SAN DIEGO, CA, May 8, 2008 - DJO Incorporated (formerly named ReAble Therapeutics, Inc.) ("DJO" or the "Company"), a global provider of medical devices that provide 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 2008, ended March 29, 2008. 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.
First Quarter Results
DJOFL achieved actual net sales for the first quarter of 2008 of $239.7 million, reflecting growth of 124.7 percent over actual net sales of $106.7 million in the first quarter of 2007, driven in large part by recent acquisitions as well as continued growth across our business segments. In 2007, in addition to the DJO Merger, the Company completed acquisitions of IOMED, Inc. and The Saunders Group, Inc. in August 2007 and July 2007, respectively, and of two immaterial businesses. Collectively, these acquisitions are referred to as the "Other Acquisitions." On a pro forma basis, as if the DJO Merger and the Other Acquisitions had all closed on January 1, 2007, sales for the first quarter of 2008 would have reflected growth of approximately 5.5 percent, compared to $227.1 million for the first quarter of 2007.
For the quarter ended March 29, 2008, DJOFL reported a net loss of $24.2 million, compared to a net loss of $11.1 million for the first quarter of 2007. The results for both periods were impacted by significant purchase accounting adjustments, non- recurring charges and other adjustments related to the DJO Merger and the Other Acquisitions, in the case of the 2008 results, and ReAble's acquisition, in November 2006, by an affiliate of Blackstone Capital Partners V L.P. and certain other acquisitions completed by ReAble in 2006, in the case of the 2007 results.
The Company defines Adjusted EBITDA as earnings before net interest expense, taxes, depreciation and amortization, further adjusted for certain non-cash items, non-recurring items and other adjustment items, including the addition of pro forma EBITDA related to acquired businesses and certain future cost savings expected to be achieved related to 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 first quarter of 2008, before future cost savings to be achieved related to the DJO Merger and the Other Acquisitions, was $48.8 million, or 20.3 percent of net sales, reflecting strong sequential improvement from pro forma Adjusted EBITDA for the fourth quarter of 2007, also before future cost savings, of $39.2 million, or 16.4 percent of fourth quarter pro forma net sales. The improvement is primarily attributable to cost savings realized in connection with the Other Acquisitions and the initial cost savings related to the DJO Merger. For the first quarter of 2007, pro forma Adjusted EBITDA, before future cost savings, was $47.7 million. For the twelve month period ended March 29, 2008 (LTM), pro forma Adjusted EBITDA was $246.5 million, or 26.3 percent of pro forma LTM net sales, including future cost savings to be achieved related to the DJO Merger and the Other Acquisitions of $61.4 million.
The Company had cash balances of $67.7 million at March 29, 2008 and additional available liquidity of $99.1 million under its $100 million revolving line of credit (net of outstanding letters of credit).
"We are very pleased to report our first full quarter as the New DJO," said Les Cross, Chief Executive Officer. "Our first quarter went according to plan and we achieved the goals we set for the Company. While we are still in the early days since closing the merger late last November, we are very pleased with the progress of the integration and we continue to expect to realize revenue synergies and significant cost savings from bringing ReAble and DJO together.
"The first quarter of 2008 was pivotal in laying the groundwork necessary to achieve the integration related cost savings of over $50 million. Toward this end, we made excellent progress with our integration initiatives Company-wide in the first quarter, and we expect to see our realized savings from these initiatives begin to ramp in the second quarter."
First Quarter 2008 Integration Highlights
The Company announced the following highlights from its first quarter integration activities.
- Hiring key personnel including a senior vice president of global procurement to facilitate cost reduction through renegotiation of vendor contracts for common raw materials, components and other items, and a vice president of global quality who will drive cost reduction through a consistent global vision related to quality;
- Establishing a combined domestic freight contract to reduce costs;
- Relocating certain labor-intensive manufacturing operations to the Company's award-winning, low-cost manufacturing facility in Mexico;
- Centralizing the distribution of certain products from DJO's Indianapolis distribution center;
- Beginning to implement the lean manufacturing principles employed by the legacy DJO throughout the ReAble manufacturing operations to reduce production lead times, enhance productivity and free up plant space;
- Eliminating duplicate corporate headcount and reducing our combined spending for insurance, audit, director fees and other indirect items;
- Integrating the medical reimbursement operations for the Company's Regeneration business into our Shoreview, MN center of excellence for insurance reimbursement, in time for an April 1, 2008 go-live date;
- Assessing the corporate information technology needs and beginning the process of consolidating several enterprise resource planning systems that presently exist across the entire Company into a single system;
- Completing unified technology maps and functional plans within DJO's research and development groups to develop common metrics and commercialization processes, as well as "protostorming" new to the world product ideas; and,
- Nearly completing the integration of the former DJO Germany business into the ReAble Ormed business in Germany to create a much larger and more cost-efficient business in Germany.
Mr. Cross continued his discussion by saying, "The integration of ReAble and DJO is the largest and most important undertaking in either company's history. With the foundation laid in the first quarter, we are on schedule with our integration strategy, which should enable us to generate meaningful future cost savings across the company. On the sales side, our cross-referral program is ramping up as expected and we are beginning to see the referrals translate into revenue. And finally, we are gratified to see that employees throughout the new organization, now nearly 5,000 strong, have so openly embraced our culture of continuous improvement and are driving hard to take DJO forward to the next level.
"We continue to expect 2008 net sales to approach $1 billion. With sales at this level, combined with the expected cost savings, we continue to target Adjusted EBITDA margins approaching 30% of net sales by the end of 2008."
Conference Call Information
DJO has scheduled a conference call to discuss this announcement beginning at 1:00 PM, Eastern Time today, May 8, 2008. Individuals interested in listening to the conference call may do so by dialing (877) 864-4577 (International callers please use (706) 634-0177), using the reservation code 45734952. A telephone replay will be available for 48 hours following the conclusion of the call by dialing (706) 645-9291 and using the above reservation code. The live conference call and replay will be available via the Internet at www.DJOglobal.com.
About DJO Incorporated
DJO 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. Our 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 systems, 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's products are marketed under the brands Aircast®, DonJoy®, ProCare®, CMF™, Em®i, Saunders®, Chattanooga Group™, DJO Surgical, Cef®r-Compex® and Ormed®. For additional information on the Company, please visit www.DJOglobal.com.
Safe Harbor Statement
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 regarding sales and Adjusted EBITDA for 2008, sales synergies, cost reductions and accelerated product development. The words "believe," "should," "expect," "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 Domestic Rehabilitation, International Rehabilitation and Surgical Implant segments; the Company's ability to achieve the revenue synergies expected from the DJO Merger; the success of the Company's post-merger cost reduction initiatives designed to improve gross profit margins and reduce operating expenses; the Company's highly leveraged financial position resulting primarily from the indebtedness incurred in connection with the DJO
Merger and other recent acquisitions; the continued growth of the markets the Company addresses; the impact of potential reductions in reimbursement levels by Medicare and other governmental and commercial payors; the Company's ability to successfully develop, license or acquire, and timely introduce and market new products or product enhancements; the Company's dependence on orthopedic professionals, agents and distributors for marketing its products; the Company's dependence on third-party agents to manage insurance billing and collections; risks relating to the Company's international operations; resources needed and risks involved in complying with government regulations and in developing and protecting intellectual property; and the effects of healthcare reform, Medicare competitive bidding, managed care and buying groups on the prices of the Company's products. Other risk factors are detailed in DJOFL's Annual Report on Form 10-K for the year ended December 31, 2007, filed on March 28, 2008 with the Securities and Exchange Commission. Additional risk factors may be found in DJOFL's Form S-4, filed on April 21, 2008 with the Securities and Exchange Commission. 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.
Company Investor/Media Contact:
DJO Incorporated
Mark Francois
Director of Corporate Communications & Investor Relations
760-734-4766
