CONMED Corporation Announces Second Quarter 2015 Financial Results

Tuesday, July 21, 2015

Source: CONMED

CONMED Corporation (Nasdaq:CNMD) today announced financial results for the second quarter ended June 30, 2015.

Second Quarter 2015 Highlights

Sales were $181.0 million, a decrease of 3.8%, compared to the second quarter of 2014. On a constant currency basis, sales decreased 0.4% over the prior-year period.
Diluted earnings per share (GAAP) were $0.27, compared to $0.37 in the second quarter of 2014.
Adjusted diluted earnings per share were $0.36 versus $0.47 in the prior-year period.
Appointed Peter Shagory as Executive Vice President, Strategy and Corporate Development.
On July 1, added David Bronson and John Workman to its Board of Directors.
"I am encouraged by the progress we have made throughout our commercial organization, and we exited the second quarter with positive momentum across our business. We are well positioned for accelerating growth in the second half and, importantly, remain on track to achieve our full year financial guidance," commented Curt R. Hartman, CONMED's President and Chief Executive Officer.

Sales Analysis

For the quarter ended June 30, 2015, domestic sales, which represented 49.2% of total revenue, increased 1.9%, driven by growth in capital equipment sales. International sales, which represented 50.8% of total revenue, declined 8.7% compared to the second quarter of 2014 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a negative impact of $6.4 million on second quarter sales. In constant currency, international sales decreased 2.5% versus the prior-year period. Outside the United States, a slight increase in the sales of single-use products was more than offset by a decline in capital equipment sales.

Earnings Analysis

Reported net earnings of $7.5 million decreased 27.2% in the quarter, compared to reported net earnings of $10.3 million in the prior year. Reported diluted net earnings per share of $0.27 decreased 27.0% in the quarter, compared to the prior year period. Reported net earnings include restructuring costs in 2015 and 2014, as well as charges for a patent dispute and shareholder activism in 2014. 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 $9.9 million decreased 23.5% year over year, and adjusted diluted net earnings per share of $0.36 decreased 23.4% year over year. Lower operating expenses in the current quarter were more than offset by the negative impact of foreign currency, the expensing of unfavorable production variances incurred in prior periods and a higher tax rate.

2015 Outlook

The Company reiterated its previously disclosed constant currency sales guidance, which calls for organic sales growth in 2015 to be in the range of 1% to 3%. Using current exchange rates, CONMED continues to anticipate that reported sales for 2015 will be in the range of $723 million to $738 million, representing a growth range of (2%) to 0%, and that adjusted diluted net earnings per share will be in the range 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 second quarter results.

To participate in the conference call, dial 877-280-4957 (domestic) or 857-244-7314 (international) and enter the passcode 95923964.

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 Tuesday, July 21, 2015, until 11:59 p.m. ET on Tuesday, July 28, 2015. To hear this recording, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 99098236.

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 3,400 people. For more information, visit www.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 Ended

 

Six Months Ended

   

June 30,

 

June 30,

   

  

2015

  

  

2014

  

 

  

2015

  

  

2014

  

           

  

Net sales 

 

181,027 

 

188,150 

   

358,967 

 

370,091 

 

Cost of sales 

 

  

87,529 

  

  

87,122 

  

 

  

173,187 

  

  

166,481 

  

Gross profit 

 

  

93,498 

  

  

101,028 

  

 

  

185,780 

  

  

203,610 

  

% of sales 

   

51.6 

 

53.7 

   

51.8 

 

55.0 

Selling and administrative expense 

   

73,581 

   

78,234 

     

148,367 

   

156,598 

 

R & D 

 

  

7,501 

  

  

6,854 

  

 

  

14,043 

  

  

13,764 

  

Income from operations 

 

  

12,416 

  

  

15,940 

  

 

  

23,370 

  

  

33,248 

  

% of sales 

   

6.9 

 

8.5 

   

6.5 

 

9.0 

Interest expense 

 

  

1,489 

  

  

1,571 

  

 

  

2,949 

  

  

3,032 

  

Income before income taxes 

   

10,927 

   

14,369 

     

20,421 

   

30,216 

 

Provision for income taxes 

 

  

3,466 

  

  

4,114 

  

 

  

6,648 

  

  

11,335 

  

Net income 

 

7,461 

  

10,255 

  

 

13,773 

  

18,881 

  

           

  

Basic EPS 

 

0.27 

 

0.38 

   

0.50 

 

0.69 

 

Diluted EPS 

 

0.27 

 

0.37 

   

0.49 

 

0.68 

 
           

  

Basic shares 

   

27,620 

   

27,257 

     

27,603 

   

27,303 

 

Diluted shares 

   

27,857 

   

27,753 

     

27,839 

   

27,803 

 
                           

  

 

  

Consolidated Condensed Balance Sheets

(in thousands, unaudited) 

 

  

  

 

  

 
     

June

 

December

     

2015

 

2014

Assets:

         

Cash and cash equivalents 

   

62,216 

 

66,332 

Accounts receivable, net 

     

129,660 

   

129,287 

Inventories 

     

149,180 

   

148,149 

Other current assets 

   

  

33,210 

 

  

37,382 

Total Current Assets

     

374,266 

   

381,150 

Property, plant and equipment, net 

     

131,625 

   

133,429 

Goodwill 

     

261,004 

   

256,232 

Other intangible assets, net 

     

311,128 

   

316,440 

Other assets 

   

  

11,363 

 

  

10,943 

Total Assets

   

1,089,386 

 

1,098,194 

         

  

Liabilities and Shareholders' Equity

         

Current liabilities 

   

109,882 

 

115,956 

Long-term debt, excluding current maturities 

     

258,545 

   

240,201 

Other liabilities 

     

142,865 

   

160,739 

Shareholders' equity 

   

  

578,094 

 

  

581,298 

Total liabilities and shareholders' equity

   

1,089,386 

 

1,098,194 

             

  

 

  

Consolidated Condensed Statements of Cash Flows

Six Months Ended June 2015 and 2014

(in thousands, unaudited) 

   

  

 
 

  

2015

  

 

  

2014

  

Operating Activities

     

Net income 

13,773 

   

18,881 

 

Depreciation and amortization 

 

21,081 

     

22,304 

 

Changes in operating assets and liabilities and other, net 

  

(9,799 

 

  

(16,272 

Net cash provided by operating activities

  

25,055 

  

 

  

24,913 

  

     

  

Investing Activities

     

Payments related to business acquisitions 

 

(6,104 

   

 

Purchases of property, plant, and equipment 

  

(7,783 

 

  

(8,641 

Net cash used in investing activities

  

(13,887 

 

  

(8,641 

     

  

Financing Activities

     

Proceeds of debt 

 

19,000 

     

31,000 

 

Payment related to distribution agreements 

 

(16,667 

   

(16,667 

Payment related to contingent consideration 

 

(2,423 

   

 

Dividend payments on Common Stock 

 

(11,026 

   

(10,987 

Repurchase of Common Stock 

 

     

(16,862 

Other, net 

  

51 

  

 

  

2,252 

  

Net cash used in financing activities

 

(11,065 

   

(11,264 

     

  

Effect of exchange rate change on cash and cash equivalents 

  

(4,219 

 

  

963 

  

Net increase (decrease) in cash and cash equivalents 

 

(4,116 

   

5,971 

 

Cash and cash equivalents at beginning of period 

  

66,332 

  

 

  

54,443 

  

Cash and cash equivalents at end of period

62,216 

  

 

60,414 

  

     

  

 

 

  

 

  

 

Sales Summary

(in millions, unaudited) 

       

  

  

 

Three Months Ended June

 

Six Months Ended June

     

  

 

  

% Change

 

  

  

 

  

% Change

   

2015

 

2014

 

As
Reported

  

Constant
Currency

 

2015

 

2014

 

As
Reported

  

Constant
Currency

Orthopedic Surgery 

 

96.8 

 

102.4 

 

-5.4 

  

-1.0 

 

195.4 

 

208.3 

 

-6.2 

 

-2.1 

General Surgery 

   

71.1 

   

70.7 

 

0.5 

 

2.3 

   

137.2 

   

134.2 

 

2.2 

 

3.9 

Surgical Visualization 

 

  

13.1 

 

  

15.1 

 

-12.8 

 

-9.4 

 

  

26.4 

 

  

27.6 

 

-4.3 

 

-1.0 

   

181.0 

 

188.2 

 

-3.8 

 

-0.4 

 

359.0 

 

370.1 

 

-3.0 

 

0.2 

                               

  

Single-use products 

 

145.3 

 

150.2 

 

-3.2 

 

0.2 

 

285.5 

 

296.6 

 

-3.7 

 

-0.6 

Capital products 

 

  

35.7 

 

  

38.0 

 

-6.1 

 

-2.8 

 

  

73.5 

 

  

73.5 

 

0.0 

 

3.2 

   

181.0 

 

188.2 

 

-3.8 

 

-0.4 

 

359.0 

 

370.1 

 

-3.0 

 

0.2 

                                               

  

 

 

  

   

Reconciliation of Reported Net Earnings to Adjusted Net Earnings

(in thousands, except per share amounts, unaudited) 

     

  

   

Three Months Ended June 2015

   

Gross Profit

  

Selling &
Administrative
Expense

  

Operating
Income

  

Net Income

  

Effective
Tax Rate

  

Diluted
EPS

As reported

 

93,498 

  

  

73,581 

  

  

12,416 

  

  

7,461 

  

31.7 

  

0.27 

% of sales 

   

51.6 

  

 

  

 

6.9 

  

 

  

 

  

 

Restructuring costs (1) 

 

  

1,534 

  

  

  

(2,284 

  

  

3,818 

  

  

  

2,444 

  

1.1 

  

  

0.09 

Adjusted

 

95,032 

  

  

71,297 

  

  

16,234 

  

  

9,905 

  

32.8 

  

0.36 

% of sales 

   

52.5 

       

9.0 

           
                       

  

   

Three Months Ended June 2014

   

Gross Profit

  

Selling &
Administrative
Expense

  

Operating
Income

  

Net Income

  

Effective
Tax Rate

  

Diluted
EPS

As reported

 

101,028 

  

  

78,234 

  

  

15,940 

  

  

10,255 

  

28.6 

  

0.37 

% of sales 

   

53.7 

       

8.5 

           

Restructuring costs (1) 

   

1,358 

     

(494 

   

1,852 

     

1,185 

 

0.8 

   

0.05 

Patent dispute and other matters (2) 

   

     

(1,410 

   

1,410 

     

902 

 

0.5 

   

0.03 

Shareholder activism (3) 

 

  

  

  

  

(935 

  

  

935 

  

  

  

598 

  

0.3 

  

  

0.02 

Adjusted

 

102,386 

  

  

75,395 

  

  

20,137 

  

  

12,940 

  

30.3 

  

0.47 

% of sales 

   

54.4 

       

10.7 

           
                       

  

   

Six Months Ended June 2015

   

Gross Profit

  

Selling &
Administrative
Expense

  

Operating
Income

  

Net Income

  

Effective
Tax Rate

  

Diluted
EPS

As reported

 

185,780 

  

  

148,367 

  

  

23,370 

  

  

13,773 

  

32.6 

  

0.49 

% of sales 

   

51.8 

       

6.5 

           

Restructuring costs (1) 

 

  

3,863 

  

  

  

(8,464 

  

  

12,327 

  

  

  

7,889 

  

1.3 

  

  

0.29 

Adjusted

 

189,643 

  

  

139,903 

  

  

35,697 

  

  

21,662 

  

33.9 

  

0.78 

% of sales 

   

52.8 

       

9.9 

           
                       

  

   

Six Months Ended June 2014

   

Gross Profit

  

Selling &
Administrative
Expense

  

Operating
Income

  

Net Income

  

Effective
Tax Rate

  

Diluted
EPS

As reported

 

203,610 

  

  

156,598 

  

  

33,248 

  

  

18,881 

  

37.5 

  

0.68 

% of sales 

   

55.0 

       

9.0 

           

Restructuring costs(1) 

   

2,306 

     

(1,207 

   

3,513 

     

2,248 

 

-0.2 

   

0.08 

Patent dispute and other matters (2) 

   

     

(3,304 

   

3,304 

     

2,115 

 

-0.1 

   

0.08 

Shareholder activism (3) 

   

     

(1,525 

   

1,525 

     

976 

 

0.0 

   

0.03 

New York State corporate tax reform (4) 

 

  

  

  

  

  

  

  

  

  

2,258 

  

-5.9 

  

  

0.08 

Adjusted

 

205,916 

  

  

150,562 

  

  

41,590 

  

  

26,478 

  

31.3 

  

0.95 

% of sales 

   

55.6 

       

11.2 

           
                               

  

 

1 In 2015 and 2014, the Company continued the operational restructuring, including the consolidation of our Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities. Additionally, in 2015 and 2014, the Company restructured certain sales, marketing and administrative functions and incurred severance and other related costs. 

2 In 2014, the Company incurred legal and settlement costs associated with a patent infringement claim and costs associated with a legal matter in which we prevailed at trial. 

3 In 2014, the Company incurred certain costs associated with shareholder activism. 

4 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 assets were written off to income tax expense. 

  

 

  

Reconciliation of Reported Net Income to EBITDA & Adjusted EBITDA

(in thousands, unaudited) 

 

  

   

  

   
   

Three Months Ended

 

Six Months Ended

   

June 30,

 

June 30,

   

  

2015

  

  

2014

  

 

  

2015

  

  

2014

  

           

  

Net income 

 

7,461 

  

10,255 

  

 

13,773 

  

18,881 

  

Provision for income taxes 

   

3,466 

   

4,114 

     

6,648 

   

11,335 

 

Interest expense 

   

1,489 

   

1,571 

     

2,949 

   

3,032 

 

Depreciation 

   

4,563 

   

4,906 

     

9,196 

   

9,473 

 

Amortization 

 

  

6,199 

  

  

6,385 

  

 

  

11,589 

  

  

12,539 

  

EBITDA

 

23,178 

  

27,231 

  

 

44,155 

  

55,260 

  

           

  

Stock based compensation 

   

1,782 

   

1,333 

     

3,038 

   

2,518 

 

Restructuring costs 

   

3,818 

   

1,852 

     

12,327 

   

3,513 

 

Patent dispute and other matters 

   

   

1,410 

     

   

3,304 

 

Shareholder activism 

 

  

  

  

935 

  

 

  

  

  

1,525 

  

Adjusted EBITDA

 

28,778 

  

32,761 

  

 

59,520 

  

66,120 

  

           

  

           

  

EBITDA Margin

           

EBITDA 

   

12.8 

 

14.5 

   

12.3 

 

14.9 

Adjusted EBITDA 

   

15.9 

 

17.4 

   

16.6 

 

17.9 

%

 

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