Conmed Healthcare Management 2010 second quarter net revenue increases 15.9% to $14.7 million

Conmed Healthcare Management, Inc. (NYSE - Amex: CONM), a leading full service provider of correctional facility healthcare services to county and municipal detention centers, today announced financial results for the second quarter and six months ended June 30, 2010.

“Our performance in the second quarter of 2010 again documented the consistency in our financial model”

Second Quarter Financial Highlights

• Net revenue increased 15.9% to $14.7 million from $12.7 million in last year's comparable period.
• Operating expenses as a percentage of revenue declined 470 basis points to 15.4% from 20.1% in the year-ago period.
• Operating income rose to approximately $661,000 from approximately $51,000 in the year-ago period.
• Net income was approximately $342,000, or $0.03 per basic and $0.02 per diluted share, including approximately $4,000 for a change in fair value of derivatives, compared to net loss of $(2.4) million, or $(0.19) per basic and diluted share, in the year-ago period, including $2.4 million for a change in fair value of derivatives.
• The Company generated $1.1 million in adjusted EBITDA, a non-GAAP measure, and finished the quarter with $12.1 million in cash and cash equivalents, or $0.85 per diluted share, as of June 30, 2010.

Second Quarter Highlights:

• Signed an agreement with the City of Roanoke, VA, a new customer, for an initial three-year term with options for two one-year extensions which are at the City's option. The contract is expected to generate approximately $9.1 million in revenues during the term of the contract, including the option renewal periods, with the initial annual rate of $1.8 million. Conmed will deploy and manage a state-of-the-art EHR (Electronic Health Record) and E-MAR (Electronic Medication Administration Record) system in the City of Roanoke's jail facility, which is expected to improve quality of care, while also reducing operating expenses.
• The Company was added to the Russell Microcap® Index, which remains in place for one year and means automatic inclusion in the appropriate growth and value style indexed equity portfolios. The Russell Microcap Index measures the performance of the microcap segment of the U.S. equity market.

Subsequent to the End of Second Quarter

• Announced the retirement of Dr. Howard Haft, Executive Vice President and Chief Medical Officer and co-founder of the Company, Dr. Haft will continue to provide consulting and advisory services to the Company as needed. Dr. Robert Younes has been named Chief Medical Officer designate and will transition to the position of Chief Medical Officer on September 1, 2010.
• Named Dr. Stephen B. Goldberg Executive Vice President, assuming additional corporate responsibilities while remaining responsible for the Company's mental and behavioral health operations.
• Announced approximately $778,000 in price adjustments, service expansions and contract extensions related to 35 existing county and municipal contracts with anniversary dates between January 1, 2010 and August 1, 2010, representing an anticipated 2.6% increase in annual revenues on these contracts. Approximately 72% of the increase became effective between July 1, 2010 and August 1, 2010.

Second Quarter Financial Results

Net revenue for the three months ended June 30, 2010 increased $2.0 million, or 15.9%, to $14.7 million from $12.7 million in last year's comparable period. The addition of service contracts signed with new jurisdictions since April 1, 2009 accounted for $1.6 million, or 78.9%, of the increase in revenue for the three months ended June 30, 2010 compared to the same period for the prior year. Revenue improvement also resulted from expansion of services provided under a number of existing contracts in which we were providing services prior to April 1, 2009 as well as price increases related to existing service requirements. The increase in revenue was partially offset by decreases in other volume related activities, primarily associated with lower per diem reimbursements tied to inmate population partially offset by an increase in stop/loss reimbursements due to higher out of facility medical expenditures in excess of stop/loss limits billed back to counties.

"Our performance in the second quarter of 2010 again documented the consistency in our financial model," commented Richard Turner, Chairman and Chief Executive Officer of Conmed. "We experienced a double-digit revenue increase, a decline in operating expenses as a percentage of revenues, and generated over a million dollars in cash. We enjoyed continued momentum despite ongoing economic pressures that exist in the marketplace, as we welcomed the City of Roanoke, Virginia as a new customer and also retained our existing contracts that were up for renewal. Further, subsequent to the end of the quarter, we announced price increases, service expansions and contract extensions that we achieved in 2010, which we believe were the result of the high level of satisfaction among our existing clients."

Total healthcare expenses for the quarter ended June 30, 2010 were $11.8 million compared to $10.1 million in the year-ago period. The increase in spending for medical expenses in absolute dollars reflects increases primarily from new contracts for medical services both in and out of the facility. The increase in spending as a percentage of revenue primarily results from increases in pharmacy expenses and out of facility hospital expenses which were higher than the prior year as a result of lower than normal hospitalization days in the second quarter of 2009. Gross profit increased 12.6% to $2.9 million, or 19.9% gross margin, compared to $2.6 million, or 20.5% gross margin, last year.

Total operating expenses decreased 11% to $2.3 million for the quarter ended June 30, 2010 compared to $2.5 million for the year-ago period. Operating expenses as a percentage of revenue declined 470 basis points to 15.4% from 20.1% in the year-ago period, which continues to reflect the leverage in the Company's operating model. Selling and administrative expenses for the second quarter were $2.0 million or 13.5% of revenue compared to $1.9 million or 15.3% of revenue for the year-ago quarter. The reduction in spending as a percentage of revenue resulted from improved economies of scale.

Conmed reported record operating income of approximately $661,000 in the second quarter of 2010 compared to operating income of approximately $51,000 in the second quarter last year. Net income was approximately $342,000, or $0.03 per basic and $0.02 per diluted share compared to a net loss of $(2.4) million, or $(0.19) per basic and diluted share in the year-ago period. The second quarter 2010 net income included an adjustment of approximately $4,000 compared to a 2009 adjustment of $2.4 million to reflect the loss on fair value of derivatives (outstanding warrants) as required under derivative accounting for warrants that are indexed to an entity's own stock.

For the second quarter of 2010, adjusted EBITDA, a non-GAAP measure, grew 32.1% to $1.1 million compared to approximately $822,000 in the prior year second quarter.

Dr. Turner concluded, "We see some counties and municipalities managing budget pressures as they try to maintain service levels with less tax revenue, in some instances the Request for Proposal (RFP) cycles have lengthened but still are getting completed. Nevertheless we believe we have a compelling business model and our pipeline remains robust. We believe that our brand and strong service proposition, which includes our quality of service, our audit compliance track record and our exceptional customer renewal and retention rates give us a competitive edge in our marketplace."

Year-to-Date Results

Net revenue for the six months ended June 30, 2010 increased 17.3%, or $4.4 million, to $29.5 million, compared to $25.1 million for last year's comparable period. The addition of service contracts signed with new jurisdictions since January 1, 2009 accounted for $3.1 million, or 71.7% of the increase in revenue for the six months ended June 30, 2010 compared to the same period for the prior year. Total healthcare expenses for the six months ended June 30, 2010 were $23.7 million compared to $19.9 million in the year-ago period. For the six months ended June 30, 2010, gross profit increased 10.7% to $5.8 million, representing 19.8% gross margin, compared to gross profit of $5.3 million or 21.0% gross margin in last year's same period.

Total operating expenses were $4.6 million, or 15.6% of revenue for the six months ended June 30, 2010 compared to $5.0 million, or 19.9% of revenue for the year-ago period. Conmed's operating income was a record $1.2 million compared to operating income of approximately $266,000 in the same period last year. Net income was approximately $626,000 or $0.05 per basic and $0.04 per diluted share compared to a loss of $(2.3) million, or ($0.18) loss per basic and fully diluted share. For the first six months 2010, net income included an adjustment of approximately $47,000 compared to a 2009 adjustment of $2.4 million to reflect the loss on fair value of derivatives (outstanding warrants) as required under derivative accounting for warrants that are indexed to an entity's own stock.

For the first six months of 2010, adjusted EBITDA was $2.1 million compared to $1.8 million in the same period last year.

The Company generated $1.3 million in operating cash flow in the period ended June 30, 2010, and had $12.1 million in cash and cash equivalents as of June 30, 2010 compared to $11.1 million at December 31, 2009. Shareholders' equity increased to $16.4 million at June 30, 2010 compared to $15.5 million at December 31, 2009. Days Revenue Outstanding as of June 30, 2010 was approximately 15 days.