NEWS RELEASE
   
  CONTACT:
  CONMED Corporation
  Todd Garner
  Chief Financial Officer
  315-624-3317
  ToddGarner@conmed.com

 

 

CONMED Corporation Announces Third Quarter 2020 Financial Results

 

Utica, New York, October 28, 2020 --- CONMED Corporation (NYSE: CNMD) today announced financial results for the third quarter ended September 30, 2020.

 

Third Quarter 2020 Highlights

 

·Sales of $237.8 million increased 1.8% year over year as reported and in constant currency.
·Domestic revenue increased 4.7% year over year.
·International revenue decreased 1.7% as reported and in constant currency.
·Diluted net earnings per share (GAAP) was $0.23, which was flat compared to diluted net earnings per share in the third quarter of 2019.
·Adjusted diluted net earnings per share(1) was $0.88 versus adjusted diluted net earnings per share of $0.62 in the third quarter of 2019. 

 

“Our third quarter results demonstrate our team’s commitment to operational execution in the face of the global COVID-19 environment,” commented Curt R. Hartman, CONMED’s President, Chief Executive Officer and Chair of the Board. “During the quarter, we generated continued positive momentum within our business despite ongoing geographic variability in procedure volumes as a result of pandemic-related disruptions. I remain confident that our team’s outstanding commitment to serving our customers and our continued expense discipline keep us well positioned to achieve profitable above-market growth over the long term.”

 

2020 Outlook

 

Due to the continued uncertainty created by the COVID-19 pandemic, management is unable to provide financial guidance at this time.

 

Supplemental Financial Disclosures

 

(1) A reconciliation of reported diluted net earnings (loss) per share to adjusted diluted net earnings per share, 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 2020 results.

 

 

 

To participate in the conference call, dial 1-844-889-7792 (domestic) or +1-661-378-9936 (international) and refer to the passcode 2498889.

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 Wednesday, October 28, 2020, until 7:30 p.m. ET on Wednesday, November 4, 2020. To hear this recording, dial 1-855-859-2056 (domestic) or +1-404-537-3406 (international) and enter the passcode 2498889.

 

 

 

 

Consolidated Condensed Statements of Income (Loss)

(in thousands, except per share amounts, unaudited)

 

   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2020  2019  2020  2019
             
Net sales  $237,835   $233,590   $609,631   $690,232 
Cost of sales   104,137    103,479    284,845    307,492 
Gross profit   133,698    130,111    324,786    382,740 
% of sales   56.2%    55.7%    53.3%    55.5% 
Selling & administrative expense   94,380    98,187    274,721    298,140 
Research & development expense   9,936    10,985    28,756    33,366 
Income from operations   29,382    20,939    21,309    51,234 
% of sales   12.4%    9.0%    3.5%    7.4% 
Interest expense   11,943    11,174    32,938    32,382 
Other expense   89    321    266    4,867 
Income (loss) before income taxes   17,350    9,444    (11,895)   13,985 
Provision for income taxes   10,500    2,474    2,728    299 
Net income (loss)  $6,850   $6,970   $(14,623)  $13,686 
                     
Basic EPS  $0.24   $0.25   $(0.51)  $0.48 
Diluted EPS   0.23    0.23    (0.51)   0.47 
                     
Basic shares   28,583    28,353    28,529    28,280 
Diluted shares   29,426    29,792    28,529    29,354 

 

 

 

 

Sales Summary

(in millions, unaudited)

 

   Three Months Ended September 30,
         % Change
                  Domestic  International
   2020  2019  As
Reported
  Impact
of
Foreign
Currency
  Constant
Currency
  As
Reported
  As
Reported
  Impact
of
Foreign
Currency
  Constant
Currency
Orthopedic Surgery  $102.2   $110.3    -7.4%    0.3%    -7.1%    -8.5%    -6.7%    0.5%    -6.2% 
General Surgery   135.6    123.3    10.0%    -0.2%    9.8%    11.3%    7.3%    -0.9%    6.4% 
   $237.8   $233.6    1.8%    0.0%    1.8%    4.7%    -1.7%    0.0%    -1.7% 
                                              
Single-use Products  $190.9   $184.4    3.6%    0.0%    3.6%    6.3%    0.1%    0.1%    0.2% 
Capital Products   46.9    49.2    -4.7%    -0.2%    -4.9%    -2.0%    -7.4%    -0.5%    -7.9% 
   $237.8   $233.6    1.8%    0.0%    1.8%    4.7%    -1.7%    0.0%    -1.7% 
                                              
Domestic  $134.2   $128.2    4.7%    0.0%    4.7%                     
International   103.6    105.4    -1.7%    0.0%    -1.7%                     
   $237.8   $233.6    1.8%    0.0%    1.8%                     
                                              

 

   Nine Months Ended September 30,
         % Change
                  Domestic  International
   2020  2019  As
Reported
  Impact
of
Foreign
Currency
  Constant
Currency
  As
Reported
  As
Reported
  Impact
of
Foreign
Currency
  Constant
Currency
Orthopedic Surgery  $261.9   $339.5    -22.8%    1.2%    -21.6%    -25.8%    -21.0%    2.0%    -19.0% 
General Surgery   347.7    350.7    -0.9%    0.4%    -0.5%    0.0%    -2.9%    1.2%    -1.7% 
   $609.6   $690.2    -11.7%    0.9%    -10.8%    -9.0%    -14.8%    1.7%    -13.1% 
                                              
Single-use Products  $497.1   $547.0    -9.1%    0.9%    -8.2%    -5.5%    -13.6%    1.9%    -11.7% 
Capital Products   112.5    143.2    -21.5%    0.7%    -20.8%    -24.4%    -18.8%    1.4%    -17.4% 
   $609.6   $690.2    -11.7%    0.9%    -10.8%    -9.0%    -14.8%    1.7%    -13.1% 
                                              
Domestic  $340.5   $374.1    -9.0%    0.0%    -9.0%                     
International   269.1    316.1    -14.8%    1.7%    -13.1%                     
   $609.6   $690.2    -11.7%    0.9%    -10.8%                     

 

 

 

Reconciliation of Reported Net Income to Adjusted Net Income

(in thousands, except per share amounts, unaudited)

 

   Three Months Ended September 30, 2020
   Gross Profit  Selling &
Administrative
Expense
  Operating
Income
  Interest
Expense
  Other
Expense
  Tax
Expense/
(Benefit)
  Effective
Tax Rate
  Net
Income
  Diluted
EPS
As reported  $133,698   $94,380   $29,382   $11,943   $89   $10,500    60.5%   $6,850   $0.23 
% of sales   56.2%    39.7%    12.4%                               
Restructuring and related costs (1)       (1,009)   1,009            (87)        1,096    0.04 
Acquisition and integration costs (2)   796        796            (366)        1,162    0.04 
Manufacturing consolidation costs (3)   606        606            (352)        958    0.03 
   $135,100   $93,371   $31,793   $11,943   $89   $9,695        $10,066   $0.34 
Adjusted gross profit %   56.8%                                         
Amortization(4)  $1,500    (6,992)   8,492    (3,439)       (3,980)        15,911    0.54 
Adjusted net income       $86,379   $40,285   $8,504   $89   $5,715    18.0%   $25,977   $0.88 
% of sales        36.3%    16.9%                               

 

   Three Months Ended September 30, 2019
   Gross Profit  Selling &
Administrative
Expense
  Operating
Income
  Interest
Expense
  Other
Expense
  Tax
Expense
  Effective
Tax Rate
  Net
Income
  Diluted
EPS
As reported  $130,111   $98,187   $20,939   $11,174   $321   $2,474    26.2%   $6,970   $0.23 
% of sales   55.7%    42.0%    9.0%                               
Acquisition and integration costs (2)   171    (1,490)   1,661            290         1,371    0.05 
Manufacturing consolidation costs (3)   1,430        1,430            249         1,181    0.04 
   $131,712   $96,697   $24,030   $11,174   $321   $3,013        $9,522   $0.32 
Adjusted gross profit %   56.4%                                         
Amortization(4)  $1,500    (6,841)   8,341    (3,183)       2,808         8,716    0.30 
Adjusted net income       $89,856   $32,371   $7,991   $321   $5,821    24.2%   $18,238   $0.62 
% of sales        38.5%    13.9%                               
Diluted shares                                           29,792 
In-the-money portion of convertible notes(5)                                           (204)
Diluted shares, as adjusted                                           29,588 

 

(1) In 2020, the Company incurred costs related to restructuring of the Orthopedic sales force consisting primarily of termination payments to distributors made in exchange for ongoing assistance to transition to employee-based sales representatives.

(2) In 2020, the Company incurred inventory adjustments associated with a prior acquisition.  In 2019, the Company incurred inventory adjustments, consulting fees, legal fees, severance and integration related costs associated with the acquisition of Buffalo Filter, LLC.

(3) In 2020 and 2019, the Company incurred costs related to the consolidation of certain manufacturing operations.  These costs related to winding down operations at certain locations and moving production lines to other facilities.

(4) Includes amortization of intangible assets, deferred financing fees and debt discount.

(5) In Q3 2019, the Company’s average share price exceeded the conversion price of its 2.625% convertible notes due in 2024 (the "Notes").   Non-GAAP adjusted dilutive weighted average shares outstanding exclude dilution that is expected to be offset by the Company’s convertible note hedge transactions.

 

 

Reconciliation of Reported Net Income (Loss) to Adjusted Net Income

(in thousands, except per share amounts, unaudited)

 

   Nine Months Ended September 30, 2020
   Gross
Profit
  Selling &
Administrative
Expense
  Operating
Income
  Interest
Expense
  Other
Expense
  Tax
Expense
  Effective
Tax Rate
  Net
Income
(Loss)
  Diluted
EPS
As reported  $324,786   $274,721   $21,309   $32,938   $266   $2,728    -22.9%   $(14,623)  $(0.51)
% of sales   53.3%    45.1%    3.5%                               
Plant underutilization costs (1)   6,586        6,586            739         5,847    0.20 
Product rationalization costs (2)   2,169    (2,095)   4,264            460         3,804    0.13 
Restructuring and related costs (3)   1,087    (3,133)   4,220            259         3,961    0.14 
Acquisition and integration costs (4)   2,253    (1,192)   3,445            356         3,089    0.11 
Manufacturing consolidation costs (5)   3,993        3,993            485         3,508    0.12 
   $340,874   $268,301   $43,817   $32,938   $266   $5,027        $5,586   $0.19 
Adjusted gross profit %   55.9%                                         
Amortization(6)  $4,500    (20,947)   25,447    (9,936)       1,795         33,588    1.14 
Adjusted net income       $247,354   $69,264   $23,002   $266   $6,822    14.8%   $39,174   $1.33 
% of sales        40.6%    11.4%                               
Diluted shares, as reported                                           28,529 
Effect of dilutive shares assuming net earnings(7)                                           859 
Diluted shares, as adjusted                                           29,388 
                                              
   Nine Months Ended September 30, 2019
   Gross
Profit
  Selling &
Administrative
Expense
  Operating
Income
  Interest
Expense
  Other
Expense
  Tax
Expense
  Effective
Tax Rate
  Net
Income
  Diluted
EPS
As reported  $382,740   $298,140   $51,234   $32,382   $4,867   $299    2.1%   $13,686   $0.47 
% of sales   55.5%    43.2%    7.4%                               
Acquisition and integration costs (4)   1,335    (11,196)   12,531            3,473         9,058    0.31 
Manufacturing consolidation costs (5)   1,430        1,430            249         1,181    0.04 
Debt refinancing costs (8)                   (3,904)   1,149         2,755    0.09 
   $385,505   $286,944   $65,195   $32,382   $963   $5,170        $26,680   $0.91 
Adjusted gross profit %   55.9%                                         
Amortization(6)  $4,500    (19,436)   23,936    (8,573)       8,056         24,453    0.83 
Adjusted net income       $267,508   $89,131   $23,809   $963   $13,226    20.6%   $51,133   $1.74 
% of sales        38.8%    12.9%                               

 

(1) In 2020, the Company incurred a charge related to plant underutilization due to abnormally low production as a result of decreased sales caused by the COVID-19 pandemic.

(2) In 2020, the Company performed an analysis of product lines and determined certain catalog numbers, principally related to capital equipment, would be discontinued and consolidated into existing product offerings resulting in a charge to cost of sales.  The Company also wrote-off related field inventory used for customer demonstration and evaluation of the discontinued products to selling and administrative expense.

 

 

(3) In 2020, the Company incurred restructuring costs related to a voluntary separation arrangement with employees as a result of the COVID-19 pandemic.  In 2020, the Company also incurred costs related to restructuring of the Orthopedic sales force consisting primarily of termination payments to distributors made in exchange for ongoing assistance to transition to employee-based sales representatives.

(4) In 2020, the Company incurred inventory adjustments associated with a prior acquisition and severance and integration costs mainly related to the Buffalo Filter, LLC acquisition.  In 2019, the Company incurred inventory adjustments, investment banking fees, consulting fees, legal fees, severance and integration related costs associated with the acquisition of Buffalo Filter, LLC.

(5) In 2020 and 2019, the Company incurred costs related to the consolidation of certain manufacturing operations.  These costs related to winding down operations at certain locations and moving production lines to other facilities.

(6) Includes amortization of intangible assets, deferred financing fees and debt discount.

(7) Diluted share count used in Diluted EPS, as adjusted, for the nine months ended September 30, 2020 adjusts for shares assuming net earnings.

(8) In 2019, in conjunction with the acquisition of Buffalo Filter, LLC, the Company refinanced its existing credit facility and incurred one-time fees associated with an agreement between the Company and JP Morgan Chase Bank, N.A., as well as costs associated with the early extinguishment of debt.

 

 

 

 

 

Reconciliation of Reported Net Income (Loss) to EBITDA & Adjusted EBITDA

(in thousands, unaudited)

 

   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2020  2019  2020  2019
             
Net income (loss)  $6,850   $6,970   $(14,623)  $13,686 
Provision from income taxes   10,500    2,474    2,728    299 
Interest expense   11,943    11,174    32,938    32,382 
Depreciation   4,383    5,258    13,617    14,225 
Amortization   13,580    13,377    40,973    38,837 
EBITDA  $47,256   $39,253   $75,633   $99,429 
                     
Stock based compensation   3,532    3,008    10,119    8,819 
Plant underutilization costs           6,586     
Product rationalization costs           4,264     
Restructuring and related costs   1,009        4,220     
Manufacturing consolidation costs   606    1,430    3,993    1,430 
Acquisition and integration costs   796    1,661    3,445    12,531 
Debt refinancing costs               3,904 
Adjusted EBITDA  $53,199   $45,352   $108,260   $126,113 
                     
                     
EBITDA Margin                    
  EBITDA   19.9%    16.8%    12.4%    14.4% 
  Adjusted EBITDA   22.4%    19.4%    17.8%    18.3% 

 

 

 

 

 

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, thoracic surgery, and gastroenterology. 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 risks posed to the Company’s business, financial condition, and results of operations by the COVID-19 global pandemic and the various government responses to the pandemic, including deferral of surgeries, reductions in hospital and ambulatory surgery center operating volumes, disruption to potential supply chain reliability, as well as the risk factors discussed in the Company's Annual Report on Form 10-K for the full year ended December 31, 2019, 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; adjusted gross profit; cost of sales excluding specified items; adjusted selling and administrative expenses; adjusted operating income; adjusted interest expense; adjusted other expense; adjusted income tax expense (benefit); adjusted effective income tax rate; adjusted net income, adjusted diluted shares 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 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 a constant currency basis is a non-GAAP measure. 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. 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, operating income, interest expense, other expense, income tax expense, effective income tax rate, net income (loss), diluted shares and diluted net earnings (loss) 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 above, 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.

 

 

 

 

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