DJO Incorporated (“DJO” or the “Company”), a global provider of medical device solutions for musculoskeletal health, vascular health and pain management, today announced financial results for its operating subsidiary, DJO Finance LLC (“DJOFL”), for the third quarter of 2009, ended September 26, 2009.
ReAble Therapeutics, Inc. (“ReAble”) acquired DJO Incorporated (“DJO Opco”) in a transaction completed on November 20, 2007 (the “DJO Merger”). Following completion of the DJO Merger, ReAble changed its name to DJO Incorporated. The Company sold its Empi Therapy Solutions (“ETS”) catalog business in June 2009. The ETS business, a non-core part of the Company’s Empi business unit, consisted primarily of the resale of non-DJO branded rehabilitation equipment and supplies and generated annual revenue of approximately $30 million. Results of the ETS business for periods prior to the date of sale, have been presented as discontinued operations. Certain prior period amounts have been reclassified to conform with this presentation.
Third Quarter Results
DJOFL achieved net sales from continuing operations for the third quarter of 2009 of $236.2 million, compared to $235.5 million for the third quarter of 2008. Sales for the third quarter of 2009 were reduced by approximately $3.4 million due to unfavorable changes in foreign currency exchange rates from the rates in effect in the third quarter of 2008. On the basis of constant currency, sales in the third quarter of 2009 increased approximately two percent over sales in the third quarter of 2008.
For the third quarter of 2009, DJOFL reported a net loss of $11.4 million, compared to a net loss of $14.4 million for the third quarter of 2008. The results for the current and prior year third quarter periods were impacted by significant non-recurring charges and other adjustments related to the DJO Merger and certain other smaller acquisitions.
The Company defines Adjusted EBITDA as net income (loss) plus loss (income) from discontinued operations, interest expense, net, provision (benefit) for income taxes, and depreciation and amortization, further adjusted for certain non-cash items, non-recurring items and other adjustment items, including the addition of certain future cost savings expected to be achieved related to the DJO Merger and other recent acquisitions, all as permitted in calculating covenant compliance under the Company’s senior secured credit facility and the indentures governing its 10.875% senior notes and its 11.75% senior subordinated notes. A reconciliation between net loss and Adjusted EBITDA is included in the attached financial tables.
Adjusted EBITDA for the third quarter of 2009, before future cost savings related to the DJO Merger and other recent acquisitions, was $64.9 million, or 27.5 percent of net sales, growing approximately 20.0 percent, compared to Adjusted EBITDA, before future cost savings, of $54.1 million, or 23.0 percent of net sales, for the third quarter of 2008. The year-over-year improvement is primarily attributable to incremental cost savings realized from integration activities in connection with the DJO Merger and other cost savings initiatives, partially offset by the impact of unfavorable changes in foreign currency exchange rates, which reduced Adjusted EBITDA for the third quarter of 2009 by approximately $1.2 million, compared to what it would have been had rates in effect in the third quarter of 2008 remained in effect. Excluding the effects of changes in foreign currency exchange rates, third quarter 2009 Adjusted EBITDA reflected growth of 22.3 percent over Adjusted EBITDA in the third quarter of 2008. For the twelve month period ended September 26, 2009 (LTM), Adjusted EBITDA was $247.2 million, or 26.6 percent of LTM net sales, including future cost savings to be achieved related to the DJO Merger and other recent acquisitions of $13.2 million.
Cash flow from operations was $52.6 million in the third quarter of 2009 before cash interest paid of $14.7 million, but after funding cash payments of $8.9 million for non-recurring charges in connection with the DJO Merger and related integration activities. The Company had cash balances of $51.3 million at September 26, 2009 and available liquidity of $100 million under its revolving line of credit.
Nine Month Results
Net revenues from continuing operations for the first nine months of 2009 were $689.0 million, reflecting a decrease of approximately three percent, compared with net revenues from continuing operations of $708.9 million for the first nine months of 2008. Sales for the first nine months of 2009 were reduced by approximately $20.0 million due to unfavorable changes in foreign currency exchange rates from the rates in effect in the first nine months of 2008. On the basis of constant currency, average daily sales in the first nine months of 2009 increased approximately one percent over average daily sales in the first nine months of 2008.
Adjusted EBITDA for the first nine months of 2009, before future cost savings related to the DJO Merger and other recent acquisitions, was $177.2 million, or 25.7 percent of net sales, compared to $158.0 million, or 22.2 percent of net sales, for the first nine months of 2008.
“We are generally pleased with DJO’s results for third quarter of 2009. Although we continue to face certain sales challenges imposed by the sluggish economy, year over year sales growth on the basis of constant currency did improve in the third quarter,” said Les Cross, president and chief executive officer. “And importantly, Adjusted EBITDA levels continued to expand as the diligent cost savings initiatives we have in place across the organization, and a more favorable foreign currency exchange environment, continued to supplement constrained sales growth. At almost $65 million and 27.5% of net sales, Adjusted EBITDA for the third quarter of 2009 established a new DJO record.
“Excluding the effects of unfavorable changes in foreign currency exchange rates, net sales in the third quarter of 2009 grew approximately 2% over the third quarter of 2008.
“Third quarter sales from our Domestic Rehabilitation segment, which includes our Bracing and Supports, Empi, Regeneration and Chattanooga businesses, were approximately flat compared with sales levels in the third quarter of 2008, but approximately 3% higher sequentially from the second quarter of this year on a sales per day basis. This result helped drive strong Adjusted EBITDA margins in all of these businesses. Our Chattanooga business continues to be impacted by lower capital spending and tight credit markets that have affected all of 2009, but these unfavorable trends appear to be improving and Chattanooga sales improved sequentially from the second quarter of 2009 by over 10%.
“Sales in our Domestic Surgical Implant segment grew more than 6% over the third quarter of 2008, led by strong sales of our Reverse Shoulder Prosthesis and our new primary shoulder system, Turon.