended
  (unaudited) (unaudited)
 September 29,
2013
September 30,
2012
September 29,
2013
September 30,
2012
Net loss, as reported  $ (6,292)  $ (11,681)  $ (25,727)  $ (16,941)
         
Inventory step-up from acquisition, net of tax  1,518  250  5,171  335
Reversal of valuation allowance from acquisition  --   --   (540)  -- 
Loss on extinguishment of debt  --   --   1,127  -- 
Special charges, net of tax:        
Acquisition, integration and distribution transition costs  978  1,722  4,685  1,790
Facilities consolidation initiative  --   2,727  --   4,978
Reversal of OrthoHelix contingent consideration liability  (4,947)  --   (4,947)  -- 
Italy bad debt expense  --   1,995  --   1,995
Legal settlements  --   --   1,214  -- 
Management Exit Costs  --   --   --   374
         
Non-GAAP adjusted net loss  (8,743)  (4,987)  (19,017)  (7,469)
         
Net loss per share, as reported        
Basic and diluted  $ (0.13)  $ (0.29)  $ (0.57)  $ (0.43)
         
Inventory step-up from acquisition, net of tax  0.03  0.01  0.12  0.01
Reversal of valuation allowance from acquisition  --   --   (0.01)  -- 
Loss on extinguishment of debt  --   --   0.02  -- 
Special charges, net of tax:        
Acquisition, integration and distribution transition costs  0.02  0.04  0.10  0.04
Facilities consolidation initiative  --   0.06  --   0.13
Reversal of OrthoHelix contingent consideration liability  (0.10)  --   (0.11)  -- 
Italy bad debt expense    0.05    0.05
Legal settlements  --   --   0.03  -- 
Management Exit Costs  --   --   --   0.01
         
Non-GAAP adjusted net loss per share        
Basic and diluted  $ (0.18)  $ (0.13)  $ (0.42)  $ (0.19)
         
Weighted average ordinary shares outstanding        
Basic and diluted  48,068  39,708  44,942  39,537
 
 
Tornier N.V.
Reconciliation of Net Cash Provided by Operating Activities
to Non-GAAP Adjusted Free Cash Flow
(in thousands)
         
  Three months ended Nine months ended
  (unaudited) (unaudited)
         
 September 29,
2013
September 30,
2012
September 29,
2013
September 30,
2012
         
Net cash provided by operating activities, as reported  $ 580  $ (2,180)  $ 18,321  $ 11,136
         
Adjusted for:        
Cash paid related to Facilities Consolidation  --   1,632  --   2,595
Additions of instruments, as reported  (4,115)  (1,474)  (16,565)  (9,245)
Purchases of property, plant and equipment, as reported  (2,740)  (4,182)  (7,518)  (7,886)
Purchases of property, plant and equipment, related to Facilities Consolidation  --   2,069  --   2,361
         
Non-GAAP adjusted free cash flow  $ (6,275)  $ (4,135)  $ (5,762)  $ (1,039)
     
     
   Tornier N.V.
   Reconciliation of Gross Margin and Gross Margin %
   to Non-GAAP Adjusted Gross Margin and Gross Margin %
    (in thousands)
 
      Three months ended Nine months ended
      (unaudited) (unaudited)
             
     September 29,
2013
September 30,
2012
September 29,
2013
September 30,
2012
             
   Revenue, as reported  $ 66,747  $ 58,015  $ 227,567  $ 198,487
             
   Gross margin, as reported  $ 47,775  $ 42,285  $ 162,662  $ 143,543
   Gross margin %, as reported 71.6% 72.9% 71.5% 72.3%
             
    Adjusted for:        
    Inventory step-up due to acquisition  1,768  310  5,444  415
             
   Non-GAAP adjusted gross margin  49,543  42,595  168,106  143,958
   Non-GAAP adjusted gross margin % 74.2% 73.4% 73.9% 72.5%
 
 
Tornier N.V.
Reconciliation of Operating Expenses and Operating Expenses as a % of Revenue to 
Non-GAAP Adjusted Operating Expenses and Non-GAAP Adjusted Operating Expenses as a % of Revenue
         
  Three Months Ended Nine Months ended
  (unaudited) (unaudited)
 September 29,
2013
September 30,
2012
September 29,
2013
September 30,
2012
         
Revenue, as reported  $ 66,747  $ 58,015  $ 227,567  $ 198,487
         
Operating Expenses, as reported  51,520  53,017  179,396  157,912
Operating expenses as a percentage of revenue, as reported 77.2% 91.4% 78.8% 79.6%
         
Adjusted for:        
Amortization of intangible assets  (3,976)  (2,730)  (11,597)  (8,013)
Special charges  3,918  (6,503)  (1,009)  (9,413)
Total adjustments  (58)  (9,233)  (12,606)  (17,426)
         
Non-GAAP adjusted operating expenses  $ 51,462  $ 43,784  $ 166,790  $ 140,486
Non-GAAP adjusted operating expenses as a percentage of revenue 77.1% 75.5% 73.3% 70.8%
   
   
 Tornier N.V.
 Reconciliation of Projected 2013 Operating Loss
 to Projected Non-GAAP Adjusted EBITDA
  (in millions)
 
    Three months ended Twelve months ended
    (unaudited) (unaudited)
       
   December 29, 2013December 29, 2013
    Low High Low High
           
 Revenue  $ 74.4  $ 78.3  $ 301.9  $ 305.9
 Operating Loss  $ (10.7)  $ (6.5)  $ (27.4)  $ (23.2)
           
  Adjusted for:        
  Inventory step-up due to acquisition  0.6  0.4  6.0  5.8
  Depreciation and amortization expense  10.1  9.5  36.9  36.3
  Share-based compensation  2.2  1.8  7.0  6.6
  Special charges  1.8  0.8  2.8  1.8
  Total adjustments  $ 14.7  $ 12.5  $ 52.7  $ 50.5
           
 Non-GAAP adjusted EBITDA  $ 4.0  $ 6.0  $ 25.3  $ 27.3
 Non-GAAP adjusted EBITDA margin 5.4% 7.7% 8.4% 8.9%

Tornier believes the non-GAAP financial measures presented above provide additional meaningful information for measuring Tornier's financial performance and are measures frequently used by Tornier's management, as well as securities analysts and investors. Tornier uses the non-GAAP financial measures as supplemental measures of its performance and believes such measures facilitate operating performance comparisons from period to period and company to company by factoring out potential differences caused by charges not related to Tornier's regular, ongoing business, including non-cash charges, certain large and unpredictable charges, acquisitions, dispositions, litigation settlements and tax positions. Tornier's management uses the non-GAAP financial measures to assess the performance of Tornier's core operations, analyze underlying trends in Tornier's businesses, establish operational goals and forecasts, and evaluate Tornier's performance period over period and in relation to the operating results of its competitors. Tornier's management uses the non-GAAP financial measures to help allocate its resources to both ongoing and prospective business initiatives and to help make budgeting and spending decisions, for example, between product development expenses, research and development expenses, and selling, general and administrative expenses. Tornier's management is evaluated on the basis of several of these non-GAAP financial measures when determining achievement of performance incentive compensation goals.

Tornier believes that non-GAAP financial measures have limitations as analytical tools since they do not reflect all of the amounts associated with Tornier's operating results as determined in accordance with GAAP and should only be used to evaluate Tornier's operating results in conjunction with the corresponding GAAP measures. Accordingly, revenue on a constant currency basis should not be used as a substitute for revenue, EBITDA, adjusted EBITDA, adjusted net income (loss) and adjusted net income (loss) per share should not be used as a substitute for net income or net income per share; adjusted EBITDA margin should not be used as a substitute for net margin or operating margin; free cash flow should not be used as a substitute for cash flows from operations; and adjusted gross margin and gross margin percentage should not be used as a substitute for gross margin or gross margin as a percentage of revenue, in each case as determined in accordance with GAAP. Neither EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), adjusted net income (loss) per share, free cash flow, adjusted gross margin and gross margin as a percentage of revenue, should be an indication of whether cash flow will be sufficient to fund Tornier's cash requirements. Additionally, the calculation of non-GAAP financial measures is not based on any comprehensive or standard set of accounting rules or principles. Accordingly, Tornier's definitions of revenue on a constant currency basis, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), adjusted net income (loss) per share, free cash flow, adjusted gross margin and gross margin as a percentage of revenue, may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes.

For further information regarding why Tornier believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to Tornier's current report on Form 8-K filed today with the Securities and Exchange Commission which attaches this release as an exhibit. This current report on Form 8-K is available on the SEC's website at www.sec.gov or on Tornier's website at www.tornier.com.

CONTACT: Tornier N.V.
Shawn McCormick
Chief Financial Officer
(952) 426-7646
shawn.mccormick@tornier.com

Source: Tornier

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