SOURCE: CONMED Corporation

CONMED Corporation

January 27, 2015 16:01 ET

CONMED Corporation Announces Fourth Quarter and Full Year 2014 Financial Results

UTICA, NY--(Marketwired - Jan 27, 2015) - CONMED Corporation (NASDAQ: CNMD) today announced financial results for the fourth quarter and full year ended December 31, 2014.

Fourth Quarter 2014 Financial Highlights:

  • Sales of $195.0 million decreased 4.1% on a reported basis and 2.7% in constant currency compared to the fourth quarter of 2013.

  • Diluted earnings per share (GAAP) were $0.41 compared to $0.36 in the fourth quarter of 2013 and were affected by special items as described below.

  • Adjusted diluted earnings per share were $0.53 and equal to $0.53 in the prior year period.

Full Year 2014 Financial Highlights:

  • Sales of $740.1 million decreased 3.0% on a reported basis and 2.4% in constant currency compared to 2013.

  • Diluted earnings per share (GAAP) were $1.16 compared to $1.28 in 2013 and were affected by special items as described below.

  • Adjusted diluted earnings per share were $1.92 compared to $1.81 in the prior year.

  • Adjusted EBITDA margin improved 80 basis points to 18.0% compared to 17.2% in 2013.

"Our fourth quarter results allowed us to complete the year in-line with the guidance we provided last July and reconfirmed in October. Our focus is on transforming our commercial organization to facilitate future sales and earnings growth. Our management team is fully engaged in this process, and I look forward to sharing our progress with you," commented Curt R. Hartman, President and Chief Executive Officer.

Sales Analysis

For the quarter ended December 31, 2014, domestic sales, which represented 50.7% of total sales, declined 1.8% while international sales, 49.3% of total sales, declined 6.5% compared to the fourth quarter of 2013 on a reported basis. In constant currency, international sales declined 3.8%. The sales decline in the United States was caused by reduced single-use product revenue, offset by increased capital equipment sales. Outside the United States, the decline was caused primarily by FX headwinds and reduced capital equipment sales. The currency impact on fourth quarter 2014 sales as compared to the fourth quarter of 2013 was $2.8 million.

For the 2014 full year, domestic sales, 48.8% of total sales, decreased 3.9% due to declines in single-use and capital products, while international sales, 51.2% of total sales, decreased 2.1% on a reported basis and 1.0% in constant currency. The international sales declines were caused by FX headwinds and reduced sales of capital products. The currency impact on 2014 sales as compared to 2013 was $4.3 million.

Earnings Analysis

Diluted earnings per share on a GAAP basis for the December 2014 quarter improved over the fourth quarter of 2013 due to lower operating expenses, including lower special items. Adjusting for the special items in both quarterly periods, adjusted diluted EPS was the same in both periods, as lower sales and gross margin in the fourth quarter of 2014 were offset by lower operating costs, a lower tax rate and reduced shares outstanding as compared to the fourth quarter of 2013.

For the 2014 full year, GAAP diluted earnings per share declined 9.4% caused by lower sales and higher costs for special items, particularly for those associated with management restructuring, Denver plant consolidation, and shareholder activism. Adjusting for the special items in both years as indicated on the following reconciliation, adjusted earnings per share grew 6.1% due to lower operating costs.

2015 Outlook

CONMED has outlined certain changes in the structure of its commercial organization that management believes will return the Company to sales growth in 2015. The Company anticipates constant currency sales growth of 1% to 3% for the full year, which will be driven by new product launches and a reorganization of certain aspects of the commercial sales organization in early 2015. As a result, management expects revenue growth to accelerate in the second half of 2015 compared to the first half of 2015.

CONMED's prior 2015 guidance contemplated foreign exchange rates as of December 2014. The January 2015 volatility in the currency markets has been significant, and the Company has chosen to update 2015 guidance based on currency spot rates as of the close on January 23, 2015. Based on these rates, the updated negative impact of foreign exchange rates versus 2014 is $19 million to revenues and $0.14 to EPS, versus the prior estimates of $6 million and $0.04, respectively.

Using January 23, 2015 exchange rates and existing hedges, CONMED now anticipates that reported sales for 2015 will be in the range of $727 million to $742 million, representing a range of (2%) to 0% versus the prior year. The Company continues to expect 2015 constant currency revenue growth of 1% to 3%. In addition, adjusted diluted earnings per share will be in the range of $1.82 to $1.92.

The adjusted estimates for the full year 2015 exclude the cost of special items, including the manufacturing consolidation, commercial restructuring and senior management changes which are estimated to be $9.0 million to $11.0 million, net of tax, for 2015.

Special Charges

As reconciled on the following schedules, during the fourth quarter and full year 2014, the Company continued the ongoing consolidation of certain administrative functions and manufacturing activities. Also incurred were costs due to shareholder activism, changes in senior management, litigation and settlement costs associated with patent and legal disputes, the write-off of New York State tax credits eliminated due to a legislative change, and other costs. Expenses associated with these activities, including severance and relocation costs, amounted to $3.4 million, net of tax, in the fourth quarter of 2014 and $21.2 million, net of tax, for 2014. These charges are included in the GAAP earnings per share set forth above and are excluded from the adjusted results.

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, adjusted operating income, adjusted gross margin and adjusted earnings per share measure the income of the Company excluding 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, adjusted operating income, adjusted gross margin 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 special charges should be eliminated from on-going operating activities. These adjustments for special charges are derived from facts and circumstances that vary in frequency and impact on the Company's results of operations. Management uses adjusted net income, adjusted operating income, adjusted gross margin 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. Further, the presentation of EBITDA and adjusted EBITDA are non-GAAP measurements that management considers useful for measuring aspects of the Company's cash flow. 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 conduct a conference call and webcast regarding its fourth quarter 2014 financial results at 4:30 p.m. Eastern Time on Tuesday, January 27, 2015. To participate in the conference call, dial 866-515-2907 in the United States, or 617-399-5121 from other locations, and provide passcode 96396892. The webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through February 15, 2015.

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 3,500 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 over 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. 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 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, 2013.

 
 
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
 (In thousands except per share amounts)
(unaudited)
         
    Three months ended   Twelve months ended
    December 31,   December 31,
    2014   2013   2014   2013
                         
Net sales   $ 195,003   $ 203,442   $ 740,055   $ 762,704
                         
Cost of sales     89,112     89,910     330,386     341,661
Cost of sales, other - Note A     1,858     2,137     5,612     8,626
                         
Gross profit     104,033     111,395     404,057     412,417
                         
Selling and administrative expense     74,861     82,355     293,942     310,730
Research and development     7,105     6,438     27,779     25,831
Medical device excise tax     1,536     1,536     5,588     5,949
Other expense - Note B     3,442     4,885     23,962     13,399
      86,944     95,214     351,271     355,909
                         
Income from operations     17,089     16,181     52,786     56,508
                         
Loss on early extinguishment of debt     -     -     -     263
                         
Interest expense     1,539     1,482     6,111     5,613
                         
Income before income taxes     15,550     14,699     46,675     50,632
                         
Provision for income taxes     4,211     4,472     14,483     14,693
                         
Net income   $ 11,339   $ 10,227   $ 32,192   $ 35,939
                         
Per share data:                        
  Net income                        
    Basic   $ 0.41   $ 0.37   $ 1.17   $ 1.30
    Diluted     0.41     0.36     1.16     1.28
                         
  Weighted average common shares                        
    Basic     27,537     27,644     27,401     27,722
    Diluted     27,758     28,062     27,769     28,114
                             
                             

Note A - Included in cost of sales, other in the three and twelve months ended December 31, 2014 and 2013 are costs related to the consolidation of our production facilities. Also included in the twelve months ended December 31, 2013 are costs associated with the termination of a product offering. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

Note B - Other expense in the three and twelve months ended December 31, 2014 and 2013 includes a number of adjusted charges. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

 
 
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(unaudited)
 
ASSETS  
   
    December 31,     December 31,  
    2014     2013  
Current assets:                
  Cash and cash equivalents   $ 66,332     $ 54,443  
  Accounts receivable, net     129,287       140,426  
  Inventories     148,149       143,211  
  Income taxes receivable     583       3,805  
  Deferred income taxes     14,348       13,202  
  Prepaid expenses and other current assets     22,451       17,045  
    Total current assets     381,150       372,132  
                 
Property, plant and equipment, net     133,429       138,985  
Deferred income taxes     1,398       1,183  
Goodwill     256,232       248,428  
Other intangible assets, net     316,440       319,440  
Other assets     9,545       10,340  
    Total assets   $ 1,098,194     $ 1,090,508  
                 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY  
                 
Current liabilities:                
  Current portion of long-term debt   $ 1,234     $ 1,140  
  Other current liabilities     114,722       110,125  
    Total current liabilities     115,956       111,265  
                 
Long-term debt     240,201       214,435  
Deferred income taxes     112,223       113,199  
Other long-term liabilities     48,516       45,290  
    Total liabilities     516,896       484,189  
                 
Shareholders' equity:                
  Capital accounts     214,975       228,002  
  Retained earnings     406,145       395,889  
  Accumulated other comprehensive loss     (39,822 )     (17,572 )
    Total equity     581,298       606,319  
                 
    Total liabilities and shareholders' equity   $ 1,098,194     $ 1,090,508  
                     
                     
 
 
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
       
    Twelve months ended  
    December 31,  
    2014     2013  
Cash flows from operating activities:                
  Net income   $ 32,192     $ 35,939  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation and amortization     45,734       47,867  
    Stock-based compensation     9,330       5,593  
    Loss on early extinguishment of debt     -       263  
    Deferred income taxes     (284 )     7,218  
      Increase (decrease) in cash flows from changes in assets and liabilities:                
      Accounts receivable     5,255       (798 )
      Inventories     (20,940 )     (1,817 )
      Accounts payable     (3,449 )     4,223  
      Income taxes receivable (payable)     5,013       (1,519 )
      Accrued compensation and benefits     3,572       (71 )
      Other assets     (546 )     (5,222 )
      Other liabilities     (10,701 )     (10,727 )
Net cash provided by operating activities     65,176       80,949  
                 
Cash flow from investing activities:                
      Payments related to a business acquisition     (5,265 )     -  
      Purchases of property, plant, and equipment     (15,411 )     (18,445 )
  Net cash used in investing activities     (20,676 )     (18,445 )
                 
Cash flow from financing activities:                
      Payments on debt     (1,140 )     (1,277 )
      Proceeds of debt     27,000       55,000  
      Payments related to distribution agreement     (16,667 )     (34,000 )
      Dividends paid on common stock     (21,959 )     (16,696 )
      Payments related to issuance of debt     -       (1,725 )
      Net proceeds from common stock issued under employee plans     2,316       17,264  
      Repurchase of common stock     (16,862 )     (50,556 )
      Other, net     922       694  
  Net cash used in financing activities     (26,390 )     (31,296 )
                 
Effect of exchange rate change on cash and cash equivalents     (6,221 )     (485 )
                 
Net increase in cash and cash equivalents     11,889       30,723  
                 
Cash and cash equivalents at beginning of period     54,443       23,720  
                 
Cash and cash equivalents at end of period   $ 66,332     $ 54,443  
                 
                 
                 
 
 
CONMED CORPORATION
Sales Summary
(In millions)
 
       
    Three Months Ended December 31,  
                     
                  Constant  
                  Currency  
    2014   2013   % Change     % Change  
                   
Orthopedic surgery   $ 101.7   $ 107.7   -5.6 %   -3.9 %
General surgery     75.4     76.8   -1.8 %   -0.9 %
Surgical visualization     17.9     18.9   -5.3 %   -3.7 %
    $ 195.0   $ 203.4   -4.1 %  
-2.7
%
   
Single-use products   $ 154.7   $ 161.5   -4.2 %   -2.8 %
Capital products     40.3     41.9   -3.8 %   -2.4 %
    $ 195.0   $ 203.4   -4.1 %  
-2.7
%
                         
                         
    Twelve Months Ended December 31,  
                         
                      Constant  
                      Currency  
      2014     2013   % Change     % Change  
                   
Orthopedic surgery   $ 402.8   $ 410.2   -1.8 %   -1.3 %
General surgery     279.4     286.7   -2.5 %   -2.0 %
Surgical visualization     57.9     65.8   -12.0 %   -10.9 %
    $ 740.1   $ 762.7   -3.0 %  
 -2.4
%
   
Single-use products   $ 593.8   $ 609.0   -2.5 %   -1.9 %
Capital products     146.3     153.7   -4.8 %   -4.3 %
    $ 740.1   $ 762.7   -3.0 %  
 -2.4
%
                         
                         
 
 
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
Three Months Ended December 31, 2014 and 2013
(In thousands except per share amounts)
(unaudited)
 
    2014     2013  
                 
Reported net income   $ 11,339     $ 10,227  
                 
Facility consolidation costs     1,858       2,137  
                 
  Total cost of sales     1,858       2,137  
                 
Administrative consolidation costs     1,499       2,447  
                 
Patent dispute and other matters     141       995  
                 
Management restructuring costs     1,524       -  
                 
Business acquisition costs     278       -  
                 
Pension settlement expense     -       1,443  
                 
  Total other expense     3,442       4,885  
                 
Adjusted expense before income taxes     5,300       7,022  
                 
Provision for income taxes on adjusted expenses     (1,908 )     (2,351 )
                 
Adjusted net income   $ 14,731     $ 14,898  
                 
Per share data:                
                 
Reported net income                
  Basic   $ 0.41     $ 0.37  
  Diluted     0.41       0.36  
                 
Net income before adjusted items                
  Basic   $ 0.53     $ 0.54  
  Diluted     0.53       0.53  
                 
                 

Management has provided the above reconciliation of net income to adjusted net income 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 REPORTED NET INCOME TO ADJUSTED NET INCOME
Twelve Months Ended December 31, 2014 and 2013
(In thousands except per share amounts)
(unaudited)
             
    2014     2013  
                 
Reported net income   $ 32,192     $ 35,939  
                 
Costs associated with termination of a product offering     -       2,137  
                 
Facility consolidation costs     5,612       6,489  
                 
  Total cost of sales     5,612       8,626  
                 
Administrative consolidation costs     3,354       8,750  
                 
Patent dispute & settlement costs, and other matters     3,374       3,206  
                 
Shareholder activism costs     3,966       -  
                 
Management restructuring costs     12,546       -  
                 
Business acquisition costs     722       -  
                 
Pension settlement expense     -       1,443  
                 
  Total other expense     23,962       13,399  
                 
Loss on early extinguishment of debt     -       263  
                 
Adjusted expense before income taxes     29,574       22,288  
                 
Provision (benefit) for income taxes on adjusted expenses     (10,646 )     (7,473 )
                 
New York State corporate tax reform     2,258       -  
                 
Adjusted net income   $ 53,378     $ 50,754  
                 
Per share data:                
                 
Reported net income                
  Basic   $ 1.17     $ 1.30  
  Diluted     1.16       1.28  
                 
Net income before adjusted items                
  Basic   $ 1.95     $ 1.83  
  Diluted     1.92       1.81  
                   
                   

Management has provided the above reconciliation of net income to adjusted net income 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 GROSS MARGIN TO ADJUSTED GROSS MARGIN
(In thousands)
(unaudited)
             
    Three months ended     Twelve months ended  
    December 31,     December 31,  
    2014     2013     2014     2013  
                                 
Net sales   $ 195,003     $ 203,442     $ 740,055     $ 762,704  
                                 
Cost of sales, total     90,970       92,047       335,998       350,287  
                                 
Gross profit     104,033       111,395       404,057       412,417  
                                 
Add: Cost of sales, other     1,858       2,137       5,612       8,626  
                                 
Adjusted gross profit   $ 105,891     $ 113,532     $ 409,669     $ 421,043  
                                 
Gross margin:                                
  Reported     53.3 %     54.8 %     54.6 %     54.1 %
                                 
  Adjusted     54.3 %     55.8 %     55.4 %     55.2 %
                                 
                                 

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 INCOME FROM OPERATIONS TO ADJUSTED
INCOME FROM OPERATIONS
 (In thousands)
(unaudited)
             
    Three months ended     Twelve months ended  
    December 31,     December 31,  
    2014     2013     2014     2013  
                                 
Reported income from operations   $ 17,089     $ 16,181     $ 52,786     $ 56,508  
                                 
Costs associated with termination of a product offering included in cost of sales     -       -       -       2,137  
                                 
Facility consolidation costs included in cost of sales     1,858       2,137       5,612       6,489  
                                 
Administrative consolidation costs included in other expense     1,499       2,447       3,354       8,750  
                                 
Patent dispute & settlement costs, and other matters included in other expense     141       995       3,374       3,206  
                                 
Shareholder activism costs included in other expense     -       -       3,966       -  
                                 
Management restructuring costs included in other expense     1,524       -       12,546       -  
                                 
Costs associated with a business acquisition included in other expense     278       -       722       -  
                                 
Pension settlement costs included in other expense     -       1,443       -       1,443  
                                 
Adjusted income from operations   $ 22,389     $ 23,203     $ 82,360     $ 78,533  
                                 
Operating Margin                                
  Reported     8.8 %     8.0 %     7.1 %     7.4 %
                                 
  Adjusted     11.5 %     11.4 %     11.1 %     10.3 %
                                 
                                 

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     Twelve months ended  
    December 31,     December 31,  
    2014     2013     2014     2013  
                                 
Net income   $ 11,339     $ 10,227     $ 32,192     $ 35,939  
                                 
Provision for income taxes     4,211       4,472       14,483       14,693  
                                 
Interest expense     1,539       1,482       6,111       5,613  
                                 
Loss on early extinguishment of debt     -       -       -       263  
                                 
Depreciation     5,090       4,952       19,792       18,653  
                                 
Amortization     6,478       7,228       25,358       28,655  
                                 
EBITDA   $ 28,657     $ 28,361     $ 97,936     $ 103,816  
                                 
Stock-based compensation     1,256       1,491       5,419       5,593  
                                 
Costs associated with termination of a product offering included in cost of sales     -       -       -       2,137  
                                 
Facility consolidation costs included in cost of sales     1,858       2,137       5,612       6,489  
                                 
Administrative consolidation costs included in other expense     1,499       2,447       3,354       8,750  
                                 
Patent dispute & settlement costs, and other matters included in other expense     141       995       3,374       3,206  
                                 
Shareholder activism costs included in other expense     -       -       3,966       -  
                                 
Management restructuring costs included in other expense     1,524       -       12,546       -  
                                 
Costs associated with a business acquisition included in other expense     278       -       722       -  
                                 
Pension settlement expense included in other expense     -       1,443       -       1,443  
                                 
Adjusted EBITDA   $ 35,213     $ 36,874     $ 132,929     $ 131,434  
                                 
EBITDA Margin                                
  EBITDA     14.7 %     13.9 %     13.2 %     13.6 %
                                 
  Adjusted EBITDA     18.1 %     18.1 %     18.0 %     17.2 %
                                   
                                   

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 provide a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

Contact Information

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