CONMED Corporation (Nasdaq: CNMD) today announced
financial results for the third quarter ended September 30,
2018.
Third Quarter 2018 Highlights
- Sales of $202.3 million increased 6.4%
year over year as reported and 8.1% in constant currency and as
adjusted(1).
- Domestic revenue increased 9.4% year
over year as reported and 11.7% as adjusted(1).
- International revenue increased 3.2% as
reported and 4.5% in constant currency.
- Gross margin (GAAP) increased 80 basis
points and adjusted gross margin(2) increased 60 basis points year
over year to 54.7%.
- Diluted net earnings per share (GAAP)
were $0.20, compared to diluted net earnings per share (GAAP) of
$0.26 in the third quarter of 2017, a decrease of 23.1%.
- Adjusted diluted net earnings per
share(3) were $0.46 versus $0.42 in the third quarter of 2017, an
increase of 9.5%.
- The Company raises its full-year 2018
sales guidance.
“We are pleased with our strong global performance in the third
quarter, which reflects continued execution against our strategic
plans,” commented Curt R. Hartman, CONMED’s President and Chief
Executive Officer. “We believe we are well-positioned to continue
to deliver above-market revenue growth and attractive returns to
our shareholders.”
Sales Analysis
For the quarter ended September 30, 2018, domestic sales, which
represented 53.2% of total revenue, increased 9.4% on a reported
basis, with growth in both General Surgery and Orthopedics. On
January 1, 2018, the Company began adjusting its sales for
administrative fees by recording these fees as a reduction of
revenue under ASU No. 2014-09, Revenue from Contracts with
Customers (“ASC 606”). For the third quarter of 2017, these
administrative fees totaled $2.0 million. As a result, on an
adjusted(1) basis, domestic sales increased 11.7% year over
year.
International sales, which represented 46.8% of total revenue,
increased 3.2% compared to the third quarter of 2017 on a reported
basis. Foreign currency exchange rates, including the effects of
the FX hedging program, had a negative impact of $1.2 million on
third quarter sales. In constant currency, international sales
increased 4.5% versus the prior-year period.
Earnings Analysis
For the quarter ended September 30, 2018, reported net income
totaled $5.8 million, compared to reported net income of $7.2
million a year ago. Reported diluted net earnings per share were
$0.20 in the quarter, compared to reported diluted earnings per
share of $0.26 in the prior-year period. Reported net income for
2017 included restructuring costs, business acquisition costs, and
legal costs. Reported net income for the third quarter of 2018
includes a $2.1 million impairment charge, net of tax, primarily
related to an in-process research and development asset, net of
release of accrued contingent consideration, and a $0.8 million
charge, net of tax, related to a vacant leased facility, both of
which are associated with prior acquisitions. The effect of each of
these items on reported net income and reported diluted net
earnings per share appears in the reconciliation of GAAP to
non-GAAP measures below.
The Company excludes the costs of special items, including
acquisitions, restructurings, legal matters, gains on the sale of
assets, debt refinancings, impairment charges, amortization of
intangible assets, net of tax, as well as adjustments to the
December 2017 tax balances and provisional income tax effects of
the 2017 Tax Cuts and Jobs Act, from its adjusted diluted net
earnings per share. Excluding the impact of these items, adjusted
net income(4) of $13.3 million increased 13.0% year over year, and
adjusted diluted net earnings per share(3) of $0.46 increased 9.5%
year over year. The increase in adjusted net income(4) resulted
primarily from higher sales and a lower effective tax rate.
2018 Outlook
Based on current business trends, CONMED is raising the low end
of its previously issued constant-currency sales guidance. The
Company now expects full-year 2018 constant-currency and as
adjusted(1) sales growth in the range of 6.5% to 7%, compared to
the previous range of 6% to 7%. Based on recent exchange rates, the
positive impact to 2018 sales from foreign exchange is anticipated
to be between 0 and 50 basis points, which is consistent with the
Company’s previously issued guidance.
The Company continues to forecast full-year 2018 adjusted
diluted net earnings per share in the range of $2.15 to $2.20. This
represents growth over 2017 of approximately 14% to 16%. The
adjusted diluted net earnings per share estimates for 2018 exclude
the cost of special items, including acquisition costs,
restructuring costs, impairment charges, and adjustments to the
December 2017 tax balances and provisional income tax effects of
the 2017 Tax Cuts and Jobs Act, which are estimated in the range of
$4 to $5 million, net of tax, and amortization of intangible
assets, which is estimated in the range of $16 to $18 million, net
of tax.
Supplemental Financial Disclosures
(1) Adjusted net sales growth is measured in constant currency
and is adjusted for administrative fees that the Company began
recording as a reduction of revenue under ASC 606, Revenue from
Contracts with Customers, effective January 1, 2018.
(2) A reconciliation of reported gross margin to adjusted gross
margin, a non-GAAP financial measure, appears below.
(3) A reconciliation of reported diluted net earnings per share
to adjusted diluted net earnings per share, a non-GAAP financial
measure, appears below.
(4) A reconciliation of reported net income to adjusted net
income, a non-GAAP financial measure, appears below.
Conference Call
The Company’s management will host a conference call today at
4:30 p.m. ET to discuss its third quarter 2018 results.
To participate in the conference call, dial 844-889-7792
(domestic) or 661-378-9936 (international) and refer to the
passcode 3386328.
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 Thursday, November 1, 2018, until 6:30 p.m. ET on Thursday,
November 15, 2018. To hear this recording, dial 855-859-2056
(domestic) or 404-537-3406 (international) and enter the passcode
3386328.
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. CONMED has a direct selling
presence in 19 countries, and international sales constitute
approximately 50% of the Company’s total sales. Headquartered in
Utica, New York, the Company employs approximately 3,100 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 risk factors discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2017, and listed under the heading Forward-Looking
Statements in the Company’s most recently filed Form 10-Q. 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.
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 and as adjusted for ASC 606; adjusted gross profit; cost
of sales excluding specified items; adjusted selling and
administrative expenses; adjusted research and development expense;
adjusted operating income; adjusted income tax expense; adjusted
effective income tax rate; adjusted net income 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 its financial results
and assessing its prospects for future performance. Management
believes percentage sales growth as adjusted for ASC 606 and in
constant currency and the other adjusted measures described above
are important indicators of its operations because they exclude
items that may not be indicative of, or are unrelated to, its core
operating results and provide a baseline for analyzing trends in
the Company’s underlying business. 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 its budget process and bases certain management
incentive compensation on these non-GAAP financial measures.
Net sales on an "adjusted" basis is a non-GAAP measure that
presents net sales in "constant currency" and adjusts for the
adoption impact of ASC 606. The Company analyzes net sales on a
constant currency basis to better measure the comparability of
results between periods. 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 net sales. In addition, the Company adjusts for the
adoption impact of ASC 606. For GAAP purposes, the Company applied
the modified retrospective transition approach, which requires
certain costs previously included in selling and administrative
expense and principally related to administrative fees paid to
group purchasing organizations, to be recorded as a reduction of
revenue for periods subsequent to January 1, 2018. Amounts
reported in prior years remain unchanged with these administrative
fees included in selling and administrative expense. To
improve comparability between reporting periods, the Company
assumed ASC 606 had been applied as of January 1, 2017 thereby
reducing net sales by the administrative fees for both periods when
calculating adjusted sales growth, adjusted gross margin, adjusted
selling and administrative expense, adjusted research and
development expense and adjusted operating income. 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 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,
research and development expense, operating income, income tax
expense, effective income tax rate, net income 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 the Company’s operations that, when viewed
with GAAP results and the reconciliations to corresponding GAAP
financial measures below, provide a more complete understanding of
the business. The Company strongly encourages investors and
shareholders to review its financial statements and publicly-filed
reports in their entirety and not to rely on any single financial
measure.
Consolidated Condensed Statements of
Income
(in thousands, except per share amounts,
unaudited)
Three Months Ended Nine
Months Ended September 30, September 30,
2018 2017 2018
2017 Net sales $ 202,307 $ 190,117 $ 617,191 $
573,837 Cost of sales 91,680 87,570
280,736 266,753 Gross profit 110,627
102,547 336,455 307,084 % of sales
54.7% 53.9% 54.5% 53.5% Selling and administrative expense 84,983
80,807 259,156 259,396 Research & development expense
14,122 8,270 31,817 23,929
Income from operations 11,522 13,470
45,482 23,759 % of sales 5.7% 7.1% 7.4% 4.1% Interest
expense 5,214 4,806 15,123
13,323 Income before income taxes 6,308 8,664 30,359 10,436
Provision for income taxes 483 1,467
5,158 1,645 Net income $ 5,825 $ 7,197 $
25,201 $ 8,791 Basic EPS $ 0.21 $ 0.26 $ 0.90 $ 0.31
Diluted EPS 0.20 0.26 0.87 0.31 Basic shares 28,124 27,924
28,096 27,915 Diluted shares 29,088 28,183 28,872 28,124
Sales Summary
(in millions, unaudited)
Three Months Ended September 30, %
Change Domestic
International
2018
2017
As Reported
ASC 606 Impact
Impact of Foreign
Currency
Adjusted (1)
As Reported
ASC 606 Impact
Adjusted (1) As Reported
Impact of Foreign
Currency
Adjusted (1) Orthopedic Surgery $ 102.9 $ 98.6
4.4 % 0.7 % 0.7 % 5.8 % 4.0 % 1.7 % 5.7 % 4.7
% 1.1 % 5.8 % General Surgery 99.4
91.5 8.6 % 1.7 % 0.4 % 10.7 % 12.8 %
2.7 % 15.5 % 0.5 % 1.3 % 1.8 % $
202.3 $ 190.1 6.4 % 1.2 % 0.5 % 8.1 %
9.4 % 2.3 % 11.7 % 3.2 % 1.3 %
4.5 % Single-use Products $ 159.4 $ 153.2 4.0 % 1.4 % 0.6 %
6.0 % 9.0 % 2.8 % 11.8 % (1.3 %) 1.2 % (0.1 %) Capital Products
42.9 36.9 16.3 % 0.0 % 0.7 %
17.0 % 11.0 % 0.0 % 11.0 % 21.8 %
1.4 % 23.2 % $ 202.3 $ 190.1 6.4 %
1.2 % 0.5 % 8.1 % 9.4 % 2.3 %
11.7 % 3.2 % 1.3 % 4.5 % Domestic $
107.5 $ 98.3 9.4 % 2.3 % 0.0 % 11.7 % International 94.8
91.8 3.2 % 0.0 % 1.3 % 4.5 % $
202.3 $ 190.1 6.4 % 1.2 % 0.5 % 8.1 %
(1) Adjusted net sales growth is measured in constant
currency and is adjusted for administrative fees that the Company
started to record as a reduction of revenue under ASC 606, Revenue
from Contracts with Customers ("ASC 606"), on January 1, 2018.
Sales Summary
(in millions, unaudited)
Nine Months Ended September 30, %
Change Domestic
International
2018
2017
As Reported
ASC 606 Impact
Impact of Foreign
Currency
Adjusted (1)
As Reported
ASC 606 Impact
Adjusted (1)
As Reported
Impact of Foreign
Currency
Adjusted (1) Orthopedic Surgery $ 321.9 $
307.9 4.5 % 0.7 % (1.6 %) 3.6 % 2.0 % 1.7 % 3.7 %
6.2 % (2.7 %) 3.5 % General Surgery
295.3 265.9 11.0 % 1.7 % (0.7 %)
12.0 % 13.2 % 2.5 % 15.7 % 6.9 % (2.0
%) 4.9 % $ 617.2 $ 573.8 7.6 % 1.1 %
(1.2 %) 7.5 % 8.6 % 2.2 % 10.8 % 6.4 %
(2.4 %) 4.0 % Single-use Products $ 493.0 $
462.4 6.6 % 1.4 % (1.2 %) 6.8 % 8.1 % 2.6 % 10.7 % 4.9 % (2.5 %)
2.4 % Capital Products 124.2 111.4 11.5 %
0.0 % (1.1 %) 10.4 % 11.0 % 0.0 %
11.0 % 12.0 % (2.1 %) 9.9 % $ 617.2
$ 573.8 7.6 % 1.1 % (1.2 %) 7.5 % 8.6 %
2.2 % 10.8 % 6.4 % (2.4 %) 4.0 %
Domestic $ 323.4 $ 297.7 8.6 % 2.2 % 0.0 % 10.8 %
International 293.8 276.1 6.4 % 0.0 %
(2.4 %) 4.0 % $ 617.2 $ 573.8 7.6 % 1.1
% (1.2 %) 7.5 % (1) Adjusted net sales growth is
measured in constant currency and is adjusted for administrative
fees that the Company started to record as a reduction of revenue
under ASC 606, Revenue from Contracts with Customers ("ASC 606"),
on January 1, 2018.
Reconciliation of Reported Net Income
to Adjusted Net Income
(in thousands, except per share amounts,
unaudited)
Three Months Ended September 30, 2018 Net
Sales
Gross Profit
Selling &Administrative
Expense
Research &Development
Expense
Operating Income
Tax Expense
Effective Tax Rate
Net Income
Diluted EPS
As reported $ 202,307 $ 110,627 $ 84,983
$ 14,122 $ 11,522 $ 483 7.7% $
5,825 $ 0.20 % of sales 54.7% 42.0%
7.0% 5.7% Impairment charges (1)
- - - (4,212) 4,212 2,117 2,095 0.07 Business acquisition costs (2)
- - (1,073) - 1,073 259 814 0.03 Tax reform (3) -
- - - -
37 (37) (0.00) $
202,307 $ 110,627 $ 83,910 $ 9,910 $ 16,807 $ 2,896 $ 8,697
$ 0.30 Gross profit % 54.7% Amortization of intangible assets $
1,500 (4,460) - 5,960
1,400 4,560 0.16
Adjusted net income $ 79,450 $ 9,910 $ 22,767
$ 4,296 24.5% $ 13,257 $ 0.46 % of
sales 39.3% 4.9% 11.3%
Three Months Ended September 30,
2017
Net Sales
Gross Profit
Selling &Administrative
Expense
Research &Development
Expense
Operating Income
Tax Expense
Effective Tax Rate
Net Income
Diluted EPS
As reported $ 190,117 $ 102,547 $ 80,807
$ 8,270 $ 13,470 $ 1,467 16.9% $
7,197 $ 0.26 % of sales 53.9% 42.5% 4.3% 7.1% Adoption of
ASC 606 (4) (2,020) (2,020) (2,020) - - - - - Restructuring costs
(5) - 1,306 - - 1,306 467 839 0.03 Business acquisition costs (2) -
- (128) - 128 48 80 0.00 Legal matters (6) - -
(327) - 327
115 212 0.01 $ 188,097
$ 101,833 $ 78,332 $ 8,270 $ 15,231 $ 2,097 $ 8,328 $ 0.30
Adjusted gross profit % (4) 54.1% Amortization of intangible assets
$ 1,500 (3,761) - 5,261
1,854 3,407 0.12
Adjusted net income (4) $ 74,571 $ 8,270
$ 20,492 $ 3,951 25.2% $ 11,735
$ 0.42 % of sales (4) 39.6% 4.4% 10.9% (1) In 2018, the
Company recorded impairment charges mainly related to an in-process
research and development asset, net of release of accrued
contingent consideration, associated with a prior acquisition. (2)
In 2018, the Company recorded a charge related to a vacant leased
facility and in 2017 incurred integration related costs associated
with the acquisition of SurgiQuest, Inc. (3) In 2018, the Company
recorded a tax benefit related to adjustments to December 2017
deferred tax balances as a result of the 2017 Tax Cuts and Jobs
Act. (4) This guidance requires certain costs previously recorded
in selling and administrative expense and principally related to
administrative fees paid to group purchasing organizations, to be
recorded as a reduction of revenue beginning in 2018. For GAAP
purposes, 2017 costs remain in selling and administrative expense.
For comparative purposes, the Company assumed ASC 606 had been
applied as of January 1, 2017 thereby reducing net sales by the
administrative fees for both periods when calculating adjusted
gross profit, adjusted selling and administrative expense, adjusted
research and development expense and adjusted operating income as a
percent of sales. (5) In 2017, the Company restructured certain
operating functions and incurred product discontinuation costs. (6)
In 2017, the Company incurred litigation fees as a result of the
unfavorable verdict in the Lexion vs. SurgiQuest, Inc. case and
other legal matters.
Reconciliation of Reported Net Income
to Adjusted Net Income
(in thousands, except per share amounts,
unaudited)
Nine Months Ended September 30, 2018
Net Sales
Gross Profit
Selling &Administrative
Expense
Research &Development
Expense
Operating Income
Tax Expense
Effective Tax Rate
Net Income
Diluted EPS
As reported $ 617,191 $ 336,455 $ 259,156
$ 31,817 $ 45,482 $ 5,158 17.0%
$ 25,201 $ 0.87 % of sales 54.5% 42.0%
5.2% 7.4% Impairment charges (1)
- - - (4,212) 4,212 2,117 2,095 0.07 Business acquisition costs (2)
- - (1,073) - 1,073 259 814 0.03 Tax reform (3) -
- - - -
(549) 549 0.02 $
617,191 $ 336,455 $ 258,083 $ 27,605 $ 50,767 $ 6,985 $
28,659 $ 0.99 Gross profit % 54.5% Amortization of intangible
assets $ 4,500 (12,678) - 17,178
4,158 13,020
0.45
Adjusted net income $ 245,405 $ 27,605
$ 67,945 $ 11,143 21.1% $ 41,679
$ 1.44 % of sales 39.8% 4.5% 11.0%
Nine Months Ended
September 30, 2017 Net Sales
Gross Profit
Selling &Administrative
Expense
Research &Development
Expense
Operating Income
Tax Expense
Effective Tax Rate
Net Income
Diluted EPS
As reported $ 573,837 $ 307,084 $ 259,396
$ 23,929 $ 23,759 $ 1,645 15.8%
$ 8,791 $ 0.31 % of sales 53.5% 45.2% 4.2% 4.1% Adoption of
ASC 606 (4) (5,826) (5,826) (5,826) - - - - - Restructuring costs
(5) - 2,778 (1,347) - 4,125 1,377 2,748 0.10 Business acquisition
costs (2) - - (1,020) - 1,020 370 650 0.02 Legal matters (6)
- - (17,041) -
17,041 5,537
11,504 0.41 $ 568,011 $ 304,036 $ 234,162 $
23,929 $ 45,945 $ 8,929 $ 23,693 $ 0.84 Adjusted gross profit % (4)
53.5% Amortization of intangible assets $ 4,500 (11,096)
- 15,596 5,515
10,081 0.36
Adjusted net
income (4) $ 223,066 $ 23,929 $ 61,541
$ 14,444 30.0% $ 33,774 $ 1.20 % of
sales (4) 39.3% 4.2% 10.8% (1) In 2018, the Company recorded
impairment charges mainly related to an in-process research and
development asset, net of release of accrued contingent
consideration, associated with a prior acquisition. (2) In 2018,
the Company recorded a charge related to a vacant leased facility
and in 2017 incurred integration related costs associated with the
acquisition of SurgiQuest, Inc. (3) In 2018, the Company recorded
tax expense related to adjustments to December 2017 deferred tax
balances as a result of the 2017 Tax Cuts and Jobs Act. (4) This
guidance requires certain costs previously recorded in selling and
administrative expense and principally related to administrative
fees paid to group purchasing organizations, to be recorded as a
reduction of revenue beginning in 2018. For GAAP purposes, 2017
costs remain in selling and administrative expense. For comparative
purposes, the Company assumed ASC 606 had been applied as of
January 1, 2017 thereby reducing net sales by the administrative
fees for both periods when calculating adjusted gross profit,
adjusted selling and administrative expense, adjusted research and
development expense and adjusted operating income as a percent of
sales. (5) In 2017, the Company restructured certain operating,
sales, marketing and administrative functions and incurred
severance, product discontinuation and other related costs. (6) In
2017, the Company incurred litigation fees as a result of the
unfavorable verdict in the Lexion vs. SurgiQuest, Inc. case and
other legal matters.
Reconciliation of Reported Net Income
to EBITDA & Adjusted EBITDA
(in thousands, unaudited)
Three Months Ended Nine
Months Ended September 30, September 30,
2018 2017
2018 2017
Net income $ 5,825 $ 7,197 $ 25,201
$ 8,791 Provision for income taxes 483 1,467 5,158
1,645 Interest expense 5,214 4,806 15,123 13,323 Depreciation 4,875
5,234 13,881 14,993 Amortization 10,577
9,367 31,548 27,288
EBITDA $ 26,974 $ 28,071 $ 90,911
$ 66,040 Stock based compensation 2,512 2,119
7,465 6,340 Impairment charges 4,212 - 4,212 - Business acquisition
costs 1,073 128 1,073 1,020 Restructuring costs - 1,306 - 4,125
Legal matters - 327 -
17,041 Adjusted EBITDA $ 34,771
$ 31,951 $ 103,661 $ 94,566
EBITDA Margin EBITDA 13.3 % 14.8 % 14.7 % 11.5
% Adjusted EBITDA 17.2 % 17.0 % 16.8 % 16.6 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181101006039/en/
CONMED CorporationTodd GarnerChief Financial
Officer315-624-3317ToddGarner@conmed.com
CONMED (NASDAQ:CNMD)
Historical Stock Chart
From Sep 2024 to Oct 2024
CONMED (NASDAQ:CNMD)
Historical Stock Chart
From Oct 2023 to Oct 2024