CNMD CONMED Corporation

CONMED Corporation (Nasdaq:CNMD) today announced financial results for the first quarter ended March 31, 2015.

First Quarter 2015 Financial Highlights

• Sales were $177.9 million, a decrease of 2.2% compared to the first quarter of 2014. On a constant currency basis, sales increased 0.8% over the prior-year period.
• Diluted earnings per share (GAAP) were $0.23, compared to $0.31 in the first quarter of 2014.
• Adjusted diluted earnings per share were $0.42 versus $0.49 in the prior-year period.

"Our focus remains on transforming our commercial organization to facilitate sales and earnings growth. Beyond the positive constant currency sales growth realized during the quarter, I am pleased with the operational progress we have made to position our company for future success," commented Curt R. Hartman, CONMED’s President and Chief Executive Officer.

Sales Analysis

For the quarter ended March 31, 2015, domestic sales, which represented 48.9% of total sales, increased slightly due to positive growth in capital equipment sales. International sales, which represented 51.1% of total sales, declined 4.2% compared to the first quarter of 2014 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a negative impact of $5.5 million on first quarter sales. In constant currency, international sales increased 1.5% versus the prior-year period. Outside the United States, an increase in capital sales was offset by a slight decline in the sales of single-use products on a constant currency basis.

Earnings Analysis

Reported net earnings of $6.3 million decreased 26.8% in the quarter, compared to net earnings of $8.6 million in the prior year. Reported diluted net earnings per share of $0.23 decreased 25.8% in the quarter compared to the prior year. Reported net earnings include restructuring costs in 2015 and 2014, and charges for a patent dispute, shareholder activism, and the New York State corporate tax reform 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 $11.8 million decreased 13.1% and adjusted diluted net earnings per share of $0.42 decreased 14.3% year over year. The benefits of higher sales volume and 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%. If foreign currency exchange rates hold near current levels, the Company expects net sales for the last three quarters of 2015 to be negatively impacted by $3.9 million as compared to prior sales guidance, which was based on January 23, 2015 currency rates. Using current exchange rates, CONMED now anticipates that reported sales for 2015 will be in the range of $723 million to $738 million, representing a range of (2%) to 0%, and 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 first quarter results.

To participate in the conference call, dial 877-280-4961 (domestic), or 857-244-7318 (international), and provide the passcode “CONMED.”

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 6:30 p.m. ET on Wednesday, April 22, 2015, until 11:59 p.m. ET on Wednesday, April 29, 2015. To hear this recording, you may dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 72447655.

About CONMED

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

We supplement the reporting of our 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). We believe 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 our 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, we remove 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, we exclude 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. We strongly encourage 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 Three Months Ended March 2015 and 2014 (in thousands except per share amounts, unaudited)   2015   2014 Net sales $ 177,940 $ 181,941 Cost of sales   85,658   79,359 Gross profit   92,282   102,582 % of sales 51.9% 56.4% Selling and administrative expense 74,786 78,364 Research and development expense   6,542   6,910 Income from operations   10,954   17,308 % of sales 6.2% 9.5% Interest expense   1,460   1,461 Income before income taxes 9,494 15,847 Provision for income taxes   3,182   7,221 Net income $ 6,312 $ 8,626   Basic EPS $ 0.23 $ 0.32 Diluted EPS $ 0.23 $ 0.31   Basic shares 27,573 27,349 Diluted shares 27,820 27,854

Consolidated Condensed Balance Sheets

(in thousands, unaudited)

  March   December 2015 2014 Assets: Cash and cash equivalents $ 65,729 $ 66,332 Accounts receivable, net 128,950 129,287 Inventories 144,199 148,149 Other current assets   35,188   37,382 Total Current Assets 374,066 381,150 Property, plant and equipment, net 132,958 133,429 Goodwill 255,748 256,232 Other intangible assets, net 313,798 316,440 Other assets   11,176   10,943 Total Assets $ 1,087,746 $ 1,098,194   Liabilities and Shareholders' Equity Current liabilities $ 113,485 $ 115,956 Long-term debt, excluding current maturities 257,201 240,201 Other liabilities 142,970 160,739 Shareholders' equity   574,090   581,298 Total Liabilities and Shareholders' Equity $ 1,087,746 $ 1,098,194   Consolidated Condensed Statements of Cash Flows

Three Months Ended March 2015 and 2014

(in thousands, unaudited)

  2015   2014 Operating Activities Net income $ 6,312 $ 8,626 Depreciation and amortization 10,170 10,868 Changes in operating assets and liabilities and other, net   (1,673)   (2,469) Net cash provided by operating activities   14,809   17,025   Investing Activities Payments related to business acquisitions (853) - Purchases of property, plant, and equipment   (4,061)   (4,065) Net cash used in investing activities   (4,914)   (4,065)   Financing Activities Proceeds of debt 17,000 27,000 Payments related to distribution agreement (16,667) (16,667) Dividend payments on Common Stock (5,510) (5,545) Repurchase of Common Stock - (16,862) Other, net   543   867 Net cash used in financing activities (4,634) (11,207)   Effect of exchange rate change on cash and cash equivalents   (5,864)   122 Net increase (decrease) in cash and cash equivalents (603) 1,875 Cash and cash equivalents at beginning of period   66,332   54,443 Cash and cash equivalents at end of period $ 65,729 $ 56,318 Sales Summary Three Months Ended March 2015 and 2014

(in millions, unaudited)

        % Change 2015 2014

AsReported

 

ConstantCurrency

Orthopedic Surgery $ 98.6 $ 105.9 -6.9%   -3.2% General Surgery 66.1 63.5 4.1% 5.8% Surgical Visualization   13.2   12.5 5.6% 9.6% $ 177.9 $ 181.9 -2.2% 0.8%   Single-use products $ 140.1 $ 146.4 -4.3% -1.4% Capital products   37.8   35.5 6.5% 9.9% $ 177.9 $ 181.9 -2.2% 0.8%

 

Reconciliation of Reported Net Earnings to Adjusted Earnings

Three Months Ended March 2015 and 2014(in thousands except per share amounts, unaudited)     2015 Gross Profit  

Selling &AdministrativeExpense

 

OperatingIncome

 

NetIncome

 

EffectiveTax Rate

 

DilutedEPS

As reported $ 92,282   $ 74,786   $ 10,954   $ 6,312   33.5%   $ 0.23 % of sales   51.9%         6.2%            

Restructuring costs1

  2,329     (6,180)     8,509     5,445   1.2%     0.19 Adjusted $ 94,611   $ 68,606   $ 19,463   $ 11,757   34.7%   $ 0.42 % of sales 53.2%     10.9%           2014 Gross Profit  

Selling &AdministrativeExpense

 

OperatingIncome

 

NetIncome

 

EffectiveTax Rate

 

DilutedEPS

As reported $ 102,582   $ 78,364   $ 17,308   $ 8,626   45.6%   $ 0.31 % of sales 56.4% 9.5% Restructuring costs1 948 (713) 1,661 1,063 -0.9% 0.04

Patent dispute and shareholder activism2

- (2,484) 2,484 1,590 -1.1% 0.06

New York State corporate tax reform3

  -     -     -     2,258   -11.3%     0.08 Adjusted $ 103,530   $ 75,167   $ 21,453   $ 13,537   32.3%   $ 0.49 % of sales 56.9% 11.8% 1   In 2014 and 2015, the Company continued its 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 legal and settlement costs associated with a patent infringement claim as well as shareholder activism related costs. 3 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. CONMED Corporation Reconciliation of Reported Net Income to EBITDA & Adjusted EBITDA Three Months Ended March 2015 and 2014 (in thousands, unaudited)   2015   2014 Net income $ 6,312 $ 8,626 Provision for income taxes 3,182 7,221 Interest expense 1,460 1,461 Depreciation 4,633 4,568 Amortization   5,390   6,154 EBITDA $ 20,977 $ 28,030   Stock based compensation 1,256 1,185 Restructuring costs 8,509 1,661 Patent dispute and shareholder activism   -   2,484 Adjusted EBITDA $ 30,742 $ 33,360     EBITDA Margin EBITDA 11.8% 15.4% Adjusted EBITDA 17.3% 18.3%

CONMED CorporationLuke PomilioChief Financial Officer315-624-3202LukePomilio@conmed.com