CEO out at American Medical Systems

Missed forecasts helped explain the exit of Martin Emerson from the Minnetonka company. COO Ross Longhini is the interim CEO.

By STEVE ALEXANDER, Star Tribune

Last update: January 7, 2008 - 8:33 PM

The CEO of American Medical Systems Holdings Inc. has resigned after a troubled acquisition, several missed financial projections and a dramatic drop in the company's stock price after the firm cut earnings and revenue expectations in late October.

Martin Emerson, who could not be reached for comment Monday, had worked at the Minnetonka medical-device company for more than seven years, the last three as CEO. The company said Ross Longhini, executive vice president and chief operating officer, has been named interim CEO.

Both analysts and the company said the company's disappointing financial performance had taken a toll on its CEO.

The change had been widely anticipated on Wall Street because of the missed forecasts, said Thomas Gunderson, an analyst at Piper Jaffray & Co. in Minneapolis.

"The company reduced earnings guidance three times in 2007, and that did not sit well with Wall Street," Gunderson said. "Emerson's credibility was low, and clearly the board and Emerson thought a change was needed."

Added Bruce Jackson, an analyst with RBC Capital Markets in Minneapolis, "There were too many earnings misses. The market responded positively to Marty's departure."

American Medical Systems stock closed Monday at $14.69, up 91 cents, and rose another 5 cents a share in after-hours trading.

Mark Heggestad, executive vice president and chief financial officer of the company, agreed that 2007 was a tough year.

"I'm sure there is a lot of speculation that the CEO was to blame for that, and therefore the company let the CEO go," Heggestad said. "I can say that it was a mutual agreement that it was time for a change."

The company's board last week hired the executive recruitment firm Heidrick & Struggles to begin a search and hopes to find a new CEO in three to four months, Heggestad said. Pending the hiring, the company will pursue the same markets and strategy as before, he said.

"There is certainly no intent to sell the company or sell off pieces of the business," Heggestad said.

American Medical Systems, which has 1,239 employees worldwide, including 657 in Minnesota, makes products that are used for pelvic health. Analysts say its problems are almost entirely tied to the 2006 acquisition of California-based Laserscope Inc., which makes a product to treat enlarged prostate glands in men.

Gunderson said American Medical Systems stumbled when it tried to combine its own company-owned distribution system with Laserscope's network of independent distributors. In addition, he said, the combined companies failed to manufacture enough products to meet customer demand and were slow to deliver on promised new products and cost savings from Laserscope.

Heggestad said that while Laserscope was "strategically a great fit for the company," where American Medical Systems "went wrong was in anticipating how quickly it would drive synergies through the organization. It's taking a little longer than anticipated, and it's been a little more volatile."

In October, the company cut its 2007 revenue forecast to a range of $458 million to $464 million, down from a forecast of $470 million to $482 million. The outlook for earnings per share from continuing operations was cut to 40 cents to 45 cents, down from a forecast of 52 cents to 60 cents per share. In response, the company's stock fell 29 percent in one day, to $12.03. It had since made up some of that ground.

Before a major medical conference in San Francisco this week, the company on Monday said preliminary figures showed that sales for 2007 were up 29.5 percent to $463.9 million, from $358.3 million in 2006. Actual sales and earnings will be disclosed Feb. 14.

Steve Alexander • 612-673-4553