- Sales Increase 21% -
- Diluted Earnings Per Share (non-GAAP) Increases 10% -
- Income From Operations (non-GAAP) Increases 12% -
- 12% Growth in Orthopaedic Sales -
- 10% Growth in Electrosurgery Sales -
- Conference Call Today at 10 a.m. EDT -
UTICA, N.Y., July 26 /PRNewswire-FirstCall/ -- CONMED Corporation
(Nasdaq: CNMD) announced today its financial results for the second quarter of
2005.
Mr. Joseph J. Corasanti, President and Chief Operating Officer, commented,
"CONMED Corporation delivered another quarter of strong top line growth driven
primarily by the terrific sales performance of our Arthroscopy and
Electrosurgery products, and the September 2004 acquisition of our Endoscopic
Technologies product line. Our organic sales increase of 8.0% in the quarter,
which excludes the effects of foreign currency conversion and acquisition
revenues, exceeds our internal forecasts and is the highest rate of organic
growth in the recent past."
Total sales for the second quarter increased 20.9% to $158.3 million
($156.4 million at constant exchange rates) compared to $130.9 million in the
second quarter of 2004. The previously announced acquisition of the
Endoscopic Technologies business on September 30, 2004 added $15.0 million to
sales for the second quarter of 2005. Excluding acquisition and other charges
(please see attached reconciliation for full explanation), non-GAAP net income
for the second quarter grew 8.9% to $13.4 million compared to $12.3 million
(GAAP) in the second quarter of 2004. Earnings per diluted share grew 9.8% to
$0.45 (non-GAAP) compared to $0.41 (GAAP) in last year's second quarter. GAAP
net income, including acquisition and transition charges, for the three months
ended June 2005 was $10.5 million, or $0.35 per diluted share.
Following is a summary of second quarter sales by product line in millions
of dollars:
Three Months
Ended June, Percent
2004 2005 Increase
Orthopaedic Surgery
Arthroscopy $48.0 $54.8 14.2%
Powered Surgical Instruments 31.4 33.9 8.0%
79.4 88.7 11.7%
General Surgery and Patient Care
Electrosurgery 20.6 22.6 9.7%
Patient Care 18.4 19.1 3.8%
Endosurgery 12.5 12.9 3.2%
Endoscopic Technologies - 15.0 -
51.5 69.6 35.1%
Total $130.9 $158.3 20.9%
As in the last several quarters, the growth in the Arthroscopy product
line continues to be led by sales of minimally-invasive surgery camera
systems, which increased 29% over the second quarter of 2004. This growth is
being driven by sales of the enhanced definition camera, introduced early in
2004, which has superior resolution capabilities. The quality of its image
enables it to compete effectively for both arthroscopy applications and
general surgical applications. Powered Surgical Instruments growth came from
the Company's large bone products and also from the small bone handpiece
PowerPro Max(R) introduced at the American Academy of Orthopaedic Surgeons
(AAOS) conference in February of this year.
Electrosurgery's growth once again exceeded market growth rates led by
sales of the Company's electrosurgical generators as well as single use
products. Patient Care and Endosurgery experienced second quarter growth
equivalent to market growth rates. The Endoscopic Technologies business
sequentially improved its sales performance from the first quarter of 2005 and
is performing as anticipated.
Compared to the second quarter of 2004, the Company's gross margin has
improved to 53.0% versus 52.5%, excluding acquisition transition charges, as a
result of the addition of the Endoscopic Technologies products, which have
gross margins that are higher than CONMED's corporate average. Similarly,
selling and administrative costs as a percentage of sales have increased
compared to the second quarter of last year because sales and marketing costs
of the Endoscopic Technologies business are higher than CONMED's corporate
average. In addition, CONMED experienced increased expenses associated with
the antitrust litigation and higher research and development costs. As a
result of the higher sales base in the second quarter of 2005 compared to the
same period in 2004, offset to some degree by the effects of the changes in
the Company's expense profile discussed above, the Company's income from
operations grew 12% to $24.0 million, excluding acquisition transition and
unusual charges, compared to $21.5 million (GAAP) in the second quarter of
2004. On a GAAP basis, income from operations in the second quarter of 2005
was $19.6 million.
Six Month Results
For the six months ended June 30, 2005, CONMED reported revenues of $314.1
million, up 18.6% (17.2% excluding foreign currency) from the $264.9 million
in the first six months of last year. Non-GAAP net income for the first six
months of 2005 grew to $26.9 million, or $0.90 per diluted share, (excluding
acquisition transition and other charges) compared to GAAP net income of $24.3
million, or $0.81 per diluted share, for the six months ended June 30, 2004.
Including transition and other charges in the first six months of 2005, GAAP
net income and EPS were $21.3 million and $0.71, respectively (please see
attached schedule for full explanation of transition and other charges).
Following is a summary of the first six months of 2005 sales by product
line in millions of dollars:
Six Months
Ended June, Percent
2004 2005 Increase
Orthopaedic Surgery
Arthroscopy $99.3 $108.8 9.6%
Powered Surgical Instruments 64.9 69.4 6.9%
164.2 178.2 8.5%
General Surgery and Patient Care
Electrosurgery 40.8 43.5 6.6%
Patient Care 36.4 38.0 4.4%
Endosurgery 23.5 25.2 7.2%
Endoscopic Technologies - 29.2 -
100.7 135.9 35.0%
Total $264.9 $314.1 18.6%
Outlook
Based on CONMED'S performance to date, management continues to believe
that sales for all of 2005 will grow approximately 15% above 2004 levels.
Approximately one-half of this total sales increase is expected to come from
internal growth of our product lines and one-half is anticipated from the
effect of the Endoscopic Technologies acquisition for the first nine months of
2005 until its revenues annualize in the fourth quarter of 2005. In addition,
management continues to expect operating cash flow for 2005 to approximate
$75 - $80 million and expects full year 2005 diluted earnings per share to be
in a range of $1.84 - $1.89, excluding transition and other costs. This
estimated range represents a slight reduction from previous Company guidance
as a result of a number of matters including higher anticipated litigation
costs associated with its action as a plaintiff against a competitor for
believed antitrust actions, reduced expectations relative to currency
exchange, and certain increased raw materials and distribution costs caused by
higher petroleum prices.
Further, in order to realize various future product opportunities,
management has concluded that a slight increase in research and development
activities is in the best long-term interests of the Company. Accordingly,
the Company will target research and development expense to approximate 4.0% -
4.5% of sales for the foreseeable future as compared to 3.5% - 4.0% in the
recent past.
For the third quarter ended September 30, 2005, management anticipates
that revenues will approximate $153 - $156 million and that diluted earnings
per share will be in a range of $0.41 - $0.44, excluding transition and
unusual charges.
Acquisition, and Other Charges
Acquisition -- The Company purchased the Endoscopic Technologies product
line from C.R. Bard, Inc. on September 30, 2004, for a purchase price of
approximately $80.0 million. As required by FASB 141, the Company has
recorded the fair value of inventory acquired in the purchase transaction.
Since the fair value of the inventory exceeds the manufacturing cost, as the
initial inventory is sold, cost of sales is higher than what would normally
have been the case. For the first six months of 2005, this added charge to
cost of sales equaled $0.5 million. Further, during a transition period,
CONMED is purchasing the Endoscopic Technologies finished goods from C.R. Bard
at costs greater than what the Company expects its manufacturing costs will be
once manufacturing is relocated to CONMED facilities. This difference in cost
is estimated to be $1.8 million for the second quarter of 2005 and $3.6
million for the six months ended June, 2005, and has been recorded in cost of
sales. The Company reaffirms that it expects the transition to extend into
2006 in order to permit an orderly transfer and to be sure that there is
sufficient finished goods inventory on hand to meet customers' requirements.
Accordingly, the Company expects it will incur additional cost of sales
amounts on a quarterly basis of $1.5 - $2.0 million until the transition can
be completed. The Company continues to work closely with the C.R. Bard
management to facilitate the transition of manufacturing to CONMED's
locations.
Other unusual costs associated with the Endoscopic Technologies
acquisition including compensation and other integration expenses amounted to
$1.4 million for the second quarter of 2005 and $2.8 million for the first six
months of 2005.
Cost associated with termination of a product -- CONMED has offered
integrated operating room design and installation for over two years following
the acquisition of the line in November 2002. One of the components of the
system had been a proprietary brand of surgical lights distributed for a
third-party supplier. As previously announced, in the fourth quarter of 2004
the Company concluded that it was a better use of resources to focus research
and development efforts on integrated systems development and has ceased
selling its own brand of surgical lights.
CONMED no longer services the installed base of lights purchased from the
Company. In order to maintain customer relationships, and in fairness to
customers who purchased lights from CONMED expecting that CONMED would
maintain its high level of service, the Company initiated a program to replace
all of its surgical lights currently in use. The Company expensed $0.4
million in the second quarter of 2005 and $0.9 million in the first half of
2005. It expects additional charges totaling approximately $1.0 million over
the remainder of 2005 as the replacement program is completed.
Environmental settlement -- The Company has entered into a settlement of
certain environmental claims relating to the operations of one of the
Company's subsidiaries during the 1980s, before it was acquired by CONMED, at
a site other than the one it currently occupies. The current owner alleged
that the acquired subsidiary caused environmental contamination of the
property. In order to avoid litigation, the Company agreed to reimburse the
owner for a certain percentage of past remediation costs, and to participate
in the funding of the remediation activities. The total sum of all past
costs, including attorney's fees, together with the current estimate of future
costs, amounts to approximately $0.7 million and has been recorded as an
unusual charge in the quarter ended June 2005.
Today's Conference Call
CONMED will broadcast its second quarter 2005 conference call live over
the Internet today at 10:00 a.m. Eastern Time. This broadcast can be accessed
from CONMED's web site at http://www.conmed.com. Replays of the call will be
made available through August 2, 2005.
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 2,900 employees distribute its products worldwide from eleven
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, including the above mentioned
anticipated revenues and earnings, 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, 2004; (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 acquisition (and its
integration) 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,
2004 2005 2004 2005
Net sales $130,912 $158,276 $264,876 $314,135
Cost of sales 62,198 74,325 125,803 147,371
Cost of sales,
acquisition
transition - Note A - 1,827 - 4,165
Gross profit 68,714 82,124 139,073 162,599
Selling and
administrative 42,409 53,559 86,202 106,091
Research and
development 4,836 6,375 9,575 12,224
Other expense (income),
net - Note B - 2,576 - 4,476
47,245 62,510 95,777 122,791
Income from operations 21,469 19,614 43,296 39,808
Interest expense 2,558 3,571 5,864 7,330
Income before income
taxes 18,911 16,043 37,432 32,478
Provision for income
taxes 6,619 5,535 13,101 11,205
Net income $12,292 $10,508 $24,331 $21,273
Per share data:
Net Income
Basic $.41 $.36 $.83 $.73
Diluted .41 .35 .81 .71
Weighted average
common shares
Basic 29,649 29,494 29,476 29,301
Diluted 30,313 30,060 30,151 29,830
Note A - Included in cost of sales in the three and six months ended
June 30, 2005 are approximately $1.8 million and $4.2 million,
respectively, in acquisition-related costs.
Note B - Included in other expense in the three months ended June 30, 2005
are the following: $0.7 million in environmental settlement
costs, $0.4 million in costs related to the termination of a
product offering and $1.4 million in acquisition-related costs.
Included in other expense in the six months ended June 30, 2005
are the following: $0.7 million in environmental settlement
costs, $0.9 million in costs related to the termination of a
product offering and $2.8 million in acquisition-related costs.
CONMED CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
December 31, June 30,
2004 2005
Current assets:
Cash and cash equivalents $4,189 $6,506
Accounts receivable, net 74,593 76,552
Inventories 127,935 142,055
Deferred income taxes 13,733 13,662
Other current assets 2,492 3,321
Total current assets 222,942 242,096
Property, plant and equipment, net. 101,465 102,460
Goodwill and other intangible assets, net 529,717 528,628
Other assets 18,701 18,620
Total assets $872,825 $891,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $4,037 $4,121
Other current liabilities 59,024 60,746
Total current liabilities 63,061 64,867
Long-term debt 290,485 269,422
Deferred income taxes 51,433 58,798
Other long-term liabilities 19,863 22,958
Total liabilities 424,842 416,045
Shareholders' equity:
Capital accounts 226,444 235,649
Retained earnings 227,938 249,211
Accumulated other comprehensive loss (6,399) (9,101)
Total equity 447,983 475,759
Total liabilities and shareholders'
equity $872,825 $891,804
CONMED CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
June 30,
2004 2005
Cash flows from operating activities:
Net income $24,331 $21,273
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 13,036 15,282
Deferred income taxes 8,586 7,365
Sale of accounts receivable 2,000 (3,000)
Other, net (2,236) (11,025)
Net cash provided by operating activities 45,717 29,895
Cash flow from investing activities:
Purchases of property, plant, and equipment (4,338) (8,098)
Other, net - (364)
Net cash used in investing activities (4,338) (8,462)
Cash flow from financing activities:
Payments on debt (24,204) (28,979)
Proceeds of debt - 8,000
Proceeds from common stock issued under
employee plans 9,010 13,020
Repurchase of common stock - (7,759)
Other, net (318) (396)
Net cash provided by financing activities (15,512) (16,114)
Effect of exchange rate change on cash and
cash equivalents (1,650) (3,002)
Net increase in cash and cash equivalents 24,217 2,317
Cash and cash equivalents at beginning of period 5,986 4,189
Cash and cash equivalents at end of period $30,203 $6,506
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,
2004 2005
Reported net income $12,292 $10,508
Acquisition-related costs included in cost
of sales - 1,827
Environmental settlement costs - 698
Termination of product offering - 429
Other acquisition-related costs - 1,449
Total other expense - 2,576
Unusual expense before income taxes - 4,403
Provision (benefit) for income taxes on
unusual expense - (1,519)
Net income before unusual items. $12,292 $13,392
Per share data:
Reported net income (loss)
Basic $0.41 $0.36
Diluted 0.41 0.35
Net income before unusual items
Basic $0.41 $0.45
Diluted 0.41 0.45
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)
Six months ended
June 30,
2004 2005
Reported net income $24,331 $21,273
Acquisition-related costs included in cost
of sales - 4,165
Environmental settlement costs - 698
Termination of product offering - 949
Other acquisition-related costs - 2,829
Total other expense - 4,476
Unusual expense before income taxes - 8,641
Provision (benefit) for income taxes on unusual
expense - (2,981)
Net income before unusual items $24,331 $26,933
Per share data:
Reported net income
Basic $0.83 $0.73
Diluted 0.81 0.71
Net income before unusual items
Basic $0.83 $0.92
Diluted 0.81 0.90
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.
SOURCE CONMED Corporation
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Related links:
http://www.conmed.com
CONTACT:
Robert Shallish, Chief Financial Officer of
CONMED Corporation, +1-315-624-3206; or Investors: Julie Huang or
Theresa Kelleher, or Media: Sean Leous, all of Financial
Dynamics, +1-212-850-5600
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