News Release
View printer-friendly version « Back
CONMED Corporation Announces Third Quarter 2010 Financial Results
UTICA, NY, Oct 28, 2010 (MARKETWIRE via COMTEX) --
CONMED Corporation (NASDAQ: CNMD) today announced financial results for the third quarter of 2010.
GAAP diluted earnings per share for the third quarter ended September 30, 2010 were $0.31 on sales of $172.2 million compared to $0.04 in the third quarter of 2009 on sales of $175.5 million. Non-GAAP diluted earnings per share grew 21.4% to $0.34 compared to non-GAAP diluted earnings per share of $0.28 in the 2009 third quarter. Both the GAAP and non-GAAP diluted earnings per share include the benefit of a tax adjustment in the third quarter of $1.1 million, or $.04 per diluted share. 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 nine months ended September 30, 2010, sales were $529.6 million compared to $504.1 million in the first nine months of 2009, an increase of 5.1%. GAAP diluted earnings per share were $0.80 for year-to-date September 2010 compared to $0.25 in the same period of 2009. Non-GAAP diluted earnings per share increased 49.2% to $0.94 for the 2010 nine-month period compared to $0.63 in the same period of 2009.
"We are quite pleased with the continued profitability growth and operating margin expansion achieved in the third quarter, both of which exceeded our expectations. Specifically, the GAAP gross margin percentage increased to 51.7% compared to 49.9% in the third quarter last year and the GAAP operating margin percentage grew to 8.8% compared to 2.9% a year ago," commented Mr. Joseph J. Corasanti, CONMED's President and Chief Executive Officer. "As we anticipated and communicated last quarter, the historical sequential revenue pattern of higher sales in the second quarter than in the third quarter was once again present. As a reminder, we saw a departure from this historical sequential revenue pattern last year due to a significant amount of business being deferred by customers from the first half of 2009 until the third quarter, thus producing unusually strong revenue and creating abnormal year-over-year comparisons."
International sales in the third quarter of 2010 were $79.8 million, representing 46.3% of total sales, and $252.7 million for the nine-months ended September 30, 2010 (47.7% of sales). Favorable currency exchange rates in 2010 led to an increase in sales of $10.7 million for the nine-month period of 2010. The impact of foreign currency exchange rates was insignificant to sales in the third quarter of 2010.
Cash provided from operating activities outpaced net income in the third quarter of 2010 and amounted to $9.8 million. The cash was used to repay debt and repurchase the Company's common stock, as further explained below.
Outlook
Mr. Corasanti added, "We are pleased that our customers seemed to have returned to historical purchasing trends, as compared to the instability experienced in 2009 during the global economic crisis. Consequently, we expect that sales in the fourth quarter of 2010 will experience the normal seasonal sequential increase from the third quarter. Sales in the fourth quarter, should, in fact, be the strongest of the year, as we've seen historically. Specifically, we expect revenue in the fourth quarter of 2010 to approximate $185 - $190 million, with non-GAAP diluted earnings per share of $0.33 - $0.38. For the full year 2010, we expect sales to be approximately $715 - $720 million. Based on the better than expected third quarter profitability, and an improved outlook for the fourth quarter, we are increasing the full year 2010 non-GAAP diluted earnings per share estimate to $1.27 - $1.32, compared to our previous estimate of $1.20 - $1.30."
The non-GAAP estimates for the third quarter and full-year 2010 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.
"For 2011, we are basing our initial expectations on continued measured improvement in the overall global economy. Specifically, sales in 2011 are anticipated to be $745 - $755 million, with non-GAAP diluted earnings per share of $1.40 - $1.50," noted Mr. Corasanti.
The sales and earnings forecasts for 2010 and 2011 have been developed using October 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 fourth quarter 2010 and 50% hedged for the first half of 2011.
Restructuring costs
During the third quarter of 2010, the Company continued the consolidation of 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 $0.6 million in the third quarter of 2010 and $3.1 million for the nine months ended September 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 $0.5 million; these costs are excluded from non-GAAP earnings estimates.
Stock and bond repurchase
During the third quarter of 2010, utilizing the Company's current cash flow, CONMED repurchased approximately 690,000 shares of its common stock, amounting to $13.5 million. For the nine months ended, September 2010, 1,164,000 shares were repurchased for an aggregate cost of $23.0 million. The remaining availability under the Board of Directors' authorization for stock repurchases currently amounts to $23.8 million, and additional shares under this authority may be repurchased using the Company's cash flow. In the second quarter of 2010, the Company also repurchased and retired $3.0 million face value of its 2.5 percent Convertible Notes at a discount of approximately 3 percent.
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 third 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 nine-months of 2010 and 2009, such charges amounted to $3.2 million and $3.1 million, respectively. 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 $24.0 million at September 30, 2010. Accordingly, as of September 30, 2010, compared to the previous off-balance sheet accounting, accounts receivable is $24.0 million greater because the full amount of receivables remains on the balance sheet, and the current portion of long-term debt includes the $24.0 million usage of the receivable facility. Further, cash provided by operating activities on the September 30, 2010 statement of cash flows is reduced by $29.0 million as a result of this change in accounting. See the attached reconciliation of cash flow provided by operating activities. This accounting change had no effect on the consolidated statements 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 third quarter 2010 conference call live over the Internet at 10:00 a.m. Eastern Time on Thursday, October 28, 2010. This webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through November 5, 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
Third Quarter Sales Summary
Three Months Ended September 30,
--------------------------------------
Constant
Currency
2009 2010 Growth Growth
--------- --------- -------- --------
(in millions)
Arthroscopy
Single-use $ 49.1 $ 49.8 1.4% 1.6%
Capital 19.6 18.4 -6.1% -5.6%
--------- --------- -------- --------
68.7 68.2 -0.7% -0.4%
--------- --------- -------- --------
Powered Surgical Instruments
Single-use 19.0 18.6 -2.1% -1.6%
Capital 18.3 16.0 -12.6% -12.6%
--------- --------- -------- --------
37.3 34.6 -7.2% -7.0%
--------- --------- -------- --------
Electrosurgery
Single-use 17.8 18.1 1.7% 1.7%
Capital 6.3 5.7 -9.5% -9.5%
--------- --------- -------- --------
24.1 23.8 -1.2% -1.2%
--------- --------- -------- --------
Endoscopic Technologies
Single-use 12.2 12.5 2.5% 2.5%
--------- --------- -------- --------
Endosurgery
Single-use and reposable 15.9 16.8 5.7% 5.7%
--------- --------- -------- --------
Patient Care
Single-use 17.3 16.3 -5.8% -5.8%
--------- --------- -------- --------
Total
Single-use and reposable 131.3 132.1 0.6% 0.8%
Capital 44.2 40.1 -9.3% -9.0%
--------- --------- -------- --------
$ 175.5 $ 172.2 -1.9% -1.7%
========= ========= ======== ========
CONMED CORPORATION
Nine-Month Sales Summary
Nine Months Ended September 30,
--------------------------------------
Constant
Currency
2009 2010 Growth Growth
--------- --------- -------- --------
(in millions)
Arthroscopy
Single-use $ 141.9 $ 159.1 12.1% 9.2%
Capital 52.2 56.2 7.7% 5.7%
--------- --------- -------- --------
194.1 215.3 10.9% 8.2%
--------- --------- -------- --------
Powered Surgical Instruments
Single-use 56.2 57.9 3.0% -0.5%
Capital 47.4 47.5 0.2% -2.1%
--------- --------- -------- --------
103.6 105.4 1.7% -1.3%
--------- --------- -------- --------
Electrosurgery
Single-use 52.1 53.3 2.3% 1.2%
Capital 17.1 17.5 2.3% 0.6%
--------- --------- -------- --------
69.2 70.8 2.3% 1.0%
--------- --------- -------- --------
Endoscopic Technologies
Single-use 36.7 36.2 -1.4% -3.0%
--------- --------- -------- --------
Endosurgery
Single-use and reposable 47.7 51.0 6.9% 5.7%
--------- --------- -------- --------
Patient Care
Single-use 52.8 50.9 -3.6% -4.2%
--------- --------- -------- --------
Total
Single-use and reposable 387.4 408.4 5.4% 3.3%
Capital 116.7 121.2 3.9% 1.8%
--------- --------- -------- --------
$ 504.1 $ 529.6 5.1% 2.9%
========= ========= ======== ========
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
2009 2010 2009 2010
--------- --------- --------- ---------
Net sales $ 175,475 $ 172,195 $ 504,106 $ 529,646
Cost of sales 85,674 82,953 254,017 253,367
Cost of sales, other - Note A 2,165 259 8,789 1,818
--------- --------- --------- ---------
Gross profit 87,636 88,983 241,300 274,461
--------- --------- --------- ---------
Selling and administrative 67,480 66,091 193,480 208,137
Research and development 7,705 7,399 23,590 21,522
Other expense - Note B 7,449 291 6,847 1,261
--------- --------- --------- ---------
82,634 73,781 223,917 230,920
--------- --------- --------- ---------
Income from operations 5,002 15,202 17,383 43,541
Gain (loss) on early extinguishment
of debt - - 1,083 (79)
Amortization of debt discount 1,018 1,059 3,076 3,167
Interest expense 2,042 1,749 5,297 5,269
--------- --------- --------- ---------
Income before income taxes 1,942 12,394 10,093 35,026
Provision for income taxes 654 3,636 2,911 11,643
--------- --------- --------- ---------
Net income $ 1,288 $ 8,758 $ 7,182 $ 23,383
========= ========= ========= =========
Per share data:
Net Income
Basic $ 0.04 $ 0.31 $ 0.25 $ 0.81
Diluted 0.04 0.31 0.25 0.80
Weighted average common shares
Basic 29,093 28,425 29,060 28,896
Diluted 29,183 28,521 29,096 29,073
Note A -- Included in cost of sales, other, in the three and nine months ended September 30, 2009 is $2.2 million and $8.8 million, respectively, in costs related to the startup of a new manufacturing facility in Chihuahua, Mexico and the consolidation of the Company's three Utica, New York area manufacturing sites into a single facility. Included in cost of sales, other in the three and nine months ended September 30, 2010 is $0.3 million and $1.8 million, respectively, related to the moving of additional product lines to the manufacturing facility in Chihuahua, Mexico.
Note B -- Included in other expense in the three months ended September 30, 2009 is $6.0 million in costs related to a voluntary product recall, $1.1 million in costs related to the consolidation of the Company's distribution activities and $0.3 million in costs related to the consolidation of the administrative functions of our Endoscopic Technologies division. Included in other expense in the nine months ended September 30, 2009 is a non-cash net pre-tax pension gain of $1.9 million, $6.0 million in costs related to a voluntary product recall, $2.4 million in costs related to the consolidation of the Company's distribution activities, and $0.3 million in costs related to the consolidation of the administrative functions of our Endoscopic Technologies division. Included in other expense in the three and nine months ended September 30, 2010 is $0.3 million and $1.3 million, respectively, related to the consolidation of various administrative functions in our Linvatec division.
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
December 31, September 30,
2009 2010
------------ ------------
Current assets:
Cash and cash equivalents $ 10,098 $ 16,524
Accounts receivable, net 126,162 141,310
Inventories 164,275 183,303
Deferred income taxes 14,782 15,324
Other current assets 10,293 10,698
------------ ------------
Total current assets 325,610 367,159
Property, plant and equipment, net 143,502 141,827
Deferred income taxes 1,953 2,081
Goodwill 290,505 294,935
Other intangible assets, net 190,849 191,619
Other assets 5,994 5,243
------------ ------------
Total assets $ 958,413 $ 1,002,864
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,174 $ 43,208
Other current liabilities 76,933 73,722
------------ ------------
Total current liabilities 79,107 116,930
Long-term debt 182,195 171,088
Deferred income taxes 97,916 111,630
Other long-term liabilities 22,680 23,541
------------ ------------
Total liabilities 381,898 423,189
------------ ------------
Shareholders' equity:
Capital accounts 263,550 244,778
Retained earnings 325,370 347,979
Accumulated other comprehensive loss (12,405) (13,082)
------------ ------------
Total equity 576,515 579,675
------------ ------------
Total liabilities and shareholders'
equity $ 958,413 $ 1,002,864
============ ============
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30,
--------------------
2009 2010
--------- ---------
Cash flows from operating activities:
Net income $ 7,182 $ 23,383
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30,067 31,094
Stock-based compensation expense 3,203 3,264
Deferred income taxes 2,805 10,636
(Gain) loss on early extinguishment of debt (1,083) 79
Sale of accounts receivable to (collections
for) purchaser (accounting change in 2010) (3,000) (29,000)
Increase (decrease) in cash flows from changes
in assets and liabilities:
Accounts receivable (5,326) 13,600
Inventories (7,593) (28,198)
Accounts payable (1,928) (301)
Income taxes payable (2,466) (579)
Accrued compensation and benefits 2,865 599
Other assets (1,228) (597)
Other liabilities 2,281 (8,690)
--------- ---------
Net cash provided by operating activities 25,779 15,290
--------- ---------
Cash flow from investing activities:
Purchases of property, plant, and equipment (17,090) (10,855)
Payments related to business acquisitions (262) (5,226)
--------- ---------
Net cash used in investing activities (17,352) (16,081)
--------- ---------
Cash flow from financing activities:
Payments on debt (9,857) (4,349)
Proceeds of debt 7,000 7,000
Proceeds from secured borrowings, net - 24,000
Repurchase of treasury stock - (22,977)
Other, net (1,892) 3,370
--------- ---------
Net cash provided by (used in) financing activities (4,749) 7,044
--------- ---------
Effect of exchange rate change on cash and cash
equivalents (1,272) 173
--------- ---------
Net increase in cash and cash equivalents 2,406 6,426
Cash and cash equivalents at beginning of period 11,811 10,098
--------- ---------
Cash and cash equivalents at end of period $ 14,217 $ 16,524
========= =========
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NON-GAAP NET INCOME
BEFORE UNUSUAL ITEMS AND AMORTIZATION OF DEBT DISCOUNT
(In thousands except per share amounts)
(unaudited)
Three months ended
September 30,
-------------------
2009 2010
--------- ---------
Reported net income $ 1,288 $ 8,758
--------- ---------
New plant / facility consolidation costs included in
cost of sales 2,165 259
--------- ---------
CONMED Linvatec division administration consolidation - 291
Facility consolidation costs included in other expense 1,118 -
Product recall 5,992 -
Endoscopic Technologies division consolidation 339 -
--------- ---------
Total other expense 7,449 291
--------- ---------
Amortization of debt discount 1,018 1,059
--------- ---------
Unusual expense before income taxes 10,632 1,609
Provision (benefit) for income taxes on unusual
expense (3,837) (589)
--------- ---------
Net income before unusual items and amortization of
debt discount $ 8,083 $ 9,778
========= =========
Per share data:
Reported net income
Basic $ 0.04 $ 0.31
Diluted 0.04 0.31
Net income before unusual items and amortization of
debt discount
Basic $ 0.28 $ 0.34
Diluted 0.28 0.34
Management has provided the above reconciliation of net income before unusual items and amortization of debt discount 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
(In thousands except per share amounts)
(unaudited)
Nine months ended
September 30,
-------------------
2009 2010
--------- ---------
Reported net income $ 7,182 $ 23,383
--------- ---------
New plant / facility consolidation costs included in
cost of sales 8,789 1,818
--------- ---------
CONMED Linvatec division administrative consolidation - 1,261
Pension gain, net (1,882) -
Facility consolidation costs included in other expense 2,398 -
Product recall 5,992 -
Endoscopic Technologies division consolidation 339 -
--------- ---------
Total other expense 6,847 1,261
--------- ---------
(Gain) loss on early extinguishment of debt (1,083) 79
--------- ---------
Amortization of debt discount 3,076 3,167
--------- ---------
Unusual expense before income taxes 17,629 6,325
Provision (benefit) for income taxes on unusual
expense (6,376) (2,307)
--------- ---------
Net income before unusual items and amortization of
debt discount $ 18,435 $ 27,401
========= =========
Per share data:
Reported net income
Basic $ 0.25 $ 0.81
Diluted 0.25 0.80
Net income before unusual items and amortization
of debt discount
Basic $ 0.63 $ 0.95
Diluted 0.63 0.94
Management has provided the above reconciliation of net income before unusual items and amortization of debt discount 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
Nine Months Ended September 30, 2009 and 2010
(In thousands)
(unaudited)
2009 2010
---------- ----------
Reported cash flow from operations $ 25,779 $ 15,290
---------- ----------
Sale of accounts receivable to (collections for)
purchaser accounting change - 29,000
---------- ----------
Adjusted cash flow from operations $ 25,779 $ 44,290
========== ==========
Reported cash flow from financing activities $ (4,749) $ 7,044
---------- ----------
Proceeds from secured borrowings, net - (24,000)
---------- ----------
Adjusted cash flow provided by (used in)
financing activities $ (4,749) $ (16,956)
========== ==========
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.
CONTACT: CONMED Corporation Robert Shallish Chief Financial Officer 315-624-3206 FD Investors: Brian Ritchie 212-850-5600
SOURCE: CONMED Corporation