CONMED Corporation (Nasdaq: CNMD) today announced financial
results for the second quarter ended June 30, 2018.
Second Quarter 2018 Highlights
“We are very pleased with our second quarter, as we achieved strong
constant-currency revenue growth, significant gross margin expansion,
and solid double-digit growth in profitability,” commented Curt R.
Hartman, CONMED’s President and Chief Executive Officer. “Looking to the
second half of the year, we are confident in our ability to build on
this momentum and are increasing our revenue guidance. We remain focused
on investing in our business, bringing innovative new products to
market, and positioning CONMED for long-term revenue and earnings
growth.”
Sales Analysis
For the quarter ended June 30, 2018, domestic sales, which represented
51.5% of total revenue, increased 9.6% 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 second quarter of 2017,
these administrative fees totaled $2.1 million. As a result, on an
adjusted(1) basis, domestic sales increased 12.0% year over
year.
International sales, which represented 48.5% of total revenue, increased
6.2% compared to the second quarter of 2017 on a reported basis. Foreign
currency exchange rates, including the effects of the FX hedging
program, had a positive impact of $3.3 million on second quarter sales.
In constant currency, international sales increased 2.9% versus the
prior-year period.
Earnings Analysis
For the quarter ended June 30, 2018, reported net earnings totaled $8.7
million, compared to reported net earnings of $6.1 million a year ago.
Reported diluted net earnings per share were $0.30 in the quarter,
compared to reported diluted earnings per share of $0.22 in the
prior-year period. Reported net income for 2017 include restructuring
costs, business acquisition costs, and legal costs. Reported net income
for the second quarter of 2018 includes a tax expense of $0.3 million
resulting from adjustments to the December 2017 tax balances related to
the 2017 Tax Cuts and Jobs Act. 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, 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
earnings(3) of $13.3 million increased 16.2% year over year,
and adjusted diluted net earnings per share(2) of $0.46
increased 12.2% year over year. The increase in adjusted net earnings(3)
resulted primarily from higher sales, the favorable impact of foreign
exchange rates and a lower effective tax rate.
2018 Outlook
Based on current business trends, CONMED is raising its previously
issued constant-currency sales guidance. The Company now expects
full-year 2018 constant-currency sales growth in the range of 6% to 7%,
compared to the previous range of 4.5% to 5.5%. 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 100 basis
points lower than the Company’s previously issued guidance.
Despite the less favorable currency impact, 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, 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 $1 to $2 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 diluted net earnings per
share to adjusted diluted net earnings per share, a non-GAAP financial
measure, appears below.
(3) A reconciliation of reported net income to adjusted net
earnings, 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 second quarter 2018 results.
To participate in the conference call, dial 844-889-7792 (domestic) or
661-378-9936 (international) and refer to the passcode 8037449.
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, August 1, 2018, until 7:30 p.m. ET on Wednesday, August 15,
2018. To hear this recording, dial 855-859-2056 (domestic) or
404-537-3406 (international) and enter the passcode 8037449.
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. 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 operating income;
adjusted income tax expense; adjusted effective income tax rate;
adjusted net earnings 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 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, 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)
Sales Summary
(in millions, unaudited)
Reconciliation of Reported Net Income to Adjusted Net Earnings
(in thousands, except per share amounts, unaudited)
GrossProfit
Selling &AdministrativeExpense
OperatingIncome
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
GrossProfit
Selling &AdministrativeExpense
OperatingIncome
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
(1)
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.
(2)
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 gross profit
and selling and administrative expense as a percent of sales.
(3)
In 2017, the Company restructured certain operating, sales,
marketing and administrative functions and incurred severance and
other related costs.
(4)
In 2017, the Company incurred integration related costs associated
with the acquisition of SurgiQuest, Inc.
(5)
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 Earnings
(in thousands, except per share amounts, unaudited)
GrossProfit
Selling &AdministrativeExpense
OperatingIncome
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
GrossProfit
Selling &AdministrativeExpense
OperatingIncome
TaxExpense
EffectiveTax Rate
NetIncome
DilutedEPS
(1)
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.
(2)
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 gross profit
and selling and administrative expense as a percent of sales.
(3)
In 2017, the Company restructured certain operating, sales,
marketing and administrative functions and incurred severance and
other related costs.
(4)
In 2017, the Company incurred integration related costs associated
with the acquisition of SurgiQuest, Inc.
(5)
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)
View source version on businesswire.com: https://www.businesswire.com/news/home/20180801005947/en/