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 first quarter of 2010, ended April 3, 2010.
“Our adjusted gross profit margin of 64.7% improved 40 basis points compared to the first quarter of 2009, reflecting the achievements we have made with our cost savings initiatives, and was in line, sequentially, with the fourth quarter of 2009.”
First Quarter Results
DJOFL achieved net sales from continuing operations for the first quarter of 2010 of $240.1 million, reflecting growth of 10.3 percent over net sales of $217.7 million for the first quarter of 2009. On the basis of constant currency, excluding a $4.2 million favorable impact from changes in foreign exchange rates from rates in effect in the first quarter of 2009, net sales in the first quarter of 2010 grew 8.4 percent over net sales in the first quarter of 2009. The first quarter of 2010 included approximately 65 shipping days in the U.S. and 64 shipping days internationally, while the comparable 2009 period included 61 shipping days globally.
For the first quarter of 2010, DJOFL reported a net loss attributable to DJOFL of $33.7 million, compared to a net loss attributable to DJOFL of $14.3 million for the first quarter of 2009. The results for the current and prior year first quarter periods were impacted by significant non-recurring charges and other adjustments related to ongoing restructuring activities and 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 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 first quarter of 2010, before future cost savings related to acquisitions, was $61.5 million, or 25.6 percent of net sales, growing approximately 26.6 percent, compared to Adjusted EBITDA, before future cost savings, of $48.6 million, or 22.3 percent of net sales, for the first quarter of 2009. The year-over-year improvement is primarily attributable to improving sales results, incremental cost savings realized from integration activities and other cost savings initiatives and the benefit of favorable changes in foreign currency exchange rates, which increased Adjusted EBITDA for the first quarter of 2010 by approximately $1.7 million, compared to what it would have been had rates in effect in the first quarter of 2009 remained in effect. For the twelve month period ended April 3, 2010 (LTM), Adjusted EBITDA was $264.5 million, including future cost savings to be achieved related to recent acquisitions of $0.8 million, or 27.7 percent of LTM net sales.
The Company had cash balances of $54.0 million at April 3, 2010 and available liquidity of $100 million under its revolving line of credit.
"We are pleased to report a good start to 2010," said Les Cross, president and chief executive officer. "Year-over-year constant currency sales growth in excess of 8% reflects growth across all of our business segments.
"First quarter 2010 revenue growth was impacted by the discontinuation of certain unprofitable product lines in our Chattanooga and Bracing and Supports businesses in 2009 and the sale of a small, non-core spine product line in 2009 by DJO Surgical. The discontinued/sold product lines generated revenue of $2.5 million in the first quarter of 2009. On a pro forma basis, excluding 2009 revenue from these products, our first quarter sales would have reflected growth of 11.6% over the first quarter of 2009, or 9.6% on the basis of constant currency. While the first quarter did contain a few more shipping days this year, which contributed to revenue growth for certain of our businesses, revenues for several of our businesses are not affected by the length of the quarter.
"Our adjusted gross profit margin of 64.7% improved 40 basis points compared to the first quarter of 2009, reflecting the achievements we have made with our cost savings initiatives, and was in line, sequentially, with the fourth quarter of 2009.
"We are very pleased to report strong year-over-year growth in Adjusted EBITDA for the first quarter of 2010. Adjusted EBITDA growth continues to be driven by the cost savings initiatives we have completed combined with improving sales results and favorable changes in foreign currency exchange rates. The expected sequential decline in Adjusted EBITDA from the fourth quarter of 2009 reflects normal seasonality in net sales, combined with unfavorable changes in foreign exchange rates, higher expenses related to the timing of certain sales and marketing events and large industry events, such as the annual meeting of the American Academy of Orthopaedic Surgeons and investments we have made to accelerate revenue growth.
"Late in the first quarter, we began implementing our new domestic commercial structure under the leadership of Andrew Holman, Executive Vice President, Sales and Marketing for our U.S. commercial businesses. We have improved the alignment of our domestic sales leadership teams to better address market opportunities. We have integrated our U.S. marketing, our U.S. sales operations and other commercial shared services groups under new leadership. We have also added an important new focus on strategic planning and portfolio management. We look forward to sales momentum building in 2010 as our markets continue their gradual improvement and as our new domestic commercial operations structure gains traction, enabling DJO to achieve greater sales growth.
"First quarter sales from our Domestic Rehabilitation segment, which includes our Bracing and Supports, Empi, Chattanooga and Regeneration businesses, grew 8.2% compared to the first quarter of 2009, led by markedly improved Chattanooga sales growth, in spite of the fact that this business was unfavorably impacted by discontinued product lines, compared to the first quarter a year ago. On a pro forma basis, excluding 2009 revenue from discontinued Chattanooga product lines and 2009 revenue from discontinued pain pump products in Bracing and Supports, Domestic Rehabilitation sales grew approximately 9.1%, compared with the first quarter of 2009, driven by improving market dynamics in most of our businesses and the length of the quarter, which benefited some of our businesses.
"The first quarter also marked an important milestone as we completed the nearly year long integration of our Chattanooga business. This should improve our gross margins later in the year once we work through remaining inventories on hand that still reflect the higher production costs of the U.S. based Chattanooga manufacturing facility. The completion of the integration is also expected to have a positive effect on our operating expenses.
"Sales in our Domestic Surgical Implant segment grew 10.8% over the first quarter of 2009, driven in part by strong sales of our Reverse Shoulder Prosthesis, as well as the length of the quarter. On a pro forma basis, excluding 2009 revenue from the small spine product line that DJO Surgical sold late in 2009, Domestic Surgical Implant sales grew 13.8%, compared with the first quarter of 2009.
"First quarter sales within our International segment were also strong, growing almost 16%, compared to the first quarter of 2009. Favorable changes in foreign currency exchange rates contributed $4.2 million in the first quarter of 2010. Excluding the impact of foreign exchange, international sales grew 8.2% and on a pro forma basis, excluding 2009 revenue from discontinued products, constant currency sales in our International segment increased by 9.8%, compared to the first quarter of 2009. These results were driven primarily by strong bracing and supports sales, aided in part by the length of the quarter, and continuing recovery in global clinical physical therapy markets.
"With a solid first quarter behind us and with the roll out of our new U.S. commercial operations strategy underway, we continue to view 2010 as an exciting and transformational year for DJO. We continue to believe that the industry drivers that influence our businesses are gradually improving, and together with more robust product launches, improved sales initiatives and a more aligned sales approach across our domestic businesses, DJO should continue to deliver improving sales results and strong year-over-year growth in Adjusted EBITDA.
"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 the first quarter. We are especially proud of the fact that our manufacturing facility in Tijuana, Mexico was recently named 'The Best Company to Work for in Mexico 2010,' by the Great Place to Work Institute Mexico.
"For the remainder of 2010, DJO's reported results will likely be impacted by recent unfavorable changes in foreign currency exchange rates. While foreign currency exchange was favorable in the first quarter, recent strengthening of the dollar versus certain currencies, especially the Euro, make it likely that changes in foreign currency exchange rates will have an unfavorable impact on the Company's results for the remainder of 2010."
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