Q3 2021 Conmed Corp Earnings Call

October 27, 2021

Good day, and thank you for standby and welcome to the Q3 fiscal year 'twenty, One comment earnings conference call.

At this time, all participants almost all of them out.

After the Speakers' presentation there'll be a question answer session.

To ask a question. During this session you will need to press star one or yourself phone.

If you require any further assistance. Please press star Zero, Oh, 19 hand, the conference over to combat for brief announcement. Please go ahead.

Good afternoon, everyone before the conference call begins 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 as those terms are defined under the federal securities 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 its current expectations.

Please refer to the risks and other uncertainties disclosed under forward looking information in today's press release as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially.

The company disclaims any obligation to update any forward looking statements that may be discussed during this call except as may be required by applicable law.

You will also hear management refer to certain non-GAAP adjusted measurements during this discussion.

These figures are not a 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 benchmarking against other medical technology companies adjusted net income and adjusted earnings per share measure the income of the company.

Excluding credits or 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 earning releases posted to the company's website.

With these required announcements completed I will turn the call over to Curt Hartman <unk> chair of the board President and Chief Executive Officer for opening remarks, Mr. Hartman.

Yeah.

Thank you Michelle and Julie good afternoon, and thank you for joining us for <unk> third quarter 2021 earnings call.

I am joined by Todd Garner Executive Vice President and Chief Financial Officer Today, We will walk you through our third quarter results and provide an update to our full year outlook.

We will then open the call to your questions.

Turning to our results total sales for the third quarter were $248 8 million, representing a year over year increase of four 6% as reported and an increase of four 3% in constant currency versus the same quarter in 2020.

From an earnings perspective during the third quarter, our GAAP net income totaled $14 9 million and this compares to net income of $6 9 million in the third quarter of 2020.

Excluding special items that affected comparability, our adjusted net income was $24 7 million a decline of four 9% versus the prior year third quarter. Our adjusted diluted net earnings per share came in at <unk> 80, a decline of nine 1% versus the prior year third quarter.

Looking at the quarter in more detail the international markets delivered solid results with seven 7% constant currency growth.

While the domestic business has felt the increased presence of adult covariance, which held their growth to one 6%.

Both the global Orthopedics business and the global General surgery business delivered positive growth in the quarter.

Overall, we delivered a decent quarter that was clearly slowed by an even more aggressive impact from the delta variances than we had communicated when we talked to you on our Q2 call.

Finally, as a follow up from our Q2 call. We made great progress in the quarter on our announced sales force expansion in the U S market, where 100% complete across our general surgery business and the orthopedics expansion is on track to be complete by year end, our international market expansion is a handful of positions to finalized and will be.

Completed soon.

In closing I am proud of the con mid team and the progress we made during the quarter that had a lot of variability.

Global leadership team and our organization around the world continue to perform exceptionally well in an unpredictable environment.

We remain excited by both the near and longer term opportunities and strength of the business. Our focus remains on meaningful innovation service and delivery and enhanced and growing digital strategy.

I'll turn the call over to Todd who will provide a more detailed analysis of our financial performance and walk you through our outlook Todd.

Thank you Kurt all sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release.

As usual we have included an investor deck on our website that summarizes the results of the quarter. Our updated guidance and also provide sales results compared to 2019 for those of you interested in that view.

For the third quarter of 2021, our total sales increased four 3% compared to the third quarter of 2020.

Our U S sales increased one 6% versus the prior year quarter.

International sales increased seven 7% for the quarter compared to the prior year.

Worldwide Orthopedics revenue grew two 9% in the third quarter in the U S. Orthopedic sales decreased two 5%.

And internationally orthopedics.

Increased six 3%.

Total worldwide General surgery revenue in the third quarter 2021 grew five 3% over the third quarter of 2020, which was a strong growth quarter for us growing nine 8% a year ago.

U S General surgery revenue increased three 3% over 2020 and internationally general surgery revenue increased 10.0%.

Now, let's move to the expense side of the income statement, we will discuss expenses and profitability, excluding special items, which include debt refinancing costs charges related to acquisitions and integrations restructurings manufacturing consolidations amortization amortization of intent tangible assets and amortization of.

Third financing fees and debt discount net of tax.

A reconciliation to GAAP numbers is included in our press release.

Adjusted gross margin for the third quarter was 57, 2% an increase of 40 basis points from the prior year quarter.

Research and development expense for the third quarter was four 4% of total sales 20 basis points higher than the prior year quarter.

Third quarter SG&A expenses on an adjusted basis were 39, 4% of sales, which was 310 basis points higher than Q3 of 2020.

As we talked about last quarter and as Curt discussed a few minutes ago based on the significant revenue opportunities ahead of US we have invested in adding sales resources to both general surgery and orthopedics.

Interest expense in Q3 was $4 $7 million on an adjusted basis.

The adjusted effective tax rate was 18, 4% in Q3. This was lower than we expected principally due to the excess tax benefit from stock plan.

This is difficult to predict but we don't expect the same benefit in future quarters. We continue to expect our adjusted effective tax rate to be around 25% in the coming quarters.

Third quarter GAAP net income totaled $14 9 million or <unk> 47 per diluted share compared to net income of $6 $9 million or 23 per diluted share a year ago.

Our adjusted diluted net earnings per share were <unk> 80, this quarter versus 88 in the prior year period.

Turning to the balance sheet, our cash balance at the end of the quarter was $31 $5 million.

Compared to $46 4 million as of June 32021.

Accounts receivable days as of September 30th were 60 days compared to the same number 60 days three months ago.

Inventory days at quarter end were 193 days compared to 167 days three months ago.

We're purposely building inventory of our faster moving items to mitigate the pressures on our supply chain and in anticipation of increasing revenue.

Long term debt at the end of the quarter was $703 million versus $708 million as of June 30th or.

Our leverage ratio at September 32021 was three nine times and we continue to believe we should be below three five times by the end of this year.

Cash flow provided from operations for the third quarter was $21 $4 million compared to $35 $1 million a year ago.

Capital expenditures in the third quarter were $5 $6 million compared to $3 $3 million in the prior year quarter.

Now, let's move to financial guidance.

The Delta variance negative impact on revenue increased sequentially each month of the third quarter and peaked in September.

While trends are certainly improving in October the improvement has been gradual so far.

Despite the slower than expected start to Q4, and assuming continued acceleration in procedure growth with no new setbacks in hospital staffing our supply we believe the lower end of our existing full year revenue guidance at 1.015 billion is still achievable.

That would require approximately $278 million in fourth quarter revenue, which represents constant currency growth of approximately 11% over Q4 of 2020 with about 100 basis points of currency headwind.

We expect adjusted cash EPS in Q4 to be in the range of $1 four to $1 nine which represents growth over Q4, 2020 between 24% and 30%.

For the full year that would put our adjusted cash EPS range at $3 18 to $3 23.

Just a narrowing of our prior guidance of 315 to $3 25.

With that we'd like to open the call to your questions and I'll hand, it back to Michele.

Yeah.

As a reminder to ask a question you will need to press Star then one on your telephone.

Sure Your question press the pound key.

We ask that you limit yourself to one question and a follow up.

Please standby, while we compile the Q&A roster.

Our first question comes from Travis Steed with Barclays. Your line is open.

Hi, Thanks for taking the question.

Just a clarification first it looks like for <unk>.

If you look at growth rates versus 2019.

Q1, two and three were all in that 6% range could you just clarify what the.

The guidance assumes for Q4 versus 2019.

Let me get there really quick here.

That would be.

So $2 78 over 2019 was $264 nine.

So I don't have the percent here, but thought to that.

Yeah.

Sorry, it's okay.

Follow up offline.

I can ask kind of a.

Bigger picture question here.

And thinking through kind.

The Q3 impacts COVID-19.

Versus all you ask you can just give us some more color on how thats shaping up in early October versus what you saw in late Q Q3.

Yes, I think as you look Travis that Q3, the Delta variant had the most impact on our business in the U S market and as Todd noted it grew as the quarter unfolded, that's not to say, we didn't experience impact from it outside the U S.

Canada had areas geographies Australia.

Asia Asia export Korea market, all felt impact from the Delta variant.

And as Todd said, we feel that that peaked as we got towards the middle to the end of September and certainly better off as we got into October, but I don't think anybody is completely out of the woods yet.

I think theres a lot of things factoring into surgery schedules, whether it's delta variant or staffing and all of those things are.

Are still out there to some level or another but sub siding as we get further into the quarter.

Alright, Thats helpful and I guess, where I was going with the Q4 guidance question just trying to assume what <unk> see what youre, assuming on some of the staffing issues and the delta impact than in Q4 versus what you saw in Q3 and and how to think about.

Some of these issues going to subside as we move into next year are you still going to be dealing with us.

In early 2022.

Yes, I mean the assumption.

And the guidance is that it does subside right, but like I said it is started more gradually than we would have liked we would've liked to see.

Sharper bounce back so it's getting better, but it's getting better gradually and so as we extrapolate that through the quarter, we do expect things to get better from here.

But probably more gradually and then we'll wait to talk about 'twenty two in January.

Great. Thanks, a lot.

Our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Oh, great. Thanks for taking my question.

Two from me first one.

The capital business put up to me what looked like a really good quarter.

So maybe you could just spend a minute on what's driving that any color on how the Buffalo filter in air filtration business did in the quarter and any other drivers there to think about.

Yes Ravi.

We had a respectable capital quarter.

I'd, just remind everybody that earlier in the year. We had noted that we had a new power tool platform, a new video platform and obviously, there's there's momentum behind <unk> and Buffalo filter from the capital side of those businesses, but just keep in mind the Buffalo filter capital is on the smaller dollar value.

Whereas <unk> is going to be higher value, along with power tools and video and.

Again it was.

Not the largest comp a year ago. So.

The market really was driven kind of the way our results fell as well in that outside the U S. We had 8% capital growth where in the U S. So it was kind of consistent with the overall growth in the 2% range.

Got it.

Second question from me for Todd.

You beat by <unk> <unk> in the quarter and reiterated our narrowed guidance, implying a bit softer fourth quarter than we had been thinking.

So maybe you could just walk through some of the puts and takes there and you're thinking of guidance were there any.

Delay of expenses, there any step up in expenses in fourth quarter that might have been pushed out from third quarter, just trying to get Ed.

What process there thanks a lot.

Sure Robert Great question.

It's it's actually fairly simple.

<unk> of the beat in Q3 was related to tax the tax rate being lower than we expected.

And so and we don't expect that to continue and then really if you look back to where we were a quarter ago as we looked at the back half of 2021.

We knew that Delta was going to slow down in Q3, but we did not expect it to be as impactful as it was and.

And we didn't expect it to still be impacting Q4 the way it is so.

Like I said, it's getting better we shall we do definitely expect Q4 to be better than Q3, but we don't expect Q4 to be as strong as we did back in July so things still trending well.

Still the long term prospects and growth opportunities are all still the same nothing has changed but this temporary storm has been a little stronger and a little longer duration.

Then we envisioned three months ago.

So thats really the only change.

Got it understood I appreciate the questions.

Our next question comes from young Li with UBS. Your line is open.

Okay, great. Thanks, so much for taking my questions.

I guess to start off.

You guys have been more conservative in your Covid impact assumptions.

Also had been more accurate as a result compared to some of the other companies.

What do you see as somewhat.

Some of the bigger with in the coming months outside of another major Covid I mean, there's a there's a whole list of other macro issues that investors have questions about.

And supply chain components inflation et cetera.

I guess, what are you paying more attention to and what do you think is potentially over at ball.

Well first of all I appreciate the comment Todd and I. Both appreciate the comment on our our positioning throughout Covid.

We are able to do that because our executive team is highly engaged in the local markets.

Have not taken their eye off of this and that's in part because of the habits, we have around how we're managing this and so.

I want to take your comment and turn it into a congratulatory note from my executive team because I do appreciate you recognizing that now to your question.

I think there's some topics that are very well known there is how long the surgery remain deferred because of the variance and that seems to be.

Slowing a little bit and it seems to be moving more into local geographies versus broad.

Locations, obviously hospital staffing shortages have.

Kind of moved up up the rankings in terms of their priority and then the ongoing.

Supply base disruption and logistics challenges are right up there as well I think we've said on calls in the past that we've been very proud of our global logistics and supply team. They dove into this in March of 2020 and have been meeting literally every single day on these topics to reach out not only to.

Our tier one but tier two tier three suppliers and as Todd noted we've been building inventory in anticipation of these things, perhaps getting more challenging instead of easier as the virus moved down and so we feel like we're at a pretty respectable position for con med relative to supply and.

<unk> not saying, there's not new challenges all the time because of there are but feel like our team is in really good.

Positioned to manage these things and minimize any disruption.

The biggest wildcard to me is hospital staffing healthcare workers.

Fatigue, which is very evident and what that May mean for surgery schedules and overall hospital operations.

We're all reading the same things hearing the same things and it remains to be seen.

If COVID-19 cases drop and people can return to their normal kind of health care venue in.

Alignment of work, maybe that pressure will lessen, but we all need to see that so I think that's how I would frame. The challenges we were looking at as we look out into the future here, whether it's this quarter or even stepping into 2022.

I don't know Todd if you have any other.

Comments or areas of focus.

Agree I think all of those that you mentioned are the are the top concerns and I would just point out on the supply side.

We've been we've had a very focused kind of all hands on deck approach to or our supply since very early in February of 2020.

At the time, we thought we'd have to maintain that intense focus for.

A couple of months or maybe three months and we've been at that same level of intensity.

Since that date, so the team is very close to our suppliers and.

And managing it as best we can so far so good and hopefully we continue to be able to manage that as we have so far.

Okay, Great. That's really helpful color I appreciate that.

I guess as a follow up.

Wondering if you can talk a little bit about the ortho performance.

The higher back native regions in the U S such as the northeast as.

As well as some of the higher vaccinated or U S countries.

Hurt the October comment.

So a rebound than what you would like to see.

Yes.

What insights can you get from some of the.

The regional.

<unk> differences about the pace of recovery.

The coming months as we expect vaccination rates to increase.

Yes, it's a really interesting question im going to start at a macro level I think if you look at our press release, we're very pleased with our orthopedic performance in the international markets. They put up a very good number.

While facing some headwinds in markets like Australia, Canada, the Asian markets.

And I think they'll continue to do so.

They've been a sound performer across orthopedics for a number of years.

And have a lot of a lot of history in those markets with very tenured leadership our challenge in orthopedics has been the U S market broadly speaking now we've had ups and downs, we haven't moved into that consistency mode and that is clearly where our efforts are focused.

To specific U S geographies in our orthopedics performance.

Don't see a correlation I would just be brutally honest with you and vaccination rates and our performance.

At dinner with an orthopedic surgeon, who commented that he has been operating at about 120% of normal.

Since May June of last year facility down the road is operating at about 60% are our orthopedics business is more track to how the health care systems are operating in this environment and there is no one answer to that question.

So again I don't see a correlation to orthopedic performance with geographies with higher vaccination rates, you would logically assume that but I think the the.

Health system behavior, and practices and protocols seem to weigh heavier at least through my eyes. On this then the vaccination rates at this point in time.

Alright, great. Thank you so much.

Our next question comes from Mike Matson with Needham <unk> Company. Your line is open.

Yes, thanks for taking my questions.

Just stepping back.

Youre going through this top early Salesforce expansion this year.

You're building a lot of inventory I understand there are supply chain issues, but.

I mean, just kind of reading between the lines. It seems like you're kind of setting yourselves up for a pretty big 2022, I mean am.

Am I missing something here.

Well I think we'll tag team this question Mike but.

Our focus is.

Ben on innovation and connecting.

Connecting with customers and we have both organic and inorganic.

Developments that we're very excited about.

Sure.

Everybody on your side of the table is very familiar with their <unk> and Buffalo filter appropriately so but.

But we've also been working on the organic side and delivering a lot of products and.

I think early in the year, we talked about the second half of this year, we would see more of those in the market and into the first quarter of next year and we remain very focused on our innovation pipeline and the delivery of that pipeline and.

All of those things with the market opportunities in front of us really motivated us to look at the sales force expansion earlier in the year than when we would normally do that and we felt like we could we could digest, yet, but clearly those things can be very disruptive and it'd be less than honest. If I didn't say there was some disruption from that for us but.

As I said on the last call when we announced that our team has been through this a pretty sophisticated in how they handle it but clearly anytime you do that mid year theres going to be disruption, but I think we absorbed in the majority.

And what we're doing is trying to reinvest in the business to keep it going forward in the direction that that Todd and myself and the entire management team I want it to go which is.

Grow faster than the markets that we serve and.

That's what we're trying to do.

Okay.

Yes.

Sorry, Mike I was just had where you're going to say something here. Yeah. I was just going to add a little bit.

And I think it's an insightful question.

The normal seasonality is that Q3 is usually our high point in inventory because in Q4.

Theres a lot of holidays, and we actually have some plant closures for routine maintenance and things at the end of the year and so.

It usually is the high point anyway. The other point I would say is that obviously, we had higher expectations for Q3. Then then what happened on the sales side and so we were building in it so its inventories higher because sales are lower right. Those those things go together.

But the crux of your question I think is accurate yes.

We've added sales resources as we've talked about because.

We are bullish about the opportunities in front of us.

We definitely expect to.

To have strong revenue.

Once this storm passes which we would all love it if it would.

If 2022 could be a clean kind of post pandemic.

Year that would be terrific.

Once once procedures are back to normal.

Okay. Thanks, and then I wanted to ask one on the gross margin.

In my model goes back to 2008.

I look back this is the highest gross quarterly gross margin you've had.

I know it was only up 40 basis points from the prior year.

A year ago quarter, but.

Maybe you could just talk a little bit about.

What's driving it is it primarily mix from.

The high growth products Buffalo filter in Arizona or other things.

Yes, it is and it's really good.

You consider everything that's going on in the world.

With the freight charges and an increased inflation and supply costs.

And yes, and we've got margin I said, it was going to be in the 57% range in the back half and we're a little above that for Q3, we still expect that same level in Q4.

Continue to watch those those increasing costs, but and we'll talk about 2022 in January.

But yes, it's thanks to the mix improvement in the business that has been able to kind of overcome those headwinds that are real and meaningful and still allow us to be where we are so.

If it werent for Covid, we would definitely be better.

And we look forward to days when.

When you do your historical look Mike and you see this as one of the low low marks I hope I look forward to those days.

Yes, I'm waiting for it to have a six in front of us.

Alright got it.

Our next question comes from Rick Wise with Stifel. Your line is open.

Good afternoon tea both.

Maybe starting off with.

The smoke evacuation, Aaron Steele and Buffalo filter.

Obviously, it's been growing.

In recent quarters.

20% or better.

Maybe just update us with another.

Similar growth rate.

Any recent dynamics, you want to point out and highlight in.

And I assume that or should we assume thats been relatively impervious.

Do some of the Covid short term pressures here.

Yes. Thanks, Great question. So the good news is that year to date.

Definitely above that mark of the 20% growth and we continue to expect to be above that mark going forward Q3 was a dip below so Q3 because of the procedure shortfall.

We did dip below that mark.

We especially we saw.

We saw the actual declines in our OEM sales on the smoked side. So that's a.

That's not a majority of our business, that's a minority of that business, but the OEM actually declined in Q3.

But but we remain bullish on on those growth drivers and think there'll be really important to us and like I said year to date, we continue to be above the number where we said.

And your fourth quarter guidance.

Cognizant.

Some sequential improvement is that a reasonable assumption.

Yes, I mean, the fourth quarter guidance assumes that those product lines should be above the 20% mark in aggregate.

Got you.

Turning back to the innovation pipeline, which is always fascinating to me.

Slides highlight.

68, new Skus and 19 118 in 2020.

I don't know, whether we should expect 'twenty one to be.

Even more than 2020.

<unk>.

Okay.

So I'd like to hear about that.

I'd be curious to hear whether.

Given the staff Bern, how can the challenges.

Hospital access and physician access are you, having a tougher time carrying that.

New product innovation message.

And getting adoption.

How is that aspect of the story going.

At the street level so to speak.

That's a great question.

The Covid variant whichever one it may have been at any given time and the restrictions of that places that health care facilities.

Access clearly slows down any organization's ability to demonstrate new technology new product.

And do trials and evaluations there is no denying that.

If you go back to last year.

We narrowed our innovation focus list.

And said, we're going to ensure that the things that we're focused on for the marketplace our high priority they solve.

Very apparent needs in advance.

In the hands of the surgeon the care of the patient that they are treating and that's really what we've been doing and we believe those give us a better opportunity to get in front of our customers, but if you use the third quarter. As an example, there is no denying that evaluations of new product technology slowed because of the Delta area.

And so it's up to our team to find unique or new ways to access those clinicians and I think the industry has learned that webinars and digital resource are very good vehicles to do that with.

There is no substitute for in person don't get me wrong, but you can get attention through digital webinars et cetera, and we've been working very hard to upgrade and enhance our game there and I feel very good about the progress, we're making there and thats all part of our innovation and digital strategy, which I referenced in my opening comments.

Yeah.

Can sneak in one last one.

<unk>.

To what extent do you think that.

Procedures are delayed and that they are really genuinely is a backlog of patients waiting to be treated as we contemplate okay. Maybe it's starting slowly here.

Sure.

In the fourth quarter slower than you would like but there is a large backlog as we go through the quarter and head into 'twenty. Two is that the way we should be thinking about here. How are you thinking about it. Thank you.

Yes, I think there is definitely a backlog of procedures.

I don't want that to come off as a blanket statement I want that to come off as different areas have a different amount of backlog. There are some areas that have been harder hit shutdown longer shutdown more broadly.

Other areas seem to move in and out of the deferrals and shutdowns a little bit quicker, but in general there is a deferral of patients out there waiting.

Either for surgical suite availability or waiting for staff availability.

Or dealing with other related issues brought on by Covid, whether it's.

Having to defer procedures because of other family related issue. So I do believe there is a backlog of patients out there when they present and how quickly that happens.

I do not I cannot give you that answer.

Okay. Thank you.

Okay.

Our next question comes from Matthew Misha <unk> with Keybanc. Your line is open.

Oxygen correct Jonathan.

Good good.

I think we all get the impact of Delta on procedures.

Any way you can give us a sense of.

The pace of capital placements.

Air sale and Buffalo filter.

<unk> procedures.

Okay.

So the pace of capital placement versus the procedures. So the.

The way I would.

The way I would answer that question Matt.

And I know you break it into two different scenarios in the case of air seal.

Outside the U S. It's more geared towards <unk>.

General laparoscopic surgery inside the U S. It's been more pointed towards robotic surgery.

And.

As we've said many times if they are investing in a robot invested in air seal is a pretty easy tag along and we think that still resonates today. So.

If procedures are lagging or slowing down but.

They are well down the path of investing in a robot theres a high likelihood that the <unk> is going to come along with it.

And we continue to do things to work on that relationship that partnership if you will.

For the benefit of both organizations.

And so I think there is.

A good momentum behind the <unk> platform, both in the U S and outside the U S.

Smoke.

I would just remind everybody. It is still very much an early stage you have to develop the market.

The industry has not been using smoke evacuation and in broad brush strokes for very long and Theyre still adoption there is still.

Surgical resistance because of the.

Extra equipment, that's in the room and the impact on the surgeon so.

As procedures kind of ebb and flow, we're still working every day with customers to develop them into smoke evacuation filtration users and it's a developmental opportunities. So I cant tie that one quite as much to procedures as I can air shield, because theres more of a developmental aspect to the marketplace.

On surgical smoke and I think Todd.

Todd actually had some statistics, we were looking at relative to <unk>.

States that have legislation those that don't and I'll defer to him to answer that question because I don't have that right in front of me, but it was it was interesting data.

Sure. Yes, we did just get the update on looking at growth by state trying to understand the impact of legislation and again from the start.

<unk> known that.

<unk> is we're going to drive this growth rate and legislation was going to follow the demand and Thats certainly what has what is happening.

But it is true that in those states those handful of states that have.

Enacted some sort of legislation.

Even in even when it's not yet.

Its effective date.

Do see a higher growth than average.

In those states and so legislation is beneficial but again not.

Not the driver of the opportunity.

This was the first quarter, we've seen that where those states had put something in place where they had moved ahead of the overall growth rate.

Okay. Thank you very much.

Our next question comes from Matthew O'brien with Piper Sandler Your line is open.

Afternoon, Thanks for taking my questions for starters and Theyre, both on Salesforce, but the first one is the slowdown that we saw in Q3 from a revenue perspective, because the delta and some of the other softness.

Ladies and staffing shortages et cetera did you slowdown any investments as a result of that or did you continue to invest accordingly to the plan that you had talked about coming out of Q2, and what im really trying to get to is if youre, making those investments.

Thinking I am guessing that there's going to be a fairly quick snapback in terms of.

The business.

Over the next several quarters or next couple of quarters.

No Matt in my opening comments I said, we 100% completed the general surgery expansion in the quarter. We had made great progress on the orthopedic side and we'll be we'll be done with that by the end of the year and that internationally, we had less than a handful to finish up so it would be done with that very quickly. So we.

Continued as announced with our sales force expansion.

I think I agree with what you said relative to being prepared for the marketplace, but I would also caution that statement by saying we didn't do it to have a great fourth quarter a great first quarter. This was this is us taking a long term view of the business and saying where our portfolio is where our market share is.

These are the right investments for the long term to make for the company and for the marketplace candidly, we have great technology, we want to get it in front of more customers.

Got it and then the follow up question and thanks for that Kurt.

Can you give us a sense for the impact of the sales force disruption in Q3, it seems like it might linger a little bit into Q portion. It would be behind you coming out of Q4, and then more importantly, what do these investments in the sales force and you've talked about it before what does it do to the long term growth trajectory of the company does it bump it up by 100 200.

300 basis points.

Yes, great questions.

Attempt to answer the first one is probably not going to touch the second one.

Save over those things for overall guidance, but.

Sure.

I don't know if I can quantify very accurately the impact of our sales force expansion on a given quarter sales results.

I think we've all been around long enough to know that there is some impact.

But to tell you it was 50 basis points or 300 basis points.

I'd be totally guessing.

I just know that when you.

Go into territories and introduce customers to new sales professionals. When you take time out of the field for training when you.

Have existing sales rep shifting their priorities. So those things are just disruptive by nature.

And that's why you got to have a long term view when you do these things now I think Todd and I would both say our experience is.

In general these things start to have a payback.

No.

Six month, Mark nine month, Mark and therefore, they should be additive to the overall outcomes of the company.

Because we're just going to be present in more trials more evaluations and more opportunities will be presented because we're there.

That's the goal.

So I'll leave it at that.

Okay, and just to be a little bit more clear the disruptions, though you think that will largely be behind you by the end of this year could could spill into next year.

I think it will I think the majority of it will be behind us.

Majority of it should be behind us.

Okay. Thank you.

Thank you I'm showing no further questions at this time I would 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 and appreciate you spending a little bit of time to look over our third quarter call with US we look forward to speaking with you on our next earnings call. Thank you.

This concludes the program and you may now disconnect everyone have a great day.

[music].

Yes.

[music].

Good day, and thank you for standby and welcome to the Q3 fiscal year 'twenty One comment earnings conference call. At this time, all participants are in listen only mode.

After the Speakers' presentation there'll be a question answer session.

Ask a question during this session you will need to press star one or yourself phone.

You require any further assistance please press star zero.

I'll now like to hand, the conference over to combat for brief announcement. Please go ahead.

Forward looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws.

The company disclaims any obligation to update any forward looking statements that may be discussed during this call except as may be required by applicable law.

You will also hear management refer to certain non-GAAP adjusted measurements. During this discussion while these figures are not a 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 benchmarking against other medical technology.

<unk>.

Adjusted net income and adjusted earnings per share measure the income of the company excluding credits or 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 earning releases posted to the company's website.

With these required announcements completed I will turn the call over to Curt Hartman <unk> chair of the board President and Chief Executive Officer for opening remarks, Mr. Hartman.

Thank you Michelle and Julie good afternoon, and thank you for joining us for <unk> third quarter 2021 earnings call.

I'm joined by Todd Garner Executive Vice President and Chief Financial Officer Today, We will walk you through our third quarter results and provide an update to our full year outlook.

We will then open the call to your questions.

From an earnings perspective during the third quarter, our GAAP net income totaled $14 9 million and this compares to net income of $6 9 million in the third quarter of 2020.

Excluding special items that affected comparability, our adjusted net income was $24 7 million a decline of four 9% versus the prior year third quarter. Our adjusted diluted net earnings per share came in at 80, a decline of nine 1% versus the prior year third quarter.

Looking at the quarter in more detail the international markets delivered solid results with seven 7% constant currency growth.

While the domestic business has felt the increased presence of the delta variant, which held their growth to one 6%.

Both the global Orthopedics business and the global General surgery business delivered positive growth in the quarter.

Overall, we delivered a decent quarter that was clearly slowed by an even more aggressive impact from the Delta variant then we had communicated when we talked to you on our Q2 call five.

Completed soon.

In closing I am proud of the <unk> team and the progress we made during the quarter that had a lot of variability.

<unk> Global leadership team and our organization around the world continue to perform exceptionally well in an unpredictable environment.

I'll now turn the call over to Todd who will provide a more detailed analysis of our financial performance and walk you through our outlook Todd.

Thank you Kurt.

All sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release.

For the third quarter of 2021, our total sales increased four 3% compared to the third quarter of 2020.

Our U S sales increased one 6% versus the prior year quarter, our international sales increased seven 7% for the quarter compared to the prior year.

Worldwide Orthopedics revenue grew two 9% in the third quarter in the U S. Orthopedic sales decreased two 5% and internationally orthopedics.

Increased six 3%.

Total worldwide General surgery revenue in the third quarter 2021 grew five 3% over the third quarter of 2020, which was a strong growth quarter for us growing nine 8% a year ago.

U S General surgery revenue increased three 3% over 2020 and internationally general surgery revenue increased 10.0%.

Third financing fees and debt discount net of tax.

A reconciliation to GAAP numbers is included in our press release.

Adjusted gross margin for the third quarter was 57, 2% an increase of 40 basis points from the prior year quarter.

Research and development expense for the third quarter was four 4% of total sales 20 basis points higher than the prior year quarter.

Third quarter SG&A expenses on an adjusted basis were 39, 4% of sales, which was 310 basis points higher than Q3 of 2020 as.

Interest expense in Q3 was $4 $7 million on an adjusted basis.

The adjusted effective tax rate was 18, 4% in Q3.

This was lower than we expected principally due to the excess tax benefit from stock plan. This.

This is difficult to predict but we don't expect the same benefit in future quarters. We continue to expect our adjusted effective tax rate to be around 25% in the coming quarters.

Third quarter GAAP net income totaled $14 9 million or <unk> 47 per diluted share compared to net income of $6 9 million or 23 per diluted share a year ago.

Excluding the impact of special items discussed earlier, we reported an adjusted net income of $24 $7 million this quarter compared to adjusted net income of $26.0 million in the third quarter of 2020.

Our adjusted diluted net earnings per share were <unk> 80, this quarter versus 88 in the prior year period.

Turning to the balance sheet, our cash balance at the end of the quarter was $31 5 million compared to $46 $4 million as of June 32021.

Accounts receivable days as of September 30th were 60 days compared to the same number 60 days three months ago.

Inventory days at quarter end were 193 days compared to 167 days three months ago.

We are purposely building inventory of our faster moving items to mitigate the pressures on our supply chain and in anticipation of increasing revenue.

Long term debt at the end of the quarter was $703 million versus $708 million as of June 30th.

Our leverage ratio at September 32021 was three nine times and we continue to believe we should be below three five times by the end of this year.

Cash flow provided from operations for the third quarter was $21 $4 million compared to $35 1 million a year ago.

Capital expenditures in the third quarter were $5 $6 million compared to $3 $3 million in the prior year quarter.

Now, let's move to financial guidance.

The Delta variance negative impact on revenue increased sequentially each month of the third quarter and peaked in September.

While trends are certainly improving in October the improvement has been gradual so far.

It would require approximately $278 million in fourth quarter revenue, which represents constant currency growth of approximately 11% over Q4 of 2020 with about 100 basis points of currency headwind.

We expect adjusted cash EPS in Q4 to be in the range of $1 four to $1 nine which represents growth over Q4, 2020 between 24% and 30%.

For the full year that would put our adjusted cash EPS range of $3 18 to $3 23.

Just a narrowing of our prior guidance of 315 to $3 25.

With that we'd like to open the call to your questions and I'll hand, it back to Michele.

As a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question press the pound key.

I ask that you limit yourself to one question and a follow up please.

Please stand by while we compile the Q&A roster.

Our first question comes from Travis Steed with Barclays. Your line is open.

Alright, thanks for taking the question.

Just a clarification first it looks like for <unk>.

If you look at growth rates versus 2019.

Q1, two and three were all in that 6% range can you just clarify what Doug.

The guidance assumes for Q4 versus 2019.

Let me get there really quick here.

That would be.

So $2 78 over 2019 was $2 $64 nine.

So I don't have the percent here, but thought to that.

Sorry, that's okay.

A follow up offline.

I can ask kind of a bigger picture question here and thinking through.

The Q3 impacts Covid U S versus O. You ask you can just give us some more color on how thats shaping up in early October versus what you saw in late Q Q3.

Canada had areas geographies, Australia Asia Asia export Korea market, all felt impact from the Delta area.

I think theres a lot of things factoring into surgery schedules, whether it's delta variant or staffing and all of those things are.

Are still out there to some level or another but sub siding as we get further into the quarter.

Alright, Thats helpful and I guess, where I was going with the Q4 guidance question I'm, just trying to assume what see what youre, assuming on some of the staffing issues and the delta impact than in Q4 versus what you saw in Q3 and and how to think about.

Some of these issues going to subside as we move into next year or do you think we're still going to be dealing with us.

In early 2022.

Yes, I mean the assumption.

And the guidance is that it does subside right, but like I said it is started more gradually than we would have liked we would've liked to see.

Sharper bounce back so it's getting better, but it's getting better gradually and so as we extrapolate that through the quarter, we do expect things to get better from here.

But probably more gradually and then we'll wait to talk about 'twenty two in January.

Great. Thanks, a lot.

Our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Oh, great. Thanks for taking the question.

Two from me first one.

The capital business put up to me what looked like a really good quarter.

So maybe you could just spend a minute on what's driving that any color on how the Buffalo filter in air filtration business did in the quarter and any other drivers there to think about.

Yes Ravi.

We had a respectable capital quarter.

Just to remind everybody that earlier in the year. We had noted that we had a new power tool platform a new video platform.

Obviously, there's there's momentum behind <unk> and Buffalo filter from the capital side of those businesses, but just keep in mind. The Buffalo filter capital is on the smaller dollar value, whereas <unk> is going to be higher value along with power tools and video and again it was.

Not the largest comp a year ago. So.

The market really was driven kind of the way our results fell as well in that outside the U S. We had 8% capital growth where in the U S. It was kind of consistent with the overall growth in the 2% range.

Got it.

Second question from me for Todd.

You beat by <unk> <unk> in the quarter and reiterated our narrowed guidance, implying a bit softer fourth quarter than we had been thinking.

So maybe you could just walk through some of the puts and takes there and you're thinking of guidance were there any.

Delay of expenses, there any step up in expenses in fourth quarter that might have been pushed out from third quarter, just trying to get at.

What process there thanks a lot.

Sure Robert Great question.

It's it's actually fairly simple.

<unk> of the beat in Q3 was related to tax the tax rate being lower than we expected.

And so and we don't expect that to continue and then really if you look back to where we were a quarter ago as we looked at the back half of 2021.

We knew that Delta was going to slow down in Q3, but we did not expect it to be as impactful as it was.

And we didn't expect it to still be impacting Q4 the way it is so.

Like I said is getting better we shall we do definitely expect Q4 to be better than Q3, but we don't expect Q4 to be as strong as we did back in July so things still trending well.

Still the long term prospects in our growth opportunities are all still the same nothing has changed but this temporary storm has been a little stronger.

A little longer duration than we envisioned three months ago.

So thats really the only change.

Got it understood I appreciate the questions.

Okay.

Our next question comes from young Li with UBS. Your line is open.

Okay, great. Thanks, so much for taking our questions.

I guess to start off.

You guys had been more conservative in your Covid impact assumption and.

How has that been more accurate as a result compared to some of the other companies.

What do you see as some of the.

Some of the bigger lift in the coming months outside of another major Covid surge and then there's a there's a whole list of other macro issues that investors have questions about.

And supply chain components inflation et cetera.

I guess, what are you paying more attention to and what do you think is potentially over at ball.

Well first of all I appreciate the comment Todd and I. Both appreciate the comment on our our positioning throughout Covid.

We are able to do that because our executive team is highly engaged in the local markets.

Have not taken their eye off of this and that's in part because of the habits. We have around how we're managing this and so I want to take your comment and turn it into a congratulatory note from my executive team because I do appreciate you recognizing that not to your question.

I think there's some topics that are very well known there is how long does surgery remain deferred because of the variance and that seems to be.

Slowing a little bit and it seems to be moving more into local geographies versus broad.

Locations, obviously hospital staffing shortages of.

Kind of moved up up the rankings in terms of their priority and then the ongoing.

Supply base disruption and logistics challenges are right up there as well I think we've said on calls in the past that we've been very proud of our global logistics and supply team. They they dove into this in March of 2020 and have been meeting literally every single day on these topics to reach out not only to our.

Tier one, but tier two tier three suppliers.

And as Todd noted, we've been building inventory in anticipation of these things, perhaps getting more challenging instead of easier as the virus moved on and so we feel like we're at a pretty respectable position for con med relative to supply and logistics not saying, there's not new challenges all the time because of that.

There are but feel like our team is in really good.

Positioned to manage these things and minimize any disruption.

The biggest wildcard to me is hospital staffing healthcare workers.

Fatigue, which is very evident and what that May mean for surgery schedules and overall hospital operations.

We're all reading the same things hearing the same things and it remains to be seen.

If COVID-19 cases drop and people can return to their normal kind of health care venue in.

I don't know Todd if you have any other.

Comments or areas of focus.

Agree I think all of those that you mentioned are the are the top concerns and I would just point out on the supply side.

We've been we've had a very focused kind of all hands on deck approach.

Our supply since very early in February of 2020.

At the time, we thought we'd have to maintain that intense focus for.

A couple of months or maybe three months and we've been at that same level of intensity.

Since that date, so the team is very close to our suppliers and.

And managing it as best we can so far so good and hopefully we continue to be able to manage that as we have so far.

Yeah.

Okay, Great. That's really helpful color I appreciate that.

I guess as a follow up I was wondering if you can talk a little bit about the ortho performance.

The higher back native regions in the U S such as the northeast as.

As well as some of the higher vaccinated all U S countries.

<unk> heard the October comment.

So a rebound than what you would like to see.

Yes.

What insights can you get from some of the regional.

Performance differences about the pace of recovery.

The coming months as we expect vaccination rates to increase.

Yes, it's a really interesting question.

At a macro level I think if you look at our press release, we're very pleased with our orthopedics performance in the international markets. They put up a very good number.

While facing some headwinds in markets like Australia, Canada, the Asian markets.

And I think they'll continue to do so.

They've been a sound performer across orthopedics for a number of years.

And have a lot of a lot of history in those markets with very tenured leadership are challenged in orthopedics has been the U S market broadly speaking now we've had ups and downs, we haven't moved into that consistency mode and that is clearly where our efforts are focused.

To specific U S geographies in our orthopedics performance.

Don't see a correlation I would just be brutally honest with you and vaccination rates and our performance.

At dinner with an orthopedic surgeon, who commented that he has been operating at about 120% of normal.

So again I don't see a correlation to orthopedic performance with geographies with higher vaccination rates, you would logically assume that but I think the the.

Health system behavior, and practices and protocols seem to wait heavier at least through my eyes. On this then the vaccination rates at this point in time.

Alright, great. Thank you so much.

Much.

Our next question comes from Mike Matson with Needham <unk> Company. Your line is open.

Yes, thanks for taking my questions.

Just stepping back.

Youre going through this top early Salesforce expansion this year.

You're building a lot of inventory I understand there's supply chain issues, but.

I mean, just kind of reading between the lines. It seems like you're kind of setting yourself up for a pretty big 2022, I mean am.

Am I missing something here.

Well I think we'll tag team this question Mike but.

Our focus is.

Ben on innovation and <unk>.

Connecting with customers and we have both organic and inorganic.

Developments that we're very excited about it.

Everybody on your side of the table is very familiar with their <unk> and Buffalo filter appropriately so.

But we've also been working on the organic side and delivering a lot of products and.

I think early in the year, we talked about the second half of this year, we would see more of those in the market and into the first quarter of next year.

We remain very focused on our innovation pipeline and the delivery of that pipeline.

<unk>.

All those things with the market opportunities in front of us really motivated us to look at the sales force expansion earlier in the year than we would normally do that and we felt like we could we could digest separate COO.

Clearly those things can be very disruptive and it'd be less than honest if I didn't say there was some disruption from that for us, but as I said on the last call. When we announced that our team has been through this a pretty sophisticated in how they handle it.

But clearly anytime you do that mid year theres going to be disruption, but I think we absorbed in the majority.

And all we're doing is trying to reinvest in the business to keep it going forward in the direction that that.

Todd myself and the entire management team I want it to go which is.

Grow faster than the markets that we serve and that's.

That's what we're trying to do.

Okay understood.

Yes.

Sorry, Hi, Mike I was just I know you're going to say something here, Yeah, I was just going to add a little bit.

And I think it's an insightful question.

The normal seasonality is that Q3 is usually our high point in inventory because in Q4.

There's a lot of holidays, and we actually have some plant closures for routine maintenance and things at the end of the year and so.

It usually is the high point anyway. The other point I would say is that obviously, we had higher expectations for Q3. Then then what happened on the sales side and so we were building in it. So its inventory is higher because sales are lower right. Those those things go together.

But the crux of your question I think is accurate yes.

We've added sales resources as we've talked about because.

We are bullish about the opportunities in front of us.

We definitely expect.

To have strong revenue once this storm passes which we would all love it if it would.

If 2022 could be a clean kind of post pandemic year that would be terrific.

He would sign up for that and we're bullish about where revenue will be.

Once once procedures are back to normal.

Okay. Thanks, and then I wanted to ask one on the gross margin.

My model goes back to 2008 I.

I look back this is the highest quarterly gross margin you've had.

I mean, I know it was only up 40 basis points from the year ago quarter, but.

Maybe you could just talk a little bit about what's driving it is it primarily mix from.

The high growth products, Buffalo filter and <unk>.

Or other things.

Yes, it is and it's really good.

You consider everything thats going on in the World.

With the freight charges and an increased inflation and supply costs.

And yes, and we've got margin I said, it was going to be in the 57% range in the back half and we're a little above that for Q3, we still expect that same level in Q4.

Continue to watch those those increasing costs, but we will talk about 2022 in January.

But yes, it's thanks to the mix improvement in the business that has been able to kind of overcome those headwinds that are real and meaningful and still allow us to be where we are so.

If it werent for Covid, we would definitely be better.

And we look forward to days when when.

When you do your historical look Mike and you see this as one of the low low marks I hope I look forward to those days.

Yes, I'm waiting for it to have a six in front of us.

Got it.

Our next question comes from Rick Wise with Stifel. Your line is open.

Good afternoon tea both.

Maybe starting off with.

The smoke evacuation business <unk> and Buffalo filter.

Obviously, it's been growing.

In recent quarters.

20% or better.

Maybe just update US was this another.

Similar growth rate.

Recent dynamics, you want to point out and highlight in.

And I assume that that's it.

Or should we assume thats been relatively impervious.

Do some of the Covid short term pressures here.

Yes. Thanks, Great question. So the good news is that year to date.

We are definitely above that mark of the 20% growth and we continue to expect to be above that mark going forward Q3 was a dip below so Q3 because of the procedure shortfall.

We did dip below that mark and we especially we saw.

<unk>.

We saw the actual declines in our OEM sales on the smoked side so thats.

That's not a majority of our business, that's a minority of that business, but the OEM actually declined in Q3.

But but we remain bullish on on those growth drivers and think there'll be really important to us and like I said year to date, we continue to be above the number where we said.

And your fourth quarter guidance.

Cognizant.

Sequential improvement is that a reasonable assumption.

Yes, I mean, the fourth quarter guidance assumes that those product lines should be above the 20% mark in aggregate.

Gotcha.

<unk>.

Turning back to the innovation pipeline, which is always fascinating to me your slides highlight the 60.

68, new Skus with 19 118 in 2020.

I don't know, whether we should expect 'twenty one to be.

Even more than 2020 correct.

Okay.

So I'd like to hear about that but.

I'd be curious to hear whether.

Given the staff Brennan hawken the challenges.

Hospital access and physician access.

Are you, having a tougher time.

Carrying that.

New product innovation message.

And getting adoption or.

That aspect of the story going.

At the street level so to speak.

That's a great question.

The Covid variant whichever one it may have been at any given time and the restrictions of that places that health care facilities and.

Access clearly slows down any organization's ability to demonstrate new technology new product.

And do trials and evaluations there is no denying that.

If you go back to last year.

We narrowed our innovation focus list.

We're going to ensure that the things that we're focused on for the marketplace our high priority they solve.

Very apparent needs.

Advance.

In the hands of the surgeon the care of the patients that they're treating and that's that's really what we've been doing and we believe those give us a better opportunity to get in front of our customers, but if you use the third quarter. As an example, there is no denying that evaluations of new product technology slowed because of the Delta area.

And so it's up to our team to find unique or new ways to access those clinicians and I think the industry has learned that webinars and digital resource are very good vehicles to do that with.

Yes.

Can sneak in one last one more briefly.

To what extent do you think that.

Procedures are delayed and that they are really genuinely is a backlog of patients waiting to be treated as we contemplate okay. Maybe it's starting slowly here.

Sure.

Yes, I think there is definitely a backlog of procedures.

Other areas seem to move in and out of their deferrals and shutdowns a little bit quicker, but in general there is a deferral of patients out there waiting.

Either for surgical suite availability or waiting for staff availability.

Or dealing with other related issues brought on by Covid, whether it's.

Having to defer procedures because of other family related issue. So I do believe there is a backlog of patients out there when they present and how quickly that happens.

I do not I cannot give you that answer.

Okay. Thank you.

Okay.

Our next question comes from Matthew Misha <unk> with Keybanc. Your line is open.

Oxygen correct okay.

Good good.

I think we all get the impact of Delta on procedures, but is there any way you can give us a sense of.

The pace of capital placements.

<unk> and Buffalo filter.

Versus procedures.

Yes.

Okay.

So the pace of capital placement versus the procedures. So the.

The way I would.

The way I would answer that question Matt.

<unk>.

And I'm going to break it into two different scenarios in the case of air seal.

Outside the U S. It's more geared towards <unk>.

General laparoscopic surgery inside the U S. It's been more pointed towards robotic surgery.

And.

As we've said many times if they are investing in a robot invested in <unk> is a pretty easy tag along and we think that still resonates today. So.

If procedures are lagging or slowing down but.

They are well down the path of investing in a robot theres a high likelihood that the air shield is going to come along with it.

And we continue to do things to work on that relationship that partnership if you will.

For the benefit of both organizations.

And so I think there is.

A good momentum behind the air <unk> platform, both in the U S and outside the U S.

Smoke.

I would just remind everybody. It is still very much an early stage you have to develop the market.

The industry has not been using smoke evacuation and in broad brush strokes for very long and Theyre still adoption there is still.

Surgical resistance because of the.

Extra equipment, that's in the room and the impact on the surgeon so.

On surgical smoke and I think Todd.

Todd actually had some statistics, we were looking at relative to <unk>.

States that have legislation those that don't and I'll defer to him to answer that question because I don't have that right in front of me, but it was it was interesting data.

Sure. Yes, we did just get the update on looking at growth by state trying to understand the impact of legislation and again from the start.

<unk> known that.

Nurses, we're going to drive this growth rate and legislation was going to follow the demand and Thats certainly what has what is happening.

But it is true that in those states those handful of states that have.

Enacted some sort of legislation.

Even in even when it's not yet.

Its effective date.

Do see a higher growth than average.

In those states and so legislation is beneficial but again not.

Not the driver of the opportunity.

This was the first quarter, we've seen that where those states had put something in place where they had moved ahead of the overall growth rate.

Thank you very much.

Our next question comes from Matthew O'brien with Piper Sandler Your line is open.

Afternoon, Thanks for taking my questions for starters and they're both on sales force, but the first one is the slowdown that we saw in Q3 from a revenue perspective because of the delta in some of the other softness.

Ladies and staffing shortages et cetera did you slowdown any investments as a result of that or did you continue to invest accordingly to the plan that you had talked about coming out of Q2, and what I'm really trying to get to is if youre, making those investments.

Thinking I am guessing that there is going to be a fairly quick snapback in terms of.

The business.

Over the next several quarters or next couple of quarters.

Note that in my opening comments I said, we 100% completed the general surgery expansion in the quarter. We had made great progress on the orthopedic side and we'll be we'll be done with that by the end of the year and that internationally, we had less than a handful to finish up so it would be done with that very quickly. So we.

Continued as announced with our sales force expansion.

I think I agree with what you said relative to being prepared for the marketplace, but I would also caution that statement by saying we didn't do it to have a great fourth quarter a great first quarter. This was this was us taking a long term view of the business and saying where our portfolio is where our market share is.

These are the right investments for the long term to make for the company and for the marketplace candidly, we have great technology, we want to get it in front of more customers.

Got it and then a follow up question and thanks for that Kurt.

Can you give us a sense for the impact of the sales force disruption in Q3, it seems like Youre, a little bit into Q4 should be behind us coming out of Q4, and then more importantly, what do these investments in the sales force and you've talked about it before what does it do to the long term growth trajectory of the company does it bump it up by 100 200.

300 basis points.

Yes, great Great question.

Attempt to answer the first one is probably not going to touch the second one.

Save over those things for overall guidance, but.

I don't know if I can quantify very accurately the impact of our sales force expansion on a given quarter sales results.

I think we've all been around long enough to know that there is some impact.

But to tell you it was 50 basis points or 300 basis points.

I'd be totally guessing.

I just know that when you.

Go into territories and introduce customers to new sales professionals. When you take time out of the field for training when you.

Have existing sales rep shifting their priorities. So those things are just disruptive by nature.

And that's why you got to have a long term view when you do these things now I think Todd and I would both say our experiences.

In general these things start to have a payback.

No.

Six month, Mark nine month, Mark and therefore, they should be additive to the overall outcomes of the company.

Because we're just going to be present in more trials more evaluations and more opportunities will be presented because we're there and thats the goal.

So I'll leave it at that.

Okay, and just to be a little bit more clear the disruptions, though you think that'll largely be behind you by the end of this year it could could spill into next year a bit.

I think the.

Majority of it will be behind us.

Majority of it should be behind us.

Okay. Thank you.

Thank you I'm showing no further questions at this time I would 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 and appreciate your spending.

Little bit of time to look over our third quarter call with US we look forward to speaking with you on our next earnings call. Thank you.

This concludes the program and you may now disconnect everyone have a great day.

Q3 2021 Conmed Corp Earnings Call

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