SOURCE: CONMED Corporation
Sales Increase 10.0%; GAAP EPS Quintuples; Non-GAAP EPS Grows 88%; Conference Call to Be Held at 10:00 a.m. ET Today
UTICA, NY–(Marketwire – July 29, 2010) – CONMED Corporation (
financial results for the second quarter of 2010.
Sales for the second quarter ended June 30, 2010 were $181.1 million
compared to $164.6 million in the same quarter of 2009, an increase of 10
percent. GAAP diluted earnings per share were $0.25 compared to $0.05 in
the second quarter of 2009. Non-GAAP diluted earnings per share equaled
$0.32 compared to non-GAAP diluted earnings per share of $0.17 in the 2009
second quarter. As discussed below under “Use of Non-GAAP Financial
Measures,” the Company presents various non-GAAP financial measures in this
release. Investors should consider non-GAAP measures in addition to, and
not as a substitute for, or superior to, financial performance measures
prepared in accordance with GAAP. Please refer to the attached
reconciliation between GAAP and non-GAAP financial measures.
For the six months ended June 30, 2010, sales were $357.5 million compared
to $328.6 million in the first six months of 2009, an increase of 8.8
percent. GAAP diluted earnings per share were $0.50 for year-to-date June
2010 compared to $0.20 in the same period of 2009. Non-GAAP diluted
earnings per share were $0.60 for the 2010 six-month period compared to
$0.36 in 2009.
“The results of the 2010 second quarter improved upon the positive
performance of the first quarter of the year,” commented Mr. Joseph J.
Corasanti, President and Chief Executive Officer. “Single-use product
sales, once again, produced solid year-over-year growth, while capital
product sales experienced significant growth, 18.9 percent in constant
currency, over the second quarter of last year. This overall sales growth,
together with the continued realization of cost efficiencies from ongoing
restructuring initiatives, resulted in substantially improved earnings
compared to a year ago.”
International sales in the second quarter of 2010 were $87.9 million,
representing 48.5% of total sales, and $172.9 million for the six-months
ended June 30, 2010. Favorable currency exchange rates in 2010 led to an
increase in sales of $3.2 million compared to exchange rates in the second
quarter of 2009, and $11.1 million for the six-month period of 2010.
Cash provided from operating activities outpaced net income in the second
quarter of 2010 and amounted to $18.5 million, or 10.2 percent of sales.
The cash was used to repay debt and repurchase the Company’s common stock,
as further explained below.
Outlook
Mr. Corasanti added, “We believe that the results of the second quarter of
2010, as well as what we are hearing from our sales force, indicates that
our customers are returning to historical purchasing trends as compared to
the instability experienced in 2009 due to the global economic crisis.
Consequently, we expect that sales in the third quarter of 2010 will
experience a normal seasonal sequential reduction from the second quarter
2010 and that the sales of the fourth quarter of 2010 should be the
strongest of the year, as we’ve seen historically. For the third quarter
of 2010, we expect sales to approximate $174 – $179 million with non-GAAP
diluted earnings per share of $0.25 – $0.30. For the full year of 2010, we
are reiterating our previously communicated guidance, with sales estimated
to be $715 – $725 million and non-GAAP diluted earnings per share of $1.20
– $1.30.”
The sales and earnings forecasts have been developed using July 2010
currency exchange rates and take into account the currency hedges entered
into by the Company. We estimate that 80% of the currency exposure is
hedged for the third quarter 2010 and 60% hedged for the fourth quarter.
The non-GAAP estimates for the year and the third quarter exclude the
additional non-cash interest expense required by recently issued Financial
Accounting Standards Board (“FASB”) guidance, the loss on repurchase and
retirement of our Convertible Notes and all of the manufacturing and
administrative restructuring costs expected to be incurred in 2010.
Restructuring costs
During the second quarter of 2010, the Company consolidated various
administrative functions in its CONMED Linvatec division and continued the
transfer of additional product lines to its Mexican manufacturing facility.
Expenses associated with these activities, including severance and
relocation costs, amounted to $2.0 million in the second quarter of 2010
and $2.5 million for the six months ended June 30, 2010. These charges are
included in the GAAP earnings per share set forth above and are excluded
from the non-GAAP results. CONMED expects additional restructuring charges
for the remainder of 2010 to approximate $1.5 million; these costs are
excluded from non-GAAP earnings estimates.
Stock and bond repurchase
During the second quarter of 2010, utilizing the Company’s current cash
flow, CONMED repurchased approximately 475,000 shares of its common stock,
amounting to $9.5 million, and also repurchased and retired $3.0 million
face value of its 2.5 percent Convertible Notes at a discount of
approximately 3 percent. The remaining availability under the Board of
Directors’ authorization for stock repurchases currently amounts to $37.3
million, and additional shares under this authority may be repurchased
using the Company’s cash flow.
Convertible note interest expense
As previously disclosed, and in accordance with guidance recently issued by
the FASB, the Company is now required to record non-cash interest expense
related to its convertible notes to bring the effective interest rate to a
level approximating that of a non-convertible note of similar size and
tenor. In the second quarters of 2010 and 2009, CONMED recorded additional
non-cash pre-tax interest charges of $1.1 million and $1.0 million,
respectively. For the first six-months of 2010 and 2009, such charges
amounted to $2.1 million in each period. These charges are included in the
GAAP earnings per share set forth above, and excluded from the non-GAAP
amounts.
Accounts receivable financing — change in accounting
As previously disclosed, recently issued FASB guidance requires that
CONMED’s accounting for its accounts receivable financing facility be
changed as of January 1, 2010. Previously, the sale of accounts receivable
to a bank removed the sold receivables from the Company’s balance sheet.
In 2010 and future years, the new guidance requires that the receivables
remain on CONMED’s balance sheet and that the financing transaction be
recorded as a liability. Usage of the facility amounted to $31.0 million
at June 30, 2010. Accordingly, as of June 30, 2010, compared to the
previous off-balance sheet accounting, accounts receivable is $31.0 million
greater because the full amount of receivables remains on the balance
sheet, and the current portion of long-term debt includes the $31.0 million
usage of the receivable facility. Further, cash provided by operating
activities on the June 30, 2010 statement of cash flows is reduced by $29.0
million as a result of the change in accounting. See the attached
reconciliation of cash flow provided by operating activities. This
accounting change had no effect on the consolidated statement of income.
Use of Non-GAAP Financial Measures
Management has disclosed financial measurements in this press announcement
that present financial information that is not in accordance with Generally
Accepted Accounting Principles (“GAAP”). 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. Non-GAAP
net income and non-GAAP 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 non-GAAP net income and non-GAAP earnings per
share because management believes that in order to properly understand the
Company’s short and long-term financial trends, the impact of unusual items
should be eliminated from on-going operating activities. These adjustments
for unusual items are derived from facts and circumstances that vary in
frequency and impact on the Company’s results of operations. Management
uses non-GAAP net income and non-GAAP 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.
Non-GAAP 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 non-GAAP
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 2010 conference call live over
the Internet at 10:00 a.m. Eastern Time on Thursday, July 29, 2010. This
webcast can be accessed from CONMED’s web site at www.conmed.com. Replays
of the call will be made available through August 6, 2010.
CONMED Profile
CONMED is a medical technology company with an emphasis on surgical devices
and equipment for minimally invasive procedures and patient monitoring.
The Company’s products serve the clinical areas of arthroscopy, powered
surgical instruments, electrosurgery, cardiac monitoring disposables,
endosurgery and endoscopic technologies. They 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 3,300 employees distribute its products
worldwide from several manufacturing locations.
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, 2009; (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; and/or (vii) the Company’s ability to devise and execute
strategies to respond to market conditions.
CONMED CORPORATION
Second Quarter Sales Summary
Three Months Ended June 30,
------------------------------------------------------
Constant
Currency
2009 2010 Growth Growth
------------- ------------- ------------ ------------
(in millions)
Arthroscopy
Single-use $ 46.0 $ 54.4 18.3% 15.4%
Capital 15.6 20.5 31.4% 28.8%
------------- ------------- ------------ ------------
61.6 74.9 21.6% 18.8%
------------- ------------- ------------ ------------
Powered Surgical
Instruments
Single-use 19.1 19.1 0.0% -2.6%
Capital 14.4 16.6 15.3% 13.2%
------------- ------------- ------------ ------------
33.5 35.7 6.6% 4.2%
------------- ------------- ------------ ------------
Electrosurgery
Single-use 17.3 18.2 5.2% 4.0%
Capital 5.4 5.8 7.4% 5.6%
------------- ------------- ------------ ------------
22.7 24.0 5.7% 4.4%
------------- ------------- ------------ ------------
Endoscopic
Technologies
Single-use 12.5 11.9 -4.8% -6.4%
------------- ------------- ------------ ------------
Endosurgery
Single-use and
reposable 17.3 17.1 -1.2% -1.7%
------------- ------------- ------------ ------------
Patient Care
Single-use 17.0 17.5 2.9% 2.4%
------------- ------------- ------------ ------------
Total
Single-use and
reposable 129.2 138.2 7.0% 5.1%
Capital 35.4 42.9 21.2% 18.9%
------------- ------------- ------------ ------------
$ 164.6 $ 181.1 10.0% 8.1%
============= ============= ============ ============
CONMED CORPORATION
Six-Month Sales Summary
Six Months Ended June 30,
------------------------------------------------------
Constant
Currency
2009 2010 Growth Growth
------------- ------------- ------------ ------------
(in millions)
Arthroscopy
Single-use $ 92.8 $ 109.3 17.8% 13.0%
Capital 32.6 37.8 16.0% 12.6%
------------- ------------- ------------ ------------
125.4 147.1 17.3% 12.9%
------------- ------------- ------------ ------------
Powered Surgical
Instruments
Single-use 37.2 39.3 5.6% 0.0%
Capital 29.1 31.4 7.9% 4.1%
------------- ------------- ------------ ------------
66.3 70.7 6.6% 1.8%
------------- ------------- ------------ ------------
Electrosurgery
Single-use 34.3 35.3 2.9% 0.9%
Capital 10.8 11.8 9.3% 6.5%
------------- ------------- ------------ ------------
45.1 47.1 4.4% 2.2%
------------- ------------- ------------ ------------
Endoscopic
Technologies
Single-use 24.5 23.7 -3.3% -5.7%
------------- ------------- ------------ ------------
Endosurgery
Single-use and
reposable 31.8 34.2 7.5% 5.7%
------------- ------------- ------------ ------------
Patient Care
Single-use 35.5 34.7 -2.3% -3.1%
------------- ------------- ------------ ------------
Total
Single-use and
reposable 256.1 276.5 8.0% 4.6%
Capital 72.5 81.0 11.7% 8.4%
------------- ------------- ------------ ------------
$ 328.6 $ 357.5 8.8% 5.4%
============= ============= ============ ============
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2009 2010 2009 2010
-------- -------- -------- --------
Net sales $164,569 $181,086 $328,631 $357,451
Cost of sales 83,559 86,411 168,343 170,414
Cost of sales, other
- Note A 3,698 992 6,624 1,559
-------- -------- -------- --------
Gross profit 77,312 93,683 153,664 185,478
-------- -------- -------- --------
Selling and
administrative 64,147 71,494 126,000 142,046
Research and
development 7,396 6,441 15,885 14,123
Other expense (income)
- Note B 734 970 (602) 970
-------- -------- -------- --------
72,277 78,905 141,283 157,139
-------- -------- -------- --------
Income from
operations 5,035 14,778 12,381 28,339
Gain (loss) on early
extinguishment of debt - (79) 1,083 (79)
Amortization of debt
discount 1,013 1,056 2,058 2,108
Interest expense 1,767 1,771 3,255 3,520
-------- -------- -------- --------
Income before income
taxes 2,255 11,872 8,151 22,632
Provision for income
taxes 846 4,566 2,257 8,007
-------- -------- -------- --------
Net income $ 1,409 $ 7,306 $ 5,894 $ 14,625
======== ======== ======== ========
Per share data:
Net Income
Basic $ .05 $ .25 $ .20 $ .50
Diluted .05 .25 .20 .50
Weighted average
common shares
Basic 29,056 29,100 29,043 29,125
Diluted 29,082 29,295 29,071 29,342
Note A — Included in cost of sales, other in the three and six months
ended June 30, 2009 are $3.7 million and $6.6 million, respectively, in
costs related to the startup of a new manufacturing facility in Chihuahua,
Mexico and the consolidation of two of the Company’s three Utica, New York
area manufacturing facilities. Included in cost of sales, other in the
three and six months ended June 30, 2010 are $1.0 million and $1.6 million,
respectively, related to the moving of additional product lines to the
manufacturing facility in Chihuahua, Mexico.
Note B — Included in other expense (income) in the three months ended June
30, 2009 is $0.7 million related to the consolidation of the Company’s
distribution activities. Included in other expense (income) in the six
months ended June 30, 2009 is a non-cash net pre-tax pension gain of $1.9
million and $1.3 million in costs related to the consolidation of the
Company’s distribution activities. Included in other expense (income) in
the three and six months ended June 30, 2010 is $1.0 million related to the
consolidation of various administrative functions in our orthopedic
division.
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
December 31, June 30,
2009 2010
---------- ----------
Current assets:
Cash and cash equivalents $ 10,098 $ 8,490
Accounts receivable, net 126,162 142,801
Inventories 164,275 170,816
Deferred income taxes 14,782 13,764
Other current assets 10,293 13,125
---------- ----------
Total current assets 325,610 348,996
Property, plant and equipment, net 143,502 142,070
Deferred income taxes 1,953 2,002
Goodwill 290,505 295,111
Other intangible assets, net 190,849 192,971
Other assets 5,994 5,595
---------- ----------
Total assets $ 958,413 $ 986,745
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,174 $ 33,208
Other current liabilities 76,933 73,524
---------- ----------
Total current liabilities 79,107 106,732
Long-term debt 182,195 170,366
Deferred income taxes 97,916 107,091
Other long-term liabilities 22,680 24,164
---------- ----------
Total liabilities 381,898 408,353
---------- ----------
Shareholders' equity:
Capital accounts 263,550 256,911
Retained earnings 325,370 339,362
Accumulated other comprehensive
income (loss) (12,405) (17,881)
---------- ----------
Total shareholders' equity 576,515 578,392
---------- ----------
Total liabilities and shareholders'
equity $ 958,413 $ 986,745
========== ==========
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
June 30,
------------------------
2009 2010
----------- -----------
Cash flows from operating activities:
Net income $ 5,894 $ 14,625
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 19,439 20,581
Stock-based compensation expense 2,090 2,082
Deferred income taxes 3,129 7,239
(Gain) loss on early extinguishment of debt (1,083) 79
Sale of accounts receivable to
(collections for) purchaser (3,000) (29,000)
Increase (decrease) in cash flows from
changes in assets and liabilities:
Accounts receivable 7,999 8,718
Inventories (4,319) (16,167)
Accounts payable (7,774) 6,100
Income taxes payable (1,901) (125)
Accrued compensation and benefits (2,996) 90
Other assets (830) (2,884)
Other liabilities (2,661) (5,815)
----------- -----------
Net cash provided by operating activities 13,987 5,523
----------- -----------
Cash flows from investing activities:
Purchases of property, plant, and
equipment (12,032) (7,163)
Payments related to business acquisitions (188) (5,157)
----------- -----------
Net cash used in investing activities (12,220) (12,320)
----------- -----------
Cash flows from financing activities:
Payments on debt (9,519) (14,012)
Proceeds of debt 9,000 -
Proceeds from secured borrowings, net - 31,000
Repurchase of treasury stock - (9,471)
Other, net (1,341) (1,279)
----------- -----------
Net cash provided by (used in) financing
activities (1,860) 6,238
----------- -----------
Effect of exchange rate change on cash and cash
equivalents (1,039) (1,049)
----------- -----------
Net decrease in cash and cash equivalents (1,132) (1,608)
Cash and cash equivalents at beginning of period 11,811 10,098
----------- -----------
Cash and cash equivalents at end of period $ 10,679 $ 8,490
=========== ===========
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NON-GAAP NET INCOME
BEFORE UNUSUAL ITEMS AND AMORTIZATION OF DEBT DISCOUNT
Three Months Ended June 30, 2009 and 2010
(In thousands except per share amounts)
(unaudited)
2009 2010
-------- --------
Reported net income $ 1,409 $ 7,306
-------- --------
New plant / facility consolidation costs included
in cost of sales 3,698 992
-------- --------
CONMED Linvatec division administrative consolidation - 970
Facility consolidation costs included in other expense
(income) 734 -
-------- --------
Total other expense (income) 734 970
-------- --------
Loss on early extinguishment of debt - 79
-------- --------
Amortization of debt discount 1,013 1,056
-------- --------
Unusual expense (income) before income taxes 5,445 3,097
Provision (benefit) for income taxes on unusual
expenses (1,970) (1,125)
-------- --------
Net income before unusual items $ 4,884 $ 9,278
======== ========
Per share data:
Reported net income
Basic $ 0.05 $ 0.25
Diluted 0.05 0.25
Net income before unusual items
Basic $ 0.17 $ 0.32
Diluted 0.17 0.32
Management has provided the above reconciliation of net income before
unusual items 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. We
have included the amortization of debt discount in our analysis in order to
facilitate comparison with the non-GAAP earnings guidance provided in the
“Outlook” section of this and previous releases which exclude such expense.
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NON-GAAP NET INCOME
BEFORE UNUSUAL ITEMS AND AMORTIZATION OF DEBT DISCOUNT
Six Months Ended June 30, 2009 and 2010
(In thousands except per share amounts)
(unaudited)
2009 2010
-------- --------
Reported net income $ 5,894 $ 14,625
-------- --------
New plant / facility consolidation costs included
in cost of sales 6,624 1,559
-------- --------
CONMED Linvatec division administrative consolidation - 970
Pension gain, net (1,882) -
Facility consolidation costs included in other
expense (income) 1,280 -
-------- --------
Total other expense (income) (602) 970
-------- --------
(Gain) loss on early extinguishment of debt (1,083) 79
-------- --------
Amortization of debt discount 2,058 2,108
-------- --------
Unusual expense (income) before income taxes 6,997 4,716
Provision (benefit) for income taxes on unusual
expenses (2,538) (1,718)
-------- --------
Net income before unusual items $ 10,353 $ 17,623
======== ========
Per share data:
Reported net income
Basic $ 0.20 $ 0.50
Diluted 0.20 0.50
Net income before unusual items
Basic $ 0.36 $ 0.61
Diluted 0.36 0.60
Management has provided the above reconciliation of net income before
unusual items 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. We
have included the amortization of debt discount in our analysis in order to
facilitate comparison with the non-GAAP earnings guidance provided in the
“Outlook” section of this and previous releases which exclude such expense.
CONMED CORPORATION
IMPACT TO STATEMENT OF CASH FLOWS RELATED TO ACCOUNTING
CHANGE APPLIED PROSPECTIVELY
Six Months Ended June 30, 2009 and 2010
(In thousands)
(unaudited)
2009 2010
-------- --------
Reported cash flows from operating activities $ 13,987 $ 5,523
-------- --------
Sale of accounts receivable accounting change - 29,000
-------- --------
Adjusted cash flows from operating activities $ 13,987 $ 34,523
======== ========
Reported cash flows provided by (used in) financing
activities $ (1,860) $ 6,238
-------- --------
Proceeds from secured borrowings, net - (31,000)
-------- --------
Adjusted cash flows provided by (used in) financing
activities $ (1,860) $(24,762)
======== ========
Management has provided the above reconciliation of cash flow from
operations and cash flow from financing activities before the accounting
change as an additional measure that investors can use to compare operating
and financing cash flows between reporting periods. Management believes
these reconciliations provide a useful presentation of cash flows as
discussed in the section “Use of Non-GAAP Financial Measures” above.
CONMED Corporation
Robert Shallish
Chief Financial Officer
315-624-3206
FD
Investors:
Brian Ritchie
212-850-5600