DJO Global Announces Financial Results for Second Quarter of 2014
DJO Global, Inc.Matt Simons, 760-734-5548SVP Business Development and Investor Relations
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 public reporting subsidiary, DJO Finance LLC (“DJOFL”), for the second quarter ended June 28, 2014.
DJOFL achieved net sales for the second quarter of 2014 of $313.9 million, reflecting growth of 6.5 percent, compared with net sales of $294.7 million for the second quarter of 2013. Net sales for the second quarter of 2014 were favorably impacted by $2.5 million related to changes in foreign currency exchange rates compared to the rates in effect in the second quarter of 2013. Excluding the impact of changes in foreign currency exchange rates from rates in effect in the prior year period (“constant currency”), net sales for the second quarter of 2014 increased 5.8 percent compared to net sales for the second quarter of 2013.
Adjusted EBITDA for the second quarter of 2014 was $70.2 million, or 22.4 percent of net sales, reflecting 5.3 percent growth when compared with Adjusted EBITDA of $66.7 million, or 22.6 percent of net sales, for the second quarter of 2013.
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 amended senior secured credit facility and the indentures governing its 8.75% second priority senior secured notes, its 9.875% and 7.75% senior notes and its 9.75% senior subordinated notes. Reconciliation between net loss and Adjusted EBITDA is included in the attached financial tables.
For the second quarter of 2014, DJOFL reported a net loss attributable to DJOFL of $25.4 million, compared to a net loss of $20.8 million for the second quarter of 2013. As detailed in the attached financial tables, the results for the current and prior year second quarter periods were impacted by significant non-cash items, non-recurring items and other adjustments.
"It is terrific to see our team deliver both strong accelerating revenue and Adjusted EBITDA growth in the second quarter with approximately 6% growth in Revenue and 5% growth in Adjusted EBITDA on a constant currency basis compared to the second quarter of 2013. An ever-growing slate of new products, combined with strong global commercial execution, continues to drive momentum across most of our businesses,” said Mike Mogul, DJO's President and Chief Executive Officer. “I want to especially congratulate our Bracing & Vascular, Surgical Implant and International teams, for delivering strong constant currency growth in the second quarter of 2014 of 7.6%, 17.3% and 7.5%, respectively, as compared to the prior year period. We also saw our Recovery Sciences business begin to bounce-back to flat growth after being impacted by Medicare’s 2012 non-coverage decision related to Transcutaneous Electrical Nerve Stimulation (“TENS”) for chronic low back pain (“CLBP”). We believe that the successful launch of a number of MotionCare products to patients, combined with having reached the anniversary date of Medicare’s noncoverage decision for TENS for CLBP late in the second quarter of 2014, will improve the future sales growth results for this segment.”
Net sales for DJO’s Bracing and Vascular segment were $128.3 million in the second quarter of 2014, reflecting growth of 7.6 percent, compared to the second quarter of 2013, driven by strong contribution from the sales of new products and improving sales execution.
Net sales for DJO’s Recovery Sciences segment were $75.9 million in the second quarter of 2014, reflecting a contraction of 1.9 percent, compared to the second quarter of 2013, primarily due to the effects of the Medicare CLBP decision on the EMPI business unit.
Second quarter net sales within the International segment were $84.6 million, reflecting an increase in constant currency net sales of 7.5 percent from the second quarter of 2013, excluding the impact of $2.5 million of favorable changes in foreign currency exchange rates from rates in effect in the second quarter of 2013.
Net sales for the Surgical Implant segment were $25.1 million for the second quarter of 2014, reflecting growth of 17.3 percent over net sales in the second quarter of 2013, driven by strong sales of each of the Company’s shoulder, knee and hip product lines.
As of June 28, 2014, the Company had cash balances of $36.6 million and available liquidity of $77.5 million under its $100 million revolving line of credit.
DJO has scheduled a conference call to discuss this announcement beginning at 12:00 pm, Eastern Time today, July 25, 2014. Individuals interested in listening to the conference call may do so by dialing (866) 394-8509 (International callers please use (706) 643-6833), using the reservation code 22322226. A telephone replay will be available for 48 hours following the conclusion of the call by dialing (855) 859-2056 and using the above reservation code. The live conference call and replay will be available via the Internet at .
DJO Global is a leading global developer, manufacturer and distributor of high-quality medical devices that provide solutions for musculoskeletal health, vascular health and pain management. The Company’s products address the continuum of patient care from injury prevention to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion. Its products are used by orthopedic specialists, spine surgeons, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers and other healthcare professionals. In addition, many of the Company’s medical devices and related accessories are used by athletes and patients for injury prevention and at-home physical therapy treatment. The Company’s product lines include rigid and soft orthopedic bracing, hot and cold therapy, bone growth stimulators, vascular therapy systems and compression garments, therapeutic shoes and inserts, electrical stimulators used for pain management and physical therapy products. The Company’s surgical division offers a comprehensive suite of reconstructive joint products for the hip, knee and shoulder. DJO Global’s products are marketed under a portfolio of brands including Aircast®, Chattanooga, CMF™, Compex®, DonJoy®, Empi®, ProCare®, DJO® Surgical, Dr. Comfort® and Exos™. For additional information on the Company, please visit .
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements relate to, among other things, the Company’s expectations for its growth in revenue and Adjusted EBITDA and its opportunities to improve commercial execution and to develop new products and services. The words “believe,” “will,” “should,” “expect,” ”target,” “intend,” “estimate” and “anticipate,” variations of such words and similar expressions identify forward-looking statements, but their absence does not mean that a statement is not a forward-looking statement. These forward-looking statements are based on the Company’s current expectations and are subject to a number of risks, uncertainties and assumptions, many of which are beyond the Company’s ability to control or predict. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The important factors that could cause actual operating results to differ significantly from those expressed or implied by such forward-looking statements include, but are not limited to: the successful execution of the Company’s business strategies relative to its Bracing and Vascular, Recovery Sciences, International and Surgical Implant segments; the continued growth of the markets the Company addresses and any impact on these markets from changes in global economic conditions; the successful execution of the Company’s acquisition strategies; the impact of potential reductions in reimbursement levels and coverage by Medicare and other governmental and commercial payors; the Company’s highly leveraged financial position; the Company’s ability to successfully develop, license or acquire, and timely introduce and market new products or product enhancements; risks relating to the Company’s international operations; resources needed and risks involved in complying with government regulations; the availability and sufficiency of insurance coverage for pending and future product liability claims, including multiple lawsuits related to the Company’s cold therapy products and its discontinued pain pump business; and the effects of healthcare reform, Medicare competitive bidding, managed care and buying groups on the prices of the Company’s products. These and other risk factors related to DJO are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on February 25, 2014. Many of the factors that will determine the outcome of the subject matter of this press release are beyond the Company’s ability to control or predict.
__________
Note 1 — Cost of sales is exclusive of amortization of intangible assets of $8,652 and $17,335 for the three and six months ended June 28, 2014 and $8,771 and $17,559 for the three and six months ended June 29, 2013, respectively.
(unaudited)
Our Amended Senior Secured Credit Facility, consisting of a $891.2 million term loan and a $100.0 million revolving credit facility, under which $22.0 million was outstanding as of June 28, 2014, and the Indentures governing our $330.0 million of 8.75% second priority senior secured notes, $440.0 million of 9.875% senior notes, $300.0 million of 7.75% senior notes, and $300.0 million of 9.75% senior subordinated notes represent significant components of our capital structure. Under our Amended Senior Secured Credit Facility, we are required to maintain a specified first lien net leverage ratio, which is determined based on our Adjusted EBITDA. If we fail to comply with the first lien net leverage ratio under our Amended Senior Secured Credit Facility, we would be in default. Upon the occurrence of an event of default under the Amended Senior Secured Credit Facility, the lenders could elect to declare all amounts outstanding under the Amended Senior Secured Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the Amended Senior Secured Credit Facility could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the Amended Senior Secured Credit Facility. Any acceleration under the Amended Senior Secured Credit Facility would also result in a default under the Indentures governing the notes, which could lead to the note holders electing to declare the principal, premium, if any, and interest on the then outstanding notes immediately due and payable. In addition, under the Indentures governing the notes, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing subordinated indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Adjusted EBITDA. Our ability to meet the covenants specified above will depend on future events, many of which are beyond our control, and we cannot assure you that we will meet those covenants.
Adjusted EBITDA is defined as net income (loss) attributable to DJO Finance LLC 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 and other ratios under our Amended Senior Secured Credit Facility and the Indentures governing our 8.75% second priority senior secured notes, 9.875% senior notes, 7.75% senior notes and our 9.75% senior subordinated notes. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants and other ratios in our Amended Senior Secured Credit Facility and the Indentures. Adjusted EBITDA is a material component of these calculations.
Adjusted EBITDA should not be considered as an alternative to net income (loss) or other performance measures presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), or as an alternative to cash flow from operations as a measure of our liquidity. Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definition of Adjusted EBITDA under our Amended Senior Secured Credit Facility and the Indentures allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income (loss). However, these are expenses that may recur, vary greatly and are difficult to predict. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.
The following table provides reconciliation between net loss and Adjusted EBITDA:
__________
(a) Non-cash charges are comprised of the following:
(b) Non-recurring and integration charges are comprised of the following:
(c) Other adjustment items are comprised of the following: