Conmed Healthcare Management third quarter net revenue increases 17.4% to record $18.1M

Conmed Healthcare Management, Inc. (NYSE Amex: CONM), a leading full service provider of correctional facility healthcare services to county and municipal detention centers, ("Conmed" or the "Company") today announced financial results for the three- and nine-month periods ended September 30, 2011. Highlights of the third quarter for 2011 include:

“The quality of the care we provide and our commitment to servicing our customers continues to result in steady growth of our business”

• Net revenue increased 17.4% to a record $18.1 million as compared to $15.4 million in the third quarter of 2010.
• Total operating expenses were $2.9 million as compared to $2.3 million in the third quarter of 2010, due primarily to $0.7 million in merger-related expenses which were partially offset by lower spending in other areas.
• Operating income was $0.4 million as compared to operating income of $0.5 million in the third quarter of 2010.
• Net income was $0.1 million, or $0.0 per basic and diluted share, compared to net income of $0.5 million in the third quarter of 2010, or $0.04 per basic share and $0.01 per diluted share. Net income in the third quarter of 2010 included a $0.4 million non-cash non-recurring gain due to derivative income.
• The Company generated $0.4 million in positive net cash flow from operations in the third quarter of 2011.
• Three new contracts were effective during the third quarter of 2011:
  • Ocean County, NJ, valued at $17.1 million over the five-year term;
  • Worcester County, MD, valued at $650,000 during the initial one-year term; and
  • Newport News, VA, valued at $13.6 million over the ten-year term.
• Entered into a definitive merger agreement on July 11, 2011 to be acquired by Ayelet Investments LLC for $3.85 per share in cash.

"The quality of the care we provide and our commitment to servicing our customers continues to result in steady growth of our business," commented Richard Turner, Chairman and Chief Executive Officer of Conmed. "We are proud to serve county and municipal correctional facilities in forty counties in eight states. We look forward to maintaining the same high level of service to our customers and their detainees in the future."

Third Quarter Financial Results

Net revenue for the third quarter of 2011 increased $2.7 million, or 17.4%, to a record $18.1 million from $15.4 million in the third quarter of 2010. The addition of service contracts signed with new jurisdictions since July 1, 2010 accounted for $2.7 million, or 99.2%, of this increase. Revenue improvement also resulted from the expansion of services provided under several contracts entered into prior to July 1, 2010, as well as price increases related to existing service requirements, offset in part by decreases in other volume related activities, primarily associated with a decrease in revenue adjustments resulting from lower inmate populations, as well as lower stop/loss reimbursements.

Total healthcare expenses for the third quarter of 2011 were $14.8 million compared to $12.6 million in the third quarter of 2010. The increase in spending is due primarily to the addition of new healthcare employees resulting from new business. Gross profit increased to $3.3 million, or 18.1% gross margin, as compared to $2.8 million, or 18.0% gross margin, in the third quarter of 2010.

Total operating expenses increased 26.3% to $2.9 million for the third quarter of 2011 as compared to $2.3 million for the third quarter of 2010. Operating expenses as a percentage of sales increased 110 basis points to 16.0% from 14.9% in the third quarter of 2010. Selling and administrative expenses for the third quarter of 2011 were $2.8 million, or 15.3% of revenue, compared to $2.1 million, or 13.5% of revenue, for the third quarter of 2010. The increased expenditure is primarily attributed to merger-related expenses, which were partially offset by lower administrative expenses.

Conmed reported operating income of approximately $372,000 in the third quarter of 2011 compared to operating income of approximately $481,000 in the third quarter of 2010. Net income was approximately $61,000, or $0.00 per basic and diluted share, compared to net income of approximately $547,000, or $0.04 per basic and $0.01 per diluted share, in the third quarter of 2010. Net income in the third quarter of 2010 included a $0.4 million non-cash non-recurring gain due to derivative income.

For the third quarter of 2011, adjusted EBITDA, a non-GAAP measure, was approximately $618,000 compared to approximately $858,000 in the third quarter of 2010.

Year-to-Date Results

Net revenue for the nine months ended September 30, 2011 increased 13.7%, or $6.2 million, to $51.0 million, as compared to $44.9 million for the nine months ended September 30, 2010. The addition of service contracts signed with new jurisdictions since January 1, 2010 accounted for $6.6 million, or 107.1%, of the increase in revenue for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Total healthcare expenses for the nine months ended September 30, 2011 were $41.8 million compared to $36.3 million for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, gross profit increased 7.8% to $9.3 million, representing 18.2% gross margin, compared to gross profit of $8.6 million or 19.2% gross margin for the nine months ended September 30, 2010.

Total operating expenses were $8.1 million, or 15.8% of revenue, for the nine months ended September 30, 2011 compared to $6.9 million, or 15.3% of revenue, for the nine months ended September 30, 2010. Conmed's operating income was $1.2 million compared to operating income of $1.7 million for the nine months ended September 30, 2010.

Net income was $0.3 million, or $0.02 per basic diluted share (based on approximately 13.0 million basic and 14.5 million diluted weighted average shares outstanding, respectively), compared to net income of $1.2 million, or $0.09 per basic and $0.06 per diluted share (based on approximately 12.6 million basic and 14.2 million diluted weighted average shares outstanding) for the nine months ended September 30, 2010.

For the nine months ended September 30, 2011, adjusted EBITDA decreased 34.2% to $2.0 million compared to $3.0 million for the nine months ended September 30, 2010.

Cash and Equivalents

The Company generated $1.7 million in operating cash flow in the third quarter of 2011. Cash and cash equivalents were $15.0 million at September 30, 2011, compared to $13.3 million at December 31, 2010. Stockholders' equity was to $17.0 million at September 30, 2011, compared to $18.2 million at December 31, 2010. Days Sales Outstanding (DSO) as of September 30, 2011 was approximately 15 days. The Company remains debt-free.

During the nine months ended September 30, 2011, warrants to purchase 37,334 shares of common stock were exercised generating $93,335 of net proceeds, and warrants to purchase 245,000 shares of common stock were exercised by cashless exercise and as a result, a total of 105,265 shares of common stock were issued. Additionally, warrants to purchase 771,020 shares of common stock were amended in connection with the Merger Agreement resulting in liability treatment. As of September 30, 2011, we had outstanding warrants subject to derivative accounting to purchase an aggregate of 1,116,783 shares of common stock. In addition, stock options to purchase 83,334 shares of common stock were exercised generating $167,501 of net proceeds during the nine months ended September 30, 2011.