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CONMED Corporation Announces First Quarter 2014 Financial Results

Companies mentioned in this article: CONMED Corporation

UTICA, NY -- (Marketwired) -- 04/24/14 -- CONMED Corporation (NASDAQ: CNMD)

  • EPS of $0.31; Adjusted EPS of $0.49, up 8.9% over prior year period

  • Company Reiterates 2014 Guidance

  • 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, 2014.

"Our continued operational focus during the first quarter allowed us to grow our adjusted earnings per share to $0.49, which was at the top end of our guidance and represented an 8.9% increase over the prior year period," commented Mr. Joseph J. Corasanti, President and CEO. "We achieved this growth despite weaker capital product revenue, which represents 20% of our business and, as we have seen in the past, can be volatile on a quarter to quarter basis. On a positive note, sales of single-use devices increased in international markets with Europe continuing with year-over-year growth and emerging markets delivering an 11% gain. With the recent introduction of the IM8000 surgical visualization system and the Hall 50 powered surgical handpieces, we believe that we can drive growth in the capital product portion of our business throughout the remaining quarters of 2014. We remain focused on creating value for our shareholders and will continue to take actions that we believe enable us to achieve this core objective."

First Quarter 2014 Financial Highlights:

  • Diluted earnings per share (GAAP) was $0.31 and was affected by special items as further described, including a non-cash New York State tax matter resulting from recent legislation.

  • Adjusted diluted earnings per share grew to $0.49, up 8.9% over the prior-year period.

  • Sales were $181.9 million, a decrease of 2.7% over the prior-year period caused principally by weaker sales of capital products.

  • Adjusted EBITDA margin grew 120 basis points to 18.3% of sales.

  • GAAP EBITDA margin grew 70 basis points to 15.4% of sales.

International sales in the first quarter of 2014 were $94.6 million, representing 52.0% of total sales. Foreign currency exchange rates including the effects of the FX hedging program caused sales to be $1.4 million less in the first quarter of 2014 compared with sales in the first quarter of 2013.

Cash provided by operating activities in the first quarter of 2014 was $17.0 million, an increase of $11.6 million compared with the first quarter of 2013. Similar to the quarterly cash flow of 2013, management expects 2014 cash flow from operations to improve in the remaining quarters of 2014 since incentive compensation payments only affect the first quarter of 2014. During the first quarter of 2014 the Company repurchased 402,000 shares of its common stock amounting to $16.9 million.

Outlook

"We reiterate our full year 2014 sales guidance of $770 - $780 million and our full year adjusted diluted earnings per share guidance of $1.90 - $2.00. We continue to expect that new product introductions and improving economic conditions will have a positive impact on sales throughout the remainder of 2014," said Mr. Corasanti.

"For the second quarter of 2014, we anticipate sales will be in the range of $190 - $195 million and adjusted earnings per share are forecasted to be in the range of $0.44 - $0.48," said Mr. Corasanti.

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

Unusual charges

During the first quarter of 2014, the Company continued the on-going consolidation of certain administrative functions and manufacturing activities. Also incurred were litigation and settlement costs associated with patent 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 $4.9 million, net of tax, in the first quarter 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 costs of $7.5 - $8.5 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 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, adjusted operating 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 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 first quarter 2014 conference call live over the Internet at 10:00 a.m. Eastern Time on Thursday, April 24, 2014. This webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through May 2, 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 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, 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
                 Three Months Ended March 31, 2013 and 2014
                   (In thousands except per share amounts)
                                 (unaudited)

                                                            2013      2014
                                                         --------- ---------

Net sales                                                $ 187,014 $ 181,941
                                                         --------- ---------

Cost of sales                                               82,710    78,411
Cost of sales, other - Note A                                1,622       948
                                                         --------- ---------

Gross profit                                               102,682   102,582
                                                         --------- ---------

Selling and administrative expense                          77,725    73,818
Research and development                                     5,694     6,910
Medical device excise tax                                    1,580     1,349
Other expense - Note B                                       1,813     3,197
                                                         --------- ---------
                                                            86,812    85,274
                                                         --------- ---------

Income from operations                                      15,870    17,308

Loss on early extinguishment of debt                           263         -

Interest expense                                             1,366     1,461
                                                         --------- ---------

Income before income taxes                                  14,241    15,847

Provision for income taxes                                   3,749     7,221
                                                         --------- ---------

Net income                                               $  10,492 $   8,626
                                                         ========= =========

Per share data:
  Net income
    Basic                                                $     .37 $     .32
    Diluted                                                    .37       .31

  Weighted average common shares
    Basic                                                   28,127    27,349
    Diluted                                                 28,500    27,854

Note A - Included in cost of sales, other in the three months ended March 31, 2013 and 2014 are costs related to the consolidation of our production facilities. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

Note B - Other expense in the three months ended March 31, 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,   March 31,
                                                      2013          2014
                                                  ------------  -----------
Current assets:
  Cash and cash equivalents                       $     54,443  $    56,318
  Accounts receivable, net                             140,426      129,831
  Inventories                                          143,211      152,173
  Income taxes receivable                                3,805        2,522
  Deferred income taxes                                 13,202       12,661
  Prepaid expenses and other current assets             17,045       14,296
                                                  ------------  -----------
    Total current assets                               372,132      367,801

Property, plant and equipment, net                     138,985      138,632
Deferred income taxes                                    1,183        1,146
Goodwill                                               248,428      248,423
Other intangible assets, net                           319,440      316,122
Other assets                                            10,340       11,074
                                                  ------------  -----------
    Total assets                                  $  1,090,508  $ 1,083,198
                                                  ============  ===========


                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt               $      1,140  $     1,140
  Other current liabilities                            110,125       99,972
                                                  ------------  -----------
    Total current liabilities                          111,265      101,112

Long-term debt                                         214,435      241,435
Deferred income taxes                                  113,199      116,529
Other long-term liabilities                             45,290       28,650
                                                  ------------  -----------
    Total liabilities                                  484,189      487,726
                                                  ------------  -----------

Shareholders' equity:
  Capital accounts                                     228,002      213,031
  Retained earnings                                    395,889      399,062
  Accumulated other comprehensive loss                 (17,572)     (16,621)
                                                  ------------  -----------
    Total equity                                       606,319      595,472
                                                  ------------  -----------

    Total liabilities and shareholders' equity    $  1,090,508  $ 1,083,198
                                                  ============  ===========


                             CONMED CORPORATION
               CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                               (In thousands)
                                 (unaudited)

                                                       Three months ended
                                                            March 31,
                                                        2013        2014
                                                     ----------  ----------
Cash flows from operating activities:
Net income                                           $   10,492  $    8,626
Adjustments to reconcile net income to net cash
 provided by operating activities:
Depreciation and amortization                            11,729      10,868
Stock-based compensation                                  1,152       1,185
Loss on early extinguishment of debt                        263           -
Deferred income taxes                                     1,914       3,325
  Increase (decrease) in cash flows from changes in
   assets and liabilities:
    Accounts receivable                                   3,042      10,636
    Inventories                                          (4,858)    (11,936)
    Accounts payable                                        313      (1,151)
    Income taxes receivable (payable)                       244       1,826
    Accrued compensation and benefits                    (8,830)     (9,164)
    Other assets                                         (2,423)      2,088
    Other liabilities                                    (7,566)        722
                                                     ----------  ----------
  Net cash provided by operating activities               5,472      17,025
                                                     ----------  ----------

Cash flow from investing activities:
    Purchases of property, plant, and equipment          (4,130)     (4,065)
                                                     ----------  ----------
  Net cash used in investing activities                  (4,130)     (4,065)
                                                     ----------  ----------

Cash flow from financing activities:
    Proceeds of debt                                     64,000      27,000
    Payments related to distribution agreement          (34,000)    (16,667)
    Dividend paid on common stock                        (4,256)     (5,545)
    Payments related to issuance of debt                 (1,636)          -
    Net proceeds from common stock issued under
     employee plans                                       7,633         729
    Repurchase of common stock                          (25,732)    (16,862)
    Other, net                                            1,625         138
                                                     ----------  ----------
  Net cash provided by (used in) financing
   activities                                             7,634     (11,207)
                                                     ----------  ----------

Effect of exchange rate change on cash and cash
 equivalents                                               (337)        122
                                                     ----------  ----------

Net increase in cash and cash equivalents                 8,639       1,875

Cash and cash equivalents at beginning of period         23,720      54,443
                                                     ----------  ----------

Cash and cash equivalents at end of period           $   32,359  $   56,318
                                                     ==========  ==========


                             CONMED CORPORATION
        RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
                 Three Months Ended March 31, 2013 and 2014
                   (In thousands except per share amounts)
                                 (unaudited)

                                                           2013      2014
                                                         --------  --------

Reported net income                                      $ 10,492  $  8,626
                                                         --------  --------

Facility consolidation costs included in cost of sales      1,622       948
                                                         --------  --------

Administrative consolidation costs included in other
 expense                                                    1,604       713

Patent dispute & settlement costs, and other included in
 other expense                                                209     2,484
                                                         --------  --------

  Total other expense                                       1,813     3,197
                                                         --------  --------

Loss on early extinguishment of debt                          263         -
                                                         --------  --------

Adjusted expense before income taxes                        3,698     4,145

Provision (benefit) for income taxes on adjusted
 expenses                                                  (1,331)   (1,492)

New York State corporate tax reform                             -     2,258
                                                         --------  --------

Adjusted net income                                      $ 12,859  $ 13,537
                                                         ========  ========

Per share data:

Reported net income
  Basic                                                  $    .37  $    .32
  Diluted                                                     .37       .31

Net income before adjusted items
  Basic                                                  $    .46  $    .49
  Diluted                                                     .45       .49

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 INCOME FROM OPERATIONS TO ADJUSTED
                           INCOME FROM OPERATIONS
                 Three Months Ended March 31, 2013 and 2014
                               (In thousands)
                                 (unaudited)

                                                             2013     2014
                                                           -------  -------

Reported income from operations                            $15,870  $17,308
                                                           =======  =======

Facility consolidation costs included in cost of sales       1,622      948

Administrative consolidation costs included in other
 expense                                                     1,604      713

Patent dispute & settlement costs, and other included in
 other expense                                                 209    2,484
                                                           -------  -------


Adjusted income from operations                            $19,305  $21,453
                                                           =======  =======

Operating Margin
  Reported                                                     8.5%     9.5%

  Adjusted                                                    10.3%    11.8%

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,
                                                       --------------------
                                                          2013       2014
                                                       ---------  ---------

Net income                                             $  10,492  $   8,626
                                                       ---------  ---------

Provision for income taxes                                 3,749      7,221

Interest expense                                           1,366      1,461

Loss on early extinguishment of debt                         263          -

Depreciation                                               4,619      4,568

Amortization                                               6,992      6,154
                                                       ---------  ---------

EBITDA (using GAAP measures)                           $  27,481  $  28,030
                                                       ---------  ---------

Stock-based compensation                                   1,152      1,185

Facility consolidation costs included in cost of sales     1,622        948

Administrative consolidation costs included in other
 expense                                                   1,604        713

Patent dispute & settlement costs, and other included
 in other expense                                            209      2,484
                                                       ---------  ---------

Adjusted EBITDA                                        $  32,068  $  33,360
                                                       =========  =========

EBITDA Margin
  EBITDA                                                    14.7%      15.4%

  Adjusted EBITDA                                           17.1%      18.3%

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
                                          2013     2014    Growth   Growth
                                        -------- -------- -------  --------

Orthopedic surgery                      $  105.0 $  105.9     0.9%      1.9%
General surgery                             66.8     63.5    -4.9%     -4.6%
Surgical visualization                      15.2     12.5   -17.8%    -17.1%
                                        -------- -------- -------  --------

                                        $  187.0 $  181.9    -2.7%     -2.0%
                                        ======== ======== =======  ========

Single-use products                     $  147.8 $  146.4    -0.9%     -0.1%
Capital products                            39.2     35.5    -9.4%     -8.9%
                                        -------- -------- -------  --------

                                        $  187.0 $  181.9    -2.7%     -2.0%
                                        ======== ======== =======  ========


Contact:

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