Conmed fourth quarter net revenues increase 12.6% to $15.8 million

Conmed Healthcare Management, Inc. (NYSE Amex: CONM) today announced financial results for its fourth quarter and year ended December 31, 2010.

“These results continue to demonstrate the leverage in our operating model. Our business has now reached a critical mass to the point where our expanded client base and recurring revenues are more directly impacting the bottom line.”

Fourth Quarter Financial Highlights

• Net revenue increased 12.6% to $15.8 million from $14.0 million in the fourth quarter of 2009.
• Gross profit increased 11.5% to $3.0 million, compared to $2.7 million in the fourth quarter of 2009.
• Operating expenses as a percentage of revenue improved to 14.4% versus 16.3% in the fourth quarter of 2009.
• Operating income was $0.7 million, compared to $0.4 million in the fourth quarter of 2009.
• Net income was $0.4 million ($0.03 per basic share and $0.03 per diluted share) compared to $1.4 million ($0.11 per basic share and $0.07 per diluted share) in the fourth quarter of 2009.
• The Company generated approximately $262,000 in positive cash flow in the fourth quarter of 2010.
• Cash and cash equivalents were $13.3 million at December 31, 2010.

Subsequent to Quarters End:

• Announced contract with City of Alexandria, Virginia, a new customer, valued at $18.0 million over the full nine-year term, effective March 1, 2011.
• Announced contract with Haywood County, Tennessee, a new customer, valued at $1.1 million over a three-year term, effective April 1, 2011.

"Conmed set new records on both a quarterly and annual basis for revenue, gross profit, operating profit and adjusted EBITDA. We continued to generate cash and maintained a solid, debt-free balance sheet," said Richard Turner, Chairman and Chief Executive Officer. "These results continue to demonstrate the leverage in our operating model. Our business has now reached a critical mass to the point where our expanded client base and recurring revenues are more directly impacting the bottom line."

Dr. Turner concluded, "Conmed continues to win contracts with new jurisdictions and retain its current client base. We believe this demonstrates the effectiveness of our business model by performing more efficiently than the county and municipal governments could themselves, while improving or maintaining quality of service. We recently commenced work with the City of Alexandria, Virginia, and look forward to entering Tennessee, our eighth state, in April, both under new multi-year contracts. We intend to increase shareholder value by garnering contract renewals and further increasing our national footprint through new contract awards going forward."

Fourth Quarter Financial Results

Net revenue for the three months ended December 31, 2010, increased 12.6% to $15.8 million from $14.0 million for the three months ended December 31, 2009. The revenue improvement resulted primarily from the addition of service contracts signed with new jurisdictions since October 1, 2009. Revenues also increased as a result of the expansion of services under existing contracts and price increases related to existing services, partially offset by decreases in other volume-related activities associated with a decrease in stop/loss reimbursement and decreases associated with lower inmate populations at certain facilities.

Total healthcare expenses for the quarter ended December 31, 2010, were $12.8 million compared to $11.3 million in the year-ago period. The increase primarily reflects increased salaries and benefits for healthcare employees related to new contracts and increased cost of pharmacy and radiology services, offset in part by lower medical expenses out of facility.

Gross profit increased to $3.0 million from $2.7 million in the prior year period, while gross margin declined slightly from 19.2% to 19.0%.

Total operating expenses were $2.3 million in both the 2010 and 2009 fourth quarters. Operating expenses as a percentage of revenue declined 190 basis points to 14.4% from 16.3% in the year-ago period, which continues to reflect the leverage in the Company's operating model.

Selling, general and administrative expenses for the fourth quarter were $2.1 million, or 13.0% of revenue, compared to $1.9 million, or 13.9% of revenue, for the 2009 quarter. The slight increase in dollars reflects investments in additional management and administrative personnel required to support the new contracts and services added since October 2009, partially offset by lower travel expense, consulting and business development fees.

Depreciation and amortization was $0.2 million in the fourth quarter of 2010 compared to $0.3 million in the 2009 period. The decrease primarily reflects a reduction in amortization expense related to acquired contracts that have become fully amortized.

Conmed reported record operating income of $0.7 million in the fourth quarter of 2010 compared to $0.4 million in the fourth quarter last year. Net income was $0.4 million, or $0.03 per basic share and $0.03 per diluted share, compared to net income of approximately $1.4 million, or $0.11 per basic share and $0.07 per diluted share, in the year-ago period. The fourth quarter 2009 net income included a $0.5 million adjustment to reflect the change in fair value of derivatives (outstanding warrants) as required under Derivative Accounting for Warrants that are Indexed to an Entity's Own Stock plus a one-time tax benefit of $0.7 million related to the reversal of the deferred tax valuation reserve.

For the fourth quarter of 2010, adjusted EBITDA, a non-GAAP measure, was approximately $1.1 million compared to approximately $0.9 million in the prior year fourth quarter.

Full Year Results

Net revenue for the year ended December 31, 2010, increased 14.9% to a record $60.7 million, compared to $52.8 million for the year ended December 31, 2009. Approximately $7.2 million, or 91.5%, of the year-over-year increase is due to the addition of new medical service contracts acquired since January 1, 2009. Revenue improvement related to the expansion of the services provided under a number of our existing contracts, as well as price increases related to existing service requirements, totaling approximately $1.4 million or 17.7% of the increase. Partially offsetting the revenue increases above were decreases in other volume related activities totaling $0.7 million, or 9.2% of the revenue increase, primarily associated with lower inmate populations at certain facilities, partially offset by an increase in stop/loss reimbursements due to higher out of facility medical expenditures in excess of stop/loss limits which are billed back to clients.

Total healthcare expenses for the year ended December 31, 2010, were $49.1 million compared to $42.1 million in the year-ago period. Gross profit increased 8.5% to $11.6 million, compared to $10.7 million in 2009. Gross margin was 19.1% for 2010, compared to 20.3% a year ago.

Total operating expenses were $9.2 million, or 15.1% of revenue, for the year ended December 31, 2010, compared to $9.7 million, or 18.4% of revenue, for 2009. Conmed's operating income was approximately $2.5 million, compared to $1.0 million in 2009.

The net income for the year ended December 31, 2010, was approximately $1.5 million, or $0.12 per basic share and $0.09 per diluted share, compared to a net loss of $27,000, or $0.00 per basic share and diluted share in the year ago period. The full-year 2009 net loss included a $1.2 million non-cash charge for a change in fair value of derivative instruments (outstanding warrants) as required under Derivative Accounting for Warrants that are Indexed to an Entity's Own Stock.

For the full year of 2010, adjusted EBITDA, a non-GAAP measure, was approximately $4.1 million compared to approximately $3.6 million in the prior year.

Cash and Equivalents

The Company generated approximately $2.7 million in operating cash flow in the year ended December 31, 2010. Cash and cash equivalents were $13.3 million at December 31, 2010, compared to $11.1 million at December 31, 2009.

Stockholders' equity increased to $18.2 million at December 31, 2010, compared to $15.5 million at December 31, 2009. Days Sales Outstanding (DSO) as of December 31, 2010, was approximately 16 days. The Company remains debt-free.