CONMED (CNMD) 8-K CONMED Corporation Announces Fourth Quarter and Full Year 2014 Financial Results

	NEWS RELEASE
	CONTACT:
	CONMED Corporation
	Robert Shallish
	Chief Financial Officer
	315-624-3206

FOR RELEASE: 4:00 PM (Eastern) January 27, 2015

CONMED Corporation Announces Fourth Quarter and Full Year 2014 Financial Results

Utica, New York, January 27, 2015 ----- CONMED Corporation (Nasdaq: CNMD)today announced financial results for the fourth quarter and full year ended December 31, 2014.

Fourth Quarter 2014 Financial Highlights:

· Sales of $195.0 million decreased 4.1% on a reported basis and 2.7% in constant currency compared to the fourth quarter of 2013.

· Diluted earnings per share (GAAP) were $0.41 compared to $0.36 in the fourth quarter of 2013 and were affected by special items as described below.

· Adjusted diluted earnings per share were $0.53 and equal to $0.53 in the prior year period.

Full Year 2014 Financial Highlights:

· Sales of $740.1 million decreased 3.0% on a reported basis and 2.4% in constant currency compared to 2013.

· Diluted earnings per share (GAAP) were $1.16 compared to $1.28 in 2013 and were affected by special items as described below.

· Adjusted diluted earnings per share were $1.92 compared to $1.81 in the prior year.

· Adjusted EBITDA margin improved 80 basis points to 18.0% compared to 17.2% in 2013.

“Our fourth quarter results allowed us to complete the year in-line with the guidance we provided last July and reconfirmed in October. Our focus is on transforming our commercial organization to facilitate future sales and earnings growth. Our management team is fully engaged in this process, and I look forward to sharing our progress with you,” commented Curt R. Hartman, President and Chief Executive Officer.

CONMED News Release Continued Page 2 of 12 January 27, 2015

Sales Analysis

For the quarter ended December 31, 2014, domestic sales, which represented 50.7% of total sales, declined 1.8% while international sales, 49.3% of total sales, declined 6.5% compared to the fourth quarter of 2013 on a reported basis. In constant currency, international sales declined 3.8%. The sales decline in the United States was caused by reduced single-use product revenue, offset by increased capital equipment sales. Outside the United States, the decline was caused primarily by FX headwinds and reduced capital equipment sales. The currency impact on fourth quarter 2014 sales as compared to the fourth quarter of 2013 was $2.8 million.

For the 2014 full year, domestic sales, 48.8% of total sales, decreased 3.9% due to declines in single-use and capital products, while international sales, 51.2% of total sales, decreased 2.1% on a reported basis and 1.0% in constant currency. The international sales declines were caused by FX headwinds and reduced sales of capital products. The currency impact on 2014 sales as compared to 2013 was $4.3 million.

Earnings Analysis

Diluted earnings per share on a GAAP basis for the December 2014 quarter improved over the fourth quarter of 2013 due to lower operating expenses, including lower special items. Adjusting for the special items in both quarterly periods, adjusted diluted EPS was the same in both periods, as lower sales and gross margin in the fourth quarter of 2014 were offset by lower operating costs, a lower tax rate and reduced shares outstanding as compared to the fourth quarter of 2013.

For the 2014 full year, GAAP diluted earnings per share declined 9.4% caused by lower sales and higher costs for special items, particularly for those associated with management restructuring, Denver plant consolidation, and shareholder activism. Adjusting for the special items in both years as indicated on the following reconciliation, adjusted earnings per share grew 6.1% due to lower operating costs.

2015 Outlook

CONMED has outlined certain changes in the structure of its commercial organization that management believes will return the Company to sales growth in 2015. The Company anticipates constant currency sales growth of 1% to 3% for the full year, which will be driven by new product launches and a reorganization of certain aspects of the commercial sales organization in early 2015. As a result, management expects revenue growth to accelerate in the second half of 2015 compared to the first half of 2015.

CONMED’s prior 2015 guidance contemplated foreign exchange rates as of December 2014. The January 2015 volatility in the currency markets has been significant, and the Company has chosen to update 2015 guidance based on currency spot rates as of the close on January 23, 2015.Based on these rates, the updated negative impact of foreign exchange rates versus 2014 is $19 million to revenues and $0.14 to EPS, versus the prior estimates of $6 million and $0.04, respectively.

Using January 23, 2015 exchange rates and existing hedges, CONMED now anticipates that reported sales for 2015 will be in the range of $727 million to $742 million, representing a range of (2%) to 0% versus the prior year. The Company continues to expect 2015 constant currency revenue growth of 1% to 3%. In addition, adjusted diluted earnings per share will be in the range of $1.82 to $1.92.

The adjusted estimates for the full year 2015 exclude the cost of special items, including the manufacturing consolidation, commercial restructuring and senior management changes which are estimated to be $9.0 million to $11.0 million, net of tax, for 2015.

Special Charges

As reconciled on the following schedules, during the fourth quarter and full year 2014, the Company continued the ongoing consolidation of certain administrative functions and manufacturing activities. Also incurred were costs due to shareholder activism, changes in senior management, litigation and settlement costs associated with patent and legal disputes, the write-off of New York State tax credits eliminated due to a legislative change, and other costs. Expenses associated with these activities, including severance and relocation costs, amounted to $3.4 million, net of tax, in the fourth quarter of 2014 and $21.2 million, net of tax, for 2014. These charges are included in the GAAP earnings per share set forth above and are excluded from the adjusted results.

CONMED News Release Continued Page 3 of 12 January 27, 2015

Use of Non-GAAP Financial Measures

Management has disclosed adjusted financial measurements in this press announcement that present financial information that is not in accordance with generally accepted accounting principles. These measurements are not a substitute for GAAP measurements, although Company management uses these measurements as aids in monitoring the Company’s on-going financial performance from quarter-to-quarter and year-to-year on a regular basis, and for benchmarking against other medical technology companies. Adjusted net income, adjusted operating income, adjusted gross margin and adjusted earnings per share measure the income of the Company excluding credits or charges that are considered by management to be outside of the normal on-going operations of the Company. Management uses and presents adjusted net income, adjusted operating income, adjusted gross margin and adjusted earnings per share because management believes that in order to properly understand the Company’s short and long-term financial trends, the impact of special charges should be eliminated from on-going operating activities. These adjustments for special charges are derived from facts and circumstances that vary in frequency and impact on the Company’s results of operations. Management uses adjusted net income, adjusted operating income, adjusted gross margin and adjusted earnings per share to forecast and evaluate the operational performance of the Company as well as to compare results of current periods to prior periods on a consistent basis. Further, the presentation of EBITDA and adjusted EBITDA are non-GAAP measurements that management considers useful for measuring aspects of the Company’s cash flow. Adjusted financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Investors should consider adjusted measures in addition to, and not as a substitute for, or superior to, financial performance measures prepared in accordance with GAAP.

Conference Call

The Company will conduct a conference call and webcast regarding its fourth quarter 2014 financial results at 4:30 p.m. Eastern Time on Tuesday, January 27, 2015. To participate in the conference call, dial 866-515-2907 in the United States, or 617-399-5121 from other locations, and provide passcode 96396892. The webcast can be accessed from CONMED’s web site atwww.conmed.com. Replays of the call will be made available through February 15, 2015.

CONMED Profile

CONMED is a medical technology company with an emphasis on 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 and gastroenterology. Headquartered in Utica, New York, the Company’s 3,500 employees distribute its products worldwide from several manufacturing locations. CONMED has a direct selling presence in 16 countries outside the United States and international sales constitute over 50% of the Company’s total sales.

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. 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 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, 2013.

CONMED News Release Continued Page 4 of 12 January 27, 2015

CONMED CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(In thousands except per share amounts)

(unaudited)

	Three months ended				Twelve months ended
	December 31,				December 31,
	2014		2013		2014		2013
Net sales	$	195,003	$	203,442	$	740,055	$	762,704
Cost of sales		89,112		89,910		330,386		341,661
Cost of sales, other – Note A		1,858		2,137		5,612		8,626
Gross profit		104,033		111,395		404,057		412,417
Selling and administrative expense		74,861		82,355		293,942		310,730
Research and development		7,105		6,438		27,779		25,831
Medical device excise tax		1,536		1,536		5,588		5,949
Other expense – Note B		3,442		4,885		23,962		13,399
		86,944		95,214		351,271		355,909
Income from operations		17,089		16,181		52,786		56,508
Loss on early extinguishment of debt		—		—		—		263
Interest expense		1,539		1,482		6,111		5,613
Income before income taxes		15,550		14,699		46,675		50,632
Provision for income taxes		4,211		4,472		14,483		14,693
Net income	$	11,339	$	10,227	$	32,192	$	35,939
Per share data:
Net income
Basic	$	0.41	$	0.37	$	1.17	$	1.30
Diluted		0.41		0.36		1.16		1.28
Weighted average common shares
Basic		27,537		27,644		27,401		27,722
Diluted		27,758		28,062		27,769		28,114

Note A – Included in cost of sales, other in the three and twelve months ended December 31, 2014 and 2013 are costs related to the consolidation of our production facilities. Also included in the twelve months ended December 31, 2013 are costs associated with the termination of a product offering. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

Note B – Other expense in the three and twelve months ended December 31, 2014 and 2013 includes a number of adjusted charges. Refer to the Reconciliation of Reported Net Income to Adjusted Net Income for further details.

CONMED News Release Continued Page 5 of 12 January 27, 2015

CONMED CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands)

(unaudited)

ASSETS
	December 31,			December 31,
	2014			2013
Current assets:
Cash and cash equivalents	$	66,332		$	54,443
Accounts receivable, net		129,287			140,426
Inventories		148,149			143,211
Income taxes receivable		583			3,805
Deferred income taxes		14,348			13,202
Prepaid expenses and other current assets		22,451			17,045
Total current assets		381,150			372,132
Property, plant and equipment, net		133,429			138,985
Deferred income taxes		1,398			1,183
Goodwill		256,232			248,428
Other intangible assets, net		316,440			319,440
Other assets		9,545			10,340
Total assets	$	1,098,194		$	1,090,508
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1,234		$	1,140
Other current liabilities		114,722			110,125
Total current liabilities		115,956			111,265
Long-term debt		240,201			214,435
Deferred income taxes		112,223			113,199
Other long-term liabilities		48,516			45,290
Total liabilities		516,896			484,189
Shareholders’ equity:
Capital accounts		214,975			228,002
Retained earnings		406,145			395,889
Accumulated other comprehensive loss		(39,822	)		(17,572	)
Total equity		581,298			606,319
Total liabilities and shareholders’ equity	$	1,098,194		$	1,090,508

CONMED News Release Continued Page 6 of 12 January 27, 2015

CONMED CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Twelve months ended
	December 31,
	2014			2013
Cash flows from operating activities:
Net income	$	32,192		$	35,939
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization		45,734			47,867
Stock-based compensation		9,330			5,593
Loss on early extinguishment of debt		—			263
Deferred income taxes		(284	)		7,218
Increase (decrease) in cash flows from
changes in assets and liabilities:
Accounts receivable		5,255			(798	)
Inventories		(20,940	)		(1,817	)
Accounts payable		(3,449	)		4,223
Income taxes receivable (payable)		5,013			(1,519	)
Accrued compensation and benefits		3,572			(71	)
Other assets		(546	)		(5,222	)
Other liabilities		(10,701	)		(10,727	)
Net cash provided by operating activities		65,176			80,949
Cash flow from investing activities:
Payments related to a business acquisition		(5,265	)		—
Purchases of property, plant, and equipment		(15,411	)		(18,445	)
Net cash used in investing activities		(20,676	)		(18,445	)
Cash flow from financing activities:
Payments on debt		(1,140	)		(1,277	)
Proceeds of debt		27,000			55,000
Payments related to distribution agreement		(16,667	)		(34,000	)
Dividends paid on common stock		(21,959	)		(16,696	)
Payments related to issuance of debt		—			(1,725	)
Net proceeds from common stock issued under employee plans		2,316			17,264
Repurchase of common stock		(16,862	)		(50,556	)
Other, net		922			694
Net cash used in financing activities		(26,390	)		(31,296	)
Effect of exchange rate change
on cash and cash equivalents		(6,221	)		(485	)
Net increase in cash and cash equivalents		11,889			30,723
Cash and cash equivalents at beginning of period		54,443			23,720
Cash and cash equivalents at end of period	$	66,332		$	54,443

CONMED News Release Continued Page 7 of 12 January 27, 2015

CONMED CORPORATION

Sales Summary

(In millions)

	Three Months Ended December 31,
							Constant
							Currency
	2014		2013		% Change		% Change
Orthopedic surgery	$	101.7	$	107.7		-5.6%		-3.9%
General surgery		75.4		76.8		-1.8%		-0.9%
Surgical visualization		17.9		18.9		-5.3%		-3.7%
	$	195.0	$	203.4		-4.1%		-2.7%
Single-use products	$	154.7	$	161.5		-4.2%		-2.8%
Capital products		40.3		41.9		-3.8%		-2.4%
	$	195.0	$	203.4		-4.1%		-2.7%

	Twelve Months Ended December 31,
							Constant
							Currency
	2014		2013		% Change		% Change
Orthopedic surgery	$	402.8	$	410.2		-1.8%		-1.3%
General surgery		279.4		286.7		-2.5%		-2.0%
Surgical visualization		57.9		65.8		-12.0%		-10.9%
	$	740.1	$	762.7		-3.0%		-2.4%
Single-use products	$	593.8	$	609.0		-2.5%		-1.9%
Capital products		146.3		153.7		-4.8%		-4.3%
	$	740.1	$	762.7		-3.0%		-2.4%

CONMED News Release Continued Page 8 of 12 January 27, 2015

CONMED CORPORATION

RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME

Three Months Ended December 31, 2014 and 2013

(In thousands except per share amounts)

(unaudited)

	2014			2013
Reported net income	$	11,339		$	10,227
Facility consolidation costs		1,858			2,137
Total cost of sales		1,858			2,137
Administrative consolidation costs		1,499			2,447
Patent dispute and other matters		141			995
Management restructuring costs		1,524			—
Business acquisition costs		278			—
Pension settlement expense		—			1,443
Total other expense		3,442			4,885
Adjusted expense before income taxes		5,300			7,022
Provision for income taxes on adjusted expenses		(1,908	)		(2,351	)
Adjusted net income	$	14,731		$	14,898
Per share data:
Reported net income
Basic	$	0.41		$	0.37
Diluted		0.41			0.36
Net income before adjusted items
Basic	$	0.53		$	0.54
Diluted		0.53			0.53

Management has provided the above reconciliation of net income to adjusted net income 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 as discussed in the section “Use of Non-GAAP Financial Measures” above.

CONMED News Release Continued Page 9 of 12 January 27, 2015

CONMED CORPORATION

RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME

Twelve Months Ended December 31, 2014 and 2013

(In thousands except per share amounts)

(unaudited)

	2014			2013
Reported net income	$	32,192		$	35,939
Costs associated with termination of a product offering		—			2,137
Facility consolidation costs		5,612			6,489
Total cost of sales		5,612			8,626
Administrative consolidation costs		3,354			8,750
Patent dispute & settlement costs, and other matters		3,374			3,206
Shareholder activism costs		3,966			—
Management restructuring costs		12,546			—
Business acquisition costs		722			—
Pension settlement expense		—			1,443
Total other expense		23,962			13,399
Loss on early extinguishment of debt		—			263
Adjusted expense before income taxes		29,574			22,288
Provision (benefit) for income taxes on adjusted expenses		(10,646	)		(7,473	)
New York State corporate tax reform		2,258			—
Adjusted net income	$	53,378		$	50,754
Per share data:
Reported net income
Basic	$	1.17		$	1.30
Diluted		1.16			1.28
Net income before adjusted items
Basic	$	1.95		$	1.83
Diluted		1.92			1.81

Management has provided the above reconciliation of net income to adjusted net income 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 as discussed in the section “Use of Non-GAAP Financial Measures” above.

CONMED News Release Continued Page 10 of 12 January 27, 2015

CONMED CORPORATION

RECONCILIATION OF GROSS MARGIN TO ADJUSTED GROSS MARGIN

(In thousands)

(unaudited)

	Three months ended				Twelve months ended
	December 31,				December 31,
	2014		2013		2014		2013
Net sales	$	195,003	$	203,442	$	740,055	$	762,704
Cost of sales, total		90,970		92,047		335,998		350,287
Gross profit		104,033		111,395		404,057		412,417
Add:  Cost of sales, other		1,858		2,137		5,612		8,626
Adjusted gross profit	$	105,891	$	113,532	$	409,669	$	421,043
Gross margin:
Reported		53.3%		54.8%		54.6%		54.1%
Adjusted		54.3%		55.8%		55.4%		55.2%

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section “Use of Non-GAAP Financial Measures” above.

CONMED News Release Continued Page 11 of 12 January 27, 2015

CONMED CORPORATION

RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED

INCOME FROM OPERATIONS

(In thousands)

(unaudited)

	Three months ended				Twelve months ended
	December 31,				December 31,
	2014		2013		2014		2013
Reported income from operations	$	17,089	$	16,181	$	52,786	$	56,508
Costs associated with termination of a product      offering included in cost of sales		—		—		—		2,137
Facility consolidation costs included      in cost of sales		1,858		2,137		5,612		6,489
Administrative consolidation costs included in      other expense		1,499		2,447		3,354		8,750
Patent dispute & settlement costs, and other matters      included in other expense		141		995		3,374		3,206
Shareholder activism costs included in other      expense		—		—		3,966		—
Management restructuring costs included in other      expense		1,524		—		12,546		—
Costs associated with a business acquisition      included in other expense		278		—		722		—
Pension settlement costs included in other      expense		—		1,443		—		1,443
Adjusted income from operations	$	22,389	$	23,203	$	82,360	$	78,533
Operating Margin
Reported		8.8%		8.0%		7.1%		7.4%
Adjusted		11.5%		11.4%		11.1%		10.3%

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section “Use of Non-GAAP Financial Measures” above.

CONMED News Release Continued Page 12 of 12 January 27, 2015

CONMED CORPORATION

RECONCILIATION OF REPORTED NET INCOME TO EBITDA & ADJUSTED EBITDA

(In thousands)

(unaudited)

	Three months ended				Twelve months ended
	December 31,				December 31,
	2014		2013		2014		2013
Net income	$	11,339	$	10,227	$	32,192	$	35,939
Provision for income taxes		4,211		4,472		14,483		14,693
Interest expense		1,539		1,482		6,111		5,613
Loss on early extinguishment of debt		—		—		—		263
Depreciation		5,090		4,952		19,792		18,653
Amortization		6,478		7,228		25,358		28,655
EBITDA	$	28,657	$	28,361	$	97,936	$	103,816
Stock-based compensation		1,256		1,491		5,419		5,593
Costs associated with termination of a product      offering included in cost of sales		—		—		—		2,137
Facility consolidation costs included in cost of sales		1,858		2,137		5,612		6,489
Administrative consolidation costs included in      other expense		1,499		2,447		3,354		8,750
Patent dispute & settlement costs, and      other matters included in other expense		141		995		3,374		3,206
Shareholder activism costs included in other      expense		—		—		3,966		—
Management restructuring costs included in other      expense		1,524		—		12,546		—
Costs associated with a business acquisition      included in other expense		278		—		722		—
Pension settlement expense included in other expense		—		1,443		—		1,443
Adjusted EBITDA	$	35,213	$	36,874	$	132,929	$	131,434
EBITDA Margin
EBITDA		14.7%		13.9%		13.2%		13.6%
Adjusted EBITDA		18.1%		18.1%		18.0%		17.2%

Management has provided the above reconciliation as an additional measure that investors can use to compare financial results between reporting periods. Management believes this reconciliation provides a useful presentation of financial measures as discussed in the section “Use of Non-GAAP Financial Measures” above.