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DJO Global Announces Financial Results for Second Quarter 2018

August 6, 2018

SAN DIEGO--(BUSINESS WIRE)--Aug 6, 2018--DJO Global, Inc. (“DJO” or the “Company”), a leading global provider of medical technologies designed to get and keep people moving, today announced financial results for its public reporting subsidiary, DJO Finance LLC (“DJOFL”), for the second quarter ended June 30, 2018.

On January 1, 2018, DJO adopted Accounting Standards Update 2014-09, Revenue From Contracts with Customers, (ASC 606). As a result of the adoption, in the second quarter the Company reclassified $5.4 million of year-to-date costs from selling, general and administrative costs to net sales. The table below summarizes net sales and growth rates with, and without, the adoption of ASC 606.

Second Quarter Highlights

Net sales grew 5.3% to $310.3 million, or $304.8 million as reported with the adoption of ASC 606, compared to $294.7 million in the prior year period. Operating income increased 296% to $35.8 million from $9.0 million in the prior year period. Net loss attributable to DJOFL was $13.7 million, compared to a net loss of $34.4 million in the prior year period. Adjusted EBITDA continued to expand, increasing 19.0% over the prior year quarter to $75.6 million.

Business Transformation

The previously announced business transformation continues to drive profitability, pushing Adjusted EBITDA margins up 280 basis points (excluding the impact of ASC 606 adoption) in the second quarter of 2018 compared to the prior year, and remains on track to deliver 7% to 10% annual cost reductions by end of 2018. Including $24.8 million in future annual run-rate savings from transformation actions taken to date, Adjusted EBITDA for the twelve months ended June 30 was $312.6 million.

“We executed well in the second quarter, continuing to deliver sustainable value from our transformation efforts, accelerating new product introductions and overcoming market headwinds on elective procedures,” said Brady Shirley, DJO’s President and Chief Executive Officer. “I am encouraged by the momentum in our revenue growth and expanding margins, and continue to anticipate a stronger trajectory for the balance of our fiscal year.”

Mike Eklund, Chief Financial Officer and Chief Operating Officer of DJO, added, “We continue to work aggressively toward our profitability goals and are realizing the benefits, with Adjusted EBITDA for the quarter increasing 19%, or 3.6 times the growth in revenue, and margins improving about 280 basis points. Our team has worked hard on our transformation initiatives to improve operational efficiency, service levels and customer experience. This quarter’s financial metrics are continued indicators of our success.”

Sales Results

Net sales for DJOFL for the second quarter of 2018 were $310.3 million, an increase of 5.3% from the prior year period, or $304.8 million with the adoption of ASC 606. On a constant currency basis, sales increased 3.7%. For the six months ending June 30, 2018, net sales increased 3.4% to $602.9 million, or $597.5 million with the adoption of ASC 606. On a constant currency basis, net sales for the first half of 2018 increased 1.1% over net sales in the first half of 2017. The number of selling days in the quarter was the same as in the prior year period.

Net sales for DJO’s Surgical Implant segment grew 7.9% in the quarter to $53.9 million. The company’s shoulder implant product line was a key contributor with strong double-digit growth compared to the same quarter in the prior year. For the six months ending June 30, 2018, the Surgical Implant segment grew 8.0% over the prior year period to $107.5 million.

Net sales for DJO’s International segment grew 9.3% in the second quarter to $87.0 million, or 3.5% on a constant currency basis. The company’s sales growth in Germany, France and Australia were partially offset by market conditions in Canada and the United Kingdom. For the six months ending June 30, 2018, the International segment revenue was $175.6 million, an increase of 11.3%, or 2.8% on a constant currency basis.

Net sales for DJO’s Recovery Sciences segment were $37.5 million in the second quarter, a year-over-year decrease of 3.4%. Strong growth in the segment’s Regeneration CMF product line was offset by softness in the Chattanooga product line compared to the prior year period. For the six months ending June 30, 2018, the Recovery Sciences segment declined 5.1% to $73.3 million.

Net sales for DJO’s Bracing and Vascular segment grew 4.4% to $131.9 million in the second quarter, or $126.5 with the adoption of ASC 606. There was strong growth in the segment’s DonJoy product line, partially offset by weakness in the Dr. Comfort footwear product line. Strong demand for new products, strength in acute care and continued progress in transformation initiatives to improve service levels contributed to the results. For the six months ending June 30, 2018, Bracing and Vascular net sales were $246.4 million, a decline of 0.8% from the first half of 2017, or $241.0 million with the adoption of ASC 606.

Earnings Results

Operating income was $35.8 million in the quarter, an increase of 296% over the prior year period. For the six months ending June 30, 2018, operating income was $69.3 million, an increase of 341% over the prior year. Net loss attributable to DJOFL was $13.7 million in the quarter compared to $34.4 million in the prior year period. For the six months ended June 30, net loss was $31.3 million compared to $74.4 million in the six month ended July 1, 2017.

Adjusted EBITDA for the second quarter was $75.6 million, an increase of 19.0% from the prior year period, or 17.0% on the basis of constant currency. For the six months ended June 30, 2018, Adjusted EBITDA was $140.4 million, up 16.2% from the prior year, or 14.5% on a constant currency basis. Including projected future run-rate savings of $24.8 million from cost savings programs currently underway as permitted under our credit agreement and the indentures governing our outstanding notes, Adjusted EBITDA for the twelve months ended June 30, 2018 was $312.6 million.

Net cash provided by continuing operating activities was $9.0 million for the six months ended June 30, 2018 compared to $38.1 million for the six months ended July 1, 2017. The change in cash flow was primarily attributable to higher inventory balances to allow for the modernization and consolidation of distribution facilities as part of the Company’s transformation initiatives, and to the payment in 2018 of certain non-recurring costs accrued in 2017.

The Company defines Adjusted EBITDA as net (loss) income attributable to DJOFL plus net interest expense, 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 secured term loan and revolving credit facilities (“Senior Secured Credit Facilities”) and the indentures governing its 8.125% second lien notes and its 10.75% third lien notes. A reconciliation between net loss attributable to DJOFL and Adjusted EBITDA is included in the attached financial tables.

Conference Call Information

DJO has scheduled a conference call to discuss this announcement beginning at 4:30 pm, Eastern Time Monday, August 6, 2018. Individuals interested in listening to the conference call may do so by dialing (866) 394-8509 (International callers please use (346) 265-0698), 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 www.DJOglobal.com.

About DJO Global

DJO Global is a leading global provider of medical technologies designed to get and keep people moving. The Company’s products address the continuum of patient care from injury prevention to rehabilitation, enabling people to regain or maintain their natural motion. Its products are used by orthopaedic 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 orthopaedic 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®, ProCare®, DJO® Surgical, Dr. Comfort® and Exos TM. 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 for improved liquidity, estimated cost reductions associated with the execution of its business transformation plans and improved efficiencies. 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 transformation plans, including achievement of planned actions to improve liquidity, improvements in operational effectiveness, optimization of the Company’s procurement activities, improvements in manufacturing, distribution, sales and operations planning, and actions to improve the profitability of the mix of our product and customers. Other 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: business strategies relative to our 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 impact of potential reductions in reimbursement levels and coverage by Medicare and other governmental and commercial payers; 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 and government investigations; the availability and sufficiency of insurance coverage for pending and future product liability claims; 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, 2017, filed with the Securities and Exchange Commission on March 16, 2018. 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.

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