Conmed Healthcare Management, Inc. Reports Record Revenues for Third Quarter and Year-to-Date 2009

http://www.businesswire.com/news/home/20091112006080/en

Third Quarter Revenue Increases 18.3% to $13.6 Million; Year-to-Date Revenue
Increases 36.7% to a Record $38.8 Million
HANOVER, Md.--(Business Wire)--
Conmed Healthcare Management, Inc. (NYSE - Amex:CONM), a leading full service
provider of correctional facility healthcare services to county detention
centers, today announced financial results for the three and nine month periods
ended September 30, 2009.

Third Quarter Financial Highlights

* Net revenue increased 18.3% to $13.6 million from $11.5 million in last year's
comparable period.
* Gross profit increased 32.3% to $2.7 million (20.0% gross margin), compared to
$2.1 million (17.9% gross margin) in last year`s same period.
* Operating income was approximately $331,000 compared to operating income of
$72,000 in the year ago period.
* Net income of approximately $854,000, or $0.07 per share, included $756,000
for a change in fair value of derivatives, compared to net income of
approximately $108,000, or $0.01 per share, in the year-ago period.
* The Company generated approximately $1.3 million in operating cash flow in the
third quarter, and finished the quarter with $10.1 million in cash and cash
equivalents, or $0.71 per diluted share, as of September 30, 2009.

Third Quarter Results

Net revenue for the three months ended September 30, 2009 increased $2.1
million, or 18.3%, to $13.6 million from $11.5 million in last year's comparable
period. The revenue improvement resulted from the addition of contracts signed
with new jurisdictions since June 30, 2008: Caroline County, MD; Coos County,
OR; Creek County, OK; Pima County, AZ; Washington County, MD; and Western
Virginia Regional Jail, VA. Revenues also increased as a result of the
acquisition of Correctional Mental Health Services, LLC ("CMHS") on November 4,
2008 and expansion of services from existing contracts and price increases
related to existing services.

"Our results again were solid across the board," commented Richard Turner,
Chairman and Chief Executive Officer of Conmed. "We achieved record revenues in
the third quarter and first nine months of 2009, managed our cost structure
extremely well, achieved 20% gross margins, and generated a significant amount
of cash. During the quarter we were engaged in renewal discussions with several
key accounts, putting the final touches on three new sites that we
simultaneously opened early in the quarter, and working diligently to develop
our new business pipeline and prudently manage our growth."

Dr. Turner concluded, "We remain focused on both innovation and quality
improvement programs to continue to differentiate ourselves in the marketplace
as a go-to provider of outsourced high quality and standards compliant
healthcare services for correctional facilities. Our quality of service, our
attention to managing our client`s healthcare costs as well as our excellent
record in compliance and customer retention remain key factors in attracting new
and renewed business. The outstanding job we have done in servicing our accounts
continues to result in maintaining a renewal and retention rate that is
unmatched in our industry."

Total healthcare expenses for the period ended September 30, 2009 were $10.9
million compared to $9.5 million in the year-ago period. The increase reflects
increased healthcare and mental health staffing to support new business, which
was partially offset by a decrease in spending for medical expenses reflecting
lower hospitalization, outpatient and pharmacy expenditures. Gross profit
increased 32.3% to $2.7 million, or 20.0% gross margin, compared to $2.1
million, or 17.9% gross margin, in the prior year period.

Total operating expenses were $2.4 million for the quarter ended September 30,
2009 compared to $2.0 million for the year-ago period. Operating expenses as a
percentage of sales were 17.6% compared to 17.3% in the year-ago period.
Selling, general and administrative expenses for the third quarter were $2.0
million or 14.8% of revenue compared to $1.5 million or 12.9% of revenue for the
year-ago quarter and primarily reflects investments in additional management and
administrative personnel required to support the new contracts and services
added in 2009, as well as to sustain the Company during anticipated future
growth plus increased travel, legal and accounting expenses.

Conmed reported operating income of approximately $331,000 in the third quarter
compared to operating income of approximately $72,000 in the third quarter last
year. Net income was approximately $854,000, or $0.07 per share, compared to net
income of approximately $108,000, or $0.01 per share, in the year-ago period.
The third quarter 2009 net income included a $756,000 change in the fair value
of derivatives**.

For the third quarter of 2009, adjusted EBITDA*, a non-GAAP measure, grew to
approximately $870,000 compared to approximately $736,000 in the prior year
third quarter.

Year-to-Date Results

Net revenue for the nine months ended September 30, 2009 increased $10.4
million, or 36.7%, to a record $38.8 million from $28.4 million for last year's
comparable period. Approximately $9.7 million, or 93.5%, of the year-over-year
increase is due to the addition of new medical service contracts acquired after
December 31, 2007. Total healthcare expenses for the nine months ended September
30, 2009 were $30.8 million compared to $23.3 million in the year-ago period.
For the nine months, gross profit increased 59% to $8.0 million, representing
20.6% gross margin, compared to gross profit of $5.0 million or 17.7% gross
margin in last year's same period.

Total operating expenses were $7.4 million, or 19.1% of revenue, for the nine
months ended September 30, 2009 compared to $6.1 million, or 21.5% of revenue,
for the year-ago period. Conmed's operating income was approximately $598,000
compared to an operating loss of $1.1 million in the same period last year. The
net loss was approximately $1.4 million, or $0.11 loss per basic and fully
diluted share (based on approximately 12.5 million weighted average shares
outstanding) compared to a loss of $938,000, or $0.08 loss per basic and fully
diluted share (based on approximately 12.0 million weighted average shares
outstanding) in the year ago period. Included in the $1.4 million loss for the
nine-month period, the company had a $1.7 million non-cash charge for the change
in the fair value of derivatives. Without this charge the company would have had
net income of approximately $0.2 million**.

For the first nine months of 2009, adjusted EBITDA* was approximately $2.7
million compared to approximately $881,000 in last year`s same period.

The Company generated approximately $1.3 million in operating cash flow in the
quarter ended September 30, 2009, and had $10.1 million in cash and cash
equivalents as of September 30, 2009 compared to $7.5 million at December 31,
2008

*Use of Non-GAAP Measures

In addition to containing results that are determined in accordance with
accounting principles generally accepted in the United States of America (GAAP),
this press release also contains the Company`s "EBITDA" results, which are
non-GAAP earnings results that exclude certain items. Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) and adjusted EBITDA are key
indicators used by management to evaluate operating performance. While EBITDA
and adjusted EBITDA are not intended to replace any presentation included in the
consolidated financial statements under GAAP and should not be considered an
alternative to operating performance or an alternative to cash flow as a measure
of liquidity, the Company believes this measure is useful to investors in
assessing its capital expenditures and working capital requirements. This
calculation may differ in method of calculation from similarly titled measures
used by other companies. Adjusted EBITDA, as used in the press release,
represents income from continuing operations before interest, taxes,
depreciation and amortization adjusted for stock-based compensation, gains or
losses on the sale of assets, impairment charges, change in fair value of
derivative financial instruments and other unusual or non-recurring
transactional events. A reconciliation of EBITDA and adjusted EBITDA to the
nearest comparable GAAP financial measures is included in the financial
schedules accompanying this press release. The adjusted financial measures, as
well as other information in this press release, should be read in conjunction
with the Company`s financial statements filed with the Securities and Exchange
Commission.

**Fair Value Measurements -- Determining Whether an Instrument (or Embedded
Feature) Is Indexed to an Entity`s Own Stock:

We are required to record a non-cash charge to our GAAP results due to our
adoption of derivative accounting rules for equity-linked financial instruments.
Equity-linked financial instruments consist of stock warrants issued by the
Company that contain a strike price adjustment feature. In accordance with
derivative accounting for warrants, we calculated the fair value of warrants
using the Black-Scholes option pricing model and the assumptions used are
described in our Quarterly Report on Form 10-Q for the periods ended September
30, 2009.

Conference Call

Conmed will host a conference call today, Thursday, November 12, at 4:30 PM ET.
Anyone interested in participating should call 888-846-5003 if calling within
the United States or 480-629-9856 if calling internationally. A re-play will be
available until November 19, 2009, which can be accessed by dialing 800-406-7325
if calling within the United States or 303-590-3030 if calling internationally.
Please use passcode 4179976 to access the replay.

The call will also be accompanied live by webcast over the Internet and
accessible at http://viavid.net/dce.aspx?sid=00006C93.

About Conmed

Conmed has provided correctional healthcare services since 1984, beginning in
the State of Maryland, and currently serves county and municipal correctional
facilities in thirty-six counties in seven states, including Arizona, Kansas,
Maryland, Oklahoma, Oregon, Virginia and Washington. Conmed's services have
expanded to include mental health, pharmacy and out-of-facility healthcare
services.

Forward Looking Statements

This press release may contain, among other things, certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including, without limitation, (i) statements with respect to the
Company's plans, objectives, expectations and intentions; and (ii) other
statements that are not historical facts including statements which may be
identified by words such as "may," "could," "would," "should," "believes,"
"expects," "anticipates," "estimates," "intends," "plans," "projects,"
"potentially," or similar expressions. These statements are based upon the
current beliefs and expectations of the Company's management and are subject to
significant risks and uncertainties. Actual results may differ from those set
forth in the forward-looking statements. These forward-looking statements
involve certain risks and uncertainties that are subject to change based on
various factors (many of which are beyond the Company's control) including,
without limitation, the Company's ability to increase revenue and to continue to
obtain new contracts, contract renewals and extensions.; the ability to obtain
bonds; decreases in occupancy levels or disturbances at detention centers;
malpractice litigation; the ability to utilize third party administrators for
out-of-facility care; compliance with laws and government regulations, including
those relating to healthcare; competition; termination of contracts due to lack
of government appropriations; material adverse changes in economic and industry
conditions in the healthcare market; negative publicity regarding the provision
of correctional healthcare services; dependence on key personnel and the ability
to hire skilled personnel; increases in healthcare costs; insurance; completion
and integration of future acquisitions; public company obligations; and stock
price volatility. More detailed information about the Company and the risk
factors that may affect the realization of forward-looking statements is set
forth in the Company`s filings with the Securities and Exchange Commission,
including Amendment No. 1 to the Company`s Annual Report on Form 10-K/A filed
with the SEC for the fiscal year ended December 31, 2008. Investors and security
holders are urged to read this document free of charge on the SEC's web site at
www.sec.gov. The Company does not undertake to publicly update or revise its
forward-looking statements as a result of new information, future events or
otherwise.

CONMED HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS

September 30, 2009 (unaudited) December 31, 2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,119,183 $ 7,472,140
Accounts receivable 2,837,599 2,375,583
Prepaid expenses 176,779 291,599
Total current assets 13,133,561 10,139,322
PROPERTY AND EQUIPMENT, NET 650,531 529,304
DEFERRED TAXES 1,022,000 645,000
OTHER ASSETS
Service contracts acquired, net 817,000 2,004,000
Non-compete agreements, net 532,667 821,667
Goodwill 6,263,705 6,254,544
Deposits 15,683 15,408
Total other assets 7,629,055 9,095,619
$ 22,435,147 $ 20,409,245

LIABILITIES AND SHAREHOLDERS` EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,201,145 $ 1,080,259
Accrued expenses 3,977,339 3,210,749
Taxes payable 653,240 432,380
Deferred revenue 936,622 561,734
Notes payable, current portion 11,446 170,228
Total current liabilities 6,779,792 5,455,350
NOTES PAYABLE, LONG-TERM -- 35,000
DERIVATIVE FINANCIAL INSTRUMENTS 3,720,867 --
SHAREHOLDERS` EQUITY
Preferred stock, no par value; authorized 5,000,000 shares; issued and outstanding zero shares as of September 30, 2009 and December 31, 2008 -- --
Common stock, $0.0001 par value, authorized 40,000,000 shares; issued and outstanding 12,613,322 and 12,457,539 shares as of September 30, 2009 and December 31, 2008, respectively 1,261 1,246
Additional paid-in capital 35,697,560 36,875,610
Retained (deficit) (23,764,333 ) (21,957,961 )
Total shareholders' equity 11,934,848 14,918,895
$ 22,435,147 $ 20,409,245

CONMED HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

For the Nine For the Nine For the Three For the Three

Months Ended
Months Ended
Months Ended
Months Ended

September 30,
September 30,
September 30,
September 30,

2009
2008
2009
2008

Service contract revenue $ 38,775,309 $ 28,362,281 $ 13,643,317 $ 11,531,168

HEALTHCARE EXPENSES:
Salaries, wages and employee benefits 22,138,330 14,695,467 7,900,235 5,975,707
Medical expenses 7,248,420 7,702,791 2,485,024 3,042,867
Other operating expenses 1,388,780 933,932 524,950 446,228
Total healthcare expenses 30,775,530 23,332,190 10,910,209 9,464,802

Gross profit 7,999,779 5,030,091 2,733,108 2,066,366

Selling and administrative expenses 5,774,101 4,574,429 2,014,378 1,490,008
Depreciation and amortization 1,627,951 1,533,870 387,392 504,295
Total operating expenses 7,402,052 6,108,299 2,401,770 1,994,303

Operating income (loss) 597,727 (1,078,208 ) 331,338 72,063

OTHER INCOME (EXPENSE)
Interest income 61,127 145,085 16,547 37,934
Interest (expense) (7,991 ) (4,721 ) (819 ) (1,527 )
Change in fair value of derivatives (1,688,623 ) -- 755,650 --
Total other income (expense) (1,635,487 ) 140,364 771,378 36,407

Income (loss) before income taxes (1,037,760 ) (937,844 ) 1,102,716 108,470
Income tax (expense) (402,000 ) -- (249,000 ) --
Net income (loss) $ (1,439,760 ) $ (937,844 ) $ 853,716 $ 108,470

EARNINGS (LOSS) PER COMMON SHARE
Basic $ (0.11 ) $ (0.08 ) $ 0.07 $ 0.01
Diluted $ (0.11 ) $ (0.08 ) $ 0.01 $ 0.01

WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic 12,546,754 12,012,681 12,606,699 12,024,222
Diluted 12,546,754 12,012,681 14,183,486 13,305,347

CONMED HEALTHCARE MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

For the Nine For the Nine

Months Ended
Months Ended

September 30,
September 30,

2009
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (1,439,760 ) $ (937,844 )
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 151,951 72,870
Amortization 1,476,000 1,461,000
Stock-based compensation 475,597 423,221
Loss on disposal of property -- 2,257
Deferred income taxes (377,000 ) (300,000 )
Change in fair value of derivatives 1,688,623 --
Changes in working capital components
(Increase) in accounts receivable (462,016 ) (1,086,746 )
Decrease (increase) in prepaid expenses 114,820 (277,580 )
Decrease (increase) in deposits (275 ) 19,999
Increase in accounts payable 120,886 49,724
Increase in accrued expenses 766,590 2,254,553
Increase in income taxes payable 220,860 203,260
Increase (decrease) in deferred revenue 374,888 (133,923 )
Net cash provided by operating activities 3,111,164 1,750,791

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (273,178 ) (357,918 )
Asset Purchase from EMDC, P.C. -- (245,853 )
Stock Purchase of CMHS, LLC (9,161 ) --
Net cash used in investing activities (282,339 ) (603,771 )

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on line of credit (100,000 ) --
Payments on loans (93,782 ) (53,964 )
Proceeds from exercise of warrants 12,000 --
Net cash used in financing activities (181,782 ) (53,964 )

Net increase in cash and cash equivalents 2,647,043 1,093,056

CASH AND CASH EQUIVALENTS
Beginning 7,472,140 7,136,720
Ending $ 10,119,183 $ 8,229,776

CONMED HEALTHCARE MANAGEMENT, INC.
RECONCILIATION OF PROFORMA GAAP NET LOSS FROM CONTINUING OPERATIONS TO EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA) AND ADJUSTED EBITDA

For the For the For the For the

Nine
Nine
Three
Three

Months
Months
Months
Months

Ended
Ended
Ended
Ended

September
September
September
September

30, 2009
30, 2008
30, 2009
30, 2008
EBITDA RECONCILIATION
Net income (loss) $ (1,439,760 ) $ (937,844 ) $ 853,716 $ 108,470
Income tax expense 402,000 -- 249,000 --
Interest (income) (61,127 ) (145,085 ) (16,547 ) (37,934 )
Interest expense 7,991 4,721 819 1,527
Depreciation and Amortization 1,627,951 1,533,870 387,392 504,295
EBITDA 537,055 455,662 1,474,380 576,358
Stock-based compensation 475,597 423,221 151,328 159,974
Change in fair value of warrants 1,688,623 -- (755,650 ) --
Gain or Loss on Sale of Assets -- 2,257 -- --
Adjusted EBITDA $ 2,701,275 $ 881,140 $ 870,058 $ 736,332

Conmed Healthcare Management, Inc.
Thomas W. Fry, 410-567-5529
Chief Financial Officer
tfry@conmed-inc.com
or
Hayden IR
Peter Seltzberg, 646-415-8972
peter@haydenir.com

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