Exhibit 99.1
[DJ ORTHOPEDICS, INC. LOGO]
COMPANY INVESTOR/MEDIA CONTACT:
dj Orthopedics, Inc.
Mark Francois, Director of Investor Relations
(760) 734-4766
mark.francois@djortho.com
FOR IMMEDIATE RELEASE
DJ ORTHOPEDICS ANNOUNCES FIRST QUARTER 2003 FINANCIAL RESULTS
- Results Reflect Successful 2002 Performance Improvement Program
- Company is Awarded Large Supply Contract
SAN DIEGO, CA MAY 1, 2003 - dj Orthopedics, Inc. (NYSE: DJO), a designer,
manufacturer and marketer of products and services for the orthopedic sports
medicine market, today announced financial results for the first quarter ended
March 29, 2003. The Company reported its first quarterly profit since the first
quarter of 2002, attributable to increased year over year revenue and the
success of its performance improvement program, initiated in August 2002. The
Company also announced it has been awarded a comprehensive three-year supply
contract from Broadlane, Inc., commencing May 1, 2003. The contract award is the
largest in the Company's history.
Net revenues for the first quarter of 2003 totaled $47.1 million, an increase of
six percent compared with net revenues of $44.4 million reported in the first
quarter of 2002. The first quarter of 2003 included one less shipping day than
the first quarter of 2002. Average daily sales increased by 8 percent in the
first quarter of 2003 compared to the first quarter of 2002. Net income for the
first quarter of 2003 was $1.7 million, or $0.09 per share, an increase of 14
percent compared with net income of $1.5 million, or $0.08 per share, for the
first quarter of 2002.
REVENUE SEGMENT INFORMATION
Net revenues for the first quarter of 2003 for the Company's business segments,
which are its primary sales channels, DonJoy(R), ProCare(R), OfficeCare(R) and
International, were $22.9 million, $11.3 million, $5.8 million and $7.1 million,
respectively, compared to prior year amounts of $22.1 million, $11.0 million,
$6.1 million and $5.3 million, respectively. Average daily sales in the first
quarter of 2003 for the DonJoy, ProCare and International segments increased by
5 percent, 4 percent and 37 percent, respectively, compared to average daily
sales in the first quarter of 2002. Net revenue in the International segment in
the first quarter of
2003 included a benefit from favorable changes in exchange rates compared to
the rates in effect in the first quarter of 2002. Average daily sales in the
first quarter of 2003 for the International segment, measured in local
currencies, increased 28 percent compared to average daily sales for the
International segment in the first quarter of 2002. Average daily sales in the
first quarter of 2003 for the OfficeCare segment decreased by 3 percent compared
to average daily sales for OfficeCare in the first quarter of 2002. OfficeCare
net revenue in the first quarter of 2003 was reduced by approximately $0.5
million due to a change in the Medicare reimbursement code for certain of the
Company's fracture boot products, as discussed in the Company's fourth quarter
2002 press release and recently filed Form 10-K. Net revenue in the first
quarter of 2003 for the OfficeCare segment was also reduced by the impact of an
increase, effective in the second quarter of 2002, in the Company's estimates of
its reserves for contractual allowances applicable to sales in this channel. In
addition, OfficeCare revenue in the current quarter includes revenue from fewer
accounts than in the comparable prior year quarter, primarily due to accounts
terminated in connection with the Company's review of the profitability metrics
of its OfficeCare accounts.
GROSS PROFIT MARGIN
The Company reported gross profit of $25.8 million, or 54.8 percent of net
revenue, for the first quarter of 2003, compared to $23.8 million, or 53.6
percent of net revenue for the first quarter of 2002. For the full year of 2002,
the Company reported a gross profit margin of 47.5 percent of net revenue after
the impact of certain charges taken in connection with the Company's performance
improvement program, which amounted to 2.8 percent of net revenue. The
improvement in gross profit margin, excluding those charges, from 2002 to the
current quarter amounts to approximately 4.5 percent of net revenue and is
primarily related to the successful move of a substantial portion of the
Company's remaining U.S. manufacturing to Mexico in the fourth quarter, as well
as the completion of other manufacturing cost reduction initiatives. The value
of the improved gross profit margin in the current quarter was incremental gross
profit of $2.1 million. Gross profit for the first quarter of 2003 for the
Company's business segments DonJoy, ProCare, OfficeCare and International, was
$12.6 million, $4.5 million, $4.4 million, and $4.3 million, respectively,
representing gross profit margins of 55.0 percent, 39.6 percent, 75.7 percent
and 61.1 percent respectively. Comparatively, gross profit for the first quarter
of 2002 for DonJoy, ProCare, OfficeCare and International, was $13.6 million,
$2.9 million, $4.6 million, and $2.7 million respectively, representing gross
profit margins of 61.8 percent, 26.2 percent, 75.5 percent and 51.4 percent,
respectively. Although total gross profit was increased by the Company's
manufacturing move to Mexico, the reduced gross profit in the DonJoy segment is
primarily the result of a reallocation of certain United States manufacturing
overhead expenses from products moved to Mexico to DonJoy custom rigid bracing
products, which continue to be manufactured in the United States.
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"First quarter 2003 financial results underscore the success of our 2002
performance improvement program," said Les Cross, president and chief executive
officer. "Compared to our performance in recent quarters, our current quarter
gross profit margin and operating income margin reflect significant
improvement as we planned. We are pleased with these results and we expect to
see continuing benefits from our performance improvement program."
"With the successful implementation of these cost structure improvements, much
of our 2003 focus will be aimed at accelerating the Company's revenue growth,"
Mr. Cross continued. "We have several sales productivity initiatives in place
that are focused on driving stronger revenue growth. We also have a productive
pipeline of new products under development, with several new product
introductions scheduled in the coming months, which should positively impact our
sales growth. I continue to be very pleased with our international sales growth,
reflecting the increasing maturity of our direct sales strategy in key
international markets. We will be targeting improved domestic growth rates in
2003 in several areas, including a heightened focus on our penetration of
national account opportunities such as our recent Broadlane win, and a renewed
emphasis on growing our OfficeCare business based on the progress we are making
with our OfficeCare performance improvement initiatives."
NEW BROADLANE CONTRACT
The Company announced that it had been awarded a large supply contract from
Broadlane, Inc. Broadlane services more than 490 acute-care hospitals, more than
1,500 sub-acute facilities and thousands of physician practices, including
Kaiser Permanente, Tenet Healthcare Corporation, Universal Health Services of
Greater Cincinnati, Continuum Health Partners and others. The agreement includes
a comprehensive offering of dj Orthopedics' products and provides a significant
potential annualized incremental revenue opportunity for the Company.
DEBT PREPAYMENT
The Company also reported that its successful initiatives around improved
working capital management resulted in another quarter of strong cash flow, with
cash of approximately $1.9 million provided by operating activities during the
current quarter, net of a $4.4 million payment in the current quarter for
restructuring charges accrued in 2002. As a result of continuing growth in cash
balances, the Company reported that on March 28, 2003, it made a $20 million
prepayment of principal on its outstanding bank term loans. This prepayment is
expected to save the Company approximately $0.7 million annually in net interest
expense.
dj Orthopedics has scheduled an investor conference call to discuss this
announcement beginning at 5:00 p.m. Eastern Time today, May 1, 2003. Individuals
interested in listening to the conference call may do so by
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dialing (706) 634-0177, using the reservation code 9613380. A telephone replay
will be available for 48 hours following the conclusion of the call by dialing
(706) 645-9291 and using the reservation code above. The live conference call
also will be available via the Internet at www.djortho.com, and a recording of
the call will be available on the Company's Website.
dj Orthopedics, Inc. is a global orthopedic sports medicine company specializing
in the design, manufacture and marketing of products and services that
rehabilitate soft tissue and bone, help protect against injury, and treat
osteoarthritis of the knee. Its broad range of more than 600 products, many of
which are based on proprietary technologies, includes rigid knee braces, soft
goods, specialty and other complementary orthopedic products. These products
provide solutions for patients and orthopedic sports medicine professionals
throughout the patient's continuum of care. For additional information on the
Company, please visit www.djortho.com, or call (866) DJO-INFO (356-4636).
This press release contains or may contain forward-looking statements such as
statements regarding the Company's future growth and profitability, growth
strategy and trends in the industry in which the Company operates. These
forward-looking statements are based on the Company's current expectations and
are subject to a number of risks, uncertainties and assumptions. Among the
important factors that could cause actual results to differ significantly from
those expressed or implied by such forward-looking statements are the risk that
we may not be able to successfully implement our business strategy or our
corporate performance improvement program, or that other risk factors could
undermine gains made with our strategies and programs, including our ability to
successfully develop or license and timely introduce and market new products or
product enhancements; our dependence on our orthopedic professionals, agents and
distributors for marketing our products; competition in our markets; our
transition to direct distribution of our products in certain foreign countries;
risks associated with our acquisition strategy and international operations; the
risk that our quarterly operating results are subject to substantial
fluctuations; our high level of indebtedness and the restrictions imposed by the
terms of our indebtedness; our ability to generate cash to service our debts;
the effects of healthcare reform, managed care and buying groups on prices of
our products; the uncertainty of domestic and foreign regulatory clearance and
approval of our products; the sensitivity of our business to general economic
conditions; uncertainty relating to third party reimbursement; pending
litigation; and the other risk factors that are discussed in our Annual Report
on Form 10-K, filed on March 28, 2003 with the Securities and Exchange
Commission.
Tables to Follow
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DJ ORTHOPEDICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
March 29, 2003 March 30, 2002
-------------------------------------
Net revenues $ 47,054 $ 44,439
Cost of goods sold 21,261 20,606
-------------------------------------
Gross profit 25,793 23,833
Operating expenses:
Sales and marketing 12,452 12,085
General and administrative 6,633 5,604
Research and development 934 629
-------------------------------------
Total operating expenses 20,019 18,318
-------------------------------------
Income from operations 5,774 5,515
Interest expense, net of interest income (3,159) (2,983)
Other income (expense) 149 (155)
-------------------------------------
Income before income taxes 2,764 2,377
Provision for income taxes (1,105) (927)
-------------------------------------
Net income $ 1,659 $ 1,450
=====================================
Net income per share:
Basic $ 0.09 $ 0.08
=====================================
Diluted $ 0.09 $ 0.08
=====================================
Weighted average shares outstanding:
Basic 17,902 17,856
=====================================
Diluted 17,941 18,056
=====================================
EBITDA (1) $ 7,751 $ 7,014
=====================================
(1) "EBITDA" is defined as net income (loss) plus interest expense (net of
interest income), income taxes, depreciation and amortization. EBITDA is
not a measure of performance under generally accepted accounting
principles. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity. Management has included EBITDA because it may be used by our
lenders or certain investors to analyze and compare companies on the basis
of operating performance, leverage and liquidity and to determine a
company's ability to service debt. Set forth below is a comparable
reconciliation of the Company's net income to EBITDA:
Three Months Ended
March 29, 2003 March 30, 2002
-------------------------------------
Net income $ 1,659 $ 1,450
Interest expense, net of interest income 3,159 2,983
Income taxes 1,105 927
Depreciation and amortization 1,828 1,654
-------------------------------------
EBITDA $ 7,751 $ 7,014
=====================================
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DJ ORTHOPEDICS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 29, December 31,
ASSETS 2003 2002
--------------------------------
Current assets:
Cash and cash equivalents $ 13,201 $ 32,085
Accounts receivable, net 36,653 33,705
Inventories, net 12,891 14,583
Deferred tax asset, current portion 10,247 10,247
Other current assets 4,167 4,970
--------------------------------
Total current assets 77,159 95,590
Property, plant and equipment, net 13,871 14,082
Goodwill, intangible assets and other assets 71,416 72,568
Deferred tax asset 54,422 55,484
--------------------------------
Total assets $ 216,868 $ 237,724
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 24,173 $ 26,995
Long-term debt, current portion 568 1,274
--------------------------------
Total current liabilities 24,741 28,269
Long-term debt, less current portion 89,288 108,542
Total stockholders' equity 102,839 100,913
--------------------------------
Total liabilities and stockholders' equity $ 216,868 $ 237,724
================================
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DJ ORTHOPEDICS, INC.
UNAUDITED CONDENSED SEGMENT INFORMATION
(In thousands)
Three Months Ended
March 29, 2003
DONJOY PROCARE OFFICECARE INTERNATIONAL CORPORATE AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
Net revenues $ 22,854 $ 11,267 $ 5,822 $ 7,111 $ -- $ 47,054
Cost of goods sold 10,275 6,807 1,412 2,767 -- 21,261
--------------------------------------------------------------------------------------------------
Gross profit 12,579 4,460 4,410 4,344 -- 25,793
Operating expenses:
Sales and marketing 6,404 1,565 2,413 2,070 -- 12,452
General and administrative 688 364 1,791 79 3,711 6,633
Research and development 479 278 74 103 -- 934
--------------------------------------------------------------------------------------------------
Total operating expenses 7,571 2,207 4,278 2,252 3,711 20,019
--------------------------------------------------------------------------------------------------
Income from operations $ 5,008 $ 2,253 $ 132 $ 2,092 $ (3,711) $ 5,774
==================================================================================================
Number of operating days 62
Three Months Ended
March 30, 2002
DONJOY PROCARE OFFICECARE INTERNATIONAL CORPORATE AND OTHER TOTAL
--------------------------------------------------------------------------------------------------
Net revenues $ 22,062 $ 11,017 $ 6,099 $ 5,261 $ -- $ 44,439
Cost of goods sold 8,424 8,131 1,494 2,557 -- 20,606
--------------------------------------------------------------------------------------------------
Gross profit 13,638 2,886 4,605 2,704 -- 23,833
Operating expenses:
Sales and marketing 6,168 1,482 2,767 1,668 -- 12,085
General and administrative 853 368 1,199 133 3,051 5,604
Research and development 293 193 40 103 -- 629
--------------------------------------------------------------------------------------------------
Total operating expenses 7,314 2,043 4,006 1,904 3,051 18,318
--------------------------------------------------------------------------------------------------
Income from operations $ 6,324 $ 843 $ 599 $ 800 $ (3,051) $ 5,515
==================================================================================================
Number of operating days 63
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