Encore Medical (ENMC:NASDAQ) Reports 4Q:04 and 2004 Year-end Results
BY JOHN CHOPACK, MARCH 7, 2005
From a business development and strategy execution standpoint/2004 was an excellent year for Encore. Management completed two acquisitions (Empi and Osteoimplant Technologies, Inc.) which fits the overall business development strategy of ENMC: growth via acquisition. The acquisitions helped drive revenues from $108 million in 2003 to $164 million in 2004, a 52% increase. Net Income, excluding any extraordinary items, totaled $7.6 million in 2004 which was a 53% increase over 2003.
Source: Company Documents
4Q:04 revenues totaled $72.6 million which was a 161% increase over the 4Q:03 as a consequence of the Empi acquisition which closed in October/2004. The $73 million in revenues beat analyst expectations. However, ENMC's earnings-per-share on a diluted basis of $0.05 excluding extraordinary items ($0.02 as reported) was in-line with analyst expectations.
Surgical Implant revenues totaled $11.5 million in the 4Q:04 which was a 24% increase over the 4Q:03. Revenues were driven by strong sales of the Company's hip, knee and spine products. Encore launched five new products during the year including a large femoral head metal-on-metal hip product during the 4Q:04. However, during 2004 the Company decided to exit the trauma business to focus on developing products within its hip, knee and spine segments. Encore also acquired Osteoimplant Technologies, Inc. (OTI) during the 4Q:04, commenting that the acquisition was to help boost the Company's spinal implant technology portfolio.
The Orthopedic Rehabilitation revenues totaled $61.1 million during the 4Q:04 compared to $18.6 million during the 4Q:03. The major contributor was the additional Empi revenues during the 4Q:04 as a consequence of the acquisition earlier in the year.
Encore's gross margin improved to 57% during the 4Q:04 from 51% during the 4Q:03. This is a significant improvement in efficient production which has been a limiting factor of profitability for Encore when compared to other orthopedic competitors during the last couple of years. The improvement in gross margin helped drive operating margin to 12% during the 4Q:04 from 10% a year ago.
The Company fully leveraged itself during 2004 in order to acquire both Empi and OTI. Encore is currently carrying total debt of $329 million on its balance sheet with a cash balance of $20 million. We expect that this might limit Encore's ability to complete additional acquisitions in near-term utilizing attractive debt financing.
Management provided 2005 guidance of $310 million in revenues which was up from its previous guidance of $300 million. Initial guidance for 2006 revenues was $340 million.
