CONMED Corporation (Nasdaq: CNMD) today announced
financial results for the third quarter ended September 30,
2015.
Third Quarter 2015 Highlights
- 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,
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 Nine Months Ended September 30,
September 30, 2015 2014 2015
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 sales 55.3 % 55.1
% 52.9 % 55.0 % Selling and administrative expense 72,056 87,055
220,423 243,653 Research and development 6,652
6,910 20,695 20,674
Income from operations 14,838
2,449 38,208 35,697 % of
sales 8.8 % 1.4 % 7.2 % 6.5 % Interest expense 1,504
1,540 4,453 4,572
Income before income taxes 13,334 909 33,755 31,125
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 shares 27,701
27,454 27,636 27,354 Diluted shares 27,898 27,688 27,853 27,777
Consolidated Condensed Balance Sheets (in thousands,
unaudited)
September December
2015 2014 Assets: Cash and cash equivalents $
65,326 $ 66,332 Accounts receivable, net 124,697 129,287
Inventories 161,555 148,149 Other current assets 32,116
37,382
Total Current Assets 383,694 381,150 Property,
plant and equipment, net 130,717 133,429 Goodwill 260,755 256,232
Other intangible assets, net 308,059 316,440 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
maturities 260,545 240,201 Other liabilities 144,421 160,739
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
amortization 32,308 34,020 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
debt 21,000 33,000 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
AsReported
ConstantCurrency
2015 2014
AsReported
ConstantCurrency
Orthopedic Surgery $ 89.4 $ 92.8 -3.6 % 1.4 % $ 284.8 $
301.1 -5.4 % -1.0 % General Surgery 66.1 69.7 -5.2 % -3.2 %
203.3 203.9 -0.3 % 1.5 % Surgical Visualization 13.7
12.5 9.6 % 13.8 % 40.1 40.1 0.1 % 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
32.6 5.2 % 9.6 % 107.8 106.1 1.6 % 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
&AdministrativeExpense
OperatingIncome
NetIncome
EffectiveTax Rate
DilutedEPS
As reported $ 93,546 $ 72,056 $
14,838 $ 8,873 33.5 % $ 0.32 % of sales
55.3 % 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
sales 56.1 % 10.3 %
Three Months Ended September 2014
Gross Profit
Selling
&AdministrativeExpense
OperatingIncome
NetIncome
EffectiveTax Rate
DilutedEPS
As reported $ 96,414 $ 87,055 $
2,449 $ 1,972 -116.9 % $ 0.07 % of
sales 55.1 % 1.4 % Restructuring costs (1) 1,448 (687 ) 2,135 1,366
1.8 % 0.05 Management restructuring costs (2) - (11,022 ) 11,022
7,054 141.2 % 0.25 Patent dispute and other matters (3) - (334 )
334 214 0.2 % 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 sales 55.9 % 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
&AdministrativeExpense
OperatingIncome
NetIncome
EffectiveTax Rate
DilutedEPS
As reported $ 279,326 $ 220,423
$ 38,208 $ 22,646 32.9 % $ 0.81 % of
sales 52.9 % 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
sales 53.9 % 10.1 %
Nine Months Ended September 2014
Gross Profit
Selling
&AdministrativeExpense
OperatingIncome
NetIncome
EffectiveTax Rate
DilutedEPS
As reported $ 300,024 $ 243,653
$ 35,697 $ 20,853 33.0 % $ 0.75 % of
sales 55.0 % 6.5 % Restructuring costs (1) 3,754 (1,855 ) 5,609
3,590 0.3 % 0.13 Management restructuring costs (2) - (11,022 )
11,022 7,055 0.8 % 0.26 Patent dispute and other matters (3) -
(3,677 ) 3,677 2,353 0.1 % 0.08 Shareholder activism (4) - (3,966 )
3,966 2,538 0.1 % 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
sales 55.7 % 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 Ended Nine Months Ended September 30,
September 30, 2015 2014 2015
2014 Net income $ 8,873 $ 1,972
$ 22,646 $ 20,853 Provision (benefit)
for income taxes 4,461 (1,063 ) 11,109 10,272 Interest expense
1,504 1,540 4,453 4,572 Depreciation 4,723 5,229 13,919 14,702
Amortization 6,354 6,341
17,943 18,880
EBITDA $ 25,915
$ 14,019 $ 70,070 $ 69,279
Stock based compensation 1,784 1,646 4,822 4,164
Restructuring costs 2,647 2,135 14,974 5,609 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
EBITDA 15.3 % 8.0 % 13.3 % 12.7 % Adjusted EBITDA 17.9 % 18.1 %
17.0 % 17.9 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151021006554/en/
CONMED CorporationLuke A. Pomilio, 315-624-3202Chief Financial
OfficerLukePomilio@conmed.com
CONMED (NASDAQ:CNMD)
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