EX-99.1 3 d486023dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO    NEWS RELEASE
  

CONTACT:

CONMED Corporation

Luke A. Pomilio

Chief Financial Officer

315-624-3202

LukePomilio@conmed.com

CONMED Corporation Announces Third Quarter 2017 Financial Results

Utica, New York, November 2, 2017 — CONMED Corporation (Nasdaq: CNMD) today announced financial results for the third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

 

    Sales of $190.1 million increased 2.9% as reported and 2.4% in constant currency as compared to the third quarter of 2016.

 

    International revenue increased 7.3% as reported and 6.2% in constant currency, driven by continued growth in General Surgery and Orthopedics.

 

    Diluted net earnings per share (GAAP) were $0.26 in the third quarter of 2017 and 2016.

 

    Adjusted diluted net earnings per share(1) were $0.42 versus $0.41 in the prior-year period.

 

    The Company increases its constant currency sales growth guidance and tightens its adjusted diluted net earnings per share guidance range.

“We are very pleased with our continued top-line progress, especially when considering the impact of one less selling day and the issues associated with two hurricanes. International performance remained strong, posting a sixth consecutive quarter of growth across both General Surgery and Orthopedics. Conversely, Domestic Orthopedics reported results are still lagging, but signs point to an improving trend, and we are encouraged by the underlying efforts to return this business to positive growth in 2018,” commented Curt R. Hartman, CONMED’s President and Chief Executive Officer.

Sales Analysis

For the quarter ended September 30, 2017, domestic sales, which represented 51.7% of total revenue, decreased 0.9%, as year-over-year growth of 4.8% in General Surgery was offset by a decline of 8.8% in Orthopedics. The Company’s third quarter domestic sales for 2017 were negatively impacted by approximately $2 million related to the recent hurricanes, largely attributable to deferred procedures. International sales, which represented 48.3% of total revenue, increased 7.3% compared to the third quarter of 2016 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a favorable impact of $0.9 million on third quarter sales. In constant currency, international sales increased 6.2% versus the prior-year period.

 

Page 1 of 10


Earnings Analysis

For the quarter ended September 30, 2017, reported net income totaled $7.2 million, compared to reported net income of $7.3 million a year ago. Reported diluted net earnings per share were $0.26 in the quarter and prior-year period. Reported net income for 2017 and 2016 includes business acquisition costs, restructuring costs, and legal costs. Reported net income for 2016 also includes the gain on the sale of a facility. The effect of each of these items on reported net income and reported diluted net earnings per share appears in the reconciliation of GAAP to non-GAAP measures below.

The Company excludes the after-tax costs of special items including acquisitions, restructurings, legal matters, gains on the sale of assets, debt refinancings, as well as amortization of intangible assets, net of tax, from its adjusted diluted net earnings per share. Excluding the impact of these items, adjusted net earnings(2) of $11.7 million increased 1.7% year over year, and adjusted diluted net earnings per share(1) of $0.42 increased 2.4% year over year. The increase in adjusted net earnings resulted primarily from the favorable impact of foreign exchange rates and higher sales.

2017 Outlook

Based upon year-to-date sales performance, the Company now expects 2017 constant currency sales growth in the range of 2.50% to 3.25%, an increase from the prior guidance of 2.0% to 3.0%. Based on exchange rates as of October 30, 2017, the impact to 2017 sales from foreign exchange is now anticipated to be minimal, as compared to the prior estimate of a 0.25% negative impact.

In addition, the Company now expects adjusted diluted net earnings per share in the range of $1.85 to $1.90, compared to the prior estimate of $1.85 to $1.95, based on exchange rates as of October 30, 2017. The adjusted diluted net earnings per share estimates for 2017 exclude the cost of special items including acquisition costs, restructuring costs, and legal matters, which are still estimated in the range of $16.5 million to $18.5 million, net of tax, and amortization of intangible assets, which are still estimated in the range of $12 million to $14 million, net of tax.

Supplemental Financial Disclosures

 

(1) A reconciliation of reported diluted net earnings per share to adjusted diluted net earnings per share, a non-GAAP financial measure, appears below.
(2) A reconciliation of reported net income to adjusted net earnings, a non-GAAP financial measure, appears below.

 

Page 2 of 10


Conference Call

The Company’s management will host a conference call today at 4:30 p.m. ET to discuss its third quarter 2017 results.

To participate in the conference call, dial 844-889-7792 (domestic) or 661-378-9936 (international) and enter the passcode 96832092.

This conference call will also be webcast and can be accessed from the “Investors” section of CONMED’s web site at www.conmed.com. The webcast replay of the call will be available at the same site approximately one hour after the end of the call.

A recording of the call will also be available from 7:30 p.m. ET on Thursday, November 2, 2017, until 6:30 p.m. ET on Thursday, November 16, 2017. To hear this recording, dial 855-859-2056 (domestic) or 404-537-3406 (international) and enter the passcode 96832092.

About CONMED Corporation

CONMED is a medical technology company that provides 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. CONMED has a direct selling presence in 17 countries, and international sales constitute approximately 50% of the Company’s total sales. Headquartered in Utica, New York, the Company employs approximately 3,300 people. For more information, visit www.conmed.com.

Forward-Looking Statements

This press release and today’s conference call may contain forward-looking statements based on certain assumptions and contingencies that 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. For example, in addition to general industry and economic conditions, factors that could cause actual results to differ materially from those in the forward-looking statements may include, but are not limited to, the risk factors discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Any and all 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 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.

 

Page 3 of 10


Supplemental Information - Reconciliation of GAAP to Non-GAAP Financial Measures

The Company supplements the reporting of its financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; adjusted gross profit; cost of sales excluding specified items; adjusted selling and administrative expenses; adjusted operating income; adjusted income tax expense; adjusted effective income tax rate; adjusted net earnings and adjusted diluted net earnings per share (EPS). The Company believes that these non-GAAP measures provide meaningful information to assist investors and shareholders in understanding its financial results and assessing its prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of its operations because they exclude items that may not be indicative of, or are unrelated to, its core operating results and provide a baseline for analyzing trends in the Company’s underlying business. Further, the presentation of EBITDA is a non-GAAP measurement that management considers useful for measuring aspects of the Company’s cash flow. Management uses these non-GAAP financial measures for reviewing the operating results and analyzing potential future business trends in connection with its budget process and bases certain management incentive compensation on these non-GAAP financial measures.

To measure percentage sales growth in constant currency, the Company removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. To measure earnings performance on a consistent and comparable basis, the Company excludes certain items that affect the comparability of operating results and the trend of earnings. These adjustments are irregular in timing, may not be indicative of past and future performance and are therefore excluded to allow investors to better understand underlying operating trends.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, cost of sales, selling and administrative expenses, operating income, income tax expense, effective income tax rate, net income and diluted net earnings per share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of the Company’s operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of the business. The Company strongly encourages investors and shareholders to review its financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

 

Page 4 of 10


Consolidated Condensed Statements of Income

(in thousands, except per share amounts, unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2017     2016     2017     2016  

Net sales

   $ 190,117     $ 184,792     $ 573,837     $ 559,426  

Cost of sales

     87,570       83,583       266,753       258,055  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     102,547       101,209       307,084       301,371  
  

 

 

   

 

 

   

 

 

   

 

 

 

% of sales

     53.9     54.8     53.5     53.9

Selling and administrative expense

     80,807       79,009       259,396       251,681  

Research & development expense

     8,270       8,353       23,929       24,620  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     13,470       13,847       23,759       25,070  
  

 

 

   

 

 

   

 

 

   

 

 

 

% of sales

     7.1     7.5     4.1     4.5

Other expense

     —         —         —         2,942  

Interest expense

     4,806       3,861       13,323       11,448  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     8,664       9,986       10,436       10,680  

Provision for income taxes

     1,467       2,649       1,645       2,724  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 7,197     $ 7,337     $ 8,791     $ 7,956  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic EPS

   $ 0.26     $ 0.26     $ 0.31     $ 0.29  

Diluted EPS

     0.26       0.26       0.31       0.28  

Basic shares

     27,924       27,818       27,915       27,785  

Diluted shares

     28,183       27,951       28,124       27,946  

Consolidated Condensed Balance Sheets

(in thousands, unaudited)

 

     September      December  
     2017      2016  

Assets:

     

Cash and cash equivalents

   $ 44,034      $ 27,428  

Accounts receivable, net

     146,736        148,244  

Inventories

     149,537        135,869  

Other current assets

     16,377        18,971  
  

 

 

    

 

 

 

Total Current Assets

     356,684        330,512  

Property, plant and equipment, net

     117,041        122,029  

Goodwill

     401,792        397,664  

Other intangible assets, net

     418,957        419,549  

Other assets

     66,713        59,229  
  

 

 

    

 

 

 

Total Assets

   $ 1,361,187      $ 1,328,983  
  

 

 

    

 

 

 

Liabilities and Shareholders’ Equity:

     

Current liabilities

   $ 139,323      $ 113,952  

Long-term debt, excluding current maturities

     494,789        488,288  

Other liabilities

     137,409        146,167  

Shareholders’ equity

     589,666        580,576  
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 1,361,187      $ 1,328,983  
  

 

 

    

 

 

 

 

Page 5 of 10


Consolidated Condensed Statements of Cash Flows

Nine Months Ended September 30, 2017 and 2016

(in thousands, unaudited)

 

     2017     2016  

Operating Activities

    

Net income

   $ 8,791     $ 7,956  

Depreciation and amortization

     43,062       41,210  

Stock-based compensation

     6,340       6,505  

Deferred income taxes

     (5,129     (3,977

Changes in operating assets and liabilities and other, net

     (8,310     (25,506
  

 

 

   

 

 

 

Net cash provided by operating activities

     44,754       26,188  
  

 

 

   

 

 

 

Investing Activities

    

Payments related to business and asset acquisitions, net of cash acquired

     (15,194     (256,450

Proceeds from sale of a facility

     —         5,178  

Purchases of property, plant and equipment

     (9,232     (10,436
  

 

 

   

 

 

 

Net cash used in investing activities

     (24,426     (261,708
  

 

 

   

 

 

 

Financing Activities

    

Payments on term loan

     (6,563     (6,564

Proceeds from term loan

     —         175,000  

Payments on revolving line of credit

     (98,000     (130,346

Proceeds from revolving line of credit

     115,000       192,000  

Payments related to debt issuance costs

     —         (5,556

Payment related to distribution agreement

     —         (16,667

Dividends paid on common stock

     (16,722     (16,649

Other, net

     (887     (1,349
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (7,172     189,869  

Effect of exchange rate changes on cash and cash equivalents

     3,450       95  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     16,606       (45,556

Cash and cash equivalents at beginning of period

     27,428       72,504  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 44,034     $ 26,948  
  

 

 

   

 

 

 

 

Page 6 of 10


Sales Summary

(in millions, unaudited)

 

     Three Months Ended September 30,  
                   % Change  
                               Domestic     International  
     2017      2016      As
Reported
    Constant
Currency
    As
Reported
    As
Reported
    Constant
Currency
 

Orthopedic Surgery

   $ 98.6      $ 99.4        -0.8     -1.6     -8.8     5.0     3.6

General Surgery

     91.5        85.4        7.1     7.0     4.8     11.9     11.6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 190.1      $ 184.8        2.9     2.4     -0.9     7.3     6.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Single-use Products

   $ 153.2      $ 146.7        4.5     4.0     0.3     9.4     8.3

Capital Products

     36.9        38.1        -3.3     -3.8     -5.7     -0.6     -1.6
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 190.1      $ 184.8        2.9     2.4     -0.9     7.3     6.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

   $ 98.3      $ 99.2        -0.9     -0.9      

International

     91.8        85.6        7.3     6.2      
  

 

 

    

 

 

    

 

 

   

 

 

       
   $ 190.1      $ 184.8        2.9     2.4      
  

 

 

    

 

 

    

 

 

   

 

 

       

 

     Nine Months Ended September 30,  
                   % Change  
                               Domestic     International  
     2017      2016      As
Reported
    Constant
Currency
    As
Reported
    As
Reported
    Constant
Currency
 

Orthopedic Surgery

   $ 307.9      $ 310.5        -0.8     -0.4     -4.6     1.8     2.5

General Surgery

     265.9        248.9        6.8     7.3     5.8     9.0     10.4
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 573.8      $ 559.4        2.6     3.0     1.3     4.0     4.9
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Single-use Products

   $ 462.4      $ 445.8        3.7     4.2     2.1     5.6     6.6

Capital Products

     111.4        113.6        -2.0     -1.6     -2.1     -1.9     -1.1
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 573.8      $ 559.4        2.6     3.0     1.3     4.0     4.9
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Domestic

   $ 297.7      $ 294.0        1.3     1.3      

International

     276.1        265.4        4.0     4.9      
  

 

 

    

 

 

    

 

 

   

 

 

       
   $ 573.8      $ 559.4        2.6     3.0      
  

 

 

    

 

 

    

 

 

   

 

 

       

 

Page 7 of 10


Reconciliation of Reported Net Income to Adjusted Net Earnings

(in thousands, except per share amounts, unaudited)

 

     Three Months Ended September 30, 2017  
     Gross
Profit
    Selling &
Administrative
Expense
    Operating
Income
    Tax
Expense
     Effective
Tax Rate
    Net
Income
     Diluted
EPS
 

As reported

   $ 102,547     $ 80,807     $ 13,470     $ 1,467        16.9   $ 7,197      $ 0.26  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

% of sales

     53.9     42.5     7.1          

Restructuring costs (1)

     1,306       —         1,306       467          839        0.03  

Business acquisition costs (2)

     —         (128     128       48          80        0.00  

Legal matters (3)

     —         (327     327       115          212        0.01  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 103,853     $ 80,352     $ 15,231     $ 2,097        20.1   $ 8,328      $ 0.30  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

% of sales

     54.6     42.3     8.0          

Amortization of intangible assets

   $ 1,500     $ (3,761   $ 5,261     $ 1,854          3,407        0.12  
             

 

 

    

 

 

 

Adjusted net earnings

              $ 11,735      $ 0.42  
             

 

 

    

 

 

 

 

     Three Months Ended September 30, 2016  
     Gross
Profit
    Selling &
Administrative
Expense
    Operating
Income
    Tax
Expense
    Effective Tax
Rate
    Net
Income
    Diluted
EPS
 

As reported

   $ 101,209     $ 79,009     $ 13,847     $ 2,649       26.5   $ 7,337     $ 0.26  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of sales

     54.8     42.8     7.5        

Restructuring costs (1)

     —         (361     361       172         189       0.01  

Business acquisition costs (2)

     —         (2,695     2,695       1,207         1,488       0.05  

Legal matters (3)

     —         (619     619       279         340       0.01  

Gain on sale of facility (4)

     —         1,890       (1,890     (853       (1,037     (0.04
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 101,209     $ 77,224     $ 15,632     $ 3,454       29.3   $ 8,317     $ 0.29  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

% of sales

     54.8     41.8     8.5        

Amortization of intangible assets

   $ 1,500     $ (3,498   $ 4,998     $ 1,777         3,221       0.12  
            

 

 

   

 

 

 

Adjusted net earnings

             $ 11,538     $ 0.41  
            

 

 

   

 

 

 

 

Page 8 of 10


Reconciliation of Reported Net Income to Adjusted Net Earnings

(in thousands, except per share amounts, unaudited)

 

     Nine Months Ended September 30, 2017  
     Gross
Profit
    Selling &
Administrative
Expense
    Operating
Income
    Other
Expense
     Tax
Expense
     Effective Tax
Rate
    Net
Income
     Diluted
EPS
 

As reported

   $ 307,084     $ 259,396     $ 23,759     $ —        $ 1,645        15.8   $ 8,791      $ 0.31  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

% of sales

     53.5     45.2     4.1             

Restructuring costs (1)

     2,778       (1,347     4,125       —          1,377          2,748        0.10  

Business acquisition costs (2)

     —         (1,020     1,020       —          370          650        0.02  

Legal matters (3)

     —         (17,041     17,041       —          5,537          11,504        0.41  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 309,862     $ 239,988     $ 45,945     $ —        $ 8,929        27.4   $ 23,693      $ 0.84  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

      

% of sales

     54.0     41.8     8.0             

Amortization of intangible assets

   $ 4,500     $ (11,096   $ 15,596     $ —        $ 5,515          10,081        0.36  
                

 

 

    

 

 

 

Adjusted net earnings

                 $ 33,774      $ 1.20  
                

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2016  
     Gross
Profit
    Selling &
Administrative
Expense
    Operating
Income
    Other
Expense
    Tax
Expense
    Effective Tax
Rate
    Net
Income
    Diluted
EPS
 

As reported

   $ 301,371     $ 251,681     $ 25,070     $ 2,942     $ 2,724       25.5   $ 7,956     $ 0.28  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of sales

     53.9     45.0     4.5          

Restructuring costs (1)

     5,537       (4,105     9,642       —         3,215         6,427       0.23  

Business acquisition costs (2)

     —         (14,547     14,547       —         5,734         8,813       0.32  

Legal matters (3)

     —         (2,808     2,808       —         301         2,507       0.09  

Gain on sale of facility (4)

     —         1,890       (1,890     —         (853       (1,037     (0.04

Debt refinancing costs (5)

     —         —         —         (2,942     930         2,012       0.07  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 306,908     $ 232,111     $ 50,177     $ —       $ 12,051       31.1   $ 26,678     $ 0.95  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

% of sales

     54.9     41.5     9.0          

Amortization of intangible assets

   $ 4,500     $ (10,489   $ 14,989     $ —       $ 5,341         9,648       0.35  
              

 

 

   

 

 

 

Adjusted net earnings

               $ 36,326     $ 1.30  
              

 

 

   

 

 

 

 

(1) In 2017 and 2016, the Company restructured certain operating, sales, marketing and administrative functions and incurred severance, product discontinuation, and other related costs.    
(2) In 2017 and 2016, the Company incurred investment banking fees, consulting fees, legal fees, and integration related costs associated with the acquisition of SurgiQuest, Inc.
(3) In 2017, the Company incurred litigation fees as a result of the unfavorable verdict in the Lexion vs. SurgiQuest, Inc. case. In 2017 and 2016, the Company incurred legal fees associated with the Lexion vs. SurgiQuest, Inc. case and other legal matters.
(4) In 2016, the Company recorded a gain on the sale of its facility in Centennial, Colorado.
(5) In 2016, in conjunction with the acquisition of SurgiQuest, Inc., the Company refinanced its existing credit facility and incurred one-time fees associated with an agreement between the Company and JP Morgan Chase Bank, N.A., as well as costs associated with the early extinguishment of debt.

 

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Reconciliation of Reported Net Income to EBITDA & Adjusted EBITDA

(in thousands, unaudited)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2017     2016     2017     2016  

Net income

   $ 7,197     $ 7,337     $ 8,791     $ 7,956  
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

     1,467       2,649       1,645       2,724  

Interest expense

     4,806       3,861       13,323       11,448  

Depreciation

     5,234       5,301       14,993       15,242  

Amortization

     9,367       8,357       27,288       25,187  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 28,071     $ 27,505     $ 66,040     $ 62,557  
  

 

 

   

 

 

   

 

 

   

 

 

 

Stock based compensation

     2,119       1,921       6,340       5,784  

Restructuring costs

     1,306       361       4,125       9,642  

Business acquisition costs

     128       2,695       1,020       14,547  

Legal matters

     327       619       17,041       2,808  

Gain on sale of facility

     —         (1,890     —         (1,890

Debt refinancing costs

     —         —         —         2,942  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 31,951     $ 31,211     $ 94,566     $ 96,390  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA Margin

        

EBITDA

     14.8     14.9     11.5     11.2

Adjusted EBITDA

     16.8     16.9     16.5     17.2

 

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