07.28.10
$946 Million
KEY EXECUTIVES:
Leslie H. Cross, President, CEO and Director
Luke T. Faulstick, Exec. VP and Chief Operating Officer
Vickie L. Capps, Exec. VP, Chief Financial Officer and Treasurer
Stephen Murphy, Exec. VP, Sales and Marketing, International Commercial Businesses
Andrew Holman, Exec. VP, Sales and Marketing, U.S. Commercial Businesses
NO. OF EMPLOYEES: 4,480
GLOBAL HEADQUARTERS: Vista, Calif.
DJO Incorporated executives just couldn’t help themselves. In assessing the company’s financial performance last year, decision-makers used a word to describe the overall pecuniary climate in the orthopedic sector in 2009, a word that is likely to become the unofficial tagline of the final 12 months of the “Oughts” (or, considering how badly the decade ended, the “Naughts”).
The word, of course, is “challenging.”
“We are pleased to have finished a somewhat challenging year on a strong note with both net sales and adjusted EBITDA results for the fourth quarter establishing new company records,” Les Cross, DJO’s president and CEO, said in releasing the firm’s 2009 earnings report earlier this year. “In spite of one of the worst recessions in history, 2009 was a good year for DJO.”
The definition of good, though, changed dramatically in 2009 for orthopedic companies such as DJO. Financial growth that was considered “good” last year either was flat or crept up 1 or 2 percent—increases that would be considered substandard in more economically stable times. Indeed, DJO’s earnings shriveled considerably in 2009 compared with previous years, but the company’s overall performance still garnered kudos from bigwigs for “a job well done…under difficult market conditions.”
Those conditions led to a $2.3 million decrease last year in total net sales, which the company claims was negatively impacted by $13.9 million of “unfavorable changes” in foreign currency exchange rates. Sales also were impacted by a significant drop in new product revenue ($12.3 million last year compared with $27.2 million in 2008) and a decrease in sales from customers outside of the United States (25.5 percent of total sales in 2009 compared with 26.6 percent in 2008).
Still, the company’s overall financial results perhaps warranted those kudos from DJO executives. On a constant currency basis, the firm’s net sales climbed 1.2 percent last year to $946.1 million. Gross profit rose 1.5 percent to $607.4 million, while operating income more than doubled and the company’s net loss fell nearly by half. DJO posted $78.8 million in operating income last year, a monstrous 136.5 percent increase compared with the $33.3 million the company reported in 2008. Similarly, its net loss plunged 48.4 percent to $50.4 million, according to the 2009 annual report.
DJO earned the bulk of its revenue last year from the sale of knee braces, cold therapy products, orthopedic soft goods, home traction devices, bone growth stimulation products, clinical electrotherapy devices, dry heat therapy items, and electrostimulation goods. Those products are included within the company’s Domestic Rehabilitation segment, which is divided into five businesses: Bracing and Supports; Empi; Regeneration; Chatanooga; and Athlete Direct.
Net sales in the Domestic Rehabilitation segment totaled $640.7 million last year, a 1 percent increase compared with the $634.5 million the segment generated in 2008 revenue. Gross profit in the segment rose 5.4 percent to $425.4 million, whileoperating income jumped 28.4 percent to $178 million.
Executives attributed the slight uptick in Domestic Rehabilitation segment revenue to higher sales across the majority of its product lines. The higher sales, however, was offset by an extremely tight capital equipment market in 2009 as well as declining revenue in the company’s Chattanooga business, which oversees sales of clinical products and supplies such as continuous passive motion devices and dry heat therapy.
Declining revenue in the company’s Chattanooga business was one of several factors that led to its consolidation. In June 2009 (ironically, only a month after the Chattanooga division was awarded a Kruesi Spirit of Innovation Award for developing a product that introduces weight-bearing exercises to deconditioned or bedridden patients early in their physical rehabilitation), executives announced their decision to consolidate all activities at the Hixson, Tenn., site into the company’s existing facilities in Vista, Calif.; Indianapolis, Ind.; and Tijuana, Mexico.
“We believe this is a decision that will make our company stronger and enhance our abilities to serve our customers,” Cross explained in a news release about the consolidation. “While the Chattanooga site will close, the Chattanooga Business Unit has been, and continues to be, a very important part of the DJO story and our product portfolio and we will continue to invest in new products and new technologies for this business unit.”
One of those new products is on the horizon. Late last fall, the Chattanooga division was issued a patent for its Moveo XP, the product for which it won an award five months earlier. Officials said the Moveo XP provides patients undergoing rehabilitation with a customized workout intensity that lets them progress at “tolerable” levels and enables them to see objective and incremental progress.
Shortly after announcing the consolidation of its Chattanooga business, DJO executives unveiled another cost-cutting measure: the sale of the rehabilitation equipment and supply catalog business of Empi Therapy Solutions (a franchise within its Empi business unit) to Patterson Medical, a division of Patterson Companies Inc., a specialty distributor serving the dental, companion-pet veterinary and rehabilitation supply markets. Terms of the deal were not disclosed, but DJO officials said Empi Therapy Solutions generated about $32 million in sales in 2008.
Cross said the sale would allow DJO to devote its full attention and resources to “higher-margin, industry-leading brands and products.”
Perhaps no other segment was affected more by the crumbling economy last year than the International sector, which generates most of its revenue in Europe. Sales were down 4.3 percent to $241.4 million, while gross profit plummeted 9.7 percent to $137.1 million. The segment posted an operating income of $49 million, an 11.2 percent decrease compared with the $55.2 million the division reported in 2008.
While sales in Germany were up 13.7 percent to $74.1 million, revenue throughout the rest of Europe, the Middle East and Africa fell to $110 million, a 23 percent drop compared with the $143 million the region generated for DJO in 2008. U.S. sales were flat last year at $705 million (an $8.7 million increase compared with 2008), but Asia Pacific and other parts of the world experienced strong sales. Asia Pacific amassed $15.5 million in revenue for the company, a 23.4 percent increase compared with 2008, while other parts of the world garnered $41.3 million in sales, a 31.2 percent increase compared with 2008’s total of $31.4 million.
In an effort to beef up international sales in 2010, the company acquired three small international distributors — DonJoy Orthopaedics Pty., Ltd. in Australia; and Chattanooga Group Inc. and Empi Canada Inc., both of Canada. DJO purchased DonJoy for $3.4 million, while the Canadian distributors cost $14.6 million combined.
DJO’s Domestic Surgical Implant segment, which sells various knee, hip and shoulder implant products, posted solid sales last year. According to the company’s annual report, the segment reported total net sales of $63.8 million, a 3.7 percent increase compared with the $61.5 million the sector recorded in 2008. Gross profit was down 1.3 percent to $49.7 million, but operating income climbed 1 percent to $12.9 million.
KEY EXECUTIVES:
Leslie H. Cross, President, CEO and Director
Luke T. Faulstick, Exec. VP and Chief Operating Officer
Vickie L. Capps, Exec. VP, Chief Financial Officer and Treasurer
Stephen Murphy, Exec. VP, Sales and Marketing, International Commercial Businesses
Andrew Holman, Exec. VP, Sales and Marketing, U.S. Commercial Businesses
NO. OF EMPLOYEES: 4,480
GLOBAL HEADQUARTERS: Vista, Calif.
DJO Incorporated executives just couldn’t help themselves. In assessing the company’s financial performance last year, decision-makers used a word to describe the overall pecuniary climate in the orthopedic sector in 2009, a word that is likely to become the unofficial tagline of the final 12 months of the “Oughts” (or, considering how badly the decade ended, the “Naughts”).
The word, of course, is “challenging.”
“We are pleased to have finished a somewhat challenging year on a strong note with both net sales and adjusted EBITDA results for the fourth quarter establishing new company records,” Les Cross, DJO’s president and CEO, said in releasing the firm’s 2009 earnings report earlier this year. “In spite of one of the worst recessions in history, 2009 was a good year for DJO.”
The definition of good, though, changed dramatically in 2009 for orthopedic companies such as DJO. Financial growth that was considered “good” last year either was flat or crept up 1 or 2 percent—increases that would be considered substandard in more economically stable times. Indeed, DJO’s earnings shriveled considerably in 2009 compared with previous years, but the company’s overall performance still garnered kudos from bigwigs for “a job well done…under difficult market conditions.”
Those conditions led to a $2.3 million decrease last year in total net sales, which the company claims was negatively impacted by $13.9 million of “unfavorable changes” in foreign currency exchange rates. Sales also were impacted by a significant drop in new product revenue ($12.3 million last year compared with $27.2 million in 2008) and a decrease in sales from customers outside of the United States (25.5 percent of total sales in 2009 compared with 26.6 percent in 2008).
Still, the company’s overall financial results perhaps warranted those kudos from DJO executives. On a constant currency basis, the firm’s net sales climbed 1.2 percent last year to $946.1 million. Gross profit rose 1.5 percent to $607.4 million, while operating income more than doubled and the company’s net loss fell nearly by half. DJO posted $78.8 million in operating income last year, a monstrous 136.5 percent increase compared with the $33.3 million the company reported in 2008. Similarly, its net loss plunged 48.4 percent to $50.4 million, according to the 2009 annual report.
DJO earned the bulk of its revenue last year from the sale of knee braces, cold therapy products, orthopedic soft goods, home traction devices, bone growth stimulation products, clinical electrotherapy devices, dry heat therapy items, and electrostimulation goods. Those products are included within the company’s Domestic Rehabilitation segment, which is divided into five businesses: Bracing and Supports; Empi; Regeneration; Chatanooga; and Athlete Direct.
Net sales in the Domestic Rehabilitation segment totaled $640.7 million last year, a 1 percent increase compared with the $634.5 million the segment generated in 2008 revenue. Gross profit in the segment rose 5.4 percent to $425.4 million, whileoperating income jumped 28.4 percent to $178 million.
Executives attributed the slight uptick in Domestic Rehabilitation segment revenue to higher sales across the majority of its product lines. The higher sales, however, was offset by an extremely tight capital equipment market in 2009 as well as declining revenue in the company’s Chattanooga business, which oversees sales of clinical products and supplies such as continuous passive motion devices and dry heat therapy.
Declining revenue in the company’s Chattanooga business was one of several factors that led to its consolidation. In June 2009 (ironically, only a month after the Chattanooga division was awarded a Kruesi Spirit of Innovation Award for developing a product that introduces weight-bearing exercises to deconditioned or bedridden patients early in their physical rehabilitation), executives announced their decision to consolidate all activities at the Hixson, Tenn., site into the company’s existing facilities in Vista, Calif.; Indianapolis, Ind.; and Tijuana, Mexico.
“We believe this is a decision that will make our company stronger and enhance our abilities to serve our customers,” Cross explained in a news release about the consolidation. “While the Chattanooga site will close, the Chattanooga Business Unit has been, and continues to be, a very important part of the DJO story and our product portfolio and we will continue to invest in new products and new technologies for this business unit.”
One of those new products is on the horizon. Late last fall, the Chattanooga division was issued a patent for its Moveo XP, the product for which it won an award five months earlier. Officials said the Moveo XP provides patients undergoing rehabilitation with a customized workout intensity that lets them progress at “tolerable” levels and enables them to see objective and incremental progress.
Shortly after announcing the consolidation of its Chattanooga business, DJO executives unveiled another cost-cutting measure: the sale of the rehabilitation equipment and supply catalog business of Empi Therapy Solutions (a franchise within its Empi business unit) to Patterson Medical, a division of Patterson Companies Inc., a specialty distributor serving the dental, companion-pet veterinary and rehabilitation supply markets. Terms of the deal were not disclosed, but DJO officials said Empi Therapy Solutions generated about $32 million in sales in 2008.
Cross said the sale would allow DJO to devote its full attention and resources to “higher-margin, industry-leading brands and products.”
Perhaps no other segment was affected more by the crumbling economy last year than the International sector, which generates most of its revenue in Europe. Sales were down 4.3 percent to $241.4 million, while gross profit plummeted 9.7 percent to $137.1 million. The segment posted an operating income of $49 million, an 11.2 percent decrease compared with the $55.2 million the division reported in 2008.
While sales in Germany were up 13.7 percent to $74.1 million, revenue throughout the rest of Europe, the Middle East and Africa fell to $110 million, a 23 percent drop compared with the $143 million the region generated for DJO in 2008. U.S. sales were flat last year at $705 million (an $8.7 million increase compared with 2008), but Asia Pacific and other parts of the world experienced strong sales. Asia Pacific amassed $15.5 million in revenue for the company, a 23.4 percent increase compared with 2008, while other parts of the world garnered $41.3 million in sales, a 31.2 percent increase compared with 2008’s total of $31.4 million.
In an effort to beef up international sales in 2010, the company acquired three small international distributors — DonJoy Orthopaedics Pty., Ltd. in Australia; and Chattanooga Group Inc. and Empi Canada Inc., both of Canada. DJO purchased DonJoy for $3.4 million, while the Canadian distributors cost $14.6 million combined.
DJO’s Domestic Surgical Implant segment, which sells various knee, hip and shoulder implant products, posted solid sales last year. According to the company’s annual report, the segment reported total net sales of $63.8 million, a 3.7 percent increase compared with the $61.5 million the sector recorded in 2008. Gross profit was down 1.3 percent to $49.7 million, but operating income climbed 1 percent to $12.9 million.