CNMD CONMED Corporation

CONMED Corporation (Nasdaq:CNMD) today announced financial results for the third quarter ended September 30, 2017.

Third Quarter 2017 Highlights

• Sales of $190.1 million increased 2.9% as reported and 2.4% in constant currency as compared to the third quarter of 2016.
• International revenue increased 7.3% as reported and 6.2% in constant currency, driven by continued growth in General Surgery and Orthopedics.
• Diluted net earnings per share (GAAP) were $0.26 in the third quarter of 2017 and 2016.
• Adjusted diluted net earnings per share(1) were $0.42 versus $0.41 in the prior-year period.
• The Company increases its constant currency sales growth guidance and tightens its adjusted diluted net earnings per share guidance range.

“We are very pleased with our continued top-line progress, especially when considering the impact of one less selling day and the issues associated with two hurricanes. International performance remained strong, posting a sixth consecutive quarter of growth across both General Surgery and Orthopedics. Conversely, Domestic Orthopedics reported results are still lagging, but signs point to an improving trend, and we are encouraged by the underlying efforts to return this business to positive growth in 2018,” commented Curt R. Hartman, CONMED’s President and Chief Executive Officer.

Sales Analysis

For the quarter ended September 30, 2017, domestic sales, which represented 51.7% of total revenue, decreased 0.9%, as year-over-year growth of 4.8% in General Surgery was offset by a decline of 8.8% in Orthopedics. The Company’s third quarter domestic sales for 2017 were negatively impacted by approximately $2 million related to the recent hurricanes, largely attributable to deferred procedures. International sales, which represented 48.3% of total revenue, increased 7.3% compared to the third quarter of 2016 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a favorable impact of $0.9 million on third quarter sales. In constant currency, international sales increased 6.2% versus the prior-year period.

Earnings Analysis

For the quarter ended September 30, 2017, reported net income totaled $7.2 million, compared to reported net income of $7.3 million a year ago. Reported diluted net earnings per share were $0.26 in the quarter and prior-year period. Reported net income for 2017 and 2016 includes business acquisition costs, restructuring costs, and legal costs. Reported net income for 2016 also includes the gain on the sale of a facility. The effect of each of these items on reported net income and reported diluted net earnings per share appears in the reconciliation of GAAP to non-GAAP measures below.

The Company excludes the after-tax costs of special items including acquisitions, restructurings, legal matters, 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 $11.7 million increased 1.7% year over year, and adjusted diluted net earnings per share(1) of $0.42 increased 2.4% year over year. The increase in adjusted net earnings resulted primarily from the favorable impact of foreign exchange rates and higher sales.

2017 Outlook

Based upon year-to-date sales performance, the Company now expects 2017 constant currency sales growth in the range of 2.50% to 3.25%, an increase from the prior guidance of 2.0% to 3.0%. Based on exchange rates as of October 30, 2017, the impact to 2017 sales from foreign exchange is now anticipated to be minimal, as compared to the prior estimate of a 0.25% negative impact.

In addition, the Company now expects adjusted diluted net earnings per share in the range of $1.85 to $1.90, compared to the prior estimate of $1.85 to $1.95, based on exchange rates as of October 30, 2017. The adjusted diluted net earnings per share estimates for 2017 exclude the cost of special items including acquisition costs, restructuring costs, and legal matters, which are still estimated in the range of $16.5 million to $18.5 million, net of tax, and amortization of intangible assets, which are still estimated in the range of $12 million to $14 million, net of tax.

Supplemental Financial Disclosures

(1) A reconciliation of reported diluted net earnings per share to adjusted diluted net earnings per share, a non-GAAP financial measure, appears below.

(2) A reconciliation of reported net income 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 third quarter 2017 results.

To participate in the conference call, dial 844-889-7792 (domestic) or 661-378-9936 (international) and enter the passcode 96832092.

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 Thursday, November 2, 2017, until 6:30 p.m. ET on Thursday, November 16, 2017. To hear this recording, dial 855-859-2056 (domestic) or 404-537-3406 (international) and enter the passcode 96832092.

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 income 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 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 Income

(in thousands, except per share amounts, unaudited)

  Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016     Net sales $ 190,117 $ 184,792 $ 573,837 $ 559,426 Cost of sales   87,570       83,583     266,753       258,055   Gross profit   102,547       101,209     307,084       301,371   % of sales 53.9 % 54.8 % 53.5 % 53.9 % Selling and administrative expense 80,807 79,009 259,396 251,681 Research & development expense   8,270       8,353     23,929       24,620   Income from operations   13,470       13,847     23,759       25,070   % of sales 7.1 % 7.5 % 4.1 % 4.5 % Other expense - - - 2,942 Interest expense   4,806       3,861     13,323       11,448   Income before income taxes 8,664 9,986 10,436 10,680 Provision for income taxes   1,467       2,649     1,645       2,724   Net income $ 7,197     $ 7,337   $ 8,791     $ 7,956     Basic EPS $ 0.26 $ 0.26 $ 0.31 $ 0.29 Diluted EPS 0.26 0.26 0.31 0.28   Basic shares 27,924 27,818 27,915 27,785 Diluted shares 28,183 27,951 28,124 27,946           Consolidated Condensed Balance Sheets

(in thousands, unaudited)

  September December 2017 2016 Assets: Cash and cash equivalents $ 44,034 $ 27,428 Accounts receivable, net 146,736 148,244 Inventories 149,537 135,869 Other current assets   16,377   18,971 Total Current Assets 356,684 330,512 Property, plant and equipment, net 117,041 122,029 Goodwill 401,792 397,664 Other intangible assets, net 418,957 419,549 Other assets   66,713   59,229 Total Assets $ 1,361,187 $ 1,328,983   Liabilities and Shareholders' Equity: Current liabilities $ 139,323 $ 113,952 Long-term debt, excluding current maturities 494,789 488,288 Other liabilities 137,409 146,167 Shareholders' equity   589,666   580,576 Total Liabilities and Shareholders' Equity $ 1,361,187 $ 1,328,983           Consolidated Condensed Statements of Cash Flows  

Nine Months Ended September 30, 2017 and 2016

(in thousands, unaudited)

  2017 2016 Operating Activities Net income $ 8,791 $ 7,956 Depreciation and amortization 43,062 41,210 Stock-based compensation 6,340 6,505 Deferred income taxes (5,129 ) (3,977 ) Changes in operating assets and liabilities and other, net   (8,310 )   (25,506 ) Net cash provided by operating activities   44,754     26,188     Investing Activities Payments related to business and asset acquisitions, net of cash acquired (15,194 ) (256,450 ) Proceeds from sale of a facility - 5,178 Purchases of property, plant and equipment   (9,232 )   (10,436 ) Net cash used in investing activities   (24,426 )   (261,708 )   Financing Activities Payments on term loan (6,563 ) (6,564 ) Proceeds from term loan - 175,000 Payments on revolving line of credit (98,000 ) (130,346 ) Proceeds from revolving line of credit 115,000 192,000 Payments related to debt issuance costs - (5,556 ) Payment related to distribution agreement - (16,667 ) Dividends paid on common stock (16,722 ) (16,649 ) Other, net   (887 )   (1,349 ) Net cash provided by (used in) financing activities (7,172 ) 189,869   Effect of exchange rate changes on cash and cash equivalents   3,450     95   Net increase (decrease) in cash and cash equivalents 16,606 (45,556 ) Cash and cash equivalents at beginning of period   27,428     72,504   Cash and cash equivalents at end of period $ 44,034   $ 26,948         Sales Summary

(in millions, unaudited)

  Three Months Ended September 30,     % Change     Domestic   International   2017     2016

As Reported

 

Constant Currency

As Reported

 

As Reported

 

Constant Currency

Orthopedic Surgery $ 98.6 $ 99.4 -0.8 % -1.6 % -8.8 %   5.0 %   3.6 % General Surgery   91.5     85.4 7.1 %   7.0 % 4.8 %   11.9 %   11.6 % $ 190.1   $ 184.8 2.9 %   2.4 % -0.9 %   7.3 %   6.2 %   Single-use Products $ 153.2 $ 146.7 4.5 % 4.0 % 0.3 % 9.4 % 8.3 % Capital Products   36.9     38.1 -3.3 %   -3.8 % -5.7 %   -0.6 %   -1.6 % $ 190.1   $ 184.8 2.9 %   2.4 % -0.9 %   7.3 %   6.2 %   Domestic $ 98.3 $ 99.2 -0.9 % -0.9 % International   91.8     85.6 7.3 %   6.2 % $ 190.1   $ 184.8 2.9 %   2.4 %     Nine Months Ended September 30, % Change Domestic   International 2017   2016

As Reported

Constant Currency

As Reported

 

As Reported

 

Constant Currency

Orthopedic Surgery $ 307.9 $ 310.5 -0.8 % -0.4 % -4.6 % 1.8 % 2.5 % General Surgery   265.9     248.9 6.8 %   7.3 % 5.8 %   9.0 %   10.4 % $ 573.8   $ 559.4 2.6 %   3.0 % 1.3 %   4.0 %   4.9 %   Single-use Products $ 462.4 $ 445.8 3.7 % 4.2 % 2.1 % 5.6 % 6.6 % Capital Products   111.4     113.6 -2.0 %   -1.6 % -2.1 %   -1.9 %   -1.1 % $ 573.8   $ 559.4 2.6 %   3.0 % 1.3 %   4.0 %   4.9 %   Domestic $ 297.7 $ 294.0 1.3 % 1.3 % International   276.1     265.4 4.0 %   4.9 % $ 573.8   $ 559.4 2.6 %   3.0 %         Reconciliation of Reported Net Income to Adjusted Net Earnings

(in thousands, except per share amounts, unaudited)

  Three Months Ended September 30, 2017

Gross Profit

 

Selling & Administrative Expense

 

Operating Income

 

Tax Expense

 

Effective Tax Rate

 

Net Income

 

Diluted EPS

As reported $ 102,547     $ 80,807     $ 13,470     $ 1,467     16.9 %   $ 7,197     $ 0.26   % of sales 53.9 %   42.5 %   7.1 %         Restructuring costs (1) 1,306 - 1,306 467 839 0.03 Business acquisition costs (2) - (128 ) 128 48 80 0.00 Legal matters (3)   -       (327 )     327       115           212       0.01   $ 103,853     $ 80,352     $ 15,231     $ 2,097     20.1 % $ 8,328 $ 0.30 % of sales 54.6 % 42.3 % 8.0 % Amortization of intangible assets $ 1,500 $ (3,761 ) $ 5,261 $ 1,854   3,407       0.12   Adjusted net earnings $ 11,735     $ 0.42    

Three Months Ended September 30, 2016

Gross Profit

 

Selling & Administrative Expense

 

Operating Income

 

Tax Expense

 

Effective Tax Rate

 

Net Income

 

Diluted EPS

As reported $ 101,209     $ 79,009     $ 13,847     $ 2,649     26.5 %   $ 7,337     $ 0.26   % of sales 54.8 % 42.8 % 7.5 % Restructuring costs (1) - (361 ) 361 172 189 0.01 Business acquisition costs (2) - (2,695 ) 2,695 1,207 1,488 0.05 Legal matters (3) - (619 ) 619 279 340 0.01 Gain on sale of facility (4)   -       1,890       (1,890 )     (853 )         (1,037 )     (0.04 ) $ 101,209     $ 77,224     $ 15,632     $ 3,454     29.3 % $ 8,317 $ 0.29 % of sales 54.8 % 41.8 % 8.5 % Amortization of intangible assets $ 1,500 $ (3,498 ) $ 4,998 $ 1,777   3,221       0.12   Adjusted net earnings $ 11,538     $ 0.41           Reconciliation of Reported Net Income to Adjusted Net Earnings

(in thousands, except per share amounts, unaudited)

  Nine Months Ended September 30, 2017

Gross Profit

 

Selling & Administrative Expense

 

Operating Income

 

Other Expense

 

Tax Expense

 

Effective Tax Rate

 

Net Income

 

Diluted EPS

As reported $ 307,084     $ 259,396     $ 23,759     $ -     $ 1,645     15.8 %   $ 8,791     $ 0.31   % of sales 53.5 %   45.2 %   4.1 %           Restructuring costs (1) 2,778 (1,347 ) 4,125 - 1,377 2,748 0.10 Business acquisition costs (2) - (1,020 ) 1,020 - 370 650 0.02 Legal matters (3)   -       (17,041 )     17,041       -       5,537           11,504       0.41   $ 309,862     $ 239,988     $ 45,945     $ -     $ 8,929     27.4 % $ 23,693 $ 0.84 % of sales 54.0 % 41.8 % 8.0 % Amortization of intangible assets $ 4,500 $ (11,096 ) $ 15,596 $ - $ 5,515   10,081       0.36   Adjusted net earnings $ 33,774     $ 1.20     Nine Months Ended September 30, 2016

Gross Profit

 

Selling & Administrative Expense

 

Operating Income

 

Other Expense

 

Tax Expense

 

Effective Tax Rate

 

Net Income

 

Diluted EPS

As reported $ 301,371     $ 251,681     $ 25,070     $ 2,942     $ 2,724     25.5 %   $ 7,956     $ 0.28   % of sales 53.9 % 45.0 % 4.5 % Restructuring costs (1) 5,537 (4,105 ) 9,642 - 3,215 6,427 0.23 Business acquisition costs (2) - (14,547 ) 14,547 - 5,734 8,813 0.32 Legal matters (3) - (2,808 ) 2,808 - 301 2,507 0.09 Gain on sale of facility (4) - 1,890 (1,890 ) - (853 ) (1,037 ) (0.04 ) Debt refinancing costs (5)   -       -       -       (2,942 )     930           2,012       0.07   $ 306,908     $ 232,111     $ 50,177     $ -     $ 12,051     31.1 % $ 26,678 $ 0.95 % of sales 54.9 % 41.5 % 9.0 % Amortization of intangible assets $ 4,500 $ (10,489 ) $ 14,989 $ - $ 5,341   9,648       0.35   Adjusted net earnings $ 36,326     $ 1.30     (1) In 2017 and 2016, the Company restructured certain operating, sales, marketing and administrative functions and incurred severance, product discontinuation, 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 litigation fees as a result of the unfavorable verdict in the Lexion vs. SurgiQuest, Inc. case. In 2017 and 2016, the Company incurred legal fees associated with the Lexion vs. SurgiQuest, Inc. case and other legal matters.   (4) In 2016, the Company recorded a gain on the sale of its facility in Centennial, Colorado.   (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 an agreement between the Company and JP Morgan Chase Bank, N.A., as well as costs associated with the early extinguishment of debt.               Reconciliation of Reported Net Income to EBITDA & Adjusted EBITDA

(in thousands, unaudited)

  Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016     Net income $ 7,197     $ 7,337   $ 8,791     $ 7,956   Provision for income taxes 1,467 2,649 1,645 2,724 Interest expense 4,806 3,861 13,323 11,448 Depreciation 5,234 5,301 14,993 15,242 Amortization   9,367       8,357     27,288       25,187   EBITDA $ 28,071     $ 27,505   $ 66,040     $ 62,557     Stock based compensation 2,119 1,921 6,340 5,784 Restructuring costs 1,306 361 4,125 9,642 Business acquisition costs 128 2,695 1,020 14,547 Legal matters 327 619 17,041 2,808 Gain on sale of facility - (1,890 ) - (1,890 ) Debt refinancing costs   -       -     -       2,942   Adjusted EBITDA $ 31,951     $ 31,211   $ 94,566     $ 96,390       EBITDA Margin EBITDA 14.8 % 14.9 % 11.5 % 11.2 % Adjusted EBITDA 16.8 % 16.9 % 16.5 % 17.2 %

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CONMED CorporationLuke A. Pomilio, 315-624-3202Chief Financial OfficerLukePomilio@conmed.com