EX-99.1 2 ex99-1.htm EX-99.1

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

 

 

FOR RELEASE: 4:00 PM (Eastern) October 23, 2014

 

CONMED Corporation Announces Third Quarter 2014 Financial Results

 

- Sales of $175.0 Million

- Diluted earnings per share (GAAP) $0.07

- Adjusted EPS of $0.44, growth of 10%

- Company reaffirms guidance

 

 

Utica, New York, October 23, 2014 ----- 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.

 

 
CONMED News Release ContinuedPage 2 of 12October 23, 2014

·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.

 

 
CONMED News Release ContinuedPage 3 of 12October 23, 2014

 

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 News Release ContinuedPage 4 of 12October 23, 2014

 

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 News Release ContinuedPage 5 of 12October 23, 2014

 

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 News Release ContinuedPage 6 of 12October 23, 2014

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 News Release ContinuedPage 7 of 12October 23, 2014

 

CONMED CORPORATION

Sales Summary

(In millions)

 

 

   Three Months Ended September 30, 
                 
               Constant 
               Currency 
   2013   2014   Growth   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, 
                 
               Constant 
               Currency 
   2013   2014   Growth   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 News Release ContinuedPage 8 of 12October 23, 2014

 

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 News Release ContinuedPage 9 of 12October 23, 2014

 

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 News Release ContinuedPage 10 of 12October 23, 2014

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 News Release ContinuedPage 11 of 12October 23, 2014

 

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 News Release ContinuedPage 12 of 12October 23, 2014

 

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.