CONMED Corporation (Nasdaq:CNMD) today announced
financial results for the first quarter ended March 31, 2017.
First Quarter 2017 Highlights
- Sales of $186.6 million increased 3.0%
as reported compared to the first quarter of 2016. On a constant
currency basis, sales increased 3.7%.
- International revenue grew 2.4% as
reported and 3.9% in constant currency, driven by continued growth
in General Surgery and Orthopedics.
- Domestic General Surgery sales grew
9.5%, contributing to 3.5% overall domestic revenue growth.
- Diluted net loss per share (GAAP) was
$0.16, compared to diluted net loss per share (GAAP) of $0.08 in
the first quarter of 2016.
- Adjusted diluted net earnings per
share(1) were $0.38 versus $0.42 in the prior-year period.
“We are encouraged by our first quarter results, which exhibited
continued strength across our key international markets, as well as
solid performance within our U.S. General Surgery business. While
our domestic Orthopedics business remains a challenge, the first
quarter represents improved sequential performance, and we remain
focused on returning this business to positive growth,” commented
Curt R. Hartman, CONMED’s President and Chief Executive
Officer.
Sales Analysis
For the quarter ended March 31, 2017, domestic sales, which
represented 53.3% of total revenue, increased 3.5%, as
year-over-year growth of 9.5% in General Surgery was partially
offset by a decline of 3.7% in Orthopedics. International sales,
which represented 46.7% of total revenue, increased 2.4% compared
to the first quarter of 2016 on a reported basis. Foreign currency
exchange rates, including the effects of the FX hedging program,
had a negative impact of $1.3 million on first quarter sales. In
constant currency, international sales increased 3.9% versus the
prior-year period.
Earnings Analysis
For the quarter ended March 31, 2017, reported net loss totaled
$4.5 million, compared to a reported net loss of $2.3 million a
year ago. Reported diluted net loss per share was $0.16 in the
quarter, compared to a reported diluted net loss per share of $0.08
in the prior-year period. Reported net loss for 2017 includes
litigation, business acquisition, and restructuring costs, and
reported net loss for 2016 includes business acquisition,
restructuring, and debt refinancing costs. The increase in reported
net loss resulted primarily from the $12.2 million Lexion case jury
verdict against the Company in 2017, which was partially offset by
lower acquisition related costs when compared to the prior period.
The effect of each of these items on reported net loss and reported
diluted net loss per share appears in the reconciliation of GAAP to
non-GAAP measures below.
The Company excludes the after-tax costs of special items
including litigation, acquisitions, restructurings, gains on the
sale of assets, debt refinancings, as well as amortization of
intangible assets, net of tax, from its adjusted diluted net
earnings per share. Excluding the impact of these items, adjusted
net earnings(2) of $10.6 million decreased 8.7% year over year and
adjusted diluted net earnings per share(1) of $0.38 decreased 9.5%
year over year. The decrease in adjusted net earnings resulted
primarily from the unfavorable impact of foreign exchange rates,
partially offset by higher sales growth.
2017 Outlook
There is no change to CONMED’s previously issued financial
guidance. The Company continues to expect 2017 constant currency
sales growth in the range of 1% to 3%. Based on exchange rates as
of April 21, 2017, the negative impact to 2017 sales from foreign
exchange is still anticipated to be approximately 0.5%.
In addition, the Company continues to expect adjusted diluted
net earnings per share in the range of $1.85 to $1.95, which
includes an estimated negative impact from foreign exchange based
on exchange rates as of April 21, 2017. The adjusted diluted net
earnings per share estimates for 2017 exclude the cost of special
items including acquisition costs, litigation costs, and
restructuring costs, which are now estimated in the range of $16.5
to $18.5 million, net of tax, and amortization of intangible
assets, which are still estimated in the range of $12 to $14
million, net of tax.
Supplemental Financial Disclosures
(1) A reconciliation of reported diluted net loss per share to
adjusted diluted net earnings per share, a non-GAAP financial
measure, appears below.
(2) A reconciliation of reported net loss to adjusted net
earnings, a non-GAAP financial measure, appears below.
Conference Call
The Company’s management will host a conference call today at
4:30 p.m. ET to discuss its first quarter 2017 results.
To participate in the conference call, dial 844-889-7792
(domestic) or 661-378-9936 (international) and enter the passcode
4521460.
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 7:30 p.m. ET
on Wednesday, April 26, 2017, until 7:30 p.m. ET on Wednesday, May
10, 2017. To hear this recording, dial 855-859-2056 (domestic) or
404-537-3406 (international) and enter the passcode 4521460.
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. CONMED has a direct selling
presence in 17 countries, and international sales constitute
approximately 50% of the Company’s total sales. Headquartered in
Utica, New York, the Company employs approximately 3,300 people.
For more information, visit www.conmed.com.
Forward-Looking Statements
This press release and today’s conference call may contain
forward-looking statements based on certain assumptions and
contingencies that 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. For example, in addition to general industry
and economic conditions, factors that could cause actual results to
differ materially from those in the forward-looking statements may
include, but are not limited to, the risk factors discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2016. Any and all 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 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.
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 income tax expense; 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 its financial results and assessing
its prospects for future performance. Management believes
percentage sales growth in constant currency and the other adjusted
measures described above are important indicators of its operations
because they exclude items that may not be indicative of, or are
unrelated to, its core operating results and provide a baseline for
analyzing trends in the Company’s underlying business. 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 its 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 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, income tax expense, effective income tax rate,
net earnings (loss) and diluted net earnings (loss) per share, the
most directly comparable GAAP financial measures. These non-GAAP
financial measures are an additional way of viewing aspects of the
Company’s operations that, when viewed with GAAP results and the
reconciliations to corresponding GAAP financial measures below,
provide a more complete understanding of the business. The Company
strongly encourages investors and shareholders to review its
financial statements and publicly-filed reports in their entirety
and not to rely on any single financial measure.
Consolidated Condensed Statements of
Loss
(in thousands, except per share amounts,
unaudited)
Three Months Ended
March 31,
2017 2016 Net sales $
186,567 $ 181,201 Cost of sales
86,682 83,461 Gross
profit 99,885
97,740 % of sales 53.5 % 53.9 % Selling and administrative
expense 94,761 85,943 Research & development expense
7,618 8,258 Income
(loss) from operations (2,494 )
3,539 % of sales -1.3 % 2.0 % Other expense - 2,942
Interest expense 4,119
3,830 Loss before income taxes (6,613 ) (3,233 )
Benefit from income taxes (2,068 )
(968 ) Net loss $ (4,545 ) $
(2,265 ) Basic EPS $ (0.16 ) $ (0.08 ) Diluted EPS
(0.16 ) (0.08 ) Basic shares 27,867 27,721 Diluted shares
27,867 27,721
Consolidated Condensed Balance
Sheets
(in thousands, unaudited)
March December
2017
2016
Assets: Cash and cash equivalents $ 34,660 $
27,428 Accounts receivable, net 139,855 148,244 Inventories 140,083
135,869 Other current assets 18,905
18,971
Total Current Assets
333,503 330,512 Property, plant and
equipment, net 119,742 122,029 Goodwill 398,154 397,664 Other
intangible assets, net 414,766 419,549 Other assets
61,860 59,229
Total Assets $
1,328,025 $ 1,328,983
Liabilities and Shareholders' Equity: Current liabilities $
125,445 $ 113,952 Long-term debt, excluding current maturities
487,045 488,288 Other liabilities 140,013 146,167 Shareholders'
equity 575,522 580,576
Total Liabilities and Shareholders' Equity $
1,328,025 $ 1,328,983
Consolidated Condensed Statements of
Cash Flows
Three Months Ended March 31, 2017 and
2016
(in thousands, unaudited)
2017 2016 Operating
Activities Net loss $ (4,545 ) $ (2,265 ) Depreciation and
amortization 13,924 13,258 Stock-based compensation expense 1,955
2,489 Deferred income taxes (4,266 ) (2,942 ) Changes in operating
assets and liabilities and other, net 8,230
(27,098 )
Net cash provided by (used in) operating
activities 15,298 (16,558 )
Investing Activities Payments related to business
acquisitions - (256,424 ) Purchases of property, plant and
equipment (2,584 ) (2,789 )
Net cash used in
investing activities (2,584 ) (259,213 )
Financing Activities Payments on term loan (2,188 ) (2,188 )
Proceeds from term loan - 175,000 Proceeds from revolving line of
credit 38,000 137,000 Payments on revolving line of credit (36,000
) (58,995 ) Payments related to debt issue costs - (5,556 ) Payment
related to distribution agreement - (16,667 ) Dividend payments on
common stock (5,566 ) (5,542 ) Other, net (512 ) (612
)
Net cash provided by (used in) financing activities (6,266
) 222,440 Effect of exchange rate changes on cash and cash
equivalents 784 721 Net increase
(decrease) in cash and cash equivalents 7,232 (52,610 ) Cash and
cash equivalents at beginning of period 27,428
72,504
Cash and cash equivalents at end of period $
34,660 $ 19,894
Sales Summary
(in millions, unaudited)
Three Months Ended March 31,
% Change Domestic
International
As
Constant
As
As
Constant
2017 2016
Reported
Currency
Reported
Reported
Currency
Orthopedic Surgery $ 103.8 $ 105.3 -1.4% -0.7% -3.7% 0.2% 1.5%
General Surgery 82.8 75.9 9.1% 9.7% 9.5% 8.0%
10.1% $ 186.6 $ 181.2 3.0% 3.7% 3.5% 2.4% 3.9%
Single-use Products $ 149.8 $ 144.9 3.3% 4.0% 3.6% 3.0% 4.5%
Capital Products 36.8 36.3 1.5% 2.4% 2.9% 0.1%
1.9% $ 186.6 $ 181.2 3.0% 3.7% 3.5% 2.4% 3.9%
Domestic $ 99.4 $ 96.1 3.5% 3.5% International 87.2
85.1 2.4% 3.9% $ 186.6 $ 181.2 3.0% 3.7%
Reconciliation of Reported Net Loss to
Adjusted Net Earnings
(in thousands, except per share amounts,
unaudited)
Three Months Ended March 31, 2017
Selling &
Operating
Tax
Effective
Net
Gross
Administrative
Income
Other
Expense
Tax
Income
Diluted
Profit
Expense
(Loss)
Expense
(Benefit)
Rate
(Loss)
EPS
As reported $ 99,885 $ 94,761 $
(2,494 ) $ - $ (2,068 ) 31.3 % $
(4,545 ) $ (0.16 ) % of sales 53.5 % 50.8 % -1.3 %
Restructuring costs (1) 1,169 (1,322 ) 2,491 - 782 1,709 0.06
Business acquisition costs (2) - (1,488 ) 1,488 - 467 1,021 0.04
Patent settlement costs and other(3)
- (1,048 ) 1,048 - 329 719 0.02
SurgiQuest litigation verdict (4)
- (12,200 ) 12,200
- 3,831
8,369 0.30 $ 101,054
$ 78,703 $ 14,733 $ -
$ 3,341 31.5 % $ 7,273 $ 0.26 % of
sales 54.2 % 42.2 % 7.9 % Amortization of intangible assets $ 1,500
$ (3,650 ) $ 5,150 $ - $ 1,821 3,329
0.12
Adjusted earnings $ 10,602 $ 0.38
Three Months Ended March 31, 2016
Selling &
Tax
Effective
Net
Gross
Administrative
Operating
Other
Expense
Tax
Income
Diluted
Profit
Expense
Income
Expense
(Benefit)
Rate
(Loss)
EPS
As reported $ 97,740 $ 85,943 $
3,539 $ 2,942 $ (968 ) 29.9 %
$ (2,265 ) $ (0.08 ) % of sales 53.9 % 47.4 % 2.0 %
Restructuring costs (1) 864 (2,791 ) 3,655 - 1,156 2,499 0.09
Business acquisition costs (2) - (9,045 ) 9,045 - 2,872 6,173 0.22
Debt refinancing costs (5)
- - -
(2,942 ) 930
2,012 0.07 $ 98,604
$ 74,107 $ 16,239 $ -
$ 3,990 32.2 % $ 8,419 $ 0.30 % of
sales 54.4 % 40.9 % 9.0 % Amortization of intangible assets $ 1,500
$ (3,496 ) $ 4,996 $ - $ 1,799 3,197
0.12
Adjusted earnings $ 11,616 $ 0.42
(1) In 2017 and 2016, the Company restructured certain
operations, sales, marketing and administrative functions and
incurred severance and other related costs. (2) In 2017 and 2016,
the Company incurred investment banking fees, consulting fees,
legal fees, and integration related costs associated with the
acquisition of SurgiQuest, Inc. (3) In 2017, the Company incurred
patent settlement costs and other legal related fees. (4) In 2017,
the Company incurred litigation fees as a result of the unfavorable
verdict in the Lexion vs. SurgiQuest, Inc. case. (5) In 2016, in
conjunction with the acquisition of SurgiQuest, Inc., the Company
refinanced its existing credit facility and incurred one-time fees
associated with a back stop arrangement, as well as costs
associated with the early extinguishment of debt.
Reconciliation of Reported Net Loss to
EBITDA & Adjusted EBITDA
(in thousands, unaudited)
2017 2016 Net loss $ (4,545 ) $
(2,265 ) Benefit from income taxes (2,068 ) (968 ) Interest expense
4,119 3,830 Depreciation 4,866 4,986 Amortization 8,798
8,012 EBITDA $ 11,170 $ 13,595
Stock based compensation 1,955 1,769 Restructuring costs
2,491 3,655 Business acquisition costs 1,488 9,045 Patent
settlement costs and other 1,048 - SurgiQuest litigation verdict
12,200 - Debt refinancing costs - 2,942
Adjusted EBITDA $ 30,352 $ 31,006
EBITDA Margin EBITDA 6.0 % 7.5 % Adjusted EBITDA 16.3 % 17.1
%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170426006455/en/
CONMED CorporationLuke A. Pomilio,
315-624-3202Chief Financial
OfficerLukePomilio@conmed.com
CONMED (NASDAQ:CNMD)
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