djo global, inc. company presentation...surgical implant – 6.5% of 2012 sales diverse portfolio of...

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DJO Global, Inc. Company Presentation March 2013

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Page 1: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

DJO Global, Inc. Company Presentation

March 2013

Page 2: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Safe Harbor Statement

2

This presentation has been prepared by DJOFL. The information contained in this presentation is for information purposes only. The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. This presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person.

No representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of DJOFL, its directors, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising out of fault or negligence for any loss arising from the use of the information contained in this presentation.

The historical and projected financial information in this presentation includes financial information that is not presented in accordance with generally accepted accounting principles (GAAP). Non-GAAP financial measures may be considered in addition to GAAP financial information, but should not be used as substitutes for the corresponding GAAP measures. Non-GAAP measures in this presentation may be calculated in a way that is not comparable to similarly titled measures reported by other companies.

This presentation includes “forward-looking statements” that reflect DJOFL’s current views and information currently available. This information is, where applicable, based on assumptions and analysis that DJOFL believes, as of the date hereof, provide a reasonable basis for the data contained herein. Forward-looking statements can generally be identified by the use of forward-looking words such as “may”, “will”, “would”, “could”, “expect”, “intend”, “plan”, “aim”, “estimate”, “target”, “anticipate”, “believe”, “continue”, “objectives”, “outlook”, “guidance” or other similar words, and include statements regarding DJOFL’s plans, strategies, objectives, targets and expected financial performance. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, capital expenditures, future results, our competitive strengths, our business strategy, the trends in our industry and the benefits of and the anticipated cost savings related to our recent acquisitions. These forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are outside the control of DJOFL and its officers, employees, agents or associates. Actual results, performance or achievements may vary materially from any projections and forward-looking statements and the assumptions on which those forward statements are based. Readers are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance. These forward looking statements are within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and are intended to be covered by the safe harbors created thereby. Some of the factors that we believe could affect our results include the risks discussed in the “Risk Factors” section in DJOFL’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 27, 2013 with the Securities and Exchange Commission. We caution you that in light of the risks and uncertainties described in this “Risk Factors” section, the matters referred to in the forward looking statements contained in this presentation may not in fact occur. There can be no assurance that the data contained herein is reflective of future performance to any degree. All information herein speaks only as of (1) the date hereof, in the case of information about DJOFL, or (2) the date of such information, in the case of information from persons other than DJOFL. DJOFL undertakes no duty to update or revise the information contained herein, publicly or otherwise. Forecasts and estimates regarding DJOFL’s industry and end markets are based on sources we believe to be reliable, however there can be no assurance these forecasts and estimates will prove accurate in whole or in part.

Page 3: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Bracing and Vascular

39.1%

Recovery Sciences

29.6%

International24.8%

Surgical Implant

6.5%

DJO Profile Business Overview

$898 $949 $946 $966$1,075 $1,129

$182 $213 $250 $263 $264 $271

2007 2008 2009 2010 2011 2012

Revenue Adjusted EBITDA

(2)

Net Sales and Adjusted EBITDA(1)

2012 Net Sales by Segment

($ in millions)

(1) Adjusted EBITDA for all periods presented excludes impact of non-recurring costs and other adjustments as permitted by Senior Secured Credit Agreement; excludes pre-acquisition EBITDA and future cost savings related to 2011 and 2012 acquisitions. (2) 2007 pro forma for DJO Merger and other 2007 acquisitions.

Headquartered near San Diego, CA

Approximately 5,300 employees in 27 countries

A leading orthopedic company with a totally unique footprint focusing on injury prevention, conservative treatment and rehabilitation

An innovator with a robust pipeline of products and solutions that are more cost effective and less invasive than most surgical or pharmaceutical alternatives

A market leader in orthopedic bracing, vascular health, rehabilitation, pain management, bone growth, muscle stimulation, and shoulder reconstruction

A partner with an excellent local service infrastructure, strong clinician and hospital relationships

Financial sponsor – The Blackstone Group

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Page 4: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

$293.9 $296.0 $298.8 $311.6

$387.9$441.3

2007 2008 2009 2010 2011 2012(3)(2)

Bracing and Vascular – 39.1% of 2012 Sales

Broad range of soft goods – key to GPO penetration

Rigid knee bracing and Cold therapy

Retail pharmacy offering with Bell Horn

Vascular systems (DVT prophylaxis)

Broad range of compression therapy garments

Diabetic footwear

Acquired Exos on 12/28/2012

#1 share in U.S. Bracing and Supports market of approximately $1.7 billion(1)

Bracing and Vascular Net Sales

Bracing Products Vascular Products

Bracing and Vascular Highlights ($ in millions)

+8.2%(3) In 2012

(1) 2009 Frost & Sullivan. (2) Pro forma for 2007 DJO Merger. (3) Pro forma for 2011 acquisitions.

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Page 5: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Recovery Sciences – 29.6% of 2012 Sales

Promotes healing of Non-Union Bone Fractures and Spinal Repair Surgery

Home Electrotherapy - TENS Pain Management & NMES Muscle Stimulation

Home Traction Devices Iontophoresis

Clinical Electrotherapy Continuous Passive Motion Clinical Traction Devices Treatment Tables

($ in millions)

$327.1

$338.6$342.0

$347.1$342.6

$334.6

2007 2008 2009 2010 2011 2012

-2.3% in 2012

(1) 2007 Pro forma for DJO Merger and other 2007 acquisitions.

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Recovery Sciences Net Sales

(1)

Page 6: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Germany29.1%

ROW25.2%

France19.7%

Canada8.8%

Spain, Benelux &

Italy8.4%

Nordic3.5%

UK5.3%

$219.5$252.3 $241.5 $244.5

$279.3 $280.5

2007 2008 2009 2010 2011 2012

International – 24.8% of 2012 Sales

International Net Sales 2012 Sales Mix by Geography ($ in millions)

+5.7%(2) in 2012

(1)

(1) 2007 Pro Forma for DJO Merger. (2) Excludes impact from changes in foreign currency exchange rates (constant currency) and

pro forma for 2011 acquisitions.

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(3)

Page 7: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Surgical Implant – 6.5% of 2012 Sales

Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders

Primary focus on shoulder segment with a track record of innovation – over 50% of net sales

Niche market position with less than 1% share in total, but higher in shoulders

U.S. market over $5 billion(1)

Knees Hips Shoulders

$57.5 $61.6 $63.9 $62.7 $64.9$73.0

2007 2008 2009 2010 2011 2012

($ in millions)

+12.4% in 2012

(1) 2006 Frost & Sullivan.

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Surgical Implant Net Sales

Page 8: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Leading Market Positions: Defensible, Comprehensive Product Offering

Market leader in multiple market segments and

product categories

Established global presence with over 60 years of history in the physical therapy market and over 30 years of history in orthopedics market

Brand recognition and comprehensive product range promotes loyalty from prescribing physicians and physical therapists

Low regulatory and technology substitution risk

Strong brand names

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Page 9: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Strong New Product Pipeline

Reaction Knee

X-Act ROM Knee

X-Act ROM Elbow

IceMan CLEAR3

RSP Monoblock

Exos

OA Nano

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Page 10: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Attractive Open Market Spaces

CONSERVATIVE CARE TREATMENT OPTIONS FOR KNEE PAIN

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Page 11: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Significant Diversification Reduces Risk

Sales Channels Patient Need Customers

We treat a diverse set of patient needs, making us less reliant than many medical device companies

on one technology, one reimbursement code, or one

treatment protocol

We call on many providers and prescribers minimizing risk that

products are dispensed beyond our reach

No customer greater than 3% of revenue and top 10 customers

less than 10% of revenue

2012 Sales by Payor 2012 Sales by Segment

Bracing and Vascular

39.1%

Recovery Sciences

29.6%

International24.8%

Surgical Implants

6.5%

Healthcare Professionals

39.0%

Dealers & Distributors

32.8%

Insurances21.8%

Medicare / Medicaid

6.4%

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Page 12: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

= primary market(s)

Distribution

Diverse Sales Forces Provide Differentiated Presence with Multiple Prescriber & Provider Groups

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Page 13: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Main manufacturing facility in Tijuana, Mexico (285,000 square feet) is renowned for operational excellence and low cost manufacturing

Best practices in “lean manufacturing” in all facilities and culture of continuous improvement yield margin expansion

Expanded plant in Tunisia for European products

Vertically integrated manufacturing competencies

Efficient, automated distribution capabilities

Comprehensive mechanical and electronic R&D competencies

Competitive Advantages in Manufacturing, Distribution and R&D

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Page 14: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

2012 Highlights

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• Successful Business Acceleration Plan

• Create the “best” customer experience

• Accelerate differentiated products and get key new products to launch

• Focus on talent

• Manage expenses tightly and repurpose spend to invest in revenue acceleration

• Full year 2012 results highlight improving financial metrics

• Revenue growth accelerated to 4.5% (constant currency and pro forma for acquisitions)

• EBITDA results improving as revenue accelerates

• Non-recurring and integration charges reduced by nearly 50% from 2011, as acquisition integration and ERP implementation wind down

• Completed Exos acquisition in late December to drive improved margins from sales of very successful new product platform

Page 15: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

$898 $949 $946 $966$1,075 $1,129

2007 2008 2009 2010 2011 2012

2011 2012

Net Sales $ 1,095 $ 1,129

Adjusted Gross Profit(2) $ 687 $ 689

% of Net Sales 63% 61%

Adjusted Opex(2) $ 443 $ 448

% of Net Sales 40% 40%

Adjusted EBITDA(2) $ 272 $ 271

% of Net Sales 25% 24%

Net Sales

Adjusted EBITDA(2)

Selected Income Statement Metrics

Strong, consistent historical financial performance with healthy growth and margins

Historical Financial Summary

($ in millions)

$182

$213

$250$263 $264 $271

2007 2008 2009 2010 2011 2012

($ in millions)

% margin 20% 22% 27% 27% 25% 24%

($ in millions)

(1)

(1)

(1) 2007 pro forma for DJO Merger and other 2007 acquisitions. (2) Excludes impact of non-recurring costs and other adjustments as permitted by Senior Secured Credit Agreement; excludes pre-acquisition EBITDA and future cost savings related to 2011 and 2012 acquisitions. (3) In constant currency and pro forma for 2011 acquisitions, and for Adjusted EBITDA, excludes $4.2 million credit in 2011 for prior period adjustment.

+4.5%(3)

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+2.4%(3)

Page 16: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Strong Cash Flow Generation

Strong EBITDA margins with opportunity to expand further

Low capex business model ~ 3% of revenue

Opportunities to decrease working capital

Favorable cash tax position

Substantial cash flow should permit significant de-leveraging

(1) Represents Adjusted EBITDA including permitted adjustments related to pre-acquisition Adjusted EBITDA and future cost savings.

2012 Free Cash Flow

Adjusted EBITDA(1) $274.0

Capital expenditures (33.0)

Increase in working capital (27.1)

Subtotal – Cash flow before interest, taxes and monitoring

$213.9

Cash flow conversion % 78.1%

Cash interest expense (162.6)

Cash taxes (4.7)

Blackstone monitoring fee (7.0)

Free cash flow $39.6

Free cash flow conversion % 14.5%

($ in millions)

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Page 17: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

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($ in millions)

Debt: 12/31/12 Rate Maturity

Revolver ($100 million available) $ 3.0 L+4.75% Mar-2017

Extended term loans (3) 385.5 L+5.00% Nov-2016

New term loans (3) 476.5 L+5.00% Sep-2017

Second priority senior secured notes (3) 330.0 8.75% Mar-2018

New Senior unsecured notes due 2018 (3) 440.0 9.875% Apr-2018

Senior unsecured notes due 2018 300.0 7.75% Apr-2018

Senior subordinated notes due 2017 300.0 9.75% Oct-2017 Total Debt $ 2,235.0

Total Contributed Equity $ 839.2

Total Capitalization $ 3,074.2

Pro forma LTM Adjusted EBITDA(1) $ 274.0

First lien debt(2) / Adjusted EBITDA 3.0x

Total debt(2) / Adjusted EBITDA 8.0x

Equity / Total capitalization 27.3%

(4)

December 31, 2012 Capitalization Table

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1) Includes net pre-acquisition EBITDA and expected future cost savings related to recent acquisitions and other adjustments as permitted by Senior Secured Credit Agreement.

2) Net of $31.2 million cash.

3) Exclusive of unamortized original issue discounts and premiums.

4) Subject to Libor Floor of 1.25%.

Page 18: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Key Credit Highlights

Leading market positions with defensible, comprehensive product offering

Significant diversification in products, customers, payors and geography

Diverse sales forces provide distinctive presence with multiple prescriber groups over a broad geographical footprint

Payor / provider relationships create a high barrier to entry

Low cost manufacturing – 15 years in Mexico, 7 years in Tunisia

Strong EBITDA and FCF generation, Business Acceleration Plan driving improving financial results

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Page 20: DJO Global, Inc. Company Presentation...Surgical Implant – 6.5% of 2012 Sales Diverse portfolio of orthopedic reconstructive joint products for knees, hips and shoulders Primary

Adjusted EBITDA Reconciliation – 2012

($ in millions)

Net Loss ($119.2)Interest Expense, net 182.9Income Tax Benefit (4.9)Depreciation and Amortization 127.5Non-Cash Charges (1) 10.7Non-Recurring and Integration Charges (2) 32.6Other Adjustments (3) 41.4Subtotal 271.0Future Cost Savings Related to Acquisitions 3.0Adjusted EBITDA $274.0

(1) Non-Cash Charges :Impairment of Goodwi l l /Intangibles $7.4Impairment of fixed assets and assets held for sa le 1.0Stock Compensation and Other 2.3

$10.7

(2) Non-Recurring and Integration Charges :ERP Implementation $5.6

Li tigation and regulatory costs and settlements , net 12.6

Integration charges 14.4$32.6

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(3) Other adjustments :Blackstone monitoring fee $7.0Noncontrol l ing interests 0.8Loss on modi fication and extinguishmnet of debt 36.9Other; primari ly Fx related (3.3)

$41.4

Adjustments Adjusted EBITDA reconciliation

($ in millions)

Non-recurring and integration charges decreased nearly 50%

2011 2012 % Variance

$63.7 $32.6 -48.8%

($ in millions)