Financial

DJO Global Announces Financial Results for Fourth Quarter and Fiscal Year End 2017

March 06, 2018

SAN DIEGO–(BUSINESS WIRE)–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 fourth quarter and fiscal year ended December 31, 2017.

Fourth Quarter Highlights

  • Net sales grew 5.3% to $312.2 million, or 3.7% on a constant currency, sales-per-day basis, compared to the fourth quarter of 2016.
  • Net income attributable to DJOFL was $61.2 million, including a one-time tax benefit of $69.9 million, compared to a net loss of $202.1 million in the prior year period.
  • Adjusted EBITDA increased 35.4% over the prior year quarter to $80.6 million.

Full Year Highlights

  • Net sales grew 2.7% to $1.19 billion, or 2.3% on a constant currency basis.
  • Net loss attributable to DJOFL was $35.9 million compared to $286.3 million in the prior year.
  • Adjusted EBITDA increased 14.0% to $268.2 million.

Business Transformation Outcomes

  • Business Transformation drove profitability expansion and remains on track to deliver 7% to 10% annual cost reductions by end of 2018.
  • Transformation actions taken to date expected to contribute $25.5 million in savings over the next four quarters.

“Our team delivered outstanding fourth quarter and full year operating results,” said Brady Shirley, DJO’s President and Chief Executive Officer. “We had continued double digit growth in the fourth quarter from our innovative surgical products, strong performance in our International business segment and realization of cost improvement from our broader business transformation. At 14% Adjusted EBITDA growth in 2017, we delivered not only our best performance in many years, but also believe we delivered a top performance in the Orthopaedic market. I am proud of the DJO team and happy to see their dedication and hard work pay off in 2017. We are excited to enter 2018 with a strong dedication to continued discipline and an opportunity to begin to invest in growth for the future.”

“With our transformation initiatives, we have greatly improved the foundation of our company both operationally and financially, producing the strongest Adjusted EBITDA growth for the company in many years,” commented Mike Eklund, DJO’s Chief Financial Officer and Chief Operating Officer. “There is certainly more work to do, but I am pleased with the team’s achievement thus far, and as confident as ever in our ability to continue improving operating metrics and profitability again in 2018.”

Sales Results

DJOFL achieved net sales for the fourth quarter of 2017 of $312.2 million, reflecting growth of 5.3%. The fourth quarter of 2017 included 61 selling days for our International segment compared to 62 for the same period in 2016, while domestic selling days remained constant at 61. On the basis of constant currency and sales per day, sales in the fourth quarter of 2017 grew 3.7% over sales in the fourth quarter of 2016. For the twelve months ending December 31, 2017, sales grew 2.7% over the comparable period in 2016 to $1.19 billion, or 2.3% on a constant currency basis.

Net sales for the Surgical Implant segment grew 12.8% in the fourth quarter of 2017 to $54.2 million. Sales across all three implant subcategories (knee, hip and shoulder) again grew at double digit rates compared to the prior year period. For the twelve months ending December 31, 2017, Surgical Implant sales grew 14.8% over the comparable period in 2016 to $200.4 million.

Net sales for DJO’s International segment grew 15.2% in the fourth quarter of 2017 to $85.3 million, or 9.1% on the basis of constant currency and sales per day. Growth was driven by strong performance in Germany, France and Australia. For the twelve months ending December 31, 2017, International sales grew 6.3% to $320.1 million, or 4.7% on a constant currency basis over the comparable period in 2016.

Net sales for DJO’s Recovery Sciences segment were $41.7 million in the fourth quarter of 2017, down 1.2% compared to the fourth quarter of 2016. For the twelve months ending December 31, 2017, Recovery Sciences sales grew 0.8% over the comparable period in 2016 to $158.3 million.

Net sales for DJO’s Bracing and Vascular segment were $131.0 million in the fourth quarter of 2017, a decline of 0.9% compared to the fourth quarter of 2016. For the twelve months ending December 31, 2017, Bracing and Vascular sales declined 2.9% from the comparable period in 2016 to $507.4 million.

Earnings Results

For the fourth quarter of 2017, DJOFL reported net income of $61.2 million, including an income tax benefit of $69.9 million attributable to the enactment of the Tax Cuts and Jobs Act of 2017, compared to a net loss of $202.1 million for the fourth quarter of 2016, which included goodwill impairment and other non-cash charges of $178.0 million. For the twelve months of 2017, DJOFL reported a net loss of $35.9 million compared to a net loss of $286.3 million for the twelve months of 2016. As detailed in the attached financial tables, the results for the current and prior fourth quarter and twelve month periods were impacted by significant non-cash items, non-recurring items and other adjustments.

Adjusted EBITDA for the fourth quarter of 2017 was $80.6 million compared with Adjusted EBITDA of $59.5 million in the fourth quarter of 2016. For the twelve months ending December 31, 2017, Adjusted EBITDA was $268.2 million compared with Adjusted EBITDA of $235.3 million for the twelve months ending December 31, 2016. Including projected future savings of $25.5 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 December 2017 was $293.7 million.

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.

Net cash provided by continuing operating activities for the twelve months ending December 31, 2017 was $44.6 million compared to $8.6 million in 2016. The improvement in cash flow was attributable to both higher earnings and working capital initiatives executed as part of the Company’s overall business transformation.

Conference Call Information

DJO has scheduled a conference call to discuss this announcement beginning at 11:00 am Eastern Time, Tuesday, March 6, 2018. 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 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™. 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 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 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, 2016, filed with the Securities and Exchange Commission on March 15, 2017. 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.

DJO Finance LLC

Unaudited Condensed Consolidated Statements of Operations

(In thousands)

Three Months ended

December 31,

Twelve Months ended

December 31,

2017 2016 2017 2016
Net sales $ 312,195 $ 296,490 $ 1,186,206 $ 1,155,288
Costs and operating expenses:

Cost of sales (exclusive of amortization see Note 1)

131,328 150,324 498,107 511,414
Selling, general and administrative 118,556 132,349 510,523 490,693
Research and development 8,363 9,253 35,429 37,710
Amortization of intangible assets 15,433 18,869 66,146 76,526
Impairment of goodwill 160,000 160,000
273,680 470,795 1,110,205 1,276,343
Operating income (loss) 38,515 (174,305 ) 76,001 (121,055 )
Other (expense) income:
Interest expense, net (44,792 ) (42,733 ) (174,238 ) (170,082 )
Other income (expense), net 105 (3,266 ) 2,113 (2,534 )
(44,687 ) (45,999 ) (172,125 ) (172,616 )
Loss before income taxes (6,172 ) (220,304 ) (96,124 ) (293,671 )
Income tax benefit (67,397 ) (18,009 ) (60,720 ) (6,853 )
Net Income (loss) from continuing operations 61,225 (202,295 ) (35,404 ) (286,818 )
Net income from discontinued operations 81 331 309 1,138
Net income (loss) 61,306 (201,964 ) (35,095 ) (285,680 )
Net income attributable to noncontrolling interests (155 ) (162 ) (799 ) (623 )
Net income (loss) attributable to DJO Finance LLC $ 61,151 $ (202,126 ) $ (35,894 ) $ (286,303 )
Note 1 — Cost of sales is exclusive of amortization of intangible assets of $6,790 and $27,732 for the three months and twelve months ended December 31, 2017 and $6,981 and $28,525 for the three and twelve months ended December 31, 2016, respectively.
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Mason Krell

Mason began his career in the Orthopedic Industry in 2017 when he joined The De Angelis Group as a Research Manager. He has developed a strong network within the industry and is very dedicated to helping companies maximize opportunities and disrupt markets.

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