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Product / Company Performance

DJO Reports 3Q18 Revenue of $294.1MM, +1.1% vs. 3Q17 -

By Mike Evers, ORTHOWORLD

DJO reported revenue of $294.1MM in 3Q18, +1.1% vs. 3Q17, while continuing to make progress on the margin-expansion transformation initiatives undertaken in 2017. In the third quarter, the company achieved its goal of improved productivity, defined by leadership as EBITDA growth outpacing revenue growth.

The company performed well in joint reconstruction sales with leadership calling out almost 20% growth in shoulders and 10% growth in knees and hips. After some delays in new product launches in late 2017 and early 2018, DJO is back on track and expects four “sizable” surgical implant launches in the next three quarters, including a partial knee system along with new hip and shoulder products. In 3Q18 the company announced the launch of the EMPOWR Universal Tibia and EMPOWR VVC, which both broaden the indications of the EMPOWR Complex Knee system. Leadership expects these launches to carry the segment to double-digit growth through 2019 as the DJO portfolio becomes deeper.

The Recovery Sciences segment was hit by expected revenue slowdowns as the company continues to face challenges with U.S. distributors. However, within that segment CMF bone growth products continued their strong performance from the previous quarter, as that product line has benefited from a new organizational structure and management team.

This year represents the second of three “waves” of transformation initiatives to reduce costs and expand margins. The company made progress with their reimbursement quote-to-collection process, reducing bad debt costs by 16% year-to-date. DJO is also consolidating five distribution center sites into a single, modernized facility in the Dallas-Fort Worth area that will be outsourced to XPO Logistics to reduce shipping costs and improve productivity. The facility will reach full production capacity in 1Q19. Dallas-Fort Worth will also be the home of DJO’s new corporate headquarters, while the Bracing business will remain in California with a reduced real estate footprint. The final transformation update called out by leadership was the improvement in their procurement process, where the “design to cost” initiative has led to reduced production costs by as much as 55% on some products while still offering additional features and enhancements.

ORTHOWORLD estimates 3Q18 and YTD segment sales and growth on an as-reported basis as follows. The Other segment includes DJO’s Bracing and Vascular, Recovery Sciences and a portion of International not attributed to Joint Reconstruction.

ORTHOWORLD projects 2018 DJO revenue of $1,206.5MM, +1.7% vs. 2017.

  3Q18 3Q17 $ Change % Change
Joint Reconstruction $70.9 $61.7 $9.2 14.9%
Knees $18.5 $16.7 $1.8 10.5%
Hips $16.1 $14.5 $1.5 10.6%
Extremities $36.4 $30.5 $5.9 19.4%
Other $223.2 $229.2 -$6.0 -2.6%
Total  $294.1 $290.9 $3.2 1.1%

 

  YTD18 YTD17 $ Change % Change
Joint Reconstruction $212.9 $182.7 $30.2 16.5%
Knees $56.9 $48.9 $8.0 16.5%
Hips $49.5 $43.6 $5.8 13.4%
Extremities $106.5 $90.2 $16.3 18.1%
Other $678.7 $691.3 -$12.6 -1.8%
Total  $891.5 $873.9 $17.6 2.0%

 

DJO’s revenue by geographic region is as follows. Leadership called out strong performance in France and Australia, offset by weakness in the U.K. and Benelux region.

Geographic Region 3Q18 3Q17 $ Change % Change
US $215.84 $213.93 $1.9 0.9%
Ex-US $78.2 $76.9 $1.3 1.6%
   EMEA $58.44 $55.97 $2.5 4.4%
   Asia Pacific $11.39 $12.13 -$0.7 -6.1%
   Rest of World $8.39 $8.84 -$0.5 -5.2%
Total  $294.1 $290.9 $3.2 1.1%

 

Net earnings for 3Q18 are as follows.

3Q18 Amount ($MM) % of Sales
Sales $294.2  
   Cost of Sales -$129.4 44.0%
   Administrative -$120.0 40.8%
   R&D -$10.2 3.5%
   Other -$63.9 21.7%
Net Earnings -$29.3 -10.0%

 

Sources: DJO; ORTHOWORLD estimates. All revenue figures presented in USD $MM.

Mike Evers is ORTHOWORLD’s Market Analyst. He can be reached by email.

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