Wednesday, November 4, 2015

News: CONMED Corporation Announces Third Quarter 2015 Financial Results

Image result for conmedUTICA, N.Y.--()--CONMED Corporation (Nasdaq: CNMD) today announced financial results for the third quarter ended September 30, 2015.

“Weaker than expected performance in our export markets and in our domestic General Surgery business slowed our progress this quarter. I remain confident that CONMED has the right team of leaders and the sense of urgency necessary to advance our turnaround efforts.”

  • Sales were $169.2 million, a decrease of 3.3% compared to the third quarter of 2014. On a constant currency basis, sales increased 0.5% over the prior-year period.
  • Diluted earnings per share (GAAP) were $0.32, compared to $0.07 in the third quarter of 2014.
  • Adjusted diluted earnings per share were $0.38 versus $0.44 in the prior-year period.
  • Appointed Nathan Folkert as Vice President and General Manager of Orthopedics.
“While I am pleased to see total Company constant currency sales break back into positive growth, the overall results indicate the transformative changes we are pursuing are taking longer to implement than we had anticipated,” commented Curt R. Hartman, CONMED’s President and Chief Executive Officer. “Weaker than expected performance in our export markets and in our domestic General Surgery business slowed our progress this quarter. I remain confident that CONMED has the right team of leaders and the sense of urgency necessary to advance our turnaround efforts.”
Sales Analysis
For the quarter ended September 30, 2015, domestic sales, which represented 51.9% of total revenue, increased 1.3%, driven by growth in capital equipment sales within Visualization and Orthopedics. International sales, which represented 48.1% of total revenue, declined 7.8% compared to the third quarter of 2014 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a negative impact of $6.6 million on third quarter sales. In constant currency, international sales decreased 0.4% versus the prior-year period as a result of a decline in sales of capital equipment, particularly within General Surgery and Visualization.
Earnings Analysis
Reported net earnings totaled $8.9 million in the quarter, compared to reported net earnings of $2.0 million in the prior year. Reported diluted net earnings per share were $0.32 in the quarter, compared to $0.07 in the prior-year period. Reported net earnings for the third quarter of 2014 included substantially higher costs related to restructuring and shareholder activism. The effect of each of these items on reported net earnings appears in the reconciliation of GAAP to non-GAAP measures provided below.
Excluding the impact of the items described above, adjusted net earnings of $10.6 million decreased 13.2% year over year and adjusted diluted net earnings per share of $0.38 decreased 13.6% year over year. The decline in adjusted net earnings was largely attributable to weaker than anticipated international sales, the negative impact of foreign currency, and a higher tax rate, partially offset by improved gross margin and lower operating expenses during the quarter.
2015 Outlook
Based on weaker than expected third quarter sales, the Company has reduced its 2015 constant currency organic sales growth estimate to 0% to 1%, compared to the previous estimate of 1% to 3%.
Using current exchange rates, the Company now forecasts total reported 2015 sales to be in the range of $715 to $720 million, compared to prior guidance of $723 to $738 million. Adjusted earnings per diluted share are now expected to be in the range of $1.65 to $1.70, compared to prior guidance of $1.82 to $1.92.
Conference Call
The Company’s management will host a conference call today at 4:30 p.m. ET to discuss its third quarter results.
To participate in the conference call, dial 800-884-5695 (domestic) or 617-786-2960 (international) and enter the passcode 44699196.
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 8:30 p.m. ET on Wednesday, October 21, 2015, until 11:59 p.m. ET on Wednesday, October 28, 2015. To hear this recording, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 88091814.
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. The Company distributes 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. Headquartered in Utica, New York, the Company employs approximately 3,500 people. For more information, visitwww.conmed.com.
Forward-Looking Statements
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. 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, 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, 2014.
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 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 our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results and provide a baseline for analyzing trends in the Company’s underlying businesses. 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 our 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 our 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, effective income tax rate, net earnings 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 our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of our business. The Company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Consolidated Condensed Statements of Income
(in thousands except per share amounts, unaudited)
  
 Three Months EndedNine Months Ended
September 30,September 30,
2015 20142015 2014
 
Net sales$169,184$174,961$528,151$545,052
Cost of sales 75,638   78,547  248,825   245,028 
Gross profit 93,546   96,414  279,326   300,024 
% of sales55.3%55.1%52.9%55.0%
Selling and administrative expense72,05687,055220,423243,653
Research and development 6,652   6,910  20,695   20,674 
Income from operations 14,838   2,449  38,208   35,697 
% of sales8.8%1.4%7.2%6.5%
Interest expense 1,504   1,540  4,453   4,572 
Income before income taxes13,33490933,75531,125
Provision (benefit) for income taxes 4,461   (1,063) 11,109   10,272 
Net income$8,873  $1,972 $22,646  $20,853 
 
Basic EPS$0.32$0.07$0.82$0.76
Diluted EPS$0.32$0.07$0.81$0.75
 
Basic shares27,70127,45427,63627,354
Diluted shares27,89827,68827,85327,777
 
Consolidated Condensed Balance Sheets
(in thousands, unaudited)
 September December
20152014
Assets:
Cash and cash equivalents$65,326$66,332
Accounts receivable, net124,697129,287
Inventories161,555148,149
Other current assets 32,116 37,382
Total Current Assets383,694381,150
Property, plant and equipment, net130,717133,429
Goodwill260,755256,232
Other intangible assets, net308,059316,440
Other assets 10,822 10,943
Total Assets$1,094,047$1,098,194
 
Liabilities and Shareholders' Equity
Current liabilities$111,656$115,956
Long-term debt, excluding current maturities260,545240,201
Other liabilities144,421160,739
Shareholders' equity 577,425 581,298
Total liabilities and shareholders' equity$1,094,047$1,098,194
 
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 2015 and 2014
(in thousands, unaudited)
 
2015 2014
Operating Activities
Net income$22,646$20,853
Depreciation and amortization32,30834,020
Changes in operating assets and liabilities and other, net (16,234) (15,344)
Net cash provided by operating activities 38,720  39,529 
 
Investing Activities
Payments related to business acquisitions(6,104)(1,245)
Purchases of property, plant, and equipment (11,478) (12,250)
Net cash used in investing activities (17,582) (13,495)
 
Financing Activities
Proceeds of debt21,00033,000
Payment related to distribution agreements(16,667)(16,667)
Payment related to contingent consideration(2,423)-
Dividend payments on common stock(16,565)(16,455)
Repurchase of common stock-(16,862)
Other, net (600) 4,378 
Net cash used in financing activities(15,255)(12,606)
 
Effect of exchange rate change on cash and cash equivalents (6,889) (3,257)
Net increase (decrease) in cash and cash equivalents(1,006)10,171
Cash and cash equivalents at beginning of period 66,332  54,443 
Cash and cash equivalents at end of period$65,326 $64,614 
 
Sales Summary
(in millions, unaudited)
 Three Months Ended September Nine Months Ended September
  % Change   % Change 
2015 2014
As
Reported
 
Constant
Currency
2015 2014
As
Reported
 
Constant
Currency
Orthopedic Surgery$89.4$92.8-3.6% 1.4%$284.8$301.1-5.4% -1.0%
General Surgery66.169.7-5.2%-3.2%203.3203.9-0.3%1.5%
Surgical Visualization 13.7  12.59.6%13.8% 40.1  40.10.1%3.6%
$169.2 $175.0-3.3%0.5%$528.2 $545.1-3.1%0.3%
 
Single-use products$134.9$142.4-5.2%-1.6%$420.4$439.0-4.2%-0.9%
Capital products 34.3  32.65.2%9.6% 107.8  106.11.6%5.1%
$169.2 $175.0-3.3%0.5%$528.2 $545.1-3.1%0.3%
 
Reconciliation of Reported Net Earnings to Adjusted Net Earnings
(in thousands, except per share amounts, unaudited)
 Three Months Ended September 2015
Gross Profit
 
Selling &
Administrative
Expense
 
Operating
Income
 
Net
Income
 
Effective
Tax Rate
 
Diluted
EPS
As reported$93,546  $72,056  $14,838  $8,873 33.5% $0.32
% of sales55.3%  8.8%   
Restructuring costs (1) 1,316   (1,331)  2,647   1,694 0.4%  0.06
Adjusted$94,862  $70,725  $17,485  $10,567 33.9% $0.38
% of sales56.1%10.3%
 
Three Months Ended September 2014
Gross Profit
 
Selling &
Administrative
Expense
 
Operating
Income
 
Net
Income
 
Effective
Tax Rate
 
Diluted
EPS
As reported$96,414  $87,055  $2,449  $1,972 -116.9% $0.07
% of sales55.1%1.4%
Restructuring costs (1)1,448(687)2,1351,3661.8%0.05
Management restructuring costs (2)-(11,022)11,0227,054141.2%0.25
Patent dispute and other matters (3)-(334)3342140.2%0.01
Shareholder activism (4) -   (2,441)  2,441   1,562 1.4%  0.06
Adjusted$97,862  $72,571  $18,381  $12,168 27.7% $0.44
% of sales55.9%10.5%
 
Reconciliation of Reported Net Earnings to Adjusted Net Earnings
(in thousands, except per share amounts, unaudited)
 Nine Months Ended September 2015
Gross Profit 
Selling &
Administrative
Expense
 
Operating
Income
 
Net
Income
 
Effective
Tax Rate
 
Diluted
EPS
As reported$279,326  $220,423  $38,208  $22,646 32.9% $0.81
% of sales52.9%  7.2%   
Restructuring costs (1) 5,179   (9,795)  14,974   9,583 1.0%  0.35
Adjusted$284,505  $210,628  $53,182  $32,229 33.9% $1.16
% of sales53.9%10.1%
 
Nine Months Ended September 2014
Gross Profit 
Selling &
Administrative
Expense
 
Operating
Income
 
Net
Income
 
Effective
Tax Rate
 
Diluted
EPS
As reported$300,024  $243,653  $35,697  $20,853 33.0% $0.75
% of sales55.0%6.5%
Restructuring costs (1)3,754(1,855)5,6093,5900.3%0.13
Management restructuring costs (2)-(11,022)11,0227,0550.8%0.26
Patent dispute and other matters (3)-(3,677)3,6772,3530.1%0.08
Shareholder activism (4)-(3,966)3,9662,5380.1%0.09
New York State corporate tax reform (5) -   -   -   2,258 -4.1%  0.08
Adjusted$303,778  $223,133  $59,971  $38,647 30.2% $1.39
% of sales55.7%11.0%
 
(1) In 2014 and 2015, the Company continued the operational restructuring, including the consolidation of our Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities. Additionally, in 2014 and 2015, the Company restructured certain sales, marketing and administrative functions and incurred severance and other related costs.
(2) In 2014, the Company incurred certain costs associated with executive management restructuring, including our then Chief Executive Officer.
(3) In 2014, the Company incurred legal and settlement costs associated with a patent infringement claim, costs associated with a legal matter in which we prevailed at trial and business acquisition costs.
(4) In 2014, the Company incurred certain costs associated with shareholder activism.
(5) In 2014, New York State enacted corporate tax reform changing the tax rate of a manufacturing company such as CONMED to essentially 0%. As a result, our previously recorded New York State net deferred tax asset were written off to income tax expense.
 
Reconciliation of Reported Net Income to EBITDA & Adjusted EBITDA
(in thousands, unaudited)
  
 Three Months EndedNine Months Ended
September 30,September 30,
2015 20142015 2014
 
Net income$8,873  $1,972 $22,646  $20,853 
Provision (benefit) for income taxes4,461(1,063)11,10910,272
Interest expense1,5041,5404,4534,572
Depreciation4,7235,22913,91914,702
Amortization 6,354   6,341  17,943   18,880 
EBITDA$25,915  $14,019 $70,070  $69,279 
 
Stock based compensation1,7841,6464,8224,164
Restructuring costs2,6472,13514,9745,609
Management restructuring costs-11,022-11,022
Patent dispute and other matters-334-3,677
Shareholder activism -   2,441  -   3,966 
Adjusted EBITDA$30,346  $31,597 $89,866  $97,717 
 
EBITDA Margin
EBITDA15.3%8.0%13.3%12.7%
Adjusted EBITDA17.9%18.1%17.0%17.9%

Contacts

CONMED Corporation
Luke A. Pomilio, 315-624-3202
Chief Financial Officer

Published at BusinessWire

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