SOURCE: CONMED Corporation

CONMED Corporation

October 23, 2014 16:01 ET

CONMED Corporation Announces Third Quarter 2014 Financial Results

UTICA, NY--(Marketwired - Oct 23, 2014) - CONMED Corporation (NASDAQ: CNMD)

  • Sales of $175.0 Million
  • Diluted earnings per share (GAAP) $0.07
  • Adjusted EPS of $0.44, growth of 10%
  • Company reaffirms guidance

CONMED Corporation (NASDAQ: CNMD) today announced financial results for the third quarter ended September 30, 2014.

Third Quarter 2014 Financial Highlights:

  • Sales of $175.0 million decreased 2.4% as reported versus the prior year period.

  • Diluted earnings per share (GAAP) were $0.07, compared to $0.20 in the third quarter of 2013 and were affected by special items as described below.

  • Adjusted diluted earnings per share of $0.44 increased 10% compared to $0.40 in the prior year period.

  • Gross profit margin on a GAAP basis grew 190 basis points to 55.1%. Excluding restructuring costs, adjusted gross profit margin expanded to 55.9% from 55.1% reflecting the continued benefit from the manufacturing consolidation efforts.

"We are pleased with our results for the quarter, which keep us on track to deliver on our full year revised revenue and earnings commitments. 2014 has been a challenging year in which CONMED has undergone some significant changes. We are working diligently to enhance fundamental strengths of our business to reestablish top line growth while continuing to deliver leveraged earnings growth," commented Curt R. Hartman, Interim Chief Executive Officer. "We thank our shareholders and employees alike who have shared important ideas focused on value creation for all CONMED stakeholders."

Nine-Month 2014 Financial Highlights:

  • Sales of $545.1 million decreased 2.5% over the prior year period on a reported basis.

  • Diluted earnings per share (GAAP) were $0.75, compared to $0.91 and were affected by special items as described below.

  • Adjusted diluted earnings per share of $1.39 increased 8.6% compared to $1.28 in the prior year period.

  • Gross profit margin on a GAAP basis grew 120 basis points to 55.0%. Excluding restructuring costs, adjusted gross margin expanded to 55.7% from 55.0% reflecting the continued benefit from the manufacturing consolidation efforts.

Sales Analysis

For the quarter ended September 2014 domestic sales, (49.7% of total sales) and international sales (50.3% of total sales), each declined 2.4% compared to the third quarter of 2013 on a reported basis. The sales decline in the United States was caused by reduced orthopedic and visualization device revenues. Outside the United States, the decline was caused primarily by reduced export sales to Latin American distributors offset to some degree by sales increases by our European subsidiaries. Changes in foreign currency exchange rates including the effects of the FX hedging program had an immaterial impact on sales in the third quarter of 2014 compared to sales in the third quarter of 2013.

Earnings Analysis

Earnings on a GAAP basis for the September 2014 quarter were significantly affected by costs associated with executive management changes and shareholder activism activities. Adjusting for these special items and others as indicated on the following reconciliation, adjusted net income and EPS increased over the same period of 2013 due to a higher gross margin percentage, and lower selling, general and administrative costs. The income tax rate on adjusted earnings was similar in both periods and equal to 27.7% in the 2014 third quarter compared to 27.4% in the 2013 third quarter.

2014 Outlook

Based on the third quarter results, the Company affirms the previously provided 2014 annual revenue forecast to be in a range of $735 - $745 million, representing a decline of 2.3% to 3.6%. Further, we affirm the 2014 projected annual adjusted diluted net earnings per share guidance to be $1.85 - $1.95, representing an increase of 2.2% to 7.7% over 2013.

The adjusted estimates for the full year 2014 exclude the cost of special items such as restructuring, shareholder activism, and charges related to senior management changes expected to be incurred in 2014. Details of these items through September 2014 are provided in the summary table attached.

CEO Search Update

The CEO Search Committee of the Board of Directors has retained an outside executive search firm and is conducting interviews of potential candidates. Mark Tryniski, Chairman of the Board and the Search Committee stated, "Our search for a permanent CEO is well underway. Both the Committee and the Board are pleased with the progress being made and we are committed to identifying a permanent CEO as expeditiously as possible."

Special Charges

As reconciled on the following schedule, during the third quarter and first nine-months of 2014, the Company continued the on-going 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 $10.2 million, net of tax, in the third quarter of 2014 and $17.8 million, net of tax, for the first nine months of 2014. These charges are included in the GAAP earnings per share set forth above and are excluded from the adjusted results. For the remainder of 2014, the Company presently anticipates incurring additional pre-tax restructuring and other special costs of $4.0 - $5.0 million for matters 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, 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 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, 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 third quarter 2014 financial results at 4:30 p.m. Eastern Time on Thursday, October 23, 2014. To participate in the conference call, dial 877-703-6103 in the United States, or 857-244-7302 from other locations, and provide passcode 30221985. The webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through November 30, 2014.

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 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. 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, 2013; (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 CONDENSED STATEMENTS OF INCOME
(In thousands except per share amounts)
(unaudited)
 
    Three months ended     Nine months ended
    September 30,     September 30,
    2013   2014     2013   2014
                           
Net sales   $ 179,255   $ 174,961     $ 559,262   $ 545,052
                           
Cost of sales     80,570     77,099       251,751     241,274
Cost of sales, other - Note A     3,261     1,448       6,489     3,754
                           
Gross profit     95,424     96,414       301,022     300,024
                           
Selling and administrative expense     73,476     71,237       228,375     219,081
Research and development     7,108     6,910       19,393     20,674
Medical device excise tax     1,427     1,334       4,413     4,052
Other expense - Note B     4,608     14,484       8,514     20,520
      86,619     93,965       260,695     264,327
                           
Income from operations     8,805     2,449       40,327     35,697
                           
Loss on early extinguishment of debt     -     -       263     -
                           
Interest expense     1,382     1,540       4,131     4,572
                           
Income before income taxes     7,423     909       35,933     31,125
                           
Provision (benefit) for income taxes     1,736     (1,063 )     10,221     10,272
                           
Net income   $ 5,687   $ 1,972     $ 25,712   $ 20,853
                           
Per share data:                          
  Net income                          
    Basic   $ 0.21   $ 0.07     $ 0.93   $ 0.76
    Diluted     0.20     0.07       0.91     0.75
                           
  Weighted average common shares                          
    Basic     27,518     27,454       27,744     27,354
    Diluted     27,834     27,688       28,111     27,777
                               
                               

Note A - Included in cost of sales, other in the three and nine months ended September 30, 2013 and 2014 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, 2013 and 2014 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,  
    2013     2014  
Current assets:                
  Cash and cash equivalents   $ 54,443     $ 64,614  
  Accounts receivable, net     140,426       123,327  
  Inventories     143,211       162,099  
  Income taxes receivable     3,805       4,826  
  Deferred income taxes     13,202       10,831  
  Prepaid expenses and other current assets     17,045       19,677  
    Total current assets     372,132       385,374  
                 
Property, plant and equipment, net     138,985       135,825  
Deferred income taxes     1,183       1,069  
Goodwill     248,428       256,217  
Other intangible assets, net     319,440       319,176  
Other assets     10,340       11,854  
    Total assets   $ 1,090,508     $ 1,109,515  
                 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY  
                 
Current liabilities:                
  Current portion of long-term debt   $ 1,140     $ 1,187  
  Other current liabilities     110,125       120,568  
    Total current liabilities     111,265       121,755  
                 
Long-term debt     214,435       246,830  
Deferred income taxes     113,199       115,520  
Other long-term liabilities     45,290       32,692  
    Total liabilities     484,189       516,797  
                 
Shareholders' equity:                
  Capital accounts     228,002       213,826  
  Retained earnings     395,889       400,316  
  Accumulated other comprehensive loss     (17,572 )     (21,424 )
    Total equity     606,319       592,718  
                 
    Total liabilities and shareholders' equity   $ 1,090,508     $ 1,109,515  
                 
                 
   
CONMED CORPORATION  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(In thousands)  
(unaudited)  
   
    Nine months ended  
    September 30,  
    2013     2014  
Cash flows from operating activities:                
Net income   $ 25,712     $ 20,853  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     35,541       34,020  
Stock-based compensation     4,102       7,691  
Loss on early extinguishment of debt     263       -  
Deferred income taxes     6,802       (1,121 )
  Increase (decrease) in cash flows from changes in assets and liabilities:                
    Accounts receivable     8,811       13,699  
    Inventories     (5,581 )     (30,023 )
    Accounts payable     2,019       1,812  
    Income taxes receivable (payable)     (3,262 )     891  
    Accrued compensation and benefits     (7,352 )     (2,507 )
    Other assets     (2,636 )     375  
    Other liabilities     (10,781 )     (6,161 )
Net cash provided by operating activities     53,638       39,529  
                 
Cash flow from investing activities:                
    Payments related to a business acquisition     -       (1,245 )
    Purchases of property, plant, and equipment     (13,552 )     (12,250 )
Net cash used in investing activities     (13,552 )     (13,495 )
                 
Cash flow from financing activities:                
    Payments on debt     (742 )     (558 )
    Proceeds of debt     64,000       33,000  
    Payments related to distribution agreement     (34,000 )     (16,667 )
    Dividends paid on common stock     (12,568 )     (16,455 )
    Payments related to issuance of debt     (1,725 )     -  
    Net proceeds from common stock issued under employee plans     13,027       1,716  
    Repurchase of common stock     (44,729 )     (16,862 )
    Other, net     2,975       3,220  
Net cash used in financing activities     (13,762 )     (12,606 )
                 
Effect of exchange rate change on cash and cash equivalents     (213 )     (3,257 )
                 
Net increase in cash and cash equivalents     26,111       10,171  
                 
Cash and cash equivalents at beginning of period     23,720       54,443  
                 
Cash and cash equivalents at end of period   $ 49,831     $ 64,614  
                 
                 
   
CONMED CORPORATION  
Sales Summary  
(In millions)  
   
    Three Months Ended September 30,  
                     
   

2013
 

2014
 

Growth
    Constant
Currency
Growth
 
                   
Orthopedic surgery   $ 95.6   $ 92.8   -2.9 %   -3.2 %
General surgery     69.9     69.7   -0.3 %   -0.3 %
Surgical visualization     13.8     12.5   -9.4 %   -9.4 %
    $ 179.3   $ 175.0   -2.4 %  
-2.6
%
   
Single-use products   $ 145.9   $ 142.4   -2.4 %   -2.5 %
Capital products     33.4     32.6   -2.4 %   -2.7 %
    $ 179.3   $ 175.0   -2.4 %  
-2.6
%
                         
                         
                         
    Nine Months Ended September 30,  
                     
   

2013
 

2014
 

Growth
    Constant
Currency
Growth
 
                   
Orthopedic surgery   $ 302.4   $ 301.1   -0.4 %   -0.1 %
General surgery     210.0     203.9   -2.9 %   -2.6 %
Surgical visualization     46.9     40.1   -14.5 %   -14.7 %
    $ 559.3   $ 545.1   -2.5 %  
 -2.3
%
   
Single-use products   $ 447.5   $ 439.0   -1.9 %   -1.6 %
Capital products     111.8     106.1   -5.1 %   -5.0 %
    $ 559.3   $ 545.1   -2.5 %  
 -2.3
%
                         
                         
   
CONMED CORPORATION  
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME  
Three Months Ended September 30, 2013 and 2014  
(In thousands except per share amounts)  
(unaudited)  
   
    2013     2014  
                 
Reported net income   $ 5,687     $ 1,972  
                 
Costs associated with termination of a product offering     2,137       -  
                 
Facility consolidation costs included in cost of sales     1,124       1,448  
                 
  Total cost of sales     3,261       1,448  
                 
Administrative consolidation costs     3,133       648  
                 
Patent dispute and other matters     1,475       39  
                 
Shareholder activism costs     -       2,441  
                 
Management restructuring costs     -       11,022  
                 
Business acquisition costs     -       334  
                 
  Total other expense     4,608       14,484  
                 
Adjusted expense before income taxes     7,869       15,932  
                 
Provision (benefit) for income taxes on adjusted expenses     (2,459 )     (5,736 )
                 
Adjusted net income   $ 11,097     $ 12,168  
                 
Per share data:                
                 
Reported net income                
  Basic   $ 0.21     $ 0.07  
  Diluted     0.20       0.07  
                 
Net income before adjusted items                
  Basic   $ 0.40     $ 0.44  
  Diluted     0.40       0.44  
                 
                 

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, 2013 and 2014  
(In thousands except per share amounts)  
(unaudited)  
   
    2013     2014  
                 
Reported net income   $ 25,712     $ 20,853  
                 
Costs associated with termination of a product offering     2,137       -  
                 
Facility consolidation costs included in cost of sales     4,352       3,754  
                 
  Total cost of sales     6,489       3,754  
                 
Administrative consolidation costs     6,303       1,855  
                 
Patent dispute & settlement costs, and other matters     2,211       3,233  
                 
Shareholder activism costs     -       3,966  
                 
Management restructuring costs     -       11,022  
                 
Business acquisition costs     -       444  
                 
  Total other expense     8,514       20,520  
                 
Loss on early extinguishment of debt     263       -  
                 
Adjusted expense before income taxes     15,266       24,274  
                 
Provision (benefit) for income taxes on adjusted expenses     (5,122 )     (8,739 )
                 
New York State corporate tax reform     -       2,258  
                 
Adjusted net income   $ 35,856     $ 38,646  
                 
Per share data:                
                 
Reported net income                
  Basic   $ 0.93     $ 0.76  
  Diluted     0.91       0.75  
                 
Net income before adjusted items                
  Basic   $ 1.29     $ 1.41  
  Diluted     1.28       1.39  
                 
                 

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     Nine months ended  
    September 30,     September 30,  
    2013     2014     2013     2014  
                                 
Net sales   $ 179,255     $ 174,961     $ 559,262     $ 545,052  
                                 
Cost of sales, total     83,831       78,547       258,240       245,028  
                                 
Gross profit     95,424       96,414       301,022       300,024  
                                 
Add: Cost of sales, other     3,261       1,448       6,489       3,754  
                                 
Adjusted gross profit   $ 98,685     $ 97,862     $ 307,511     $ 303,778  
                                 
Gross margin:                                
                                 
  Reported     53.2 %     55.1 %     53.8 %     55.0 %
                                 
  Adjusted     55.1 %     55.9 %     55.0 %     55.7 %
                                 
                                 

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,  
    2013     2014     2013     2014  
                                 
Reported income from operations   $ 8,805     $ 2,449     $ 40,327     $ 35,697  
                                 
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     1,124       1,448       4,352       3,754  
                                 
Administrative consolidation costs included in other expense     3,133       648       6,303       1,855  
                                 
Patent dispute & settlement costs, and other matters included in other expense     1,475       39       2,211       3,233  
                                 
Shareholder activism costs included in other expense     -       2,441       -       3,966  
                                 
Management restructuring costs included in other expense     -       11,022       -       11,022  
                                 
Costs associated with a business acquisition included in other expense     -       334       -       444  
                                 
Adjusted income from operations   $ 16,674     $ 18,381     $ 55,330     $ 59,971  
                                 
Operating Margin                                
  Reported     4.9 %     1.4 %     7.2 %     6.5 %
                                 
  Adjusted     9.3 %     10.5 %     9.9 %     11.0 %
                                 
                                 

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     Nine months ended  
    September 30,     September 30,  
    2013     2014     2013     2014  
                                 
Net income   $ 5,687     $ 1,972     $ 25,712     $ 20,853  
                                 
Provision (benefit) for income taxes     1,736       (1,063 )     10,221       10,272  
                                 
Interest expense     1,382       1,540       4,131       4,572  
                                 
Loss on early extinguishment of debt     -       -       263       -  
                                 
Depreciation     4,533       5,229       13,701       14,702  
                                 
Amortization     7,046       6,341       21,427       18,880  
                                 
EBITDA   $ 20,384     $ 14,019     $ 75,455     $ 69,279  
                                 
Stock-based compensation     1,606       1,646       4,102       4,164  
                                 
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     1,124       1,448       4,352       3,754  
                                 
Administrative consolidation costs included in other expense     3,133       648       6,303       1,855  
                                 
Patent dispute & settlement costs, and other matters included in other expense     1,475       39       2,211       3,233  
                                 
Shareholder activism costs included in other expense     -       2,441       -       3,966  
                                 
Management restructuring costs included in other expense     -       11,022       -       11,022  
                                 
Costs associated with a business acquisition included in other expense     -       334       -       444  
                                 
Adjusted EBITDA   $ 29,859     $ 31,597     $ 94,560     $ 97,717  
                                 
EBITDA Margin                                
  EBITDA     11.4 %     8.0 %     13.5 %     12.7 %
                                 
  Adjusted EBITDA     16.7 %     18.1 %     16.9 %     17.9 %
                                 
                                 

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.

Contact Information

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