CONMED Corporation (Nasdaq:CNMD) today announced
financial results for the second quarter ended June 30, 2017.
Second Quarter 2017 Highlights
- Sales of $197.2 million increased 1.9%
as reported compared to the second quarter of 2016. On a constant
currency basis, sales increased 3.0%.
- International revenue grew 2.5% as
reported and 4.7% in constant currency, driven by continued growth
in General Surgery and Orthopedics.
- Domestic General Surgery sales grew
3.3%, contributing to 1.3% overall domestic revenue growth.
- Diluted net earnings per share (GAAP)
were $0.22, compared to diluted net earnings per share (GAAP) of
$0.10 in the second quarter of 2016.
- Adjusted diluted net earnings per
share(1) were $0.41 versus $0.47 in the prior-year period.
- The Company increases its constant
currency sales growth guidance and maintains its adjusted diluted
net earnings per share guidance.
“Our continued top-line growth during the quarter was driven by
a sixth straight quarter of growth from the General Surgery
business and further strength in our international markets.
Additionally, we remain encouraged by our domestic Orthopedics
business, which posted a second consecutive quarter of sequential
improvement, while worldwide Orthopedics sales returned to positive
constant currency growth,” commented Curt R. Hartman, CONMED’s
President and Chief Executive Officer. “We are pleased with
the progress we have made to date and expect to build on this
momentum in the second half of the year.”
Sales Analysis
For the quarter ended June 30, 2017, domestic sales, which
represented 50.7% of total revenue, increased 1.3%, as
year-over-year growth of 3.3% in General Surgery was partially
offset by a decline of 1.4% in Orthopedics. International sales,
which represented 49.3% of total revenue, increased 2.5% compared
to the second quarter of 2016 on a reported basis. Foreign currency
exchange rates, including the effects of the FX hedging program,
had a negative impact of $2.1 million on second quarter sales. In
constant currency, international sales increased 4.7% versus the
prior-year period.
Earnings Analysis
For the quarter ended June 30, 2017, reported net income totaled
$6.1 million, compared to reported net income of $2.9 million a
year ago. Reported diluted net earnings per share were $0.22 in the
quarter, compared to reported diluted net earnings per share of
$0.10 in the prior-year period. Reported net income for 2017 and
2016 includes business acquisition costs, restructuring costs, and
legal costs. The increase in reported net income resulted primarily
from $2.2 million of additional business acquisition costs and $3.5
million of additional restructuring costs in the prior-year period.
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 $11.4 million decreased 13.2% year over year,
and adjusted diluted net earnings per share(1) of $0.41 decreased
12.8% year over year. The decrease in adjusted net earnings
resulted primarily from the unfavorable impact of foreign exchange
rates, partially offset by 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% to
3%, an increase from the prior guidance of 1% to 3%. Based on
exchange rates as of July 21, 2017, the negative impact to 2017
sales from foreign exchange is now anticipated to be approximately
0.25%, as compared to the prior estimate of 0.50%.
In addition, the Company continues to expect adjusted diluted
net earnings per share in the range of $1.85 to $1.95, which
include a negative impact from foreign exchange based on exchange
rates as of July 21, 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 second quarter 2017 results.
To participate in the conference call, dial 844-889-7792
(domestic) or 661-378-9936 (international) and enter the passcode
51174908.
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, July 26, 2017, until 7:30 p.m. ET on Wednesday,
August 9, 2017. To hear this recording, dial 855-859-2056
(domestic) or 404-537-3406 (international) and enter the passcode
51174908.
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 Six Months Ended June
30, June 30, 2017
2016 2017
2016 Net sales $ 197,154 $ 193,433 $ 383,720 $
374,634 Cost of sales 92,502 91,011
179,183 174,472 Gross profit 104,652
102,422 204,537 200,162 %
of sales 53.1 % 52.9 % 53.3 % 53.4 % Selling and administrative
expense 83,828 86,729 178,589 172,672 Research & development
expense 8,041 8,009 15,659
16,267 Income from operations 12,783
7,684 10,289 11,223 % of sales
6.5 % 4.0 % 2.7 % 3.0 % Other expense - - - 2,942 Interest expense
4,398 3,757 8,518 7,587
Income before income taxes 8,385 3,927 1,771 694 Provision
for income taxes 2,246 1,043 177
75 Net income $ 6,139 $ 2,884 $ 1,594
$ 619 Basic EPS $ 0.22 $ 0.10 $ 0.06 $ 0.02
Diluted EPS 0.22 0.10 0.06 0.02 Basic shares 27,891 27,776
27,894 27,753 Diluted shares 28,139 27,941 28,086 27,926
Consolidated Condensed Balance
Sheets
(in thousands, unaudited)
June2017
December2016
Assets: Cash and cash equivalents $ 40,141 $ 27,428 Accounts
receivable, net 145,391 148,244 Inventories 136,474 135,869 Other
current assets 18,307 18,971
Total Current
Assets 340,313 330,512 Property, plant and equipment, net
118,190 122,029 Goodwill 401,129 397,664 Other intangible assets,
net 410,944 419,549 Other assets 64,759 59,229
Total Assets $ 1,335,335 $ 1,328,983
Liabilities
and Shareholders' Equity: Current liabilities $ 129,713 $
113,952 Long-term debt, excluding current maturities 484,032
488,288 Other liabilities 139,235 146,167 Shareholders' equity
582,355 580,576
Total Liabilities and
Shareholders' Equity $ 1,335,335 $ 1,328,983
Consolidated Condensed Statements of Cash Flows Six Months
Ended June 30, 2017 and 2016
(in thousands, unaudited)
2017
2016 Operating Activities Net income $ 1,594 $
619 Depreciation and amortization 28,200 27,291 Stock-based
compensation expense 4,221 4,583 Deferred income taxes (4,275 )
(4,342 ) Changes in operating assets and liabilities and other, net
1,586 (26,725 )
Net cash provided by
operating activities 31,326 1,426
Investing Activities
Payments related to business acquisitions
and asset acquisitions,net of cash acquired
(1,765 ) (256,450 ) Purchases of property, plant and equipment
(5,525 ) (7,667 )
Net cash used in investing
activities (7,290 ) (264,117 )
Financing Activities Payments on term loan (4,375 ) (4,376 )
Proceeds from term loan - 175,000 Proceeds from revolving line of
credit 71,000 167,000 Payments on revolving line of credit (68,000
) (88,985 ) Payments related to debt issuance costs - (5,556 )
Payment related to distribution agreement - (16,667 ) Dividend
payments on common stock (11,138 ) (11,088 ) Other, net
(1,218 ) (1,540 )
Net cash provided by (used in)
financing activities (13,731 ) 213,788 Effect of exchange rate
changes on cash and cash equivalents 2,408
(306 ) Net increase (decrease) in cash and cash equivalents 12,713
(49,209 ) Cash and cash equivalents at beginning of period
27,428 72,504
Cash and cash equivalents at
end of period $ 40,141 $ 23,295
Sales Summary
(in millions, unaudited)
Three Months Ended June 30,
% Change
Domestic International
2017 2016
AsReported
ConstantCurrency
AsReported
AsReported
ConstantCurrency
Orthopedic Surgery $ 105.6 $ 105.8 -0.3 % 0.9 % -1.4 %
0.4 % 2.4 % General Surgery 91.6
87.6 4.6 % 5.5 % 3.3 % 7.0 %
9.7 % $ 197.2 $ 193.4 1.9 % 3.0 % 1.3 %
2.5 % 4.7 % Single-use Products $ 159.5
$ 154.2 3.4 % 4.6 % 2.3 % 4.7 % 7.0 % Capital Products 37.7
39.2 -4.1 % -3.3 % -2.9 % -5.1 %
-3.6 % $ 197.2 $ 193.4 1.9 % 3.0 % 1.3
% 2.5 % 4.7 % Domestic $ 100.0 $
98.7 1.3 % 1.3 % International 97.2
94.7 2.5 % 4.7 % $ 197.2 $ 193.4 1.9 % 3.0 %
Six Months Ended June 30, % Change
Domestic International
2017 2016
AsReported
ConstantCurrency
AsReported
AsReported
ConstantCurrency
Orthopedic Surgery $ 209.3 $ 211.1 -0.9 % 0.1 % -2.6 % 0.3 % 1.9 %
General Surgery 174.4 163.5 6.7 % 7.5 %
6.3 % 7.5 % 9.9 % $ 383.7
$ 374.6 2.4 % 3.3 % 2.4 % 2.5 % 4.3 %
Single-use Products $ 309.2 $ 299.1 3.4 % 4.3 % 2.9 % 3.9 %
5.8 % Capital Products 74.5 75.5 -1.3 %
-0.5 % -0.1 % -2.4 % -0.8 % $ 383.7
$ 374.6 2.4 % 3.3 % 2.4 % 2.5 %
4.3 % Domestic $ 199.4 $ 194.8 2.4 % 2.4 %
International 184.3 179.8 2.5 % 4.3 % $
383.7 $ 374.6 2.4 % 3.3 %
Reconciliation of Reported Net Income
to Adjusted Net Earnings
(in thousands, except per share amounts,
unaudited)
Three Months Ended June 30, 2017
GrossProfit
Selling
&AdministrativeExpense
OperatingIncome
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
As reported $ 104,652 $ 83,828
$ 12,783 $ 2,246
26.8 % $ 6,139 $ 0.22 % of sales 53.1 %
42.5 % 6.5 %
Restructuring costs (1) 303 (26
) 329 128 201 0.01 Business acquisition costs (2) - (405 ) 405 158
247 0.01 Legal matters (3) -
(2,465 ) 2,465 959
1,506
0.05 $ 104,955 $ 80,932
$ 15,982 $ 3,491 30.1 % $
8,093 $ 0.29 % of sales 53.2 % 41.1 % 8.1 % Amortization of
intangible assets $ 1,500 $ (3,685 ) $ 5,185 $ 1,840 3,345
0.12
Adjusted net earnings $ 11,438
$ 0.41
Three Months Ended June 30,
2016
GrossProfit
Selling
&AdministrativeExpense
OperatingIncome
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
As reported $ 102,422 $ 86,729
$ 7,684 $ 1,043
26.6 % $ 2,884 $ 0.10 % of sales 52.9 %
44.8 % 4.0 % Restructuring costs (1) 4,673 (953 ) 5,626 1,888 3,738
0.14 Business acquisition costs (2) - (3,624 ) 3,624 1,216 2,408
0.09 Legal matters (3) - (1,372
) 1,372 461
911 0.03 $
107,095 $ 80,780 $ 18,306
$ 4,608 31.7 % $ 9,941 $ 0.36 %
of sales 55.4 % 41.8 % 9.5 % Amortization of intangible assets $
1,500 $ (3,493 ) $ 4,993 $ 1,764 3,229
0.11
Adjusted net earnings $ 13,170 $ 0.47
Reconciliation of Reported Net Income
to Adjusted Net Earnings
(in thousands, except per share amounts,
unaudited)
Six Months Ended June 30, 2017
GrossProfit
Selling
&AdministrativeExpense
OperatingIncome
OtherExpense
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
As reported $ 204,537 $ 178,589
$ 10,289 $ -
$ 177 10.0 % $ 1,594
$ 0.06 % of sales 53.3 % 46.5 %
2.7 %
Restructuring costs (1) 1,472 (1,348 ) 2,820 - 910
1,910 0.06 Business acquisition costs (2) - (892 ) 892 - 322 570
0.02 Legal matters (3) - (16,714
) 16,714 -
5,423
11,291 0.40 $ 206,009
$ 159,635 $ 30,715
$ - $ 6,832 30.8 % $ 15,365 $
0.54
% of sales 53.7 % 41.6 % 8.0 % Amortization of
intangible assets $ 3,000 $ (7,335 ) $ 10,335 $ - $ 3,661
6,674 0.24
Adjusted net earnings $ 22,039 $ 0.78
Six Months Ended June 30, 2016
GrossProfit
Selling
&AdministrativeExpense
OperatingIncome
OtherExpense
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
As reported $ 200,162 $ 172,672
$ 11,223 $ 2,942
$ 75 10.8 % $ 619
$ 0.02 % of sales 53.4 % 46.1 % 3.0 % Restructuring costs (1) 5,537
(3,744 ) 9,281 - 3,044 6,237 0.22 Business acquisition costs (2) -
(11,852 ) 11,852 - 3,841 8,011 0.29 Legal matters (3) - (2,189 )
2,189 - 709 1,480 0.06 Debt refinancing costs (4) -
- -
(2,942 ) 930
2,012 0.07 $
205,699 $ 154,887 $
34,545 $ - $ 8,599
31.9 % $ 18,359 $ 0.66 % of sales 54.9 % 41.3 % 9.2 %
Amortization of intangible assets $ 3,000 $ (6,991 ) $ 9,991 $ - $
3,563 6,428 0.23
Adjusted net earnings $
24,787 $ 0.89 (1) In 2017 and 2016, the Company
restructured certain operating, sales, marketing and administrative
functions and incurred severance and other related costs.
Additionally, in the second quarter of 2016, the Company terminated
a product offering and incurred charges mainly related to inventory
and fixed assets. (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 received an unfavorable
$12.2 million verdict related to the Lexion lawsuit. In 2017 and
2016, the Company incurred costs related to this litigation and
other legal matters. (4) In 2016, the Company refinanced its
existing credit facility and incurred commitment fees paid to
certain of our lenders, which provided a financing commitment for
the SurgiQuest acquisition and recorded a loss on the early
extinguishment of debt.
Reconciliation of Reported Net Income
to EBITDA & Adjusted EBITDA
(in thousands, unaudited)
Three Months Ended Six Months Ended June
30, June 30, 2017
2016 2017
2016 Net income $ 6,139 $ 2,884
$ 1,594 $ 619 Provision for income taxes 2,246
1,043 177 75 Interest expense 4,398 3,757 8,518 7,587 Depreciation
4,892 4,955 9,758 9,941 Amortization 9,124
8,818 17,921 16,830 EBITDA $
26,799 $ 21,457 $ 37,968 $ 35,052
Stock based compensation 2,266 2,094 4,221 3,863
Restructuring costs 329 5,626 2,820 9,281 Business acquisition
costs 405 3,624 892 11,852 Legal matters 2,465 1,372 16,714 2,189
Debt refinancing costs - - -
2,942 Adjusted EBITDA $ 32,264 $ 34,173
$ 62,615 $ 65,179
EBITDA
Margin EBITDA 13.6 % 11.1 % 9.9 % 9.4 % Adjusted EBITDA 16.4 %
17.7 % 16.3 % 17.4 %
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version on businesswire.com: http://www.businesswire.com/news/home/20170726006197/en/
CONMED CorporationLuke A. Pomilio,
315-624-3202Chief Financial
OfficerLukePomilio@conmed.com
CONMED (NASDAQ:CNMD)
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