SOURCE: CONMED Corporation

CONMED Corporation

October 24, 2013 07:00 ET

CONMED Corporation Announces Third Quarter 2013 Financial Results

UTICA, NY--(Marketwired - Oct 24, 2013) - CONMED Corporation (NASDAQ: CNMD)

  • EPS equals $0.20
  • Adjusted EPS equals $0.40
  • Conference Call to be Held at 10:00 a.m. ET Today

CONMED Corporation (NASDAQ: CNMD) today announced financial results for the third quarter ended September 30, 2013.

"Adjusted earnings per share for the third quarter 2013, equal to $0.40, met our expectations as a result of positive sales growth of single-use products, improved adjusted gross margins and favorable income tax adjustments," commented Mr. Joseph J. Corasanti, President and CEO. "The favorable growth in single-use devices, comprising over 80% of sales, demonstrates an encouraging sign of surgical procedure growth. The 1.3% sales increase (2.4% constant currency increase) of single-use devices in the third quarter 2013 is the best quarter we have experienced so far this year. Capital equipment reported sales, however, were volatile with a year-over-year decline of 11.9% in the third quarter as compared to an increase of 8.6% experienced in the preceding second quarter of 2013."

Third Quarter 2013 Financial Highlights:

  • Sales were $179.3 million, a constant currency decrease of 0.4% over the third quarter of 2012, consisting of a 2.4% increase in single-use devices offset by an 11.1% decline in capital products.

  • Diluted earnings per share (GAAP) were $0.20 compared to $0.32 in the third quarter of 2012 (excluding the Medical Device Excise Tax, "MDET," EPS would have been $0.23 in 2013).

  • Adjusted diluted earnings per share were $0.40 in the third quarter of 2013 compared to $0.43 in the same quarter of 2012 (excluding the MDET, adjusted EPS would have been $0.43 in 2013).

  • Adjusted EBITDA margin was 16.7%, a decrease of 70 basis points, caused by the negative effect from the MDET.

Nine Months 2013 Financial Highlights

  • Sales were $559.3 million, a constant currency decrease of 0.5% compared to the first nine months of 2012 consisting of a 0.1% decline in single-use products and a 2.1% decline in capital equipment.

  • Diluted earnings per share (GAAP) were $0.91 in the nine months ended September 2013 compared to $1.03 in the same period of 2012 (excluding the MDET, EPS would have been $1.01 in 2013).

  • Adjusted diluted earnings per share were $1.28 in the nine-month periods of both 2013 and 2012 (excluding the MDET, adjusted EPS would have been $1.38 in 2013).

  • Adjusted EBITDA margin was 16.9%, a decrease of 30 basis points, even with an 80 basis point negative effect from the MDET offset by operating improvements.

International sales in the third quarter of 2013 were $90.1 million, representing 50.3% of total sales. Foreign currency exchange rates including the effects of the FX hedging program caused sales to be $1.9 million less in the third quarter of 2013 compared to sales in the third quarter of 2012.

Cash provided by operating activities in the third quarter of 2013 equaled $30.5 million and increased sequentially from the second quarter of 2013. For the nine months ended September 2013, cash provided by operating activities was $53.6 million, more than double the net income for this period. The Company repurchased 1,431,000 shares of its common stock in the first nine months of 2013 for $44.7 million, all of which were repurchased as of June 30, 2013.

Outlook

"Looking at the quarterly progression of sales over the first nine months of 2013, we have seen encouraging improvement in sales of single-use surgical devices leading us to be somewhat optimistic about continued improvement in surgical procedure growth in both domestic and international markets. This optimism is tempered by the volatility we have experienced in sales of the Company's capital products due to continued budgetary restraints by hospitals in the United States and public healthcare systems in other countries. Given these factors, we believe it is prudent to forecast a year-over-year fourth quarter decline in capital equipment revenue, although we anticipate modest increases in fourth quarter 2013 sales of single-use devices which typically comprise approximately 80% of our sales. Accordingly, we are forecasting fourth quarter 2013 sales of $195 - $200 million resulting in a total year 2013 sales forecast of $754 - $759 million versus our prior range of $770 - $775 million. At these sales levels, we forecast fourth quarter 2013 adjusted earnings per share of $0.47 - $0.52 resulting in a total year 2013 adjusted earnings per share forecast of $1.75 - $1.80 as compared to the previous total year guidance range of $1.80 - $1.85. This forecast contemplates the effects of the medical device tax and less favorable FX exchange rates, which will cost the company about $0.20 for full year 2013," said Mr. Corasanti.

"As we look forward to 2014, we believe that continuing modest improvement in the global economy should result in annual sales growth for our products in a range of 2.0% - 3.0% resulting in a forecasted sales range of $770 - $780 million. This forecast is based on continued improvement in single-use product sales growth and capital product sales improving due to our expectation of a more normal capital equipment replacement cycle. With this increase in sales, we believe 2014 adjusted earnings per share will expand to $1.90 - $2.00. This earnings growth would also equate to an improvement in adjusted operating and EBITDA margins of approximately 50 basis points, which is positive for CONMED although less than our annual goal for margin improvement," continued Mr. Corasanti

The adjusted estimates for the fourth quarter and full year 2014 exclude special items, such as manufacturing restructuring costs expected to be incurred due to relocation of manufacturing activities and patent litigation.

Special charges

During the third 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 matter. Further, during the third quarter of 2013, the Company incurred losses on assets associated with the termination of a product offering within the patient monitoring product line. Expenses associated with these activities, including severance and relocation costs, amounted to $5.4 million, net of tax, in the third 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 special costs of $3.7 - $4.7 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, adjusted operating income 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 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 items should be eliminated from on-going operating activities. These adjustments for special 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, adjusted operating 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. Further, the presentation of EBITDA is a non-GAAP measurement 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 webcast its third quarter 2013 conference call live over the Internet at 10:00 a.m. Eastern Time on Thursday, October 24, 2013. This webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through November 1, 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 or 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
 (In thousands except per share amounts)
(unaudited)
         
    Three months ended   Nine months ended
    September 30,   September 30,
    2012   2013   2012   2013
                         
Net sales   $ 181,885   $ 179,255   $ 565,896   $ 559,262
Cost of sales     82,129     80,570     262,821     251,751
Cost of sales, other - Note A     1,843     3,261     4,519     6,489
                         
Gross profit     97,913     95,424     298,556     301,022
                         
Selling and administrative     74,064     73,476     222,577     228,375
Research and development     7,077     7,108     21,364     19,393
Medical device excise tax     -     1,427     -     4,413
Other expense- Note B     2,658     4,608     6,421     8,514
      83,799     86,619     250,362     260,695
                         
Income from operations     14,114     8,805     48,194     40,327
                         
Loss on early extinguishment of debt     -     -     -     263
                         
Interest expense     1,345     1,382     4,333     4,131
                         
Income before income taxes     12,769     7,423     43,861     35,933
                         
Provision for income taxes     3,449     1,736     14,277     10,221
                         
Net income   $ 9,320   $ 5,687   $ 29,584   $ 25,712
                         
Per share data:                        
  Net income                        
  Basic   $ .33   $ .21   $ 1.05   $ .93
  Diluted     .32     .20     1.03     .91
                         
  Weighted average common shares                        
  Basic     28,438     27,518     28,265     27,744
  Diluted     28,721     27,834     28,621     28,111
                           
                           

Note A - Included in cost of sales, other in the three and nine months ended September 30, 2012 and 2013 are costs related to the consolidation of our production facilities. Also included in the three and nine months ended September 30, 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 nine months ended September 30, 2012 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,     September 30,  
    2012     2013  
Current assets:                
  Cash and cash equivalents   $ 23,720     $ 49,831  
  Accounts receivable, net     139,124       130,589  
  Inventories     156,228       150,995  
  Income taxes receivable     2,897       3,388  
  Deferred income taxes     11,931       12,124  
  Prepaid expenses and other current assets     14,993       16,989  
    Total current assets     348,893       363,916  
                 
Property, plant and equipment, net     139,041       138,505  
Deferred income taxes     1,057       1,183  
Goodwill     248,502       248,502  
Other intangible assets, net     334,185       322,698  
Other assets     7,171       9,121  
    Total assets   $ 1,078,849     $ 1,083,925  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY  
                 
Current liabilities:                
  Current portion of long-term debt   $ 1,050     $ 1,093  
  Other current liabilities     124,164       99,786  
    Total current liabilities     125,214       100,879  
                 
Long-term debt     160,802       224,017  
Deferred income taxes     99,199       107,187  
Other long-term liabilities     86,636       59,610  
    Total liabilities     471,851       491,693  
                 
Shareholders' equity:                
  Capital accounts     256,672       228,009  
  Retained earnings     377,907       391,179  
  Accumulated other comprehensive loss     (27,581 )     (26,956 )
    Total equity     606,998       592,232  
                 
    Total liabilities and shareholders' equity   $ 1,078,849     $ 1,083,925  
                     
                     
   
CONMED CORPORATION  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(in thousands)  
(unaudited)  
   
  Nine months ended  
  September 30,  
  2012   2013  
Cash flows from operating activities:            
  Net income $ 29,584   $ 25,712  
  Adjustments to reconcile net income to net cash provided by operating activities:            
  Depreciation and amortization   34,770     35,541  
  Stock-based compensation   4,115     4,102  
  Loss on early extinguishment of debt   -     263  
  Deferred income taxes   11,752     6,802  
    Increase (decrease) in cash flows from changes in assets and liabilities:            
      Accounts receivable   6,910     8,811  
      Inventories   (2,436 )   (5,581 )
      Accounts payable   1,693     2,019  
      Income taxes receivable (payable)   (7,996 )   (3,262 )
      Accrued compensation and benefits   (5,235 )   (7,352 )
      Other assets   (2,723 )   (2,636 )
      Other liabilities   (9,171 )   (10,781 )
  Net cash provided by operating activities   61,263     53,638  
             
Cash flows from investing activities:            
      Payments related to distribution agreement   (82,843 )   -  
      Purchases of property, plant, and equipment   (15,969 )   (13,552 )
Net cash used in investing activities   (98,812 )   (13,552 )
             
Cash flows from financing activities:            
      Payments on debt   (54,063 )   (742 )
      Proceeds of debt   80,000     64,000  
      Payments related to distribution agreement   -     (34,000 )
      Dividends paid on common stock   (8,590 )   (12,568 )
      Payments related to issuance of debt   -     (1,725 )
      Net proceeds from common stock issued under employee plans   9,414     13,027  
      Repurchase of common stock   -     (44,729 )
      Other, net   5,533     2,975  
  Net cash provided by (used in) financing activities   32,294     (13,762 )
             
Effect of exchange rate change on cash and cash equivalents   (974 )   (213 )
             
Net increase (decrease) in cash and cash equivalents   (6,229 )   26,111  
             
Cash and cash equivalents at beginning of period   26,048     23,720  
             
Cash and cash equivalents at end of period $ 19,819   $ 49,831  
             
             
   
CONMED CORPORATION  
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME  
Three Months Ended September 30, 2012 and 2013  
(In thousands except per share amounts)  
(unaudited)  
             
    2012     2013  
                 
Reported net income   $ 9,320     $ 5,687  
                 
Costs associated with termination of a product offering     -       2,137  
                 
Facility consolidation costs     1,843       1,124  
                 
  Total cost of sales     1,843       3,261  
                 
Administrative consolidation costs included in other expense     1,940       3,133  
                 
Costs associated with purchase of a business     718       -  
                 
Patent dispute costs included in other expense     -       1,475  
                 
  Total other expense     2,658       4,608  
                 
Adjusted expense before income taxes     4,501       7,869  
                 
Provision (benefit) for income taxes on adjusted expenses     (1,437 )     (2,459 )
                 
Adjusted net income   $ 12,384     $ 11,097  
                 
Per share data:                
                 
Reported net income                
  Basic   $ 0.33     $ 0.21  
  Diluted     0.32       0.20  
                 
Adjusted net income                
  Basic   $ 0.44     $ 0.40  
  Diluted     0.43       0.40  
                 
                 

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  
Nine Months Ended September 30, 2012 and 2013  
(In thousands except per share amounts)  
(unaudited)  
             
    2012     2013  
                 
Reported net income   $ 29,584     $ 25,712  
                 
Costs associated with termination of a product offering     -       2,137  
                 
Facility consolidation costs     4,519       4,352  
                 
  Total cost of sales     4,519       6,489  
                 
Administrative consolidation costs included in other expense     3,444       6,303  
                 
Costs associated with purchase of Nordic region distributor     704       -  
                 
Costs associated with purchase of a business     718       -  
                 
Legal arbitration and patent dispute costs included in other expense     1,555       2,211  
                 
  Total other expense     6,421       8,514  
                 
Loss on early extinguishment of debt     -       263  
                 
Adjusted expense before income taxes     10,940       15,266  
                 
Provision (benefit) for income taxes on adjusted expenses     (3,755 )     (5,122 )
                 
Adjusted net income   $ 36,769     $ 35,856  
                 
Per share data:                
                 
Reported net income                
  Basic   $ 1.05     $ 0.93  
  Diluted     1.03       0.91  
                 
Adjusted net income                
  Basic   $ 1.30     $ 1.29  
  Diluted     1.28       1.28  
                   
                   

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     Nine months ended  
    September 30,     September 30,  
    2012     2013     2012     2013  
                                 
Reported income from operations   $ 14,114     $ 8,805     $ 48,194     $ 40,327  
                                 
Costs associated with termination of a product offering included in cost of sales     -       2,137       -       2,137  
                                 
Facility consolidation costs included in cost of sales     1,843       1,124       4,519       4,352  
                                 
Administrative consolidation costs included in other expense     1,940       3,133       3,444       6,303  
                                 
Medical device excise tax     -       1,427       -       4,413  
                                 
Costs associated with purchase of a business     718       -       718       -  
                                 
Costs associated with purchase of Nordic region distributor     -       -       704       -  
                                 
Legal arbitration and patent dispute costs included in other expense     -       1,475       1,555       2,211  
                                 
Adjusted income from operations   $ 18,615     $ 18,101     $ 59,134     $ 59,743  
                                 
Operating Margin                                
  Reported     7.8 %     4.9 %     8.5 %     7.2 %
                                 
  Adjusted     10.2 %     10.1 %     10.4 %     10.7 %
                                   
                                   

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  
RECONCILIATION OF REPORTED NET INCOME TO EBITDA & ADJUSTED EBITDA  
(in thousands)  
(unaudited)  
                         
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2012     2013     2012     2013  
                                 
Net income   $ 9,320     $ 5,687     $ 29,584     $ 25,712  
                                 
Provision for income taxes     3,449       1,736       14,277       10,221  
                                 
Interest expense     1,345       1,382       4,333       4,131  
                                 
Loss on early extinguishment of debt     -       -       -       263  
                                 
Depreciation     4,744       4,533       14,018       13,701  
                                 
Amortization     6,782       7,046       20,205       21,427  
                                 
EBITDA   $ 25,640     $ 20,384     $ 82,417     $ 75,455  
                                 
Stock-based compensation     1,541       1,606       4,115       4,102  
                                 
Costs associated with termination of a product offering included in cost of sales     -       2,137       -       2,137  
                                 
Facility consolidation costs included in cost of sales     1,843       1,124       4,519       4,352  
                                 
Administrative consolidation costs included in other expense     1,940       3,133       3,444       6,303  
                                 
Costs associated with purchase of a business     718       -       718       -  
                                 
Costs associated with purchase of Nordic region distributor     -       -       704       -  
                                 
Legal arbitration and patent dispute costs included in other expense     -       1,475       1,555       2,211  
                                 
Adjusted EBITDA   $ 31,682     $ 29,859     $ 97,472     $ 94,560  
                                 
EBITDA Margin                                
  EBITDA     14.1 %     11.4 %     14.6 %     13.5 %
                                 
  Adjusted EBITDA     17.4 %     16.7 %     17.2 %     16.9 %
                                   
                                   

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  
Third Quarter Sales Summary  
(in millions)  
   
    Three Months Ended September 30,  
   

2012
 

2013
 

Growth
    Constant
Currency
Growth
 
                 
Orthopedic surgery   $ 96.2   $ 95.6   -0.6 %   0.8 %
General surgery     69.2     69.9   1.0 %   1.7 %
Surgical visualization     16.5     13.8   -16.4 %   -16.4 %
    $ 181.9   $ 179.3   -1.4 %   -0.4 %
   
Single-use products   $ 144.0   $ 145.9   1.3 %   2.4 %
Capital products     37.9     33.4   -11.9 %   -11.1 %
    $ 181.9   $ 179.3   -1.4 %   -0.4 %
                         
                         
   
CONMED CORPORATION  
Nine Months Sales Summary  
(in millions)  
   
    Nine Months Ended September 30,  
   

2012
 

2013
 

Growth
    Constant
Currency
Growth
 
                 
Orthopedic surgery   $ 306.9   $ 302.4   -1.5 %   -0.6 %
General surgery     210.3     210.0   -0.1 %   0.2 %
Surgical visualization     48.7     46.9   -3.7 %   -3.5 %
    $ 565.9   $ 559.3   -1.2 %    -0.5 %
   
Single-use products   $ 451.2   $ 447.5   -0.8 %   -0.1 %
Capital products     114.7     111.8   -2.5 %   -2.1 %
    $ 565.9   $ 559.3   -1.2 %    -0.5 %
                         
                         

Contact Information

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