News Release
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CONMED Corporation Announces Second Quarter 2008 Financial Results
-- EPS Equals $0.43 - Exceeds Expectations
-- Record Quarterly Sales of $192.8 Million - 13.9% Growth
-- Increasing 2008 Sales and EPS Guidance
-- Conference Call to be Held at 10:00 a.m. ET Today
UTICA, N.Y.--(BUSINESS WIRE)--July 24, 2008--CONMED Corporation (Nasdaq: CNMD) today announced that it had better than expected second quarter 2008 sales growth of 13.9% over the second quarter of 2007. These sales drove a 34% expansion of earnings per share when compared to GAAP EPS in the second quarter 2007 and 23% when compared to non-GAAP adjusted EPS. 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 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.
"CONMED's focus on execution of our plan to expand our profitability at a rate faster than the top-line growth was the driving force behind our successful second quarter. The sales growth this quarter was a result of stronger worldwide sales across our product portfolio with particular strength internationally. Given the strong financial performance for the first half of 2008 and our confidence in the remainder of the year, we have increased our guidance for the full year 2008," commented Mr. Joseph J. Corasanti, President and Chief Executive Officer.
Year-Over-Year Quarterly Highlights
-- GAAP EPS grew to $0.43
-- 34% increase vs. 2Q 2007 GAAP EPS of $0.32
-- 23% increase vs. 2Q 2007 non-GAAP EPS of $0.35
-- Quarterly Sales Increase to $192.8 million - a new quarterly
record
-- 13.9% increase vs. 2Q 2007 reported revenues
-- 10.9% increase in constant currency
Year-Over-Year Six Months' Highlights
-- GAAP EPS grew 9% to $0.81 compared to $0.74 (2007 first half
includes a non-recurring litigation gain)
-- Non-GAAP EPS grew 28% to $0.83 compared to $0.65
-- Six-month sales increase to $383.5 million
-- 12.7% increase vs. 1st Half 2007 reported revenues
-- 9.4% increase in constant currency
Sales within the United States for the quarter ended June 2008 increased to $104.3 million, a growth of 5.5% compared to the same quarter in 2007. Sales outside the United States were $88.5 million in the second quarter of 2008, growing 25.7% overall and 18.4% on a constant currency basis compared to the second quarter of 2007. International sales in the June 2008 quarter were 45.9% of the Company's total sales compared to 41.6% of sales in the second quarter last year. Foreign currency exchange rates were favorable to the Company in the second quarter 2008 compared to exchange rates in effect during the second quarter of 2007. As a result, sales were higher by $5.1 million than would have been the case had currency rates remained constant.
In January 2008, the Company completed the purchase of the Italian distributor of CONMED's products for a purchase price of approximately $21.6 million. In connection with the acquisition, in the first quarter of 2008, the Company recorded a $1.0 million fair value adjustment to inventory acquired as a result of the acquisition; the inventory was subsequently sold in the first quarter of 2008.
CONMED's cash flow for the first half of 2008 was strong with cash from operations totaling $35.1 million compared to $25.8 million in the first half of 2007. This cash was used to purchase the Italian distributor, fund capital expenditures and increase the Company's cash balance by $6 million since the end of 2007.
Over the past twelve months the Company has embarked on a number of initiatives to improve manufacturing efficiency, including the use of lean manufacturing techniques. This efficiency program, together with the beneficial effects of foreign currency exchange rates and the effects of the purchase of the Italian distributor, has improved the Company's gross margin percentage to 52.3% of sales from 50.7% of sales in the second quarter of 2007. Further, the Company has developed an operational restructuring plan to be carried out over the next 18 months including the following:
-- Construction and operation of a 170,000 square foot
manufacturing facility in Chihuahua, Mexico
-- Closure of two of the Company's manufacturing facilities in
the Utica, New York area with the related operational transfer
to either our headquarters location in Utica or to the new
facility in Chihuahua.
-- Centralization of certain of the Company's distribution
activities in a new North American distribution center to be
located in Atlanta, Georgia.
During the execution of this plan, the Company expects it may incur certain charges including severance costs associated with the release of approximately 100-150 positions, and the cost of restructuring and relocation activities.
Following is a summary of the Company's sales by product line for the three months ended June 30, 2008:
Three Months Ended June 30,
--------------------------------------
Constant
Currency
2007 2008 Growth Growth
-------- -------- -------- ---------
(in millions)
Arthroscopy $ 64.9 $ 76.6 18.0% 14.2%
Powered Surgical Instruments 36.0 39.9 10.8% 5.9%
Electrosurgery 22.1 25.8 16.7% 15.3%
Endoscopic Technologies 13.4 13.4 -% -1.3%
Endosurgery 15.5 17.3 11.6% 9.6%
Patient Care 17.4 19.8 13.8% 13.5%
-------- -------- -------- ---------
$ 169.3 $ 192.8 13.9% 10.9%
======== ======== ======== =========
The Company's sports medicine Arthroscopy line grew 18.0% over second quarter 2007 on strong sales of single-use surgical devices and placements of integrated operating room systems. Powered Surgical Instruments increased its sales 10.8% as a result of strong growth in international markets. Electrosurgery sales growth was led by improved sales of electrosurgical power units. Endosurgery and Patient Care double digit growth was fueled by higher sales in both domestic and international markets. Endoscopic Technologies experienced flat sales growth when compared to the second quarter of 2007, but demonstrated sequential revenue improvement from the first quarter of 2008.
Following is a summary of the Company's sales by product line for the six months ended June 30, 2008:
Six Months Ended June 30,
--------------------------------------
Constant
Currency
2007 2008 Growth Growth
-------- -------- ------ ----------
(in millions)
Arthroscopy $ 127.1 $ 152.3 19.8% 15.4%
Powered Surgical Instruments 73.6 80.1 8.8% 3.6%
Electrosurgery 46.1 52.5 13.9% 12.4%
Endoscopic Technologies 26.6 25.9 -2.6% -4.1%
Endosurgery 29.1 32.5 11.7% 9.6%
Patient Care 37.8 40.2 6.3% 5.9%
-------- -------- ------ ----------
$ 340.3 $ 383.5 12.7% 9.4%
======== ======== ====== ==========
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 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.
Outlook
Mr. Corasanti noted, "As was the case in the first quarter of this year, the Company has outperformed our original financial expectations for the second quarter. Further, our outlook for the remainder of 2008 continues to be positive. For the third quarter of 2008, we anticipate revenues in the range of $175-$180 million and non-GAAP diluted earnings per share (excluding unusual charges) of $0.32 - $0.36. For the full year of 2008, we are again increasing our earnings guidance based on the better than expected results of the first six months of 2008. Accordingly, we foresee full year 2008 sales of $755-$760 million and non-GAAP diluted earnings per share approximating $1.56 - $1.64, excluding unusual items."
At this time, the Company is unable to provide GAAP diluted earnings per share guidance for the third quarter of 2008 and for the full year of 2008 because it is unable to estimate unusual credits or charges that may be recorded in the third or fourth quarter of 2008.
Conference Call
The Company will webcast its second quarter 2008 conference call live over the Internet on Thursday, July 24, 2008 at 10:00 a.m. Eastern Time. This broadcast can be accessed from CONMED's web site at www.conmed.com. Replays of the call will be made available through July 31, 2008.
CONMED Profile
CONMED is a medical technology company with an emphasis on surgical devices and equipment for minimally invasive procedures and 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 3,200 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, 2007; (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
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
2007 2008 2007 2008
--------- -------- --------- --------
Net sales $169,258 $192,755 $340,272 $383,528
Cost of sales 83,398 91,865 169,187 183,863
Cost of sales, acquisition-
Note A - - - 1,011
--------- -------- --------- --------
Gross profit 85,860 100,890 171,085 198,654
--------- -------- --------- --------
Selling and administrative 58,207 69,549 118,012 138,195
Research and development 7,453 8,689 15,047 16,767
Other expense (income) - Note B 1,312 - (4,102) -
--------- -------- --------- --------
66,972 78,238 128,957 154,962
--------- -------- --------- --------
Income from operations 18,888 22,652 42,128 43,692
Interest expense 4,329 2,439 8,845 5,613
--------- -------- --------- --------
Income before income taxes 14,559 20,213 33,283 38,079
Provision for income taxes 5,214 7,758 12,016 14,614
--------- -------- --------- --------
Net income $ 9,345 $ 12,455 $ 21,267 $ 23,465
========= ======== ========= ========
Per share data:
Net Income
Basic $ .33 $ .43 $ .76 $ .82
Diluted .32 .43 .74 .81
Weighted average common shares
Basic 28,180 28,662 27,988 28,643
Diluted 28,831 29,063 28,608 29,035
Note A - Included in cost of sales in the six months ended June 30, 2008 is a $1.0 million fair value adjustment as a result of purchase accounting for inventory which was subsequently sold.
Note B - Included in other expense (income) in the three months ended June 30, 2007 are $1.2 million in facility closure costs and $0.1 million in costs related to the termination of a product offering. Included in other expense (income) in the six months ended June 30, 2007 are $1.8 million in facility closure costs, $0.2 million in costs related to the termination of a product offering and a $6.1 million gain on a legal settlement.
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
December 31, June 30,
2007 2008
------------ --------
Current assets:
Cash and cash equivalents $ 11,695 $ 17,850
Accounts receivable, net 80,642 106,317
Inventories 164,969 161,057
Deferred income taxes 11,697 11,664
Other current assets 10,019 9,971
------------ --------
Total current assets 279,022 306,859
Property, plant and equipment, net. 123,679 134,805
Goodwill 289,508 289,767
Other intangible assets, net 191,807 198,021
Other assets 9,935 8,595
------------ --------
Total assets $ 893,951 $938,047
============ ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,349 $ 3,830
Other current liabilities 73,935 72,255
------------ --------
Total current liabilities 77,284 76,085
Long-term debt 219,485 224,791
Deferred income taxes 71,188 84,512
Other long-term liabilities 20,992 18,623
------------ --------
Total liabilities 388,949 404,011
------------ --------
Shareholders' equity:
Capital accounts 220,657 223,664
Retained earnings 284,850 307,997
Accumulated other comprehensive income (loss) (505) 2,375
------------ --------
Total equity 505,002 534,036
------------ --------
Total liabilities and shareholders' equity $ 893,951 $938,047
============ ========
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
June 30,
-------------------
2007 2008
--------- ---------
Cash flows from operating activities:
Net income $ 21,267 $ 23,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,400 15,529
Stock-based compensation expense 1,885 2,094
Deferred income taxes 10,470 12,360
Sale of accounts receivable 2,000 (3,000)
Increase (decrease) in cash flows from changes
in assets and liabilities:
Accounts receivable (3,924) (4,768)
Inventories (15,150) 3,028
Accounts payable (2,579) (5,299)
Income taxes receivable (payable) (1,809) 670
Accrued compensation and benefits (2,388) (843)
Accrued interest 59 (132)
Other assets 619 (1,081)
Other liabilities ( 52) (6,937)
--------- ---------
Net cash provided by operating activities 25,798 35,086
--------- ---------
Cash flow from investing activities:
Purchases of property, plant, and equipment (9,556) (15,212)
Payments related to business acquisitions (1,278) (21,838)
--------- ---------
Net cash used in investing activities (10,834) (37,050)
--------- ---------
Cash flow from financing activities:
Payments on debt (26,797) (1,213)
Proceeds of debt - 7,000
Net proceeds from common stock issued under
employee plans 10,604 595
Other, net (236) -
--------- ---------
Net cash provided by (used in) financing
activities (16,429) 6,382
--------- ---------
Effect of exchange rate change on cash and cash
equivalents 1,513 1,737
--------- ---------
Net increase in cash and cash equivalents 48 6,155
Cash and cash equivalents at beginning of period 3,831 11,695
--------- ---------
Cash and cash equivalents at end of period $ 3,879 $ 17,850
========= =========
CONMED CORPORATION
RECONCILIATION OF REPORTED NET INCOME TO NET INCOME
BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
Three months ended
June 30,
------------------
2007 2008
---------- -------
Reported net income $ 9,345 $12,455
---------- -------
Termination of product offering 58 -
Facility closure costs 1,254 -
---------- -------
Total other expense 1,312 -
---------- -------
Unusual expense before income taxes 1,312 -
Provision (benefit) for income taxes on unusual
expense (472) -
---------- -------
Net income before unusual items. $10,185 $12,455
========== =======
Per share data:
Reported net income
Basic $ 0.33 $ 0.43
Diluted 0.32 0.43
Net income before unusual items
Basic $ 0.36 $ 0.43
Diluted 0.35 0.43
Management has provided the above reconciliation of net income before unusual items 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 NET INCOME
BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
Six months ended
June 30,
-----------------
2007 2008
-------- --------
Reported net income $21,267 $23,465
-------- --------
Fair value inventory adjustment from purchase
accounting included in cost of sales - 1,011
-------- --------
Termination of product offering 148 -
Facility closure costs 1,822 -
Gain on legal settlement (6,072) -
-------- --------
Total other expense (income) (4,102) -
-------- --------
Unusual expense (income) before income taxes (4,102) 1,011
Provision (benefit) for income taxes on unusual
expense 1,477 (364)
-------- --------
Net income before unusual items. $18,642 $24,112
======== ========
Per share data:
Reported net income
Basic $ 0.76 $ 0.82
Diluted 0.74 0.81
Net income before unusual items
Basic $ 0.67 $ 0.84
Diluted 0.65 0.83
Management has provided the above reconciliation of net income before unusual items 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.
CONTACT: CONMED Corporation
Robert Shallish, 315-624-3206
Chief Financial Officer
or
FD
Investors:
Brian Ritchie/Theresa Kelleher, 212-850-5600
SOURCE: CONMED Corporation