UTICA, NY -- (Marketwired) -- 10/23/14 -- CONMED Corporation (NASDAQ: CNMD)

• Sales of $175.0 Million
• Diluted earnings per share (GAAP) $0.07
• Adjusted EPS of $0.44, growth of 10%
• Company reaffirms guidance

CONMED Corporation (NASDAQ: CNMD) today announced financial results for the third quarter ended September 30, 2014.

Third Quarter 2014 Financial Highlights:

• Sales of $175.0 million decreased 2.4% as reported versus the prior year period.
  
  
• Diluted earnings per share (GAAP) were $0.07, compared to $0.20 in the third quarter of 2013 and were affected by special items as described below.
  
  
• Adjusted diluted earnings per share of $0.44 increased 10% compared to $0.40 in the prior year period.
  
  
• Gross profit margin on a GAAP basis grew 190 basis points to 55.1%. Excluding restructuring costs, adjusted gross profit margin expanded to 55.9% from 55.1% reflecting the continued benefit from the manufacturing consolidation efforts.
  
  

"We are pleased with our results for the quarter, which keep us on track to deliver on our full year revised revenue and earnings commitments. 2014 has been a challenging year in which CONMED has undergone some significant changes. We are working diligently to enhance fundamental strengths of our business to reestablish top line growth while continuing to deliver leveraged earnings growth," commented Curt R. Hartman, Interim Chief Executive Officer. "We thank our shareholders and employees alike who have shared important ideas focused on value creation for all CONMED stakeholders."

Nine-Month 2014 Financial Highlights:

• Sales of $545.1 million decreased 2.5% over the prior year period on a reported basis.
  
  
• Diluted earnings per share (GAAP) were $0.75, compared to $0.91 and were affected by special items as described below.
  
  
• Adjusted diluted earnings per share of $1.39 increased 8.6% compared to $1.28 in the prior year period.
  
  
• Gross profit margin on a GAAP basis grew 120 basis points to 55.0%. Excluding restructuring costs, adjusted gross margin expanded to 55.7% from 55.0% reflecting the continued benefit from the manufacturing consolidation efforts.
  
  

Sales Analysis

For the quarter ended September 2014 domestic sales, (49.7% of total sales) and international sales (50.3% of total sales), each declined 2.4% compared to the third quarter of 2013 on a reported basis. The sales decline in the United States was caused by reduced orthopedic and visualization device revenues. Outside the United States, the decline was caused primarily by reduced export sales to Latin American distributors offset to some degree by sales increases by our European subsidiaries. Changes in foreign currency exchange rates including the effects of the FX hedging program had an immaterial impact on sales in the third quarter of 2014 compared to sales in the third quarter of 2013.

Earnings Analysis

Earnings on a GAAP basis for the September 2014 quarter were significantly affected by costs associated with executive management changes and shareholder activism activities. Adjusting for these special items and others as indicated on the following reconciliation, adjusted net income and EPS increased over the same period of 2013 due to a higher gross margin percentage, and lower selling, general and administrative costs. The income tax rate on adjusted earnings was similar in both periods and equal to 27.7% in the 2014 third quarter compared to 27.4% in the 2013 third quarter.

2014 Outlook

Based on the third quarter results, the Company affirms the previously provided 2014 annual revenue forecast to be in a range of $735 - $745 million, representing a decline of 2.3% to 3.6%. Further, we affirm the 2014 projected annual adjusted diluted net earnings per share guidance to be $1.85 - $1.95, representing an increase of 2.2% to 7.7% over 2013.

The adjusted estimates for the full year 2014 exclude the cost of special items such as restructuring, shareholder activism, and charges related to senior management changes expected to be incurred in 2014. Details of these items through September 2014 are provided in the summary table attached.

CEO Search Update

The CEO Search Committee of the Board of Directors has retained an outside executive search firm and is conducting interviews of potential candidates. Mark Tryniski, Chairman of the Board and the Search Committee stated, "Our search for a permanent CEO is well underway. Both the Committee and the Board are pleased with the progress being made and we are committed to identifying a permanent CEO as expeditiously as possible."

Special Charges

As reconciled on the following schedule, during the third quarter and first nine-months of 2014, the Company continued the on-going consolidation of certain administrative functions and manufacturing activities. Also incurred were costs due to shareholder activism, changes in senior management, litigation and settlement costs associated with patent and legal disputes, the write-off of New York State tax credits eliminated due to a legislative change, and other costs. Expenses associated with these activities, including severance and relocation costs, amounted to $10.2 million, net of tax, in the third quarter of 2014 and $17.8 million, net of tax, for the first nine months of 2014. These charges are included in the GAAP earnings per share set forth above and are excluded from the adjusted results. For the remainder of 2014, the Company presently anticipates incurring additional pre-tax restructuring and other special costs of $4.0 - $5.0 million for matters currently in process.

Use of Non-GAAP Financial Measures

Management has disclosed adjusted financial measurements in this press announcement that present financial information that is not in accordance with generally accepted accounting principles. 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. Adjusted net income, adjusted operating income, adjusted gross margin and adjusted earnings per share measure the income of the Company excluding credits or charges that are considered by management to be outside of the normal on-going operations of the Company. Management uses and presents adjusted net income, adjusted operating income, adjusted gross margin and adjusted earnings per share because management believes that in order to properly understand the Company's short and long-term financial trends, the impact of special items should be eliminated from on-going operating activities. These adjustments for special items are derived from facts and circumstances that vary in frequency and impact on the Company's results of operations. Management uses adjusted net income, adjusted operating income, adjusted gross margin and adjusted 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. Further, the presentation of EBITDA and adjusted EBITDA are non-GAAP measurements that management considers useful for measuring aspects of the Company's cash flow. Adjusted 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 adjusted 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 conduct a conference call and webcast regarding its third quarter 2014 financial results at 4:30 p.m. Eastern Time on Thursday, October 23, 2014. To participate in the conference call, dial 877-703-6103 in the United States, or 857-244-7302 from other locations, and provide passcode 30221985. The webcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through November 30, 2014.

CONMED Profile

CONMED is a medical technology company with an emphasis on 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. Headquartered in Utica, New York, the Company's 3,600 employees distribute its products worldwide from several manufacturing locations. CONMED has a direct selling presence in 16 countries outside the United States and international sales constitute over 50% of the Company's total sales.

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, 2013; (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; (vii) increasing costs for raw material, transportation or litigation; (viii) the risk of a lack of allograft tissues due to reduced donations of such tissues or due to tissues not meeting the appropriate high standards for screening and/or processing of such tissues; and/or (ix) the Company's ability to devise and execute strategies to respond to market conditions.

CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share amounts)
(unaudited)
				Three months ended							Nine months ended
				September 30,							September 30,
				2013			2014				2013			2014
Net sales				$	179,255		$	174,961			$	559,262		$	545,052
Cost of sales					80,570			77,099				251,751			241,274
Cost of sales, other - Note A					3,261			1,448				6,489			3,754
Gross profit					95,424			96,414				301,022			300,024
Selling and administrative expense					73,476			71,237				228,375			219,081
Research and development					7,108			6,910				19,393			20,674
Medical device excise tax					1,427			1,334				4,413			4,052
Other expense - Note B					4,608			14,484				8,514			20,520
					86,619			93,965				260,695			264,327
Income from operations					8,805			2,449				40,327			35,697
Loss on early extinguishment of debt					-			-				263			-
Interest expense					1,382			1,540				4,131			4,572
Income before income taxes					7,423			909				35,933			31,125
Provision (benefit) for income taxes					1,736			(1,063	)			10,221			10,272
Net income				$	5,687		$	1,972			$	25,712		$	20,853
Per share data:
	Net income
		Basic		$	0.21		$	0.07			$	0.93		$	0.76
		Diluted			0.20			0.07				0.91			0.75
	Weighted average common shares
		Basic			27,518			27,454				27,744			27,354
		Diluted			27,834			27,688				28,111			27,777

Note A - Included in cost of sales, other in the three and nine months ended September 30, 2013 and 2014 are costs related to the consolidation of our production facilities. Also included in the three and nine months ended September 30, 2013 are costs associated with the termination of a product offering. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

Note B - Other expense in the three and nine months ended September 30, 2013 and 2014 includes a number of adjusted charges. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(unaudited)
ASSETS
				December 31,				September 30,
				2013				2014
Current assets:
	Cash and cash equivalents			$	54,443			$	64,614
	Accounts receivable, net				140,426				123,327
	Inventories				143,211				162,099
	Income taxes receivable				3,805				4,826
	Deferred income taxes				13,202				10,831
	Prepaid expenses and other current assets				17,045				19,677
		Total current assets			372,132				385,374
Property, plant and equipment, net					138,985				135,825
Deferred income taxes					1,183				1,069
Goodwill					248,428				256,217
Other intangible assets, net					319,440				319,176
Other assets					10,340				11,854
		Total assets		$	1,090,508			$	1,109,515
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Current portion of long-term debt			$	1,140			$	1,187
	Other current liabilities				110,125				120,568
		Total current liabilities			111,265				121,755
Long-term debt					214,435				246,830
Deferred income taxes					113,199				115,520
Other long-term liabilities					45,290				32,692
		Total liabilities			484,189				516,797
Shareholders' equity:
	Capital accounts				228,002				213,826
	Retained earnings				395,889				400,316
	Accumulated other comprehensive loss				(17,572	)			(21,424	)
		Total equity			606,319				592,718
		Total liabilities and shareholders' equity		$	1,090,508			$	1,109,515

CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
				Nine months ended
				September 30,
				2013				2014
Cash flows from operating activities:
Net income				$	25,712			$	20,853
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					35,541				34,020
Stock-based compensation					4,102				7,691
Loss on early extinguishment of debt					263				-
Deferred income taxes					6,802				(1,121	)
	Increase (decrease) in cash flows from changes in assets and liabilities:
		Accounts receivable			8,811				13,699
		Inventories			(5,581	)			(30,023	)
		Accounts payable			2,019				1,812
		Income taxes receivable (payable)			(3,262	)			891
		Accrued compensation and benefits			(7,352	)			(2,507	)
		Other assets			(2,636	)			375
		Other liabilities			(10,781	)			(6,161	)
Net cash provided by operating activities					53,638				39,529
Cash flow from investing activities:
		Payments related to a business acquisition			-				(1,245	)
		Purchases of property, plant, and equipment			(13,552	)			(12,250	)
Net cash used in investing activities					(13,552	)			(13,495	)
Cash flow from financing activities:
		Payments on debt			(742	)			(558	)
		Proceeds of debt			64,000				33,000
		Payments related to distribution agreement			(34,000	)			(16,667	)
		Dividends paid on common stock			(12,568	)			(16,455	)
		Payments related to issuance of debt			(1,725	)			-
		Net proceeds from common stock issued under employee plans			13,027				1,716
		Repurchase of common stock			(44,729	)			(16,862	)
		Other, net			2,975				3,220
Net cash used in financing activities					(13,762	)			(12,606	)
Effect of exchange rate change on cash and cash equivalents					(213	)			(3,257	)
Net increase in cash and cash equivalents					26,111				10,171
Cash and cash equivalents at beginning of period					23,720				54,443
Cash and cash equivalents at end of period				$	49,831			$	64,614

CONMED CORPORATION
Sales Summary
(In millions)
		Three Months Ended September 30,
		2013			2014			Growth			Constant Currency Growth
Orthopedic surgery		$	95.6		$	92.8		-2.9	%		-3.2	%
General surgery			69.9			69.7		-0.3	%		-0.3	%
Surgical visualization			13.8			12.5		-9.4	%		-9.4	%
		$	179.3		$	175.0		-2.4	%		-2.6	%
Single-use products		$	145.9		$	142.4		-2.4	%		-2.5	%
Capital products			33.4			32.6		-2.4	%		-2.7	%
		$	179.3		$	175.0		-2.4	%		-2.6	%
		Nine Months Ended September 30,
		2013			2014			Growth			Constant Currency Growth
Orthopedic surgery		$	302.4		$	301.1		-0.4	%		-0.1	%
General surgery			210.0			203.9		-2.9	%		-2.6	%
Surgical visualization			46.9			40.1		-14.5	%		-14.7	%
		$	559.3		$	545.1		-2.5	%		-2.3	%
Single-use products		$	447.5		$	439.0		-1.9	%		-1.6	%
Capital products			111.8			106.1		-5.1	%		-5.0	%
		$	559.3		$	545.1		-2.5	%		-2.3	%

CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
Three Months Ended September 30, 2013 and 2014
(In thousands except per share amounts)
(unaudited)
			2013				2014
Reported net income			$	5,687			$	1,972
Costs associated with termination of a product offering				2,137				-
Facility consolidation costs included in cost of sales				1,124				1,448
	Total cost of sales			3,261				1,448
Administrative consolidation costs				3,133				648
Patent dispute and other matters				1,475				39
Shareholder activism costs				-				2,441
Management restructuring costs				-				11,022
Business acquisition costs				-				334
	Total other expense			4,608				14,484
Adjusted expense before income taxes				7,869				15,932
Provision (benefit) for income taxes on adjusted expenses				(2,459	)			(5,736	)
Adjusted net income			$	11,097			$	12,168
Per share data:
Reported net income
	Basic		$	0.21			$	0.07
	Diluted			0.20				0.07
Net income before adjusted items
	Basic		$	0.40			$	0.44
	Diluted			0.40				0.44

Management has provided the above reconciliation of net income to adjusted net income 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.

CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
Nine Months Ended September 30, 2013 and 2014
(In thousands except per share amounts)
(unaudited)
			2013				2014
Reported net income			$	25,712			$	20,853
Costs associated with termination of a product offering				2,137				-
Facility consolidation costs included in cost of sales				4,352				3,754
	Total cost of sales			6,489				3,754
Administrative consolidation costs				6,303				1,855
Patent dispute & settlement costs, and other matters				2,211				3,233
Shareholder activism costs				-				3,966
Management restructuring costs				-				11,022
Business acquisition costs				-				444
	Total other expense			8,514				20,520
Loss on early extinguishment of debt				263				-
Adjusted expense before income taxes				15,266				24,274
Provision (benefit) for income taxes on adjusted expenses				(5,122	)			(8,739	)
New York State corporate tax reform				-				2,258
Adjusted net income			$	35,856			$	38,646
Per share data:
Reported net income
	Basic		$	0.93			$	0.76
	Diluted			0.91				0.75
Net income before adjusted items
	Basic		$	1.29			$	1.41
	Diluted			1.28				1.39

Management has provided the above reconciliation of net income to adjusted net income 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.

CONMED CORPORATION
RECONCILIATION OF GROSS MARGIN TO ADJUSTED GROSS MARGIN
(In thousands)
(unaudited)
			Three months ended								Nine months ended
			September 30,								September 30,
			2013				2014				2013				2014
Net sales			$	179,255			$	174,961			$	559,262			$	545,052
Cost of sales, total				83,831				78,547				258,240				245,028
Gross profit				95,424				96,414				301,022				300,024
Add: Cost of sales, other				3,261				1,448				6,489				3,754
Adjusted gross profit			$	98,685			$	97,862			$	307,511			$	303,778
Gross margin:
	Reported			53.2	%			55.1	%			53.8	%			55.0	%
	Adjusted			55.1	%			55.9	%			55.0	%			55.7	%

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

CONMED CORPORATION
RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED
INCOME FROM OPERATIONS
(In thousands)
(unaudited)
			Three months ended								Nine months ended
			September 30,								September 30,
			2013				2014				2013				2014
Reported income from operations			$	8,805			$	2,449			$	40,327			$	35,697
Costs associated with termination of a product offering included in cost of sales				2,137				-				2,137				-
Facility consolidation costs included in cost of sales				1,124				1,448				4,352				3,754
Administrative consolidation costs included in other expense				3,133				648				6,303				1,855
Patent dispute & settlement costs, and other matters included in other expense				1,475				39				2,211				3,233
Shareholder activism costs included in other expense				-				2,441				-				3,966
Management restructuring costs included in other expense				-				11,022				-				11,022
Costs associated with a business acquisition included in other expense				-				334				-				444
Adjusted income from operations			$	16,674			$	18,381			$	55,330			$	59,971
Operating Margin
	Reported			4.9	%			1.4	%			7.2	%			6.5	%
	Adjusted			9.3	%			10.5	%			9.9	%			11.0	%

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO EBITDA & ADJUSTED EBITDA
(In thousands)
(unaudited)
			Three months ended								Nine months ended
			September 30,								September 30,
			2013				2014				2013				2014
Net income			$	5,687			$	1,972			$	25,712			$	20,853
Provision (benefit) for income taxes				1,736				(1,063	)			10,221				10,272
Interest expense				1,382				1,540				4,131				4,572
Loss on early extinguishment of debt				-				-				263				-
Depreciation				4,533				5,229				13,701				14,702
Amortization				7,046				6,341				21,427				18,880
EBITDA			$	20,384			$	14,019			$	75,455			$	69,279
Stock-based compensation				1,606				1,646				4,102				4,164
Costs associated with termination of a product offering included in cost of sales				2,137				-				2,137				-
Facility consolidation costs included in cost of sales				1,124				1,448				4,352				3,754
Administrative consolidation costs included in other expense				3,133				648				6,303				1,855
Patent dispute & settlement costs, and other matters included in other expense				1,475				39				2,211				3,233
Shareholder activism costs included in other expense				-				2,441				-				3,966
Management restructuring costs included in other expense				-				11,022				-				11,022
Costs associated with a business acquisition included in other expense				-				334				-				444
Adjusted EBITDA			$	29,859			$	31,597			$	94,560			$	97,717
EBITDA Margin
	EBITDA			11.4	%			8.0	%			13.5	%			12.7	%
	Adjusted EBITDA			16.7	%			18.1	%			16.9	%			17.9	%

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section "Use of Non-GAAP Financial Measures" above.

CONTACT:
CONMED Corporation
Robert Shallish
Chief Financial Officer
315-624-3206

Source: CONMED Corporation