DJOFL first quarter net sales increase 11.7% to $278.9 million

DJO Global, Inc. ("DJO" or the "Company"), a leading 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 first quarter ended March 31, 2012.    

First Quarter Results

DJOFL achieved net sales for the first quarter of 2012 of $278.9 million, reflecting growth of 11.7 percent compared to net sales of $249.7 million for the first quarter of 2011. Net sales for the first quarter of 2012 were unfavorably impacted by $2.2 million related to changes in foreign currency exchange rates compared to the rates in effect in the first quarter of 2011. Excluding the impact of foreign currency exchange rate changes ("constant currency"), net sales for the first quarter of 2012 increased 12.6 percent compared to net sales for the first quarter of 2011.

DJO's first quarter of 2012 included net sales from Circle City Medical ("Circle City"), acquired on March 10, 2011, and Dr. Comfort ("DRC"), acquired on April 7, 2011. On a pro forma (or "organic") basis, as if the acquisitions of Circle City and DRC had both closed on January 1, 2011, DJO net sales for the current quarter reflected growth of 3.6 percent over pro forma net sales of $269.2 million for the first quarter of 2011. In constant currency, net sales for the current quarter increased 4.4 percent compared with pro forma net sales in the first quarter of 2011, reflecting significant sequential expansion from constant currency organic growth rates reported for the fourth quarter of 2011. Sales to customers in the United States by the acquired businesses are included within the Company's Bracing and Vascular segment, and sales to international customers are included within the Company's International segment.

For the first quarter of 2012, DJOFL reported a net loss attributable to DJOFL of $29.4 million, compared to a net loss of $21.2 million for the first quarter of 2011. As detailed in the attached financial tables, the results for the current and prior year first quarter periods were impacted by significant non-cash items, non-recurring items and other adjustments. In addition, beginning in the first quarter of 2012, DJOFL has provided a valuation allowance against a portion of its deferred tax assets due to the cumulative magnitude of such deferred tax assets and an evaluation of the timing and probability of the future realization thereof. As a result, DJOFL's net loss for the first quarter of 2012 reflects an income tax provision of $2.4 million. In the first quarter of 2011, DJOFL's net loss reflected an income tax benefit of $7.5 million. The recording of the valuation allowance does not impact the ability of DJOFL to realize the future cash benefit of all of its deferred tax assets, or otherwise impact DJOFL's liquidity or cash resources.

The Company defines Adjusted EBITDA as net (loss) income attributable to DJOFL plus interest expense, net, income tax provision (benefit), and depreciation and amortization, further adjusted for certain non-cash items, non-recurring items and other adjustment items as permitted in calculating covenant compliance under the Company's senior secured credit facility and the indentures governing its 8.75% second priority senior secured notes, its 10.875% and 7.75% senior unsecured notes and its 9.75% senior subordinated notes. Reconciliation between net loss and Adjusted EBITDA is included in the attached financial tables.

Adjusted EBITDA for the first quarter of 2012 was $65.1 million, or 23.3 percent of net sales, reflecting an increase of 10.5 percent compared with Adjusted EBITDA of $58.9 million, or 23.6 percent of net sales, for the first quarter of 2011. Adjusted EBITDA for the first quarter of 2012 was unfavorably impacted by $0.6 million related to changes in foreign currency exchange rates compared to the rates in effect in the first quarter of 2011. On a pro forma basis, as if the acquisitions of Circle City and DRC had both closed on January 1, 2011, and in constant currency, Adjusted EBITDA for the current quarter was approximately the same as pro forma Adjusted EBITDA of $66.1 million for the first quarter of 2011.

For the twelve months ended March 31, 2012 (LTM), Adjusted EBITDA was $276.4 million, or 25.0 percent of LTM pro forma net sales of $1,105.2 million, including LTM pre-acquisition Adjusted EBITDA from Circle City and DRC of $0.7 million and future cost savings expected to be achieved related to recently acquired businesses of $5.2 million.

"We are pleased to start off 2012 on a strong note with organic constant currency net sales growth of 4.4% over the first quarter of 2011. We saw improved momentum in nearly all of our businesses in the first quarter, based on successful new product launches and improved commercial execution," said Mike Mogul, DJO's president and chief executive officer. "We were especially pleased to see exceptional growth from our Bracing and Vascular and Surgical Implant business segments, which each delivered organic growth in excess of 8.0 percent.

"We are excited to see both the potential business opportunities in our markets and the ability of our team to rapidly develop outstanding products and solutions to take advantage of those opportunities. Our revenue performance in the first quarter was driven by strong contribution from sales of new products launched in late 2011 or early 2012, including our Exos range of upper extremity products incorporating thermoformable polymer technology, our Turon™ Total Shoulder System and our RSP® Monoblock™ Shoulder System. In addition, the successful early performance of our new OA Nano™ osteoarthritis knee brace, which has made the concept of using a brace to alleviate knee pain much lower-profile and lighter, along with our easier-to-use X-Act ROM post-operative braces, helped us finish the quarter with good incremental momentum. Our accelerated product launches began to positively impact our reported growth rates in the fourth quarter of last year and continued to accelerate in the first quarter. We expect these trends to continue as we move through 2012.

"In addition, in line with our expectations discussed last quarter, we were very pleased that Adjusted EBITDA results were achieved at a level approximately the same as the prior year pro forma results, reflecting a significant improvement in the year-over-year comparisons from those of recent quarters. The Adjusted EBITDA margins for the first quarter reflect normal higher seasonal spending for events such as our annual sales meeting and the American Academy of Orthopedic Surgeons meeting, and costs associated with improved commercial execution, including the launch of our exciting new products. We are very confident that incremental revenue from these new products, along with other improvements in commercial execution, will provide opportunities for incremental growth in Adjusted EBITDA in future quarters."

Sales by Business Segment

With the addition of the 2011 acquisitions, net sales for DJO's Bracing and Vascular segment increased 34.7% in the first quarter of 2012, compared to the first quarter of 2011. On a pro forma basis, as if all of the acquisitions had closed at the beginning of the first quarter in 2011, current quarter net sales in the Bracing and Vascular segment increased 8.5% compared with pro forma net sales in the first quarter of the prior year, driven by strong contribution from the net sales of new products including the Exos range of upper extremity products and our Reaction™ knee brace for patients with anterior knee pain.

Primarily as a result of declining net sales within the Empi business unit, net sales for the Recovery Sciences segment contracted by 1.0% compared to the first quarter of 2011. Empi net sales declined by $2.5 million in the first quarter, compared to net sales in the prior year first quarter period. The decline in Empi net sales is primarily due to decreases in third party insurance reimbursement for certain products. Net sales of the CMF bone growth stimulation business unit and the Chattanooga business unit, also included within the Recovery Sciences segment, grew in the aggregate by 4.0% in the first quarter of 2012 compared to the prior year first quarter.

First quarter net sales within the International segment were $71.5 million, growing 2.4% over the prior year period. This result included the international component of DRC, partially offset by the impact of unfavorable changes in foreign exchange rates from rates in effect in the first quarter of 2011. In constant currency and on a pro forma basis for the acquisitions, growth in net sales over pro forma net sales in the prior year first quarter was 4.6% for the International segment.

Net sales for the Surgical Implant segment were $17.9 million in the first quarter, growing 8.3% over net sales in the first quarter of 2011, driven by strong sales of shoulder products, including the recently launched RSP Monoblock™, and hip products, including the new Revelation® microMAX™ hip system.

As of March 31, 2012, the Company had cash balances of $49.1 million and available liquidity of $59.0 million under its revolving line of credit. As previously announced, during the first quarter of 2012, the Company completed a comprehensive refinancing which extended the maturities of its revolving credit facility and its senior secured credit facility. DJOFL also issued $230.0 million of new 8.75% second priority senior secured notes due 2018, the proceeds of which were used to repay $210.0 million of DJOFL's 10.875% senior unsecured notes and to pay premiums and expenses incurred in connection with the refinancing.