Conmed first quarter net revenue increases 16.1% to $18.9 million

Conmed Healthcare Management, Inc. (NYSE Amex: CONM) today announced financial results for its first quarter ended March 31, 2012.    

First Quarter Financial Highlights

• Net revenue increased 16.1% to $18.9 million, versus $16.3 million in the first quarter of 2011.
• Gross profit increased 6% to $3.2 million, compared to $3.0 million in the first quarter of 2011.
• Operating expenses as a percentage of revenue increased to 13.9% versus 13.5% in the first quarter of 2011.
• Operating income was $0.5 million, compared to $0.8 million in the first quarter of 2011.
• Net income was $0.1 million ($0.01 per basic and diluted share) compared to $0.4 million ($0.03 per basic and diluted share) in the first quarter of 2011.
• Generated approximately $1.3 million in positive cash flow in the first quarter of 2012.
• Cash and cash equivalents were $16.9 million at March 31, 2012.

Other Events:

• Entered two new states—Kentucky and Texas, bringing total number to ten.
• Contracted with Galveston County (Texas), valued at $5.8 million during initial 20-month term, effective February 1, 2012.
• Acquired Panhandle Correctional Care, enlarging presence in Texas.
• Announced contract with Marion County (Kentucky), expected to generate approximately $0.3 million in first year of full-service contract, effective April 1, 2012;
• Early extended the contract with Pima County (Arizona), a client since 2008, for one year.
• Hired Cantor Fitzgerald as an independent financial advisor to assist in evaluation of strategic alternatives.

"Conmed has again generated record net revenues for the quarter," said Richard Turner, Chairman and Chief Executive Officer. "We continue to execute our growth strategy on all fronts, including expanding our geographic footprints, approaching it with vigor and passion."

Dr. Turner concluded, "As of March 31, 2012, Conmed has 69 agreements with county governments, many of them renewals from within our current client base, as well as new contracts with new jurisdictions. Our continued growth and success stem, we believe from our commitment to excellence in the delivery of healthcare as well as the soundness of our business model.

We are working hard to win new contracts, penetrate new markets, and enter new states, and we are confident that the ongoing consistency of Conmed's product offering and a robust new business pipeline fortify these efforts."

First Quarter Financial Results

Net revenue for the three months ended March 31, 2012, increased 16.1% to $18.9 million as compared to $16.3 million in the first quarter of 2011. The revenue improvement resulted primarily from the addition of service contracts signed with new jurisdictions since January 1, 2011. Revenues also increased as a result of the expansion of services under existing contracts as well as price increases related to existing services and an increase associated with higher inmate populations at certain facilities partially offset by lower stop/loss reimbursements.

Total healthcare expenses for the quarter ended March 31, 2012, were $15.8 million compared to $13.3 million in the year-ago period. The increase primarily reflects increased salaries and benefits for healthcare employees related to new contracts, as well as cost-of-living and wage and benefit adjustments for existing employees plus the addition of an extra day of wages in the quarter due to leap year.

Gross profit increased to $3.2 million from $3.0 million in the prior year period, while gross margin declined to 16.8% from 18.3% in the first quarter of 2011 due to lower initial margins associated with the new contract wins.

Selling and administrative expenses for the first quarter were $2.5 million, or 13.3% of revenue, compared to $2.0 million, or 12.4% of revenue, for the 2011 quarter. The increase reflects investments in additional management and administrative personnel required to support the new contracts and services added since January 2011, partially offset by lower travel expense, consulting and accounting fees.

Depreciation and amortization was $0.12 million in the first quarter of 2012 compared to $0.17 million in the 2011 period. The approximately $50,000 decrease primarily reflects lower amortization expense related to acquired contracts that have become fully amortized offset, in part, by an increase of approximately $10,000 in depreciation costs related to additional property and equipment.

As a result, total operating expenses were $2.6 million in the first quarter of 2012 compared to $2.2 million in the first quarter of 2011. Operating expenses as a percentage of revenue increased 40 basis points to 13.9% from 13.5% in the year-ago period.

Conmed reported operating income of $0.5 million in the first quarter of 2012 compared to $0.8 million in the first quarter last year. Net income was approximately $0.1 million, or $0.01 per basic and diluted share, compared to net income of $0.4 million, or $0.03 per basic and diluted share, in the year-ago period.

For the first quarter of 2012, adjusted EBITDA*, a non-GAAP measure, was approximately $0.86 million compared to approximately $1.07 million in the prior year first quarter.

Cash and Equivalents

The Company generated approximately $1.3 million in operating cash flow in the quarter ended March 31, 2012. Cash and cash equivalents were $16.9 million at March 31, 2012, compared to $16.4 million at December 31, 2011. Stockholders' equity increased to $22.1 million at March 31, 2012, compared to $19.3 million at December 31, 2011. Days Sales Outstanding (DSO) as of March 31, 2012, was approximately 19 days. The Company remains debt-free.

During the three months ended March 31, 2012, warrants to purchase 31,763 shares of common stock were exercised generating $22,362 of net proceeds, and warrants to purchase 1,011,320 shares of common stock were exercised by cashless exercise. As a result, a total of 749,281 shares of common stock were issued. As of March 31, 2012, we had outstanding warrants subject to derivative accounting to purchase an aggregate of 80,000 shares of common stock. In addition, stock options to purchase 27,553 shares of common stock were exercised generating $61,182 net proceeds during the three months ended March 31, 2012.