DJO Global Announces Financial Results for Second Quarter 2011

SAN DIEGO, CA, August 16, 2011 – DJO Global, Inc. (“DJO” or the “Company”), a leading global provider of medical device solutions for musculoskeletal health, vascular health and pain management, today announced financial results for its operating subsidiary, DJO Finance LLC (“DJOFL”), for the second quarter of fiscal 2011, ended July 2, 2011.

Second Quarter Results

DJOFL achieved net sales for the second quarter of 2011 of $277.8 million, reflecting growth of 14.5 percent compared to net sales of $242.5 million for the second quarter of 2010. Net sales for the second quarter of 2011 were favorably impacted by changes in foreign currency exchange rates compared to the rates in effect in the second quarter of 2010.  Excluding the impact of these favorable foreign exchange rate changes (“constant currency”), net sales for the second quarter of 2011 increased 11.6 percent compared to net sales for the second quarter of 2010.

DJO’s second quarter 2011 includes net sales from businesses recently acquired, including Elastic Therapy, Inc. (“ETI”), acquired on January 4, 2011, Circle City Medical (“Circle City”), acquired on March 10, 2011 and Dr. Comfort (“DRC”), acquired on April 7, 2011. On a pro forma basis, as if the acquisitions of ETI, Circle City and DRC had all closed on January 1, 2010, DJO net sales would have been $278.9 million for the current quarter and $269.3 million for the second quarter of 2010, reflecting pro forma growth in net sales for the second quarter of 2011 of 3.6 percent, or 0.9 percent in constant currency, over net sales in the second quarter of 2010.

The acquired businesses, in the aggregate, achieved pro forma sales of $29.4 million in the second quarter of 2011, including pre-acquisition sales of DRC, reflecting pro forma growth of nearly 10% over pro forma sales of $26.8 million for the second quarter of 2010, which is highly accretive to the current base business growth rate of DJO. The addition of the acquired businesses strengthens DJO’s product portfolio and sales channel reach. The ETI and DRC acquisitions brought the Company new medical compression therapy and diabetic foot care products to complement its growing vascular franchise in existing sales channels, while the Circle City acquisition and the Company’s recent investment in a small e-commerce platform brought improved access to the professional retail and e-commerce markets for existing bracing and supports products and certain other products. Sales to customers in the United States by all of the acquired businesses are included within the Company’s Bracing and Vascular segment, and sales to international customers are included within the Company’s International segment.

For the second quarter of 2011, DJOFL reported a net loss attributable to DJOFL of $19.3 million, compared to net income of $0.2 million for the second quarter of 2010. As detailed in the attached financial tables, the results for the current and prior year second quarter periods were impacted by significant non-cash items, non-recurring items and other adjustments.

The Company defines Adjusted EBITDA as net income (loss) attributable to DJOFL plus loss (income) from discontinued operations, interest expense, net, income tax expense (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 senior secured credit facility and the indentures governing its 10.875% and 7.75% senior notes and its 9.75% senior subordinated notes. A reconciliation between net (loss) income and Adjusted EBITDA is included in the attached financial tables.

Adjusted EBITDA for the second quarter of 2011 was $69.9 million, or 25.1 percent of net sales, increasing 3.7 percent, compared to Adjusted EBITDA of $67.4 million, or 27.8 percent of net sales, for the second quarter of 2010. Adjusted EBITDA for the second quarter of 2011 includes $0.8 million related to favorable changes in foreign currency exchange rates compared to the rates in effect in the second quarter of 2010. Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales (Adjusted EBITDA margin) in the current second quarter period were unfavorably impacted by reduced gross profit margins, compared to the second quarter of 2010, due to the acquisitions noted above and certain unfavorable changes in product mix and pricing, and also to certain operating expense investments made to strengthen the Company’s commercial infrastructure. The Company’s Adjusted EBITDA margin expanded sequentially by 150 basis points in the second quarter of 2011 compared to the first quarter of 2011.

For the twelve month period ended July 2, 2011 (LTM), Adjusted EBITDA was $295.2 million, or 27.3 percent of LTM pro forma net sales of $1,083.1 million, including LTM pre-acquisition Adjusted EBITDA from acquired businesses of $24.3 million and future cost savings expected to be achieved related to the acquisitions of $8.7 million.

Bracing and Vascular Segment

With the addition of the recent acquisitions, DJO’s Bracing and Vascular segment reported over 29% sales growth in the second quarter of 2011, compared to the second quarter of 2010.

On a pro forma basis, as if all of the acquisitions had closed at the beginning of the second quarter in 2010, current quarter revenue in the Bracing and Vascular segment was flat with the second quarter of the prior year, but grew by more than 6% sequentially from the first quarter of 2011. Both the base DJO business and the acquisitions contributed to this strong sequential growth.

Bracing and Vascular sales continue to benefit from recent product launches, including the Company’s new VenaFlow Elite™ dynamic compression therapy pump used to combat Deep Vein Thrombosis as well as certain new products for knee and upper extremity. In addition, sales to group purchasing organizations (GPOs) continue to make strong contributions to this segment.

Partially offsetting the momentum from new products and GPO sales, there continues to be ongoing headwinds in this segment, as certain clinics that previously used DJO’s OfficeCare program, where the Company stocks inventory in the clinic and bills the patient’s insurance company when the clinic dispenses the products to patients, are choosing instead to do their own insurance billing. While DJO generally retains the unit sales in these conversions, with comparable or even improved Adjusted EBITDA margins, the lower average selling prices for the units sold negatively impacts revenue growth and gross profit margins.

Recovery Sciences Segment

Within the Company’s Recovery Sciences segment, its Regeneration, or bone growth stimulation business, delivered strong sales, with growth of more than 13% over the second quarter of 2010, driven primarily by increasing sales of spinal stimulation products. The Company believes its growth in this area is significantly faster than the underlying market is growing and believes it is increasing share in this market. This strong performance was offset by weaker sales of the Empi component of Recovery Sciences due primarily to certain reimbursement challenges the Empi business is currently facing. Primarily as a result of these Empi issues, sales for the Recovery Sciences segment contracted by 1.2% compared to the second quarter of 2010, but increased sequentially by 1.2%, compared to the first quarter of 2011.

International Segment

Second quarter sales within our International segment were strong at $73.1 million, growing 19.6% over the prior year period. This result included the international component of the ETI and DRC acquisitions, as well as approximately $7.2 million of favorable foreign exchange benefit. In constant currency, and on a pro forma basis for the acquisitions, growth over the prior year second quarter was 3.4%. International sales in the second quarter were driven by strong sales of new products, including DJO’s new Shockwave™ product.

Surgical Implant Segment

The Surgical Implant segment sales were $16.4 million in the second quarter, growing 8.0% over the second quarter of 2010. Surgical sales continued to be driven by strong sales of the Company’s Reverse® Shoulder Prosthesis, but were also enhanced by the roll-out of the newly launched Turon™ shoulder product, which addresses the primary shoulder replacement market.

As of July 2, 2011, the Company had cash balances of $41.0 million and available liquidity of $54.0 million under its revolving line of credit.

Six Month Results

DJOFL achieved net sales of $527.5 million for the first six months of 2011, reflecting growth of 9.3 percent compared to net sales of $482.6 million for the first six months of 2010. Net sales for the first six months of 2011 were favorably impacted by changes in foreign currency exchange rates compared to the rates in effect in the first six months of 2010.  In constant currency, average daily sales for the first six months of 2011 increased 8.6 percent compared to net sales for the first six months of 2010.

DJO’s first six months of 2011 include net sales from businesses recently acquired. On a pro forma basis, as if the acquisitions of ETI, Circle City and DRC had closed on January 1, 2010, DJO net sales would have been $548.2 million for the first six months of 2011 and $535.8 million for the first six months of 2010, reflecting pro forma growth in average daily sales for the first six months of 2011 of 3.1 percent, or 1.7 percent in constant currency, over pro forma average daily sales in the first six months of 2010.

For the first six months of 2011, DJOFL reported a net loss attributable to DJOFL of $40.5 million, compared to a net loss attributable to DJOFL of $33.4 million for the first six months of 2010. As detailed in the attached financial tables, the results for the current and prior year six month periods were impacted by significant non-cash items, non-recurring items and other adjustments.

Adjusted EBITDA for the first six months of 2011 was $128.7 million, or 24.4 percent of net sales, compared to Adjusted EBITDA of $128.9 million, or 26.7 percent of net sales, for the first six months of 2010. Adjusted EBITDA for the first six months of 2011 includes $0.9 million related to favorable changes in foreign currency exchange rates compared to the rates in effect for the first six months of 2010.

Conference Call Information

DJO has scheduled a conference call to discuss this announcement beginning at 1 PM, Eastern Time today, August 16, 2011. Individuals interested in listening to the conference call may do so by dialing (877) 864-4577 (International callers please use (706) 634-0177), using the reservation code 82793916.  A telephone replay will be available for 48 hours following the conclusion of the call by dialing (706) 645-9291 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 developer, manufacturer and distributor of high-quality medical devices and services that provide solutions for musculoskeletal health, vascular health and pain management. The Company’s products address the continuum of patient care from injury prevention to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion. Its products are used by orthopedic specialists, spine 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 orthopedic 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®, Empi®, ProCare®, DJO® Surgical and Dr. Comfort®. For additional information on the Company, please visit www.DJOglobal.com.

DJO Finance LLC

Adjusted EBITDA

For the Three Months and Six Months Ended July 2, 2011 and July 3, 2010

and the Twelve Months Ended July 2, 2011

(unaudited)

Our Senior Secured Credit Facility, consisting of an $847.4 million term loan and a $100.0 million revolving credit facility, under which $46 million was outstanding as of July 2, 2011, and the Indentures governing our $675.0 million and $300.0 million of 10.875%  and 7.75% senior notes, respectively, and $300.0 million of 9.75% senior subordinated notes represent significant components of our capital structure. Under our Senior Secured Credit Facility, we are required to maintain specified senior secured leverage ratios, which become more restrictive over time, and which are determined based on our Adjusted EBITDA. If we fail to comply with the senior secured leverage ratio under our Senior Secured Credit Facility, we would be in default. Upon the occurrence of an event of default under the Senior Secured Credit Facility, the lenders could elect to declare all amounts outstanding under the Senior Secured Credit Facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the Senior Secured Credit Facility could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the Senior Secured Credit Facility. Any acceleration under the Senior Secured Credit Facility would also result in a default under the Indentures governing the notes, which could lead to the note holders electing to declare the principal, premium, if any, and interest on the then outstanding notes immediately due and payable. In addition, under the Indentures governing the notes, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing subordinated indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Adjusted EBITDA. Our ability to meet the covenants specified above will depend on future events, many of which are beyond our control, and we cannot assure you that we will meet those covenants.

Adjusted EBITDA is defined as net income (loss) attributable to DJO Finance LLC plus interest expense, net, income tax expense (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 and other ratios under the Company’s Senior Secured Credit Facility and the Indentures governing its 10.875% and 7.75% senior notes and its 9.75% senior subordinated notes. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants and other ratios in our Senior Secured Credit Facility and the Indentures. Adjusted EBITDA is a material component of these calculations.

Adjusted EBITDA should not be considered as an alternative to net income (loss) or other performance measures presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), or as an alternative to cash flow from operations as a measure of our liquidity. Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definition of Adjusted EBITDA under our Senior Secured Credit Facility and the Indentures allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income (loss). However, these are expenses that may recur, vary greatly and are difficult to predict. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

DJO Investor/Media Contact:
DJO Global, Inc.
Mark Francois, Director of Investor Relations
(760) 734-4766

mark.francois[at]djoglobal[dot]com