Q2 2020 Conmed Corp Earnings Call
Good afternoon, everyone.
Before the conference call weekend, let me remind you that during this call this will be making comments and statements regarding its financial outlook and its plans and objectives, which represent forward looking statements that involve risks and uncertainties as those terms on the funds under the federal Securities laws.
Investors are cautioned that any such forward looking statements are not guarantees of future events performance Oracle muscle and the company's actual results may differ materially from its current expectations.
Please refer some risks and uncertainties disclosure under forward looking information in todays press release as was the company's FCC falling.
For more details on the list uncertainties that may cause actual results to differ materially.
The company disclaims any obligation to update any forward looking statements.
Let me discuss during this call except as may be required well law.
You also hear me is known for to certain non-GAAP adjusted measures during this discussion.
Well. These figures are not a substitute for GAAP measures management uses these figures stayed in my friend, the company's envoy financial performance from quarter to quarter and year to year on a regular basis and for benchmarking against other medical technology companies.
Adjusted net income and adjusted earnings per share most of the income of becomes a excluding credits or charges that are considered about the companies to be special or outside of this normal up outgoing ongoing operations.
It's adjusting items I suppose five and then reconciliation supporting the company's earnings release post since the company's website.
These requires announcements completed I'll now turn the call over to Curt Hartman.
Conmeds, President Chief Executive Officer, and Chairman of the Board Vocalink opening remarks Mr. Hartman.
Thank you Michelle good afternoon, and thank you for joining us for Conmeds second quarter 2020 earnings call.
Me on the call as Todd Garner Executive Vice President Chief Financial Officer.
Today, we will walk you through our second quarter results and share with your thoughts on the current operating environment. Our goal is to be as transparent as possible, while still recognizing the uncertainty that exist across the global markets. We'll then open the call to your questions.
Turning to our results total sales for the second quarter were 157.8 million, representing a year over year decrease up 33.8% as reported and a decrease of 32.6% in constant currency.
Our global Orthopedics business represented 38.3% of sales in the quarter and saw the declines that began in March continued into April but the businesses exited may and June with improving sequential trends.
Global General surgery demonstrated more resilience in orthopedics will also experiencing the same overall trend of sequential improvement throughout quarter.
The enthusiasm I noted for the year she'll in Buffalo filter products during our first quarter call continue to accelerate throughout the second quarter, driven by enhanced clinical education upgraded surgical safety protocols and increasing access to medical facilities that gave our salesforce the opportunity to demonstrate the technology.
We have discussed in the past, we believe that awareness of these products. The clinical community continues to increase we expect this improved awareness to ultimately drive longer term sustainable business outcomes and believes that our second quarter results reflect the early benefit of this trend.
I'd now like to update you on the continuing the actions we are taken as a company as we continue to address and operate in the cobot 19 environment consistent with our comments on the Q1 call. Our focus has remained on three priorities. They are the safety and well being of our workforce and their families. The financial security of the company and finally operating.
And executing in the new environment.
Want to take a moment to address the health and safety of our employees as of July 1st CONMED had recorded 24 confirmed cobot 19 cases across our global workforce majority of these cases have cleared with a small number remaining in quarantine and recovery.
We've had 78 employees elect voluntary separation from the company given high risk considerations and we had 82 currently unpaid leave as they fall into the find high risk categories per the local geographic guidance as I noted at the end of the first quarter call CONMED remains very much at work and employee safety and well.
Being remain our top priority.
As it relates to the financial security the company the bank debt Covenant Amendment strong financial discipline and improving outcomes throughout the second quarter help us positioned well as we enter the second half of the year.
We are mindful of market uncertainty in the possibility of further slowdowns, but our business has demonstrated resilience and remains in a position to serve our customers.
Well, we feel our efforts help us well position for the second half of the year and beyond.
Understand this nature. This virus will cast uncertainty across the markets on a regional basis as governments and health care providers adjust to the changing cobot 19 caseload.
Surgical procedure volumes in our specialties did improve over the quarter based on our visibility into Q3. We're optimistic this trend will continue but we remain cautious given the regional impact of cobot case loads on surgical volumes further out we believe higher unemployment rates may also impacts surgical volumes.
Similar to what we saw in the 2009 through 11 period.
In closing I'm proud of the Conmeds team and the progress we made during the quarter, we leveraged our time for training education made certain our sales teams world valuable when customers requested them and advanced our innovation efforts with the renewed focus I'll now turn the call were to Todd who will provide a more detailed analysis of our financial performance Todd.
Thank you Kurt.
Also as growth numbers I referenced today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release.
We did have one less selling days in Q2 compared to the prior year quarter, the impact of which is immaterial given the broader dynamics of this unprecedented situation.
For the second quarter of 2020, our total sales decreased 32.6%.
Revenue steadily improved from the lows of April through each of the three months in the quarter and that trend of improvement has continued into July.
Our Q2 domestic sales decreased 32.2% versus the prior year quarter.
Our international sales decreased 33.0% for the full quarter compared to the prior year.
Geography is around the globe are performing at varying levels as the virus impact and resulting government responses are not uniform.
Expected, our Asia region saw the smallest declines during the quarter the U.S. in Europe or are rebounding. Following the low point in April and Latin America did not see much of a rebound at all in Q2.
[noise] worldwide Orthopedics revenue declined 46.2% in the second quarter in the U.S. orthopedic sales decreased 50.6% and internationally orthopedics decreased 43.5%.
Again, the trend of improvement has been out a good slope, especially on the single use side. However, we expect continued pressure on capital sales for the remainder of the year.
Total worldwide general surgery revenue decreased to 19.8% in the second quarter.
You asked general surgery revenue decreased 22.9%.
Internationally General surgery revenue decreased 12.5% with our European region actually posting growth and the second quarter in general surgery.
Air Steel and Buffalo filter are seeing incremental demand as hospitals are increasingly looking for solutions to improve operating room safety.
Both of these product lines grew on a year over year basis globally, both in the second quarter and year to date and have seen sales continued to grow at a rate that is well ahead of the growth of the underlying procedures they support.
Now, let's move to the expense side of the income statement.
To start I want to note that we have made the decision not to exclude kobin related expenses from our operating results in general as it would be impossible to present, an adjusted piano that accounted for the specific impact of coded.
These covered related expenses include additional manufacturing costs, including enhanced hygiene and social distancing efforts within our facilities increased systems cost to support remote work and commission support for our sales teams.
We have kept to our normal process. Some principles for excluding special items, which include product restaurant rationalization costs charges related to acquisitions and integrations restructurings that manufacturing consolidations debt refinancing costs amortization of intangible assets amortization of deferred financing fees and debt discount.
Net of tax.
We were also faced with the decision to make this quarter on the treatment of accounting rule as C. Three 330 Dash 10, 30, which deals with the under utilization of fixed plant overhead costs when a sudden drop in production has occurred.
This rule requires a significant an abnormal drop in production to be expensed in the current period, rather than being recognized when the inventories sold.
Because this rule required abnormal treatment, we expensed this charge in Q2, rather than recognizing these costs in Q3 as we normally would accordingly, we have decided to exclude that charge from our adjusted Q2 results.
This charge relates only to the portion of fixed overhead costs not absorbed as a result of lower production and does not include any incremental costs related to coded 19.
A reconciliation to GAAP numbers is included in our press release.
Adjusted gross margin for the second quarter was 53.3% a decrease of 200 basis points from the prior year quarter due to increased cost from covered 19.
We remain pleased with the underlying margin performance and believe we can return to our improving margin trend when volumes approach prior year levels.
Research and development expense for the second quarter was 5.5% of total sales a 50 basis point increase from the prior year quarter on lower sales [noise].
Second quarter SGN expenses on an adjusted basis were $72.9 million.
That represents a decrease of 20.4% from Q2 of 2019, even after the increases to the Salesforce that we made in Q4 2019 and Q1 of this year.
This demonstrates the significant cost reductions we implemented due to the pandemic.
Due to these strong expense controls we did produce positive operating income in Q2, despite the severe impact from the pandemic.
Interest expense in Q2, 2020 was $8.0 million on an adjusted basis.
Because net income was a small negative number for the quarter. The adjusted effective tax rate for the quarter is not comparable to prior periods.
Second quarter, GAAP net loss totaled $27.4 million or 96 cents per diluted share compared to reported net income.
$5.7 million or 19 cents per diluted share a year ago.
Excluding the impact of special items discussed earlier, we reported and adjusted net loss of $1.9 million compared to adjusted net income of 16.4 million in the second quarter of 2019.
Our second quarter adjusted diluted net earnings per share was a loss of seven cents this quarter versus earnings of 56 cents in the prior year period.
Turning to the balance sheet, our cash balance at the end of the quarter was $35.0 million compared to $24.3 million as of March 30, Onest 2020.
Accounts receivable days as of June Thirtyth were 82 days compared to 68 days, a year ago, which was better than we thought it might be three months ago.
Inventory days at quarter end were 184 compared to 145 days a year ago. The increase in days is fully due to the drop in sales volume.
We've done a good job controlling inventory levels. During this unprecedented situation as our dollar balance is only $2.9 million higher than last June and only $1.2 million higher than March of this year.
Long term debt at the ended the quarter was $790 million versus $773 million as of March 30, Onest. This year.
Our leverage ratio at June Thirtyth, 2020 was 5.4 times still lower than our original covenant.
We are performing very favorably to our amended agreement with the banks are fixed charge coverage is 3.2 versus our agreement of 2.0, and our liquidity is $359 million at June thirtyth compared to our minimum agreement of $135 million.
Cash flow provided from operations for the quarter was $5.5 million compared to $21.6 million in the second quarter of 2019.
Capital expenditures in the second quarter with $3.8 million compared to $5.0 million in the prior year quarter.
So we're pleased that cash flow and profitability are trending well from our lows in April we are continuing to be prudent with our spending while prioritizing health and safety and serving our customers in this unprecedented environment, while still continuing to invest in the development of new products.
We believe we are poised to continue to grow faster than our markets as procedures returned to normal levels.
Lastly, given the resurgence of the covered 19 virus in recent weeks, we do not see enough macro stability to prove to provide you with financial guidance. At this time, however, as I mentioned earlier in my remarks I can tell you that we are pleased with the improving monthly trends we have seen since the lows we experienced in April.
Additionally, we are encouraged that July sales have continued up month over month positive trajectory.
With that we'd like to open the call to your questions I'll hand, it back to Michelle.
Ladies and gentlemen to ask a question you need to press Star then one on your telephone to withdraw your question first the Pam key.
We ask that you limit yourself to one question and one follow up please standby why the compiled the Q and a roster.
Our first question comes from Kristen Stewart of Barclays. Your line is open.
Hey, guys. Thanks for taking my question congrats on a good quarter, putting that into contacts obviously with covidien the environment.
Just provide us with a little bit more color maybe on the monthly sequential trends.
To the extent you're willing to do so and then maybe just some color on July if you're willing to just give us a little context on what the exit rate might be in July whether or not sales were down or up year over year basis Central I think that would be helpful and then.
[music].
Sure Kristen, yes, so back in April when we were at the height of kind of uncertainty with this new virus. We were one of the early ones to report and so we felt it would be helpful to the entire space to provide.
Apparel estimates with only a couple of days left in the month right. So we did that on our last call. Obviously, that's not our normal practice to talk about monthly sales or the month into the quarter right.
So a quarter later.
As I'm sure you've seen you've ever you've been part of Theres been a plethora of surveys and reports and we actually almost all get weekly updates on what surgical procedures are doing.
And and so now we just don't see the need.
To to vary from the normal practice, providing quarterly results. We did we've provided on the call today colour on the months, which I think is helpful and destructive but we're not going to be disclosing the sales by month.
Other than to tell you that we've been on a good trajectory and July has continued that trajectory.
And.
Because we did give the April numbers with the quarter results you can kind of see what that May and June were very good.
Okay.
Do you be willing to just kind of I guess going a little bit more color and then on just the on.
Commentary around error seal and Buffalo filtered maybe talk through what you're seeing there in terms at the level of demand is it I know you said it was accelerating but any sort of.
Commentary, there just relative to the run rate kind of coming in pre coated how that's tracking.
Sure Hi.
Looking at trends now.
Sure those were two of our fastest growing product lines pre coded and frankly with the dramatic drop in procedures.
I didn't expect those to grow in Q2, but they both did.
They both put up positive global growth.
In Q2, which I think is really telling for.
The strong demand.
For those two growth drivers of ours.
Kurt I don't know if you wanted to mention anything but I would just.
Kind of restate the the global awareness of the products the the utilization of the products and those in those cases, where there is concern for surgical safety and exposure to staff as that message has gone out and been further.
People have been further educated on the technology as I mentioned sales reps getting back in front of customers with the technology, demonstrating the technology that that cadence from start to finish has accelerated and it's not.
Related to one.
Geographic region, we I think Todd noted in his script that.
Europe actually grew in general surgery in the quarter.
So that's a pretty strong read through to the strength of Buffalo filter and Airseal in the quarter in Europe, and we had good acceptance good traction in the U.S market and other markets candidly. So we're excited by what both of those platforms. We're doing before covered we remain encouraged and as I said in the first.
Quarter call, we think it's actually pull in the market share gain forward a little bit because.
The awareness just much more heightened because of the disease state Covance 19.
Thanks very much.
Thanks Christian.
Our next question comes from Robbie Marcus with JP Morgan Your line is open.
Great. Thanks for taking the question.
I was hoping you could spend money on your comments around capital equipment I was actually surprised it did all things considered better than I thought it would in the quarter by a pretty good deal.
I know a lot of your products are not high ASP capital products. So I was hoping you could just give us a little more flavor for what you're seeing in the C suites and the willingness to spend capital on capital products here, especially those with maybe lower price tags and and some.
Some our revenue generating for you and others are non revenue generating for you if theres any distinction at the hospital level. Thanks.
Sure.
So yeah, Rob ill give it to try I agree with you I think it wasn't as bad as I feared it might be having said that I think it was down 37% or between 37, 38%. So it's still a pretty pretty good decrease and and I think to our commentary would be the.
While we are still seeing.
Customers by New capital and you made a great point on the fact that ours is on the lower end of the dollar amount right.
That is as we see the single use and the disposable revenue stream on a pretty steep rebound.
We remain cautious on the capital side, so even though did better than I think a lot of us thought it might do in Q2, I would still stay cautious.
Through the rest of this year and really until the hospitals have some stability and predictability on their future economic state right. So so we remain cautious.
For capital going forward.
And Ravi just I would just add one one item to that.
Thank you hit the nail on the head the bandwidth, which we sell capital is not the Super Big ticket items.
I don't think we've heard statement from customers that capital is shut off I think what we're hearing from customers is now is not the time for us to be evaluating capital technology, and we've got a lot of other priorities right now.
And we need to get back into surgery, we need to get revenue generating procedures back into the facilities.
Lets worry about that right now so we are we're not pushing hard on capital is just not what customers want to hear from us right now.
Great and if I could.
I think to in my follow up here, one are you seeing any impact.
At a rate of change to pricing around the world and then also tied on your.
Opex, it's actually a pretty impressive hi, not huge dollar numbers, but still.
Better than what we've seen from some of the larger cap peers, how much of that is now in the baseline of lower spending and how much is deferred until later this year. Thanks.
Sure on the pricing side really no real change Ravi, we still live kind of in between that one and 1.5%.
Headwind World and we haven't really seen that move in the throws of coded and.
Yes, I mean, the on the Opex, we've tried to be very strategic we've prioritized.
Being there ready to serve our customers and so everything customer facing and customer servicing we've tried to maintain and make sure that we're nimble and responsive.
And then anything else you know, we've we've taken a hard look at and.
So when you talk about baseline I know you guys. It's part of your job to model, it's part of my job to model.
The hard part is is that the as the volume comes back and as we return closer to normal obviously that those expenses will will go that direction as well and so.
Would tell you that if revenues stayed at the Q2 level than expenses are probably going to be at similar level, but we don't expect revenue to stay of the Q2 level, we expect revenue to be meaningfully better than that and so therefore expenses will come back with revenue.
Thanks, a lot.
Our next question comes from Rick Wise of Stifel. Your line is open.
Good afternoon and key both.
Maybe.
I will focus on Salesforce and so it's worth execution during this period current debt.
You've made the point I believe you.
At this point largely.
Can you buy in long term. So that's an execution story and you all emphasized slot you shared with let's say the impact.
Small amounts of share.
The revenue opportunity that offers.
As I reflect back to the Salesforce.
So you made in the fourth quarter 19.
And the first 220.
How are you focusing the sales team now.
Hey are you trying to open up new accounts are you trying to expand into hospital, how you're driving revenue how are you thinking sales execution.
In this period, given maybe expand that innovation portfolio with tetra despite the challenging.
Yes, great question Rick the.
The environment in April was was obviously very different in pretty much sales forces were.
We're on.
Frozen in that they couldn't get into hospitals or were no procedures any way to go visit or work with customers anyway.
So we use that time to greatly enhance our salesforce training and candidly our our Salesforce is probably the best trained it's ever been.
Even with the expansion and give all credit to our global marketing teams in our digital digital teams that came together really create enhanced training and.
In fact push some of that into customer training through Webinars.
Had some of the best attendance of any events, we've ever done inclusive of in person trade shows.
So we've we've done a lot and learned a lot and I think some of that will be leveraged as we go forward as we got into May and June and procedure volumes were picking up.
I think the natural instinct of the sales Rep is to go where there.
Comfortable to go where the customer demand is and we're not going to steer people off of that but I think depending on which salesforce you're speaking to.
If you're the salesforce covering Buffalo filter in Air Shield, there's a lot of new customer interest in that technology, if youre in the orthopedic sales force and it's just about getting those procedure started back up your first stop is going to be or your existing customers now they.
All salesforce as do have new technology. So, we're we're able to be going after new customers, but I think as procedures come on back line. There is a lower interest in new technology and less it's something like Buffalo filter and Airseal that have a.
Clearly defined clinical advantage in this environment.
So I think all Salesforce has come out of the door, saying, we're going to support existing customers and then as as a technology in the new customer pulls them.
We're on off fence and ready to go and I go back to my first point were better trained on our new technology than we've ever been so I think our efficiencies going to actually be better as those new customers come online.
Okay great.
Maybe.
Yes, maybe tied back to gross margin.
Your explanation was very clear.
And you you.
Obviously cost reduction and ongoing cost reduction efficiencies than the.
The leverage from our recovery are going to be big factors there.
I've had the impression and maybe incorrect.
Have not.
Aggressively focused on cost reduction as a separate.
Initiative.
Referring instead in recent years to focus on again.
Product innovation.
Is there an opportunity now beyond.
Maybe what I can imagine for you to focus on just pure cost reduction as you.
As you prepare get ready for the inevitable slower fast recovery ahead. Thanks, so much.
Yeah, that's a great question, Rick and I'll put it I'll just add a little more context for those who may not be assuming you with the story.
Well ricks, referring to is that.
Our focus on the manufacturing side has been the new products and deliverable and delivering those new products on time, and so we haven't had kind of on the front burner to go make drastic cost reductions in our manufacturing sites.
You know Rick Koby had kind of [laughter] kind of accelerate some of those things so things that werent kind of the on our things to do and 2020 that list changed in in March and so.
I think we did get to things quicker and we have had occurred talks about learnings and getting more efficient.
And that has been more of a priority in the last three or four months than it than it frankly was before so I think that as volumes return.
We'll actually see a better margin profile because of those things so.
No.
That's when the when the water lowers you see the rocks and you have to deal with the rocks and.
And so we've been doing that and we're pleased with how the team has done that so I think it sets us up well for the future when once we get back to normalized volumes.
That's great to hear thanks, so much.
Our next question comes from Matthew Mishan of Keybanc. Your line is open.
Great. Thank you for taking the questions.
Kurt Todd, we keep hearing more about higher acuity patients.
During the hospital I mean, it's.
Probably fairly difficult you have some broad portfolio to say, where CONMED has a whole sets. Maybe can you think about your general surgery versus orthopedics, and and where those were by segment. They would they would fit in the continuum of acuity.
Matt I think the only thing I'm going to be able off on that is more anecdotal than statistical and and because patients had surgeries deferred we have heard some instances where.
The patient is now presenting with with more complications surgeries taken a little bit longer.
What percentage that is I can't give you a good reliable number on that.
And I think as you look at our business specific in the categories. We're in.
You know the sports medicine procedure about 70% of that and in our universe has done in the surgery center in the U.S. market, it's a little bit different blend outside the us.
And so those those patients are still coming in and rotating out pretty quickly I think on the general surgery side advanced surgical is principally in the hospital.
If those patients are presenting.
With more co morbidities higher acuity issues, they're likely to stay.
And compete with that bed space for Kobin patients, if they're in that area, but.
Anything I would offer would be anecdotal versus scientific I think.
Okay.
That's helpful.
And I just wanted to follow up on on the commentary on global growth and they're still in Buffalo filtered into Q.
I guess was it from.
Did you see a lot of new placements.
The capital for the for those devices.
In the second quarter.
Or was it really from increased utilization.
Existing equipment, where the hospital said, if we're going to do this procedure.
We're going to do using air ceiling and Buffalo filter.
Our our data would say it's both.
Our data would say that.
We certainly.
Secured new customers on both Buffalo filter and Airseal technology, and our data would say that customers who had the technology, we're increasing the procedural utilization.
Thank you.
Our next question comes from Richard Newitter of SBB Leerink. Your line is open.
Hi, This is Eric so rich and thanks for taking my question I was hoping you could provide some color.
On maybe on some trends that youve seen in sports medicine.
I know that.
I know that they're about 71st on the procedures are done in a theme I was wondering.
Have you noticed that trend that more procedures are moving to the assay and then how do you plan to capitalize on a trend that maybe more procedures can shift one thing.
So the sports medicine business again, a high percentage those procedures are done in the assay and.
It I don't know if theres a lot more that would move into that environment I would never I guess I'll never say never but we're already north of probably 70%.
I think on the general surgery side, I think as multi specialty inventory surgery centers come on to play you could see more general surgery.
Cases, moving to the surgery Center.
I think that will play out a little bit slower I think what is moving right. Now is more total knees total hips and we do obviously sell power tools, which would be used in those cases.
And a few other related items, so that could benefit conmen, if that trend where to accelerate it was already moving that direction, perhaps cobot has accelerated that as hospitals look at their space versus a C.
But I don't think we saw anything dramatic unfolding in sports medicine in the second quarter more of.
Just getting the procedures through the system was probably the priority versus shifting as it relates to sports medicine specifically.
Okay, great. Thanks, and then just a quick follow up I was wondering if you knew.
Just in terms of your procedures.
How many are a person and we're kind of like new patient or maybe versus on patients that were in the backlog.
So just follow us and rescheduling.
I don't have an exact number Aaron I would tell you the the feedback that we're hearing from customers was priority one was the backlog.
And.
Again, all all anecdotal we've had some customers say we are we're comfortable with our status in the second quarter. We're through the backlog we've had to other customers and it all gets into how fast they ramp up and how many procedures. They feel comfortable with we've had other customer say, we're still working at our backlog, but I think the priority.
Is the backlog.
Second is new customers.
I think we're still feeling a little bit of that as we come through the of the end of the second quarter.
Okay. Thank you.
Our next question comes from Mike Matson Needham and company. Your line is open.
Hi, Thanks for taking my questions.
I guess I just wanted to start with.
What you're seeing and some of these areas of the country, like California, and Florida, and Texas, where you've seen cover resurgence and co that I know, you're saying that you're seeing July up overall, but.
Are you actually seeing impact and your business in any of those areas or regions.
That's a great question, Mike how the same question for my team [laughter] fairly and it's interesting or the answers that come back from the businesses are not all uniform. So.
What I do think it's fair to say that in those places that.
You know, where you see hospitals approaching I see you capacity.
There is a pause there there's a.
There is somewhat of a pause on accelerate they were on an upward accelerating trend of procedures.
And that's how I would frame it as I think we're seeing a pause we're not seeing anything close to the April experience right.
But.
So in a lot of those parts of the country. You know there's still on a favorable trajectory, but I think it's safe to say that the trajectory would have been even better.
Had we not been dealing with this resurge of the virus. So it is really interesting a little too soon probably to make any definitive declaration on it.
But that our customers are trying to figure out.
How to serve the whole public and deal with all the diseases that are out there and also be very respectful of the danger of cobot 19 and.
And so it's it's kind of hospital by hospital region by region.
And it was interesting as our businesses answered that question.
It wasn't necessarily uniform across the board but.
That's the best I think I can do it at the giving you the the latest and greatest on on those hot spots.
No that's fine that's helpful and then.
I know, there's not a lot talk about new products right now just given everything that's happened from a macro perspective, but.
Just can you maybe comment on the impact of the pandemic on new product launches have you been able to.
Execute on recent launches and have you chose a delay any update or new products. You may have been launching at this point that total we'd get passed this.
Headwind from from the.
Procedural delays.
So what.
Our approach on new products Mike.
Back really March April was to to Relook at our list.
And focus our priority on things that we're going to impact the business just roughly call. It. The next 12 months and Weve kept.
100% focus on those so if we had something that was in the pipeline scheduled to be launched in the second quarter. The third quarter of 2020, it's still in the pipeline on track for those launches as we deal, though with a lot of remote work and to the inherent R&D.
Challenges that come with that when you're trying to do care workshops and things of that nature, but we're navigating that and we've kept that 12 month look if you will and it's not exactly 12, there's some that are a little further out.
But we've kept the pipeline.
Intact in all of our R&D resources have gone into that and and I'm proud to say on this call that we had some things that we were targeting to get out the door in second quarter and.
Early in the third quarter, and we've done that and we've got some other stuff that's supposed to come out here at the end of the third quarter and as I sit here today, it's on track and we've got things in the fourth quarter and those are on track now that the projects that were a little further out we did pause them.
That was part of our R&D spend slowdown in absolute dollars.
As the environment is improving for us will be.
Appropriately turning those on at the right time.
Hi business.
So that's been our approach to R&D.
Okay that was helpful. Thank you.
Our next question comes from Matthew O'brien of Piper Sandal.
Your line is open.
Afternoon, Thanks for taking my questions, so the totter tied or Kirk.
You said on the last call you expect ortho down 65%.
April and then general surgery down 40% based on where you ended up for the quarter was better on both.
Both of those metrics, obviously the progression through the quarter was good and I think we're not trying to figure out as as you exited.
June it seems like.
The the worth of business, probably be down somewhere in the 20, 25% range, maybe general surgery flat to down low single digits is that a fair approximation of kind of where you exited the quarter and then that kind of momentum as has been carried here into ended July and so when we look at the street numbers for down 22% something.
Maybe a little like like half of that is more realistic again based on the trends you're seeing so far.
Well I applaud the attempt to Matt.
You're not going to get me to bless specific numbers, what I, what I will tell you is that our experience has been very consistent with.
No.
Plethora of things that we've seen the surveys in the reports and so yes June was much better than may which was much better than April and.
And July continues that trend, so we're not going to get into specific numbers by business.
But the but it's all on a positive trend and that's as much as we're going to disclose your today.
Okay. That's fair just to kind of follow up and that a little bit too again. The streets modeling you about flat in Q4 versus this time last year Q4 last year.
It seems reasonable to think that you can be roughly flat, maybe even grow a little bit in Q4 that fair, just given how well air steel and and Buffalo filters Dan.
Look I I'm very comfortable giving guidance and I wish we were in a position to give guidance. We're just not today, so we're not going to be.
Doing that but we are so far every month has been better than our internal forecasts and that trend has continued.
I hope that does continue I think we are cautious.
With what we're seeing out there in the world that is just not.
I'd tell you. This I'd say if a few weeks ago, we might have been talking about giving Q3 guidance I don't think we would have been talking about given Q4 I think that was there is still too many uncertainties around Q4.
But.
I'd say a month ago I thought you know we might actually be able to give some Q3 guidance on the on the call and because of the resurgence over the last few weeks.
We just don't feel like we can do that and so I wish we could I'd be more comfortable in that world, but we just don't think thats wise and and and we don't think it's wise to give the very latest data point.
And have you know you guys model that is the new baseline either because we're we're cautious at a macro level. We are like I said the conmeds experience has been very consistent with everything we've heard from our peers I don't think theres anything.
You know different about our experience, but but we are cautious in people getting ahead of themselves on what the back half of this year could look like so again I hope our trend continues and every month is better than our projections, but.
I don't think we can count on that.
That's a fair and prudent just as a follow up.
No no commentary about all the that impairments that you're seeing on the manufacturing side and even on the assuming a side were encouraging as well you've talked about a 50 to 100 basis point improvement in margins.
Going forward, you know 72, I think 170 basis points.
On the operating margin side in total.
As we get back to more normal are you comfortable getting closer to the higher end of those ranges just given all the things you found here over the last three or four months is that the best way to think about thanks.
Yeah, I think if I can just restate that question I think I agree with you.
I believe because of what we've gone through the last few months and as Curt talked about increased efficiencies we've had to get smarter.
I believe that when volumes return to where they were we will have a better margin profile than than what we did before.
Now the question is when when does that happen right and if we could I wish we could put a time on that but we can't but I do think.
We are a we have added some expense right because of.
Like we talked about the hygiene and social distancing and those things, which may be with us for a while but I think we've more than offset that with with learnings and focus and.
Yeah, I think that are we'll have a.
A favorable margin profile versus prior expectations. Once this storm is really behind us.
Got it very helpful. Thank you so much.
Okay.
Michelle do we have any others.
Yes.
Our next question is a follow up from Chris It's steward of Barclays. Your line is open.
Hi, Thanks for taking my follow up I, just want to make sure Matt.
Okay.
And your comments.
And black.
Yes.
Two.
Hey, and comment on July is there anything that you're seeing so far I. Appreciate you don't want to give guidance because.
There's a lot of parts here, but is there anything that you're seeing in your businesses that would lead you to believe that debt.
Quench monthly improvement would not continue on across the businesses.
It seems like all fine are pointing in a positive direction with seal and.
Buffalo filter.
But with respect to the other almost 80% of the business I'm just curious if theres anything that would lead you feel.
Confident that you wouldn't see some sequential improvement there.
No. It's a fair question I think what we're trying to be cautious about is this is a period, where a recurrence has started we have not gone through a recurrence. So we don't know what the market reaction is going to be so I put that out there I think the things that are different than in April.
Well some of the surgery slowdown was driven by lack of pp some of the surgery slowdown was driven by.
Facility preparation for an onslaught of cobot patients I think as you fast forward to where we are today. The p. issue is largely been addressed the way facilities deal with patients has largely been.
Created a nice sufficient process, we know how to treat those patients better and so I think we just want to understand globally, how the market's going to deal with a resurgence before we get too deep into committing to numbers what what we are willing to say is the sequential improvement.
May over April June over May.
Has continued into July and that's not a sequential improvement isolated to just buffalo filter in airseal. It as an overall business sequential improvement and I'd just remind everybody. We have four unique businesses and our international team cells all the products across those four categories. So we.
I've seen sequential improvements in all of our businesses.
And that has continued into July and obviously as Todd said, we're a couple of weeks into this recurrence. We've we've seen hospitals, where there's high case concentrations have slowdown haven't really seen a slowdown in the surgery center environment, because or they're dealing with kind of that same day surgery that get that the patient in and out.
Certain procedure types fit there.
So I think we feel good about all the preparation to work and where our organization is across all businesses at this point in time.
Okay, Great and then I know that obviously comps are going to be pretty wild as we look ahead.
Morning, 21, and all that but.
Kind of getting comfortable side is there.
That you can see that really changes from a fundamental basis kind of what you're creating here with con Ed in terms of business profile that should be.
One that is call it like that mid to high single digit growth story or should we think about if anything coal bed maybe underscore.
The importance of air CLM, Buffalo filter, and maybe Corbett, bringing a little bit more went to the sale.
Well I don't think cold it has changed our our long term outlook on what we think the business can be in what we want the business to be and I say that from the boardroom to.
The entry level employee when when they sign up here and the cobot environment has forced us to to probably dig even deeper and not only on what what our product focus is going to be but on the cost structure that Todd spoke to.
Global logistics are in play distribution channel partners you name. It everything has come on the table for review during this environment and perhaps the environment has allowed us to.
Sharpened focus and accelerate some things and so maybe in some regards if we can get back to normal environment will will get where we want to be a little bit faster perhaps.
We think Buffalo filter and air She'll are great technology is great growth platforms globally, we thought that when we did the act with the respective acquisitions in 2016 and in 2019, and we believe that as much today, if not more so.
That doesn't mean, we're going to stop looking for other platform technologies or developing our own platform technologies.
We think platform technologies are critical to long term success. So we're excited that we have those two and a few more internal ones that we would feel.
Fit in that same category that Conmeds already head and we're we're just continuing to advance them.
Thanks, that's it for me.
There are no further questions I'd now like to turn the call back over to Mr. Hartman for any closing remarks Mr. Hartman.
Alright, Thank you Michelle and thank you everybody for your time today, we look forward to speaking with you on our next earnings call. So thank you have a good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Everyone have a great day.
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