UTICA, N.Y., April 27 /PRNewswire-FirstCall/ -- CONMED Corporation today announced financial results for the first quarter ended March 31, 2006. Sales for the 2006 first quarter were $158.5 million compared to $155.9 million in the first quarter of 2005. Net income equaled $4.3 million, or $0.15 per diluted share for the quarter, compared to $10.8 million, or $0.36 per diluted share in the first quarter of 2005, based on a diluted weighted average share count of 28.4 million for the quarter ended March 31, 2006.
Excluding transition charges related to an acquisition and other unusual charges (see attached reconciliation for additional information), non-GAAP net income for the first quarter was $5.9 million, or $0.21 per non-GAAP diluted share, compared to first quarter 2005 non-GAAP net income of $13.5 million, or $0.46 per non-GAAP diluted share. In the first quarter of 2006, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 123R, Share- Based Payment, which requires companies to recognize the cost of stock options as compensation expense. As a result of adopting Statement FAS 123R, the diluted earnings per share and non-GAAP diluted earnings per share were reduced by $0.03 per share in the March 2006 quarter.
Mr. Joseph J. Corasanti, President and Chief Operating Officer, noted, “Our first quarter 2006 financial results came in at the high end of our expectations. We are beginning to see a turn-around in the sales softness we encountered in the last half of 2005. Across all our product lines, our single-use products grew 2.5% (3.4% in constant currency) over the first quarter of 2005, and the sequential growth over the fourth quarter of 2005 was even higher at 4.2%. Capital equipment sales experienced a slight decline of 1.2% compared to the first quarter of 2005. We believe, however, our new powered instrument handpieces that were introduced at the American Academy of Orthopaedic Surgeons conference last month will drive the capital products portion of our business back to positive growth.”
Sales outside the United States were $61.1 million in the first quarter of 2006 growing 4.2% overall and 6.4% on a constant currency basis compared to the first quarter of 2005. International sales grew to 38.5% of the Company’s total sales in the March 2006 quarter continuing the trend for higher growth in international markets.
The Company’s cash flow continued to be strong with cash from operations totaling $14.0 million for the three months ended March 31, 2006. This enabled the Company to reduce its senior credit lines and receivable securitization facilities by $9.5 million. Additionally, the Company repurchased $3.4 million of its common stock.
During the second half of 2005, the Company experienced soft sales in a number of product lines and has since seen improvements in certain areas. In the first quarter of 2006, the Arthroscopy product line experienced growth of 1.3% compared to the 4.4% sales decline recorded in the fourth quarter of 2005. Powered Surgical Instruments declined 3.7% quarter over quarter due to lower capital equipment handpiece sales, offset by a 7.0% increase in single- use blade and burr sales. Electrosurgery continues to increase its market share and improve sales of the System 5000(R) generators and single-use disposables resulting in growth of 12.0%, compared to the same period 2005. Endoscopic Technologies’ sales growth in the first quarter of 2006 was 2.8% over the first quarter of 2005, due to increased sales of biliary and stricture management devices. Endosurgery’s decline of 3.3% was due to reduced orders from distributors outside the United States following a strong order flow in the fourth quarter of 2005, offset by a 3.7% increase in U.S. sales. Patient Care grew 3.7% primarily due to improved sales of ECG electrodes.
Following is a summary of the Company’s sales by product line for the three months ended March 31, 2006 (in millions):
Three Months Ended March 31, Constant Currency 2005 2006 Growth Growth (in millions) Arthroscopy $54.0 $54.7 1.3 % 2.8 % Powered Surgical Instruments 35.5 34.2 -3.7 % -2.3 % Electrosurgery 20.9 23.4 12.0 % 12.0 % Endoscopic Technologies 14.3 14.7 2.8 % 2.8 % Endosurgery 12.3 11.9 -3.3 % -3.3 % Patient Care 18.9 19.6 3.7 % 3.7 % $155.9 $158.5 1.7 % 2.5 %
Compared to the first quarter of 2005, the Company’s profitability has been impacted by several previously discussed factors including the adverse effects of foreign currency translation, higher costs of production caused by higher petroleum based plastic raw materials and transportation, quality initiatives, litigation expense, greater research and development expenditures, and higher interest costs. Management expects these higher costs to be mitigated as progress is made throughout 2006 on various profit improvement initiatives.
Outlook
Mr. Corasanti concluded, “Based on our sales results for the first quarter of 2006, we are starting to see an improvement in our revenue growth rate compared to the last six months of 2005. We believe that the steps we have taken over the last three months to improve our margins will have a positive impact on our profitability. Our long-term goal is to achieve steady growth in our top and bottom lines. We continue to believe that our operating margin in 2007 will improve to approximately 14% of sales as growing revenues leverage the Company’s fixed-cost structure and as we realize measures to improve margins and reduce costs.”
CONMED is reiterating previously disclosed guidance. The Company continues to expect top-line organic growth of approximately 5% in 2006, an improvement from the 2% organic growth in 2005. The Company also continues to expect higher levels of costs in 2006 compared to 2005 such that non-GAAP diluted earnings per share in 2006 will approximate $0.85 - $0.90, including the effects of FAS 123R, as previously disclosed. This estimate does not reflect charges for previously disclosed higher costs of products for the Endoscopic Technology line while the Company completes the transition to self- manufacturing of this line, and the previously disclosed surgical light replacement costs. For the second quarter 2006, CONMED anticipates revenues in the range of $153 - $158 million and diluted earnings per share on a non- GAAP basis (including FAS 123R expense) of $0.18 - $0.22 per share.
Conference Call
The Company will webcast its first quarter 2006 conference call live over the Internet on Thursday, April 27, 2006 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 May 4, 2006.
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 3,100 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, 2005; (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 Three Months Ended March 31, 2005 and 2006 (In thousands except per share amounts) (unaudited) 2005 2006 Net sales $155,859 $158,466 Cost of sales 73,046 78,737 Cost of sales, nonrecurring - Note A 2,338 1,829 Gross profit 80,475 77,900 Selling and administrative - Note B 52,532 58,374 Research and development 5,849 7,825 Other expense - Note C 1,900 570 60,281 66,769 Income from operations 20,194 11,131 Interest expense 3,759 4,866 Income before income taxes 16,435 6,265 Provision for income taxes 5,670 1,925 Net income $10,765 $4,340 Per share data: Net income Basic $.37 $.15 Diluted .36 .15 Weighted average common shares Basic 29,127 28,082 Diluted 29,721 28,358
Note A - Included in cost of sales in the three months ended March 31, 2005 and 2006 are approximately $2.3 million and $1.8 million, respectively, in acquisition-related costs.
Note B - Included in selling and administrative expense in the three months ended March 31, 2006 is $0.8 million for stock option expense pursuant to FAS123R.
Note C - Included in other expense in the three months ended March 31, 2005 are $1.4 million in acquisition-related costs and $0.5 million of expense related to the termination of a product offering. Included in other expense in the three months ended March 31, 2006 are $0.5 million in acquisition- related costs and $0.1 million of expense related to the termination of a product offering.
CONMED CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands) (unaudited) ASSETS December 31, March 31, 2005 2006 Current assets: Cash and cash equivalents $3,454 $4,653 Accounts receivable, net 83,327 81,160 Inventories 152,428 157,735 Deferred income taxes 12,887 12,342 Other current assets 3,419 3,784 Total current assets 255,515 259,674 Property, plant and equipment, net 104,224 106,364 Goodwill and other intangible assets, net 527,053 525,882 Other assets 16,991 15,145 Total assets $903,783 $907,065 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $4,208 $2,963 Other current liabilities 57,924 61,531 Total current liabilities 62,132 64,494 Long-term debt 302,643 297,423 Deferred income taxes 62,554 64,068 Other long-term liabilities 23,448 25,381 Total liabilities 450,777 451,366 Shareholders’ equity: Capital accounts 202,810 200,990 Retained earnings 259,932 264,272 Accumulated other comprehensive loss (9,736) (9,563) Total equity 453,006 455,699 Total liabilities and shareholders’ equity $903,783 $907,065 CONMED CORPORATION CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (in thousands) (unaudited) Three months ended March 31, 2005 2006 Cash flows from operating activities: Net income $10,765 $4,340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,461 7,328 Stock option expense - 814 Deferred income taxes 3,683 2,121 Sale of accounts receivable (5,000) (3,000) Other, net (2,678) 2,408 Net cash provided by operating activities 14,231 14,011 Cash flow from investing activities: Purchases of property, plant, and equipment, net (3,985) (4,908) Proceeds from sale of equity investment - 1,205 Net cash used in investing activities (3,985) (3,703) Cash flow from financing activities: Payments on debt (13,152) (6,465) Net proceeds from common stock issued under employee plans 6,053 772 Repurchase of common stock - (3,406) Other, net (847) (170) Net cash used in financing activities (7,946) (9,269) Effect of exchange rate change on cash and cash equivalents (648) 160 Net increase in cash and cash equivalents 1,652 1,199 Cash and cash equivalents at beginning of period 4,189 3,454 Cash and cash equivalents at end of period $5,841 $4,653 CONMED CORPORATION RECONCILIATION OF REPORTED NET INCOME TO NET INCOME BEFORE UNUSUAL ITEMS Three Months Ended March 31, 2005 and 2006 (In thousands except per share amounts) (unaudited) 2005 2006 Reported net income $10,765 $4,340 Acquisition-transition related costs included in cost of sales 2,338 1,829 Termination of product offering 520 56 Other acquisition related costs 1,380 514 Total other expense 1,900 570 Unusual expense before income taxes 4,238 2,399 Provision (benefit) for income taxes on unusual expenses (1,462) (864) Net income before unusual items. $13,541 $5,875 Per share data: Reported net income Basic $0.37 $0.15 Diluted 0.36 0.15 Net income before unusual items Basic $0.46 $0.21 Diluted 0.46 0.21
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
CONTACT: Robert Shallish, Chief Financial Officer of CONMED Corporation,+1-315-624-3206; or investors, Julie Huang or Theresa Kelleher, both ofFinancial Dynamics, +1-212-850-5600, for CONMED Corporation
Web site: http://www.conmed.com/
