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 fourth quarter and fiscal
year ended December 31, 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.
“We are pleased to have finished a somewhat challenging year on a strong
note, with both net sales and Adjusted EBITDA results for the fourth
quarter establishing new Company records at $257.2 million and $73.2
million, respectively.”
Fourth Quarter Results
DJOFL achieved net sales from continuing operations for the fourth
quarter of 2009 of $257.2 million, reflecting growth of 7.3 percent over
net sales of $239.6 million for the fourth quarter of 2008. On the basis
of constant currency, excluding a $6.1 million favorable impact from
changes in foreign exchange rates from rates in effect in the fourth
quarter of 2008, sales in the fourth quarter of 2009 grew 4.8 percent
over sales in the fourth quarter of 2008. The fourth quarter of 2009
included approximately 65 shipping days, while the comparable 2008
period included 64 shipping days.
For the fourth quarter of 2009, DJOFL reported a net loss of $11.7
million, compared to a net loss of $38.4 million for the fourth quarter
of 2008. The results for the current and prior year fourth 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 fourth quarter of 2009, before future cost
savings related to the DJO Merger and other recent acquisitions, was
$73.2 million, or 28.5 percent of net sales, growing approximately 33.7
percent, compared to Adjusted EBITDA, before future cost savings, of
$54.7 million, or 22.8 percent of net sales, for the fourth 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, and
the benefit of favorable changes in foreign currency exchange rates,
which increased Adjusted EBITDA for the fourth quarter of 2009 by
approximately $1.8 million, compared to what it would have been had
rates in effect in the fourth quarter of 2008 remained in effect.
Cash flow from operations was $73.0 million in the fourth quarter of
2009 before cash interest paid of $67.7 million, but after funding cash
payments of $5.2 million for non-recurring charges in connection with
restructuring and integration activities related to the DJO Merger and
other recent acquisitions. The Company had cash balances of $44.6
million at December 31, 2009 and available liquidity of $100 million
under its revolving line of credit.
Full Year 2009 Results
For the full year 2009, net revenues from continuing operations were
$946.1 million, approximately even with net revenues from continuing
operations of $948.5 million for the full year 2008. Sales for the full
year 2009 were reduced by approximately $13.9 million due to unfavorable
changes in foreign currency exchange rates from the rates in effect for
the full year 2008. On the basis of constant currency, sales for the
full year 2009 increased 1.2 percent over sales for the full year 2008.
For the full year 2009, DJOFL reported a net loss of $50.4 million,
compared to a net loss of $97.8 million for the full year of 2008. The
results for the current and prior year were impacted by significant
non-recurring charges and other adjustments related to the DJO Merger
and certain other smaller acquisitions.
Adjusted EBITDA for the full year 2009, before future cost savings, was
$250.4 million, or 26.5 percent of net sales, increasing 17.7 percent
compared to $212.7 million, or 22.4 percent of net sales, for the full
year 2008. On the basis of constant currency, Adjusted EBITDA for the
full year 2009 increased 20.4 percent over Adjusted EBITDA for the full
year 2008. After including future cost savings to be achieved related to
the DJO Merger and other recent acquisitions of $3.6 million and net
2009 pre-closing EBITDA of $1.4 million related to acquisitions and
immaterial product line divestitures completed in 2009, Adjusted EBITDA
for the full year 2009 was $255.4 million, or 27.0 percent of net sales.
“In spite of one of the worst recessions in history, 2009 was a good
year for DJO,” said Les Cross, president and chief executive officer.
“We achieved positive growth in net sales for the year on a constant
currency basis. We are very pleased to report that Adjusted EBITDA
levels grew over 20% in constant currency in 2009, in spite of modest
sales growth. We also achieved a number of milestones in 2009, including
the completion of most of our merger-related cost-savings initiatives,
the sale of a non-core business to strengthen margins and sales focus in
the EMPI business, the launch of key new products in several markets,
the signing of several GPO contracts key to our Bracing & Supports
business and the acquisition of three small international distributors
to help us further expand margins and penetrate our international
markets. We also significantly improved our liquidity and leverage
ratios in 2009. We ended the year with cash and available capacity under
our revolving line of credit aggregating approximately $144.6 million,
up 36% from liquidity of $106.5 million at the end of 2008. We
successfully reduced our working capital in 2009 and improved both our
days sales outstanding in accounts receivable and our inventory turns.
Our ratios of net senior secured debt and net total debt to Adjusted
EBITDA improved to 3.9 and 6.9, respectively, by the end of 2009.
Additionally, on January 20, 2010, we successfully issued an additional
$100 million of 107/8% senior unsecured notes due
2014, the proceeds of which were used to prepay amounts outstanding
under our senior secured credit facilities, further reducing our senior
secured leverage and adding additional flexibility to our capital
structure. On behalf of the DJO management team and our Board of
Directors, I would like to extend our appreciation to all DJO employees
for a job well done in 2009 under difficult market conditions.
“We are pleased to have finished a somewhat challenging year on a strong
note, with both net sales and Adjusted EBITDA results for the fourth
quarter establishing new Company records at $257.2 million and $73.2
million, respectively.
“Sales growth on a constant currency basis of almost 5% in the fourth
quarter, compared to the fourth quarter of 2008, marked our best
quarterly result for 2009 and was driven by steadily improving sales
throughout 2009 across all of our business units. Additionally, Adjusted
EBITDA levels finished the year at 28.5% of net sales in the fourth
quarter, expanding 390 basis points over the fourth quarter of last year
and 100 basis points sequentially from the third quarter of 2009.
Adjusted EBITDA growth continues to be driven by the cost savings
initiatives we have completed since the DJO Merger closed, combined with
improving sales and a more favorable foreign currency exchange
environment.
“Fourth quarter sales from our Domestic Rehabilitation segment, which
includes our Bracing and Supports, Empi, Regeneration and Chattanooga
businesses, grew 3.2% compared to the fourth quarter of 2008, and also
by almost 3% sequentially from the third quarter of 2009 on a sales per
day basis.
“Sales in our Domestic Surgical Implant segment grew 7.6% over the
fourth quarter of 2008, led by strong sales of our Reverse Shoulder
Prosthesis.
“Fourth quarter sales within our International segment were also strong,
growing by more than 19%, compared to the fourth quarter of 2008.
Favorable changes in foreign currency exchange rates contributed $6.1
million in the fourth quarter of 2009. Excluding the impact of foreign
exchange, sales in our International segment increased by 8.7% compared
to the fourth quarter of 2008, including the benefit of our small
Australian and Canadian acquisitions that closed in February and August
2009, respectively.
“Looking ahead, we expect 2010 to be an exciting year for DJO. We
believe that the industry drivers that influence our businesses will
continue to gradually improve and that our growth rates will therefore
continue to trend favorably. To complement these improving market
conditions, Andrew Holman, who recently joined us as Executive Vice
President, Sales and Marketing for our U.S. commercial businesses,
brings new thinking to our domestic sales and marketing organization to
drive the Company’s vision of commercial excellence. To that end, we
believe the time is now ripe to make certain necessary investments in
our sales and marketing organization intended to accelerate our growth.
The cumulative benefits of our cost savings initiatives will permit us
to increase certain spending for growth initiatives in 2010 and still
deliver strong year over year growth in Adjusted EBITDA. Our 2010
reported results will also likely be impacted by changes in foreign
currency exchange rates. Foreign currency exchange was an unfavorable
headwind for most of 2009, but was a positive contributor in the fourth
quarter. Recent volatility in certain exchange rates such as the Euro
make it difficult to predict the effect foreign currency exchange rate
changes will have on our results in 2010.
“The first quarter will be our longest quarter of 2010, with
approximately 65 shipping days, or four additional days compared to the
first quarter of 2009. For the second through fourth quarters of 2010,
the number of shipping days will be 64, 63 and 61, respectively. As is
usual in the first quarter of each year, we will incur seasonally higher
sales and marketing expenses related to the timing of several national
sales meetings and large industry events, such as the annual meeting of
the American Academy of Orthopaedic Surgeons. Accordingly, while we
expect to report solid year-over-year growth in both revenue and
Adjusted EBITDA in the first quarter, our first quarter Adjusted EBITDA
and Adjusted EBITDA margin will likely reflect sequential declines from
the fourth quarter of 2009.”