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Tornier N.V. (NASDAQ:TRNX)

Q2 2013 Earnings Call

August 06, 2013 4:30 pm ET

Executives

Shawn T. McCormick - Chief Financial Officer and Principal Accounting Officer

David H. Mowry - Chief Executive Officer, President and Executive Director

Analysts

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Brandon Henry - RBC Capital Markets, LLC, Research Division

Charles Haff - Craig-Hallum Capital Group LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Tornier Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Shawn McCormick, Tornier's Chief Financial Officer. Please begin.

Shawn T. McCormick

Good afternoon, and thank you for joining us today for Tornier's second Quarter 2013 Investor Conference Call. I am Shawn McCormick, Tornier's Chief Financial Officer; and with me today is Dave Mowry, our President and CEO.

After I cover the formalities, Dave will start the call by reviewing our key operating and financial achievements for the quarter. I will then discuss second quarter financial performance and provide financial guidance for the third quarter and fiscal year 2013. Finally, we'll open the call for your questions.

Before we begin our detailed discussion, I'd like to remind you that during the course of this call, we will make forward-looking statements regarding our future financial and operating results and our business plans, objectives and expectations. These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and Tornier desires to avail itself of the protections of the Safe Harbor for these statements.

Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q. We suggest that you read these risk factors and our SEC periodic reports and other future filings that we may make with the SEC. You should also know that Tornier disclaims any duty to update or revise our forward-looking statements.

On this call today, we will disclose certain non-GAAP financial measures. We use non-GAAP financial measures as supplemental measures of performance and believe these measures provide useful information to investors in evaluating our operations period over period. For each non-GAAP financial measure that we use on this call, we have included in our press release or on our website a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure. Please note that non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

With that, I'll turn the call over to Dave.

David H. Mowry

Thank you, Shawn. I am very pleased with our operating and financial achievements to date and proud of the team's collective accomplishments for the second quarter. Our performance during the second quarter continues to demonstrate Tornier's ability to create strategic focus and execute on our key initiatives, as we build long-term value for our shareholders.

Along these lines, I will begin my remarks today by highlighting the specific progress we have made on the critical objectives, upon which, we have been laser focused throughout 2013. In early January of 2013, I began to reference 3 critical objectives, behind which we have aligned the organization, and when executed in combination and to our plan, will return Tornier to double-digit constant currency revenue growth on a pro forma basis.

The first of these objectives is our U.S. sales channel alignment initiative. Our end goal for this objective is to deliver Tornier's go-forward U.S. sales channel by creating a hybrid sales organization, with both distributors and direct sales representatives, providing sales coverage with our field sales resources, aligned to serve either the upper extremity or lower extremity surgeon specialist. In addition, the sales force alignment endpoint, and as a natural result of the OrthoHelix acquisition, we have put specific energy into the process of combining the Tornier and OrthoHelix lower extremity products into a single lower extremity sales bag.

During the quarter, we made considerable progress in achieving this objective. More specifically, we acquired our largest legacy U.S. distributor and are working to reorganize the territory into smaller direct or distributor territories, with dedicated upper and lower extremity sales alignment. We also acquired the lower extremities rights from several distributors and have recently begun the effort to realign sales territories in these regions to further move us to our goal of dedicated upper and lower alignment. This transition is a natural evolution of Tornier's Specialists Serving Specialists philosophy and is consistent with the planned expansion of our product lines, as well as the trend towards further medical practice specialization.

At the end of second quarter, we had transition agreements for dedicated upper and dedicated lower extremity sales representatives in territories representing 40% of the U.S. revenue. We believe this transitioned revenue metric is the leading indicator of our U.S. sales channel stability and future U.S. revenue growth performance.

As you may recall, we originally set a goal for full year 2013 to execute agreements covering 60% of our U.S. revenue. Although I am pleased that our pace of executing these agreements is well ahead of our plan, I clearly recognize that the heavy lifting needed to translate agreements into productive sales activity is still in front of us for most of these territories. Nevertheless, we now expect to exit 2013 with this metric above our previously communicated 60% goal.

I would be remiss in not mentioning that this faster-than-planned step up in negotiated agreement has come through ever-increasing environment of collaboration and support from our distributor partners. In particular, I'm extremely pleased with our distributor and sales representative retention level for both the legacy Tornier and OrthoHelix agents and representatives.

Our second critical objective for 2013 is the successful integration of OrthoHelix. And as I have previously highlighted, this objective has a U.S. and international revenue growth component. Specifically, we intend to leverage the combined U.S. lower extremity customer base for cross selling and execute the commercial launch of the OrthoHelix product into the international markets during the third quarter of 2013.

As I had mentioned previously in this call, we will focus throughout the second quarter on making U.S. distributor transitions that enable a dedicated lower extremity sales force. Although we are pleased with our progress on selecting the lower extremity distributors, this remains a difficult and distracting process that creates temporary revenue risk that we need to take in order to effectively cross sell in legacy Tornier and OrthoHelix lower extremity product lines in 2014 and beyond.

In addition to the progress on our distributor alignment, during the second quarter, we made significant progress with the orientation of our U.S. sales management in support of a dedicated upper and dedicated lower extremity sales activities. We have completed the reorganization of our U.S. sales management into an integrated and united team, working under a single leadership structure toward the same goal. We also developed the lower extremity-specific sales training programs and established the faculty to provide the training -- ensure all lower extremity sales representatives will become specialists, fully-versed on the anatomy, surgical procedures that combine Tornier and OrthoHelix products, as well as the competitive portfolios.

With respect to the international growth component of our OrthoHelix integration initiative, we made notable progress as well. Having received the CE Mark for these products in April, we executed the Tornier branded implant inventory and instrumentation builds and recognized our first international OrthoHelix sale late in the second quarter.

We also had the initial European cases performed in early July, per our plan. We intend to leverage the investments we have made in lower extremity staffing, sales rep training and targeted foot-and-ankle marketing programs, as we begin the early commercial introduction of OrthoHelix products into France and Germany.

On broader corporate OrthoHelix integration activities, we have organized our combined lower extremity product development programs under the skilled leadership of the OrthoHelix development team. This organization alignment allows Tornier to benefit by more fully leveraging the OrthoHelix team's foot-and-ankle surgeon relationships, long-standing foot-and-ankle-only focus and a rapid product development process to bring meaningful innovation to the entire lower extremity portfolio. We continue to be extremely pleased with this acquisition and are delighted with the third consecutive quarter of solid contribution to our top line from OrthoHelix. We look forward to further benefiting from the OrthoHelix acquisition and its expected synergies.

The third of our critical objectives for 2013 is the launch of key products, specifically, the CannuLink for hammertoe correction, the Latitude EV elbow, and most significantly, the Aequalis Ascend Flex convertible shoulder system. For this conference call, I will spend some time covering the specific progress on our Aequalis Ascend Flex launch.

As you may recall from previous calls -- conference calls, the Ascend Flex platform is a convertible stem and leverages common implant components, instruments and surgical techniques to provide anatomic or reversed configurations with press-fit or cemented versions in both long and short stem. The Aequalis Ascend Flex product rounds out Tornier's shoulder portfolio by providing a press-fit reversed shoulder arthroplasty solution. We estimate the press-fit reverse shoulder market at $200 million annually and believe it remains the fastest-growing total shoulder market segment in the U.S. Tornier had not been able to participate in this market segment until the introduction of the Ascend Flex product.

In previous conference calls, we outlined the 2 critical measures for the Ascend Flex launch. The first of these critical Ascend Flex milestones was moving through the limited user release and executing a full commercial release of this product in the early part of the third quarter. The second metric we shared outlined plans to conduct medical education and physician training events to engage 100 surgeons by the end of 2013. I am pleased to share that we are ahead of our plans for both of these milestones.

Late in the second quarter, we began the full commercial launch of the Ascend Flex product, deploying the first batch of instruments and implants. Additionally, we ended the second quarter with over 70 surgeons, who have completed the Ascend Flex training and have already performed total shoulder replacement cases using the Ascend Flex system.

Our performance through the second quarter against both of these measures has provided us with positive early indication of the strengths of this product and set our expectation on adoption rate and timing. Having laid the groundwork for this critical product launch, our upper extremities sales teams in both the U.S. and international market will be intensely focused on executing the steps necessary to ramp sales throughout 2013 and beyond.

Now let me review our top line performance by product line and then provide more detail on the operation. Total revenue for the second quarter of 2013 reached $78.1 million compared to the second quarter of 2012 revenue of $66.0 million, an increase of 18.4% as reported. On a constant currency basis, our second quarter revenue grew 17.9% over the prior year quarter.

Second quarter revenue generated by extremity products totaled $65.6 million compared to $53.2 million for the same quarter last year, an increase of 23.2%, as reported, and 23.1% on a constant currency basis. This compares to our first quarter 2013 increase over prior year quarter of only 15.7%, as reported, and on a constant currency basis.

We are excited about the acceleration in extremities growth attributable to strong performances from both our upper and lower extremity product categories, including solid contributions from OrthoHelix. Moreover, this extremities growth of 23.1% on a constant currency basis for the second quarter was at the upper end of our 19.7% to 24.4% guidance.

For the second quarter of 2013, extremities revenue represented 84% of reported global revenue and included $7.9 million of revenue generated from OrthoHelix. Getting pro forma effect to the OrthoHelix acquisition to include OrthoHelix revenue in the prior year quarter, our second quarter 2013 constant currency revenue growth was 7% over that same quarter last year, while extremities constant currency revenue increased 9.2%.

Now let me review our extremities revenue by product category. Revenue from our upper extremities joint and trauma category was $47.8 million, an increase of 11.1% in constant currency over the same quarter a year ago. This growth was primarily led by our shoulder arthroplasty product portfolio, including the Aequalis Reversed Shoulder and the Aequalis Ascend family of products, which continue to gain worldwide recognition among upper extremity specialists.

During the second quarter, we were very pleased with the performance of our Ascend product line, including the early contributions from the Ascend Flex. As I mentioned previously, Ascend Flex is now moving into full commercial launch, with the initial batch of inventory instruments having recently been deployed. As we have described previously, the addition of the Ascend Flex into Tornier's shoulder product portfolio provides a bone-sparing solution to the large and growing press-fit reversed market segment, while also offering convertibility. We believe Ascend Flex's ease of use and differentiated lateral adjustability represents a best-in-class total shoulder solution.

In support of our Ascend Flex launch, we are also leveraging the recently launched Perform Glenoid System. The Perform was specifically designed as an anatomic glenoid intended to improve the prosthetic-to-bone surface match, addressing one of the most common complications in total shoulder arthroplasty. Since the introduction, Perform revenue has continued to grow, and we believe it to be a critical and differentiated component, which will provide additional support to the Ascend Flex launch.

We continue to be excited about our global market opportunities for our Simpliciti stemless shoulder system, an extension of our design philosophy of bone-sparing products. U.S. clinical trial program that we have described on prior earnings call remains on track. The endpoints of the study include 2-year postoperative follow up. And during July, we had the initial patients enrolled in this study return for this critical 2-year follow-up milestone. As we have previously stated, we expect to receive U.S. approval for the Simpliciti in the first half of 2015, following the anticipated completion of the study during the fourth quarter of 2014.

Our Latitude EV elbow prosthesis commercially released in the fourth quarter of 2012 performed very well during the second quarter, contributing to constant currency elbow revenue growth of nearly 30% compared to the same quarter last year. We are working to take full advantage of the positive market feedback in the near term with additional surgeon training programs, as well as the deployment of additional sets. And we remain focused on increasing this product's global market share.

Second quarter revenues of our lower extremities joint and trauma category increased 114.2% in constant currency to $13.9 million, driven by strong contributions from OrthoHelix. On a pro forma basis, to include OrthoHelix in the prior year quarter, revenues from lower extremity products increased 7% in constant currency compared to second quarter of 2012.

As we continued to expand and integrate our lower extremities distribution channel, the required distributor transitions have had the effect of suspending some of our lower extremity revenue growth. Specifically, we have witnessed impact from distributor transitions on the legacy Tornier lower extremity products being reassigned away from the Tornier agents as these distributors begin to realign their sales resources to the upper extremities. We have also had impacts from transitions on the OrthoHelix side earlier in the quarter, prior to solidifying full-bag distribution relationships. As we have previously indicated, this impact had been contemplated and factored into our quarterly and full year guidance.

Within the OrthoHelix product portfolio, the CannuLink hammertoe correction product demonstrated strong market acceptance, following its launch in the fourth quarter 2012. However, as a result of moving to our distributor transition negotiations, we believe the CannuLink line has not yet begun to make the revenue contributions we believe it will deliver. Based upon both physician feedback and regional successes, we remain confident in the product and expect that CannuLink will continue to grow and gain market share throughout 2013 and into 2014, as we complete our distribution relationship transition.

During the second quarter, we continue to see strong revenue growth contributions from the innovative MaxLock and Mini MaxLock plate and screw systems, specifically designed for foot and ankle procedures. The market-leading Salto and Salto-Talaris ankle arthroplasty products continue to gain market share in our international markets. However, the Salto product showed a slowdown in the U.S. during the second quarter, as we moved forward with the process of transitioning the total ankle portfolio over to the dedicated lower extremity sales representation. Having moved several agencies through this transition process, we will be highly focused on regaining the momentum, following the transition. And we'll be moving through the sales training and providing field support to territories impacted.

Second quarter revenues from sports medicine and biologics were $3.8 million, an increase of 1.8% in constant currency over the second quarter of 2012, led by solid growth of our suture, BioFiber, Conexa and arthrotomy products. We saw very strong growth in our international markets, which was offset by declines in the U.S. We believe this is another area of opportunity for growth, as we achieve dedicated upper and lower extremity alignment in our U.S. sales channel.

We remain committed to developing our biologics portfolio and participating in this high growth orthopedic market segment. We continue to focus on the expansion of our BioFiber product line. This expansion includes the introduction of larger sizes, as well as the addition of our collagen-coated BioFiber patch. We were pleased to have completed the initial user release of both our BioFiber suture, Sanofiber [ph] and the resorbable bone anchor. This combination of novel products will provide the surgeon with a completely resorbable construct to treat rotator cuff or Achilles tendon repair.

Revenues from our large joint and other product category decreased 3.5% on a constant currency basis during the second quarter of 2013, compared with the same quarter last year to $12.6 million, representing 16% of our global revenue. We saw some recovery on our hip products through the introduction of new, minimally invasive instrumentation. We also made further progress on our cementless knee product, with the new Kneetec instrumentation. We have already began deploying the new instrumentation late in the second quarter through very positive feedback. While pressures in this product segment remain, we expect to see a reversal of market share losses during the second half of 2013, with the further deployment of our MIS instruments, the expanded launch of patient-specific guides and the initial introduction of our cementless knee product.

We have, and will continue to invest and select opportunities to enhance and defend our large joint business in certain European markets, most notably, France. Additionally, we anticipate continuing to leverage our large joint product lines, where appropriate, to provide critical mass of products to independent distributors who are helping Tornier gain access to and develop new international geographies outside the traditional European markets for our extremity lines.

Our international business continues to perform very well, in total, with several of our geographies making strong contributions in the second quarter, most notably France, Australia and Scandinavia. These strong performances were partially offset by declines over the prior year quarter from Italy, Spain and Germany due to continued utilization declines in economic pressures.

As noted on previous calls, Tornier continues to execute a go-direct strategy in key international geographies, having completed the most recent conversion of distributor to direct sales model in Canada at the end of January. The recently established direct sales presence in Canada, Belgium and the U.K. lower extremities all had positive contributions to our revenue growth to increase regional product focus and product margin improvement.

Before turning the call over to Shawn, I'd like to highlight a few development programs in our progress towards building the most comprehensive extremities portfolio in the world. As I previously indicated, we remain excited about the market opportunities for several of our new products under development.

One example of this is our pyrolytic carbon humeral head, designed for use with the Aequalis Ascend family, mainly, the Ascend Flex platform. The ultralow friction and biologically inert material has the potential to expand the shoulder market by providing an early intervention shoulder replacement, without requiring the more complicated glenoid replacement, a procedure referred to as a hemi shoulder. Excited about this program, we have been accelerating our internal development efforts to bring this product into the European clinic as soon as possible, while we work to develop a U.S. FDA regulatory pathway for this novel, market expanding product.

Other highly anticipated new product developments from Tornier include an innovative patient-specific, image-driven glenoid system, as well as an improved reversed glenosphere, both of which will further support the growth in uptake of our Aequalis Ascend family of products. We expect to initiate limited user releases on these innovative products later in 2013, carrying them into early 2014.

And now, I'd like to turn the call over to Shawn to review our second quarter financial results and outlook for the third quarter and fiscal year 2013.

Shawn T. McCormick

Thank you, Dave. Given Dave's review of the revenue, I will focus on the components of our earnings and the balance sheet and discuss our financial guidance for the third quarter and fiscal year 2013.

Our adjusted EBITDA for the second quarter of 2013 increased 5.5% to $7.3 million compared to $7 million for the second quarter of last year. As a percentage of revenue, our adjusted EBITDA was 9.4% compared to 10.5% for the second quarter of 2012. The decrease in our adjusted EBITDA margin was primarily attributable to the medical device tax, which had a negative impact of approximately 110 basis points.

During the second quarter of 2013, we continued to invest in our sales and training organization, IT infrastructure and our distribution channels, both in the U.S. and in international markets. These investments offset the improvements we continue to make in gross margin.

Gross margin in the second quarter of 2013 was 71.4%, as reported, compared to 72.6% in the second quarter of 2012. Excluding approximately $1.9 million of inventory step-up charges, relating primarily to the acquisition of OrthoHelix, our non-GAAP adjusted gross margin expanded 120 basis points over the second quarter of 2012 to 73.9%. This improvement in non-GAAP adjusted gross margin was driven by production efficiencies, product mix and the impact of OrthoHelix, excluding the inventory step up.

In the third quarter, we expect to continue to record cost of goods sold charges, relating to inventory step up, totaling approximately $1.7 million to $1.9 million. We believe that through a combination of manufacturing efficiencies, additional in-sourcing activities and contributions from OrthoHelix gross margins, we are well positioned to increase our gross margins over time into the mid-70s.

Non-GAAP operating expenses in the second quarter of 2013, which excludes special charges and intangible amortization, increased 20.7% to $57.0 million or 73% of recorded revenue. This compares to non-GAAP operating expenses of $47.2 million or 71.6% of reported revenue in the second quarter of 2012.

As discussed during previous calls, this increase in operating expenses as a percent of revenue was driven by strategic investments in our U.S. sales organization, including sales leadership and training personnel, going direct in certain U.S. territories, product training and education programs, expansion in Japan, conversion to a direct distribution channel in Canada and Belgium, investments in general and administrative infrastructure such as IT and the medical device tax.

These investments in SG&A were partially offset by a decline in R&D as a percentage of revenue, resulting from the timing of projects. We expect R&D spending to remain in the range of 7% to 8% of revenue over time.

During the second quarter of 2013, we recorded special charges totaling $3.4 million as operating expenses. These charges related to the acquisition and integration of OrthoHelix, U.S. distribution channel transition and the settlement of certain litigation. Excluding $1.2 million in litigation charges, special charges in the second quarter were in line with our previous guidance of $1.4 million to $3.0 million.

In the second quarter of 2013, our interest expense totaled $2.0 million compared to $0.5 million a year ago. This increase was attributable to our debt that was incurred in conjunction with the OrthoHelix acquisition in October 2012 and to accretion of the OrthoHelix contingent consideration liability.

During the second quarter of 2013, we also incurred a loss on extinguishment of debt of $1.1 million for the write-off of the deferred financing costs related to the repayment of our euro-denominated term loan. This loan was paid in full with some of the net proceeds from our recent follow-on stock offering.

As previously announced, during the second quarter of 2013, we successfully completed an underwritten public offering of ordinary shares, including a primary offering component of approximately $5.2 million ordinary shares, in which we received net proceeds of $78.9 million. Management and the board believed that it was important to raise additional equity capital to take full advantage of the current initiatives and opportunities that are in front of the company. These investments relate to the 3 critical objectives that Dave just discussed and include: The alignment of our U.S. distribution channel, with dedicated sales representation aligned to upper or lower extremity specialists, rollout of our new shoulder product and associated instrumentation sets and continued expansion of our lower extremities products into international markets.

We ended the second quarter of 2013 with cash and available credit of $88.7 million, consisting of $58.7 million of cash and cash equivalent and $30 million available under our revolving line of credit. During the second quarter, we paid down approximately $51 million of debt, and our outstanding long-term debt totaled $66.0 million at the end of the quarter.

During the second quarter of 2013, our non-GAAP adjusted free cash flow was negative $8.2 million, driven by $7.6 million of investments in implant instruments and $1.9 million of additional property plant and equipment.

Now let me provide our financial outlook for the third quarter and fiscal 2013. As we do this, we are taking into account recent currency exchange rates, European market dynamics, our efforts to strengthen our U.S. sales channel, seasonality, the timing of holidays and the number of selling days, product launches and our acquisition of OrthoHelix.

As you have seen from our past results, with a meaningful percentage of our business based in international markets, currency exchange rate fluctuations can create a significant difference between our reported and constant currency growth rates. For this reason, we continue to focus on communicating the revenue of our business on a constant-currency basis.

In calculating our reported estimate, when it comes to predicting the value of the dollar versus the euro, we assume exchange rates similar to the current level. That said, we do expect to see continued fluctuations in currencies during the remainder of 2013.

Please note that we are no longer going to provide specific guidance on OrthoHelix revenue separate from our total extremities guidance. We have made a series of changes in harmonizing the OrthoHelix and legacy Tornier product lines, changes in our distributor arrangements and the launch of OrthoHelix products in international markets through the Tornier organization, such that there is no longer a clear distinction between legacy Tornier and OrthoHelix.

Therefore, we will no longer breakout and give separate guidance for OrthoHelix. We will, however, provide pro forma extremities product revenue growth guidance. Actual revenues from the OrthoHelix product will continue to be reported in the upper and lower extremities categories.

For the third quarter of 2013, we project constant currency revenue to be in the range of $67 million to $71 million, representing constant currency growth of 15.5% to 22.4% over the third quarter 2012 revenue. Based on recent currency exchange rates, third quarter 2013 reported revenue is projected to be in the range of $68.2 million to $72.3 million, representing growth of 17.6% to 24.6%.

Third quarter 2013 extremities product categories revenue is expected to grow 19.5% to 26.6% in constant currency. Given pro forma effect to the OrthoHelix acquisition to include OrthoHelix revenue in the third quarter of 2012, extremities product categories revenue is expected to grow 4.4% to 10.6% in constant currency.

We project our adjusted EBITDA, as described in the GAAP to non-GAAP reconciliation provided in our earnings press release for the third quarter of 2013 to be in the range of $4.5 million to $6.5 million or 6.6% to 9% of reported global revenue.

Moving now to our annual guidance. Based on our year-to-date performance and current business trends, we are refining our previous revenue guidance to narrow the range. We now expect our revenue to be in the range of $312 million to $320 million, representing constant currency growth of 12.4% to 15.3%. Based on recent currency exchange rates, 2013 reported revenue is projected to be in the range of $314.1 million to $322.1 million representing reported growth of 13.2% to 16.1% over 2012 revenue.

Revenue from our extremities product categories in 2013 is expected to grow 16.4% to 19.4% in constant currency. Given pro forma effect to OrthoHelix acquisition to include OrthoHelix revenue in the full year 2012, extremities product category revenue is expected to grow 6.5% to 9.3% in constant currency. We are also refining our previously announced adjusted EBITDA guidance to be in the range of $33 million to $37 million or 10.5% to 11.5% of reported revenue.

As we have discussed today and on previous calls, the 2013 key initiatives Dave and I have discussed primarily impacts selling, general and administrative expenses, which we expect will remain at elevated levels in 2013 as a percentage of revenue until the benefits of these initiatives are reflected in our revenue growth. In addition, we expect to record special charges within operating expenses, totaling $9.5 million to $11.5 million in 2013.

These charges have increased slightly from our previous guidance, primarily as a result of the litigation settlement discussed on today's call. We expect $2.8 million to $4.0 million of special charges to occur in the third quarter. We also expected to record approximately $5.5 million to $6 million of inventory step-up charges in cost of goods sold during 2013, of which approximately $1.7 million to $1.9 million is expected to occur in the third quarter.

Amortization expenses are estimated to be approximately $16 million to $16.5 million in 2013 compared to $11.7 million in 2012.

We anticipate interest expense for fiscal 2013 to be in the range of $7 million to $8 million, including anticipated interest accretion charges of $1 million to $1.5 million, relating to contingent consideration, primarily, for the OrthoHelix acquisition. We also continue to expect the medical device excise tax to have a 100- to 110-basis point negative impact on our 2013 adjusted EBITDA.

With that update, we would like to open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Bob Hopkins of Bank of America.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

It looks like the leading metrics you guys provide, you're pretty much ahead of plan in all of them, so I just have a couple of questions in that regard. First, just a quick one, on the lower extremities growth. Given where you are with the integration of OrthoHelix, should we expect that lower extremities growth gets better from here in the back half, relative to that 7% number you put up this quarter on a pro forma basis?

David H. Mowry

First of all, we're not going to provide specific guidance for that section or that segment, Bob. But what I would tell you is, as I outlined in the call, we believe the real heavy lifting comes now. And we think some of the disruptions from having moved through the negotiations only gets us to the starting gate of building the sales rep training, moving the products, getting the medical education and physician training activities scheduled and conducted. So there's still a lot of heavy lifting with these transitions. That said, we're extremely pleased to be in the position we are, having moved through that first phase of this transition. So without giving you guidance, I'll tell you we have a lot of work to do. And it's not until we get through that work that we really see the benefit of it.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Okay. Well, maybe a different way of asking a similar type of question here is just, can you give us a sense, on the distributor alignment front, kind of exactly what you accomplished in Q2? Maybe talk about when you acquired your largest distributor? And was that a Tornier distributor? And what I'm trying to gauge here, and what I think a lot of people would be interested in is especially relative to your comments on heavy lifting, with the changes that took place in the first half of the year, how does that compare to what you're going to have to accomplish and what you hope to accomplish in the second half of the year? Just maybe a little more specific on what happened in Q2, and what remains for Q3 and Q4 in terms of these changes?

David H. Mowry

Well, I think it's important to segregate that into upper and lower. Because as we move through the upper alignment, if you will, we actually already have a lot of the resources that are trained, focused and capable, in place. So I think that they are now well positioned to continue to drive the upper extremities growth as we move through some of the launches that we have planned. That being said, the acquisition was of Tornier's largest legacy distributor, and that closed at the end of May. So we are still going through the process of realigning several of those territories or sub territories into some direct, and many of them, into new distributor groupings, leveraging some of the OrthoHelix talent, as well as best athletic capabilities within that space. So I'm not trying to dance around your question, Bob. What I'm trying to say is, I think, we're going to gain traction faster on the upper, because of the known entity. And as we look at the lower, we still have to do the cross training of products for the existing or the new, if you will, transitioned distribution base.

Shawn T. McCormick

Bob, if I may just add a little bit of color to that, just to, I guess, help you and others understand. The distributor we acquired, it's not like we acquired an organization that had 100% direct employee sales reps. Many of their representatives within that distributorship were independent 1099 reps. So we didn't acquire an instant -- an automatic direct sales force in that very large territory. We did acquire some direct, but we also acquired a significant amount of independent sales representatives, and we are working through that process to realign that territory amongst those individuals, who are the right folks to be the dedicated upper, who are the right folks to be the dedicated lower and how we might realign that territory. So I don't want to leave the impression, I don't think Dave or I would want to leave the impression it was, do an acquisition and the switch was flipped, and we're instantly in a realigned situation.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

So that's helpful. And so I guess, just a last follow-up here. Just in the back half, should we expect any other major moves like this? Just trying to understand what you need to accomplish in the back half in terms of potential, other additional moves? Or is the back half more about integrating relative to the changes you've made in the first half?

Shawn T. McCormick

Well I think, if I were to kind of outline the back half expectations for you, I'd say we have 2 fronts. So we have to continue to move forward with the transitions or the negotiations with those outstanding distribution channel resources to combine the lower bag into a single bag in that territory. And then we have to start leveraging the resources that we've put in place from a sales management and a sales training perspective to start to get the traction in those areas that we have completed negotiations.

So I think that you're going to see a kind of a constant, a cadence, if you will, of moving from the discussion with the distributors into the sales training, and then ultimately, into productive sales activity within those territories. And that will be kind of the, if you will, the progression over probably the next 3 to 4 quarters.

Operator

The next question is from Mike Weinstein of JPMorgan.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Let me start with some of the activity in the quarter, and particularly, the acquisition of the large U.S. distributor you said you've acquired rights from several distributors. Dave, let me get your sense of when you complete this process, and you look at your distributor mix, upper and lower, what percent in the U.S. do you think it's going to be Tornier versus independent?

David H. Mowry

Mike, it's interesting. We don't have a perspective of this number, we don't have a goal in mind. In fact, in many cases, we now have direct territories in some places that we might have preferred to have a distributor had we had better or different options. And really, what's important is that we find a -- either a distributor that is willing, able and capable, if you will, of making the investments necessary to grow those territories, hire the additional reps, invest in the local marketing requirements. And if we are unable to have distributor partners that are able to kind of make those type of investments, then unfortunately, we're in position that we will take some of those into more of a direct environment. It's not our intent to be direct. In fact, we very much appreciate the distributor partners that we have, many of them have done an amazing job for us, and I continue to commend them and congratulate them on those efforts. But nevertheless, there are distributors that maybe don't have the wherewithal and the capital to necessarily invest at the pace necessary to drive the growth that we're looking for. So we don't have a target. It's really been as a territory-by-territory basis as we've moved through this, Mike.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Walk me through this just a little bit with the transition to Europe on the lower extremities side. And you've talked and just talked to totality about how you're pleased with the retention of sales reps, but acknowledge that look through some disruption here, particularly on the historical Tornier lower extremity line. Can you just kind of walk us through that a little bit? So if your rep retention particularly, the Orthohelix rep that came into the fold a year ago has been very good, it becomes the challenge is getting -- everybody's selling those products, we're focusing on those sets of products rather than -- because the ones that is, is that right, maybe you could drive though, [indiscernible].

David H. Mowry

Unfortunately, you broke up a little bit, but I think understood your question to be, as you look through the transitions of upper and lower, and we're happy with the retention, there's still a lot of heavy lifting. What's really involved in that heavy lifting? And what's the kind of, the disruption impact of it? As I highlighted during the script, if you will, of the earnings call, in many cases, as we started to move our legacy Tornier distributors, to a position where we were going to remove the lower extremity line from them, obviously, their interest on the long-term basis is continuing to fund their employees and grow their business. So in many cases, there were additional resources that were shifted from existing lower extremities, starting to look at where they grow on the upper extremities side. So I think that, that was somewhat disruptive. And maybe not ideal for transition but, certainly, as you think about it from a distributor's perspective, they're thinking about what's going to work in their world and they're trying to kind of build their, I guess, game plan going forward. And we certainly appreciate that. What's disruptive on the OrthoHelix side was, until we could make the full bag commitment to some of them, their ability to focus, learn the other products, to gain some call-point expertise in a total ankle procedure, per se, has been a little bit more delayed than we would have liked. And I think that's somewhat disruptive. So moving the customers that currently use our product from legacy Tornier to new, combined, lower bag distribution representatives takes a little bit more effort, a little bit more time and not all the sales reps are where we want them to be. That said, they're still with us. And I'm glad that they're with us because both the Tornier distributors and the OrthoHelix distributors have a great deal of experience, knowledge. They have great relationships within their territories and we certainly don't want to be in a position that we lose folks that have built those strong reputations.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Maybe last one for you, let's -- let it shoved in here, but -- if I look at the upper extremity market in the U.S., globally our math says that this was the best quarter we've seen, in upper. Lower varies -- lower is very strong as well, but upper in particular, was incredibly strong this quarter. It's hard to find a company that didn't post double-digit revenues for this quarter. So can you give us any insights as to why that was? Why this quarter, it became a little [indiscernible] good?

Shawn T. McCormick

No, I just think there's a, it was a very intense, competitive environment, and a lot of people are doing a lot of things to grow share. I think that utilization rebounded quite a bit from the first quarter. Our growth in Europe, in particular, was very, very strong. And that's what continues to, in many ways, make us very, very confident of our strategy here, Mike. And the fact that, with that portfolio with a dedicated sales organization and the ability to kind of push and commit to that line, we're seeing great growth. I think the other point I would make is, we're not seeing a significant decline in pricing other than a very specific couple of areas. And then, I guess the final thing is there are a lot more folks that are getting more comfortable, that are general surgeons, that are doing some procedures. So I think there's a lot of complicating or confounding or complementary pieces that are adding to the puzzle. But we're excited about this market, and we continue to be very excited about upper extremities and we're equally excited about lower extremities.

Operator

The next question is from Matthew O'Brien of William Blair.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Just real quick, couple of housekeeping items. Extra selling days in the quarter, what did that contribute to the top line? And then, did you have any extraordinary or unusual stockings in any of the international markets?

David H. Mowry

Yes, oh good, Shawn, why don't you take a --

Shawn T. McCormick

Yes, so Matt, as we talked about at the first quarter call, in the first quarter, we had 1.5 days, 2 days, depends on how you blend out the various countries. O-U.S. only. And we said that, that contributed on maybe 2 points of the drag on the first quarter. That flipped for the most part, in the second quarter. We had about 1.5, 1.3 to 1.5 days extra in the second quarter. Again, it gets a little confusing when you look at the various geographies. So we kind of try to put a weight into it. And so, if you call it an extra 1.5 days in the second quarter, that gave us 1.5 points to maybe 2 points maximum of growth.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

And the stocking question?

Shawn T. McCormick

With regard to stocking, we did not have anything unusual at all. In fact, as we talked about in the first quarter, we actually lost a distributor in Turkey, and actually replaced that with a smaller one in extremities, but nothing of any significance in terms of stocking at all.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Sorry to kind of keep on this theme, but I think Dave, you had mentioned the transition on the lower extremities side. Probably lasting the next 3 to 4 quarters, but you also said you're kind of ahead of expectations as far as transitioning over a bigger chunk of that group by the end of the year. Should we think about there being a drag, kind of into Q1 of next year? And at that point, the lower extremities group outside of just the traditional sales training and education really being ready to take off, and then within that question, you've got a couple of larger competitors out there with direct sales reps and one of them is giving us a revenue per rep number. Again, it's a direct sales organization there versus your hybrid approach. But is there a way that you can kind of frame up the opportunity that you're thinking about with your existing portfolio on a per rep basis?

David H. Mowry

Well, the way we've laid this out, Matt, I think -- I'll just remind the folks on the phone, as well as yourself, we've laid this out that we think, for the most part through 2013, it's really about getting the network in place before we give you a rep productivity number. We have full intent of getting to rep productivity numbers, but it's not until you have their mind share and you know that you kind of have a certain percentage of their focus and their business. And right now, it'd be like still putting apples and oranges in the same bowl, because some are exclusive Tornier distributors, we have direct sales reps, and then we also have people that are carrying multiple lines and to give it to you by sales rep probably is not going to be an effective measure, right at this point. But, yes, to that point, we do need to move over the next 2 quarters to 3 quarters. And I think we had highlighted at 1 point that we expect to end this year at 60% of sales reps being under new agreements. We still said I think the tail of that will carry in to 2014 and many of the transition activities will carry into 2014 and the expenses associated with those. So we fully intend this to be a longer-term effort to get our sales channel in the U.S. to a long-term, sustainable growth engine for the company.

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Okay, and if I can just sneak in one more follow-up. The Flex contribution in the quarter I'm sure was quite small. But given the opportunity there and the capital that you're committing to all the instrumentation, can you just give us a general sense for the enthusiasm among your surgeon base, and even others within the shoulder market? Because you've got a couple of competitors that have been putting up pretty strong growth in the last few quarters here, and how do you dislodge those guys to get them to come back to, what is a -- organization that's really focused on this market, historically?

David H. Mowry

Well, I think that's a good question. I think it's -- that's a multifaceted answer to the question. We continue to lead with science and education, and we think that, that is really the core of the shoulder or the extremities market. It's an underserved market. Just giving them new technology in and of itself isn't enough. I think we have to support it with the right clinical evidence, I think we have to support it with the right training and background, and having the reps that are capable of not just doing support from reconstructive, but really being shoulder experts in there, providing that support. Whether that be a shoulder specialist or even a generalist, you want a shoulder specialist on the sales side as well. And I think those type of efforts that we have, and are moving forward with, build the long-term sustainable growth engine, I think that's necessary. In addition to that, having the right complementary products as I had indicated on the call, the formed glenoid, which has better bone-to-glenoid back surface matching and avoid some of the disassociation, or hopefully, we'll avoid, on a 5-year or 10-year data will show improvement on disassociation or malalignment of the glenoid. I think those type of innovative products allow people to resolve clinical issues, and it isn't just another shoulder device. So really, from our perspective, it's a comprehensive portfolio. It's a trained, educated and specialist sales organization and it's a science and education backdrop for the company.

Operator

The next question is from Joanne Wuensch of BMO Capital Markets.

Joanne K. Wuensch - BMO Capital Markets U.S.

Your sports -- your upper extremity joint and trauma franchise grew faster than we've seen in almost 4 or 5 quarters here. You're not getting a lot of merit from the new product launches. What actually helped contribute to that this quarter?

David H. Mowry

Well, I actually think we're getting more from the new product than you -- than maybe, it's more of a pull-through effect of having the new product. Getting all those surgeons experienced with the product, bringing them into training gives them exposure to a broader portfolio, Joanne, and an opportunity for us to sell multiple products to them that are currently commercially available. I think in addition to that, I think we're seeing a -- we're -- I say this kind of tongue-in-cheek, but we're actually allowing our sales team to go back on offense instead of defense. And that does a lot for an organization, to have kind of the wind in the sails, to be able to go out there and sell, and aggressively go after conversion and talk to physicians about the full portfolio again, instead of trying to defend your case that potentially could be converted by a competitor.

So I think that those are the 2 things in particular, that I think that have led, from U.S. perspective. I think O-U.S., what we're seeing is the kind of the march of having that comprehensive, complete portfolio aligned with great sales reps that are going out there and continue to expand our presence in the international markets. In addition, I think the geographic expansion of the upper extremities has helped us as well. So it's a lot of things that are getting there. But I'd say it's really the confidence, the commitment and the full product portfolio.

Joanne K. Wuensch - BMO Capital Markets U.S.

Okay, as a second question, another similar type of company has decided to get rid of or spin out their hip and knee franchise. Can you remind us of your thoughts on keeping that as part of your product portfolio?

David H. Mowry

Well, that's a great question. We've continued to see our large joint business as an opportunity to help fund our extremities growth. It does that in 2 ways. It's a cash generator for us, in addition to being strategically helping us gain access to geographic expansion markets. We continue to see it as a tool. We don't think that hips and knees are a strategic product line for us to be in on a long-term basis, but we do think that it does add value for us in the current time. And as we move forward, we'll continue to evaluate the strategic importance and contributions from that product.

Operator

The next question is from Matt Miksic of Piper Jaffray.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Quick one on, just your -- the kind of the costs you're looking at, Dave, in these transitions. Can you give us some examples of what these costs are? And maybe, how far into 2014 we should look for those to extend, as you wrap things up this year?

David H. Mowry

I know if Shawn he'll -- but I'd say there's both internal cost, in terms of associated with the long-term support, and there's also the cost to negotiate through the agreement with the distributor.

Shawn T. McCormick

Yes, and the cost actually to buy out rights from a distributor were recording of special charges. The non-special charges, Matt, really start to get into things like, if we decide we're going direct in a territory, especially if we're bringing in former 1099 folks, and we're asking them to drop other product lines. You get into some elevated costs with some salary guarantees for a period of time, while they can build up their sales base and their customer base with just the Tornier product. We also have cost associated with non-competes that we are entering into, both with the buyouts and as we bring people on board. Then you've got your sales and training. There's a lot of extra travel, quite honestly, with our sales management teams, getting out and working, I guess, extra road time, if you will, to help transition territories. Our internal people as well, a lot of extra travel to be out helping to train, helping to cover cases where we might have some disruption as we're transitioning from one distributor to another. So there's several of these. They're really just general day-to-day operating expenses, but it's all elevated because of the activity of the transition.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Okay, that's very helpful. And as we think about how far into '14 that would go, do we think about, maybe the middle or the 3 quarters into '14 as these things extend?

Shawn T. McCormick

Yes, I would say that they probably, yes, extend into the middle part of 2014. I think they will start to decline because, as Dave said, we're in the thick of it, between the second quarter and the third quarter, and I would say in the fourth quarter. We're in the thick of it. We should kind of be coming out of the thick of it in the fourth quarter, but we'll continue to see these costs through the first half of 2014, but I would say at a declining rate in terms of being exceptional or elevated.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

So the other questions I had, and I'm sorry to kind of focus in on this one issue, is the transition. It's a big deal, obviously and congrats on going from, what sounded like 20% to 40% here from Q1 to Q2, which is a pretty big jump. I'm wondering if you could provide, you mentioned, Dave, earlier on the call, that you sound like you're a little further along maybe with your upper extremities transition. And if that's so, kind of, I don't know if you're willing to give us any color on where the 2 sides of your business are, in respect to completion? And maybe what kind of opportunities that opens up to leverage that upper platform in the back half?

David H. Mowry

Well, Matt, as you imagine, that these are so interrelated. Even though I think we're further ahead, it has a lot more to do with the mix of who we've gone after first. Because as you think about it, each of the Tornier distributors have both. So as you move through this, we could say we've got 40% of the revenue, and we may have a larger percentage of upper, but that probably has a lot more to do with the mix of those distributors that have already gone through transition. So we still have a lot more work to do and, frankly, I give a kind of a shout-out to the distributors because they have been extremely cooperative and engaged through this process, and we need to continue to build that kind of rapport and we need to find ways to better support them in their businesses and drive this growth. As we go forward, I think that we are further ahead in upper only because we aren't dealing with trying to combine a bag. And I do think that we'll get traction sooner in upper, because we're not trying to combine a bag.

That said, it's still a difficult process moving through this. From time to time, emotions come into the discussions because people feel like they've put their heart and soul into something. But at the end of the day, we're trying to make good business decisions that are win-win for the company and for the distributor, and trying to move through it collaboratively with them.

Matthew S. Miksic - Piper Jaffray Companies, Research Division

And that's great. And then finally, on that kind of same the upper theme, Ascend Flex, just I think one of the things that we've struggled with, just maybe understanding, what are the dynamics of this launch? How are you -- how should we expect you to be able to capitalize on this launch, in terms of, does the growth that you're expecting to see, is this recapturing share that might be getting serviced by another convertible platform from a competitor in an existing account? Is this winning back accounts? Maybe give us some color as to the kind of the dynamic you see playing out in the trenches in the field.

David H. Mowry

Well, we've said, right from the start that we were going to have 3 buckets, if you will, of targets. We said that there is some cannibalization, the natural order of bringing it to your loyal customers that still desire a press-fit solution. In many cases, even if they don't want a press-fit solution, there are some folks that still want the Ascend Flex because they like the kind of ease-of-use and simplicity of having a single platform that they can use for anatomic or reverse. The second of those categories were those people that we maybe -- we lost some competitive business, some business to the competition on the press-fit reverse side. So that's the lowest hanging fruit for us, and we've continued to target those folks in particular. And I think the third category we've outlined, about 30% were going to be competitive users. And the idea was to completely move their business, both the anatomic and reverse, to the Ascend Flex. I'll tell you, I am extremely positive in the feedback we've received to date, and that has a lot to do with the targets we selected, mind you, but I believe our strategy for each of those 3 segments, who we are going to for business retention, who we're going to for conversions on the reversed, and who we're going to for full competitive versions, we've seen a very good hit rate based upon the targeting we've laid out. And we'll continue to follow that pathway as we move forward. The idea isn't to launch this product and cannibalize our own sales. It's really to grow sales, and we have a significant focus on that.

Operator

The next question is from Larry Biegelsen of Wells Fargo.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

So on the guidance, Dave, I did hear you talk about returning to double-digit pro forma growth. But I don't think you talked about it in 2013, and I may have missed it, but it wasn't clearly articulated in the press release this quarter, but it was last quarter. So where are you on your ability to return to double-digit pro forma growth?

David H. Mowry

I've said all along that our intent is to get back in the second half to double-digit pro forma growth. I think we are continuing to move forward with the initiatives that we've outlined to achieve that goal, Larry, and our intent is to still deliver that in the second half. Ideally, we would have already achieved that, but it's really the culmination of the 3 initiatives all coming together before we can achieve that. So really, we need to continue to move through the initiatives and the objectives and the tasks we've outlined in order to achieve it. So I still am holding out, that our goal is to do that in the second half of 2013, and we're going to continue to be very transparent with the analysts about -- that's our goal, and that's what we're driving towards, and we'll provide guidance as we best understand with transparency, towards when we'll get there. Our guidance is what it is.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

So to be clear, obviously, I can see the numbers. But from your perspective, you haven't backed off that goal for the second half of 2013. Is that fair?

David H. Mowry

No, we're not backing off that goal.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Got it. And then, quick, I have to ask one on the distributor changes. So I guess, obviously the Street is intensely focused on that. And just a couple of questions on that. One is, there's a school of thought that, you're at 40% now and you would target, naturally, kind of the low-hanging fruit early on, and it may get tougher and tougher. So is that a fair characterization or not? And second, just to be clear, because I think it's come up a couple of times, is, are you signaling that you think you'll be at 100% that this transition will be done by mid-2014, Dave?

David H. Mowry

Well, you're going to kind of steal my punchlines from the end of the conference call, Larry, if I answer your questions explicitly. But let me try. I do believe that we'll beat the 60% number and I'll talk about that a little bit as we wrap up. 60% was our initial goal and I think, obviously, we're tracking ahead of that. In terms of low-hanging fruit, I think we've had a mixed bag of some very, very challenging and difficult discussions and negotiations, and I think we've had some low-hanging fruit. But most of those, I think we took in the first quarter. So the second quarter progress at 20%, I think was hard-earned, not just on the company side, but on the distributor side. And it's not easy to move these kind of mountains around. I think the organization has worked very hard, and have made significant progress, and have gone through some of the toughest and most -- probably emotionally charged locations and territory. That said, we have an equal amount of those going forward. So I don't think we cherry-picked, if you will, in the second quarter, and I don't think the progress that we're working through on the third quarter is cherry-picking either. I think it's been a pretty even mix, somewhat homogenous of both difficult and easy solutions.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

That's helpful. Just to be clear, Dave, I mean, and I know you said you're ahead of your goal of 60%. But earlier in the call, you said the spending on this transition would be completed by, I think, about mid-2014. If -- does that go hand-in-hand when this transition you expect to be completed?

David H. Mowry

Sean, you want to answer that?

Shawn T. McCormick

Yes, I guess, Larry, I would say the special charges with buy-outs and things, I would expect will largely be done by the end of this year, but there will be some tail into the next year, but it would fall off significantly. Then there's the operating cost side of it, i.e., the elevated SG&A expenses. I actually think that will be more of what carries into mid -- to the midpart of 2014. So our objective is, and Dave will talk about it here, kind of revised objectives, or goals for ourselves, is to continue to push through this. And that's part of what we talked about with our public, with the follow-on offering was to actually make sure we have the capital that to the extent we have the opportunities to accelerate our initiatives, we could do so. And I think what you've seen, or what we're saying a little bit with being ahead of our Q2 number, and revising some goals going forward here, is that capital has enabled us to be a bit more aggressive, in working win-win situations with our distributor partners.

Operator

The next question is from in Glenn Novarro of RBC Capital Markets.

Brandon Henry - RBC Capital Markets, LLC, Research Division

This is actually Brandon on for Glenn. First question, can you just quantify how the consolidation of the OrthoHelix and Tornier lower extremity reps impacted the 2Q sales, and then what's implied in the second half guidance?

Shawn T. McCormick

I can kind of reiterate, maybe give you a little more color on it but, I'm not sure I can quantify to the detail I think you're looking for. I would just tell you that, on the Tornier side, the fact that you're taking lines away from distributors, obviously they're going to start moving their focus and their attention off of those lines. And we saw that specifically with the Salto in particular, in some territories. I think on the OrthoHelix side, not having a commitment from us yet, until you actually can complete the negotiations and the agreement with the Tornier people, it's irresponsible to enter into discussions or negotiations with the receiver of that line, if you will. And as a result, they didn't really have the pickup in the investment, if you will, in those lines, nor did they know where to have confidence they would even retain the entire OrthoHelix line. So it created a little bit of disruption on both sides, and I think we saw that in Q2. And I think we'll see that, as we move through more of these on a go-forward basis. That said, our goal continues to be a rapid, training education and transition plan once we get through it, but the time it takes to train, educate, get out and do medical education and physician training, those are all resources that are somewhat finite, and somewhat constrained with the number that we have going on.

So that's the -- I think the best color I can give you.

Brandon Henry - RBC Capital Markets, LLC, Research Division

Okay, and then one on the reversed shoulder market. Can you just kind of talk about the trends you're seeing there? Have you started to see any implant pricing pressure, any commercial reimbursement pressure in that part of the market?

Shawn T. McCormick

We did not see any significant pricing pressure in the quarter. That said, there continues to be an ongoing trend of pricing effect and pricing pressure and discussions and contracts, et cetera. I believe that we've been -- that we will have the ability to protect pricing to some extent with Ascend Flex. But on a longer-term basis, we recognize that pricing will continue to be a pressure point in this space, and we're taking every advantage of our internal manufacturing and gross margin to preserve as much of our profitability as possible.

Brandon Henry - RBC Capital Markets, LLC, Research Division

Okay, and then one last, on the product pipeline. Can you just kind of give an update on timing for new products in the second half 2013 and 2014? And specifically, I haven't heard anything about the revision ankle product in a while.

Shawn T. McCormick

The Revision ankle product is actually in its limited user release in Europe right now. We've also engaged some U.S. surgeons. And there is a little bit of a market difference between the U.S. and the O-U.S. on the Revision ankle in particular, due in part to the ankles that have been previously implanted in those markets. So I don't really want to talk negatively or positively about competitors. I'll just say that the requirements to revise some of the products in Europe have a different standard than the requirements of what we have to revise in the U.S. So we've really engaged the U.S. physicians in thinking about what a revision ankle would look like for the U.S. to be more inclusive of some of the competitive products that still need to be revised. So I think we'll continue to move through that process. Meanwhile, we're going to continue to gather intelligence and experience on the Salto revision ankle that's currently in its user release in Europe. That said, the other products that I think are significant for consideration in the second half is the cementless knee that will be launched in the end of third quarter in Europe. I think that, that's significant because, much like the Ascend Flex, we're in a position, what we're being very defensive to our accounts. And this product kind of fills out a little bit of the portfolio, a little further on the portfolio. And it lets our sales people go back on offense, if you will. I think the MIS instrument sets, and even the cementless Kneetec instruments that are kind of a refresh for our knee in Europe are also important. In the U.S., I think the products that we have currently teed up and launched, as I had indicated during the script, our elbow product is growing nearly 30% year-over-year in the same period. I think that's something that we can continue to leverage. Even though the market isn't extremely large, I think it's an opportunity for us to continue to gain share and drive revenue. And for the Ascend Flex, it's not just about the Flex, it's about the pull-through and the engagement of the whole portfolio. And I think we continue to pull new concepts and products into those pitches with physicians, and I think we'll continue to drive uptake from those.

Operator

And the final question comes from Charles Haff of Craig-Hallum.

Charles Haff - Craig-Hallum Capital Group LLC, Research Division

Most of my questions have been asked and answered. I had a product question on the ankle side. So you had a little bit slower growth on Salto in the U.S. and stronger O-U.S. I wonder if you could discuss the role of the 3-piece ankle? And if your competitor's making any traction on the 3-piece in the U.S. and what's your 3P strategy is in the U.S. and if you could comment on O-U.S.too, that would be helpful, and how that dovetails into the previous question that you answered about the revision side.

David H. Mowry

Yes, I think the best way to answer the question is, I don't believe it's the design of the product, mobile-bearing or fixed-bearing, that has really any impact on the sales rate that we saw. I truly believe in the U.S. we've got a challenge with focus, in terms of having the resources that are focused and engaged in selling the Salto, and that's been a somewhat problematic issue for us on and off again, and through the distributor transition, that's been the most disruptive element, if you will. And we saw that, as we looked at the data, we recognize that these are cases that we were previously covering, that we weren't covering anymore, is where the revenue was missed. It wasn't a choice to select something else. It was a choice to select a rep that was able and capable of covering that case. I don't blame or focus on the distributors at fault there. That's just part of the transition into something we contemplated, Charles, to be honest with you. I think the second point I would make to you is, in Europe, we've seen the uptake because of the focus in the sales organization. And we know that is a great product and frankly, the data supports it. We recently produced a paper, it was I think written by Dr. Chris Coetzee here in Minnesota, who quoted some of the Duke data that shows 2.5 -- actually, it's different survivorship rates. But it showed extremely high survivorship of the Salto-Talaris ankle in a U.S. environment, and that was a Salto-Talaris, and I think it averaged a 2.8-year survivorship, and I think it was in excess of 96%. So I think the onslaught of data will continue to prove the case of which product is right, and how it will be implanted, and I believe our physician champions that do believe in the product continue to implant it, and as we start to bring the sales organization through this transition and to bear, I think we'll get the return to that volume that we fully suspect and expect.

Charles Haff - Craig-Hallum Capital Group LLC, Research Division

And my last question is on pricing. You mentioned you didn't see any impact this quarter, but you did mention in your prepared remarks that you had a couple of areas where there was challenging pricing environment. Which were those areas?

David H. Mowry

Okay, so those are more international. And maybe, Shawn, you could kind of cover those?

Shawn T. McCormick

Yes, I -- we did see, in total, we saw less than 1 point of pricing in the U.S. and O-U.S. So less than 1% pricing in both international and U.S. markets. In the international market, our challenges continue to be Spain and Italy, obviously. Australia, we saw some pricing pressure as well, and a little bit in France. So it continues to be pretty much the same story that we've had, as we see pockets of pricing pressure, it's generally kind of associated in the countries that have economic and austerity pressures.

Operator

There are no further questions at this time. I'll turn the call back over for closing remarks.

David H. Mowry

Thank you, operator, well I want to thank each of you for listening to the call today, as I'm sure you can recognize we are highly focused and engaged with moving the business forward. Through 2 quarters, we've executed against our plan on 3 critical initiatives, and expect to surpass our initial goals for each of these programs. In regards to the U.S. distributional alignment, we plan to accelerate our full year goal of 60%, to be complete now by the end of third quarter, with a significant focus on driving traction in the lower extremities combined sales bag.

Regarding the OrthoHelix integration initiatives, we'll continue to increase the number of U.S. full bag lower extremities sales territories. At the end of first quarter, we have transitioned to 3 full bag territories and through the efforts in the second quarter, we have now raised that number to 15 full bag lower extremity sales territories. We expect to exit 2013 with greater than 30 full bag lower extremity sales territories, representing greater than 60% of our combined lower extremities revenue in the U.S.

With regard to our international OrthoHelix sales, we'll continue our expansion efforts, driving volume of surgical cases in France and Germany while we prepare for additional product introductions across the established international sales infrastructure.

Finally, with respect to Ascend Flex product launch, we now plan to eclipse our full year goal of 100 surgeons trained in using the Flex by the end of third quarter, a full quarter acceleration of this key product introduction. I remain confident that our commitment to execution to these critical objectives will have the significant impact on our financial performance, and will result in Tornier's return to double-digit constant currency revenue growth on a pro forma basis. Furthermore, our focus on selecting and executing the projects and programs aligned to our Specialists Serving Specialists strategy provides Tornier with a platform for sustained growth into 2014 and beyond.

Along with my entire management team, I appreciate your interest in Tornier, and look forward to updating you on our progress at our next earnings call in November. Thank you.

Operator

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.

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