CONMED Corporation (Nasdaq: CNMD) today announced financial
results for the third quarter of 2007.
Net income, on a GAAP basis, for the third quarter increased 151% to
$8.4 million, or $0.29 per diluted share, compared to third quarter 2006
GAAP net income of $3.3 million, or $0.12 per diluted share. For
comparative purposes, the September 2007 GAAP net income increased 33%
over the non-GAAP net income in the third quarter of 2006 of $6.3
million or $0.22 per diluted share. The adjusted, non-GAAP figures for
the third quarter 2006 exclude acquisition-transition costs, facility
closure charges and product termination costs (see attached
reconciliation for additional information).
Sales for the September 30, 2007 quarter increased 6.1% to $164.4
million compared to $155.0 million in the third quarter of 2006. The
Orthopedic product lines of Arthroscopy and Powered Surgical Instruments
had combined sales growth of 8.1% over the third quarter of 2006.
Endosurgery experienced sales growth of 21.4% for the quarter. The
combined sales growth in these three product lines was 9.8%, comprising
67% of the quarter’s revenues.
"Our recently completed third quarter performance confirms that we
continue to achieve our goals for profit improvement. With a sales
increase of 6.1% over the third quarter of 2006, we achieved a 33%
increase in net income over the adjusted net income of the third quarter
of 2006. Compared to the GAAP net income of the September 2006 quarter,
the progress is even more pronounced. Similar to our experience in the
first half of 2007, we continued to see solid sales increases from our
Arthroscopy, Powered Instrument and Endosurgery product lines, which
represent two-thirds of our company’s total
revenues,” said Joseph J. Corasanti, President
and Chief Executive Officer.
"As I have previously mentioned, our strategy
remains consistent — increase our revenue base
by providing our customers with innovative, high quality, cost-effective
medical devices while at the same time expanding the Company’s
operating margin by more efficiently leveraging our organizational
structure,” continued Mr. Corasanti.
For the nine months ended September 30, 2007, on a non-GAAP basis,
without unusual items, which include a litigation gain in 2007 and
acquisition-related costs in 2006, adjusted net income was $27.0
million, or $0.94 per diluted share, an increase of 40% over the $18.8
million, or $0.67 per diluted share reported in the 2006 period. GAAP
net income grew 167% to $29.6 million, or $1.04 per diluted share,
compared to $11.1 million, or $0.39 per diluted share, in the nine
months of 2006. Please see the attached reconciliation between GAAP and
non-GAAP amounts.
Sales outside the United States were $65.8 million in the third quarter
of 2007, growing 10.6% overall and 5.2% on a constant currency basis
compared to the third quarter of 2006. International sales in the
September 2007 quarter were 40.0% of the Company’s
total sales compared to 38.4% of sales in the third quarter last year.
Foreign currency exchange rates were favorable to the Company in the
third quarter 2007 compared to exchange rates in effect during the third
quarter of 2006. As a result, sales were higher by $3.2 million than
would have been the case had currency rates remained constant.
CONMED’s cash flow was strong in the first
nine months of 2007 enabling a reduction in long term debt of $24.9
million and reduced usage of the receivables securitization program of
$4.0 million. Cash from operations for year-to-date 2007 was $35.5
million resulting in operating cash flow per share of $1.24 (a non-GAAP
measurement which management believes is useful to understanding the
business).
Following is a summary of the Company’s sales
by product line for the three months ended September 30, 2007 (in
millions):
Three Months Ended September 30,
Constant Currency 2006 2007 Growth Growth (in millions)
Arthroscopy
$
54.8
$
58.8
7.3% 4.7%
Powered Surgical Instruments
33.2
36.3
9.3% 5.8%
Electrosurgery
23.4
23.0
-1.7% -2.5%
Endoscopic Technologies
12.7
12.5
-1.6% -2.7%
Endosurgery
12.6
15.3
21.4% 19.7%
Patient Care
18.3
18.5
1.1% 0.7%
$
155.0
$
164.4
6.1% 4.0%
The Company’s sports medicine Arthroscopy
line grew 7.3% over third quarter 2006 on the continued strength of
video imaging sales, including strong market demand for our High
Definition (HD) surgical imaging systems, introduced in February. The
third quarter Arthroscopy growth percentage was tempered by fewer
installations of integrated operating room systems than in the third
quarter of 2006. The Company expects, however, that the projected
schedule of installations in the fourth quarter of 2007 will cause an
increase in revenue for these projects when compared to the revenue
generated by the installations in the fourth quarter of 2006. Powered
Surgical Instruments sales increased 9.3% on continued sales momentum
from our MPower® and MicroPower®
platform products introduced in 2006. Endosurgery increased 21.4% with
strong growth domestically and internationally.
Sales in the Electrosurgery, Endoscopic Technologies and Patient Care
product lines experienced flat or slightly declining sales. However,
this is a significant sequential improvement from the second quarter of
2007 when these three product groups experienced a combined decline of
9.0% compared to the second quarter of 2006. Management believes that
new product introductions over the course of the next year will create
positive sales momentum in each of these business lines.
Following is a summary of the first nine months of 2007 sales by product
line in millions of dollars:
Nine Months Ended September 30,
Constant Currency 2006 2007 Growth Growth (in millions)
Arthroscopy
$
168.3
$
185.9
10.5% 8.0%
Powered Surgical Instruments
100.7
109.9
9.1% 6.0%
Electrosurgery
71.0
69.1
-2.7% -3.3%
Endoscopic Technologies
42.1
39.1
-7.1% -8.4%
Endosurgery
37.8
44.4
17.5% 16.1%
Patient Care
57.1
56.3
-1.4% -1.9%
$
477.0
$
504.7
5.8% 3.9% Outlook
Mr. Corasanti noted, "Historically, the
fourth quarter of each year has generally been our strongest quarter. We
expect this trend to continue. As a result, we anticipate sales to be in
the range of $177 - $181 million, with fourth quarter diluted earnings
per share to approximate $0.36 - $0.40 and full year 2007 non-GAAP
diluted earnings per share to approximate $1.30 - $1.34. This is an
increase from our previously provided 2007 full year guidance range of
$1.27 - $1.32.” "Our outlook for 2008 continues to be
positive. We believe we have built sales momentum during 2007 that will
continue into next year. Further, we believe that maintaining our focus
on containing costs will allow more of each sales
Dollar to drop to the
bottom line. For the full year of 2008, we anticipate that sales in
constant currency will increase 5-6% over 2007 amounts and that diluted
earnings per share will approximate $1.47 - $1.52,”
concluded Mr. Corasanti.
Conference Call
The Company will webcast its third quarter 2007 conference call live
over the Internet on Thursday, October 25, 2007 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 November 1, 2007.
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, 2006;
(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
Nine months ended
September 30,
September 30,
2006
2007
2006
2007
Net sales
$
154,981
$
164,448
$
476,920
$
504,720
Cost of sales
77,697
82,090
239,373
251,277
Cost of sales, acquisition transition -
Note A
2,553
-
7,142
-
Gross profit
74,731
82,358
230,405
253,443
Selling and administrative
56,219
57,506
172,716
175,518
Research and development
7,262
7,936
22,585
22,983
Other expense (income) - Note B
2,066
-
4,220
(4,102
)
65,547
65,442
199,521
194,399
Income from operations
9,184
16,916
30,884
59,044
Loss on early extinguishment of debt
-
-
678
-
Interest expense
4,962
3,861
14,503
12,706
Income before income taxes
4,222
13,055
15,703
46,338
Provision for income taxes
890
4,700
4,617
16,716
Net income
$
3,332
$
8,355
$
11,086
$
29,622
Per share data:
Net Income
Basic
$
.12
$
.29
$
.40
$
1.06
Diluted
.12
.29
.39
1.04
Weighted average common shares
Basic
27,888
28,572
27,999
27,990
Diluted
28,134
29,101
28,241
28,580
Note A –Included
in cost of sales in the three and nine months ended September 30, 2006
are approximately $2.6 million and $7.1 million, respectively, in
acquisition-transition related costs.
Note B –Included
in other expense in the three months ended September 30, 2006 are the
following: $0.4 million in plant closure costs, $1.0 million in costs
related to the termination of a product offering and $0.6 million in
acquisition-related costs. Included in other expense in the nine months
ended September 30, 2006 are the following: $0.4 million in plant
closure costs, $0.6 million in costs related to the write-off of
inventory in settlement of a patent dispute, $1.1 million in costs
related to the termination of a product offering and $2.1 million in
acquisition-related costs.
Included in other expense (income) in the nine months ended September
30, 2007 are $1.8 million in facility closure related 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, September 30, 2006 2007
Current assets:
Cash and cash equivalents
$
3,831
$
5,411
Accounts receivable, net
75,120
81,765
Inventories
151,687
166,712
Deferred income taxes
15,212
15,432
Other current assets
4,033
6,203
Total current assets
249,883
275,523
Property, plant and equipment, net.
116,480
121,653
Goodwill, net
290,512
294,659
Other intangible assets, net
191,135
189,470
Other assets
13,561
10,767
Total assets
$
861,571
$
892,072
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
$
3,148
$
3,247
Other current liabilities
72,057
68,230
Total current liabilities
75,205
71,477
Long-term debt
264,676
239,647
Deferred income taxes
51,004
66,399
Other long-term liabilities
30,332
25,817
Total liabilities
421,217
403,340
Shareholders' equity:
Capital accounts
201,541
219,552
Retained earnings
247,425
273,049
Accumulated other comprehensive loss
(8,612
)
(3,869
)
Total equity
440,354
488,732
Total liabilities and shareholders' equity
$
861,571
$
892,072
CONMED CORPORATION CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended September 30, 2006
2007
Cash flows from operating activities:
Net income
$
11,086
$
29,622
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
22,295
23,513
Stock-based payment expense
2,599
2,932
Deferred income taxes
4,670
14,869
Increase (decrease) in cash flows from
changes in assets and liabilities:
Sale of accounts receivable
(3,000
)
(4,000
)
Accounts receivable
3,320
(2,424
)
Inventories
(9,975
)
(21,826
)
Accounts payable
4,065
(5,284
)
Income tax receivable
(1,979
)
(1,904
)
Accrued compensation and benefits
2,148
740
Other, net
5,568
(775
)
Net cash provided by operating activities
40,797
35,463
Cash flow from investing activities:
Purchases of property, plant, and equipment, net
(16,738
)
(15,964
)
Payments related to business acquisitions
(2,463
)
(5,837
)
Proceeds from sale of equity investment
1,205
-
Net cash used in investing activities
(17,996
)
(21,801
)
Cash flow from financing activities:
Payments on debt
(142,045
)
(24,930
)
Proceeds of debt
135,000
-
Payments related to issuance of debt
(1,260
)
-
Net proceeds from common stock issued under employee plans
2,103
11,119
Repurchase of common stock
(7,848
)
-
Other, net
(502
)
(1,770
)
Net cash used in financing activities
(14,552
)
(15,581
)
Effect of exchange rate change on cash and cash equivalents
1,789
3,499
Net increase in cash and cash equivalents
10,038
1,580
Cash and cash equivalents at beginning of period
3,454
3,831
Cash and cash equivalents at end of period
$ 13,492
$ 5,411
CONMED CORPORATION RECONCILIATION OF REPORTED NET INCOME TO NET INCOME BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
Three months ended September 30, 2006
2007
Reported net income
$
3,332
$
8,335
Acquisition-transition related costs included in cost of sales
2,553
-
Plant closure costs
429
-
Termination of product offering
1,009
-
Other acquisition-related costs
628
-
Total other expense
2,066
-
Unusual expense before income taxes
4,619
-
Provision (benefit) for income taxes on unusual expense
(1,663
)
-
Net income before unusual items.
$
6,288
$
8,335
Per share data:
Reported net income
Basic
$
0.12
$
0.29
Diluted
0.12
0.29
Net income before unusual items
Basic
$
0.23
$
0.29
Diluted
0.22
0.29
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.
CONMED CORPORATION RECONCILIATION OF REPORTED NET INCOME TO NET INCOME BEFORE UNUSUAL ITEMS
(In thousands except per share amounts)
(unaudited)
Nine months ended September 30, 2006
2007
Reported net income
$
11,086
$
29,622
Acquisition-transition related costs included in cost of sales
7,142
-
Termination of product offering
1,092
148
Write-off of inventory in settlement of a patent dispute
595
-
Other acquisition-related costs
2,104
-
Facility closure related costs
429
1,822
Gain on legal settlement
-
(6,072
)
Total other expense
4,220
(4,102
)
Loss on early extinguishment of debt
678
-
Unusual expense before income taxes
12,040
(4,102
)
Provision (benefit) for income taxes on unusual expense
(4,335
)
1,477
Net income before unusual items.
$
18,791
$
26,997
Per share data:
Reported net income
Basic
$
0.40
$
1.06
Diluted
0.39
1.04
Net income before unusual items
Basic
$
0.67
$
0.96
Diluted
0.67
0.94
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.
