Slide 1: Voce Capital Management
vocecapital research | management © Voce Capital Management; August 2014 vocecapital research | management 0
Slide 2: CONMED Corporation, August 2014
CONMED Corporation August 2014 vocecapital research | management
Slide 3: ConMed's strategy, execution and performance culture must change
“ConMed’s strategy, execution and performance culture must change.” – Chairman Mark Tryniski and Interim CEO Curt Hartman, August 11, 2014 vocecapital research | management
Slide 4: Table of Contents
Table of Contents Section Page Summary 3 ConMed background and performance 9 What’s changed … and what hasn’t 13 Moving forward 17 1. Governance and management 2. Operations 3. Strategy The decision for shareholders 30 Conclusion 36 Sources 38 vocecapital research | management 3
Slide 5: Summary
Summary vocecapital research | management
Slide 6: About Voce
About Voce Voce Capital Management is an employee-owned investment manager Voce pursues a value-driven, governance-focused investment strategy Institutional investor base comprised of leading foundations, institutions and family offices Voce and its nominees are owners of 168,638 shares, rep
Slide 7: James W. Green
James W. Green Experience: Mr. Green has been President, CEO and director of Analogic Corporation, a publicly traded company that designs, manufactures and sells advanced surgical guidance, medical imaging and security systems, since 2007. From 2005 to 2007, Mr. Green was Regional Vice President, Ca
Slide 8: Joshua H. Levine
Joshua H. Levine Experience: Mr. Levine has served as the President, CEO and a director of Accuray Incorporated, a publicly traded radiation oncology company that develops, manufactures and sells personalized treatment solutions, since 2012. Prior to Accuray, Mr. Levine served as the President, CEO,
Slide 9: J. Daniel Plants
J. Daniel Plants Experience: Mr. Plants is the founder and Managing Partner of Voce Capital Management. Prior to Voce, he held a number of leadership positions at leading Wall Street firms, including executive positions in investment banking at Goldman Sachs and JPMorgan and as a corporate attorney
Slide 10: ConMed background and performance
ConMed background and performance vocecapital research | management
Slide 11: ConMed Snapshot
ConMed Snapshot A History of Underperformance Financial Snapshot Strategically attractive medical consumables/device supplier (in millions, except for per share and valuation data) primarily to the orthopedic market Capitalization (as of): 8/19/2014 75% - 80% of sales are disposables 50% of sa
Slide 12: Stock price underperformance
Stock price underperformance 200% CNMD Peer Group (2013) 150% Russell 2000 CNMD Peer Group (2014) 100% Large-Cap Orthopedic CNMD 50% 0% -50% Aug-04 Feb-05 Aug-05 Jan-06 Jul-06 Jan-07 Jun-07 Dec-07 Jun-08 Nov-08 May-09 Nov-09 Apr-10 Oct-10 Apr-11 Oct-11 Mar-12 Sep-12 Mar-13 Aug-13 Feb-14 Aug-14 CNMD
Slide 13: A fluid peer group
A fluid peer group YEAR PROXY FILED 2007 2008 2009 2010 2011 2012 2013 2014 Arrow American Medical American Medical American Medical American Medical Greatbatch Cooper Companies Accuray Arthrocare Arthrocare Arthrocare Greatbatch Greatbatch Haemonetics Greatbatch Align Technology Biomet CR Bard CR B
Slide 14: What's changed … and what hasn't
What’s changed … and what hasn’t vocecapital research | management
Slide 15: Reactive and not proactive
Reactive and not proactive 2/27/14: Voce publishes 2/19/14: Voce letter disagreeing with 3/14/14: 5/23/14: Voce sends private files preliminary Board’s recent actions and ConMed letter to Board expressing = Responses to Voce pressure proxy statement expressing concerns about postpones concerns about
Slide 16: Meet the New Plan … Same as the Old Plan
Meet the New Plan … Same as the Old Plan ConMed Board’s Plan (August 18, 2014) Enhancing the accountability and focus of our entire organization; Improving operating efficiency; Driving profitable sales growth and expanding EBITDA margins; and Developing innovative products that meet the nee
Slide 17: What's changed … and what hasn't
What’s changed … and what hasn’t Voce concern ConMed response What we believe remains to be done Family-run E Corasanti retired; J. Corasanti resigned Governance & "Local" Board lacking real operating experience Board reshuffling; 3 local non-operators remaining Supplement Board with corporate gover
Slide 18: Looking Forward
Looking Forward 1 Governance and management 2 Operations 3 Strategy vocecapital research | management
Slide 19: Many legacy board members remain
1 Many legacy board members remain Eugene Corasanti Reign Joseph Corasanti Reign Hartman Reign Pre-Voce "Strategic Prior to Coppersmith Director Through 2006 November Alternatives July 2014 - ?? 2013 Settlement Letter Process" Charles M. Farkas Jerome J. Lande Curt R. Hartman Brian Concannon Dirk M.
Slide 20: The CEO process must be full and fair
1 The CEO process must be full and fair It wasn’t a foregone conclusion that an interim CEO was required or that Mr. Hartman was the appropriate choice for the role, in our view “The Board is confident that Curt’s leadership will help Mr. Hartman is the presumptive nominee continue to position t
Slide 21: ConMed continually misses forecasts
2 ConMed continually misses forecasts ConMed has missed its own revenue guidance for six straight years ($mm) Quarter that guidance is given • Bars indicate revenue guidance range for indicated year, X’s indicate actual revenue vocecapital research | management 20
Slide 22: Sales force efficiency has plummeted
2 Sales force efficiency has plummeted ($000’s) vocecapital research | management 21
Slide 23: Continual underinvestment
2 Continual underinvestment ($mm) “[R&D spending] is the lowest that I can recall … I think that what we will be looking [for] when the timing is right [is] for some increased R&D spending.” – J. Corasanti (4Q12 earnings call) vocecapital research | management 22
Slide 24: Consistent failure to launch new products
2 Consistent failure to launch new products Example: Altrus Attractive opportunity $2 billion tissue sealing market dominated by Covidien ConMed is well positioned with 30-35% share in adjacent tissue cutting market Some institutions owned ConMed stock because they believed Altrus was a si
Slide 25: Weak operating income and margins
2 Weak operating income and margins Operating income is lower in absolute terms over the last 10 years despite a revenue base that is 50% higher 100 20.0% 90 17.5% 80 70 15.0% 60 ($mm) 50 12.5% 40 10.0% 30 20 7.5% 10 0 5.0% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Adjusted Operating Income (LHS)
Slide 26: Acquisitions challenging
2 Acquisitions challenging Price Revenue Price/ Year Target Description ($mm) ($mm) Revenue 2012 Viking Systems, Inc. Surgical video products, including 3D 23 11 2.1x Avg: 3.6x 2012 MTF JV Allograft tissue for sports medicine 147 29 5.1x 2011 Nordic Distributor 6 2008 Italian Distributor 22 Flexible
Slide 27: Confusing and complex
3 Confusing and complex Old Segments (’05 – ’12) New Segments (’13+) Arthroscopy ’03 – ‘12 Revenue Growth: 6.9% Average Operating Margin: 14.1% * Surgical Video Systems Powered Surgical Instruments ’03 – ‘12 Revenue Growth: 2.3% Average Operating Margin: 14.1% * Electrosurgery ’03 – ‘12 Revenue Grow
Slide 28: The Board mishandled its strategic review process
3 The Board mishandled its strategic review process The Board chose to seek a sale in February 2014 A sale of the company was suggested by a long term shareholder on the 2Q13 conference call A sale process could have been undertaken at any time, including in the fall or winter of last year T
Slide 29: Always a bridesmaid?
3 Always a bridesmaid? We believe ConMed could have pursued a sale many times over at least the past 7 years and remains a strategically attractive asset vocecapital research | management 28
Slide 30: Consolidation will continue
3 Consolidation will continue EV/Revenue EV/EBITDA P/E Announced Enterprise Equity Buyer Target Premium Date Value Value LTM NTM LTM NTM LTM NTM Both transactions will 6/15/2014 Medtronic Covidien 30% 46,878 42,322 4.5x 4.3x 16.8x 15.5x 26.4x 21.8x close in early 2015 – and each would likely 4/24/20
Slide 31: The decision for shareholders
The decision for shareholders vocecapital research | management
Slide 32: Voce nominees versus incumbent directors
“ConMed’s strategy, execution and performance culture must change.” - M. Tryniski and C. Hartman, August 11, 2014 Execution and Performance Culture: Product Development, Operations and Sales & Marketing Jim Green Jo Ann Golden Medtech public company Retired accountant CEO Duplicative experienc
Slide 33: Directors to be replaced have specific liabilities
Directors to be replaced have specific liabilities Two long-time directors have an average tenure of 11 years on the Board and none have relevant experience Qualifications Strategic TSR performance vs. Public Years on Board leadership Prior Year of Relevant Analysis Director Age Russell 2000 since c
Slide 34: Jo Ann Golden
Jo Ann Golden Bears responsibility for ConMed’s long-term track record Has served on Board for over 11 years, including as Chair of the Audit Committee Her experience is both over-represented at ConMed and irrelevant Accounting expertise is not lacking at ConMed Ms. Golden and Mr. Tryniski
Slide 35: Stephen Mandia
Stephen Mandia “Independent” technically, but not substantively Personal ties to the Corasanti family Lacking relevant experience Prior experience as an olive oil importer Bears responsibility for ConMed’s long-term track record 12 years as a director Former chair for the “Nominating a
Slide 36: Jerome Lande
Jerome Lande Not truly an independent in this context, in our view Has a history of attempting to join boards of directors of public companies in partnership with Mr. Hartman Sits on the CEO search committee Failed to exercise contractual right to force annual meeting prior to June 30, 2014
Slide 37: Conclusion
Conclusion vocecapital research | management
Slide 38: Conclusion: Making a difference
Conclusion: Making a difference The Board has exaggerated the amount of real change The credibility and independence of the CEO Search Committee is absolutely critical We don’t think ConMed will see the best candidates with Hartman in the cat-bird seat Hartman’s associate (Lande) on the sear
Slide 39: Sources
Sources vocecapital research | management
Slide 40: Sources
Sources Page 2: Form 8-K Page 5: Voce estimates Page 10: CNMD investor presentation, Form 10-K, Form 10-Q, S&P Capital IQ, Voce meetings with CNMD management Page 11: CNMD proxy statements, S&P Capital IQ Page 12: CNMD proxy statements Page 14: Earnings transcripts, Forms 8-K, Schedule 1
Slide 41: Legal Disclaimer
Legal Disclaimer THIS PRESENTATION INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH VOCE CAPITAL MANAGEMENT LLC, ITS AFFILIATES AND NOMINEES (THE “PARTICIPANTS”) BELIEVE THAT THE DATA IS REL