CONMED Corporation (CNMD)
Q4 2008 Earnings Call Transcript
February 5, 2009 10:00 am ET
Joseph Corasanti – President & CEO
Rob Shallish – CFO
Matt Miksic – Piper Jaffray
Raj Denhoy – Thomas Weisel Partners
James Sidoti – Sidoti & Company
Dalton Chandler – Needham & Company
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(Operator instructions) As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today’s conference, Mr. Joseph Corasanti, President and Chief Executive Officer of CONMED. Please proceed, sir.
Thank you, Francine. Good morning everyone, welcome to CONMED Corporation's fourth quarter 2008 earnings conference call. With me today is Rob Shallish, our Chief Finance Officer. After formal remarks, the call will be opened for questions.
Before we begin, let me remind you that during this call, we will be making comments and statements regarding our financial outlook, which represents forward-looking statements that involve risks and uncertainties as those terms are defined under Federal Securities Laws. Our actual results may differ materially from our current expectations. Please refer to the risk factors and other cautionary factors in today’s press release, as well as our SEC filings for more details on factors that may cause actual results to differ materially.
You will also hear Rob and me refer certain non-GAAP measurements during this discussion. While these figures are not a substitute for GAAP measurement, company management uses them to aid us in monitoring the company’s ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies.
Non-GAAP net income and non-GAAP earnings per share measure the income of the company excluding credits or charges that are considered by management to be unusual or outside of the normal on-going operations of the company. These unusual items are specified in the reconciliation in the press release issued this morning.
With these required announcements completed, I can now turn to our results. As we explained in the company’s press release in early January, CONMED’s fourth quarter financial performance was affected by economic volatility, specifically the exceptionally rapid changes in foreign currency exchange rates and cash conservation measures of hospital customers have led to reduced sales of the company’s capital equipment products.
Before discussing how the company was impacted by these economic developments, let me run through a few of the fourth quarter numbers. Reported fourth quarter 2008 sales decreased 5.5% compared to the fourth quarter of 2007. Sales in constant currency were equivalent to that of Q4 2007.
GAAP diluted earnings per share was $0.36 per share compared to $0.41 in the fourth quarter of 2007. After eliminating unusual items, non-GAAP EPS was $0.34 per share as opposed to the $0.44 in last year’s fourth quarter. For the full year of 2008, our results closely mirrored our original projections that we provided to you over a year ago.
As you know, during the first nine months of 2008, the company gradually increased its earnings guidance as a result of better than anticipated financial results in the first three quarters of the year, partly due to the weakening in the US dollar and its positive effect on CONMED’s operation. However, the strengthening of the US dollar in the fourth quarter of '08 reversed the currency benefits derived earlier in the year.
A moment ago, I provided some of the fourth quarter figures. Now, I’ll provide you with full year figures for 2008.
Reported full year sales in 2008 grew 6.9% over 2007. In constant currency, the growth was 6.6%. GAAP diluted earnings per share for 2008 were $1.52 compared to $1.43 in 2007. Non-GAAP diluted earnings per share for 2008 were $1.54 compared to 2007 non-GAAP EPS of $1.37.
Cash from operations continue to be strong. For the year, cash provided by operating activities was $62.9 million, 41% higher than the company’s net income for the year, demonstrating CONMED’s significant cash generation ability.
As I previously mentioned, the company’s fourth quarter results were negatively impacted by certain economic conditions. First and most responsible for sales and earnings being less than we had anticipated is the effect of the adverse swing in foreign currency exchange rates during the fourth quarter.
Compared to the fourth quarter of 2007, there was a 15% reduction in FX rate in the fourth quarter of 2008 that caused sales to be $10.7 million less that they would have been using the 2007 currency rates.
So, on a constant currency basis, after adding the $10.7 million to reported revenues, the company’s sales in the fourth quarter of '08 were essentially consistent with sales in the fourth quarter of 2007.
From an earnings viewpoint, approximately 60% of the adverse foreign currency sales effect falls through to pre-tax income. As a result, the fourth quarter pre-tax income is less than it otherwise would have been by approximately $6.4 million.
Next, CONMED, like many other medical companies, has seen how the economic downturn is affecting hospital purchasing patterns. Overall, hospitals in the United States have slowed down their capital purchasing cycles in an effort to conserve cash resources.