Encore Medical Turns It Around in 2003
BY JOHN CHOPACK, MARCH 8, 2004
Encore (ENMC) management reported revenues of $27.9 million and $108.1 million during the 4Q:03 and 2003, respectively. This represented a 6% and a 13% increase over 4Q:02 and 2002 revenues.
In our opinion, the most important revenue turn around during 2003 occurred within the Company's Surgical Division which increased 17% during the 2H:03 versus the 2H:02. This compares to an 11% increase during the 1H:03 versus the 1H:02. The clear driver was the approval of Encore's Keramos - Ceramic-on-Ceramic Hip during the 2H:03. Currently, ENMC is one of only three companies (the other two are Wright Medical & Stryker) marketing this type of hip product which is expected to last longer than traditional products.
The most impressive accomplishment was the reduction in high interest debt the Company had used to fund business development activities. During 2003, Encore completed two public offerings which raised a total of $80.5 million. The Company used $38.5 million of the proceeds to reduce its debt, which reduced its interest expense from $2 million during the 2Q:03 to $100,000 during the 4Q:03 and created the path to profitability. It is our assumption that the remainder, approximately $40 million, of the capital raised will be used for future business development activities which will most likely include strategic acquisitions.
The reduction in interest expense between the 2Q:03 and year-end 2003 almost perfectly matched the $2.0 million in net income during the 4Q:03. The Company reported a net loss of $2.5 million during 2003 which included a $7.5 million one-time expense related to an early repayment of its debt. Encore would have reported $3 million in net income if this one time charge were excluded compared to $6 thousand in earnings in 2002.
