Attached files

file filename
EX-99.2 - EX-99.2 - CONMED Corpd764414dex992.htm
8-K - FORM 8-K - CONMED Corpd764414d8k.htm
EX-10.1 - EX-10.1 - CONMED Corpd764414dex101.htm
EX-10.2 - EX-10.2 - CONMED Corpd764414dex102.htm

Exhibit 99.1

 

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

FOR RELEASE: 7:00 AM (Eastern) July 23, 2014

CONMED Corporation Announces Second Quarter 2014 Financial Results

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, New York, July 23, 2014 — 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.


CONMED News Release Continued

   Page 2 of 12    July 23, 2014

 

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.


CONMED News Release Continued

   Page 3 of 12    July 23, 2014

 

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 News Release Continued

   Page 4 of 12    July 23, 2014

 

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 News Release Continued

   Page 5 of 12    July 23, 2014

 

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 News Release Continued

   Page 6 of 12    July 23, 2014

 

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 News Release Continued

   Page 7 of 12    July 23, 2014

 

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 News Release Continued

   Page 8 of 12    July 23, 2014

 

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 News Release Continued

   Page 9 of 12    July 23, 2014

 

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 News Release Continued

   Page 10 of 12    July 23, 2014

 

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 News Release Continued

   Page 11 of 12    July 23, 2014

 

CONMED CORPORATION

Second Quarter Sales Summary

(In millions)

 

     Three Months Ended June 30,  
     2013      2014      Growth     Constant
Currency
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 News Release Continued

   Page 12 of 12    July 23, 2014

 

CONMED CORPORATION

Six Months Sales Summary

(In millions)

 

     Six Months Ended June 30,  
     2013      2014      Growth     Constant
Currency
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