CONMED Corporation Announces Second Quarter 2014 Financial Results

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| Source: CONMED Corporation

EPS of $0.37; Adjusted EPS of $0.47, up 9.3% over prior year period

Conference Call to be Held at 8:30 a.m. ET Today (Note time change)

UTICA, N.Y., July 23, 2014 (GLOBE NEWSWIRE) -- CONMED Corporation (Nasdaq:CNMD) today announced financial results for the second quarter ended June 30, 2014.

During the second quarter of 2014, CONMED continued its track record of growing earnings and margins through continued operational performance, with adjusted earnings per share improving 9.3% and adjusted EBITDA margin expanding 50 basis points compared to the second quarter of 2013. Sales declined 2.5% year-over-year caused by lower sales of General Surgery devices due to continued market weakness and the decline in Surgical Visualization capital sales of 24% as customers await the launch of the new IM 8000 surgical video system in the second half of this year. Capital product sales were positively affected by an 11.8% increase of powered instrument handpiece sales driven by the recent launch of the Hall 50 system.

Second Quarter 2014 Financial Highlights:

  • Diluted earnings per share (GAAP) grew to $0.37, an increase of 8.8% compared to $0.34 in the second quarter of 2013.
  • Adjusted diluted earnings per share increased 9.3% to $0.47 compared to $0.43 in the prior year period.
  • Sales were $188.2 million, a decrease of 2.5% over the prior year period caused principally by weaker sales of general surgery devices, surgical visualization capital products and the discontinuance of the Cascade PRP product line.
  • Adjusted EBITDA margin grew 50 basis points to 17.4% of sales.
  • GAAP EBITDA margin grew 20 basis points to 14.5% of sales.

International sales in the second quarter of 2014 were $100.4 million, representing 53.4% of total sales. Foreign currency exchange rates including the effects of the FX hedging program caused sales to be $0.4 million less in the second quarter of 2014 and $1.7 million less in the first half of 2014 than sales in the respective periods of 2013.

Six Months 2014 Financial Highlights

  • Diluted earnings per share (GAAP) was $0.68 compared to $0.71 in the first half of 2013 and was affected by special items as further described below, including a first quarter 2014 non-cash New York State tax matter resulting from recent legislation.
  • Adjusted diluted earnings per share grew 8.0% to $0.95 compared to $0.88 in the first six months of 2013.
  • Sales were $370.1 million compared to $380.0 million, a decrease of 2.6% caused principally by lower sales of general surgery devices, surgical visualization capital products and the discontinuance of the Cascade PRP product line.
  • Adjusted EBITDA margin grew 90 basis points to 17.9% of sales.
  • GAAP EBITDA margin grew 40 basis points to 14.9% of sales.

Outlook

Although new products such as the IM 8000 surgical visualization system and the Edge Ablation system expected to be launched in the second half of 2014 should enhance sales performance, it may take more time than the final six months of 2014 for the products to reach their potential. As a result, the Company now forecasts total year sales to be in the range of $735 - $745 million, compared to prior guidance of $770-780 million. Total year adjusted earnings per share guidance is also changed to $1.85 - $1.95 compared to prior guidance of $1.90 - $2.00.

Many companies have adopted the policy of not providing specific financial guidance on a quarterly basis because of the micro forecasting required. CONMED is now adopting this policy to avoid misinterpretation of quarterly fluctuations.

The adjusted estimates for the 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, severance, and other costs.

Unusual charges

As reconciled on the following schedule, during the second quarter and first half 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 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 $2.7 million, net of tax, in the second quarter of 2014 and $7.6 million, net of tax, for the first six 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 costs of $3.5 - $4.5 million on consolidation projects currently in process and $9.5 - $11.0 million in executive management transition charges.

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 second quarter 2014 conference call live over the Internet at 8:30 a.m. Eastern Time on Wednesday, July 23, 2014. This webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through August 1, 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 Six months ended
  June 30, June 30,
  2013 2014 2013 2014
         
Net sales $ 192,993 $ 188,150 $ 380,007 $ 370,091
         
Cost of sales 88,471 85,764 171,181 164,175
Cost of sales, other – Note A  1,606  1,358  3,228  2,306
         
Gross profit  102,916  101,028  205,598  203,610
         
Selling and administrative expense 77,174 74,026 154,899 147,844
Research and development 6,591 6,854 12,285 13,764
Medical device excise tax 1,406 1,369 2,986 2,718
Other expense – Note B  2,093  2,839  3,906  6,036
   87,264  85,088  174,076  170,362
         
Income from operations 15,652 15,940 31,522 33,248
         
Loss on early extinguishment of debt -- -- 263 --
         
Interest expense  1,383  1,571  2,749  3,032
         
Income before income taxes 14,269 14,369 28,510 30,216
         
Provision for income taxes  4,736  4,114  8,485  11,335
         
Net income $  9,533 $  10,255 $ 20,025 $ 18,881
         
Per share data:        
Net income        
Basic $ 0.35 $   0.38 $ 0.72 $ 0.69
Diluted 0.34 0.37 0.71 0.68
         
Weighted average common shares        
Basic 27,591 27,257 27,860 27,303
Diluted 27,983 27,753 28,258 27,803
 
Note A –Included in cost of sales, other in the three and six months ended June 30, 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 and six months ended June 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,  June 30,
  2013    2014
Current assets:    
Cash and cash equivalents $ 54,443 $ 60,414
Accounts receivable, net 140,426 135,081
Inventories 143,211 157,006
Income taxes receivable 3,805 4,917
Deferred income taxes 13,202 13,101
Prepaid expenses and other current assets  17,045  14,807
Total current assets 372,132 385,326
     
Property, plant and equipment, net 138,985 137,758
Deferred income taxes 1,183 1,147
Goodwill 248,428 248,427
Other intangible assets, net 319,440 312,894
Other assets  10,340    11,772
Total assets $ 1,090,508 $ 1,097,324
     
LIABILITIES AND SHAREHOLDERS' EQUITY
     
Current liabilities:    
Current portion of long-term debt $ 1,140 $ 1,187
Other current liabilities  110,125   103,437
Total current liabilities 111,265 104,624
     
Long-term debt 214,435 244,830
Deferred income taxes 113,199 117,331
Other long-term liabilities  45,290  28,385
Total liabilities  484,189  495,170
     
Shareholders' equity:    
Capital accounts 228,002 213,585
Retained earnings 395,889 403,848
Accumulated other comprehensive loss  (17,572)   (15,279)
Total equity  606,319  602,154
     
Total liabilities and shareholders' equity $ 1,090,508 $ 1,097,324
 
 
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
   
  Six months ended
  June 30,
  2013 2014
Cash flows from operating activities:    
Net income $20,025 $18,881
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization 23,816 22,304
Stock-based compensation 2,496 2,518
Loss on early extinguishment of debt 263  --
Deferred income taxes 5,038 3,837
Increase (decrease) in cash flows from changes in assets and liabilities:    
Accounts receivable (2,689) 5,584
Inventories (1,581) (19,163)
Accounts payable (2,207) (1,353)
Income taxes receivable (payable) (1,171) (1,013)
Accrued compensation and benefits (7,393) (5,260)
Other assets (3,714) 834
Other liabilities (9,729) (2,256)
Net cash provided by operating activities  23,154 24,913
     
Cash flow from investing activities:     
Purchases of property, plant, and equipment (8,201) (8,641)
Net cash used in investing activities (8,201) (8,641)
     
Cash flow from financing activities:     
Payments on debt (742) (558)
Proceeds of debt 73,000 31,000
Payments related to distribution agreement (34,000) (16,667)
Dividend paid on common stock (8,445) (10,987)
Payments related to issuance of debt (1,725)  --
Net proceeds from common stock issued under employee plans 10,366 953
Repurchase of common stock (44,729) (16,862)
Other, net 7,090 1,857
Net cash provided by (used in) financing activities 815 (11,264)
     
Effect of exchange rate change on cash and cash equivalents  (1,365) 963
     
Net increase in cash and cash equivalents 14,403 5,971
     
Cash and cash equivalents at beginning of period 23,720 54,443
     
Cash and cash equivalents at end of period $38,123 $60,414
 
 
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
Three Months Ended June 30, 2013 and 2014
(In thousands except per share amounts)
(unaudited)
 
  2013 2014
     
Reported net income $  9,533 $ 10,255
     
Facility consolidation costs included in cost of sales  1,606  1,358
     
Administrative consolidation costs 1,566 494
     
Shareholder activism costs -- 935
     
Patent dispute and other matters  527  1,410
     
Total other expense  2,093  2,839
     
Adjusted expense before income taxes 3,699 4,197
     
Provision (benefit) for income taxes on adjusted expenses   (1,332)   (1,511)
     
Adjusted net income $ 11,900 $ 12,941
     
Per share data:    
     
Reported net income    
Basic $ 0.35 $ 0.38
Diluted 0.34 0.37
     
Net income before adjusted items    
Basic $ 0.43 $ 0.47
Diluted 0.43 0.47

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
Six Months Ended June 30, 2013 and 2014
(In thousands except per share amounts)
(unaudited)
 
  2013 2014
     
Reported net income $ 20,025 $ 18,881
     
Facility consolidation costs included in cost of sales  3,228   2,306
     
Administrative consolidation costs 3,170 1,207
     
Shareholder activism costs -- 1,525
     
Patent dispute & settlement costs, and other matters  736  3,304
     
Total other expense  3,906  6,036
     
Loss on early extinguishment of debt  263  --
     
Adjusted expense before income taxes 7,397 8,342
     
Provision (benefit) for income taxes on adjusted expenses  (2,663)  (3,003)
     
New York State corporate tax reform  --  2,258
     
Adjusted net income $ 24,759 $ 26,478
     
Per share data:    
     
Reported net income    
Basic $ 0.72 $  0.69
Diluted 0.71 0.68
     
Net income before adjusted items    
Basic $ 0.89 $ 0.97
Diluted 0.88 0.95

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
(In thousands)
(unaudited)
 
  Three months ended Six months ended
      June 30 June 30
  2013 2014 2013 2014
         
Reported income from operations $ 15,652 $ 15,940 $ 31,522 $ 33,248
         
Facility consolidation costs included in cost of sales 1,606 1,358 3,228 2,306
         
Administrative consolidation costs included in other expense 1,566 494 3,170 1,207
         
Shareholder activism costs included in other expense -- 935 -- 1,525
         
Patent dispute & settlement costs, and other matters included in other expense   527  1,410   736  3,304
         
Adjusted income from operations $ 19,351 $ 20,137 $ 38,656 $ 41,590
         
Operating Margin        
Reported 8.1% 8.5% 8.3% 9.0%
         
Adjusted 10.0% 10.7% 10.2% 11.2%

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

   
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO EBITDA & ADJUSTED EBITDA
(In thousands)
(unaudited)
 
  Three months ended Six months ended
     June 30, June 30,
  2013 2014 2013 2014
         
Net income $ 9,533 $ 10,255 $ 20,025 $ 18,881
         
Provision for income taxes 4,736 4,114 8,485 11,335
         
Interest expense 1,383 1,571 2,749 3,032
         
Loss on early extinguishment of debt -- -- 263 --
         
Depreciation 4,549 4,906 9,168 9,473
         
Amortization  7,389  6,385    14,381  12,539 
         
EBITDA (using GAAP measures) $ 27,590 $ 27,231 $ 55,071 $ 55,260
         
Stock-based compensation 1,344 1,333 2,496 2,518
         
Facility consolidation costs included in cost of sales 1,606 1,358 3,228 2,306
         
Administrative consolidation costs included in other expense 1,566 494 3,170 1,207
         
Shareholder activism costs included in other expense -- 935 -- 1,525
         
Patent dispute & settlement costs, and other matters included in other expense  527 1,410  736 3,304
         
Adjusted EBITDA $ 32,633 $ 32,761 $ 64,701 $ 66,120
         
EBITDA Margin        
EBITDA 14.3% 14.5% 14.5% 14.9%
         
Adjusted EBITDA 16.9% 17.4% 17.0% 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 provide a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

 
CONMED CORPORATION
Second Quarter Sales Summary
(In millions)
 
  Three Months Ended June 30,
         Constant
        Currency
  2013 2014 Growth Growth
         
Orthopedic surgery  $101.8  $102.4 0.6% 0.8%
General surgery  73.2 70.7 -3.4% -3.2%
Surgical visualization 18.0 15.1 -16.1% -16.1%
  $193.0 $188.2 -2.5% -2.3%
         
Single-use products  $153.8 $150.2 -2.3% -2.1%
Capital products  39.2 38.0 -3.1% -3.1%
  $193.0 $188.2 -2.5% -2.3%
 
 
CONMED CORPORATION
Six Months Sales Summary
(In millions)
 
  Six Months Ended June 30,
        Constant
        Currency
  2013 2014 Growth Growth
Orthopedic surgery  $206.9  $208.3 0.7% 1.3%
General surgery 140.0 134.2 -4.1% -3.9%
Surgical visualization 33.1 27.6 -16.6% -16.6%
  $380.0 $370.1 -2.6% -2.2%
         
Single-use products  $301.6 $296.6 -1.7% -1.2%
Capital products  78.4 73.5 -6.3% -6.0%
  $380.0 $370.1 -2.6% -2.2%
CONMED Corporation
Robert Shallish
Chief Financial Officer
315-624-3206