Q4 2020 Conmed Corp Earnings Call
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Yeah.
Okay.
Good afternoon, everyone before the conference began let me remind you that during this call management 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. At these terms are defined under the federal.
These laws.
Investors are cautioned that any such forward looking statements are not guarantees of future events performance or results and the company's actual results may differ materially from our current expectations. Please refer to the growth and other uncertainties disclosed under the forward looking information from today's press release.
As well as the company every day.
Filings for more details on the risks and uncertainties that may cause actual results could differ materially.
The company disclaims any obligation to update any forward looking statements that may be discussed during the call except as many may be required by applicable law.
You will also hear management refer to certain non-GAAP adjusted measurements. During this recession. While these figures are not substitute for GAAP measurements management uses these figures to aid in monitoring the company's ongoing financial performance from quarter to quarter and year to year on a regular basis.
And for the benchmarking against other medical technology companies.
Adjusted net income and adjusted earnings per share measure the income of the company excluding credits and charges that are considered by the company to be special or outside of its normal ongoing operations.
These adjusting items are specified in the reconciliation supporting the company's earnings release posted to the company's website.
With these required announcements completed I will now turn the call over to Curt Hartman <unk> Chair of the board President and Chief Executive Officer for opening remarks, Mr. Hartman.
Thank you Angela good afternoon, and thank you for joining us for <unk> fourth quarter and full year 2020 earnings call.
With me on the call is Todd Garner Executive Vice President and Chief Financial Officer Today, I will provide a brief overview of the financial and operating highlights for the fourth quarter and full year. Todd will then provide a more detailed analysis of our financial performance and discuss our initial 2021 financial guidance. After that we'll open the call to your question.
<unk>.
Turning to our results total sales for the fourth quarter were $252 8 million, representing a year over year decrease of four 5% as reported and a decrease of five 2% in constant currency for.
For the full year sales reached 862.5 million, representing a year over year decrease of nine 7% as reported and nine 3% in constant currency.
From an earnings perspective during the fourth quarter, our GAAP net income totaled $24 1 million. This compares to net income of $14 9 million in the fourth quarter of 2019, excluding special items that affected comparability, our adjusted net income of $25 million decreased six 6% year.
Year over year, and our adjusted diluted net earnings per share of 84 cents decreased six 7% year over year.
For the full year, our GAAP net income totaled $9 5 million compared to net income of $28 6 million in 2019.
Excluding special items that affected comparability, our adjusted net income of $64 2 million decreased 17, 6% year over year and our adjusted diluted net earnings per share of $2.18 decreased 17, 4% year over year.
We entered 2020 with a great deal of enthusiasm given our expanding market opportunities and product portfolio. As you. All know the COVID-19 pandemic presented unique operating challenges for every company many markets around the world have operated intermittently or shutdown for varying periods of time. This dynamic continued into <unk>.
Fourth quarter.
Throughout the year, including the fourth quarter, we have been acutely aware of the difficulties that many of our customers have faced both financially and operationally and have strived to be good partners to them taken a lighter touch, particularly as it relates to capital sales were taking a longer term view of these relationships and believe our customers will do the same work.
Confident that we are taking the right steps to put the company in the best possible position over the long term.
Overall I'm proud of our team's efforts as we demonstrated agility and resilience in the face of the pandemic supported our customers through the continued introduction of innovative products across many of our businesses and delivered a successful full year performance with our Buffalo filter offering.
Overall, I'm very pleased with our team's responsiveness and flexibility and firmly believe that in spite of the pandemic, we remain well positioned to achieve long term profitable above market above market growth.
In 2020, we define success by staying focused on our people ensuring the financial health of the company will remain committed to our long term strategies that we believe will drive above market growth in both revenue and earnings.
With that I'll turn the call over to Todd.
Todd Thanks Curt.
All sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release.
Normally on this call we will discuss the numbers for both Q4 and the full year today, we will discuss Q4, only and refer you to the press release for the full year comparable <unk>. We don't believe spending time on that view is terribly relevant or helpful. At this specific time.
For the fourth quarter of 2020, our total sales declined five 2%.
While COVID-19 had a meaningful impact on the full quarter. The first two months of the quarter, we're very close to the prior year revenue performance, but December revenue was well short of the prior year.
For the fourth quarter, our sales in the U S decreased 0.7% versus the prior year quarter or.
Our single use products grew 4.0% in the U S capital sales were down double digits.
Our international sales decreased 10, 5% for the quarter compared to the prior year.
The most impacted geographies during the quarter, where Japan and Latin America.
The sharp reduction in Japan was largely due to distributors decreasing their inventories. We believe this is good news for future sales.
Due to less inventory in the distribution channel.
The rest of Asia, and Europe declined in the single digits in the quarter, while Canada and Australia both grew.
Worldwide Orthopedics revenue declined nine 6% in the fourth quarter in the U S. Orthopedic sales decreased 12, 3% and internationally orthopedic sales decreased seven 9%.
Capital sales were down double digits globally in orthopedics in the fourth quarter as Curt said, we've taken a light touch with our customers when it comes to the timing of capital purchases in 2020 and believe this will strengthen our customer relationships over the long term.
Total worldwide General surgery revenue decreased one 3% in the quarter.
U S General surgery revenue grew five 3%.
Internationally generally general surgery revenue decreased 14, 7%.
Despite the capital and procedural softness in Q4, <unk> and Buffalo filter combined to grow about 20%.
We believe these two product lines will continue to benefit from the increased focus on improving operating room safety.
Now, let's move to your expense side of the income statement, we will discuss expenses and profitability, excluding special items, which include charges related to acquisitions, and integrations restructurings and amortization of intangible assets and amortization of deferred financing fees and debt discount net of tax.
Adjusted gross margin for the fourth quarter was 53, 8% a decrease of 30 basis points from the prior year quarter as we expected our product and channel mix continues to drive improvement in our gross margin. However, as we mentioned on our last earnings call the recognition of unfavorable manufacturing.
<unk> brings us is masking that improvement in Q4.
Research and development expense for the fourth quarter was four 6% of total sales the same ratio from the prior year quarter.
Fourth quarter SG&A expenses on an adjusted basis were 35, 8% of sales an increase of 50 basis points from Q4 2019 due to lower revenue.
Interest expense in Q4, 2020 was $7 $6 million on an adjusted basis.
The adjusted effective tax rate was only nine 7% in Q4 as we benefited from the excess tax benefit from stock plans and the resolution of audits.
Fourth quarter GAAP net income totaled $24 $1 million or 81 cents per diluted share, which was an increase of 65% over the prior year quarter.
Excluding the impact of special items discussed earlier, we reported adjusted net income of $25.0 million compared to $26 $8 million in the fourth quarter of 2019.
Our fourth quarter adjusted diluted net earnings per share was <unk> 84, compared to 90 cents in the prior year period.
Turning to the balance sheet, our cash balance at the end of the quarter was $27 $4 million compared to $35 $6 million as of September 30th 2020.
Accounts receivable days as of December 31st were 63 days compared to 64 days at the end of 2019.
Inventory days at quarter end were 150, which was eight days better than they were at the end of Q3. However, we did not see the typical December drop this year due to softer sales as a result of the pandemic.
Long term debt at the end of the quarter was $735 million versus $760 million as of September 30th.
Our leverage ratio on December 31, 2020 was four nine times.
We are performing very favorably to our agreement with the banks our fixed charge coverage is 326 versus our agreement of 1.75.
And our liquidity was $403 million on December 31, compared to a minimum agreement of $135 million.
Cash flow provided from operations for the quarter was $20 $1 million in capital expenditures in the fourth quarter were $3 1 million.
Adjusted EBITDA was $47 $9 million in Q4, 2020 compared to $53 $1 million in Q4 2019.
We are very pleased with the way our teams have navigated this challenging year.
As we look to the future we are encouraged by the strength of our business and our positioning with our customers.
While we're anxious to put the pandemic of 'twenty 'twenty behind us the pandemic is still with US here as we enter 2021.
There is still a great deal of uncertainty about when volumes return to pre pandemic trajectory as well as the timing of when our customers will be free to return to pre pandemic levels of operation.
However, we have now lived with the virus for over 10 months and we have a better understanding than we did at the beginning of the impact on our business.
The key questions. We can't answer right now are related to how the new more contagious variant will affect health care globally, and how quickly the available vaccines can lower the burden on hospitals.
Despite these lingering questions, we have decided to provide financial guidance for 2021 within a framework of our current assumptions.
Yeah.
We view 2021, as a transition year, where we transition from the impacts of the pandemic in the first part of the year toward a post pandemic environment by the end of the year.
We anticipate that Q1 will continue to be significantly impacted by the virus and we believe this impact will linger into Q2.
Our assumption is that the global disbursement of vaccines will take months, but be effective at reducing the burden on health care from the known variance of the virus.
We expect procedural growth in the United States to improve before international markets do.
As the year progresses, we anticipate the volumes will improve sequentially and we expect general surgery to see improved volumes before sports medicine does.
Given that many sport activities are still suspended and that it typically typically takes months for an athlete to go from injury. All the way to surgery, we do not anticipate sports medicine procedural growth to return to pre pandemic levels until a couple of quarters after team sports resume globally.
Those assumptions lead us to revenue guidance for the full year 2021 of between $975 million.
And $1.02 billion.
We expect currency to be immaterial to 'twenty 'twenty one.
We expect Q1 revenue.
Between $210 million and $225 million.
As far as phasing between first half and second half, we expect 46% to 48% of our full year revenue to be recognized in the first half of the year and 52% to 54% of revenue to be recognized in the second half of the year.
For adjusted EPS, We expect our full year 2021 to be between $2 85 and $3.05.
We expect Q1, adjusted EPS to be between 42 and 45.
We expect the phasing of adjusted EPS to be about 35 per cent of the total year in the first half and about 65% in the second half of the year.
This is a lighter mix in the first half than we're used to as the lower production levels and higher freight costs that we experienced in the second half of 2020 are likely to continue through at least Q1 'twenty 'twenty one.
And as we've addressed before these unfavorable manufacturing variances are recognized in the external P&L a full four months after they are incurred.
Accordingly, Q1 gross margins will be significantly impacted by the Q4 performance and Q2 will likely be impacted by the continued lower volumes in Q1.
I can tell you that because of this we expect gross margins in Q1, 'twenty 'twenty one to be about 250 basis points lower than the Q1 2020 gross margins.
After that in the second quarter in the second half of the year, we expect margins to show improvement over 'twenty 'twenty levels.
It is also clear that the tax rate will be a headwind in 'twenty and 'twenty one our adjusted effective tax rate for the full year of 2020 was 12, 9% for a myriad of reasons that we do not expect to recur in 2021.
We are assuming that our tax rate in 'twenty 'twenty, one will be between 24% and 25% assuming no change in the U S tax code or any other major geography for that matter.
So normally we give you detail on each line of the income statement for the full year.
Because of the level of uncertainty in the current environment, we are not going to do that today. The moving pieces may be different than we currently expect and we need to remain agile and responsive and delivering the best results for our shareholders over the long term.
The good news is that our strategy to shift the mix of the portfolio to higher growth and higher margins is working.
We are increasingly competitive in the marketplace and our customer engagement continues to improve.
Our innovation is delivering more profitable products that are more clinically effective.
<unk> and Buffalo filter are leading the way in or the most obviously impactful right. Now however, we believe the other product lines will contribute in a significant way in the future as well.
And it remains true that our infrastructure can support much higher revenue in our large and attractive markets.
As we transition out of the pandemic, we believe customers will continue to reward both our innovation and our actions is valued partners with increased trust and market share.
And as volumes return, we believe the work we've been doing on the margin profile will become clearer and more obvious.
With that I'd like to turn you over to Angela for questions.
Ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on your Touchtone phone.
Thank you please limit to one question and one follow up question.
And your first question is from the line of Richard <unk> with debt SBB Leerink. Please go ahead.
Hi, This is Aaron on for <unk>.
Thanks, So much for taking my question just a quick one.
Thanks, So much color on that you provided in the guidance I was just wondering if you could maybe.
Talk about some of the dynamics that day.
In ortho and Gen surge that you've seen maybe throughout the fourth quarter.
And then into early one channel.
Obviously understanding that you did give some color on you know the overall procedures, but just maybe a little bit.
Information on how that's broken out between the segments.
Erin help me just a little here when you say differences between ortho and Gen. Surge are you you're talking about the procedure trends or what specific art, yeah, yeah, sorry, just the prestige or trends that you saw.
In the respective segments.
And then maybe.
One camp.
Okay. Okay, I think the way I would frame it would be around four for Q I think October November seemed to continue what we saw in the third quarter. We did start to see more deceleration broadly speaking in procedures as we got into the month of December and I think that that was applicable both to.
To the general surgery as well as the orthopedics business, obviously as Todd commented, we continue to see good good volume good attention on the Buffalo filter and <unk> platforms.
But again air seal is a.
More established platform. So as procedures are down that consumable business also decreases.
On orthopedics, it's a more heavily weighted business on capital in a normal year of about 30% capital and obviously capital has not been anywhere near the levels of past years and that continued again in the fourth quarter.
So again more impact in ortho because of the bigger percentage being capital and capital just overall being tightened I don't I don't think that changed from Q2, Q3 and Q4, but it just stayed very suppressed overall and I think I'm again, a little bit of that intermittent comment that I noted against geographies outside the U S.
As we got deeper into the fourth quarter, you saw more of Europe really tightening up you saw.
Various markets across Asia, tightening up or reserving capacity, if you will not not opening things all the way up again, both general surgery side and orthopedic side.
Sure.
I think that would kind of summarize my comments, probably not going to comment on what we're seeing at this point in Q1.
Okay, great. Thanks, and then just quickly.
Quickly on Buffalo, that's out there obviously, it's been very strong have you guys seen or heard of that.
Any.
More states.
Passing legislation.
You know around the Aerosolization.
So much.
No great. Great question. There is a lot of legislation in the works, but I think with Covid.
Priorities have shifted so a lot of that legislative movement has stalled if you will.
But as we've said many times, we think the legislation and we said this candidly during the.
The announcement of the acquisition that legislation would be additive that the broad based health care worker.
Insistence on a safe operating room environment is really what's driving the growth in this market.
And that has not let up one bit and in fact with <unk> with.
With 2020, and the events of the pandemic and the Saiful our legislation.
And that legislation excuse me the the safe or comments that the various societies that put out its further accelerated the movement towards the safe operating room environment of which Buffalo filter in Air show a both a key component of.
Okay, great. Thanks, taking my questions I appreciate it.
And your next question is from the line of Robbie Marcus from JP Morgan. Please go ahead.
Hi, This is actually Lili on for Robbie Thanks for taking the question and.
Thanks for all day.
Macquarie.
So in the past you've talked about.
Aaron Steele on Buffalo filter comprise about 25 per cent of revenue, which.
Which is a bit higher than what we were thinking.
And how they should continue to grow over 20% so.
On the other side of Covid do you think that that could make on that 8% to 10% Robert Robert.
Mid single digit garner.
Thanks, Lily it's a great question I think if you just do the math right, 25% growing 20% you get a 5% growth on the total if everything else were flat right.
And I think to your to the premise of your question. We certainly don't we don't expect everything else to be flat post post.
Post pandemic, we expect all of our markets to grow better than all of our all of our segments to grow better than the markets and so.
I think it is logical that we should do better than the 5% you know what that number is we'll have to talk about when we are finally in a post pandemic place to guide, but I think there is good logic and that Con meds got a strong growth engine in those two products together and we're working on making sure. The other part of the post portfolio.
Leo also contributes.
To stronger growth. So that's our that's the game plan and we're happy with how that's worked through the pandemic and we think when the pandemic has done.
That strength will be more obvious.
And your next question is from the line of Matthew O'brien with Piper Sandler. Please go ahead.
Afternoon, Thanks for taking the questions, maybe maybe Curt Todd either one just the commentary about lighter touch on the capital side of things how long do you think thats going to persist.
For you guys or you think it's going to be the first half of this year, we're going to continue that lighter touch and then what benefits tangible benefits do you see other than hey, goodwill with our customers.
Are you expecting back half of this year and even into 'twenty two.
So it's a great great question I think.
We refer to it as a lighter touch, but it's being more receptive to what the the customer environment is at the moment.
I would contrast that just just candidly with two of the products. We introduced in the fourth quarter were both capital items, a new large mon power tool platform and a new video system. We're excited about both of those and we're in the stages of rolling those out right now on a global geographic region by region.
Just so you know.
Our sales force is excited to start the new year, you put a couple of new products in their hands and I think.
We're going to probably work just a little bit harder and candidly, maybe not have quite as les to touch, but again, that's going against the capital market that still is not the priority for the majority of our customers and I think more than anything that that's what we hear from our customers and so we were referring to that are lighter touch where we're hearing them say, it's just not our priority.
Right now so we're.
As patiently as we can waiting for them and hoping that our goodwill in that sense.
Buys us that opportunity but.
To the to the guidance comment if the.
Back half of the year starts to normalize more I think certainly be in a position with new capital products in our portfolio. It should bode well for us from the back half.
Yeah.
On the financial side, Curt Youre expecting from benefit on the back half of this.
As a result, I'm, saying if the if the.
If the markets get returned to normal in the back half of the year and we've got a sales force with two new capital products. It should show up in our numbers and obviously would benefit us financially.
Got it okay. Thank you and then the follow up question for Todd is just on the EBIT expansion side of things you know can you just be a little bit more granular with exactly what we're expecting here in 'twenty one back half and then there's just some things that are kind of masking. Some of these benefits can you just talk about the level of headwinds.
That youre seeing.
On the EBIT side of things and when some of those May may ease and then the high end as far as EBIT goes or are you thinking 50 to 100 basis points of expansion that we should expect maybe even if it's masked a little bit just a little more color on that metric specifically would be helpful. Thanks.
It's a great question, Matt and I'm not at all surprised if you'd like a little more granular detail in the guidance.
And I'd love to be in a position to give you more granular detail on the guidance, but we're not going to do that today, but I will do my best to address your question.
Yeah. So the biggest headwind is the gross margin hangover from these lower volumes and higher freight right and Thats really hit us in the back half of 2020.
And the way it gets recognized that hits you essentially for another quarter.
After the problem is solved and the problem is not solved yet sitting here today right. So we expect.
More headwinds like that to occur in the first part of the year here and so you really need to get a quarter past.
When volumes are depressed before you can start to see more normalized margins and so the way that probably plays out is is the back half looks a whole lot better than the first half.
And then the reason were not being more granular is.
No.
We've been kind of agile and responsive and resilient through the pandemic, we're going to continue those operating principles and make sure that we're putting the resources.
In the right places at the right times and not spending resources before we need to right. So I think we've done a great job of protecting profitability through this unprecedented challenge.
And we're going to continue to do that you can see in our guidance that the profitability guide as you know I think if you do the math and if you use the mid range of what we've given you'll see that we're growing at least twice as fast on the bottom as we are on the top and Thats consistent with Con med operating per.
<unk>.
And you know when we've talked about margin improvement.
Longer term, even pre pandemic right, we talked about 50 to 100 basis points kind of annually and margin improvement right and then we've told you through the pandemic, we've kind of had to get smarter and leaner and more sophisticated in certain areas and so it's probably more realistic that the engine is op.
<unk> closer to the top end of that or better then to the bottom end of that that range and I think that will I think once the clouds clear and.
The mud heinous kind of is behind US I think that will be apparent to investors, but and you can kind of see that actually happening through 2020, right. We've been able to deliver good profitability and with very challenging revenue numbers and and we believe that as hopefully the pandemic.
Progressively gets better through the year debt that margin profile would become increasingly clearer.
And I think that's about as much as I can help you with today.
Very granular thank you so much.
Your next question is from the line of Rick Wise with Stifel. Please go ahead.
Good evening gentlemen.
I just wanted to follow up on that.
Excellent question as always.
Just sort of taken another step.
When you're.
You said a couple of things.
Both of you know about.
So post recovery environment.
Improved mix better margin products more compelling portfolio of products lower cost potentially.
And infrastructure I think Todd you said debt.
Plenty of room to sort of grow into I forget your exact you said infrastructure can support.
A higher level of sales things thoughts like debt.
Just help us think through.
But let's just assume 22 is a.
Pretty decent recovery, who knows let's assume it.
Hi.
Is that con meds coming out of this environment and I'm not talking about extreme.
Strange optics of year over year comps, but are you back to growing top line upper single digits.
Margin steadily progressing towards 60%.
How do we think about.
But the longer term outlook here, how are you thinking about it.
Sure Rick Yeah, I'll play the theoretical game.
Obviously, we're not guiding to 'twenty.
We're not guiding to 2022 today right.
But I love the idea of being in a post pandemic world and the hope is in the assumption is that by then we will be and yeah. I think I think your premise is correct I think that.
When that cloud has past you will see a con med with healthier margins than we had going into the pandemic both in gross and operating and I think we are progressing towards the 60 number on growth.
And you know, we're moving towards that 20 number on operating.
And I'm not prepared yet to say you know what those 22 2022 numbers will be but what I can tell you is we're doing all the right things right that the mix is improving as you said.
We're getting smarter and more sophisticated in our procurement spa.
Specifically and and as we get as the volumes can return.
We think there's lots of room for <unk> to grow faster on the bottom than we do on the top and we expect to grow faster on the top that our markets do and.
So that's the playbook.
The pandemic has delayed some of that and certainly muddied some of that but in some ways. It's made us it's shored that up even right and improves.
The chances that that those things actually come true in the future once the pandemic is behind us and so we're optimistic but we're focused on executing in the current environment and make sure we do that wisely.
And and make sure we focus on the long term.
The strength of the business.
Makes sense that's great.
Maybe it sounds like vacuum.
Todd.
Share your balance sheet growth priorities for 2021 and.
In terms of defense, you're thinking about cash.
Cash generation debt pay down and where you hope to be.
At the end of the year under the scenarios you've laid out.
Sure. Thanks, Rick.
Yeah. So we as you know as I think everybody knows when the pandemic started we went and did an amendment with our banks to make sure that we had the flexibility necessary to make the right decisions the right strategic decisions through the pandemic no matter, how ugly it could be it turns out.
Even though the pandemic has has.
Lasted a while our.
Our customers have been more resilient, we've been more resilient it turns out in hindsight, we probably didn't need to do that.
Amendment at all at the at the peak.
Of the trough, which was the end of Q2, our leverage was at five four turns we're ending the year at $4 nine and we said at a recent health care conference debt.
Based on our 2021 projections, we should be under three and a half turns by the end of 2021.
Apps.
Absent any significant M&A, which was not anticipated in the guidance and so we.
We feel like that that's a pretty good trajectory, it's not it's not all the way down to three turns of it which is what we talked about when we bought Buffalo filter, we said we'd be down to three turns by the end of 'twenty 'twenty one but.
Even given the pandemic, we're going to be kind of close to that we think.
On that same calendar. So the priorities are definitely the profitability of the company make sure that cash is tied to income and theres not a big gap. There we've done a really good job with that and we can do we plan to continue to do a good job with that.
You know and we'll continue to look for assets that add to the growth profile and margin profile of the company and obviously, we haven't had anything to announce since Buffalo filter to date, but we continue to be active on that front and if we find something that we think it makes the company stronger we'll we'll look for.
Ways to act on that so those are the kind of priorities continued strong blocking and tackling good management of the business and focused on the long term profitability of the company.
Great and just two last quick ones if I could.
75% debt.
Businesses, sorry, non smoke at this point.
What percentage is capital.
All of that.
Remember some number like 30% and I'll sneak in one last one.
On the gross margin just normalizing for some of these freight.
Headwinds.
You were talking about.
But how would we think about.
Gross margins in the fourth quarter first quarter kind of range.
If you wouldn't mind. Thank you so much.
Okay I'll try so.
First on capital in General what we talk about is on the general surgery side of the business.
It's about 10% capital and 90% single use and I would say Buffalo filter in air seal or in that range right. They might be just slightly more capital, but they are essentially in that similar range as general surgery.
And then the orthopedic business is essentially 30% capital and 70% single use.
And so.
If you would have to do the math on the mix there to in general overall comments about 20% capital, but if you take away.
I think your question was if you took away <unk> and Buffalo what is the rest and the answer would be it would be a little higher than the 20, because they are lower than the 20, and so the mix would be a little higher than the 20%, but somewhere in that 20% to 30% would be the answer to that question mathematically.
On the gross margin and kind of breaking down Q4, a little better I am happy to do that you know we've talked about the impact of these unfavorable variances and the increased freight which the whole world is dealing with.
If you just take.
The headwind that happen to Q4 because of those line items, which is all of the manufacturing cost plus freight.
You get 190 basis point headwind between Q4, 19, and Q4 2020, so that's kind of the magnitude of the of that headwind that we're experiencing currently and I'd say, it's a similar kind of.
Range that we're talking about well, we said 250 basis points in total for.
For Q1.
Gotcha I appreciate that thanks again.
You bet.
And your next question is from the line of Mike Matson with Needham. Please go ahead.
Yeah, Hi, Curt and Todd This is David Saxon on for Mike Thanks for taking the questions.
I guess first just on the on the end markets.
As as these end markets that you purchase a pagan rebound later this year and into next year. How are you thinking about your market share.
<unk> talked about growing above market, but just wondering.
What what opportunities you see to gain share as trends improve.
Well, it's certainly the longer term goal and a more normalized market given our position given our focus on innovation is to grow faster than the markets. We serve that that has been our goal since day one.
First couple of years, we're about turning around the business getting the innovation engine moving we've supplemented that with M&A and obviously I think everybody in the marketplace took a little bit of a detour here in 2020, but as things get back to normal whenever that may be our philosophy, our strategies arent changing we want to.
To go aggressively innovate serve our customers earn their trust and take market share and given our overall market share positions. We have a lot of opportunity in front of US. Obviously you go product by product we are in different market share positions for different products. You know in the case of air seal, where an only in class products.
We kind of define that market.
And so you go through the list I would say the broad percentage of our portfolio. We have a lot of market share to go after and that remains the goal.
And.
I think as we step into 'twenty, one our sales organizations understand that we've all learned a lot through 2020 as Todd said, we know better how to operate in this environment. We have a great understanding of what customers are dealing with and.
We're ready to get back after it.
Great. Thanks, and then my second question is just on international you talked about distributors in Japan.
Lowering their inventories just wondering.
I guess, it's first you can quantify that and do you expect that to continue into the first quarter. Thanks. So much.
Thank you David.
The answer is no we don't expect it to continue into the first quarter, we think that was.
They got down to good levels through 2020, we.
We worked with them to kind of allow that right. The logic being there's no you don't want the distribution channels to be full because that would mask.
The level of recovery when it comes back and the answer on the magnitude you don't want to we're not going to get two per se.
First of all will be impossible to get entirely precise but I can tell you that.
We're talking about a few million dollars of adjustments. So it's a meaningful impact on on the growth rate in the quarter.
But it sets us up better for the future.
Great. Thank you.
And your final question is from the line of Matthew Mcconnell with Keybanc. Please go ahead.
Great and thank you for taking my questions.
Todd last quarter I asked a question around quoting activity any valuation times.
It's some of what changed in <unk> versus <unk> and general surgery. It maybe you received some some really rushed orders placed in <unk> and <unk> window Curt when the guidelines.
Angel.
And I knew.
Placed.
Those are those orders.
And then things may have normalized and quoting and evaluations as you said last quarter and the backlog is really building, which is giving you confidence in that 20% plus growth in <unk>.
Areas discussed the recent comments.
Matt I'm not sure I don't think Theres been a change in enthusiasm for Buffalo filter and Air Seal, We said that those were going to grow north of 20%. We've told you even in Q4, despite the lower procedures. They did grow about 'twenty.
Percentage.
I wouldn't say, there's been a change there the though.
We grew slower or with the decline we declined in Q4, and we grew slightly in Q1 was really about the procedural side of the business on the full portfolio and then of course capital.
Was was down significantly right and so.
I would not tie the difference if I understood your question correctly.
I would not tie the delta between between Q3.
Revenue in Q4 revenue to any sort of quoting time or change in enthusiasm around those two growth drivers I would tie it directly to the virus and the situation that hospital. They thought they were in tough situations in Q3, we all thought that the hospitals, where we're challenged.
In Q3.
I think in Q4, they would have loved to have gone back to the Q3 environment and and.
And so I think that's really what is the difference between Q3 and Q4, if I understood your question correctly.
That was exactly what I was asking.
Getting at.
And I think investors really appreciate it that you were able to break out Buffalo filter in air sales is 20% plus growers.
Conference.
I know you don't like to call that that kind of stuff out on a on a quarter revenue quarter out basis.
Are you planning to do that on moving moving forward or was that something you are going to highlight you know directionally I'm, just curious how youre going to.
Update those numbers moving forward.
No I mean, our our principles on disclosure and guidance remain the same that we don't want to get into specific product lines.
With all the mud and clouds or whatever term, we want to use for the pandemic, how it's masking what's happening underneath we thought that would be helpful for investors to understand debt.
About a quarter of the business is from these two really strong growth drivers are too.
Our most recent meaningful acquisitions that have been incredibly successful and it's really changed the profile both from a mix and margin perspective and growth perspective of the company and those are.
Those have been incredibly successful even through the pandemic, we expect them to be successful as we're post pandemic and as the rest of the portfolio returns to kind of normal.
We would.
Clint you know above market growth rates, we think it's an exciting place to be we think the portfolio.
It looks really strong for the future. If we can just get out of this.
Pandemic situation.
Okay and then last question just on just on air scale platform.
We're building out I think you introduced the.
Product for pediatric surgery, I know you've already done a thoracic indication now how are you thinking about are solvable.
More of a platform technology moving forward.
No you said it correctly, Matt It is a platform technology in the.
The expansion into those other indications.
Gives us a unique position and then further.
There is our own internal continuation of R&D across that platform, which was obviously a high priority for for very obvious reasons.
The market.
It's very large whether it's the robotic.
Market or the broad laparoscopic market and we said on some previous calls that because of Covid, there's been more awareness to air seal in the broad laparoscopic markets. That's more of a U S specific comment that was already happening outside the U S. Because they don't have as many robots outside the U S.
But again as it's a key long term platform for <unk> and our general surgery business.
Our efforts are focused on continuing to drive that in the marketplace through awareness.
But also continuing to drive it in the marketplace through continued innovation and focus from an R&D standpoint, and a debt that will not change for the foreseeable future. It's a great platform.
Very differentiated very beneficial to customers and the patients they serve and that's what we're here to do be a be a help to the customers and the patients they serve.
Okay. Thank you very much.
And I would now like to turn the call back over to Mr. Hartman for any closing remarks, Mr. Hartman.
Alright, Thank you Angela and I, just want to I want to end by thanking everybody for your time today and appreciate are you hearing more about the <unk> story, we look forward to speaking with you during our next earnings call. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect your line.
Okay.
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Joe.
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