DJO Record 3Q Net Revenues ‘Exceed Expectations’

DJO Incorporated, (NYSE:DJO), based in San Diego, California, a global provider of products and services that promote musculoskeletal and vascular health, announced November 2 its financial results for the third quarter of 2006, ended September 30, 2006.

Net revenues for the third quarter of 2006 were a record $113.2 million, reflecting an increase of 56.9 percent, compared with net revenues of $72.1 million in the third quarter of 2005. The third quarter of 2006 included revenue contributions from the company's 2006 acquisitions of Aircast and Axmed. Third-quarter revenue also included the benefit of a change in shipping terms for certain Aircast products from Aircast's historical terms of FOB destination to DJO's policy of FOB shipping point. Additionally in the third quarter, DJO cleared certain backorders that existed at the end of the second quarter of 2006 due to the impact of integration activities taking place at that time. Together, these two items contributed approximately $1.9 million of revenue in the third quarter. The third quarters of 2006 and 2005 each included 63 shipping days.

Non-GAAP net income for the third quarter of 2006 was $9.0 million, or $0.38 per share, compared to non-GAAP net income of $7.8 million, or $0.34 per share, for the third quarter of 2005. As of January 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, resulting in the recognition of stock-based compensation expense beginning January 1, 2006. Non-GAAP results for the third quarter of 2006 exclude the after tax impact of this stock-based compensation expense and certain costs and expenses related to acquisitions and the company's move into its new corporate headquarters, which occurred during the third quarter. Non-GAAP results for the third quarter of 2005 exclude the after tax impact of a write-offof previously deferred expenses related to discontinued acquisitions. GAAP net income for the third quarter of 2006 was $4.4 million, or $0.18 per share, as compared to GAAP net income of $7.5 million, or $0.33 per share, for the third quarter of 2005. As previously discussed by the company, the acquisition of Aircast has had a short-term dilutive impact on the company's financial results due to the impact of purchase accounting amortization expense and interest expense related to the acquisition financing being in excess of the pre-integration profit contribution from the Aircast business. The company said it continues to expect the acquisition to be highly accretive to earnings in 2007, based on expected cost reduction synergies to be achieved through the integration of the acquired business into DJO.

Recent Business Highlights

" DJO Incorporated successfully commenced Aircast customer service operations in August at its new distribution center in Indianapolis, Indiana. This new 110,000-sq.-ft. facility is the primary distribution hub for all Aircast products and Aircast customer service activities. It also supports distribution for DJO's DonJoy and OfficeCare channels.

" The expansion of the company's facilities in Mexico was completed on schedule in early September, providing the additional capacity to relocate all remaining Aircast manufacturing from New Jersey to Mexico during the fourth quarter of 2006.

" The company renewed or signed three major supply contracts during the third quarter. These contracts include a new sole-source supply agreement with Consorta Inc. that includes all Aircast, DonJoy, and ProCare branded bracing and soft goods products and vascular systems products for a three-year term. DJO also renewed its three-year supply contracts with both Broadlane Inc. and Premier Purchasing Partners to supply its full line of Aircast, DonJoy, and ProCare rigid and soft bracing products and cold therapy systems. The company also signed several other contracts during the quarter, including a new three-year supply contract with Amerinet Choice for pain management products, including cold therapy, two new government regional supply contracts for bracing and soft goods, and two government supply contract renewals for vascular systems products.

" The company announced a sponsorship agreement with Carson Palmer, NFL quarterback for the Cincinnati Bengals, who is now wearing DJO's custom DonJoy Defiance® knee brace. As part of the sponsorship agreement, Carson Palmer will be featured in DJO's award-winning "Faces of DonJoy" print advertising campaign.

" The company completed the move to its new world headquarters in Vista, California, in August.

" In September, DJO was named to the Deloitte & Touche "Technology Fast 50" list of San Diego's fastest growing companies.

" DJO received the "Competitive Strategy Leadership" award from Frost & Sullivan.

Nine-Month Results

Net revenues for the first nine months of 2006 were $302.3 million, reflecting an increase of 43.1 percent, compared with net revenues of $211.2 million for the first nine months of 2005. The first nine months of 2006 and 2005 included 191 and 192 shipping days, respectively.

Non-GAAP net income for the first nine months of 2006 was $23.5 million, or $1.01 per share, compared with non-GAAP net income of $21.3 million, or $0.94 per share, for the first nine months of 2005. Non-GAAP results for the first nine months of 2006 exclude the after tax impact of stock-based compensation expense, purchase accounting adjustments to write up acquired inventories to fair value, certain costs and expenses related to acquisitions, an arbitration that concluded in the second quarter of 2006, the company's move into its new corporate headquarters and the write-offof previously deferred expenses related to discontinued acquisitions. Non-GAAP results for the first nine months of 2005 exclude the after-tax impact of the write-offof previously deferred expenses related to discontinued acquisitions. GAAP net income for the first nine months of 2006 was $11.6 million, or $0.50 per share, compared to GAAP net income of $21.1 million, or $0.93 per share, for the first nine months of 2005.

"We are very pleased to report another strong quarter with record revenues exceeding our expectations," said Les Cross, president and CEO. "Our revenue growth continues to be driven by outstanding sales productivity across our existing business segments and by contributions from our acquisitions. While our total revenue growth has clearly been enhanced by our acquisitions, our core business is performing extremely well. At the bottom line, our strong revenue levels, combined with the results of good progress with the integration of Aircast, permitted us to show significant sequential improvement in our non-GAAP operating margins and earnings per share from the second quarter of 2006.

"Within our Domestic Rehabilitation business, each of our DonJoy ® , ProCare ® and OfficeCare ® sales channels posted solid growth rates over the prior year. We also reached a milestone in our OfficeCare channel by exceeding 1,000 total accounts in the quarter. As expected, growth of Aircast products is beginning to accelerate under DJO's leadership, with more feet on the street selling the products. We are pleased to see opportunities for Aircast sales synergies start to materialize as Aircast products were recently added to three large, multi-year GPO supply contracts and several smaller contracts.

"Our Regeneration segment also delivered another strong quarter, with revenue growing at 15.9 percent over the third quarter of 2005 and both our OL1000TM and SpinaLogic ® product lines growing in double-digits. Revenue growth was particularly strong for our SpinaLogic product line in the third quarter, at 22 percent over the prior year.

"Revenue growth in our International segment of nearly 200 percent reflects contributions from both 2006 acquisitions, as well as continued progress against our growth strategies of product line and geographical expansion. We are very pleased with the progress we have made with the Aircast integration outside of the US and with an expanded international sales force carrying Aircast, Axmed, and DJO products; we are beginning to realize revenue synergies from the acquisitions.

"We are also pleased to report a significant improvement in our operating results in the third quarter. Our gross profit for the third quarter was reduced by charges related to stock-based compensation expense (approximately $0.3 million) and costs and expenses related to our acquisitions and our move into the Company's new corporate headquarters in Vista, California (approximately $1.9 million). Our non-GAAP consolidated gross profit margin before those items, aggregating approximately $2.2 million, was 62.4 percent of revenues in the third quarter, reflecting a slight improvement from the second quarter. As we have discussed, most of the manufacturing integration, which is expected to improve our gross profit and gross profit margin, will occur during the fourth quarter.

"The third quarter marked an improvement in our non-GAAP operating expenses as a percentage of revenues due to our increased revenue levels and progress made with the integration of the Aircast SG&A functions. Accordingly, our non-GAAP operating income margin improved sequentially from the second quarter of this year by 250 basis points to 18.4 percent. Due to reduced integration related costs, our GAAP operating income margin also improved. Total GAAP operating expenses included charges related to stock-based compensation expense (approximately $2.4 million) and costs and expenses related to acquisitions and to the Company's move into its new corporate headquarters (approximately $1.1 million). These charges aggregated approximately $3.5 million.

"Net interest and other expense for the third quarter of 2006 was $6.7 million, which was reduced by a net foreign currency transaction gain of $0.4 million. This amount also includes a non-cash charge of $0.9 million to write-offabandoned leasehold improvements and other assets in connection with the move of our corporate headquarters. Our non-GAAP net interest and other expense, before this non-cash charge, was $5.8 million.

"The total after-tax impact on our third quarter 2006 earnings from stock-based compensation expense was $2.3 million, or approximately $0.10 per share. The total after-tax impact on our third quarter 2006 earnings from other costs and expenses not deemed to be reflective of the company's ongoing operations was also $2.3 million, or approximately $0.10 per share.

"We generated good cash flow in the third quarter, which permitted us to repay approximately $15 million of debt during the quarter. As a good start to cash flow for the fourth quarter, we completed the sale of the Aircast Summit, New Jersey, headquarters facility in October, netting us cash of approximately $4.2 million.

"Completing the integration of the Aircast business remains a priority for us in the fourth quarter. We are now in the final phase, which includes relocating all the Aircast manufacturing operations from New Jersey to Mexico. To date, we have moved approximately half of the Aircast manufacturing volume to Mexico.

"With a strong third quarter behind us, we have increased our 2006 full year revenue expectations. We are now targeting 2006 revenues to be between $409 million and $412 million. For the fourth quarter, which will be our shortest quarter of the year with only 61 shipping days, we are targeting total net revenues of between $107 million and $110 million. We continue to expect the Aircast integration to be completed by the end of this year, providing DJO with annualized cost reduction synergies of between $18 million and $20 million in 2007."

DJO Incorporated is a global provider of solutions for musculoskeletal and vascular health, specializing in rehabilitation and regeneration products for the non-operative orthopedic, spine and vascular markets.

Marketed under the Aircast ® , DonJoy ® , and ProCare ® brands, the company's range of over 700 rehabilitation products, including rigid knee braces, soft goods and pain management products, are used in the prevention of injury, in the treatment of chronic conditions and for recovery after surgery or injury. The company's regeneration products consist of bone growth stimulation devices that are used to treat nonunion fractures and as an adjunct therapy after spinal fusion surgery. The company's vascular systems products help prevent deep vein thrombosis and pulmonary embolism that can occur after orthopedic and other surgery.

DJO Record 3Q Net Revenues ‘Exceed Expectations’

Ossur Wins Frost & Sullivan Award

ABC-BCP Merger Vote Underway

ABC-BCP Merger Vote Underway

RECENT NEWS

Get unlimited access!

O&P JOBS

CPO or CO

CPO

Certified Prosthetist Orthotist (CPO)

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

The most important industry news and events delivered directly to your inbox every week.

Welcome Back!

Retrieve your password

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

DJO Record 3Q Net Revenues ‘Exceed Expectations’

Support authors and subscribe to content

Subscribe

Related posts:

Ossur Wins Frost & Sullivan Award

ABC-BCP Merger Vote Underway

ABC-BCP Merger Vote Underway

RECENT NEWS

Get unlimited access!

O&P JOBS

CPO or CO

CPO

Certified Prosthetist Orthotist (CPO)

Login to your account

Reset Password

Signup to your Account

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Account Activation

The most important industry news and events delivered directly to your inbox every week.

Welcome Back!

Retrieve your password

Login to your account

Reset Password

Signup to your Account

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Account Activation