CONMED Corporation (CNMD)

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Q2 2009 Earnings Call

July 30, 2009 10:00 am ET


Joseph Corasanti - President and Chief Executive Officer

Rob Shallish - Chief Financial Officer


Matt Miksic - Piper Jaffray

Raj Denhoy - Thomas Weisel Partners

James Sidoti - Sidoti and Company

Dalton Chandler - Needham & Company

Brad Even - Heartland Advisors



Good day ladies and gentlemen and welcome to the second quarter 2009 CONMED earnings conference call. My name is Heather and I will be your coordinator for today. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr. Joseph Corasanti, President and CEO. Please proceed, sir.

Joseph Corasanti

Thank you, Heather. Good morning, everyone, welcome to CONMED Corporation's second quarter 2009 earnings conference call. With me today is Rob Shallish, our Chief Financial 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 the 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 to certain non-GAAP measurements during this discussion.

While these figures are not a substitute for GAAP measurements, 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 ongoing 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 my comments.

We are now nine months through an extraordinary and difficult period in the world's economy and healthcare, in particular. Like many other medical technology companies, CONMED has been adversely affected by unfavorable foreign currency exchange rates, reduced capital spending by hospital customers and for some surgeries a lack of typical growth and procedure volume.

And well, may be sometime before the company returns to the sales volumes and profitability of 2008, we believe that our top line has stabilized and that the cost efficiency actions we have taken will result in a stronger business as we enter 2010. However, as I will discuss shortly, we are taking a conservative view of the second half of 2009.

So with that brief summary of the company's operational status, let me review the second quarter's results. Sales in the June 2009 quarter were $164.6 million, about 15% less than sales in the June 2008 quarter, but slightly better sequentially than sales in the first quarter of this year. While the comparison to last year's second quarter is disappointing, it is not unexpected in light of currency changes and a well reported slowdown in capital spending by hospitals.

From a profitability standpoint, net earnings are a fraction of last years' second quarter on a GAAP basis and reflect the adverse effect of currency changes, reduced sales volume and the cost of our various efficiency restructuring programs.

On a non-GAAP basis adjusting for unusual items, our pre-tax profits are sequentially higher in the second quarter of '09 compared to those of the first quarter of this year. With second quarter sales of $164.6 million and non-GAAP diluted earnings per share of $0.17, the business performed to the expectations we provided you three months ago on our last earnings conference call.

We hear a lot these days about green shoots indicating that things are getting better for the economy. For CONMED, we see green shoots and the relative stability of our business between the first and second quarters of this year as well as from the indications from our customers that capital product sales should pick up as the end of the year approaches.

Although, the overall economic instability has presented our business with short-term challenges, we remain steadfast in our belief that the company is well positioned for strong future growth. The economic slowdown will reverse in due course and the positive demographics for healthcare remain unchanged and in time the pent up need for the replacement of capital equipment and for surgeries will create enhanced demand for the medical devices of our company as well as for other medical technology providers.

In the last six months, we have seen single-use products which make up 75% of our business, decline about 2% constant currency compared to the same period in '08. Typically, we would have growth in mid-single digits.

We have every reason to believe that this reduced growth is result of the general economy. If the current economic conditions improve, we expect that this portion of our business will return to typical rates of growth.

The 25% of our business that is normally associated with the capital purchasing budgets of hospitals have suffered the most from the current economic conditions. In this most recent quarter, it was evident that customers continued with the cash conversation measures that we saw in the previous six months causing routine capital, equipment purchases to be deferred.

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