UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 27, 2016
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
| New York | 0-16093 | 16-0977505 |
| (State or other jurisdiction of | (Commission | (I.R.S. Employer |
| incorporation or organization) | File Number) | Identification No.) |
525 French Road
Utica, New York 13502
(Address of principal executive offices, including zip code)
(315) 797-8375
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (See General Instruction A.2 below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Section 2 | Financial Information |
| Item 2.02 | Results of Operations and Financial Condition. |
On April 27, 2016, CONMED Corporation issued a press release announcing financial results for the first quarter of 2016. A copy of this press release is attached hereto as Exhibit 99.1.
The information in this Current Report on Form 8-K that is furnished under “Item 2.02. Results of Operations and Financial Condition” and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
| Section 9 | Financial Statements and Exhibits |
| Item 9.01 | Financial Statements and Exhibits. |
| (c) | Exhibits |
The following exhibit is included herewith:
| Exhibit No. | Description of Exhibit | |
| 99.1 | Press Release dated April 27, 2016, issued by CONMED Corporation. |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CONMED CORPORATION | ||
| (Registrant) | ||
| By: | /s/ Luke A. Pomilio | |
| Name: | Luke A. Pomilio | |
| Title: | Executive Vice President-Finance and | |
| Chief Financial Officer | ||
Date: April 27, 2016
EXHIBIT INDEX
| Exhibit | |
| Number | Exhibit Description |
| 99.1 | Press Release, dated April 27, 2016, issued by CONMED Corporation. |
 |
NEWS RELEASE |
| CONTACT: | |
| CONMED Corporation | |
| Luke A. Pomilio | |
| Chief Financial Officer | |
| 315-624-3202 | |
| LukePomilio@conmed.com |
CONMED Corporation Announces First Quarter 2016 Financial Results
Utica, New York, April 27, 2016 --- CONMED Corporation (Nasdaq: CNMD) today announced financial results for the first quarter ended March 31, 2016.
First Quarter 2016 Highlights
| · | Sales were $181.2 million, an increase of 1.8% compared to the first quarter of 2015. On a constant currency basis, sales increased 5.0% over the prior-year period. |
| · | GAAP gross margin expanded 200 basis points year over year to 53.9%. |
| · | Adjusted gross margin expanded 120 basis points year over year to 54.4%. |
| · | Diluted net loss per share (GAAP) was $0.08, compared to diluted net earnings per share (GAAP) of $0.23 in the first quarter of 2015. |
| · | Adjusted diluted net earnings per share(1) were $0.42 versus $0.49 in the prior-year period. |
| · | Revising 2016 guidance for reported sales and adjusted diluted net earnings per share higher due to updated foreign exchange impact. |
| · | Completed the acquisition of SurgiQuest, Inc. on January 4, 2016. |
| · | Added Martha Goldberg Aronson to its Board of Directors. |
“We accomplished several important milestones in the quarter, and we are pleased with our sales growth in General Surgery. Further, the contribution from the AirSeal® System was in line with our expectations,” commented Curt R. Hartman, CONMED’s President and Chief Executive Officer. “Despite a slow start to the year for capital sales in the international markets, we saw growth in all three of our main product categories domestically, with U.S. Orthopedics posting its third consecutive quarter of positive growth. We remain confident in our financial outlook for the year as investments in our strategic initiatives and in product development translate into further operating improvements.”
Sales Analysis
For the quarter ended March 31, 2016, domestic sales, which represented 53.0% of total revenue, increased 10.4% as a result of growth across all three of the Company’s product categories, led by General Surgery. The SurgiQuest acquisition contributed to 19.4% year-over-year growth in the U.S. General Surgery business. International sales, which represented 47.0% of total revenue, declined 6.4% compared to the first quarter of 2015 on a reported basis. Foreign currency exchange rates, including the effects of the FX hedging program, had a negative impact of $5.7 million on first quarter sales. In constant currency, international sales decreased 0.3% versus the prior-year period.
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Earnings Analysis
For the quarter ended March 31, 2016, reported net loss totaled $2.3 million, compared to reported net earnings of $6.3 million a year ago. Reported diluted net loss per share was $0.08 in the quarter, compared to reported diluted net earnings per share of $0.23 in the prior-year period. Reported net loss for 2016 includes business acquisition, restructuring, and debt refinancing costs, and reported net earnings for 2015 include restructuring costs. The effect of each of these items on reported net earnings/loss and reported diluted net earnings/loss per share appears in the reconciliation of GAAP to non-GAAP measures below.
As previously announced, beginning in 2016, the Company is excluding after-tax costs of special items including acquisitions, restructuring, and debt refinancing, 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 $11.6 million decreased 15.3% year over year and adjusted diluted net earnings per share (1) of $0.42 decreased 14.3% year over year. The decline in adjusted net earnings was largely attributable to the impact of unfavorable foreign exchange rates, partially offset by a lower tax rate and improved gross margin during the quarter.
2016 Outlook
The Company is revising its 2016 guidance for reported sales and adjusted diluted net earnings per share higher due to the updated foreign exchange impact anticipated for the year. The Company now forecasts reported 2016 sales in the range of $768 to $778 million, compared to the previous range of $760 to $770 million. This revenue forecast includes constant currency organic sales growth of 1% to 3%, sales related to the SurgiQuest acquisition of $55 to $60 million, and an updated negative impact of foreign exchange of $13 to $15 million (based on foreign currency exchange rates as of April 22, 2016).
Based on its revised 2016 reported sales estimate range of $768 to $778 million, the Company now forecasts 2016 adjusted diluted net earnings per share in the range of $1.95 to $2.05, compared to the previous range of $1.85 to $1.95, which reflects the favorable movement in foreign exchange rates. The adjusted diluted net earnings per share estimates for 2016 exclude the cost of special items including acquisition costs, restructuring costs, and debt refinancing, which are estimated in the range of $18 to $20 million, net of tax, and amortization of intangible assets, which are now estimated in the range of $12 to $14 million, net of tax, compared to the previous range of $14 to $16 million, net of tax, based on the close of the SurgiQuest transaction.
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.
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(2) A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure appears below.
In conjunction with this earnings press release, CONMED has prepared supplemental financial disclosures which are available on the home page of the “Investors – Financial Reports” section of the Company’s web site at www.conmed.com.
Conference Call
The Company’s management will host a conference call today at 4:30 p.m. ET to discuss its first quarter 2016 results.
To participate in the conference call, dial 877-573-5235 (domestic) or 503-406-4448 (international) and enter the passcode 83879064.
This conference call will also be webcast and can be accessed from the “Investors” section of CONMED's website 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 27, 2016 until 11:59 p.m. ET on Wednesday, May 4, 2016. To hear this recording, dial 855-859-2056 (domestic) or 404-537-3406 (international) and enter the passcode 83879064.
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. The Company distributes its products worldwide from several manufacturing locations. 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 3,400 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 risks factors discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015. 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.
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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 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 our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results and provide a baseline for analyzing trends in the Company’s underlying businesses. 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 our 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 our 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, effective income tax rate, net earnings 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 our operations that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures below, provide a more complete understanding of our business. The Company strongly encourages investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
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Consolidated Condensed Statements of Income (Loss)
(in thousands, except per share amounts, unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| Net sales | $ | 181,201 | $ | 177,940 | ||||
| Cost of sales | 83,461 | 85,658 | ||||||
| Gross profit | 97,740 | 92,282 | ||||||
| % of sales | 53.9% | 51.9% | ||||||
| Selling and administrative expense | 85,943 | 74,786 | ||||||
| Research & development | 8,258 | 6,542 | ||||||
| Income from operations | 3,539 | 10,954 | ||||||
| % of sales | 2.0% | 6.2% | ||||||
| Other expense | 2,942 | — | ||||||
| Interest expense | 3,830 | 1,460 | ||||||
| Income (loss) before income taxes | (3,233 | ) | 9,494 | |||||
| Provision (benefit) for income taxes | (968 | ) | 3,182 | |||||
| Net income (loss) | $ | (2,265 | ) | $ | 6,312 | |||
| Basic EPS | $ | (0.08 | ) | $ | 0.23 | |||
| Diluted EPS | $ | (0.08 | ) | $ | 0.23 | |||
| Basic shares | 27,721 | 27,573 | ||||||
| Diluted shares | 27,721 | 27,820 | ||||||
Consolidated Condensed Balance Sheets
(in thousands, unaudited)
| March 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | 19,894 | $ | 72,504 | ||||
| Accounts receivable, net | 134,412 | 133,863 | ||||||
| Inventories | 185,108 | 166,894 | ||||||
| Other current assets | 28,520 | 20,076 | ||||||
| Total Current Assets | 367,934 | 393,337 | ||||||
| Property, plant and equipment, net | 126,827 | 125,452 | ||||||
| Goodwill | 398,387 | 260,651 | ||||||
| Other intangible assets, net | 434,196 | 308,171 | ||||||
| Other assets | 15,439 | 14,089 | ||||||
| Total Assets | $ | 1,342,783 | $ | 1,101,700 | ||||
| Liabilities and Shareholders' Equity: | ||||||||
| Current liabilities | $ | 103,158 | $ | 119,718 | ||||
| Long-term debt, excluding current maturities | 511,598 | 269,471 | ||||||
| Other liabilities | 145,738 | 127,438 | ||||||
| Shareholders' equity | 582,289 | 585,073 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 1,342,783 | $ | 1,101,700 | ||||
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Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2016 and March 31, 2015
(in thousands, unaudited)
| 2016 | 2015 | |||||||
| Operating Activities | ||||||||
| Net income (loss) | $ | (2,265 | ) | $ | 6,312 | |||
| Depreciation and amortization | 13,258 | 10,170 | ||||||
| Changes in operating assets and liabilities and other, net | (28,273 | ) | (1,673 | ) | ||||
| Net cash provided by (used in) operating activities | (17,280 | ) | 14,809 | |||||
| Investing Activities | ||||||||
| Payments related to business acquisitions, net of cash acquired | (256,424 | ) | (853 | ) | ||||
| Purchases of property, plant and equipment | (2,789 | ) | (4,061 | ) | ||||
| Net cash used in investing activities | (259,213 | ) | (4,914 | ) | ||||
| Financing Activities | ||||||||
| Payments on debt | (2,188 | ) | — | |||||
| Proceeds of debt | 253,005 | 17,000 | ||||||
| Payments related to debt issue costs | (5,556 | ) | — | |||||
| Payment related to distribution agreement | (16,667 | ) | (16,667 | ) | ||||
| Dividend payments on common stock | (5,542 | ) | (5,510 | ) | ||||
| Other, net | 110 | 543 | ||||||
| Net cash provided by (used in) financing activities | 223,162 | (4,634 | ) | |||||
| Effect of exchange rate change on cash and cash equivalents | 721 | (5,864 | ) | |||||
| Net decrease in cash and cash equivalents | (52,610 | ) | (603 | ) | ||||
| Cash and cash equivalents at beginning of period | 72,504 | 66,332 | ||||||
| Cash and cash equivalents at end of period | $ | 19,894 | $ | 65,729 | ||||
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Sales Summary
(in millions, unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||||||||||
| % Change | ||||||||||||||||||||||||||||
| Domestic | International | |||||||||||||||||||||||||||
| 2016 | 2015 | As Reported | Constant Currency | As Reported | As Reported | Constant Currency | ||||||||||||||||||||||
| Orthopedic Surgery | $ | 93.4 | $ | 98.6 | -5.2% | -1.2% | 0.9% | -9.0% | -2.5% | |||||||||||||||||||
| General Surgery | 75.9 | 66.1 | 14.9% | 16.7% | 19.4% | 6.1% | 11.2% | |||||||||||||||||||||
| Surgical Visualization | 11.9 | 13.2 | -10.7% | -7.7% | 4.0% | -22.9% | -17.5% | |||||||||||||||||||||
| $ | 181.2 | $ | 177.9 | 1.8% | 5.0% | 10.4% | -6.4% | -0.3% | ||||||||||||||||||||
| Single-use products | $ | 144.9 | $ | 140.1 | 3.4% | 6.7% | 8.3% | -1.8% | 4.9% | |||||||||||||||||||
| Capital products | 36.3 | 37.8 | -4.0% | -1.1% | 21.3% | -19.4% | -15.1% | |||||||||||||||||||||
| $ | 181.2 | $ | 177.9 | 1.8% | 5.0% | 10.4% | -6.4% | -0.3% | ||||||||||||||||||||
| Domestic | $ | 96.1 | $ | 87.0 | 10.4% | 10.4% | ||||||||||||||||||||||
| International | 85.1 | 90.9 | -6.4% | -0.3% | ||||||||||||||||||||||||
| $ | 181.2 | $ | 177.9 | 1.8% | 5.0% | |||||||||||||||||||||||
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Reconciliation of Reported Net Earnings to Adjusted Net Earnings
(in thousands, except per share amounts, unaudited)
| Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||||||
| Gross Profit | Selling & Administrative Expense | Operating Income | Other Expense | Tax Expense | Effective Tax Rate | Net Income (Loss) | Diluted 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 (2) | — | (9,045 | ) | 9,045 | — | 2,872 | 6,173 | 0.22 | ||||||||||||||||||||||||
| Debt refinancing costs (3) | — | — | — | (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 | ||||||||||||||||||||||||||||
| Three Months Ended March 31, 2015 | ||||||||||||||||||||||||||||||||
| Gross Profit | Selling & Administrative Expense | Operating Income | Other Expense | Tax Expense | Effective Tax Rate | Net Income | Diluted EPS | |||||||||||||||||||||||||
| As reported | $ | 92,282 | $ | 74,786 | $ | 10,954 | $ | — | $ | 3,182 | 33.5% | $ | 6,312 | $ | 0.23 | |||||||||||||||||
| % of sales | 51.9% | 42.0% | 6.2% | |||||||||||||||||||||||||||||
| Restructuring costs(1) | 2,329 | (6,180 | ) | 8,509 | — | 3,064 | 5,445 | 0.19 | ||||||||||||||||||||||||
| $ | 94,611 | $ | 68,606 | $ | 19,463 | $ | — | $ | 6,246 | 34.7% | $ | 11,757 | $ | 0.42 | ||||||||||||||||||
| % of sales | 53.2% | 38.6% | 10.9% | |||||||||||||||||||||||||||||
| Amortization of intangible assets | $ | 1,500 | $ | (1,549 | ) | $ | 3,049 | $ | — | $ | 1,098 | 1,951 | 0.07 | |||||||||||||||||||
| Adjusted earnings | $ | 13,708 | $ | 0.49 | ||||||||||||||||||||||||||||
(1) In 2016 and 2015, the Company restructured certain sales, marketing, and administrative functions and incurred severance and other related costs. Additionally, in 2015, the Company continued and substantially completed the operational restructuring, including the consolidation of its Centennial, Colorado manufacturing operations into other existing CONMED manufacturing facilities.
(2) In 2016, the Company incurred investment banking fees, consulting fees, legal fees and integration related costs associated with the acquisition of SurgiQuest, Inc.
(3) 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.
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Reconciliation of Reported Net Income to EBITDA & Adjusted EBITDA
(in thousands, unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2016 | 2015 | |||||||
| Net income (loss) | $ | (2,265 | ) | $ | 6,312 | |||
| Provision (benefit) for income taxes | (968 | ) | 3,182 | |||||
| Interest expense | 3,830 | 1,460 | ||||||
| Depreciation | 4,986 | 4,633 | ||||||
| Amortization | 8,012 | 5,390 | ||||||
| EBITDA | $ | 13,595 | $ | 20,977 | ||||
| Stock based compensation | 1,769 | 1,256 | ||||||
| Restructuring costs | 3,655 | 8,509 | ||||||
| Business acquisition | 9,045 | — | ||||||
| Debt refinancing costs | 2,942 | — | ||||||
| Adjusted EBITDA | $ | 31,006 | $ | 30,742 | ||||
| EBITDA Margin | ||||||||
| EBITDA | 7.5% | 11.8% | ||||||
| Adjusted EBITDA | 17.1% | 17.3% | ||||||
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