SOURCE: CONMED Corporation

CONMED Corporation

April 25, 2013 07:00 ET

CONMED Corporation Announces First Quarter 2013 Financial Results

UTICA, NY--(Marketwired - Apr 25, 2013) - CONMED Corporation (NASDAQ: CNMD)

  • EPS grows to $0.37
  • Adjusted EPS grows to $0.45
  • Conference Call to be Held at 10:00 a.m. ET Today

CONMED Corporation (NASDAQ: CNMD) today announced financial results for the first quarter ended March 31, 2013.

"The first quarter 2013 financial results showed improvement in earnings, gross margin and the effective income tax rate. Sales, however, were negatively affected by foreign currency exchange rates and fewer selling days," commented Mr. Joseph J. Corasanti, President and CEO. 

First Quarter 2013 Financial Highlights:

  • Diluted earnings per share (GAAP) grew 5.7% to $0.37 (excluding the MDET, EPS growth would have been 14.3%)

  • Adjusted diluted earnings per share grew 4.7% to $0.45 (excluding the MDET, adjusted EPS growth would have been 14.0%)

  • Sales were $187.0 million, a decrease of 3.8% due to two fewer selling days (leap year and the Easter/Passover holidays), FX, and flat or weak healthcare utilization in many geographic regions

  • Adjusted operating margin expanded 70 basis points to 11.2%

  • GAAP operating margin was 8.5% versus 8.8% in Q1 2012 due to an 80 basis point negative effect from the MDET offset by a 50 basis point improvement in the overall cost structure

  • Adjusted EBITDA margin was 17.1%, consistent with the prior year period, even with an 80 basis point negative effect from the MDET

  • GAAP EBITDA margin was 14.7%, effectively the same as the prior year period, even with an 80 basis point negative effect from the MDET

International sales in the first quarter of 2013 were $94.4 million, representing 50.5% of total sales. Foreign currency exchange rates including the effects of the FX hedging program caused sales to be $0.7 million less in the first quarter of 2013 compared to sales in the first quarter of 2012. 

Cash provided by operating activities in the first quarter of 2013 was similar to the first quarter of 2012 and equaled $5.5 million. It includes a contribution of $7.5 million to the Company's frozen pension plan, payment of the MDET and payment of incentive compensation. Similar to the quarterly cash flow of 2012, management expects 2013 cash flow from operations to improve in the remaining quarters of 2013 since the pension and incentive compensation payments only affect the first quarter of 2013. During the first quarter of 2013 the Company repurchased 848,000 shares of its common stock amounting to $25.7 million and expects to repurchase approximately an additional $25 million over the remainder of the year.

Outlook

"We reiterate our full year 2013 adjusted earnings per share guidance of $1.80 - $1.90 which contemplates the effects of the medical device tax and less favorable FX exchange rates," said Mr. Corasanti. While the earnings guidance remains the same due to continued improvement in gross margins, we recognize that sales in major European countries have been affected by governmental spending controls and lower than anticipated procedure growth. Similarly, healthcare utilization seems flat in the U.S. despite modest job growth. Further, the surgical video visualization product line, consisting primarily of capital equipment, has been affected by hospital budgetary constraints in Europe and elsewhere. While we believe the overall economic environment may improve toward the latter half of 2013, we consider it prudent to reduce the estimated full year sales forecast by $15 million to $770 - $780."

"For the second quarter of 2013, we anticipate sales will approximate $191 - $196 million and adjusted earnings per share are forecasted to be $0.41 - $0.46," continued Mr. Corasanti.

The adjusted estimates for the second quarter and full year 2013 exclude unusual matters, such as patent litigation and manufacturing restructuring costs expected to be incurred in 2013 due to the relocation of manufacturing activities from the Westborough, Massachusetts and Tampere, Finland sites to the Company's other facilities. 

Unusual charges

During the first quarter of 2013, the Company continued the on-going consolidation of certain administrative functions and manufacturing activities. Also incurred were litigation costs associated with a patent dispute and costs associated with the amended credit facility. Expenses associated with these activities, including severance and relocation costs, amounted to $2.4 million, net of tax, in the first quarter of 2013. These charges are included in the GAAP earnings per share set forth above and are excluded from the adjusted results. For the remainder of 2013, the Company presently anticipates incurring additional pre-tax restructuring costs of $9.0 - $10.0 million on projects currently in process.

Use of non-GAAP financial measures

Management has disclosed adjusted financial measurements in this press announcement that present financial information that is not in accordance with generally accepted accounting principles. These measurements are not a substitute for GAAP measurements, although Company management uses these measurements as aids in monitoring the Company's on-going financial performance from quarter-to-quarter and year-to-year on a regular basis, and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the Company excluding unusual credits or charges that are considered by management to be outside of the normal on-going operations of the Company. Management uses and presents adjusted net income and adjusted earnings per share because management believes that in order to properly understand the Company's short and long-term financial trends, the impact of unusual items should be eliminated from on-going operating activities. These adjustments for unusual items are derived from facts and circumstances that vary in frequency and impact on the Company's results of operations. Management uses adjusted net income and adjusted earnings per share to forecast and evaluate the operational performance of the Company as well as to compare results of current periods to prior periods on a consistent basis. Adjusted financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Investors should consider adjusted measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP. 

Conference call

The Company will webcast its first quarter 2013 conference call live over the Internet at 10:00 a.m. Eastern Time on Thursday, April 25, 2013. This webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through May 3, 2013.

CONMED profile

CONMED is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures. The Company's products are used by surgeons and physicians in a variety of specialties including orthopedics, general surgery, gynecology, neurosurgery and gastroenterology. Headquartered in Utica, New York, the Company's 3,600 employees distribute its products worldwide from several manufacturing locations. CONMED has a direct selling presence in 16 countries outside the United States and international sales constitute approximately 50% of the Company's total sales.

Forward Looking Information

This press release contains forward-looking statements based on certain assumptions and contingencies that involve risks and uncertainties. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and relate to the Company's performance on a going-forward basis. The forward-looking statements in this press release involve risks and uncertainties which could cause actual results, performance or trends, to differ materially from those expressed in the forward-looking statements herein or in previous disclosures. The Company believes that all forward-looking statements made by it have a reasonable basis, but there can be no assurance that management's expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. In addition to general industry and economic conditions, factors that could cause actual results to differ materially from those discussed in the forward-looking statements in this press release include, but are not limited to: (i) the failure of any one or more of the assumptions stated above, to prove to be correct; (ii) the risks relating to forward-looking statements discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012; (iii) cyclical purchasing patterns from customers, end-users and dealers; (iv) timely release of new products, and acceptance of such new products by the market; (v) the introduction of new products by competitors and other competitive responses; (vi) the possibility that any new acquisition or other transaction may require the Company to reconsider its financial assumptions and goals/targets; (vii) increasing costs for raw material, transportation of litigation; (viii) the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues; and/or (ix) the Company's ability to devise and execute strategies to respond to market conditions.

CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2012 and 2013
(In thousands except per share amounts)
(unaudited)
         
    2012   2013
             
Net sales   $ 194,316   $ 187,014
             
Cost of sales     91,931     82,710
Cost of sales, other - Note A     1,474     1,622
             
Gross profit     100,911     102,682
             
Selling and administrative expense     74,806     77,725
Research and development expense     7,095     5,694
Medical device excise tax     -     1,580
Other expense - Note B     1,988     1,813
      83,889     86,812
             
Income from operations     17,022     15,870
             
Loss on early extinguishment of debt     -     263
             
Interest expense     1,437     1,366
             
Income before income taxes     15,585     14,241
             
Provision for income taxes     5,617     3,749
             
Net income   $ 9,968   $ 10,492
             
Per share data:            
  Net income            
    Basic   $ .36   $ .37
    Diluted     .35     .37
             
  Weighted average common shares            
    Basic     28,029     28,127
    Diluted     28,484     28,500

Note A -Included in cost of sales, other in the three months ended March 31, 2012 and 2013 are costs related to the consolidation of our production facilities. Refer to the Reconciliation of Reported Net Income to Non-GAAP Net Income Before Unusual Items for further details.

Note B - Other expense in the three months ended March 31, 2012 and 2013 includes a number of unusual charges. Refer to the Reconciliation of Reported Net Income to Non-GAAP Net Income Before Unusual Items for further details.

 
 
 
CONMED CORPORATION   
CONSOLIDATED CONDENSED BALANCE SHEETS   
(in thousands)   
(unaudited)   
ASSETS   
 
    December 31,     March 31,  
     2012      2013  
Current assets:                
  Cash and cash equivalents   $ 23,720     $ 32,359  
  Accounts receivable, net     139,124       135,597  
  Inventories     156,228       156,873  
  Income taxes receivable     2,897       2,000  
  Deferred income taxes     11,931       10,703  
  Prepaid expenses and other current assets     14,993       16,466  
    Total current assets     348,893       353,998  
                 
Property, plant and equipment, net     139,041       138,411  
Goodwill     249,160       249,160  
Deferred income taxes     1,057       1,188  
Other intangible assets, net     190,809       188,809  
Other assets     150,547       151,419  
    Total assets   $ 1,079,507     $ 1,082,985  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY                
                 
Current liabilities:                
  Current portion of long-term debt   $ 1,050     $ 1,050  
  Other current liabilities     124,164       96,125  
    Total current liabilities     125,214       97,175  
                 
Long-term debt     160,802       224,802  
Deferred income taxes     99,857       102,199  
Other long-term liabilities     86,636       61,229  
    Total liabilities     472,509       485,405  
                 
Shareholders' equity:                
  Capital accounts     256,672       240,069  
  Retained earnings     377,907       384,210  
  Accumulated other comprehensive loss     (27,581 )     (26,699 )
    Total equity     606,998       597,580  
                     
    Total liabilities and shareholders' equity   $ 1,079,507     $ 1,082,985  
                     
                     
                     
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
    Three months ended  
    March 31,  
    2012     2013  
Cash flows from operating activities:                
  Net income   $ 9,968     $ 10,492  
    Adjustments to reconcile net income                
    to net cash provided by operating activities:                
    Depreciation and amortization     11,812       11,729  
    Stock-based compensation     1,183       1,152  
    Loss on early extinguishment of debt     -       263  
    Deferred income taxes     2,735       1,914  
    Increase (decrease) in cash flows from changes in assets and liabilities:                
      Accounts receivable     (5,618 )     3,042  
      Inventories     2,764       (4,858 )
      Accounts payable     2,601       313  
      Income taxes receivable (payable)     (1,232 )     244  
      Accrued compensation and benefits     (10,446 )     (8,830 )
      Other assets     (1,106 )     (2,423 )
      Other liabilities     (5,032 )     (7,566 )
    Net cash provided by operating activities     7,629       5,472  
                   
  Cash flow from investing activities:                
      Payments related to distribution arrangement     (64,116 )     -  
      Purchases of property, plant, and equipment     (6,424 )     (4,130 )
    Net cash used in investing activities     (70,540 )     (4,130 )
                   
  Cash flow from financing activities:                
      Payments on debt     (338 )     -  
      Proceeds of debt     50,000       64,000  
      Payments related to distribution agreement     -       (34,000 )
      Dividend paid on common stock     -       (4,256 )
      Payments related to issuance of debt     -       (1,636 )
      Net proceeds from common stock issued under employee plans     5,345       7,633  
      Repurchase of common stock     -       (25,732 )
      Other, net     809       1,625  
    Net cash provided by financing activities     55,816       7,634  
                 
  Effect of exchange rate change on cash and cash equivalents  
 
 
 
 
501
 
 
 
 
 
 
 
(337
 
)
                 
  Net increase (decrease) in cash and cash equivalents     (6,594 )     8,639  
                   
  Cash and cash equivalents at beginning of period     26,048       23,720  
                   
  Cash and cash equivalents at end of period   $ 19,454     $ 32,359  
                 
                 
                 
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NON-GAAP NET INCOME
BEFORE UNUSUAL ITEMS
Three Months Ended March 31, 2012 and 2013
(In thousands except per share amounts)
(unaudited)
    2012     2013  
                 
Reported net income   $ 9,968     $ 10,492  
                 
Facility consolidation costs included in cost of sales     1,474       1,622  
                 
Administrative consolidation costs included in other expense     273       1,604  
                 
Costs associated with purchase of Nordic region distributor     704       -  
                 
Legal arbitration and patent dispute costs included in other expense     1,011       209  
                 
  Total other expense     1,988       1,813  
                 
Loss on early extinguishment of debt     -       263  
                 
Unusual expense before income taxes     3,462       3,698  
                 
Provision (benefit) for income taxes on unusual expenses     (1,246 )     (1,331 )
                 
Net income before unusual items   $ 12,184     $ 12,859  
                 
Per share data:                
                 
Reported net income                
    Basic   $ 0.36     $ 0.37  
    Diluted     0.35       0.37  
                 
Net income before unusual items                
    Basic   $ 0.43     $ 0.46  
    Diluted     0.43       0.45  

Management has provided the above reconciliation of net income before unusual items as an additional measure that investors can use to compare operating performance between reporting periods. Management believes this reconciliation provides a useful presentation of operating performance as discussed in the section "Use of Non-GAAP Financial Measures" above. 

 
 
 
CONMED CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
Three Months Ended March 31, 2012 and 2013
(In thousands)
(unaudited) 
    2012     2013  
                 
Reported income from operations   $ 17,022     $ 15,870  
                 
Facility consolidation costs included in cost of sales     1,474       1,622  
                 
Administrative consolidation costs included in other expense     273       1,604  
                 
Medical device excise tax     -       1,580  
                 
Costs associated with purchase of Nordic region distributor     704       -  
                 
Legal arbitration and patent dispute costs included in other expense     1,011       209  
                 
Adjusted income from operations   $ 20,484     $ 20,885  
                 
Operating Margin                
  Reported (GAAP)     8.8 %     8.5 %
                 
  Adjusted (Non-GAAP)     10.5 %     11.2 %

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

 
 
 
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO EBITDA & ADJUSTED EBITDA
(in thousands)
(unaudited)
    Three months ended  
    March 31,  
    2012     2013  
                 
Net income   $ 9,968     $ 10,492  
                 
Provision for income taxes     5,617       3,749  
                 
Interest expense     1,437       1,366  
                 
Loss on early extinguishment of debt     -       263  
                 
Depreciation     4,688       4,619  
                 
Amortization     6,964       6,992  
                 
EBITDA (using GAAP measures)   $ 28,674     $ 27,481  
                 
Stock-based compensation     1,183       1,152  
                 
Facility consolidation costs included in cost of sales     1,474       1,622  
                 
Administrative consolidation costs included in other expense     273       1,604  
                 
Costs associated with purchase of Nordic region distributor     704       -  
                 
Legal arbitration and patent dispute costs included in other expense     1,011       209  
                 
Adjusted EBITDA   $ 33,319     $ 32,068  
                 
EBITDA Margin                
  EBITDA (using GAAP measures)     14.8 %     14.7 %
                   
  Adjusted EBITDA (using non-GAAP measures)     17.1 %     17.1 %

Management has provided the above reconciliations as additional measures that investors can use to compare financial results between reporting periods. Management believes these reconciliations provide a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

 
 
 
CONMED CORPORATION
First Quarter Sales Summary
(in millions)
 
    Three Months Ended March 31,  
                     
                  Constant  
                  Currency  
    2012   2013   Growth     Growth  
                         
Orthopedic surgery   $ 106.8   $ 105.0   -1.7 %   -1.1 %
General surgery     69.5     66.8   -3.9 %   -3.7 %
Surgical visualization     18.0     15.2   -15.6 %   -15.6 %
    $ 194.3   $ 187.0   -3.8 %  
-3.4
%
   
Single-use products   $ 153.6   $ 147.8   -3.8 %   -3.4 %
Capital products     40.7     39.2   -3.7 %   -3.4 %
    $ 194.3   $ 187.0   -3.8 %  
-3.4
%
                         
                         
                         

Contact Information

  • CONTACT:
    CONMED Corporation
    Robert Shallish
    Chief Financial Officer
    315-624-3206